Are You Really Using Your Life Insurance License?
Case Study Below
How one Advisor added $75,000 of revenue by asking a simple question.
We are seeing more and more Advisors put added focus on helping clients put in place protection strategies. Using your life insurance license will give you added significance in the lives of your clients, can generate significant revenue for your practice and insurance protections done properly, will never lead to complaints, broker/dealer compliance issues or regulatory inquiry. Finally, life Insurance may be the last and best tax planning and wealth transfer strategy remaining when all the dust settles around new tax regulations.
Almost everyone is aware of the importance of life insurance. That being the case, why are you avoiding this discussion in your client meetings?
Recently, an advisor simply asked one of his good clients if he could review his life insurance program. This client was a super bright retired engineer and was a “do-it-yourself” type and luckily agreed to the review. Together we reviewed 5 life insurance policies and we quickly discovered some problems that needed immediate attention!
Client was age 65, male in excellent health, but a little stocky at 6’1 265 lbs. He had two policies (out of 5) in his Life Insurance Trust (ILIT) that were in trouble. One Universal Life with a death benefit of $1,000,000 had premiums of $5,600 annually and showed an expected lapse at age 81. The other troubled policy was also a Universal Life with a death benefit of $4,167,143 had premiums of $20,560 annually and showed an expected lapse at age 78. He had longevity in his family and created the ILIT to help maximize a wealth transfer strategy and he wanted to continue with that strategy.
We requested in-force illustrations that showed needed premiums to carry these policies to age 95 would require he spend about $3,200,000 over the next 30 years. A different way of looking at this would be looking at the net difference – Expected death benefit of the two policies was $5,167,143 less cost of $3,200,000 (over 30 years) equals Net Death Benefit of $1,967,143. Not a great IRR for a result that was still not guaranteed.
However, spending the money to keep these in force wasn’t what he was wanted to do but he was willing to do and had the where-with-all to do. Westland helped research alternatives and found solid alternate replacements that would cost less with better guarantees to significantly improve the IRR. Then we dug a little deeper and realized that the policies had solid cash values that totaled a little under $800,000 with high cost basis for an after-tax cash value of about $770,000.
This net-cash value information was critical so that we could now explore survivorship or second-to-die options more suitable in an ILIT and that are typically much more cost effective.
In the end two final scenarios were presented:
Use the $770,000 cash to buy a paid up survivorship policy. No additional out-of-pocket premiums.
Use the $770,000 cash to purchase a survivorship policy plus add $30,000 of additional premiums funded through the ILIT. A little more than what he was already contributing for premiums.
Scenario one (no further premiums) final recommendation:
Prudential Survivorship Guaranteed Variable Universal Life – Single pay $770,000 for a guaranteed death benefit of $2,019,087 to age 120. At a conservative 6.5% rate, the expected death benefit was nearly $3,500,000 if one of them reached age 95.
Scenario two (cash plus $30k annual) final recommendation:
Prudential Survivorship Guaranteed Variable Universal Life – Single pay $770,000 Plus $30,000 annually for a guaranteed death benefit of $3,266,934 to age 120. At a conservative 6.5% rate, the expected death benefit was nearly $5,239,702 if one of them reached age 95. Cost was $900,000 over 30 years.
Ultimately, scenario two was accepted and in the works. Client is content with the guaranteed death benefit for the cost and is extremely happy that he will likely realize the same death benefit for his legacy planning that he started with for much less cost.
For simply by asking a question, the compensation will be about $75,000. The process, with Westland’s assistance, was simplified and it has opened this advisor’s eyes to asking about and reviewing life and long-term-care programs for every client and prospect.
Reach out to our team today to inquire about a client situation.