We’ve compiled four situations where advisors who are experienced in the cross-sell see opportunity knocking.
1. Annuity arbitrage
When tax-favored wealth transfer is the goal, it’s hard to match the benefits of cross-selling an annuity with permanent life insurance. John Freiburger says the best environment for using the two is within the framework of an irrevocable life insurance trust. For the insurance component, he favors universal life policies from a highly rated carrier that offer a guaranteed death benefit and a fixed premium. The annuity component can be a fixed, equity-indexed or variable product, depending on the profile of the client. In cases where income is a priority, Freiburger says he often recommends an immediate annuity of some form.
2. An insurance exchange with an LTCI upgrade
If, following an evaluation of a client’s life insurance policy, it’s clear the policy is outdated and not delivering the value it should for the price, financial consultant H. Stephen Bailey, RFC, CSA, principal at HB Financial Resources in Charlotte, N.C., will suggest the client exchange that policy for a new one via a tax-favored 1035 exchange. Then he’ll often suggest tacking on a long term care insurance rider to the new policy, using value created by the exchange to cover the cost of the rider. This is a cost-effective maneuver, especially for seniors in good health who lack LTCI coverage.
3. An immediate annuity to backstop an equity portfolio
Granted, says Freiburger, the returns immediate annuities offer these days aren’t sexy. But in cases where clients want a greater measure of certainty in their income stream, having an immediate annuity provides just that. It’s a valuable risk-mitigation tool for money managers and investment advisors with clients who still want to be involved in the stock market but need greater protection for their income stream during retirement. “The immediate annuity takes the pressure off the [equity] portfolio to create income and allows us to stick to longer-term investing goals with the portfolio,” Freiburger says. “If we’re not distracted by the need for income, we’re able to focus on the bigger picture.”
4. Filling a void in a buy-sell agreement
It’s common – and wise – for succession-minded business owners to have buy-sell agreements. Most of those agreements allocate funding for life insurance. But, says Freiburger, “Nine out of 10 [buy-sell agreements] we’re asked to audit don’t have disability buy-out insurance.” Whether it’s full or partial coverage, some form of disability buy-out insurance is crucial. The reason most buy-sell agreements don’t have it, he says, is general unfamiliarity with the product. For advisors in the know, it’s another cross-selling opportunity.