There are many people who feel that money is the root of all evil. My 23 years in the life insurance business has led me to believe that money is the root of all hidden objections. If you can find your prospect’s premium dollars, you will earn the commission dollars.
In my former life I was a psychologist. Sometimes it would take a dozen sessions before a bond was formed and the patient would trust me enough to reveal their problems. In this business, we can’t afford to meet with a client 12 times before they are ready to trust us. We must establish that quickly and after the fact find come back with not only the best life product for them, but also a way to pay for it.
If you agree with me that money is the “answer” then read on and I will show you two ways to find it. The most common way is what I call the double lifetime guarantee method, more commonly known as the IRA rescue strategy or the annuity rescue program.
The concept is simple and it works. Let me show you how with a female client age 68. She is a widow with two children and three grandchildren. Her current estate is valued at $3.2 million–of which $600,000 is in an IRA. She doesn’t need any income from the IRA and when she reaches 70-1/2 she plans to take the minimum distribution and leave as much as possible to her family.
That’s a worthy goal but the IRS has what amounts to a collateral assignment on the $600,000. They could take as much as 70% of the IRA leaving only $180,000 for her children and grandchildren. Assuming she qualifies for a preferred non-smoker rate we could increase that $180,000 to $1.6 million. With an attorney and an irrevocable life insurance trust’s help that money would pass income tax and federal estate tax free to her beneficiaries.
The premium dollars would come from purchasing a life-only single premium immediate annuity with the IRA money. That would yield an annual income, after taxes, of $36,000. The $36,000 would pay for the $1.6 million life insurance policy.
I consider this idea the double lifetime guarantee method because the premium dollars are guaranteed for her lifetime, and if you purchase a whole life or universal life contract with a secondary guarantee, the death benefit and the premiums are guaranteed for life. This method also reduces her taxable estate by $600,000 and guarantees you two commissions. One for the SPIA and one for the life insurance.
The second way for your prospects to pay for their life insurance is with other people’s money. That sounds like fun, doesn’t it? “Yes Bob, we need the coverage but we just don’t want to pay for it.”
How does this work? Let’s use another 68-year-old female for an example but this time she’ll have a husband who’s 70-years-old. We will assume that she is a preferred non-smoker and he is a standard non-smoker. Their current estate is valued at $11 million. We are going to tell this wealthy couple that not only will an insurance company underwrite the risk for their life coverage but it will also facilitate a loan to help pay for the premiums.
This idea will not only eliminate your prospect’s objections but destroy the competition as well. Here’s how our sample couple’s premium financing strategy would work.
A $5.5 million second-to-die policy, with rates guaranteed to joint age 100 (with coverage to joint age 115) would cost $100,428 per year. The client then receives a premium loan of $100,428 at 6%. Their net outlay in year one is only $6,026 for a death benefit of $5.5 million, see Table 1.
The loan interest due does not exceed the premium until the 17th year of the contract, at which time our couple is age 85 and 87. For the past 16 years they have saved over $787,000 in premium payments for their life insurance coverage.
Sure their goat may have just died, but your sale is alive and well!
Robert A. Kaiser is president of Kaiser Financial Group, Fanwood, N.J. He has been a General Agent with Transamerica Insurance & Investment Group since 1984. He can be reached at robertkaiser
Reproduced from National Underwriter Life & Health/Financial Services Edition, May 6, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.