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June 16, 2011 at 08:00 PM
Traditionally, large universal life insurance sales have been associated with the estate tax exemption and how much exposure an individual’s estate may have to what is commonly referred to as the “death tax.” The process was simple: take an individual’s net worth, add a growth factor, assume a date of death, subtract the estate tax exemption, and voila, the result is the life insurance face amount needed to address estate tax liquidity.
If this past decade has taught us anything, it’s that there is nothing simple about determining an appropriate amount of insurance needed to deal with a “moving target”–the estate tax.
However, the uncertainty that currently exists as a result of estate tax legislation is actually the catalyst for significant opportunity for those of us in the life insurance industry.
The Paradigm Shift
Now, more than ever, clients are looking for the one thing that our industry can provide–guarantees. Yet it is how we position these guarantees and other benefits that will determine the level of success in closing a case. Specifically, this paradigm shift happens when we change the focus from estate tax planning to the client’s goals and values, which are at the core of legacy planning.
Producers should steer the conversation toward how clients want to affect the lives of their children and grandchildren. Taxes certainly are important, but they should be part of a larger strategy.
Many producers feel paralyzed because the 2010 Tax Relief Act gives individuals a $5 million exemption ($10 million for married couples) for estate taxes for years 2011 and 2012. While it is true that a married couple would have to be worth more than $10 million to have any estate tax exposure, it’s also true that this piece of legislation will only be in effect for the next two years. Producers should remind clients that uncertainty still remains for estates in 2013 and beyond, ultimately setting the stage for legacy planning.
Shift in Focus Broadens the Market
The number of legacy planning prospects is far greater than that of prospects with potential estate tax exposure.
These prospects have several concerns that may need to be addressed, and life insurance can offer an ideal solution. For example, many families today are considered to be “blended families,” in which married couples have children from previous and current marriages.
Without proper planning, conflict among family members often appears after the death of the principals of the estate. Other concerns may include how the family business is transferred from one generation to the next, how children or grandchildren with special needs will receive proper care, or how to make a significant contribution to a worthy cause.
For this demographic, it’s all about how an individual wants to be remembered, what’s important to them, and what they want for their children and grandchildren–rather than tax planning. For example, how many grandparents would rather talk about taxes vs. their grandchildren? Producers will gain more attention (and sales volume) by showing they understand and care about the broader picture.
Ask Open-Ended Questions
Once these clients are identified, develop a legacy plan through simple fact finding, using open-ended questions such as:
