The Importance Of Trust

By Jack Bobo

I have just returned from the annual meeting of the Association for Advanced Life Underwriting (AALU) in Washington, D.C. The meeting always is stimulating even to retired guys like me. As I listened to the sophisticated presentations of today’s practitioners, I could not help but engage in a bit of nostalgia.

My mind wandered back more than 40 years when I was making a presentation of split dollar at an AALU workshop. I don’t believe there were more than 12 or 15 people in the room and the stuff I covered was very primitive by comparison with today’s material. But these were the seeds that were planted and that produced the growth in advanced life underwriting. I am also reminded that split dollar, which originally was simply a way to bring together the insurance needs of one party with the premium-paying ability of another party, has expanded into a number of questionable areas. Such expansion always produces a reaction from government and we are witnessing this today.

AALU originally was created to defend the interest deduction in minimum deposit or bank loan plans. The group successfully led this battle, which resulted in the 4 out of 7 rule, a compromise that has served our interests very well over the years. Unfortunately, when this battle was over, membership dropped precipitously and the future of the organization was in doubt. Luckily, some of the leaders of that time saw a broader mission that AALU could serve and took steps to rebuild the organization. Thanks to people like John Todd, Polly Poole, Ewing Caruthers, Al House and Marshall Wolper, the process of restructuring began, resulting in growth in numbers and influence.

AALU is strong today. Its leaders are forward thinking and it is managed by a talented staff. Indicative of this strength is the kind of talent it attracts to address its annual meeting. The leadoff speaker in the main part of the meeting this year was Colin Powell. He has spoken to the group previously, but I thought his message this year particularly was timely and important.

Powell’s message essentially was about the nature of trust and the role it plays, not only in interpersonal relations but also between nations, as well. He cited examples of quick decisions of great significance that were made when there was no time for research and debate, and it was trust among the parties that enabled them to move ahead. Trust that had been earned in previous dealings served us well in foreign relations. But he emphasized that trust must continue to be earned and once lost, may never be returned.

I thought the message was timely because so much of our business is based upon trust. We are not a transactional business. We require an interface with clients who trust us with their financial and personal information so that we may help them find their way to satisfying their goals and objectives. Other disciplines, which are essentially transactional, are not skilled in the myriad directions that problem solving and service may take.

People want to do business with someone they can trust rather than being overwhelmed by reams of material they do not understand. I often wonder how many people comprehend, or even read, a prospectus they get in the mail or at point of sale.

Following Powell, the meeting progressed with fine presentations and excellent workshops. I particularly was impressed with Ed Slott, CPA, who revealed the vast opportunity available in helping people make wise choices in the distribution of their IRAs. That session alone was worth the price of admission.

The meeting was great, but I do have one concern that you may characterize either as a gripe or constructive criticism. I prefer the latter. My concern is the heavy presence of organizations marketing life settlements in the exhibit area. The legitimate buying and selling of “used” policies can no doubt benefit investors and may be of value to some policyholders, but I believe the practice poses a danger to our business. Some have been critical of life settlements because of the potential for abuse by the so-called “sleaze” element, not unlike some elements of the “used car” business. My concern is more fundamental.

The tax advantages of life insurance are bestowed in support of social policy at the expense of economic policy. The tax-free build-up and non-taxable death benefit of life insurance rests upon three premises. First, the insured is a human life (not an investment fund). Second, the beneficiary, whether a family or business, is dependent in some way upon the insured. Third, the insured is of more value to the beneficiary alive than deceased. Life settlements fail all three tests. Should this practice continue to proliferate, economic policy could prevail over social policy and our so-called “tax expenditures” could be lost in whole or in part. We have plenty of examples that demonstrate when we “stretch the envelope” too far, both we and our policyholders lose. When tax advantages are lost, no one has more to lose than members of AALU.

We hold these tax advantages in trust for future generations of policyholders and our business. If that trust is violated, everyone loses.

I thought the message was timely because so much of our business is based upon trust. We are not a transactional business. We require an interface with clients who trust us with their financial and personal information so that we may help them find their way to satisfying their goals and objectives.”