Have you ever heard an executive at one of your client companies mention that he needs more insurance?
Or, have you ever felt, while you are enrolling a group case, that you might be able to make additional sales–if you only knew more about individual insurance?
Here is something to consider: You may think you need to know a lot about an individual product in order to make an individual sale, but that is not always the case.
For example, you can easily increase an executives “group” insurance coverage with an individual term life policy. The rules for doing so are not simple, of course. But they are not so overly complex that they will keep you from making the sale.
To see how this works, lets review the basics of group term life insurance. These are straightforward.
An employer may provide up to $50,000 of group term life insurance each year without cost to employees. The cost of the coverage is deductible by the employer, and not reportable as income by employees. The death proceeds may be excluded from the beneficiarys income.
To qualify as group term life insurance: 1) the plan must provide a general death benefit; 2) the benefit must be provided to a group of employees; 3) the benefit must be provided under a policy carried directly or indirectly by the employer; and 4) the amount of insurance must be computed under a formula that precludes individual selection of the benefit amounts.
[Remember, though, that if the plan covers fewer than 10 employees during the calendar year, or if it provides permanent life insurance, additional requirements apply. These rules are beyond the scope of this article.]
In addition to the above rules, the plan must not discriminate in favor of key employees. If it does, the key employees must include the cost of the entire coverage in their incomes–but the employer can still deduct the cost of benefits under a discriminatory plan.
Benefits will not be considered discriminatory if the amount of insurance bears a uniform relationship to the compensation of the employees. So, a plan with an insurance amount equal to a multiple of compensation should be acceptable.
Now, to the question about making additional sales after the group life sale–how to do it?
You must do your homework. First, you need to know who the “key employees” are. Your home office should help you with determining this, since applying the actual definitions can be confusing. In general, they are the highly compensated employees, and the owners of the business. These employees usually are good prospects for advanced planning
Once you obtain the names of the key employees, consider contacting them individually. You can explain that you have sold a group insurance policy to the company, and that because of the amount of benefit provided to the key employees, there may be estate tax considerations in the naming of a beneficiary. You may ask whether the employee has considered estate taxes in choosing a beneficiary, as you would not want the benefits to inadvertently cause a liquidity problem.
If you do not know much about individual estate planning, you can associate with a more experienced agent for this purpose.
In either case, the most important thing at this point is to direct your conversation with the key employee towards obtaining permission to get some more information for estate planning purposes. Consider using a fact-finder for that purpose, even if you are experienced, because the form will help you not forget important information.
The end result is that you may sell additional individual insurance outside of the group plan. The policies may be any kind of coverage that fits the customers needs.
Another possible outcome: You may sell additional insurance inside the group plan. Note: If you choose this route, the employer may need to raise the insurance amounts in the plan. For example, a plan that provides a flat $50,000 of coverage for all employees could be expanded to provide the greater of $50,000 or two times salary (see Chart 1). Coverage above $50,000 is reportable as income at Table I rates (see Chart 2).
The additional insurance inside the plan may be provided under individual term policies. One advantage of individual policies is that they are portable. But, the employee may not substitute for Table I rates lower than the one-year term rates offered by the insurer. This means that the employee may have to include in income an amount greater than the actual premium paid by the employer.
Many agents believe that advanced individual life sales strategies, such as those discussed here, offer a great opportunity to expand their practice, advise on interesting cases, and earn significant commissions. That means it may be worth your while to review your group accounts for possible new sales.
Douglas I. Friedman, a partner in the Friedman & Pennington, P.C. law firm of Birmingham, Ala., is national counsel on estate and business planning for insurers. E-mail him at doug@
Reproduced from National Underwriter Life & Health/Financial Services Edition, May 13, 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.