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Life Insurance

What Role Can We Play To Correct Society’s Failings?

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This piece is my opinion (Brandon Unger) and mine alone.

Specializing in Life Insurance has given me a chance to see that superheroes do exist and that they are plentiful. However, most are not recognized for what they are and what they can do.

For anyone familiar with Batman, you’ve likely seen all the gadgets around his utility belt to help people. Smoke grenades for evasion, grappling hooks to stop a fall, even a sonic speaker to call in bats for cover. Most of his tools, are used to protect one person, or a small group of people.

Superman, for all his powers, is limited in the scope of how many people he can save at once.

Selling Life Insurance gives us powers that superheroes could only dream of. We can save individual lives. On more than one occasion I’ve seen cases where a client found out during their medical that they have an elevated PSA, went to the doctor, and caught prostate cancer early.

We also have the ability to protect the families of people that Superheroes failed to save.

We have so much power, but what I have been thinking of lately though, is how we can use that power to help bring equity to communities that our country has failed.

Both of my grandfathers came from very modest means. They both fought in World War II and when they came home, the GI Bill afforded them opportunities that their own poor families never could. Namely, they were able to purchase homes in suburbs with good schools to send their children to.

Why does any of this matter? Because if you look at the wartime pictures from both of my grandfathers, you will see some faces that are darker than theirs. When those faces – that they fought next to – came home, they did not have the opportunity to take advantage of the GI Bill – they didn’t even have equal rights under the law! Instead of purchasing property in the suburbs, they were relegated to rental properties in the inner city, in neglected school districts, where the American dream – that my grandfathers were giving to my mother and father – did not exist.

I have thought about this in the past and it is constantly on my mind these days. It brings me hope seeing protesters and I wish I could believe that they will finally affect real change, but I am skeptical. I have seen protests and riots before, I have never seen change.

Maybe I haven’t seen change because real change doesn’t happen overnight, it takes time, generations. The solutions we provide are predicated on generational timelines. We were built for this fight.

I am writing this from my grandfather’s old study. He purchased the co-op I currently live in, in 1951 after returning from the Pacific and marrying my grandmother. It was made possible by the GI Bill, my entire privileged life as I know it was.

We can do something a superhero could only dream of. We can be a catalyst that helps push the process of bringing equity to those that our government has failed time and time again, with the help of Marc Brown, P.A. estate planning attorneys. Just like the GI Bill, we can put a roof over the head of a family who may not be able to qualify for a mortgage. We can put kids through school who may not have the means. We can offer a group of our fellow countrymen the opportunity to see the cycle broken. All we have to do is reach out to them and help educate them on our solutions.

Forty years from now, when I look back on my career, I can tell you with confidence that I will be more proud if I can say “I helped bring equity to those that did not have it” than “I helped wealthy families pay as little in estate taxes as possible”. I hope you will join me on this mission.

The Power of Permanent

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In my view, permanent insurance is neglected to the point of criminality. It baffles me why advisors and clients alike are so anti-permanent insurance.

There is no other product or financial tool that can guarantee a return of over 5% at someone’s life expectancy.

There is no other product or financial tool that grows cash, both on a guaranteed and non-guaranteed basis without any taxable implications (Triple Tax-Free Municipal Bonds come close).

It is one of the only a few ways to provide near-instant liquidity at death.

It can be utilized as a personal lender.

It can be utilized as collateral.

It can “equalize” a family inheritance plan to not divide real assets.

The last one I mentioned is one of my favorite planning tools with Life Insurance. It is such an easy concept and it is painfully overlooked.

You probably have family, friends, or clients that fought over a home or business when they and their siblings inherited it. With Life Insurance your clients don’t have to worry about one child wanting to sell the house and the other wanting to keep it. With Life Insurance, you can give your clients the ability to leave a $1,000,000 business to their child that has been in the succession plan and “equalize” the other child that has not. This option works out much better than having the kids split the house or business which will likely lead to animosity.

We have been beaten so hard over the head for so long that Permanent Life Insurance is a cost. We need to retrain ourselves and our clients to realize that it is one of the most flexible assets anyone could have.

UpLoads and Down(No)Loads

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A major player in the “No-Load” Life Insurance arena is halting all sales this fall. We have sold relatively few of their policies so it will not impact Algren in any meaningful way, however, I believe this is quite telling and will impact the No-Load space a great deal.

While it is conjecture at the current time, a source disclosed to us that he believes the carrier is halting sales due to the cost of repricing for Principles Based Reserving.

Here is why this is telling. Contrary to popular belief, “No-Load” products are not without costs. Many I have analyzed are more expensive internally over the life of the contract than their Loaded counterparts (the most common loaded products have higher up-front charges that substantially decrease around year 10). The reason they are more expensive is simple, carriers do not sell enough product to maintain the necessary profit margin.

Here is what is most concerning. If the cost of repricing a product line is too great, then what happens to the older blocks as they weigh down profitability. Could these products see Cost of Insurance increases down the line? If what is conjecture today, is the truth, I firmly believe so. Not all carriers that sell them, but certainly some.

Until these products become more mainstream – thereby decreases internal costs per policy – I am still very skeptical on their appropriateness in most scenarios.

Universal Life or Whole Life

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Have you ever had anyone ask you which product is better? Universal Life or Whole Life?

I get that question all the time. My answer is usually the same: Neither is better. Each product line offers some outstanding features that can greatly benefit consumers.

Let’s take a few minutes to break down what each product is and where they best fit in a clients’ plan.

Policy Duration
Both products are considered “Permanent”. While either can lapse prior to death under several circumstances, they are generally purchased for Lifetime coverage.

Premiums
Both products will include factors such as Mortality and Expenses into their pricing models.

Whole Life will levelize the expected mortality costs so that you are paying more early on and less later on.

Universal Life will use an increasing Cost of Insurance schedule with the internal invested funds leveraged to pay higher costs later on.

Investment Options
Whole Life will generally include a guaranteed interest rate and credit policy holders on a non-guaranteed basis based on overall carrier performance. This is called the Dividend. There are some Whole Life policies that utilize Variable Accounts, Indexed Accounts, and other methods for crediting policies holders but these are by far the minority.

Universal Life has an array of methods for crediting policy holders.

Current Assumption products will credit interest based on the carrier’s performance. This performance can include anything from the general account, to mortality experience, to other investment holdings the carrier might have.

Secondary Guarantee products usually will not show any cash value, however, they have “Shadow Accounts” that are credited similar to Current Assumption products for Lapse-Protection purposes.

Variable Universal products will offer a dozen to a few dozen Sub-Accounts that are similar to Mutual Funds. The performance of the Sub-Accounts determines the growth of funds inside the policy.

Indexed Universal products have many different interest crediting strategies. At their very core though, they nearly all offer participation in an Index’s gains through the purchase of options. Some stop there, others offer everything from guaranteed interest bonuses to charging additional fees for greater leverage.

Distributions
Paid Up Additions may be surrendered for their cash value, however, the base face amount of a Whole Life policy cannot be reduced. It can only be loaned against.

The base face of a Universal Life policy can be reduced. As such, a client can choose to withdraw as much as they like, loan as much as they like, or use a strategy that includes withdrawals and loans.

Taxes
Generally speaking, both types of policies can be set up to distribute income on a tax-free basis. Client’s should consult with their tax professionals to make sure they are owning, funding, and taking distributions appropriately.

Riders/Features/Etc.
Whole Life and Universal offer dozens of different riders depending on the carrier and product. Some carriers have riders that sound identical but operate differently. Take Waiver of Premium for instance. Some carriers will waive the entire billed premium, other will only waive the Cost of Insurance, others may choose a different amount to waive.

So, instead of asking which type of policy is best, challenge us to help you to find which type of policy fits each of your clients’ needs best.

You Should Consider Using Protection

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I get it. In the 1980’s Current Assumption and Variable products were illustrated using wild and crazy interest rates. The backlash is still felt all over the industry in the form of “Well what are the guarantees?” anytime someone is discussing permanent products.

This led to an overwhelming reliance on Guaranteed Universal Life and Whole Life as the default permanent product lines for many agents.

The problem is, many clients would likely fare better – with either lower premiums, greater cash buildup, or both – with one of the many other permanent products available.

Let’s not go off the deep end today though. I am going to stick to just discussing the basic need for Life Insurance.

PROTECTION

We just placed a case for a 57-year old woman. She wanted $350,000 of permanent coverage. The advisor asked us to illustrate a GUL and a Whole Life product. After a brief discussion, the advisor agreed to look at an IUL geared towards protection.

We presented three options focusing on Death Benefit Protection:

IUL (geared towards protection)

This option came in as the least expensive but also had the shortest Death Benefit guarantee, ending at the insured’s age 90.

GUL

This premium came in 3.13% more expensive than the IUL but the Death Benefit is guaranteed to Lifetime.

Whole Life

This premium came in 124% more expensive than the IUL. However, the Death Benefit is guaranteed to Lifetime.

We then got a little more granular.

The IUL illustrated decent cash buildup. We explained that the guarantee is a worst-case scenario should the market return less than or equal to 0% for the next 23 years along with the carrier increasing their internal charges to the max level allowed. This product is projected to well outperform that scenario, even by staunch IUL skeptics.

The GUL does have an opt-out benefit at years 15, 20, and 25, but unlike the IUL, if you take the cash, you lose the coverage. We also discussed the dangers in early, late, and missed premiums.

The Whole Life contract illustrated tons of cash and a healthily increasing Death Benefit. However, the guaranteed and non-guaranteed aspects came with a hefty price.

In the end, the advisor took all three options to the client and the client chose to go with the IUL focused on protection due to the flexibility. She understood the difference in guarantees but felt more comfortable with the flexibility and price point that the IUL afforded her.

After the policy was issued, she asked if there was anyway we could set up the policy so she would not have to pay forever. An increase in premium of under 20% allows her to have the IUL policy paid-up in 19 years. That ended up being what was placed.

When you have conversations with clients about permanent products, Death Benefit Guarantees may be very important to them, but flexibility is likely to be up there as well. However, the flexibility conversation does not seem to be had as often.

Irresponsible illustrations made us look bad and left us leery of non-guaranteed products. However, there are current products that “bridge” the divide. We are happy to talk you and your clients through these products, how they work, and to find out if they may be the right fit for your clients.

To The Future

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Do you ever sit and think about what we do for a living? The amazing impact it has not just today, but in the future?

I was helping an advisor put together a plan for clients of his that just had an infant. Part of the plan included some coverage for their newborn.

While I was running some illustrations it hit me, there is a very good chance that this policy would not pay out this century. Think about that. Someone born today will only be 81 when the year 2100 rolls around.

I am a big fan of Science Fiction. If you were to tell me there is a great book that takes place in the year 2100, I would be all over it. One thing that is never discussed in these stories… Life Insurance.

If George Orwell would have mentioned that people no longer required Life Insurance in 1984, no one would have believed that between 1949 and “The Future”, Life Insurance wouldn’t be there. The entire story would have been ruined.

2001: A Space Odyssey wouldn’t have seemed plausible if HAL had mentioned Life Insurance to Dave and Dave had no clue what HAL was talking about.

While we have no idea what the future holds, we do know that people will always have a need for Life Insurance. Even in Sci-Fi.

So, I challenge you to take a moment the next time you are sitting with your clients to help them plan. Sit back and casually point out that the policy you are discussing could pay out after a human has walked on Mars. It could pay out after we have learned how to mine the asteroid belt. It could pay out after we have found a cure for Cancer or AIDS or both.

The future may be hard to predict, but just like George Orwell, Arthur C. Clark, and countless others understood, the only thing we can count on, is that Life Insurance will remain in any and all futures laid out in front of us.

Making an Asset of Yourself

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Most of us have had the conversation about utilizing Life Insurance as an Asset Class even though it is not technically one (yet).

There are those who are continually lobbying to have Life Insurance characterized officially as an Asset Class since Asset Classes are generally described as “a group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.”

So, let’s break this down on a very basic level.

Life Insurance comes in many different forms with many group health benefits and can be used for many different purposes. This is very similar to an Asset Class you may have heard of named Real Estate. In fact, I would bet that at one point or another you have told someone or been told by someone that Term Insurance is like a rental property – with no value – while Whole Life or Universal Life can act like owned property that builds equity.

Life Insurance products are anything but unpredictable. Even though there may be some “Non-Guaranteed” components, the most “aggressive” policies have clearly defined ranges that their performance will fall into. Again, you may have heard of an Asset Class called Fixed Income or Bonds. Many Life Insurance products’ investment components are based off this Asset Class and thereby will reflect similar behavior.

Life Insurance is regulated. There is no doubt of this in anyone’s mind who has completed New York’s Regulation 60 requirements, or any long for application anywhere. There is an argument to be made that Life Insurance is more heavily regulated than any of the four Asset Classes.

I hope that our efforts prove successful and that Life Insurance become the 5th Asset Class. We can discuss its standard deviation, its Alpha, and Beta. It is time that it is discussed properly.

Accelerated Underwriting Success Story

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The dawn of a new era is upon us.

Seriously, check this out!

Our office received this New York application for a Variable Universal Life policy last Tuesday, June 26th. We processed the file and sent it up that afternoon.

As you can see, the carrier’s Home Office received the application the following day, June 27th.

The client completed the callback on Thursday, June 28th.

Friday, June 29th we received an approval and notified the advisor.

To reiterate. This application left the advisor’s hands on Tuesday and we had an offer on Friday.

Accelerated Underwriting is becoming more and more commonplace with carriers. The up-take has been slightly slower in NY but several carriers do have programs in place.

While the onset of these programs saw many qualifying limitations – Insured under 50 years old, best rate classes only, and only up to $250K of coverage – we are now seeing carriers make offers up to age 60, rate classes as low as standard, and up to $1MM in coverage.

This is new territory and will bring immediate value to your practice.

We look forward to exploring these programs in much greater depth with you.

What is the difference between Chronic Illness and Long Term Care Riders?

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We have a great White Paper about this exact question.

With populations living longer, cost-effective assisted living options like those at carltonseniorliving.com/community/san-leandro/ and villadesanantonio.com/living-options/assisted-living/ that manage chronic illness and conditions long-term are needed if the strain on already burdened healthcare systems are to be reduced. Leading on from this, we are always looking for new opportunities to improve health via preventive healthcare in assisted living services such as a memory care community (you can find memory care services here)– when people feel well they have more energy and a sense of purpose which then leads to engagement in healthy behaviors.

Taking a multi-pronged approach, this research pillar aims to tackle challenges in chronic illness and long-term care management by focusing on conditions such as cardiovascular diseases, metabolic disorders, mental health and terminal illness. The overall goal is to understand links between disease causes and lifestyle risk factors and develop innovative tools to reduce associated morbidity and mortality and improve quality of life among both healthy individuals and those with complex or chronic health issues who require support to remain independent for as long as possible within their homes and communities at home rather than being admitted to hospitals.

The main research focus is on using nutrition as an entry point for intervention through providing individuals/patients with a supply of daily nutrients (such as protein drinks) and/or coaching them to eat a more balanced diet over the duration of their health related condition – with a real focus on patient centered care and tailoring to individual needs and preferences.

Chronic and lifestyle-related diseases and social status were reported to be associated with long-term care (LTC). Current LTC models are based on a system of provider and institutional care that entail high fixed costs making seamless transitions between these settings difficult and cost effective from a policy perspective; access to culturally appropriate services such as assisted living community for seniors or memory care community life services that meet client’s expectations and individual requirements are also limited as face-to-face contact may not be seen as efficient and clients may prefer receiving services in their home rather than institutions while retaining some independence and potentially living in their own homes for longer periods of time with improved overall wellbeing and quality of life despite health conditions and improved clinical outcomes regardless of their state of autonomy status over time.

As such we have made significant progress in developing innovative solutions which aim to provide individuals with greater choice and control in relation to their diets and in turn provide more responsive care and support services for those individuals as they may require different types of diets depending on their individual conditions.

Q & A on Terminal Illness Riders

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Questions:

My client is given six months to live. They then decide to accelerate the entire Death Benefit to look for a cure in the Himalayan mountains. A 100-year-old Yogi living in a remote cave gives them some herbs and miraculously, they recover.

A) Can the carrier come after my client to pay back the Death Benefit?
B) Are there any tax consequences?

Answers:

First, these are gray areas that are very tough to get answers for. No carrier that you discuss this with would give you a “this is what would happen” kind of answer and obviously they would all refuse to be quoted. Likewise, Algren is in no position to give concrete answers, however, what we can tell you is this:

A) Generally speaking it is very hard for any sophisticated corporation to recoup losses from the unsophisticated public for a multitude of reasons that we will not delve into.

In addition, we see that many Accelerated Death Benefit Riders will provide funds for organ transplants that would save lives. While this is a lesser known fact it does lead us to believe that carriers have considered that the acceleration of funds could save a life and they are willing to part with a partial or total Death Benefit in that scenario.

B) If you thought Part A was obscure, Part B makes it look like a 70″ 4K TV. Why is that? Everyone’s favorite three letters, IRS.

Taking the above scenario where an organ transplant saved the life of an insured; the entire Death Benefit was accelerated yet only a portion paid for medical expenses. Assuming the medical expenses were non-taxable would any excess be taxable?

Our source tells us that this question would require a “Re-Characterization” of the funds as taxable. While it is highly unlikely that this would occur, our source also informed us that they did not believe this has been tested in court.

Bonus Tidbit: Our source also told us that they do not believe Death Benefits paid to insureds over age 100 have been tested in court as non-taxable yet.

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