by Mike "Cy" Cajthaml, CFP® Senior Vice President, Creative Life
No one wants to buy life insurance. No one. But everyone wants the many benefits that life insurance affords. With this in mind, we know that life insurance isn't purchased, rather it's sold. American consumers need the assistance of professional insurance agents who can help identify circumstances that expose a need for life products and the coverage they provide. The most common of which include income replacement and coverage to secure a loan … or, put another way, there are typically only two broad categories of insurable interests: love or money.
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Clients who purchase life insurance out of love for their beneficiaries are looking to deliver on an unspoken promise that the kids will still be able to go to college, that the spouse may remain in a world in which he or she is accustomed to, and that the family can go on as if the person was still here from a financial point of view, even if the primary or secondary breadwinner (or both) passes away. Those purchasing life insurance for money purposes are doing so to secure a loan and guarantee repayment through a life policy with the bank designated as the beneficiary. Regardless of which scenario a particular client is faced with, let's reduce the individual to a money machine to consider the best approach for meeting his or her needs.
IDENTIFY THE GOLDEN KEY
What do you know about your client? What responsibilities does he or she have? Is the primary goal of a life insurance purchase to take care of a spouse, children or grandchildren? Is there a special needs child involved? Is a business or mortgage involved? Once you have determined the role a life policy will play, you can start to determine the appropriate course of action to take. Is your client responding with a range of reasons as to why he or she can't afford to buy? When you start hearing the "I would if ..." excuses, you know you've hit the jackpot. You've identified the fact that funding is the client's primary concern, and now the rest is simple.
Talk with your client about qualified and non-qualified monies he or she might have available and ways to reposition a portion of these assets to create a funding source. For example, does the client have a 401(k), pension or other IRA account that could be considered? Even if the client has not yet turned age 59 1/2, accessing monies from these assets could be possible through a 72(t) distribution. Under this IRS rule, individuals may receive a series of payments based on their life expectancy that lasts five years or until age 59 1/2, whichever is longer, while avoiding the premature 10% distribution penalty on amounts withdrawn. Maybe in your conversation, you discover a financial asset that is out of surrender and is non-performing. By repositioning these funds earmarked for the benefit of the heirs, you've been able to successfully address the client's primary concern and can present the perfect strategy for funding a policy.
INITIATE THE DUAL SALE
Using the funds that you've identified (and/or created), we now need to create an income stream to purchase a life policy and start building cash value. A smart solution for accomplishing this objective is to have the client purchase a new fixed indexed annuity in combination with a state-of-the-art income rider. Fixed indexed annuities provide the principal protection and guarantees clients can feel good about, while offering potential bonus opportunities that can immediately enhance the initial premium, provide guaranteed income for life and, through an income rider, even in some instances, increase the payout due to a long-term care stay. Your Life and Annuity Sales Consultants can help you determine which life and annuity product, in combination with available riders, may be right for a particular client given his or her individual circumstances. Then, it's time to incomitize! The client can turn on the income rider to generate the income stream needed to fund the life insurance sale(s).
An important thing to remember when presenting this approach is that your Sales Consultants are available anytime to help you with the process from start to finish. Your Consultant can help evaluate which life policy might best fit your client's needs and then determine exactly how much premium will be needed for purchase. Using a proprietary calculator Creative Marketing has developed as an added value resource accessible through your Consultant, we can examine the premium available through incomitization (or other funding if you're not dealing with a dual sale) and pinpoint exactly how much life insurance that will buy based on the features and benefits of the specific annuity-plus-income rider selected. The calculator takes into account the amount that must be withheld in year one to pay the initial life premium before moving the rest of the funds into the annuity. It also is adjusted according to the annual income tax rate that will be applied to the money your client incomitizes. With this kind of thorough preparation completed, both you and your clients can feel confident about the decisions you've worked together to make.
As you continue talking with clients about the need for life insurance in their portfolios, keep the Incomitizer strategy in your back pocket. Not only will you be identifying a funding source they may not have realized even existed, you'll be shifting a portion of assets that was previously fully taxable at death into an income tax-free, probate-free legacy for their loved ones. Click here and we'll walk you through the advantages of the Incomitizer. Executing this strategy could help put many of your clients' financial goals within reach and put you closer to qualifying for some much-needed rest and relaxation in Hawaii in 2012!
FOR AGENT USE ONLY. NOT FOR USE WITH THE GENERAL PUBLIC. 12034 - 2011/10/27
Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium may be charged. This material has been prepared for informational and educational purposes only. Agents may not give tax, legal, accounting or investment advice. Individuals should consult with a professional specializing in these areas regarding the applicability of this information to his/her situation.