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Life Health > Life Insurance

This $400k IRA mistake doesn’t have to be your client’s mistake!

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Leonard Smith recently reminded me of the basic sales presentation I learned more than 30 years ago and while I have deviated to differing degrees over the years I have kept the time tested presentation the same. Leonard Smith’s recent story reminds me why I have stuck to this basic presentation, I’ll tell you who Leonard Smith is but let me lay out the simple presentation I learned years ago to help you catch why Leonard Smith’s story brings the value of this presentation home.

So you have an appointment with a prospect, we’ll do a typically senior profile client, husband turning 65 in five months from the appointment date, he will be retiring from the company he has worked at for the last 25 years, his wife is 62, she works part time and will continue to do so when her husband retires, they own their own home with a small mortgage left, less than $50k, he will get social security, a pension from work, he’s not sure about his health benefits from work, they are healthy yet take a couple of medications. They have two grown kids, one lives’ close, the other out of town, each kid is married and together they have 5 grandkids.  This is the wife’s only marriage, it is his second, the first only lasting 4 years when he was in his late 20’s, he has life insurance from work equal to his pay, he has a small, 25k term policy that will end when he is 70 and his wife has a small policy they took out when the kids were small.

You ask for them to have all their insurance plans out for you to review when you arrive, everything, life, health, work   benefits, ancillary plans, car insurance, and any insurance plan they are paying for or use to pay for. After taking a few minutes (less than 30 minutes most of the time) you get with them. On a legal pad or portable white board (use to carry one in my briefcase) you draw out this simple chart:

 lloyd IRA data

In each block you ask “When you get sick or have a medical problem, who do you usually go to?” The answer of course is a doctor, you then ask the doctor’s name and write it in the block, if they don’t have a specific doctor then you write in “Doctor”, you repeat the question for dentist and either the person who does their taxes or if they do their own taxes who they would see if they have a legal problem, either write that name in or write “Lawyer”. Now in the final block you write the first name of all the different agents on all the different policies you have reviewed, this is one of the reasons you want all the policies they have, there is another, more important reason also, we’ll get to that.

protectionThen you say “First I want to thank you for having all your policies for me to take a few minutes to review. After reviewing them I have a couple of concerns I wanted to present to you, it looks like in the areas that are most important to you, the areas that affect you and  your family you have a professional handle things for you, if you get sick or hurt you go to [doctors name, or state doctor], if you have a dental problem you go to [state dentist name or state dentist] and to make sure you don’t have a problem with the IRS you have your taxes done by [or if they do their own taxes you state if they had a legal problem they seek the advice of then state the lawyer’s name or state lawyer], does that look true to you?” They will answer “yes” because the answers you have written down are theirs not yours.

Then you point to the first names you have written in the last block and say “yet in the areas that could have the most devastating financial impact on you and your family, that could affect your ability to pass on the estate you have worked so hard to create you don’t seem to have one professional you depend on, does that seem true?”

At this point you draw a circle around all the agents names, when they look at each other and say yes or they never thought about that you then say as you draw that circle around those agents names “I’m here to apply for that job, is that ok with you?”

You have now taken the mantle of creditability of their doctor, dentist, tax expert or lawyer and put it on your shoulders. When they say yes you can apply for that job as the person they trust to advise them on these important matters you now give them three things for free.

You tell them you reviewed the policies they provided and three things jumped out at you. So here are the three things I have always looked for and rarely did not find, beneficiary wording on all policies, policies where they may be or are paying for duplicate coverage or will be paying for duplicated coverage and do they have a current, executed will/trust.

successSo you review:

  1. Beneficiary wording – is it current, I had a client who still had his ex-wife of 20+ years earlier on his work life insurance because when he remarried some 18 years earlier he changed beneficiary on other policies but forgot about this, his current wife was none the happier when I pointed this out but grateful they realized this mistake, of course I helped them make the correction. Check to make sure the beneficiary wording includes or the policy includes a common accident provision.
  2. Ancillary policies – check all policies that are, could be or will be duplicate coverage when one or both of them get on Medicare and get some kind of supplement to cover the expenses Medicare doesn’t cover. Many cancer plans end when they turn 65, several travel accident plans cover hospital/doctor or medical benefits that become moot when they are on Medicare and ancillary indemnity plans may continue to cover the spouse but not the person retiring, all of these could free up premium dollars they can reposition to products that better fit their needs in retirement and can save them money for plans they no longer need.
  3. Will/Trust – if they don’t have a will/trust suggest or better yet have a working relationship with a competent attorney you can refer them to. If they do have a will/trust review it and make sure beneficiary wording, distributions and medical issues coincide with wording on policies they have, private and at work.

My experience is when you do this review you will find something of concern in each of these three areas and you may have never thought of or noticed these concerns without using a presentation similar to this one.

shadow manSo why is this important and who is Leonard Smith?

Leonard Smith lost his battle with cancer in 2008, he had a financial advisor and an attorney, and in fact he had a well laid out plan that included a will his attorney crafted. Leonard had an IRA and in the beneficiary wording on the IRA form the wording was “…to be distributed pursuant to my last will and testament” and therein laid the problem for his kids.

Leonard Smith had remarried two months before he died, apparently neither his attorney or his financial advisor sought to check long forgotten IRA beneficiary forms and consider how that wording could override current wills thereby undermining his intentions.

Beneficiary forms are part of a private contract between the insured and the insurance company; they dictate how and in what manner the insurance company must distribute the stated benefits of the private policy of the individual.

A person’s estate is governed separately so when a will or trust designates one person as the beneficiary and a private contract beneficiary wording designates someone else, the private contract will prevail, in most cases.

Could Leonard Smith’s financial advisor have helped him change the beneficiary wording by specifically listing the names of his children with the percentages designated to each? Would correcting that simple mistake have avoided leaving his kids out of what he intended them to receive, as determined after the kids fought in court?

In an article I wrote several years ago I said “Finally, keep in mind that the person clients name as beneficiary of their tax-deferred plans is only one of several pieces that must fit together for a successful estate plan. The best results are generated when all the pieces — tax-deferred accounts, IRAs, life insurance, investments, business interests, real estate, and other assets — fit together in a coordinated plan.”

I’m guessing Leonard’s kids feel the same way, I’m sure you don’t want your client’s family to go through something like this. The sales presentation is always about the client, never about the product. The product is a “solution” but to what? Can you solve a problem you don’t know exist, does your presentation ensure the solution is the product or are their other issues that should be addressed before the product becomes an important part of creating a lasting solution for your client?


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