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How to Sell Life Insurance
Life Insurance is a Women’s Issue
There is a looming crisis for Baby Boomer women. The facts are clear: 7 out of 10 Baby Boomer women will become widows.1 And, because Boomer women tend to marry men older than themselves, and live longer than men, they can look forward to a widowhood of 15, 20 even 25 years.1 These women are going to be living with the consequences of how much life insurance is on the man in their lives. I am not at all saying that women should not have life insurance, quite the contrary – they need to have life insurance as well. Many Boomer women are the breadwinners in their family. But, again, the facts are clear – there is a 70 percent chance that the woman will be the beneficiary of the life insurance contract.1 So, it is imperative that insurance professionals approach this issue with Baby Boomer women.
Most Boomer men are underinsured.2 Now, with home prices, stock portfolios and 401(k) accounts down, they are the most underinsured they have ever been. If Boomer women do not ensure that the men in their lives are properly covered, they will live with the consequences. I always tell women to not just take my word for it. A simple homework assignment will suffice – find a widow who is living well, and find one who isn’t. Talk to them. There is really one thing separating those two women – life insurance!
Life Insurance is a Tax Issue
The average marginal tax rate in the last 100 years has been about 61 percent.3 It has been as high as 90 percent and as low as in the low 30 percent range.3 The current marginal tax rate is 35 percent. 401k’s and IRA’s started when marginal tax rates were near 70 percent, and that strategy made perfect sense: take money out of your paycheck that you otherwise would pay 40, 50, 60 percent or more, allow it to grow tax deferred, and take it out when you retire and are in a much lower tax bracket. As I said, this makes perfect financial sense. However, does this strategy still make perfect sense? I think not.
Our country is facing a financial mess – we’ve been in two wars overseas costing hundreds of billions of dollars; we have spent over a trillion dollars in the last few years with bailouts, stimulus plans, more bailouts. We have Social Security that is not properly funded. We have Medicare that is eight times worse. Government and military pensions are underfunded. Every man, woman and child now owes about $500,000 each in deficit obligations!4
So let me ask you a question – Where do you think taxes are going from here? If you said “up,” then let me ask you another question – why are you putting any more money into your 401(k) (other than to get the match), your IRA, deferred compensation, 403b’s, etc.? So you can avoid paying taxes at our current low rates, defer and grow it so you can take it out when marginal tax rates are possibly back in the 40, 50 percent or higher range? That would make terrible financial sense. What is the solution? Permanent life insurance!
While you don’t get to deduct your premiums, they do grow tax deferred. Here is the kicker – you can withdraw money from these policies TAX FREE! And when you die, the benefits go to your family TAX FREE as well! Additionally, in many states, the cash value and death benefit are protected from creditors. As more and more wealthy people figure this out, permanent life insurance sales will go through the roof.
Life Insurance is a Wealth Transfer Issue
One of the most difficult life insurance sales is trying to convince someone who has $15 or 20 million that s/he needs to purchase a large, permanent life insurance policy. S/he will often say, “I’m wealthy, the last thing on earth I need is any life insurance – you’re just trying to make a big commission.” Even attorneys and accountants struggle with this one. I handle this objection by simply agreeing with the client. “You’re right! You don’t need any life insurance. But the facts are clear. When you die (notice I didn’t say if), when you die, without an effective estate plan in place, there is the potential for substantial estate taxation. What you do need is a way to transfer your wealth in the most tax-efficient way possible. If we could do it with stocks, bonds, real estate or any other vehicle, we would. But, again, the facts are clear – permanent life insurance is the very best wealth transfer tool available.”
A simple example would be a person who has $15 million. The agent could put $10 million into a life-only lifetime income annuity. Why life-only? Because at death, that $10 million is completely eliminated from the estate – no income taxes or estate taxes on that $10 million. Okay, but won’t the family be upset about $10 million disappearing from the estate? Absolutely not, because that $10 million was paying the premiums on a $20 million Life Insurance policy in a trust outside of the estate – completely income and estate TAX FREE! (See an advanced planning attorney to set this up properly with gifting, trusts, etc.). Again, when wealthy people and their attorneys and accountants fully understand this, the only sensible solution is permanent LIFE INSURANCE!
This article was first published by the American College in the Wealth Channel Magazine under the title, Three Simple Life Insurance Client Discussions for Times Like These.
1) Source: 2000 Administration on Aging; “Older Women” – Older Americans; Month 2000: In the New Century…The Future is Aging
2) Source: Women and Life Insurance – The Bridge to Somewhere by Mary Quist-Newins, CLU®, ChFC®, CFP® 4/13/2009
Source: 48 Million US Households are Underinsured Says AAA; Business Wire; Sep 13 2006
3) Source: Top US Marginal Income Tax Rates, 1913-2003; www. truthandpolitics.org
Source: History of Federal Individual Income Bottom and Top Bracket Rates 1913-2008; www.ntu.org
4) Source: America’s Total Debt Report by Michael Hodges, April 2
Source: http://www.producersesource.com/featured-slider/how-to-sell-life-insurance-3-vital-client-discussions/
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Looking for an IMO/MGA for life insurance?
Our forum would like to welcome our first and (as of now) only sponsor. Brokers Alliance and their new Elite Producer Program. We have held off for a long time and turned down a lot of MGA/IMO's because we wanted to find one that we can really stand behind as a great resource for our members. If you are looking to get appointed to sell life or annuity products, please give Shelly a call. They take care of all the grunt work so you can focus on developing new clients. Try them out and you will see why we picked them. Be sure to mention our forum for special treatment!
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For over 26 years, Brokers Alliance has provided marketing and advanced case support for life and annuity agents nationwide. However, more than just service and commission, Brokers Alliance provides the level of support needed to ensure that producers experience longevity and success in the financial industry. Brokers Alliance President, David Racich, has forged long-standing relationships with insurance and marketing companies, as well as a variety of vendors who enable Brokers Alliance to help not just the independent agent, but the larger BGA and MGA level agencies. Their strength, knowledge, and experience in the Life and Annuity business will continue to help agents stay on top.
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Source: http://www.insurance-forums.net/forum/life-insurance-forum/looking-independent-marketing-organization-managing-general-agent-life-insurance-look-no-further-t5386.html
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Insurance and Pooling Equilibria
I was struck by Obama's mention last night that:
I will not go back to the days when health insurance companies had unchecked power to cancel your policy, deny your coverage, or charge women differently than men.
Emprically, women use more health care, they cost more, estimates are around 35%. Some of this is childbearing, but a lot of it comes from the simple fact they go to the doctor more often (notice women see their gynecologists rather regularly, whereas men have no comparable service). So now charging women more for something they use more of is illegal because it discriminates.
Interestingly, in the 1970's there was a law passed so that upon retirement, the annual payments to female retirees had to be the same as for male retirees even though women live longer, statistically. That is, the present value of their retirement packages, by law, are larger for women than men.
Government seems to be doing more and more to make it difficult to prevent 'pooling equilibria', cases where different types of applicants get into a pool, eventually pushing out the 'better' or 'lower cost' people who don't want to subsidize the other group. For example, due to legal rulings, it is now very difficult to give job applicants explicit aptitude tests, even though this would be very useful, and avoid the charade from those Microsoft/Google IQ tests given verbally. Interestingly, Nobel Laureate and prominent Big Government advocate Joe Stiglitz's most famous paper relates to an inefficiency from a pooling equilibrium, and his take-away was that markets were inefficient because of this problem. In practice, government encourages pooling equilibrium where it was never a problem before by preventing rational discrimination based on projected costs/benefits based on observable characteristics.
While the equilibrium efficiency loss in Stiglitz-Weiss is abstract, it usually creates something pretty simple, as if you can imagine what would happen to insurance if it could not price based on risk and allowed people to opt out: healthy people would leave in droves, which is why Obama-care made insurance mandatory. Think about the lawsuits on disparate impact for mortgage lending in the 1990s, where whites were rejected less often than blacks, and this was presumed discriminatory (in an evil way), and so the only way to make unequal groups equal is to stop making distinctions that differentiate them, which led to simply the idea that down payments and having a job were unnecessary underwriting criteria.
It's rather funny that Stiglitz's main theoretical contribution to the academic literature is so starkly in contrast to not just his politics but his obsession, which is increasing the size and scope of government which prioritizes preventing firms from rationally discriminating. Remember that in Stiglitz's model, like everything else in this literature (he didn't invent it), failure to discriminate types somewhat known by participants is what causes all the problems, the 'bad equilibria.' I guess that highlights no one takes these models very seriously--change one assumption here or there, different result.
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Resolving a Coverage Conflict through a Declaratory Judgment Lawsuit
The current law in Massachusetts is that if an insured wins a declaratory judgment lawsuit regarding the duty to defend, the insurer has to pay the attorney's fees incurred by the insured in the declaratory judgment lawsuit. This is true whether the insurer or the insured is the plaintiff in the lawsuit. Even if the insured wins a lawsuit regarding the duty to indemnify, however, the insurer is not obligated to pay the insured's attorney's fees.
There are a number of questions that remain unresolved about attorney's fees. For example, it is unclear what happens if a declaratory judgment lawsuit seeks a declaration about both the duty to defend and the duty to indemnify. In other contexts, where a party is entitled to an award of attorney's fees for some claims but not for others in the same lawsuit, the court will attempt to divide up the attorney's fees between the claims. That is always a difficult undertaking, but it would be particularly hard to divide the time spent by the attorney between the duty to defend and the duty to indemnify, because the two issues are so interrelated.
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New SJC Decision Regarding PIP and Rental Car Companies
At issue was whether a rental car agency (Enterprise) that made PIP payments to the renting driver's passengers can seek subrogation from the renting driver's own insurer (Metropolitan).
The SJC first held that the question of whether Enterprise was entitled to subrogation was not one that must be decided by an arbitrator. Although under the PIP statute insurers seeking subrogation from one another must arbitrate the issue of whose insured is at fault, fault was not at issue in this case. Rather, the case involved the interpretation of the PIP statute, which the courts were entitled to determine.
The SJC held that Enterprise was entitled to seek subrogation from Metropolitan. The SJC rejected the argument by Metropolitan that such a decision would relieve car rental companies from the obligation to provide PIP coverage to renting driver's passengers if the renting driver has insurance. The SJC stated that the argument overlooks the fact that a subrogation claim will only be successful if the renting driver was at fault, and that not all renting drivers have a Massachusetts insurance policy.
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When your insurer must pay your loss
While the duty to defend is determined by what is alleged in the complaint, the duty to indemnify depends on the "true" facts as determined by a court. So, going back to the example in the last post, if you are insured for injuries caused by apples falling from your apple tree, your insurer will defend you if someone states in a complaint that he or she was injured by an apple falling from your apple tree.
The case eventually goes to trial. Maybe you win at trial altogether. Your attorney convinces the jury that the plaintiff was not injured; or was not injured by something falling out of your tree. The plaintiff does not appeal. You are all set. The insurance company has paid an attorney to represent you; no damages have been found against you; and the case is over. While you have been inconvenienced and undoubtedly stressed by the lawsuit, you have not suffered any monetary loss.
But if you lose at trial, the insurer, having reserved its rights at the beginning of the case, will make a decision about whether to pay your damages awarded by the court to the plaintiff or to deny coverage. If the facts at trial demonstrated that the plaintiff was hit by an apple that fell from your tree--the very thing that your insurance policy covers--the insurer will pay the damages.
If the facts at trial showed that the plaintiff was hit by a falling acorn, then the insurer will "disclaim coverage"--refuse to pay the claim. Unless you have other insurance that will cover the claim, you will be personally liable to pay the damages assessed.
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