One of my old colleagues, Henry, retired recently. He had been in the industry for over three decades and I consider him a truly wonderful source of insight and experience.
Henry’s area of expertise is qualified plans and their administration. So, I probably should have paid more attention four years ago when he started talking about Advisors being held to a Fiduciary Standard. I told him there was no way anyone could expect every advisor to live up to that standard and that there was no real way to implement and/or monitor such a program.
I was wrong about the implementation, but I believe we are seeing fallout from the problems that monitoring such a standard imposes.
You have likely heard by now that the Fifth Circuit Court of Appeals decided 2-1 against the DOL Standard. As it stands currently, the rule does not exist. However, the DOL can certainly appeal this ruling. Also, the SEC is likely to have their own rules coming soon and there are also talks of insurance departments creating rules of their own.
This past weekend we learned of Facebook and Cambridge Analytica’s alleged abuse of 50+ Million user’s information. A few months ago, we learned of Equifax hiding a data breach that compromised over 143 million people’s information. Yahoo seems to be breached weekly.
Our industry is complex. We have hundreds of thousands of products being sold by hundreds of thousands of advisors with hundreds of thousands of different educations and experiences. I thought that this diversity would insulate us, but where I had a hard time seeing this rule coming into existence, it seems impossible for me to think that this rule, or other similar rules, will not be implemented.
It is true. The DOL, the government, and the public do not understand many of the intricacies of our industry. Lucky for us, they do not seem concerned with understanding it, they just want more transparency.
We have become more transparent in recent years, but we can do better.
Some things I would like to see the Insurance Industry lead with are:
- Carriers should offer real insight to advisors as to how their specific products work
- Carriers should be forthright with the public about what information they have, how it is used, and how it is safeguarded
- Agent licenses should be abolished, because advisors should work on the client’s behalf, not the carrier’s
Taking steps towards these three objectives would immediately put our industry at the forefront of transparency and consumer protectionism. It might even instill enough confidence and goodwill in the public that some sales might come in from the sideline.
As a digital consumer, I want to know that my personal information is secured. I am sure you do too.
Henry understood this years ago. I think it is time we all embrace what is coming. As Gandhi said, let’s be the change we wish to see in the world.
We have all been there. We have a client teed up for a sale and then BOOM! They hit you with an illustration their brother-in-law’s cousin’s niece (three-times-removed) showed them.
There are several things that begin to run through in your head:
Don’t say anything bad about this distant relative.
Is my client going to go with this person regardless of what I show them because of the relationship?
Why couldn’t they email this to me? I could have had more time to plan my rebuttal.
The list goes on.
There is no perfect way to handle this situation as each client is different. At Algren Associates, we pride ourselves on our due diligence before, during, and after the sale to help mitigate the impact when this happens.
Being contracted with dozens of carriers gives us a deep understanding of their strengths and weaknesses. Carriers will also have strengths and weaknesses at the product level. You may have only presented a few illustrations that we ran for you, but those illustrations were chosen for a reason.
Sometimes we look for the highest rated carrier because your client is incredibly conservative and wants guarantees from a carrier with a tract record of excellence. Your client’s relative may not have access to certain carriers that are in that echelon.
Sometimes we look at products with the least amount of moving parts. Your client’s relative may not understand the intricacies of certain products which could lead to tough discussions down the line when the product is not performing as described.
Sometimes we base our assumptions on realistic rates to show a product’s strength(s), even though the cash build up might not illustrate the highest. Your client’s relative may not understand that just because you can illustrate the max rate does not mean you should.
Sometimes we suggest alternate products than what your client and you discussed. Your client’s relative may not be asking the same questions or understand your client’s financial situation as well as you do.
Sometimes we suggest riders that can offer substantial benefit at minimal or no cost. Your client’s relative may not be thinking about other solutions that a certain product can alleviate.
We do our best to make sure you are seeing clients with the best possible solution for them even if you only have an illustration or two with you.
The next time you are confronted with a client that says, “My neighbor’s mother’s granddaughter’s step-brother is in the industry and handed me this…”. We hope your first thought will be, “I hope they aren’t using Algren as their BGA also”.
I love listening to music.
I love playing music.
I love discussing music.
I love discovering music.
I love analyzing music.
So today I will be discussing music, with a twist.
What would different types of insurance sound like to me if they were music?
Whole Life Insurance feels like the Blues to me. It’s the foundation of Life Insurance and while it seems very simple in its regimentation, it is quite complex. Whole Life and the Blues share many similar features between carriers and artists but invariably, each artist and carrier leave their stamp on the finished products. Lastly, like the Blues, Whole Life feels more “personal” since you are generally buying into a Mutual Carrier and not a Publicly traded company.
Robert Johnson – Cross Road Blues
Aretha Franklin – Son of a Preacher Man
Term Insurance sounds like an advertising jingle to me. It’s meant to capture your attention, for a moment, to drive impulse over careful thought. While advertising jingles might only be 3 notes (NBC), there is careful planning on the part of marketing teams and composers. Capturing someone’s imagination in under 15 seconds is no small feat. Term Insurance too, can have much deeper roots than a first glance might suggest. What are the conversion privileges? Are they contractual? Does the policy simply lapse after the Term or does it become Annually Renewable?
Universal Life sounds like Rock and Roll to me. You can tell that it’s based off the Whole Life Blues deep down, but it feels younger, more energetic, and maybe even a little more accessible. Again, there are hidden complexities, but these products feel a lot more unique carrier-to-carrier as opposed to the remakes and interpretations of Whole Life. There’s Ballad’s that focus on protection, high-energy classics, and everything in between.
AC/DC – The Jack
Guns N’ Roses – Nightrain
Guaranteed Universal Life sounds like Punk Rock to me. Forget about sweeping solos, fancy time signatures, and exotic key changes. GUL’s goal is to get you where you need to be without detours. Just like all insurance policies and music genres there is more going on under the surface. Punk Rockers try to hide is the amount of time they spend practicing sounding like they don’t know how to play their instruments. Similarly, crafting a “straight forward, no bull” product means incorporating a great deal of behind-the-scenes “magic” that may not always be as simple as it appears.
Ramones – Somebody Put Something in My Drink
The Offspring – Nitro (Youth Energy)
Variable Universal Life sounds like Heavy Metal to me. This product is meant to blur the boundaries of investments and insurance just like Heavy Metal can blur the boundaries between a wall of sound and music. To create this genre requires a lot of moving parts. Heavy Metal embraces an extraordinary amount of diversity to accomplish this strategy. From blazing fast melodic solos to slow dissonant breakdowns. This is just like a VUL with substantial sub-account choices that can assist a client navigating up and down markets.
Van Halen – Eruption
Ozzy Osbourne – No More Tears
Indexed Universal Life sounds like Jazz to me. There are a lot of moving parts behind the scenes here and the people who do understand it love to discuss it and analyze it. Chromatics, persistency, options, inversions, changes, etc. Can you spot which of those terms is referring to IULs and which to Jazz? Since there are so many moving parts in IUL many people will find it hard to digest and then explain to clients. Just like Jazz, IULs are not for everyone.
Les Paul and Mary Ford – How High the Moon
Ella Fitzgerald – Air Mail Special
Long-Term Care Insurance sounds like Classical music to me. Everyone knows someone who has had a Classical Music experience, but no one believes they will ever have a Classical Music experience themselves. Then, one day, they find themselves at a Puccini Opera, they have no idea how they got there, and they are completely unprepared.
Camille Saint-Saens – Danse Macabre
Edvard Grieg – In the Hall of Mountain King
Disability Insurance sounds very Avant Garde to me. We have again come to a genre with weird noises and definitions. Own-Occ, exclusions, partial, residual, etc. While Disability Insurance is an integral part of the planning process, it is often looked over because people get so intimidated by all the different contract definitions and – if we’re being honest – like Avant Garde pieces, it’s much more difficult to listen to and speak about.
Edgard Varese – Ionisation
Laurie Anderson – O Superman
So, what are your thoughts? What do you hear when you breakdown insurances?
A) What is a MEC?
B) How does a contract become a MEC?
C) What exactly are the consequences of a MEC?
A) A Modified Endowment Contract is what occurs when a Life Insurance Policy fails a test that differentiates between a policy purchased for Death Benefit versus a policy purchased for Tax Advantages.
B) Determining if a contract is a MEC is based on the annual premium required to pay-up the policy in seven years. This limit is generally referred to as the seven-pay limit. Life Insurance Policies violate the seven-year limit any time the cumulative amount paid in the first seven years exceeds the cumulative MEC limit applicable in that policy year.
Once out of the first seven years policies can still be classified as MECs if there is a material change to the contract. Face amount increases increase/addition of riders, plan changes, or even exchanges of the insured can cause a policy to be “Retested”.
Another way for a policy to become a MEC is to reduce the Death Benefit in the first seven years where the premiums paid in would have caused a MEC had the policy been issued at the reduced Death Benefit amount. Reductions include: face amount reductions, partial surrenders, cancellations or reductions of qualified additional benefit rider, or a lapse that is reinstated after 90 days.
It is important to note that qualifying 1035 exchanges do not affect the MEC status of a policy.
C) The consequences of a MEC depend on how the policy is used. If your policy becomes a MEC but no distributions are taken during the insured’s lifetime then there will be no adverse tax implications on the Death Benefit.
However, should distributions be taken during the lifetime of the insured, distributions will be taxed as “income first” and not “basis first” the way non-MEC distributions are viewed. Taxable distributions would include: policy loans (including automatic premium loans), collateral assignments, cash dividends, dividends applied for any purpose other than to reduce the premium on the same contract, full and partial surrenders, and account withdrawals.
In addition, there may be an additional 10% tax. Exceptions for the additional tax are made for any insured that has become disabled and/or is over age 59 1/2.
If a corporation owns the policy, there are no exemptions.
Many advisors seem comfortable discussing two types of Permanent Insurance Products: Secondary Guarantee Universal Life (GUL) and Whole Life.
These products are certainly versatile and can cover many different needs, but what happens in environments where they are put under a great amount of stress? For instance, Principles-Based Reserve requirements are forcing GUL premiums higher while diminishing bond returns are having a negative impact on the non-guaranteed portions of most contracts.
The industry has had answers to these concerns and others for a while. They include: Current Assumption UL, Variable UL, and Indexed UL. Most advisors are familiar with the basics of how these contracts work but they may not be familiar with the slow push over the past few years that have brought significant changes to these contracts.
Almost every carrier now has at least one “Protection” product that will have a limited guarantee to near-mortality. Some carriers have even stronger limited guarantees that go out as far as age 95. There are even some carriers that have No-Lapse Guarantees on their Variable contracts, allowing the client to participate in the market for their cash value but maintaining a guaranteed Death Benefit to age 121.
Why does this matter?
It is no secret that GULs are the least flexible contracts. Miss one premium 9 years after issue and the No-Lapse Guarantee to age 121 could be decimated by upwards of 20 years. In a protection product the limited No-Lapse Guarantee might only lose 2-3 years in the same scenario.
On the Whole Life side of the aisle, most mutual carriers have been forced to slash their dividends due -in part – to declining profits in their general accounts. This has forced many insureds to continue premium payments long after they had been illustrated to vanish. In some cases, additional premiums are now being required for contracts where they had vanished prior.
Again, we look at products that will have strong guarantees but also be less reliant on any one carriers’ investment portfolio. Indexed UL contracts have made such a strong case for building cash value that some carriers have added features to their Whole Life contracts where dividends are not based off the declared Dividend Interest Rate but on a side Index account.
The next time a client asks for a product with strong guarantees, ask them if they are also interested in flexibility. If they say “Yes”, call us and we will be happy to show you some bridge products that can achieve both of those criteria.
We have all dealt with clients who are not in the best health. There are times we might even dismiss discussing coverage as we sit down with them and they list off their medical history and medications they are taking.
Never say never.
We just received a Table-B on a case where the client is currently being treated for prostate cancer.
I repeat, HE CURRENTLY HAS PROSTATE CANCER. This gentleman has a current Gleason score of 6 and a current PSA of 8.4 and he was approved Standard Non-Smoker Table B.
We are also working on a case for a gentleman who had been diagnosed with Diabetes Type 2 several years ago. Until a few months ago he was managing his A1C levels with diet and exercise. Unfortunately, it was not working and he was forced to begin taking medications. He currently has an A1C of over 9 and only two months history on medications.
We are currently looking at a tentative offer at Table-D.
While these cases may not be the rule, they are certainly not exceptions.
A few tips for submitting and placing sensitive cases:
- Communicate. Let us know that there may be some issues during the underwriting process.
- Inform. Give us as much detail as you can about your clients’ specific situation. Dates, doctors, and drugs are a good place to start.
- Be honest. If a carrier believes there is any deception during the application process, they are far less likely to work with us during the underwriting process.
- Manage expectations. Not every case will ultimately be approved and/or some may be approved at rates that are not in the client’s budget. It is important to be upfront with the client that this may occur. When a decision is finally made there are always options available to changing the coverage type and face amount, if necessary. In other situations there may be opportunities for switching carriers as well.
As Emma Lazarus might say if she owned a BGA:
Give us your sickly, your poor healthed,
Your huddled masses yearning to breathe through a CPAP,
The wretched refuse of your teeming shore (tentatively based on per-country guidelines).
Send these, the uninsured, overmedicated to me,
I lift my pen to the mighty underwriter!
Last Wednesday we had the privileged of hosting a Webinar presented by Kevin Blanton, J.D.. As the Assistant Vice President and Associate Counsel of Advanced Markets for John Hancock, Kevin had incredibly astute and informed observations regarding the current tax bill.
We are happy to share a recording of this webinar and some marketing materials that can assist you in finding more opportunities to advise your clients.
Click Here to listen to the recorded webinar
Click Here for John Hancock’s Central Intelligence on the New Tax Bill
Click Here for Insurance Planning Opportunities in Light of New Tax Laws
Click Here for a Fingertip Tax Guide for 2018
Early in my career as an agent, I had an agenda for every client meeting I held. I would cover as many topics as I could and at the very bottom was Long Term Care. By the time we got to discussing LTC, my clients were completely glossed over.
A few years into my career, my grandmother – who was living at home – started getting dizzy and falling often. It got to the point where she needed assistance 24/7. This was the closest I had even been to a Long-Term Care claim and suddenly, LTC Insurance took on a far larger role in my business production.
This is nothing new, we have all heard before that an experience/story helps in the sales process. I was twenty-five years old at the time, so it makes sense that my prior experience was limited.
Fast forward to today, I deal with dozens of advisors every week. Most are within a deviation or two of the mean advisor age of 57, however, few write Long-Term Care Insurance on a consistent basis.
So, the Million Dollar Question: Why is Long-Term Care not a larger part of most advisors practices when they have had much more experience and stories than I have?
Here are some of my observations:
- It’s not an easy story to tell
- Premiums are not cheap
- Premiums are not guaranteed
- If you do not use the benefit your beneficiaries get nothing
- Clients cannot always afford great coverage
Here are some of the things I have learned:
- There are no easy insurance stories. Insurance exists because unexpected life situations are hard. It may sound crazy, but we are far more in touch with our mortality than we are with our fragility.
- Premiums are not as expensive as people think. For a healthy 55-year-old woman a Universal Life Insurance policy will cost roughly $11 per thousand. That same woman can get a Long-Term Care Policy for around $6 per thousand. The difference in premium for men is even wider since their life insurance costs are higher and LTC costs are lower.
- Premiums are not guaranteed. Neither are Health Insurance premiums, Home Owners, Auto, Business, etc. We get sucked into this trap sometimes where anything that is not designed perfectly, is completely useless. After a brief conversation, if a client is still most concerned about increasing premiums that’s ok, we have other options.
- There are many types of insurance that have no value should you not use all or some of the benefit. Again, we suggest discussing the benefit of LTCi further with the client to come up with a solution.
- It’s ok if clients can’t afford the highest monthly benefit or the longest benefit period. I can’t afford a Lamborghini, but that did not stop me from purchasing a Subaru. Some coverage will serve your clients far better than no coverage.
One of the most important points I try to make these days is that Traditional Long-Term Care policies are no longer the only arrow in the LTC quiver. We are now steering more advisors and their clients towards Hybrid and Asset Based products. These products have guaranteed premiums, they have cash values, they have death benefits, and they can be combined with other planning.
It is time to stop discussing Long-Term Care like we did a decade ago. We all have our past stories and that goes for clients as well. The biggest difference now is that we have more conclusions to offer for the stories our clients have yet to make.
We have a great White Paper about this exact question.
CI Riders are classified under IRC 101(g) and cannot be marketed as true LTC.
LTC Riders are classified under IRC 7702B as Qualified Long Term Care insurance.
Generally speaking, if your clients are looking to do Long Term Care planning, we suggest LTC Riders over CI riders.
The White Paper goes into greater detail about what this means to your client and how it would affect them/their policy.
Don’t forget, Algren has access to some of the best and brightest in the industry, so dig deep with these questions and let’s all learn together!
Please remember that the answers given here are intended for general educational purposes only. Algren Associates does not provide tax or legal advice.
Millennials are a tough crowd to market/sell to. I should know, I’m one of them. Why is it tough to sell to us? How do we combat that?
One of the biggest reasons it is tough to sell to us in general is because we have a much greater inter-generational gap than nearly any generation before us. If you consider anyone born between the early 80’s and late 90’s a Millennial then you have to take into consideration that there is a population in which half of the group spent their formative before the proliferation of the internet and the other half, after.
To add further complications, nearly 25% of the population falls into this category with vast differences in experience. This has created a massive group of people who are incredibly fluent in all things internet but view it through very different lenses.
No wonder no one has come up with a unified sales technique.
On top of everything else, the main catalysts historically for seeking out and purchasing Life Insurance have been marriage and starting a family. These are both things that my generation have put off at far greater rates than our predecessors.
There is some good news. Just because it is hard, does not make it impossible.
As Millennials age, they are beginning to settle and have children. It is behooven on us as an industry to understand that they are looking for information on Life Insurance and it is incredibly accessible to them.
So I think we need to sell products less and focus on selling the value of Advisors.