Don't Enter through the Exit -Proper Ways to Approach and Illustrate IUL for Retirement Income

By Lisa "Lee" Morris
VP of Underwriting and Development,
Partners Advantage Insurance Services

An experienced financial professional knows all aspects of transferring wealth, replacing income, protecting assets and certainly providing supplemental retirement income all using life insurance products. IUL products have gained great traction in the marketplace as they address many of these aspects, but particularly retirement income. Although the main premise of life insurance is to replace a financial loss, why not accomplish even more by replacing a financial loss AND preparing for retirement. 

Here is the key if you decide to use this strategy. Make sure that you do not enter through the exit door by calculating the retirement income first and then solving for the face amount. An applicant still has to financially qualify and justify the amount of total insurance for which they have applied. Many financial professionals will simply ask an applicant how much sounds like a good idea for your retirement needs and create illustrations based upon the applicant’s response. However, the correct approach is to determine the total amount that the applicant can qualify for coverage and THEN illustrate the amount of retirement income that the applicant will be able to withdraw as retirement income without collapsing the policy. By following this technique, you can adequately meet financial justification and participate in a much smoother ride to policy issue.


For financial professional use only. Not for use with consumers.

Partners Advantage Insurance Services and their representatives do not give tax or legal advice. The material in this article is provided for informational purposes only and should not be construed as tax or legal advice. Guarantees and benefits are based on the claims-paying ability of the issuing insurance company. Keep in mind that most life insurance policies require health underwriting and, in some cases, financial underwriting.

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How Creative Destruction is Shaping Annuity Trends

By: Charlie Gipple, CLU®, ChFC®, Senior VP of Sales and Marketing, Partners Advantage

Creative destruction is the idea that in the process of evolution, free markets can become somewhat messy while making progress. Although the world becomes a better place because of this evolution, progress, and upgrades, the process can be quite the disruptor for those who find themselves on the wrong side of creative destruction. 

This comes to mind as you look at the latest trends in the annuity world. There have been wins as well as losses over the past four years. The variable annuity (VA) product line has struggled but fixed annuities, indexed annuities, single premium immediate annuities (SPIAs) and deferred income annuities (DIAs) have excelled. 

What is causing the creative destruction in the variable annuity world? The No. 1 instigator was the 2008 financial crisis. During this time period, many manufacturers realized that guaranteed lifetime benefits (GLBs) were too costly for them to continue offering the living benefits. This caused a number of VA carriers to leave the VA business. If they continued, they eliminated products. 

Again, with creative destruction there are losers but there are also winners. The winners of this process have been the new VA innovations introduced by the carriers over the past years. These recent VA innovations are investment-only VAs (IOVAs); VA + deferred annuity (VADAs); and structured product VAs (SPVAs), also known as buffered VAs. 

Another benefactor of creative destruction within the industry is fixed indexed annuities. FIAs have been able to maintain strong guaranteed lifetime withdrawal benefit (GLWB) features that have been easily hedged within the design of a FIA product than in a VA product. The benefits that once defined the VA world are now defining the FIA world and other annuity products. 

There is another source of creative destruction on the horizon, as the Department of Labor’s (DOL) fiduciary rule takes effect in April 2017. As of now, the DOL is mandating that FIAs fall under the Best Interest Contract Exemption in order for the financial professional to get paid commission. This upcoming rule will affect a fair amount of FIA business because the new regulation focuses on qualified money. Time will tell how significant the impact will be.

Despite the significant storms on the horizon, I believe the annuity will be able to put more emphasis on the creative and less on the destruction.

Taken from Charlie Gipple’s article in InsuranceNewsNet Magazine, August 2016: “How Creative Destruction Shapes the Fixed Annuity Market” 

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For financial professional use only. Not for use with consumers.

Annuities are designed to meet long-term needs for retirement income. They provide guarantees against the loss of premium and credited interest, and the reassurance of a death benefit for beneficiaries. 

An income rider or benefit (sometimes called Guaranteed Lifetime Withdrawal benefits, or GLWB) is an additional feature available with some annuities and generally optional and come with additional costs. Income benefits are designed to provide income options above and beyond the standard annuitization or free withdrawal features in annuities. 

Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments.  Market Indices do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; neither an Index nor any market-indexed annuity is comparable to a direct investment in the equity markets.  Clients who purchase indexed annuities are not directly investing in a stock market index.

Pursuant to IRS Circular 230, Partners Advantage Insurance Services and their representatives do not give tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Encourage your clients to consult their tax advisor or attorney. 

The information contained in this article is not intended to serve as tax or legal advice and is not intended to provide financial or legal advice and does not address individual circumstances.

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Single Premium Life Insurance: The Perfect Storm has Arrived

By: Charlie Gipple, CLU®, ChFC®, Senior VP of Sales and Marketing, Partners Advantage

There are several factors that are currently in place to create what I call “The Perfect Storm” for single premium life insurance. For financial professionals who currently sell annuities, this product line provides a smooth transition into the life insurance world. Thus, the purpose of the remainder of this paper.

LAZY MONEY 
At the time of this writing (August 2016), the average five-year CD is paying .80%. Even worse, the average one-year CD is paying .30%. This is only 30 basis points! Using the rule of 72, this would take a client 240 years to double their money and that is not including taxes! Even though I am being somewhat facetious with the “rule of 72” comment, when I share that statistic in client seminars the audience either laughs, sighs in shock, or both. 

Furthermore, I also train agents and clients on the fact that risk is in the eye of the beholder. In other words, if $100,000 in a CD would guarantee you $300 (30 bps) a year in interest, is that money safe? Many people would say yes, but I would argue this not the case. With inflation averaging 3.9% over the last 60 years, one is guaranteeing themselves a loss in the purchasing power of their money to the tune of 3.6% (3.9% -.30%) per year. Alas, I would argue that CDs are some of the riskiest investments a person can make! 

How much of this “lazy money” is sitting in banks earning very little? Total deposit balances at FDIC-insured institutions was $9.4 trillion in 2013, because of the “flight to safety” that has taken place since the financial crisis. This is a significant increase from the $6.7 trillion that sat in banks in 2007.1

When we look into the psyche of the person who has their money in these low paying instruments, they are not sitting in these savings accounts and CDs with the intent of getting large amounts of interest. Yes, they are attracted to CDs because they pay more interest than passbook savings, but most important to the investor is the money has more liquidity than say an annuity.

What if there was an alternative that did all of this, and then some? What if there was a product where your clients could receive interest on a tax-deferred basis that could possibly be superior to what they are getting with their “lazy money”? While at the same time, if interest rates on those CDs or money market accounts were to skyrocket, the client has the ability to cash out whatever he/she put into the policy via a “return of premium provision”? It is available and it is called single premium life.

Learn more about this topic in the full white paper by Charlie Gipple. It provides case examples, addresses costs and how you can find success in explaining these products to clients. Request the complimentary white paper HERE.  

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Questions or Need Case Assistance: Contact the
Partners Advantage Brokerage Team at 888-251-5525, Ext. 700.

1 BAI, Perfect Storm for Rising Deposits, Dan Geller, Sept. 4, 2013

For financial professional use only. Not for use with consumers.

This material is intended for educational purposes only and is not intended to serve as the basis for any investment or purchasing decision. Insurance and annuity products: Are not deposits. Are not guaranteed by a bank or its affiliates. May decrease in value. Are not insured by the FDIC or any other federal government agency. This information is written in connection with the promotion or marketing of the matters addressed in this material. The information cannot be used or relied upon for the purpose of avoiding IRS penalties. These materials are not intended to provide tax, accounting or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice. Pursuant to IRS Circular 230, Partners Advantage Insurance Services and their representatives do not give tax or legal advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Encourage your clients to consult their tax advisor or attorney. The information contained in this article is not intended to serve as tax or legal advice and is not intended to provide financial or legal advice and does not address individual circumstances. Encourage your clients to consult their tax advisor or attorney. The information contained in this article is not intended to serve as tax or legal advice and is not intended to provide financial or legal advice and does not address individual circumstances. Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy’s account value and death benefit. Assuming a policy is not a modified endowment contract (MEC), withdrawals are taxed only to the extent that they exceed the policy owner’s cost basis in the policy and usually loans are free from current federal taxation. A policy loan could result in tax consequences if the policy lapses or is surrendered while a loan is outstanding. Distributions from MECs are subject to federal income tax to the extent of the gain in the policy and taxable distributions are subject to a 10% additional tax prior to age 59½, with certain exceptions. These characters are fictional and are not actual customers. Your own decisions should be made in light of your own financial situations. This hypothetical examples used are for illustrative purposes only, is no guarantee of return or future performance, and does not depict the actual performance of a specific product or its investment options. In order to provide a recommendation to a client about the liquidation of a securities product, including those within an IRA, 401(k) or other retirement plan, to purchase a fixed or variable annuity or for other similar purposes, you must hold the proper securities registration and be currently affiliated with a broker/dealer or registered investment adviser. If you are unsure whether or not the information you are providing to a client represents general guidance or a specific to liquidate a security, please contact the individual state securities department in the states in which you conduct business. Indexed Universal Life is not a stock market investment and does not directly participate in any stock or equity investments. Market Indices do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; a market-indexed insurance product is not comparable to a direct investment in the equity markets. Clients who purchase IUL are not directly investing in a stock market index.

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Seven Secrets to Effective Communication: Secret #2: Building Your Story-selling Muscles

By: Charlie Gipple, CLU®, ChFC® 
Senior VP of Sales and Marketing, Partners Advantage

Of the seven “secrets” I discussed in my September presentation at the MDRT® Top of the Table meeting and the associated white paper on this topic, I believe storytelling is the most important one. Working with thousands of MDRT-level producers over the years, I have noticed the one trait that most, if not all, have in common is they know how to take the complicated and distill it down into an easy-to-understand format, usually by using stories. 

It is not what you say; it is how you say it. 

For example: If I told my wife that her face could stop a clock, I would not get a favorable response from her. Conversely, if I told my wife that when I looked at her, time stood still. She would think I had given her a great compliment. EVEN THOUGH I SAID THE SAME THING, I SAID IT VERY DIFFERENTLY THE SECOND TIME COMPARED TO THE FIRST TIME AND WILL GET A COMPLETELY DIFFERENT OUTCOME. Rolf Jenson, the Director of the Copenhagen Institute for future studies, says this, “The highest-paid person in the first half of the next century will be the storyteller. The value of products will
depend on the story they tell.” Think about that.

Why does a teenager spend $200 on holey jeans today? Because it is a story. It is a FEELING of freedom and being a rebel. Jeans with holes in them are the best example of an inferior product being sold at a premium because of the “story.” Another example would be Harley-Davidson. The company dominates the U.S. motorcycle market, not because they have the fastest bikes or arguably the best built bikes but because they have the best story. I have had two of them and I loved them, certainly not because of their reliability but because of the “story.”

In commercials, Harley-Davidson does not talk about technology in their bikes and how their engines are made no more than a financial professional should talk about actuarial tables, tax code, COI charges, etc. on life insurance. The story that Harley-Davidson markets is that there is a good amount of comradery and “family” and a different lifestyle once you join their “club” (herd mentality) after buying a Harley-Davidson. We all see this with people that own Harley-Davidson motorcycles—it is a lifestyle.

An interesting study on storytelling took place around 50 years ago. There was a Nobel Prize winning neurosurgeon by the name of Roger Sperry who had found a way to mitigate epileptic seizures. An epileptic seizure is basically an electrical storm in the brain that goes from right brain to left brain, etc. What he found was if he disconnected the left brain from the right brain, it would mitigate these seizures. While he was doing this, he hooked up an EEG machine to both sides of the brain to measure electrical activity. He then fed the brain analytics and found that the left side (analytical side) of the brain fired up. There was nothing on the right. In other words, the brain was half asleep. Then he fed the brain “emotional” things like pictures and stories. The outcome was different; both sides of the brain fired up at that point! NO longer was the person half asleep. Stories are how we have learned since we were babies and stories are how we will learn until we die. The importance of storytelling and opening up the “mind’s eye” of our clients is paramount.

Many people think they have to be a “natural storyteller” to not bomb when trying to tell stories. This is very far from the truth. I am naturally an introvert and not a “natural storyteller” but the year that I decided to embrace and PRACTICE telling stories was the year that my career changed for the better. This was about 15 years ago, and since then, it has become almost muscle memory to me. In other words, storytelling can be taught by practicing and reading! There are great books on storytelling by Ty Bennett, and also a powerful one called “Storyselling for Financial Advisors: How Top Producers Sell” by Mitch Anthony and Scott West.

DOWNLOAD the full complimentary white paper: Seven Secrets to Effective Communication, by Partners Advantage Senior VP of Sales and Marketing Charlie Gipple, CLU, ChFC. 

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Questions or Need Case Assistance: Contact the Partners Advantage Brokerage Team at 888-251-5525, Ext. 700.

For financial professional use only. Not for use with consumers.

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