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The future of life insurance

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Exploring the past may be a good way to determine what the future holds for life insurance. Most of us were around when MEC contracts were sold to eat up the old policy’s cash value and create bigger cash values (as long as the dividends held) or when “buy term and invest the difference” came into play.

Predictions of the demise of whole life ran rampant. But, with a policy that is appropriate for the client that continues to offer the protection, tax advantages and accumulation potential, life insurance will likely not go gently into that good night.

Making the purchase

However, the method by which the consumer obtains his coverage is changing with the speed of thought. Will there be a place for the agent in this definite but cloudy future? Will people simply go online and place an order for X amount of dollars of life insurance? Why not?

Think about the appeal for consumers. Lower cost? Less pressure? It certainly shouldn’t be due to better service. Good copywriting will bring the consumer to the point of clicking and purchasing a policy, but where will that copywriter be when it comes time to deliver the policy proceeds to the grieving widow or widower?

As providers of life insurance, we need to understand just what it is we bring to the table. Fortunately it’s not really what’s in the mind of the prospect that makes a difference, but what’s in the mind of the agent.

If we see ourselves as nothing more than an order-taker, responding to a request by the consumer to give them a product, then that’s what we become, and that’s what the consumer sees. If that’s the case, then why shouldn’t they go online and place their order? They do it for their car insurance, why not life insurance?

However, if we see ourselves as trusted advisors who will be there when the family is going through a most trying time, then there’s a good probability that the client will see us that way too. We will be the person they turn to in those times.

Selling the sizzle
How many times have we heard that old adage “Sell the sizzle, not the steak?” Keep in mind the major reason people buy life insurance is to cover the financial effects of an unexpected or untimely death. Life insurance also can be one of many ways to plan for the future.

Will the future change any of the reasons we need life insurance? Will people know all the reasons for buying life insurance without the help of a good agent? We can lead them gently into the future by having them ask themselves questions such as these:

  • How much of the family income do I provide? If I were to die, how would my survivors, especially my children, get by? Does anyone else depend on me financially, such as a parent, grandparent, brother or sister?
  • Do I have children for whom I’d like to set aside money to finish their education in the event of my death?
  • How will my family pay final expenses and repay debts after my death?
  • Do I have family members or organizations that I would like to leave money to?
  • Will there be estate taxes to pay after my death?
  • How will inflation affect future needs?

What does the future hold?
Will our clients need supplemental income sources in the future? Will their survivors need help in getting by? Will their children still want to go to college? Will taxes still be here in the future or will inflation be around in five, 10 or 15 years? If we had asked these same questions 20 years ago, what would the answers have been? The same as the answer today–most likely a resounding “yes.”

Once the image in our own mind is secure, we need to begin to study how to portray that to our clients and prospects. We have to strive to continually find effective and innovative sales tools, in addition to being effective and knowledgeable counselors. We need to create our team of advisors, attorneys, consultants and other specialists to address our clients’ concerns. We need to keep abreast of the latest tax, legal, and legislative issues that can affect us and our clients. Life insurance provides financial protection, living benefits, and the cash needed to transfer wealth.

In its basic form, permanent life insurance does the following:

  • Provides cash to help protect families from financial hardship;
  • Provides cash to fund estate taxes or to provided equal inheritance for the heirs;
  • Allows the client to use leverage in their wealth transfer and gives tax-free gifts at a discount; and
  • May accumulate cash values that may be accessed on a tax-favored basis to supplement retirement income or to potentially provide cash in an emergency.

There is no certainty in the political scene today. We don’t know what will come from future tax laws or what kind of treatment the benefits of life insurance policies will receive. However, we do have the precedent of previous legislation and the knowledge that Congress uses the tax laws in reference to life insurance as much as the average citizen does. Does this guarantee the future of life insurance tax benefits? No, but it does put it in a very favorable place. New tax legislation will most likely follow the same kinds of roads the old legislation did–protect the consumer and if there are changes, grandfather the old in with the new.

What puts life insurance in a strong light for the future is human nature itself. There comes a time in a person’s life when they begin to look at the big picture, find the person they want to spend the rest of their life with, and have children that they couldn’t love more. When that happens, that person can’t help but think “What happens to them if something happens to me?” As long as there is a longing to “be there for them,” there will always be a place for the trusted advisor to provide protection through life insurance. The future of life insurance can be found in those future relationships.

Terry M. Sustar is founder and president of Sustar Financial Group, a Detroit-area independent retirement planning and tax preparation firm.

Sidebar: A healthier future for life insurance

Life insurance sales will skyrocket to unthinkable levels in the next 25 years. There are numerous reasons for this prediction, but the biggest contributors will be the emerging secondary market for life insurance policies known as life settlements. This will create a stampede of people trying to save their retirement accounts using life insurance policies as Congress tries to go after all their saved money.

When a secondary market emerges for any product, sales of that product will grow dramatically and since life settlements are a secondary market for life insurance policies, their sales will be impacted. A little over a year ago a white paper published by the Wharton School of Business made the case that more life insurance will be sold when people have a perceived future value for the product, which life settlements provide. When people realize they can make a profit in the future by selling a life policy, they will be more likely to buy one for their family’s protection and as an investment for themselves later.

Term policies with future conversion provisions will have people over the age of 50 buying a lot more life insurance because they know it will have tremendous value at its expiration date. Buying term insurance after age 50 will no longer be like throwing money away if you think you’re going to live a long life.

As congress looks for ways to raise money to cover the national debt, the trillions of dollars wrapped up in IRAs and 401(k) plans are going to become a major target. Once today’s baby boomers are all over the age of 60, or maybe even sooner, the government will most likely change IRA rules and require higher RMDs. If RMDs are raised, or if boomers are forced to start withdrawing at earlier ages, there will be dollar for dollar offsets of withdrawals against Social Security payments. People will be looking to move their IRA money to a safe harbor. With these ugly events almost certainly coming to pass, I believe converting your IRA/401(k) to a Roth now is a necessity so you can be in a position to move your retirement money tax free over to the safe haven of life insurance in the future, when these costly things congress needs to do materialize.

Congress will go after both traditional and Roth plans, but the difference will be that the Roth owners with good advisors will place the money they don’t need immediately and would like to leave as a legacy for family in high cash value life insurance policies, without tax consequences. The life insurance policies will achieve the same results as a Roth IRA, maybe even better. This will drive the sales of life insurance for older folks through the roof and those without a Roth off the roof.

Garry Madaline is the founder and president of United Retirement
Advisors Group, located in the
Philadelphia area.