Life insurance plays an important role in the completion of your client’s financial plans.  Whether it’s to protect their family, fund an estate tax bill, or complete a benefit plan; life insurance is often a necessity in reaching your client’s financial objective. As a financial professional one of the commitments a you make to clients is to monitor the client’s life insurance needs and existing coverage over time. Conducting a Personal Policy Review Analysis once every three to five years is a critical part of that ongoing obligation to make sure your client’s life insurance policy(ies) are keeping pace with their ever-changing needs.

What does a Personal Policy Review Analysis consist of?

A life insurance review consists of two main elements: (1) a review of the client’s current life insurance needs, followed by (2) an analysis of the clients existing life insurance coverage to determine if the death benefit coverage and the type of policy is still appropriate.

The Benefit of conducting a Personal Policy Review Analysis

Conducting a Personal Policy Review represents a great opportunity to further your client advisor relationship; building trust; uncover the need for additional life insurance on the client and or close friend or family member; and create a window for referrals.

EIGHT EASY STEPS TO REVIEWING YOUR CLIENT’S POLICIES:  

1. Determine whom you will contact. In other words, who should receive a review?

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“Crummey” Powers

Crummey powers (named after a man named Crummey whose successful lawsuit validated the technique) are used in connection with Irrevocable Life Insurance Trusts (ILITs) in order to have gifts to the trust qualify for the gift tax annual exclusion. The exclusion is currently $12,000 per donor per donee per year and is indexed for inflation. Only gifts of a “present interest” qualify for the exclusion, and, without Crummey powers, gifts to an ILIT would otherwise be deemed to be gifts of a “future interest”, since the very essence of a trust is to defer enjoyment of the property in the trust until some future time.

Crummey powers need to be carefully drafted and implemented, and we here at Provada are intimately familiar with exactly what is needed in order to make them fully effective. The holders of Crummey powers are typically the primary beneficiaries of a trust, but sometimes these powers need to be given to secondary beneficiaries as well in order to have enough annual exclusions to cover the full life insurance premiums. This can be accomplished by following the “Cristofani” guidelines (Cristofani was another successful taxpayer), and also requires careful drafting and implementation. We are also knowledgeable in this area.

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Great Sales Ideas for 2008 & More Coming Soon!

During the 2007 National NAIFA Convention in Washington, DC, I had the opportunity to interview attending NAIFA members and Exhibitors for The Producers Edge first podcast. The original goal was to find "THE SINGLE GREATES SALES IDEA FOR 2008," but after spending two days recording the brilliant minds that make up NAIFA, I realized not one idea was better than the others.

In the end, I am excited to say that I was able to gather many "GREAT SALES IDEAS FOR 2008." I hope you find that at least one of these ideas to provide great value to your business – and a few laughs as well.

Look for these interviews and more on "The Producers Edge" which will be uploaded in a few weeks.  I apologize for the delay in Podcast Posting, but due to bloopers, retakes and, "Ohh…. No! Can I re-do that!" many of the interviews are currently in editing mode.

PLEASE PARTICIPATE IN OUR BLOG!

• Add comments on the sales ideas you listen to
• And continue to add your own "Great Sales Idea for 2008!"

I want to thank all of those who participated in our Podcast at the 2007 National NAIFA Convention in Washington, DC.  It was a pleasure speaking with you and I do hope that I get the chance to speak with you again!

Life Insurance Awareness Month is a wonderful opportunity for us to remind all of our producers of the remarkable array of benefits and outstanding results that can be achieved with one of the greatest financial instruments ever devised: LIFE INSURANCE!

Life Insurance is the single asset or product that can:

• Guarantee the financial stability of the family of a young breadwinner who dies prematurely from any cause;
• Continue to provide all of its originally intended benefits and results in the event of a temporary or permanent disability;
• Assure that a business can remain a viable functioning entity that employs workers and adds value to the community when an owner dies;
• Enable the other owners of the business to carry on without having to create unmanageable debt or otherwise stretch themselves financially;
• Allow people with second families to provide for their children from a prior marriage without upsetting their current estate plan;
• Provide for special needs children without taking anything away from siblings or other family members;
• Protect estates from the devastating shrinkage that would otherwise occur at death from estate taxes, debts, and other expenses, on a 100% tax-free basis;
• Leverage small annual outlays into tremendous benefits for almost any purpose that are fully guaranteed under today’s products;
• Make it possible for people to be generous philanthropists without having to deprive their families of the benefit of their estates;
• Enable people to accumulate funds on a tax- deferred basis and later receive tax-free retirement benefits while at the same time providing death benefits;
• Allow businesses to provide similar benefits to their top executives on a tax-favored basis and in some cases with no out-of-pocket cost;
• Enable grandparents to provide a legacy to their grandchildren without shortchanging the intervening generation;
• Provide a profit when no longer needed by taking advantage of the opportunity to arrange for a sale in the secondary market.

WOW! Yes, life insurance can do all of these things… and much more. The Life and Health Insurance Foundation for Education (LIFE) is an organization dedicated to addressing the public’s growing need for information and education about life insurance. Check out their website at http://www.life-line.org. And let’s all make this our most profitable month ever by helping those we know achieve these wonderful results.

The other day I went to Barnes and Noble to find a book on a topic I wanted to learn more about. I normally buy books on Amazon but this situation was ideal for a brick and mortar purchase. I wasn’t exactly sure which book to buy and had compiled a short list of those I wanted to review.

So I wandered into the store and walked around for a few minutes until I found the desired section. I then spent a few more minutes looking for the space where my first book should have been located. And of course, it wasn’t there. So I searched through neighboring books to see if perhaps it was put on the shelf in the wrong place. No luck. I repeated the same process, with the same results, for the second book I was hoping to browse. My search for the third and final book was successful.

While I found that last book to be interesting, I was really hoping I’d have at least a couple of choices. So I walked over to the check-out counter just a few feet away and approached a Barnes and Noble representative who was unoccupied as there was nobody in line. I asked him if he could look up a couple of books to see if they were in stock. His response: “Customer Service is upstairs.”

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“C” Stands for Conserving One’s Assets for Oneself and One’s Family

Conserving one’s assets for oneself obviously must occur during lifetime (which clearly also serves to Conserve those assets for one’s family at death). Conserving assets during lifetime will be covered in detail in this newsletter.

Assuming one has done a good job of Conserving assets during lifetime, Conserving those assets for one’s family at death requires careful and thorough lifetime planning, even though this planning may not take full effect until death. This subject will be covered in detail in our next newsletter.

Conserving assets during lifetime - general considerations

One of the major problems facing all of us during our entire adult lifetimes is the possibility of some adverse, or even catastrophic, event occurring that could wipe out all, or a significant portion, of our assets. This is why almost all of us carry homeowner’s (or renter’s) insurance, automobile insurance, and liability insurance. Some of us in earthquake country also carry earthquake insurance, and some of us in low-lying areas also carry flood insurance. But all of these types of coverage protect only our hard assets. They overlook what are really our most valuable assets: ourselves and our future income-producing capacity. Those of us who work in the financial services field are in a unique position to help our clients correct this typical deficiency in their planning.

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Knowing the basic timeline prior to submitting a case allows you to set expectations, which gives you and your client a better idea of what to expect. Below is the process and timeline we utilize at Provada, which is fairly typical of well-run Brokerage General Agencies. The first part of this post is specific to life insurance policies while life settlement processing is discussed at the end.

APPLICATION SUMBISSION:

• Allow 4-6 weeks for a simple application.
• Most Brokerage General Agencies (BGAs) process applications within 24 hours of receipt.
• If medical records are required, allow for 2 additional weeks. This can vary depending on the applicant’s doctor’s ability to get the records out to the BGA.

UNDERWRITING REQUIREMENTS:

• Clients are typically contacted by the paramedical firm with 24 hours of the requirements being ordered.
• BGAs are typically updated weekly by the paramedical facility.
• Once the exam is completed, results are received within 5-7 working days.
• An average turn around time of 10-14 working days for medical records ordered from doctors and medical facilities.

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Several life settlement providers have recently launched small face amount programs for policies under $500,000. Backed by large institutional funding, the "SFP" program is a simple and fast way to include Life Settlements in your insurance practice!

With just the application and illustration, your client can receive a competitive Life Settlement offer for qualifying policies!

• No medical records or life expectancy report required!
• Offer in 10 days or less!
• Move to closing fast!

How is this possible?

• Size of the Market - Policies of $25,000 to $500,000 comprise the vast majority of inforce policies. By targeting these policies, a large number of our producers should benefit from this program.
• Ease of the Process - Attending Physician’s Statements and Life Expectancy reports are not required to obtain an offer. Simply submit a special application and illustration, and that’s it!
• Tremendous Profits - The huge volume potential, combined with no out-of-pocket cost to obtain an offer, equals a highly profitable business.

“B” stands for Benefiting from ones asset accumulation efforts

This is perhaps the one component of estate planning that many estate owners and estate planners tend to overlook. This is surprising since Benefiting from the fruits of one’s labors during lifetime is the one component that has a selfish motive rather than a generous or loving motive, and it is undoubtedly the main reason that most of us work so hard to build our net worths.

Planning for retirement

The need for retirement planning is certainly well recognized in the United States these days, especially with the future viability of Social Security being at least somewhat in doubt and in light of the recent trend of reduced tax-qualified pension plan benefits being provided by most employers. Nevertheless, too many of us defer this important task because of the other pressing priorities we face during our working years. This presents those of us who are in the financial services industry with both a challenge and an exciting opportunity.

Tax-qualified retirement plans

One of the ways we can help fill the retirement planning void is by becoming proficient in the area of tax-qualified retirement plans, both employer sponsored plans such as pension and profit-sharing plans, 401(k) plans, and sometimes even ESOPs, and individually initiated plans such as IRAs, SEPs, and Roth IRAs. Many pension and profit-sharing plans incorporate life insurance into the asset mix. In addition, 412(i) plans in particular (plans fully insured with life insurance and annuity contracts) have become especially popular in the life insurance industry because of the large premiums they can generate. 412(i) plans are also of significant benefit to those clients, primarily small companies, that are in need of a large current income tax deduction. This large deduction occurs because of the conservative assumptions built into the policies that are specifically designed for these plans as well as the generally compressed premium payment schedule. Detailed discussions of these techniques is beyond the scope of this newsletter, but materials and courses are available from many sources, and we here at Provada can certainly be helpful in the product area and with certain design features.

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WHY SELL A POLICY?

Life insurance policy owners find many reasons to consider a life settlement including:

• Underperforming policies: If a policy is performing worse than originally illustrated, the process of a life settlement can be used to purchase more affordable insurance unlikely to fail.  This is useful for both trustees of ILITs and individual policy owners.
• Unneeded policies: Policies that have outlived their usefulness are excellent settlement candidates. Changes in insurance needs, divorce, estate planning goals, and/or personal finances can make current life insurance programs obsolete.  Policy owners can settle unwanted and unneeded life insurance policies and then use the proceeds for any legitimate reason.
• Business changes:  “Key person” policies can be settled when an executive leaves the company.   Insurance used to fund “buy/sell” agreements becomes a settlement candidate when the agreement dissolves or is modified.  Failing policies within pension plans can be “rescued” in some instances with a life settlement.

WHAT TYPES OF POLICIES CAN BE SOLD?

Almost any life insurance policy, or even a variable annuity, may be sold if it meets established requirements. These include:

• Whole Life (if cash value is low)
• Universal Life (Basic UL, GUL, 2nd to die, etc.)
• Variable Life (security laws may apply)
• Term Life (once converted)
• Variable Annuities (particularly those with “high water mark” death benefits”

Policies most likely to receive higher offers have the following characteristics

• The insured is a senior with a life expectancy of less than 20 years;
• The face amount is over $100,000;
• The cash value is less than 30% of the face amount;
• There are no substantial loans on the policy; and
• There is a low premium-to-face amount value ratio.
• The policy is beyond the contestable and suicide periods.

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