Life Insurance Opportunities: Fact-find before you sell

One of the most important steps in building a successful life insurance practice is to take a holistic approach when meeting with a new prospect.

Conducting a thorough fact-finder without any preconceived ideas will uncover many opportunities that could lead to additional sales. Also, by asking the open-ended questions, you create long-term relationships and, most importantly, build trust and confidence.

Many agents fall into the trap of making assumptions about a prospect without spending the time asking the key questions and getting the full view of the person’s life, family, friends, and financial and career goals. For example, if you meet a person who is turning 65, you may only see a Medicare Supplement opportunity. By not getting the full view of your prospect’s goals and objectives, not only are you doing your client a disservice, you are also missing out on other potential opportunities.

When I meet a prospect for the first time, I usually start the conversation by asking, “Tell me about your family,” or “How did you get started in your career?” These types of open-ended questions cannot be answered without elaboration. Most people love to talk about themselves, their successes and their families. You will be amazed at how much information your prospect will share with you as long as you keep listening and stop talking. Just like a doctor will ask us questions about our health — both physically and emotionally — we too must focus on our clients’ financial health and how that is driven by emotions, worries and dreams. We find our agents are achieving consistent success in serving the life insurance needs of clients and building their practices by using a more holistic fact-finding approach in estate and legacy planning, cultivating advisor teams, conducting life insurance audits and using hybrid products to meet multiple goals.

Estate and legacy planning

In 2001, Congress significantly changed federal wealth transfer tax laws. The amendments raised the estate tax and lifetime gift exemption amounts, lowered the top estate tax rate and eliminated the estate tax altogether for 2010. At the end of 2010, Congress created a temporary “unified” gift and estate tax exemption of $5 million. However, unless Congress votes to maintain this exemption, estate taxes will revert to the 2002 threshold of $1 million in 2013. For your clients, it means that if their estates exceed the $1 million mark, their heirs will pay estate tax at a top rate of 55% — up from today’s 35%.

As most agents are well aware, it’s not uncommon for a family to have a high estate tax valuation when you look at total assets in real estate and large savings in 401(k) or IRA plans. In addition, the value of a closely held business can easily be higher than $1 million. The bottom line: If any of your clients’ or prospects’ estates exceed $1 million, you’ll want to consider ways to help them reduce the estate tax liability before Jan. 1, 2013.

But you won’t know about their estate planning and legacy needs if you don’t do a complete fact-finder. That’s why it’s so important to ask about investments, savings, retirement and real estate assets as well as current insurance protections that may be in place. It’s even more important to learn about their hopes for leaving a legacy to their heirs and others. Life insurance is a wonderful tool to help couples pass assets to their kids and grandchildren or to create a legacy through an endowment to charities, religious organizations or educational institutions. It’s up to you to make that solution known.

A common assumption agents make about life insurance in estate planning is that clients are only interested in the cheapest policy. This is generally not the case if agents position themselves as estate plan builders, not insurance policy sellers. By educating clients on the very real possibility of their heirs losing money if they have to pay large estate taxes and offering several scenarios for how life insurance can provide a legacy for virtually pennies on the dollar, clients will look to you to recommend the best — not the cheapest — solution for them.

Cultivating advisor teams

As we look to build long-term relationships with clients, it is important we position ourselves as part of our clients’ advisory team. To accomplish this, it would be advantageous to learn about a client’s accountant, attorney, banker, and general insurance broker contacts.

Meeting with this group of professionals once a month for coffee or a lunch to share ideas and best practices puts you in a position to refer clients as well as to receive high-quality referrals, accelerate the growth of their clientele and build a reputation as a trusted insurance expert. While many advisors, including accountants, attorneys, and property/casualty agents, have their licenses to sell insurance, many are so busy with their particular specialty they don’t feel comfortable handling their clients’ life insurance needs. The opportunity for agents is to network with these professionals, become part of a planning team and serve as a valuable insurance resource.

An added benefit to these relationships is the clients of other advisors are often the very people you want to meet. Advisors all have families who need estate planning, business owners who require estate and business succession planning, and clients in need of long-term care and retirement planning services. The goal of meeting regularly with local advisors is to help them help their clients meet their insurance needs. When you help them with this, they will refer their clients to you. Additionally, they will look to you to refer them to your clients who need P/C insurance and guidance; wills, trusts and other legal assistance; and accounting services.

The key to success is consistent, honest communications with each advisor — especially if you are working on a case with a client referral. That advisor needs to know you are doing the very best for the client so as not to risk their own relationships.

Conducting insurance audits

Another valuable service agents can provide to their advisor teams, as well as to their own clients and prospects, is the insurance audit.

Thousands of clients have old insurance policies that haven’t been reviewed in years, sitting in filing cabinets or shoe boxes. As mortality rates have changed and insurance carriers have improved product design or adjusted premiums, many clients have the chance to improve their insurance protection by either saving money on premium payments or putting in place policies that offer better cash value accumulation or death benefits. This is especially true for those who have older universal life contracts. We have seen a significant number of these contracts underperforming, as interest rates have fallen steadily over the past decade. As with variable universal life contracts, the underlying investments within the contract have underperformed and are also in danger of expiring.

Now is the time to consult with your team of advisor professionals and obtain copies of their clients’ life insurance policies. For those contracts that are used to fund an irrevocable life insurance trust (ILIT) or a buy-sell agreement, it is especially important to work with their attorneys. By providing this value-added service, you are positioning yourself as the insurance expert, which will lead to more referrals.

This is also the opportunity to determine if an existing contract will meet its intended objective or if there is an alternative option under a section 1035 exchange that will improve the client’s position by reducing or eliminating the premiums, increasing the cash value or boosting the death benefit. Additionally, you may find referrals from clients to others who need this service.

Using hybrid products to meet multiple goals

As you look to assist your clients with their life insurance needs, be sure to think about how the new hybrid insurance products can meet clients’ multiple goals. By asking questions about concerns around long-term care, you might be able to educate clients about certain products that offer coverage through an optional rider.

The latest statistics show that 1 in 2 people age 65 or older will need some sort of nursing home, assisted living or home health care services. Medicare does not cover the costs for these services, and stand-alone LTC policies are often out of the price range for many. By taking an inventory of your clients’ assets, it is quite possible to “reposition” some of these assets into one financial product to meet this need. In one common scenario, a client has $50,000 in a CD at a local bank to cover health-related emergencies. If this person used this asset to buy a life insurance policy with a long-term care rider, the benefits would include:

• Higher returns than the CD, based on the insurance companies’ interest credited rate

• No taxes on the interest earned within the policy

• A larger value of a specified dollar benefit amount to cover qualified LTC costs (also tax free)

• Ability to get premiums back with no penalty, depending on the contract provisions

• Death benefit payment (tax free) to the beneficiary when the owner passes

What makes these vehicles so attractive is the flexibility. There is no “use it or lose it” philosophy. By showing our clients how to reallocate their money, we can provide many solutions.

As you gear up to expand your business and serve your clients to the best of your ability, the uniqueness of the life insurance product provided as the right solution to meet a number of needs for your clients will only strengthen your practice and give them peace of mind and financial stability for a lifetime. Yet, you will only uncover these opportunities if you ask the questions and just listen.

By Drew L. Malkin, CFP, LUTCF.  From the September 1, 2012 issue of Life Insurance Selling.  Drew L. Malkin, CFP, LUTCF is the director of life insurance and investments for Futurity First Insurance Group.


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