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Life Insurance Premium Financing: 3 Risks To Consider

Premium financing has many variables to consider when analyzing it as a viable option for clients – but so does planning in general. Oftentimes, premium financing is seen as having more inherent risk due to the fact that advisors do not fully understand the moving parts.

Let’s start with the fundamentals, is there a life insurance need?

When analyzing a premium financing option for clients, it is easy to get lost among the variables in play. These include 1) collateral risk, 2) policy performance risk, and 3) interest rate risk.
 
Collateral Risk
 
Collateral risk is the difference between the outstanding loan balance and cash surrender value of the policy. Additional collateral does not always need to be cash or cash equivalents. When structured properly, clients can pledge dormant assets such as residential and commercial real estate and equipment. The fact that liquid assets may not be needed for premium financing collateral allows for further leveraging opportunities for the client versus paying the premiums out of pocket.
 
Policy Performance Risk
 
Policy performance risk is present in any policy sale, but when premium financing in involved poor performance can increase the collateral risk in the under-performance may not permit the freeing up of loan collateral anticipated at the time of the sale and, possibly, even result in the need for more collateral.
 
Interest Rate Risk
 
Interest rate risk is all about the possible increases in the variable rates charged on the loans made for premium dollars. Rates overall are rising which affects the rates charged on premium finance loans. When illustrating premium financing scenarios expectations of the client must be managed by realistically demonstrating the impact on the plan if rates rise.
 
And in no event, should the feasibility of a plan depend on mere speculative arbitrage between policy crediting rates and borrowing rates.
 
A plan should be based on a more comprehensive strategy that include the cost of purchasing the insurance with cash, the opportunity gained by the flexibility of interest payments in the arrangement and the rate of return on the capital retained that wasn’t used for premium payments. Interest rate risk can be mitigated by structuring a favorable credit facility and administering it every year.
 
We have a full array of products, financing, plan designs, implementation and administration support.
 
Please call your Life Sales Associate concerning your high-net-worth clients who may want to finance their insurance plan to allow for ongoing use of their other liquid or hard assets.
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The New Insurance Policy – Do Your Clients Have It?

Today’s life insurance products are very different from past product offerings. We need to educate and share details of how today’s options can help solve the real life problems modern families face.
 
Are we asking the proper questions? Are we creating enough of a sense of urgency to move clients to take action?

50% of American households acknowledge they don’t have enough life insurance – LIMRA

How do we turn a non-buyer of insurance products into a client who sees value in the products we offer?
 
It has become increasingly difficult for a client to identify the proper products, let alone the correct amounts of insurance coverage they should own. In most cases, the consumer is intimidated with the process of buying insurance, or at least that is what past research indicates.
 
We need to make the process appealing and as ‘client-centric’ as possible. If they are buying insurance, let’s do what it takes to make sure they buy it from you.

21% of consumers had no idea what type of coverage they had bought – LIMRA Over 60% of life insurance shoppers are proactive; most often they want to either review coverage or are impacted by a specific life experience which triggered the need in their mind – LIMRA

Many families are looking to protect assets, accumulate cash savings for retirement and prepare for the possibility that they may require professional care at older ages. We offer a product which can address all of these concerns – a single product that can meet all of these needs in one transaction!
 
How do we find clients?
  • Do you know someone who needs retirement planning?
  • Do you know someone who has taken care of a loved one?
  • Do you know someone who wants to leave a legacy behind?
Do you have anyone who fits one or more of the three descriptions above?
 
We want to help you deliver for your clients. Access to accumulated cash value; money for long-term care services and/or tax favored money for heirs – let’s take a close look at how insurance can secure your clients’ financial futures. Contact your Life Sales Rep today.
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The Life Insurance Triple Play

When you mention life insurance to your clients, chances are the first thing they think about is protecting their families in case they should die prematurely. Yet the reality is that they can face just as much risk by living too long.

What if they outlive their retirement savings? Or become unable to take care of themselves in their old age?

Life insurance with a long-term care (LTC) rider can help provide benefits for your clients whether they live or die.
 
The first benefit provided by life insurance is the death benefit: a source of immediate liquidity payable at death that can help provide income replacement, fund estate settlement costs and repay existing debts.
 
But the right kind of life insurance, properly structured, also generates a significant cash value. The potential cash value can be accessed at retirement via policy loans and withdrawals to supplement your client’s retirement income.
 
Finally, if the policy is purchased with an LTC rider, it can also provide funds to cover long-term care benefits, such as nursing home costs and/or skilled in-home nursing.
 
With such a policy, your clients have now covered three major risks: dying too soon, living too long and living with an impairment.
 
Contact your Life Sales & Marketing Associate today for more information.
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Get To Know Your Clients Better – Use Our Sales & Marketing Resources

Every client is different. Every client’s needs, goals, family situation, budget, risk tolerance, health, and protection concerns are unique. What motivates your clients? And why does it matter?
 
Two big reasons why you want to learn what truly matters to your clients are: 1) You can better design solutions to meet their needs, and 2) You can use this information to motivate your clients to implement your recommendations.

When you know which questions to ask, and learn detail of what your clients would like to accomplish, you start to get a clear picture of what matters most.

You must be willing to ask the discovery questions and be patient with the clients’ responses.
 
A few of the classic, high-level questions are:
  • What do you want your retirement to look like?
  • What kind of legacy do you want to leave?
  • How do you plan on taking care of your children if something happens to you?
Or, you can try a question or two that might normally be outside your comfort zone, such as:
  • What keeps you up at night?
  • What are you most passionate about?
  • What is important to you about life?
You might be surprised what you learn by asking questions you’ve never asked before.
 
Contact your Life Sales Representative today to learn more about the tools and resources we have available for you.
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Life Insurance For The Small Business Market Restrictive 162 Executive Bonus Plans

The traditional 162 Executive Bonus Plan is one of the simplest and most popular executive benefits offered in the small business market. The bonus is tax deductible and has few regulations and reporting requirements. This makes the Executive Bonus Plan extremely attractive to many business owners.

The bonus needs to be considered reasonable compensation in order for it to be deductible, but other than that, the business owner has complete flexibility.

Who is covered and the level of participation is completely discretionary, plus the commitment to the contribution can also be flexible.
 
Even with all of the positive attributes of Executive Bonus Plans, some employers continue to have concerns. Many employers are concerned about not having control of the asset (the policy), which is owned by the employee. The employer may feel that unlike other executive benefit plans, there is nothing to tie the employee to the company, no “golden handcuffs.”
 
Though employees have an incentive to stay with the company in order to continue receiving premium bonuses, some employers may feel that the bonuses paid are “money out the door.” Further, they may fear that the employee may handle ownership of the policy irresponsibly.
 
A potential solution for the employer who has these concerns is the restricted executive bonus plan.
 
The Restricted Executive Bonus arrangement is designed to give the employer some degree of control over the employee’s access to the policy during employment.
 
The restrictive bonus may be approached in many ways; however the most popular method is through a restrictive endorsement to the policy. Using the restrictive endorsement, the employee agrees to sign an endorsement form, which becomes part of the policy. The endorsement states that the employee will not exercise certain ownership rights in the policy; usually for a period of years or until the employee reaches a certain age.
 
It is extremely important that the endorsement signed by the employee not grant any ownership rights to the employer. The only way the premium/bonus can be deductible to the employer is if there are no ownership rights with the employer. If the business had any ownership rights, the business’ deduction of the premiums would be jeopardized.
 
The restrictive bonus should be used sparingly.
 
And only in cases where the employer has expressed significant concern over the lack of control perceived under a standard executive bonus arrangement. In addition, the employee participant may feel as though the benefit is less compelling since the bonus is already taxable (causing an out of pocket expense in a single bonus situation) and the benefits are not immediately accessible.
 
In some cases, a restricted plan may even have the opposite effect from the intended goal of tying the employee closer to the company. It is more practical to use the double bonus, or gross up bonus, when the restrictive endorsement is used. In this situation, the cost is zero and the plan should continue to be compelling to the employee.
 
The bottom line is that executive bonus is a great way for employers to reward and retain key employees. The restrictive bonus can be used sparingly when the objection of “money going out the door” arises. Either way, executive bonus is a great sales concept for the small business market and can generate significant commissionable sales to the producer.
 
Contact your Life Sales Rep for more information.
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Indexed Universal Life: A New Savings Plan!

The yields in today’s marketplace on traditional short-term and long-term savings instruments are at an all time low.

Individuals are looking for efficient strategies to grow their money that they have worked hard to accumulate, but fear high risk in the markets.

There is a way to accomplish long-term growth and minimize the exposure to the increased volatility of the markets – Indexed Universal Life Insurance products.
 
How does this work with a real prospect in mind?
 
Indexed Universal Life has downside protection against poor market performance.
 
For example, if the S&P goes down 20% the policy will protect against loses with a 0.00% floor. The value in the policy will not be reduced by the loss in the index. If the market goes up 20% then the client will realize a gain up to the interest rate cap inside the policy, which can be as high as 13 %.
 
The Indexed Universal Life products also allow the individual to participate in an index of their choice within the carriers offering, which is usually the S&P 500. The client may also have options to participate in the Hang Seng and the EURO STOXX 50.
 
If you have prospects that are creating a college savings account, retaining a key employee or trying to compensate high level executives, Indexed Universal Life is a way to help them secure and plan for their futures.
 
For more information on Indexed Universal Life products please contact your Life Sales Marketing Manager today!
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Multi Generational IRA Planning to Increase Life Insurance Sales

Over 43 million households are invested in Individual Retirement Accounts (IRAs) – and chances are your clients have a share in that number.
 
But perhaps they’ve come to realize they don’t need their IRA assets for income. Or maybe they’ve developed a portfolio of non-IRA assets that are sufficient to provide a comfortable lifestyle in retirement.

Due to the government’s Required Minimum Distribution (RMD) rules, the preference might be to continue deferring taxes on the IRA for as long as possible.

When the children inherit the IRA, their maximum years of deferral are based on their ages at the time they inherit the IRA. This fixed, maximum period cannot be extended regardless of whether the children pass away before this period has expired.
 
The children typically name the grandchildren as their beneficiaries. If the children pass away prior to the end of their maximum deferral period, the grandchildren inherit the balance of the funds, and the remaining balance of the deceased child’s maximum deferral period.
 
How Multi-Generational Beneficiaries Can Solve These Issues
 
Using Multi-Generational beneficiaries, your clients could make some minor changes to their current IRA beneficiary designations to enhance their legacy.
 
The key is understanding that IRA rules allow Designated Beneficiaries to continue deferral over a maximum deferred period that is based on their own life expectancy.
 
Therefore, when the grandchildren inherit the IRA, their younger ages enable them to continue the tax-deferral advantages for a longer period of time than the children could. This compounding of tax-deferred growth can create significant increases in your client’s legacy.
 
Simply consider replacing the children’s IRA inheritance by purchasing a Life Insurance policy with a death benefit equivalent to the pre-taxed value of the IRA, and make the children or an ILIT the beneficiary of the policy and the grandchildren the beneficiary of the IRA.
 
One significant advantage of using Life Insurance is that the death benefit is received by the children free from income tax. Thus, increasing the new inheritance, unlike an IRA inheritance that may be fully taxable to the children.
 
Consider This
 
Assume the parent’s IRA is projected to be worth $500,000 at the surviving spouse’s death.
 
The children would receive a $500,000 income tax free Life Insurance death benefit. The grandchildren would receive a $500,000 IRA and each grandchild will “stretch” the IRA deferral benefits over their individual life expectancies, according to IRS rules.
 
The grandchildren’s life expectancy is typically 20 to 40 years longer than the children’s life expectancy. This extension of the deferral period could be very advantageous to the overall performance of the IRA legacy.
 
Typically, the Life Insurance premium for clients over age 70 ½ are paid by using a portion of the RMD that your client’s are required to withdraw from the IRA. As you can see, Life Insurance can play an important role in the overall strategy of Multi-Generational Planning of your client’s IRA.
 
For more information, contact the Life Sales & Marketing Team.
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Life Settlements: Unlock the Value of Life Insurance

A life settlement can be a valuable option for individuals who no longer need or want their life insurance policy. 

This financial strategy involves selling your life insurance policy to a third party for a lump sum cash payment that is higher than the policy’s cash surrender value but less than the death benefit.

If you have clients over the age of 70 with policies greater than $250,000, here are some important reasons why they might want to consider a life settlement.
  1. Financial Flexibility:  The cash received from a life settlement can provide immediate funds for urgent needs such as medical expenses, debt repayment, or retirement planning, offering a boost to financial stability.
  2. Policy Maintenance Costs:  Life insurance policies often require ongoing premium payments.  If maintaining these payments becomes a financial burden, a life settlement allows you to relieve this obligation while gaining financial benefit.
  3. Changing Needs:  As life circumstances evolve, the original purpose of the policy might no longer be relevant.  A life settlement can free up capital that can be used more effectively according to current needs and goals.
  4. Investment Opportunity:  The proceeds from a life settlement can be reinvested in higher-yielding assets or opportunities, potentially enhancing overall financial growth.

A life settlement can provide a meaningful alternative for those looking to optimize their financial resources in the face of changing circumstances.  Call your Life Sales Specialist for more information.  

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Understanding The Nuances Of LTC And Chronic Illness Riders

As more Life Insurance carriers enter into the Linked Benefit marketplace, it’s important to understand that there are key differences in how their policy riders will provide living benefits to the insured.

Knowing the ins and outs of these riders will help save you and your clients from some potential problems in the future.

There are two different ways in which insurance carriers file for these accelerated benefit riders – first as a Chronic Illness Rider or second as a Long-Term Care (LTC) Rider.
 
What are the differences?
 
Chronic Illness Riders generally require a physician to certify the condition as “likely to last the rest of the insured’s life” while LTC Riders can be utilized for either temporary or permanent claims. While on claim for a LTC rider, policy premiums are likely to be waived though some carriers will still require the scheduled premium to be paid.
 
For temporary claims, you’ll want to be mindful that carriers can require a catch-up premium for the waived scheduled premium which was not remitted while on claim if the client recovers and is no longer in need of Long-Term Care. This can become very prohibitive if the scheduled premiums are significant and/or the client is on claim for an extended period of time.
 
One way to work around this issue is to have shortened premium paying period inside of a “paid-up” policy so that there would be no additional premiums due in later policy years when a client is more likely to have a LTC claim.
 
When promoting a Chronic Illness Rider, it is important to understand whether there is a cost or charge for the rider when it is accessed and also if there will be any limitations to the amount of the benefit available to the client.
 
Some products will not charge a cost until the rider is accessed and some carriers will not be able to determine the amount of benefit available until a claim is applied for. Clients should be made aware of these points before making a final purchase decision.
 
Another key consideration is how the benefit will be paid to the client.
 
For Chronic Illness Riders, it may only be a question of how frequently the benefit is paid out. For LTC Riders, you will need to know whether the rider is indemnity or reimbursement style.
 
Indemnity allows for the full benefit to be paid once the client qualifies for the rider without consideration for the actual expenses incurred as result of the LTC provided. Reimbursement riders will only provide benefit for the actual cost of the qualified LTC services and require the client to coordinate the benefit with the carrier.
 
These are just a few of the different features and functions that you should understand when promoting permanent insurance products which include living benefit riders. Additional consideration should be given to the specific details for each product and rider that you are recommending to your clients.
 
If you have any clients that you would like to consider for this concept or if you would like learn more about any of the particular products or riders available, please call your dedicated Life Sales & Marketing Specialist today.
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10 Most Common Life Insurance Mistakes (And How To Avoid Them)

Placing the right policy, for the optimal amount, with the correct details, can be more challenging than it seems.

Learning the common pitfalls and how to avoid them will not only help your clients get the coverage they need, but will also help you become a better producer.

10 of the most common mistakes are:
 
  1. Naming your client’s estate as the beneficiary.
  2. Failing to name at least two “backup” beneficiaries.
  3. Failing to check up on your client’s policies at least every three years.
  4. Matching the problem with the wrong solution or type of life insurance.
  5. Your client’s amount of personal coverage is inadequate for their family’s financial security goals.
  6. The policy is payable outright to your client’s minor children or grandchildren.
  7. All the insurance on your client’s life is owned by that same client.
  8. You haven’t checked to see if your client’s business or professional practice can provide insurance on a more efficient basis.
  9. Forgetting that term insurance (including group term coverage) runs out and/or becomes prohibitively expensive to carry.
  10. Purchasing life insurance as though it were a commodity.
It’s important to learn not only why these pitfalls present a problem for you and your clients, but also the solution to avoiding them in the future.
 
Your Life Sales Representative is the ultimate resource to placing the proper policies quickly and with ease. Contact us today.

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