There is No Luck in Marketing – 6 Ways to Improve Your Marketing Systems

March 26, 2012 Leave a comment

Recently, I was asked to put together a marketing campaign to attract new brokers and producers for our Brokerage General Agency.  I decided upon a four-part seminar series that would highlight our strengths and the relationships the firm has with our life insurance carriers.  Last week, we conducted the first seminar.  The response was overwhelming.  The event was standing room only, 70 people for lunch and we had 40 producers on a waiting list.  One of the attendees commented “that we were very lucky to have had such a great turnout”.  I smiled and thanked him but knew that there was nothing lucky about it… we had worked a marketing system that I have been refining for the better part of the past 10 years for seminar presentations.

Our industry is unique in the fact that it demands that producers be good sales people and good marketers to be successful.  The problem is that sales and marketing are very different disciplines.  Most sales people do not have the “make up” or skill sets to be good marketers and vice versa.  Having been quite involved in both areas of this business, I can tell you that there is one common ingredient that links the most successful sales people and marketers…they have a system in which they work and they don’t ever “wing it”.  For the producers reading this, let me pose a questions… “Would you ever go out and meet with a client without having some type of fact-finding track or sales track (depending upon the focus of your meeting) with which you are completely comfortable”?  Of course not.  Not if you are either successful or want to be successful in this business.  The top producers have fact-finding and sales system with which they are comfortable and rarely deviate from their process, if ever.  The ultimate beneficiaries of this approach are the producer’s clients.  They receive the benefit of a well-tested and well-practiced approach that will help them determine and meet their insurance and financial needs.

There is a very interesting dynamic that I have observed when talking to these very same producers about their marketing systems…many of them don’t really have one that is nearly as “tight” as their sales system.  Most successful producers are actively prospecting (marketing) for new business, but when you ask them to explain their system, they are not nearly as comfortable as when you ask them to talk about their sales track.  It’s a natural example of the two different disciplines one must master (or bring in help to master) to reach high levels of success in our business.  The following is a brief outline of some ideas when it comes to developing and implementing a good marketing plan:

  1. Identify Your Market – In order to put together a cohesive marketing plan, you must define who your ideal prospect is.  You can then begin the process of targeting those individuals or businesses that fit into the defined target market.
  2. Have Good Market Research – The amount of information available today is unbelievable.  There has never been a time when information has been as readily available or available as inexpensively as it is today.
  3. Present Yourself and Your Company Professionally - Make sure that you are communicating to your markets the qualities that make your firm unique and do so in a professional manner.
  4. Be an Active Marketer – Remember when I talked about luck earlier?  Activity breeds success and this has nothing to do with luck.  If you are consistently delivering your message, to the market you have defined as ideal for your business, you will find your prospects will increase and others will view you as very “lucky” (but we know better!).
  5. Follow Up, Follow Up, Follow Up - Every lead is a potential diamond or can be a referral source to a potential diamond.  Marketing is hard work, so don’t squander leads by giving up too easily.  I have heard too many times “…well Ron, I left a voicemail but never got a call back”.  Have a “tickler system” (technology makes it so easy today) and continue to follow-up with your prospects, on a periodic basis, until such time as they become clients or tell you for certain they are not interested in your products or services.  Make sure that you are contacting people on a reasonable time-table.  If you call a prospect daily you will become annoying.  Try weekly.
  6. Get Help Where Necessary – It is critical in this process to know what you are not good at and get help.  The best marketing plans fall apart when a piece of the plan is not implemented effectively.  For example, if you are not super organized and your follow-up is not as good as it should be either find a follow-up system online with which works for you or have someone in your organization who is very organized help you (in most cases, getting the help you need to keep your systems running efficiently is well worth paying for).

These are just a few ideas you can use to help improve your marketing systems.  If you would like advice on marketing your practice specifically, please click the “Have a Private Question” link above and we will be happy to provide you with some ideas.  RR

Filed under Life Insurance, Marketing

Putting “Life” Back in Life Insurance

December 22, 2011 Leave a comment

On the one year anniversary of Top Producer’s Life, I would like to embrace this opportunity to thank all of our loyal readers.  You have helped make our first year very successful and we hope the information we have shared has been valuable to you and your businesses.  I think it is important for us to realize that the first word in life insurance is… life.  In its most basic form, our product helps protect aspects of our lives that would need an influx of capital at the time of our deaths.  To that end, I would like to share a personal story, that happened this past week, that drove me to reevaluate my own life insurance to make sure my family was adequately protected.

This year was a very special one for myself and my family as my wife and I had a baby girl in June.  One of the most excited people about the arrival of baby Hanna was my nine-year old son Zachary.  He finally had a baby sister.  Now, at nine years old there is a lot going on in your life!  School, sports, drums, and “playdates” with friends, are all things you know when you have a nine-year old child.  They are at that age where there is so much going on in their lives and they are trying, for the first time, to “find themselves”.  Yet, with all of this, Zachary is very focused upon his baby sister and consistently making sure he is part of all aspects of her life and development.

This past weekend, he found that by making funny faces…he could make his six month old sister actually laugh for the very first time.  Once he realized this, he did it over and over again…and she kept laughing for what was seemingly hours.  The next day, the fun started all over again.  As a father, the pure beauty, innocence, and joy in this interplay was something that touched my heart and that I will never forget.  It also reminded me about how, in its most basic form, amazing and beautiful life can be.  It also reminded me that these children depended upon me for their lives and if something should happen to me, I had better have enough life insurance to make sure they could go on with their lives without any financial worries.  I consider myself truly blessed and this financial security I owe to my family.

During this holiday season, I implore all of you to take a moment and recognize the beauty around you and count the blessings that have been endowed upon yourself and your family.  As financial professionals, also take a moment to make sure that you too have the proper life insurance coverage for those that you love.  I want to wish all of you a very happy, healthy, prosperous, and peaceful new year.  RR

Filed under Life Insurance

Tis’ the Season for Aggressive Underwriting

November 11, 2011 Leave a comment

I am not sure about you, but I can’t believe that the holiday season is upon us already.  It feels like summer just ended and already we are into Thanksgiving and the end of 2011 is coming quickly.  The next six weeks can be a difficult time in the life insurance business.  Clients are busy with parties, vacations, and other things that may take “priority” over addressing issues with their insurance or estate planning.  There is, however, one characteristic of this season that can be very positive for insurance and financial professionals — aggressive underwriting. 

Many life insurance companies are still below their production goals for 2011.  One way for these companies to generate “last-minute” business is to loosen underwriting requirements a bit.  This is a practice that the sales divisions of life insurance companies love and that the actuaries hate (being the grandson of the head actuary of a major insurance company, I know this well!).  This trend has been true for each of the twenty-five years that I have been in the life insurance business and remains true today.  I have companies calling and asking me for our cases that might need a bump up in a rating class or two, which will make the premium more attractive to the client.  There are underwriting situations in which many carriers wouldn’t improve their rating during the early and middle parts of the year that could very well receive better offers for the next six weeks.  Now, does this mean that we should be canvassing for uninsurable applicants and expect them to suddenly be Table 2 or Standard?  No, but the borderline cases are “in play” between now and year-end.  This is a great time to help your clients who really do need coverage but have underwriting issues, while generating additional revenue for yourself and your firm. 

If you have any difficult cases that you would like us to take a look at, please click the “Have a Private Question” link above and we will be happy to review the underwriting on the case for you.  Also, please accept my best wishes for a healthy and peaceful holiday season.  RR

Filed under Underwriting

A Big Win in Court for Traditional Life Settlements

October 7, 2011 Leave a comment

In a significant decision, the Delaware Supreme Court recently held that an insured has a property right to purchase a life insurance policy on his own life and sell it for market value.  This is predicated on the fact that the procurement of the policy is not part of a “straw purchase” pursuant to a prior agreement to resell to an investor.  This ruling is a huge win for the traditional life settlement market.  It also could create additional problems for the already plagued STOLI (Stranger or Investor Owned Life Insurance) market and the promoters, investors, agents, and clients involved in these transactions.  In the rulings, PHL Variable Life Ins. Co. v. Price Dawe Insurance Trust, et al., CA No. 10-964 (Del. 2011) and Lincoln National Life Insurance Company v. Joseph Schlanger 2006 Insurance Trust, et al., CA 09-506 (Del. 2011), Delaware’s highest court upheld the position that the Life Insurance Settlement Association (LISA) has been advocating regarding the differences between traditional life settlements and Stranger Owned Life Insurance.  It is noteworthy that this decision was rendered in the state of Delaware.  Many of the STOLI arrangements were sitused in this state and could be affected by the ruling, in addition to the precedent it sets for cases and courts in other states. 

Traditional life settlements are transactions in which an insured decides to sell his or her policy on the secondary market.  These situations arise for many reasons, including he or she no longer needs, wants, or can afford the policy in question and the secondary market provides a higher payment than the cash surrender value of the policy.  The Court affirmed the individual’s property right by holding that an insured taking out a policy on his or her own life cannot violate insurable interest laws merely because he or she intends someday to sell this policy.  In its ruling, the Court stated that “the insured’s subjective intent for procuring a life insurance policy is not the relevant inquiry.  The relevant inquiry is who procured the policy and whether or not that person meets the insurable interest requirements.” 

STOLI arrangements are cases in which an investor is incenting, in some fashion, the insured to procure the policy from the inception of the case.  The Delaware Supreme Court’s position was that when an investor has “a pre-negotiated arrangement with the insured to immediately transfer ownership, the policy fails at inception for lack of an insurable interest.”  This type of arrangement is unacceptable held the Court, because “if that third-party uses the insured as an instrumentality to procure the policy, then the third-party is actually causing the policy to be procured”.  In 2009, my book “Invest in your Life: Why Wall Street Wants You”, directly challenged the concept of STOLI.   The book illustrates how individuals can benefit from utilizing life insurance as an asset class in a legal and much more financially efficient way than they could by entering into a STOLI transaction.  The Court’s ruling could pose even more problems for investors in and promoters of STOLI transactions.  Many investors believed that once a policy passed the statutory “two-year contestability period” an insurer could no longer challenge the validity of the contract.  This would make any policy they owned for longer than twenty-four months “safe” from being challenged by the insuring company.  The Delaware Court’s ruling holds that in STOLI cases “the policy fails at inception for lack of an insurable interest”.  Utilizing this reasoning an insurer could argue that there was, in-fact, never a legal contract of insurance and may be able to challenge or rescind the policy at any time.

This ruling is being praised by traditional life settlement providers and brokers.  Eric Tennenbaum a principal at Genesis Asset Advisors in New York, a well-respected life settlement brokerage firm, commented that “The Delaware ruling continues to reaffirm the property rights of life insurance policy owners, specifically the right to sell a policy which was procured appropriately.  STOLI and the settlement of a policy are not and have never been the same.  The life settlement industry continues to provide a valuable service to life insurance policy owners who no longer wish to keep their policies.”  Mr. Tennebaum’s position is clearly supported by the Delaware Court’s decision.  According to the court, “the secondary market allows policy holders who no longer need their life insurance to receive necessary cash during their lifetimes”, going on to say that the secondary market is “perfectly legal” and “provides a favorable alternative to allowing a policy to lapse, or receiving only the cash surrender value”.

Over the past two years, the life settlement market has been adversely affected by global economic conditions.  However, in recent months there seems to be a growing level of activity as buyers and investors reenter the settlement market.  This ruling can do nothing but help this recovery.  If you have a life settlement case, question, or comment about this topic please click  the link “Have a Private Question on Underwriting, Product, or Case Design” above and we will be happy to review and discuss your case or planning scenario.  RR

Filed under Life Insurance, Planning, Premium Finance

“Captive / Closely Held Insurance Companies” – An Integrated Tax and Risk Management Solution for Closely Held Business Owners & Professionals

September 19, 2011 Leave a comment

I would like to welcome a guest writer this month to Top Producers Life.  The following post has been generously shared by Gerald R. Nowotny, JD, LLM.  Gerry is an expert in estate and tax planning  and his post should apply to many of our clients.  I have asked Gerry to write on a subject about which a number of our readers have inquired – utilizing captive insurance companies for wealth and risk management planning.  The following is his article:

 ”A captive insurance company is an actual insurance company with reserves for claims, surplus, policies, policyholders and claims. The captive insurer is licensed in the domicile where it is formed domestic or offshore. The main purpose of a captive is to insure the risks of other companies that are owned by the captive’s owner, the parent company.

These operating companies are usually brother-sister companies of the captive, but can also be owned by the business owners or their family trusts. These companies make premium payments to the captive in exchange for the captive issuing insurance for the risks of these companies.

Traditional reasons for the creation of a captive insurer include the following reasons:

(1)   Stabilize Insurance Budgets

(2)   Reduce Insurance Administrative Costs

(3)    Utilize Own Premium Flexibility

(4)    Policy Terms –Increased Claims Control

(5)    Recapture Underwriting Profits.

(6)    Accept Greater Deductibles.

(7)    Access to Reinsurance Markets

(8)   Customized Coverage

Traditional captive insurers have been primarily viewed as an insurance solution to reduce insurance costs or provide coverage not available in the commercial marketplace. However, the captive insurance company from the perspective a closely held business owner center can serve as a valuable profit center as the captive will eventually mature into an insurer underwriting risks of third parties. Furthermore, the captive can serve as a wealth transfer, wealth accumulation and wealth preservation vehicle for the business owner’s family.

Captives as a Wealth Transfer and Accumulation Vehicle

A captive is much more than a loss control vehicle. A captive should be seen as a vehicle for transferring wealth out of the operating business so that wealth is not trapped within the operating business subject to higher taxation and the claims of the business’ creditors. Premiums paid to the captive by the operating company are able to accrue reserves tax-free and enjoy the other tax advantages of captive insurers at lower tax brackets than the operating businesses or the owner.

The captive can serve as an inter-generational wealth transfer tool. At the time of the captive’s formation, the shares of the captive can be transferred to an irrevocable family trust that removes the assets from the business owner’s estate for federal estate tax purposes.

The captive arrangement can also provide strong asset protection benefits to the closely held business owner. The transfer of wealth from the operating business to the captive through premium payments provides a form of asset protection to the business owner. Ownership of the captive within a family trust (irrevocable) or an offshore asset protection trust (APT) provides another layer of asset protection for the business owner.

As a wealth accumulation vehicle, the captive arrangement is very powerful. The captive arrangement allows the operating business to take an income tax deduction for its premium payment. The captive is able to take a current deduction of the premium payment as a contribution to its reserves. The ability to accrue reserves provides the captive with a unique ability to create deductions, defer taxes and time taxation for years when the captive is less profitable. These deductions can offset the captive’s investment gains.

From a wealth accumulation standpoint, the closely held captive can operate as a family bank in the sense that the captive can make an arm’s-length loan to a family member or business. These loans are treated for income tax purposes as tax-free distributions.

The captive is an excellent wealth preservation vehicle. The captive is not a subsidiary of the operating business. The liabilities of the captive are limited to the exposure of the policies that it underwrites. Structuring the ownership of the captive through a family trust or APT protects the captive’s assets from claims against the captive’s parent company.

Life Insurance and Captives

The purpose of forming a captive insurance company is not to purchase life insurance using the tax-deductible premiums paid into the captive. Nevertheless, life insurance is an excellent asset for the captive to purchase. Life insurance is a suitable investment for the captive on several levels – (1) it provides a form of reinsurance coverage for several risk contingencies insured by the captive. (2) Life insurance issued by an investment grade life insurer is the equivalent of purchasing an investment grade bond. As a result, it is not atypical for a captive to finance large amounts of life insurance.

The captive can also be used in regard to premium finance arrangement. The captive may provide a source of financing to the Client’s irrevocable life insurance trust (ILIT) using funds from the captive. From the captive’s perspective, the arrangement is the equivalent of a private bond. The captive may also be used to extinguish or purchase the premium finance note from a commercial lender.

Case Study

Joe Smith, age 50, is a real estate developer with multiple projects throughout the Southeast. Smith has a personal net worth of $40 million. He has generated most of this wealth over the last 10 years due to the success of earlier development projects.  Joe is married with two children. 

Joe currently has $100 million in ten real estate projects under development. These projects will generate $10 million in income to Joe’s real estate development company, Good Investments, LLC over the next five years. Joe carries standard commercial property casualty coverage in his projects.  The following is a sample case study: 

The Smith Family creates a new captive insurance company, Good Insurance, Inc. (Good Insurance), that is licensed in St. Lucia British Virgin Islands.  The company is capitalized with $250,000.  The shares will be owned by The Smith Family Trust, which is an irrevocable trust domiciled in Delaware.  The captive makes an IRC Sec 953(d) election to be treated as an U.S. taxpayer for federal tax purposes.  The company makes an IRC Sec 831(b) election.  Under this election, the first $1.2 million of premium per year will not be taxed to the captive.  Only the captive’s investment income will be taxed.

Joe hires Intercontinental Captive Management (ICM) do perform a feasibility study for the captive and identify a portfolio of new coverage for the captive. ICM develops the policy forms as well as performs an actuarial review to determine the appropriate pricing. This coverage will be sold on an arms-length by Good Insurance to each of the ten subsidiary development companies owned by Smith’s development company.  Coverage will also be sold to the parent development company as well. The projected premiums per year are $1.1 million.

Over the next five years, $5.5 million of income will be paid to the captive on a tax-deductible basis. The premium income will not be taxed. The investment income of the captive will be taxed. The transfer of $5.5 million is not subject to gift taxes. The growth of the captive which is wholly owned by the Smith Family Trust, an irrevocable trust, will escape federal estate taxes.

The trustee of Joe’s ILIT purchases $15 million of second-to-die coverage financed by a loan from his captive. The loan is an arm’s-length arrangement. The loan is scheduled to be repaid at death.

Summary

The closely held captive insurance company is a powerful risk management tool. The captive provides an integrated tax solution for the owner of a closely held company for both income and estate tax planning purposes. The special tax provisions available to small captive insurers provide the business owner with the ability to achieve significant deferral and timing of taxes along with lower marginal brackets. The coverage underwritten by the captive is arm’s-length coverage under commercial terms. However, the goal is to underwrite coverage that is either currently self-insured or under-insured with a reasonable likelihood of low claims experience. As a result, the captive provides a mechanism for shifting wealth from the business owner’s operating companies, which are subject to the liabilities of the business into the captive, which is structured for asset protection and tax benefits.”

Filed under Life Insurance, Planning, Premium Finance

“Zero Can be Your Hero” – The Benefits of Indexed Universal Life & Annuities When the Market Drops

August 9, 2011 Leave a comment

Some people say that timing in life is everything.  However, most astute financial people will tell you that it is almost impossible to time the stock market, even for the most seasoned investment professionals and managers.  Prevailing wisdom for most investors is therefore to keep your money in an asset allocation that matches your investment goals and your risk tolerance, then stay the course.  Over the long run, if you are properly allocated and you monitor and update your allocation, you should be able to reach your financial goals.  The turmoil and volatility in the global financial markets, over the past few years in general and the past few weeks specifically, has left investors shaken.  Overall confidence in most investment strategies is low and historical trends are being called into question by investors. 

What can we do to mitigate overall volatility for our clients and help them sleep better at night?  One answer may be the guarantees associated with Indexed Universal Life and Annuities.  The basic features of these products are covered in my last post so I won’t review them here (see the July 10, 2011 post), but the one feature that I will address is the guaranteed “floor” associated with most of these products.  While your policy (cash or annuity) values are tied to an “equity index” (or combination of indices) and rise with the market,  most of these contracts are guaranteed to never credit a rate of return lower than 0% in any given month or year (depending upon how the contract is structured).  This means that while the bears were on the loose this past week and the stock markets were plunging, anyone in an IUL or Indexed Annuity was sleeping soundly because they lost no value.  Let me repeat that — they lost no value in their annuities or life insurance cash value accounts.  Certainly they had not gained as much as others over the past 12 months since the “caps” associated with these products contained their overall rate of return a bit, but they gave none of their gains back this week. 

Earlier we talked about timing and I guess our timing was good last month to post on Indexed UL and Annuities two weeks before a major market correction.  Keep in mind though, that these products are not appropriate for all clients in all situations.  The message here is that while evaluating your clients’ needs and risk tolerance, IUL and Indexed Annuities may fit nicely into their insurance and investment portfolios…especially for those clients who just can not take (either literally, psychologically, or both) the volatility in the equity markets, yet still need rate of return in their portfolio.  For those clients, this past week a contract with a guaranteed floor proved that sometimes Zero is Your Hero!  RR

Filed under Life Insurance, Planning

“Indexed Universal Life”…Understanding This Rapidly Growing Version of Universal Life Insurance”

July 10, 2011 Leave a comment

Universal Life Insurance (UL) was born in the mid 1970′s out of the life insurance industry’s desire to keep current with other capital markets.  It addressed the concerns of consumers, thereby sustaining the growth of the permanent life insurance market when traditional whole life was underperforming similar asset classes.  Since the product was introduced, each generation of the UL product has been designed and marketed to address the needs and concerns of the permanent life insurance consumer… Indexed Universal Life (IUL), the latest development in the UL product line, is no exception.

During the late 1970’s and early 1980’s, consumer confidence in the financial markets was low while inflation and interest rates in the United States were skyrocketing.  The performance of traditional Whole Life (WL) insurance policies could not keep pace in this interest rate environment.  This lead to the popularity of UL – a policy where the premiums were flexible (to address the consumers’ desire to have options) and the cash values were tied to the prevailing interest rate environment (to address performance).  The interest rates credited on UL products were significantly higher than those credited in non participating WL contracts and those embedded in the dividend scales of participating life products.  By 1983, almost all major life insurance companies had a version of the UL product.

In the late 1980’s and through the 1990’s, the financial spotlight turned to equities.  The stock market was rallying, interest rates were falling, and the permanent life insurance consumer was becoming disenchanted with the returns now being credited on their UL policies. Enter Variable Universal Life (VUL).  Now, instead of cash values being tied to interest rates, they were being invested in equity “sub-accounts” similar to mutual funds within the life insurance policy.

The turn of the century and the tragedy of September 11th, 2001 wreaked havoc on the financial markets.  Again consumer confidence was shaken, and Guaranteed Universal Life (GUL) was a good answer.  This product was very simple – pay the premium each year and the policy holder is guaranteed a lifetime of coverage, regardless of market returns.  The main issue is that this product was designed primarily for life insurance coverage and not growth in cash value.  Many clients want access to the benefits inherent in the cash values of permanent life insurance.

This brings us to where we are today:

  • The stock market is highly volatile.
  • Interest rates are at near record lows.
  • Consumer confidence in these markets is also low.
  • The fear of inflation is prevalent (especially among older consumers).

Indexed Universal Life (IUL) addresses all of these concerns in one neatly packaged product.  Although each company’s product has certain features, almost all provide the policy holder the opportunity to allocate cash value to either a fixed account or an equity index account.  IUL policies offer a variety of popular indexes to choose from, such as the “S&P 500, “Nasdaq 100”, “Russell 2000”, etc.  Most IUL policies guarantee the principle amount in the indexed portion never to drop below a 0% rate of return in any year, hence no risk to principle.  Additionally, the insurance carrier “caps” the maximum return that a policy holder can receive in the index, account in any given month or year, depending upon the policy structure.  Our client is now able to gain access to the equity markets while creating a “hedge”.  They are trading a portion of their upside potential return for the guarantee of no principle losses.

IUL comes with all of the advantages of traditional life insurance policies including tax-free death benefits, tax-deferred growth of cash values, tax-favored cash value withdrawal options, and other benefits associated with permanent life insurance.  In addition, IUL provides:

  • The safety of no negative market returns.
  • The life insurance company absorbs the investment risk.
  • The possibility of high positive investment returns.
  • Very favorable withdrawal options for the cash values.

All of these benefits are very attractive, however, there are also some considerations a life insurance producer and client must weigh before purchasing an IUL policy:

  • IUL can be a long-term commitment – it is not uncommon for these policies to have ten-year surrender charges (or longer) and must be viewed as a long-term accumulation  and protection vehicle.
  • The ability of the carrier to adjust some element of the interest crediting formula – most carriers reserve the right to change either the “cap”, the spread rate, or the mortality charges within the contract.  This would be due to changes in future market conditions and must be monitored.
  • Illustrations are unreliable.  Since most IUL illustrations are based upon historical performance, one must be very careful when applying this to future results.  We are going through market cycles the likes of which we have never seen before.  Be very careful to communicate to your client that IUL illustrations must be understood as purely a look at the past, not a prediction for the future.

Finally, in the right circumstances for the correct client, IUL can be a very powerful product to help you meet your clients’ needs.  It has become the product of choice for the traditional premium financing market because the potential for rate of return “spread” over loan rates makes utilizing this product in premium financing scenarios very attractive.

As IUL continues to grow in popularity, I am certain we will see new options and approaches to this concept.  It is certainly a product every life insurance producer should be familiar with.  In my next post we will take a closer look at various strategies and uses for the product, but for now IUL can help you expand your business, increase revenues, and better serve your clients.   If you have any questions or need and illustration for and IUL case, please click the “Have a Private Question” tab above and we will be back to your shortly.  RR

Filed under Life Insurance, Premium Finance

Taking the Underwriting of Foreign Nationals to the Next Level

May 23, 2011 Leave a comment

In a previous post, we talked about the trend in the industry towards underwriting foreign nationals more leniently.  We pointed out the “globalization” of the life insurance market and that insurance companies are underwriting foreign travel and residence risks more realistically.  Many companies are issuing policies on individuals that live and or travel in countries that previously would have been declined.   There was one caveat — the proposed insured had to have either a business or residence nexus to the United States.  This post was well received and the question arose, a number of times, concerning foreign nationals that did not have any nexus to the United States — could we get them life insurance?  Historically, the answer had always been no.  Things have changed and we now have at least two major life insurance carriers that will issue policies (through wholly owned subsidiaries) on foreign nationals who have (and many times want) no nexus to the United States.  The policies offered are current assumption Universal Life insurance policies and are priced quite fairly.

This creates some excellent planning opportunities for our clients that live and work in foreign countries.  In addition, since these individuals are not subject to United States income taxation, the policies can be structured without regard to MEC (Modified Endowment Contract) restrictions.  We also have premium financing available for these policies.  This too creates favorable planning strategies and the ability to use “leverage” if the client does not want to pay the full premiums “out-of-pocket”.

The vast majority of countries are available through these carriers, but there are still a few that are not (please check with us for product availability).  Also,  if you have a case that you would like us to take a look at or if you have any questions, please click the link “Have a Private Question on Underwriting, Product, or Case Design” above and we will be happy to review your case or planning scenario.  RR

Filed under Underwriting

The Life Insurance Industry Relaxing Underwriting Restrictions for Foreign Nationals and Travel

April 5, 2011 Leave a comment

There has been a lot going on in the world recently.  If you open a newspaper, watch the television news, or “surf the net”, we have all seen the tragic events in Japan, a new conflict in Libya, and many other places undergoing change and upheaval.  This would lead you to believe that obtaining life insurance for individuals who reside or travel frequently outside of the United States would be becoming more difficult…and yet the reverse seems to be true.

Last week, I had the opportunity to attend a panel discussion with seven of the top underwriters from some of America’s most well-respected life insurance companies.  When the subject of underwriting foreign nationals and americans who travel outside the US frequently came up, almost all of the underwriters indicated that it was getting easier to insure these individuals… not harder.  Of course, I don’t think that we will be doing “buy-sell” insurance on partners of a company based in downtown Tripoli any time soon, but it seems that some other locales that used to be tough like Israel, South America, Eastern Europe, and Mexico are now ”in play” for many carriers.  As we enter a truly global economic marketplace, I believe that domestic life insurance companies are beginning to understand the potential business that can be generated by taking a more realistic view of underwriting in these markets.  In addition, the tough economic times in the United States are forcing the carriers to expand their scope beyond our borders. 

There are still a few things that you must keep in mind when approaching these markets:

  1. The client in question must have some type of reasonable nexus to the United States (business interests, a residence, etc.).
  2. The client, in most cases, must take the medical exam in the United States.
  3. There must be sufficient financial information available to justify the amount of insurance that you are trying to obtain.
  4. The underwriters must be comfortable with the “source of funds” that are going to be used to pay the premiums.

These can be issues, but in many cases they are not hard with which to comply.  If you previously have had clients or cases that have been hard to place because of foreign travel or residence, now may be the time to take another look.  We are successfully placing insurance in these situations, which would have been almost impossible previously.  For more information on any of your cases, please click the link above titled “Have a Private Question on Underwriting, Product, or Case Design” and lets talk about how we can help you with these cases.  RR

Filed under Underwriting

Juvenile Life Insurance for Affluent Families

March 18, 2011 Leave a comment

I am pleased to have with us this month guest writer James Garfinkel.  James is the CEO of New Amsterdam Life and one of the country’s foremost experts in the field of Juvenile Life Insurance..  The following is James’ article:

Juvenile Life Insurance Comes of Age

The juvenile life insurance industry is growing up fast.  You may remember juvenile life insurance from those late-night television commercials or direct mail campaigns, covering funeral and burial expenses following the tragic death of a child.  Insurance companies understandably shied away (more like ran away) from marketing these products and ceded sales to a few well-known carriers, like Gerber and Globe.    

But times are changing.  Recently, sophisticated financial and insurance planners are warming up to the potential of juvenile life insurance as a wealth planning tool.  “We’re having conversations about savings for college and beyond and developing some advanced structuring techniques to maximize client value,” says James Garfinkel, CEO of New Amsterdam Life http://newamsterdamlife.com, one of the leading juvenile life insurance agencies in the country.  “Parents are leveraging the low-cost of insurance for their child to secure guaranteed, fully-paid coverage and take advantage of tax-deferred growth and flexible access to cash value for a lifetime.”  James is also helping to promote the Juvenile Life Insurance Foundation juvenilelifeinsurance.org , a nonprofit organization dedicated to educating consumers and insurance professionals about juvenile life insurance.

Parents and grandparents can select between whole or indexed universal juvenile life insurance.  Whole juvenile life is permanent whole life insurance that increases by a minimum guaranteed interest rate, plus a non-guaranteed dividend declared annually by the insurance company.  Indexed juvenile life is permanent universal life insurance that has cash value increases linked to the performance of an equity index (e.g., S&P 500®) up to a certain percentage (a “cap”) with downside protection (a “floor”).  After a “lost decade” of saving for college, equity market exposure without market risk is starting to sound pretty attractive to parents.

In either structure, growth of cash value is tax deferred and withdrawals up to your tax basis are considered a tax-free return of principal.  Withdrawals in excess of total contributions, are received as ordinary income.  Like traditional whole or universal life, juvenile life insurance provides flexible access to cash at any time, for any purpose.

For tax efficiency, insurance professionals generally advise withdrawals only up to the value of total contributions.  This leaves the gains inside the policy where they will continue to grow tax-free and preserve the child’s fully paid lifetime insurance coverage.  The future premiums are paid from these gains at no out-of-pocket cost to the policy owner.  This allows a parent or grandparent funding the policy to save decades of future premium payments for their loved ones.

Juvenile life also has the potential to challenge traditional college savings strategies.  Indexed universal has actually outperformed the S&P 500 SPDR ETF over the past 10 and 15 years.  Unlike a 529 plan, the cash value of juvenile life insurance can be used at any time, for any purpose, without penalty and is not limited to qualified educational expenses. If the child is lucky enough to obtain a scholarship or decides to postpone college, the funds continue to grow and lifetime fully-paid insurance is available when the need arises.  The cash value of juvenile life Insurance is sheltered from the federal financial aid needs analysis process, an important consideration for upper-middle class families on the “bubble” for financial aid. 

For affluent families, advisors are recommending that parents and grandparents consider using their typically neglected annual gift tax exclusion amount of $13,000 (or $26,000 for a married couple) for their children and grandchildren.  Gifting up to these limits reduces the donor’s taxable estate, and can generate tax-deferred returns in the nine-figure range.  Wealthy families often create insurance trusts to exclude the value of the policy from their taxable estate.  The trustee, appointed by the grantor, is responsible for ensuring that distributions meet the trust’s guidelines for distribution.

The recent increase in the estate and GST exemption, along with the increase in the gift tax exemption, provides families with an opportunity to purchase juvenile life insurance for children and grandchildren and transfer significant wealth without current taxes and avoid estate taxes from being imposed on future generations.

Regardless of income level, a well-structured juvenile life insurance policy can be used to secure lifetime coverage and accumulate and transfer significant client wealth – estate, gift, generation-skipping and income tax-free.

Filed under Life Insurance

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