Selling insurance is an art and is dependent on product line-ups and great ideas. Beginning on the next page are six tactics for producers interested in delivering standout service to individuals and businesses.
1. Deferred compensation
With clients looking for ways to lower 2016 income tax bills, salary reduction deferred compensation plans that lower reportable income are hotter than ever. Non-qualified deferred compensation (NQDC) arrangements are one of the most common and attractive plans for businesses seeking to reward and retain their top performers because they are flexible and customizable to the executive. NQDC plans come in two forms. The first is often referred to as a “supplemental executive retirement plan,” or SERP. In this case, the business promises to supplement the executive’s income at retirement.
The second NQDC plan is commonly referred to as a “salary reduction/deferral plan.” In this plan the executive defers his or her own salary to fund the plan. The salary amounts deferred are not currently taxable to the executive, but will be at retirement, and then deductible by the business. Both plans are quite popular in the marketplace because they allow participants to accumulate significant retirement savings on a tax-advantaged basis.
2. Executive bonus plans
Running a successful business often depends on recruiting, rewarding and retaining talented executives and key employees who are committed to the business owner’s goals.
In addition to paying an attractive salary, the business owner must offer a competitive benefits package. An executive bonus plan will provide the business with an immediate tax deduction and provide employees with their benefits, including permanent cash value life insurance.
3. Business succession planning using an LLC
Whether your clients are sole proprietors, partners, shareholders or members of an LLC, they’ll want to protect what they’ve already built, so their business can continue to grow. Using a “special purpose/insurance-only LLC” to “warehouse” the life insurance funding vehicles, business owners can protect the life insurance that’s used to fund the business continuation plan from creditor claims, which many business owners find particularly attractive. Best of all, the LLC can also be used to protect disability buy-out proceeds from creditor claims.
4. Private split-dollar plans
This technique is often used in the business setting whereby the employer pays for the insurance premiums. When the transaction involves just family members, it is called “private” split-dollar.
Generally, the insured premium payor (or more commonly, his or her spouse) gets back the premiums paid (or the greater of premiums or the cash value, depending upon the type of split dollar used). By using private split-dollar with a trust-owned policy, you dramatically lower the gift tax cost from the full premiums the client would otherwise have gifted to the trust to the applicable federal rate (AFR) loan interest, where the plan is established as a loan.
5. Premium financing
The London Inter-Bank Offered Rate (LIBOR) is the prevailing interest rate money center banks typically use to loan funds among each other. It is also the most commonly used benchmark for short-term interest rates worldwide.
In the current environment, LIBOR-based premium finance loans are quite attractive. Premium financing is attractive due to fixed assets that clients cannot or do not want to liquidate.