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Drill-Down For Proposing A 419 Plan Or Straight Life

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Have you ever run into a competitor who proposed a Section 419 plan against you?

In comparison to an ordinary life proposal, a Section 419 life proposal on one life will look very good. After all, the premium for the Section 419 plan is deductible. What else could you need to know?

The answer is, “Plenty.”

Not that the 419 plan is better or worse than a straight life case. It is just different.

The question the smart advisor should be asking is not whether a straight life proposal or a Section 419 plan is better or worse. Rather, the starting point in all cases, no matter what, is simply this: What is the need the proposed plan is addressing?

Think about that. Some agents, when they call here on the phone, will talk about whatever it is that they want to sell, but they don’t talk about why. Our response: If you know why you are making a certain proposal, then you have to know what the need is that you are trying to satisfy. This will lead to the solution.

Different needs suggest different solutions. This is so, whether assessing insurance needs or any other.

For instance, in helping to develop advanced sales software for a client some years ago, we listed identified factors that the agent had to consider before figuring out a solution for a client. The first question was, “What is the need? Is it survivor income, retirement planning or business indemnification?”

After the agent answered this, the software then asked the agent to enter for additional factors that might be important. (See box.)

Some or all of the additional factors might be important. The software indicated what solution might be available based upon the selections made, and it recognized that some characteristics were incompatible. For example, if control by the employer was essential in a particular case, a business deduction would not usually be available.

Similarly, if the number one priority for a customer is to have a tax deduction for the premium, then split-dollar would be out, but executive bonus would not.

Applying this to the question about using a Section 419 plan versus a straight life proposal, the critical starting point is to ask, “What is the purpose of the insurance?” After that, look at the questions in the box and any other issues important to the customer.

For example, if the customer does not like complexity and wants control over the insurance by the employer, then a Section 419 plan probably would not be appropriate. If answers to questions are incompatible, then the customer has to prioritize them. That is, the customer must choose what is more important among the characteristics. Once this is done, it might turn out that deductibility of the premium may well not be as important as the other issues. This helps in the decision-making.

The key to the sale, then, lies in knowing 2 things. First, know what the need is. Second, know what aspects of the sale are important to the customer, and in what priority.

To determine the second requirement, be sure to find out the aspects of the various available solutions. That way, the agent can assist the customer in choosing a solution.

If you know these 2 things, you will not be flummoxed just because a competitor tells your prospect that a tax deduction is available and you did not propose it. Indeed, a non-deductible premium may be just what is needed when considering the need and the aspects that are important to the customer.