Plan For Legacy Assets

I have a picture from the early 1950s that, for many reasons, I treasure. My grandfather was an agency manager with Metropolitan Life and was conducting a training session. The picture is of him standing before an easel (no PowerPoints back then!) pointing at these handwritten points:

  • Live too long
  • Get sick or hurt
  • Die too soon

Fundamentally, nothing has changed since then. This is still the core of who we are and what we do in the life insurance industry. However, with all respect to my grandfather, I would like to add another “pillar” to this foundation: Leave a legacy. Maybe it’s a Baby-Boomer thing, but we keep hearing and reading about how people want to feel they’ve made a difference; that their lives have had significance and that they want to leave “something” for future generations. One solution for your clients who want to leave a legacy is to consider a single premium whole life (SPWL) product or concept. We’ve found that the typical profile of a client who starts a SPWL has these characteristics:

  • They’re over age 50;
  • They value access to money over return;
  • Guarantees are important;
  • They want to leave money to their kids, grandkids or a charity; and,
  • They are in decent health.

People over age 50 are starting to think about retirement and are planning their estates. They also may be more financially secure than younger people so they are in a position to consider multigenerational planning. For this part of their asset portfolio, they aren’t “chasing interest rates” and want to know that they have liquidity—use and control of their money. Mark Twain has a great expression about being more concerned about the return “of” his money than the return “on” it. For these clients, SPWL addresses this concern.

Your clients face a daily barrage of financial “talking heads” and “noise.” For many of them, guarantees are important. We’ve heard repeatedly from clients who start a SPWL that with all the other “stuff” in their financial lives, they feel peace of mind knowing that a part of their portfolio is “certain.” This is where the guarantees play a big part, and we are finding that they want to leave money to their children, their grandchildren or a charity. As an aside, I’m a grandfather. I love my kids; I’d gladly give them a kidney. However, I really love my grandkids; I want to buy them ponies and pay for college and weddings. So the message is to look for prospects who are grandparents! And because these plans are underwritten, prospects also should be in fairly decent health.

The key reasons we hear people consider SPWLs are because they want to leave a benefit; they want strong guarantees; they value liquidity in the event of an emergency or opportunity; and (with all respect to Mark Twain) they want a fair and competitive return. Robert Kiyosaki (the author of Rich Dad, Poor Dad) wrote: “It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” This, to me, is the essence of legacy asset planning.

Typically the money being considered for a SPWL is in certificate of deposit accounts, savings accounts, or is an inheritance. As an aside, planning for inheritances can become an integral part of your practice. With the aging of the population we are about to experience over the next few decades, we’ll have the largest transfer of wealth in our history. First, Baby Boomers will inherit over $8.4 trillion* and then, according to Forbes magazine, “Within the next 30 to 40 years American Baby Boomers will transfer more than $30 trillion to their heirs”.**

When you hear these statistics, your first reaction might be to look at an annuity as the solution. However, as Len Renier (the founder of Wealth & Wisdom Institute) writes: “Bring your annuity to life.” So why not consider SPWL as an alternative to an annuity? I’ve read that less than five percent of people who own annuities actually annuitize them…and that less than five percent of people who die owning CDs had ever touched these CDs.* People liked knowing the money was “there” and safe though. Annuities are strong accumulation products and serve an appropriate purpose for many of your clients. However, life insurance offers intrinsic benefits, and when structured as a SPWL it can really magnify the legacy value for your clients.

Some of the key benefits of a SPWL are:

  • Guaranteed death benefit;
  • Guaranteed cash values;
  • Guaranteed cash value growth; and,
  • Chronic illness rider (where approved).

When working with clients, it’s prudent to look at all of the options available to them. Traditionally, these include real estate, stocks/bonds/investments, bank vehicles and qualified plans like IRAs and 401(k)s. Each of these should be reviewed not only to see if they are appropriate, but if they’re effective at meeting your client’s objectives. You also have to review if there are potential losses, fees, income and capital gains taxes, ongoing administrative costs and estate tax issues. In the end, can they provide the kind of leverage that is guaranteed with a SPWL?

Showing prospective clients SPWL can be a value-based planning solution that can take you out of the “commodity” sales arena. Integrating a SPWL as part of the legacy-planning process could help your clients create or “turbo-charge” their wealth transfer on a tax-efficient and less expensive way than other traditional asset approaches. Life insurance can help you use the least amount of money to guarantee the greatest amount of wealth for that money and potentially transfer this benefit income-tax-free.

Let’s look at an example. For a woman age 60 who has $100,000, she can start “with the stroke of a pen” (as Ben Feldman used to say) a guaranteed $232,000 face amount SPWL policy. She will have liquidity, with guaranteed cash value of $96,000 in year one; $99,000 in year two; $102,000 in year three and $121,000 in year 10.** While she will have the financial peace of mind knowing that she has liquidity, use and control of her money, she also will be able to provide a significant legacy to her kids, grandkids or a charity as well as have “living benefits” as a result of the cash value.

Now let’s say her situation changes. She can use the cash value to help supplement her retirement, use the money for medical expenses, or to “bridge” the need for income if she wants to defer taking social security. As an aside, so many discussions about financial and insurance planning revolve around numbers and how this or that financial product makes sense. While it may make “financial sense,” the real service you can provide your clients is helping them see that your guidance can give them “peace of mind sense.”

One consideration your clients may have about starting a SPWL is that it will probably be a “MEC” (Modified Endowment Contract per IRS code section 7702A, which means that the tax status of the life insurance policy has changed). Simply put, MEC policies forfeit the loss of income-tax-free loans and there is an additional penalty for money taken out before age 59 ½. However, MEC policies still have income-tax-free death benefits and can be an effective wealth transfer planning vehicle. Again, when contrasted with annuities as a legacy vehicle, the advantages deserve consideration: The ability to avoid adverse tax-impacts to beneficiaries, the “multiplying” effect of the death benefit, and, if available, living benefit riders like chronic illness.

I’ve seen financial advisors suggest that life insurance is an “alternative” asset. My conviction is that life insurance is a core asset and the cornerstone of any strategic planning you do with clients. Everyone leaves a financial legacy. The difference is the size, structure and tax-efficiency of the legacy. Life insurance is a multi-purpose asset and, I believe, the ultimate legacy asset. Unfortunately, many people today are leaving their families and businesses a legacy of debt. Life insurance can guarantee the wishes of your clients and give them certainty in an uncertain world.

Take a look at SPWL as a solution for legacy asset planning for your clients and make a difference not only in their lives, but the generations of family and charities they love.

*“Baby Boomers Generation Fast Facts.” CNN Library 6 Nov. 2013.
**Stonefield, Jess. “Are Boomers Ready To Make The Greatest Transfer in History?” Forbes. 21 May 2018.
***Hersch, Warren S. “Ruark study: Annuitization rates are below 5 percent.” ThinkAdvisor. 30 Jan.

Lewis W. Merrow, MBA, CLU, ChFC, LUTCF, joined Mutual Trust Life Insurance Company, a Pan-American Life Insurance Group Stock Company, as regional vice president (RVP), Northeast Region, in 2010. In this position Lew is responsible for helping Mutual Trust achieve its sales goals by building strong relationships and recruiting field partners in 14 northeastern states and the District of Columbia. In 2011, Merrow won Mutual Trust’s Regional Growth Award, and in 2014 and 2015, he won all three regional development awards: The Regional Vice President of the Year Award, the Regional Field Force Development Award, and the Regional Growth Award. In 2016, he again won both the Regional Vice President of the Year Award and the Regional Growth Award.

Merrow, who is the third generation in his family to serve as a life insurance professional, became a licensed agent under a college recruiting program when he was 18 years old. After earning an undergraduate degree in business and finance, Lew continued his education, receiving an MBA degree and numerous industry designations. In addition to earning a CLU, ChFC, and LUTFC, Lew holds an RHU, REBC, FLMI, CEBS, FSS, RICP, CLF, RPA, and GBA. Lew also has taught CLU classes, written numerous articles for industry publications, and been a featured speaker for industry, academic, company and community groups.

Merrow can be reached via telephone at 800-486-8887.