InsuranceNewsNet Magazine - February 2015

Where Are

YOUR

Clients’ Rollover Dollars Going?

PAGE 20

With Tom Hopkins • PAGE 12

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IN THIS ISSUE

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IRA TRANSFER

20

38 R ethinking Whether Younger Adults Are Candidates For Annuities

By Linda Koco Younger adults may turn up their noses at annuities, believing the stereotype that “annuities are for old people.” But in reality, younger adults place a high priority on saving for retirement.

40 U sing Annuities for Responsible Wealth Transfer

FEATURE

20 IRA Transfer Station

By Steven A. Morelli Millions of workers nearing retirement age will make a decision on where to funnel the money they have invested in their individual retirement accounts.

The IRA rollover market is expected to grow to half a trillion dollars annually by 2018. Where will the money go?

By Cyril Tuohy Choosing a high-deductible plan sounded like a no-brainer, until an unexpected health emergency struck.

ANNUITY

38

STATION

8A Rough Entry Into the World of High-Deductible Plans

online

www.insurancenewsnetmagazine.com

FEBRUARY 2015 » VOLUME 8, NUMBER 2

INFRONT

By Rich Lane A fixed annuity can be part of a strategy to make sure your client’s beneficiary isn’t left with a tax bill that he never saw coming.

HEALTH

44 P rivate Exchange Enrollment Expected to Triple in 2015

By Tom Henschke Private exchanges aren’t new, but they are expected to explode in popularity in the next few years.

50

26 QLACs Can Help Reduce Need for Social Security Delays

By Linda Koco A qualified longevity annuity contract can give a retiree the option to claim Social Security earlier rather than waiting until full retirement age.

12 INTERVIEW

LIFE

32 Your Planning Can Save Family Farms

12 Seven Steps to Sell Anything

An interview with Tom Hopkins It takes seven steps to close a sale, says Tom Hopkins, author of How to Master the Art of Selling. In Part 2 of his interview with InsuranceNewsNet Publisher Paul Feldman, Hopkins outlines those seven steps and how you can make them a natural part of your sales process.

2

InsuranceNewsNet Magazine » February 2015

By Louis S. Shuntich Only 11 percent of the nation’s farm families have a succession plan in place. How you can help to keep the farm and the family intact for future generations.

Scan this QR code with any QR code reader on your smartphone

View and share the articles from this month’s issue

32

FINANCIAL

50 Investing in Art Could Leave Your Clients Hanging

By Bryce Sanders Your client may think that painting hanging on the wall is a good investment. But theft, forgery and other pitfalls can easily take the luster from owning fine art.

BUSINESS

52 Are You Too Nice to Close the Deal?

By Connie Kadansky You may think that your relationshipbuilding work is leading to more sales.

But unless you’re willing to ask for business, you are wasting your time.

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ALSO IN THIS ISSUE FEBRUARY 2015 » VOLUME 8, NUMBER 2

INSIGHTS

54 SOCIETY OF FSP: Indexed UL Illustrations Need a Makeover

By Richard M. Weber Crediting rates in IUL illustrations are coming under scrutiny.

56 M DRT: The Appeal of Seriously TopHeavy Retirement Plans

By J. Leland “Lee” Davis The “cash balance” plan is a pension plan that business owners can use to reward both themselves and their key employees with outsized retirement plan contributions.

57 NAIFA: Planning for Your Success in the Next Decade and Beyond

COMPLIMENTARY

REPORT

By Ayo Mseka A look at what will drive the market in the next 10 years.

58 T HE AMERICAN COLLEGE: Americans Overconfident and Unprepared for Retirement

By James Hopkins A survey shows the worsening retirement preparedness crisis in the U.S.

60 LIMRA: Voluntary Options Continue to Resonate With Employers

By Ron Neyer As the competition for labor intensifies, employers are putting a higher value on voluntary benefits.

EVERY ISSUE 8 Editor’s Letter 18 NewsWires

30 LifeWires 36 AnnuityWires

42 HealthWires 48 FinancialWires

What does it take to get to that next level? If you want to be a multi-million dollar producer, then you must act like one.

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PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli

MANAGING EDITOR Susan Rupe EDITOR-AT-LARGE Linda Koco

SENIOR WRITER Cyril Tuohy

WASHINGTON BUREAU CHIEF Arthur D. Postal

VP FINANCES AND OPERATIONS David Kefford

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15 INN 02.15 FOR AGENT USE ONLY. NOT FOR USE IN SOLICITATION OR ADVERTISING TO THE PUBLIC. February 2015 » InsuranceNewsNet Magazine 5

WELCOME LETTER FROM THE EDITOR

Happy 20th, FIAs!

F

ixed index annuities want what any 20-year-old desires: Acceptance and respect.

FIAs still carry that bad-boy taint from years back, from, you know, the experimenting years. Yeah, things got a little complicated back then. Maybe they said some things they shouldn’t have. But we all grow up, right?

We do, but many of us also have trouble outgrowing certain bad tendencies.

It seems like just yesterday that a new, fresh annuity showed up singing a different tune. Before then, annuities were meant to be unexciting. When talking to clients about guaranteeing a safe income in retirement, “Woooooo Hoooooooo!” was not likely to enter into the conversation.

Then something interesting started happening on Feb. 15, 1995. That was when Keyport Life started selling KeyIndex, a product that seemed too good to be true: an annuity that could guarantee a floor, but also give clients upside potential based on the S&P 500.

In Keyport’s case, it was too good to be sustainable. John Olsen sold a few of them in the late ’90s.

“Horribly underpriced product,” Olsen said. “It was 100 percent participation with a 150 basis-point spread, which is free money.”

It meant that if the market went up 22 percent, the contract holder would get 20.5 percent. The first FIA ever sold did well for the 60-year-old client in Massachusetts.

The $21,000 premium grew to $51,779 in five years, according to “Index Annuities: A Suitable Approach,” a book Olsen wrote with Jack Marrion.

By the time that five-year term was up, the company was running into reserving trouble. It was eventually absorbed by Sun Life in 2003. Many of the companies that sold the first FIAs are not among the living. But the idea gained more life year after year. InsuranceNewsNet and other news outlets trumpeted one record-breaking quarter after another.

These days, the product’s strong showing is a bright spot in what had otherwise been some dismal quarters following the 2008 crash.

Obviously, the perennially low interest 6

rates have bedeviled the insurance industry in many ways, particularly in its ability to offer an attractive rate on annuities. FIAs can’t promise the high-percentage growth of the equities that they are most distantly linked to, but FIAs are usually among the best-looking options within the sensible-shoe crowd of CDs and bonds.

That rate edge might only be part of the reason for the product’s runaway success.

The rest has much to do with marketing.

Companies, marketing organizations and producers have done very well to attract buyers with creative messages.

Sometimes those messages and products have gotten a little too creative. Olsen said some companies were trying to deliver on an impossible promise.

“They were trying to be all things to all people – and they threw in the kitchen sink,” Olsen said. “They were trying to insure against mutually contradictory outcomes. One of which cannot possibly occur. They were saying if you keep it for 20 years, you can have the premium back, and if you died, you can have it back in a death benefit. You can’t do both.”

That promise led to some “creativity” in product structure and selling. Aggressive marketing led in 2005 to the Notice to Members (NTM) 05-50 from FINRA forerunner National Association of Securities Dealers (NASD). It had cautioned against marketing phrases such as “Growth Potential Without Market Risk” and a “Win/Win Investment Vehicle.” In truth, many of the examples did not look all that misleading.

After all, the products did offer the potential for growth without the risk of being directly in the market.

Perhaps enthusiastic marketing itself was “tawdry” for insurance, the province usually of boiler-room, penny-stock hustlers. Maybe the kneejerk of turf protection from the securities world played a part as well. Either way, the products, then known as equities-indexed annuities, were catching a bit of unwanted attention.

Index annuities became convoluted, largely in order to offer tantalizingly high rates. To invest long term and ensure the higher rates, insurance companies had to discourage contract holders from surren-

InsuranceNewsNet Magazine » February 2015

dering annuities early. Enter complicated products with 15-year surrender periods and double-digit penalties.

Combine that with some aggressive selling to prospects in their 70s and 80s and you had the makings for public revulsion. That helped propel the Securities and Exchange Commission in 2008 to establish Rule 151A, which claimed FIAs as securities.

In a remarkable lobbying campaign, the industry fought back to not only have Congress toss the rule but also to have a federal court rule against it. It was a double whammy that whacked a silver stake into the rule.

Then the recession once again showed the product’s resiliency and value. Companies and marketers also learned to simplify the annuities and message.

Not all of them, of course. These days, organizations such as the National Association for Fixed Annuities (NAFA) that fought for FIAs are concerned new creative products and messages will again draw reactionary rulemaking. The latest is “uncapped” strategies that have caught some consumers’ eyes. Annuity analysts such as Sheryl Moore of Moore Market Intelligence say that those products are built so they will have the same result as pretty much any other FIA. Regulators are already issuing warnings.

The regulatory warnings are unlikely to build into anything like the storm that led to 151A, but they are not helping the products just when they are needed most.

In this magazine edition is a main feature showing the huge amount of money that consumers are trying to preserve for retirement – about a half a trillion dollars each year. Annuities should be the leading method for people to ensure that they do not outlive their money. That, after all, is the annuity’s reason for being.

But consumers are frightened of them.

And even when they get them, very few hold them to annuitization.

How will the FIA be taken seriously as a retirement vehicle? The same way in which any 20-year-old shakes a bad rep: Make clear promises that they keep, time after time, year after year.

Steven A. Morelli Editor-in-Chief

k

nto Na

n, 3X

Slide Across A Copy Of Your New Best-Selling Book Book, The Soul Of Success That You Co-Authored With Jack Canfield, Creator Of The Chicken Soup For The Soul Empire

Emmy Aw ard W in

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Ni c

Every one of your clients, prospects and colleagues will instantly trust you, give you their complete and utter attention and follow every step of your advice when you…

Nick Nanton here and I wanted to talk to you about the power of being an author and what it will do for your financial practice or insurance business.

I want to start by sharing an underdog story my friend Jack Canfield told me a few years ago.

Jack was a speaker, out on the circuit, as was his soon to be partner, Mark Victor Hansen. They would run into each other and start talking about how they both wanted to impact 1 billion people around the world. When they looked around at the events they were speaking at, continuing on this path was just not going to cut it.

So they called on some of their friends with a crazy idea. The crazy idea was pulling together the most heart-felt stories that their friends could tell and compiling them all into a book.

You may have heard of it. It was called Chicken Soup For The Soul.

This is the same strategy that we have used here at the Agency, ever since we published Big Ideas For Your Business back in 2008. We called upon 22 of our top clients to tell their best piece of business advice and turned it loose into the world. More on this in a minute.

From the day Jack Canfield and Mark Victor Hansen decided to put these stories into a book, everyone called them crazy. The book was turned down by every major publisher, some multiple times.

But they pressed on.

And finally the book was picked up by a small, self-help publisher in Florida called HCI. And they only took the book on a condition. A condition that Jack and Mark pre-sell thousands of books before it ever goes to print.

That didn’t stop Mark and Jack.

And since that time back in 1993, they have gone on to put more than 500 million copies into print with more than 200 titles in the Chicken Soup For The Soul series.

The Chicken Soup for the Soul brand has grown far beyond a book of stories. It has generated hope, motivation and world-changing advice for millions of people all over the world. It has also spawned spin-off products that continue to extend the brand from dog food to coffee mugs and gifts for any occasion in life.

And today I want to invite you to associate yourself with that all-too familiar brand, by co-authoring a brand new book by Jack Canfield, titled, The Soul Of Success.

But I want to do more than just extend to you an invitation to co-author this new book with Jack Canfield. I want you to understand the power of being an author. It is the power to command respect from your market. It is the power to have your market pay attention to you, when they otherwise would have turned a deaf ear. It is the power to have prospects hang on to every word and follow every piece of advice you give to them. This is the power we’ve helped more than 1,589 authors hold in their hands since back in 2008.

And it’s not because you are changing your message. It’s because they see you in a new light. As an author. But my team takes it one step further. We guarantee that you are not only going to publish a new book alongside Jack Canfield, but that the book becomes an instant BestSeller on Amazon.com and or Barnes and Noble.com, forever giving you the title of Best-Selling Author.

I want to tell you more about this publishing opportunity and how aligning yourself with Jack Canfield and the Chicken Soup For The Soul brand will impact your production, your prospecting and the growth of your business. To do so, I have just recorded a new training call with Jack Canfield, where we talk about how he has sold more than 500 million books, as well as my own journey going from an attorney in Orlando to writing a Best-Selling book and working with the top experts and entrepreneurs across the world.

In addition to this special call with Jack, I am also going to give you a digital copy of one of my own Best-Selling books, Celebrity Branding You®. In this book you will see how to build your own Celebrity Brand, something that cannot be taken from you by competitors and the only thing that really distinguishes you from your competition.

To gain instant access to these 2 practice-building resources, go to www.celebritybrandingagency.com/soul or call (888) 255-2533 right now.

When you do, I’ll also share how you can join the National Academy Of Best-Selling Authors at their annual awards gala in Hollywood, CA later this year, and actually meet authors like Jack Canfield who are being honored right beside you.

But you have to act now. Visit www.celebritybrandingagency.com/soul or call (888) 255-2533 today.

“I love working with The Dicks + Nanton Celebrity Branding Agency. They can absolutely help you get to the next level. They do everything they promise and then some!”

Jack Canfield, Author & Co-Creator of Chicken Soup for the Soul®

If you plan on being in business for the long haul, you must harness the power of being a Best-Selling Author, and there’s no better way to do that than by pairing up with Jack Canfield, the man who sold more than 500,000,000 copies of Chicken Soup for the Soul. Get in on it now at www.celebritybrandingagency.com/soul or call (888) 255-2533.

February 2015 » InsuranceNewsNet Magazine 7

INFRONT TIMELY ISSUES THAT MATTER TO YOU

A Rough Entry Into the World of High-Deductible Plans Growth of HSA-Qualified High-Deductible Health Plan Enrollment

A family weighs the risk of a high deductible versus a high premium and decides to roll the dice.

By Cyril Tuohy

I

t sounded like a no-brainer: Get a high-deductible plan from Aetna and pay $402 a month, dental coverage included, for 2014.

The deductible of $5,000 per family member per year, with a maximum family deductible of $10,000, seemed like a faraway number.

Not since my daughter had a brief stint at the hospital nearly a decade ago to unclog a tear duct did anyone in our three-member family even come close to spending that kind of money on inpatient or outpatient services.

With enough in savings, and the ability to call on nearly $10,000 in cash stashed away in a whole life insurance policy, I wasn’t too worried about coming up with $10,000 on short notice in the face of a medical Armageddon.

That was in the fall of 2013, the year I was booted from the bosom of employersponsored benefits and became an independent contractor responsible for my family’s coverage.

We considered ourselves lucky. All year, stories of health insurance hardships surfaced at a steady pace.

Healthcare.gov was a fiasco, more and more workers were becoming dissatisfied with their employer-sponsored benefits and there was no slowing down the inexorable shift in costs from insurance carrier to consumer.

Paying for health care was rapidly climbing the ladder as the No. 1 concern for many Americans, not just retirees but people from all demographic groups. My sister-in-law in New Jersey couldn’t find coverage in the individual market for less than $1,600 a month for her family of four.

And here we were, in southeastern 8

Covered Lives (Millions), March 2005 to January 2013

March 2005

1.0

January 2006 January 2007

3.2 4.5

January 2008 January 2009 January 2010 January 2011 January 2012 January 2013

Individual

Small Group

Large Group

Other Group

Uncategorized

6.1 8.0 10.0 11.4 13.5 15.5

Source: America’s Health Insurance Plans

Pennsylvania, with in-network primary doctor visits and routine tests covered.

Overall, we’re healthy. We’ve never suffered from chronic, critical or catastrophic illness. Life was very good. Until late summer.

That was when my wife’s back began to flare up, and she was diagnosed with a herniated disk. She could barely walk. We couldn’t wait for her to obtain treatment.

First, there was the X-ray to find out if she needed an MRI, which she did. In August, when the MRI revealed a herniated disk in the L3 vertebra, likely from carrying our daughter on her hip years ago, she went in for two rounds of shots in her back.

The physical pain vanished, replaced by throbbing financial pain.

The Hospital of the University of Pennsylvania billed Aetna $614 for a “radiology disk test” – an X-ray, in layman’s terms. Aetna picked up $452, leaving us with $162 out of pocket. No big deal, we could cover that in a blink, and we did.

InsuranceNewsNet Magazine » February 2015

Then came the MRI. Total cost: $6,061.

Aetna picked up $4,521. We were out of pocket $1,540. Ouch, but in the long run, not debilitating by any means. For the first time, though, I was slammed with health care “sticker shock.”

I looked up the price of an MRI on the Internet, kicking myself for not shopping around. But no, $1,540 was about the going rate in this part of the country. “Well at least we didn’t get ripped off,” I thought.

Besides, there was a payment plan.

We could pay the bill off over several months, interest free. It was the first time we’d ever arranged for installments on a health care bill, and it was the first time that I began to approach health care costs like a car payment.

The MRI statement was dated Sept. 7.

On Oct. 7 came the bill from the spine and joint center that administered the shots.

Four shots were administered Sept. 11.

Cost of services billed to Aetna: $7,153. Price of the service after Aetna’s “adjustment:”

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Follow us on February 2015 » InsuranceNewsNet Magazine

For producer use only

9

INFRONT A ROUGH ENTRY INTO THE WORLD OF HIGH-DEDUCTIBLE PLANS $5,653. Out-of-pocket cost to us: $1,500.

Another four shots were administered on Sept. 26. Cost of services billed to Aetna: $7,153. Price of the service after the adjustment: $5,653. Out-of-pocket cost to us: $1,500.

The pair of bills was downright ugly.

This latest salvo from the health provider upped our pain threshold by an order of magnitude.

The MRI invoices have been paid off, but we still owe $1,800 for the shots. We intend to reimburse the remaining $1,800 in $300 installments despite a December invoice date asking us to please remit the balance “immediately.”

With luck, we’ll be able to pay back even more than $300 a month. We hope to be completely done by late spring or summer.

Looking back at our claims history for 2014, my daughter and I each came in way below our respective deductibles, as expected.

My wife blew through hers, but in the end not by much. We were nowhere near the $10,000 family deductible above which the carrier would have picked up every last cent for any kind of procedure or prescription.

When I originally signed up for the plan, the number that stuck in my mind was $5,000. All costs above $5,000 are reimbursed, is how I remembered it. When those first bills came in, I called Aetna and they explained the $10,000 family deductible.

I vaguely recalled reading something about a $10,000 family deductible, but I took a calculated risk. I gambled and lost, even though claims for two out of the three of us came in way “below plan.”

In hindsight, knowing my wife suffered from intermittent back pain, I should have settled for a lower deductible plan, had her treated, and then picked a higherdeductible plan for 2015.

Remember, though, that even with a regular plan we would have been hit with copays and co-insurance payments.

In the end, we did pay more with the high-deductible plan, but it was due to a one-time event that we could have mitigated. We also like the health savings account features that come with highdeductible plans.

Even so, I feel thoroughly chastened: The MRI and the shots ended up costing 10

Patient Out-of-Pocket Costs

Patient out-of-pocket costs have tripled over the past five years.

Average Patient Annual Out-of-Pocket Costs by Plan Type, 2008-2012 (per patient, including deductible, copay and co-insurance)

$1,177 $1,146

$482

$389 $326 $67 2008

2009

2010 Total

CDHP

2011

2012

PPO

Source: IMS Health Pharmetrics Plus

us more than $4,000, on top of the copayments for routine care and prescriptions, on top of the $4,824 in annual premium.

Wading through medical bills, deciphering procedure codes, calling billing services and tracking claims on Aetna’s website all take some getting used to. It takes time and demands extra concentration. You have to hunt down or call up the right documents on your computer, find the right people and ask questions to which you need answers, and know your claims history.

USA Today published an investigative report on rising deductibles and how the move to higher and higher deductible plans is crippling the middle class. I had a little taste of it in 2014, and it’s no fun at all.

If there’s a silver lining, it’s that I’ve come away more educated about health costs, how to navigate the claims process and how to prioritize health needs. In the end, that’s a good thing. I feel as though I’ve played a part in the great shift toward consumer-oriented health care where a better-educated consumer is a more astute buyer.

With high-deductible plans becoming more popular, a little health plan buying savvy will go a long way.

Make no mistake: High-deductible plans are coming our way. The portion of workers with annual deductibles rose from 55 percent eight years ago to 80 percent today, according to research

InsuranceNewsNet Magazine » February 2015

from the Kaiser Family Foundation cited in the USA Today story.

Last summer, I was playing goalie, filling in for a players-versus-coaches soccer scrimmage with a group of 10-year-old girls. It was just a punt, but I felt a twinge in the left knee.

At my annual physical in December, I mentioned it to my physician. She let it go because it hasn’t impaired my movement in any way. Still, I feel soreness. It may be nothing. Even if it is, it’s not likely to be very serious.

You never know, though. I’ll see what comes of it. It will likely require an X-ray, perhaps even an MRI, but at least this year we’ve found a plan with a $3,200 family deductible and individual deductibles of $1,600.

Premiums are higher, yes, but the deductible is far lower than it was last year.

This year, I know we as a family have taken an appropriate amount of risk, an amount with which I’m comfortable. If we’re out another $3,200 in 2015, I won’t be happy but I can live with it. We can cover the costs out of savings.

I can sleep at night.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years.

Cyril may be reached at cyril. tuohy@innfeedback.com.

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11

12

InsuranceNewsNet Magazine Âť February 2015

SEVEN STEPS TO SELL ANYTHING INTERVIEW

S

even is a lucky number, especially when it leads to closed sales and new prospects. It’s the number of steps that master sales coach Tom Hopkins says every salesperson must take for every sale they close.

You might think you know your products and processes, but Tom argues that if you don’t follow the seven steps, you are not only losing sales, but you are also forfeiting your next sale. Yes, this means asking for referrals, but you do it without asking for a referral. Tom explains that in step No. 7.

In last month’s interview, Tom, the author of How to Master the Art of Selling Anything and When Buyers Say No, talked about why you should love the word “no.”

Without “no,” you can’t get to “yes.” Instead, you will end up at the dreaded dead end of “I’ll think about it.”

But that by itself will not get you the sale. You might end up against another roadblock of signing reluctance. Tom explains how filling out the application is part of the sales process, not the scary contract whipped out at the end of the presentation.

Signing becomes a natural part of the process, as does asking for referrals.

In this month’s interview with InsuranceNewsNet Publisher Paul Feldman, Tom breaks the whole process down into seven simple steps.

ner starts putting up defenses, saying to himself, “I’m not even a part of this.” You must spread your questions and eye contact between all parties. And as fundamental as it sounds, all these little things are what will make you a great representative and salesperson.

FELDMAN: What are your seven steps to selling anything?

HOPKINS: No. 1 is finding the right people. No. 2 is making a good initial contact, where they first hear you and like what you have to say. No. 3 is qualification. No. 4 is the presentation. No. 5 is handling objections. No. 6, after handling objections, is the art of closing the sale. And No. 7 is getting referrals.

The closing of the sale begins the moment you make contact. Yes, an hour later, I’m going to end up going for the check

pulling people and leading when you’re asking all the right questions.

Stop talking and start asking, and you’re going to get what you need to know. Because, in any conversation, whoever is asking the right questions is getting the information necessary to close the transaction.

FELDMAN: What are some strategies to transition through the process?

HOPKINS: Most salespeople don’t know how to bridge from one step gently to the next. I always like to preface everything. I think that you have to give people an agenda.

I would finish my introductory statement. If I’m beginning an insurance proposal, it might go something like this: “As we get started tonight, let me just thank you for the time that we’re going to share, and I hope you’ll relax, because I’d like to consider tonight somewhat exploratory.

That means my job is to tell you about our dynamic company, what we’ve done for other families and hopefully what we can do for you.”

Then I would say, “Let me go over the agenda for what I think we should do tonight. First of all, I’d like to share with you the company I work for and how proud I am to be one of its representatives.” People need to hear you say that you are proud to represent this company. Most people work for a company but they never say they’re proud to represent this company.

You’re pushy when you make a statement of fact.

You’re pully when you’re asking all the right questions.

FELDMAN: How important is strategy to sales?

Whoever is asking the right questions is getting the information necessary to close ...

HOPKINS: Strategy is the key.

So many salespeople wing it.

They think, “I’ll just be a nice person and people will buy.”

First, they have to position themselves correctly. People who sell anything are in the word business, and they must work on how they present themselves. A handshake must be good and firm.

You need to have good eye contact with all parties. Too many people in insurance have a tendency during presentations to isolate their eye contact and their questions to one partner. Then the other part-

and their signature. But all the stuff I do between the moment I see them and step No. 6 has to be done properly.

They have to relax with you in the original contact. If you walk in and you’re too abrupt or too pushy, which is what most people expect from a salesperson, they’re going to put up defense barriers.

You’re not pushy; you’re pully. Let me explain the difference. You’re pushy when you make a statement of fact. You’re

FELDMAN: When you’re going through all of those steps, you should be closing the whole time. When do you recommend using “trial closes” in the sales process?

HOPKINS: Most salespeople don’t go smoothly through the steps from presentation to handling the nos and turning them into yesses, and then into the final closing sequence. The way it starts is you must totally cover the money. You can’t even make an attempt to trial close until they know exactly the financial aspects

February 2015 » InsuranceNewsNet Magazine

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INTERVIEW SEVEN STEPS TO SELL ANYTHING

Tom’s 12 Goals for Asking Good Questions Questions must always be asked for a specific purpose. Here are the 12 goals you need to accomplish when questioning a potential client.

1. Use questions to get control of and to maintain control of the selling process.

2. Ask questions to determine the “big picture” of their needs and wants. Continue using questions to narrow down the focus until you have enough information to provide the best solution to their challenge.

3. Ask questions to get a lot of “yes” responses so you create a trend that will get the final “yes” that closes the sale.

4. Ask questions to awaken the other person’s emotions so you can direct those emotions toward a desire to own the benefits.

5. Ask questions to determine areas of concern.

Once you know the true concern, you can start demonstrating not only how the prospect can afford your product, but how that investment will potentially produce genuine earnings over time.

6. Ask questions to address areas of concern.

This is called the “porcupine” technique. What would you do if someone threw a porcupine in your lap? You’d throw it back. That’s exactly what you do in this situation. Answer a question with a question. Use this technique and you won’t get “stuck” in an ineffective presentation.

7. Ask questions to determine the benefits that will trigger the sale. People aren’t buying stocks or bonds. They’re buying a better lifestyle and an independent future. They’re not buying financial planning. They’re buying their retirement dreams and goals. They’re not buying long-term care insurance. They’re buying peace of mind. Understand that basic fact, and make your presentation using those terms.

8. Ask questions to acknowledge a fact. This is an absolute rule in sales: If you state a fact, the potential client can doubt you; if a potential client states that fact, it’s true. Use your questioning techniques to help your prospective client understand and restate those important facts.

9. Ask questions to confirm that you can move on to the next step in the sales process.

10. Ask questions to involve them in ownership decisions and thoughts about the product you are offering.

11. Ask questions to help them rationalize the decisions they want to make. Those folks wouldn’t be in your office if they didn’t already know they need financial services. You just need to reconfirm the wisdom of their decision.

12. Ask questions that close the sale. “As I see it, the only major decision we have to make is how quickly to begin having your money make money. Would you prefer to go with a yearly, quarterly or monthly amount?”

Tom Hopkins, How to Master the Art of Selling Financial Services, Tom Hopkins International, 2009.

of the transaction. That means to end up with this much income, this is how much they invest monthly – that kind of detail.

Then you do a trial close. This is my favorite, and I’d be willing to bet I ask this little question thousands of times.

I would turn to the husband and wife, and I might start with Mary and just say, “Mary, how are you feeling about all this so far?”

The reason I love that little test question is it will allow her to give me some input: “Well, I think, Tom, it sounds pretty good what you’re offering to us. John, how are you feeling about all this so far?”

“Well, it sounds like something we should really consider,” John might say.

14

And then I can respond with, “You know what we might do? Why don’t we draft our feelings on the paperwork and see how it looks? Then after we look at that, we can see if it makes sense to go ahead. Is that all right?”

I don’t call it a contract. It’s paperwork.

Then, of course, I ask for her middle initial: “Mary, do you have a middle initial?”

“Well, yes, Tom, it’s B.” “Let me make a note of that.” And that’s when I move on to the application, the paperwork. I write “Mary B. Johnson.”

That’s when the husband usually will stop me: “Tom, now wait. Isn’t that a contract?” Then you smile and say, “Well, no, it’s really just paperwork until you feel it’s

InsuranceNewsNet Magazine » February 2015

the right thing to do, and with your approval, yes, it is, but let’s not do that yet.

Let’s just put it all down and see how it looks, OK? John, do you have a middle initial?” “Well, it’s D.” Now, I love this. Right now is when they usually will say, “Well, Tom, you can put it all down, but we’re not going to sign anything.” When they say they’re not going to sign anything, just be very nice and say, “I know, John, and believe me, that’s the last thing I’m going to ask you to do.”

Now, isn’t that totally true?

FELDMAN: Absolutely true. Signing would be the last thing you would ask them to do.

The Groundhog Predicts ...

GOOGLE YOUR WAY TO SALES INTERVIEW

HOPKINS: Yes. And I come back to the fact that if agents know it’s right for those people, they cannot let them be denied.

And the sad truth about insurance is if they don’t have as much or what they should have, and you don’t close the transaction, they’ll probably never let another agent come in and do the presentation and get what they should have – the coverage their family deserves.

FELDMAN: What are some strategies for Step No. 7, getting referrals?

HOPKINS: This is something that the average salesperson does not do. Once you close a sale, that’s when you simply smile and say, “You know, my company has asked that you let us know, if you’re happy, as obviously you are, if there are any other friends or relatives who could also use this service. I have three cards here and I would love to have just three people that you might know whom I can let know that we’ve served your family. So who might that be? In fact, Mary, you probably have an address book. Who are friends I might talk with?” And I would always get a minimum of three names and phone numbers of other people that we would then go to.

Now, the problem is the average salesperson is terrified to ask for referrals, because they don’t have a strategy. And you always have to, step one, isolate.

By that I mean that you can’t just say, “Is there anyone in the world you know? Is there anyone maybe that you might know, a friend or relative?” Now you’ve isolated the friends or relatives in their mind.

Try this approach instead: “I noticed that you bowl, John. I saw your bowling trophy on the mantel. You have folks you bowl with every week. Any of those friends you bowl with might need what we did with you tonight?” And I end up walking out with a minimum of three qualified leads because I went to step seven.

And by the way, you don’t ask for “referrals.” We call them “quality introductions.”

A lot of people are turned off on giving referrals. But if you use the phrase “I was hoping I could get three quality introductions to other families we also might serve,” the words make it work.

FELDMAN: An “introduction” sounds much better than a “referral.” With a

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February 2015 » InsuranceNewsNet Magazine

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INTERVIEW SEVEN STEPS TO SELL ANYTHING referral there is a commitment and an implied endorsement that might make some feel uncomfortable. An introduction, of course, allows the other person to decide for themselves if they trust the agent enough to move further.

HOPKINS: Yes, but it all comes back to how good they feel about the salesperson.

FELDMAN: In insurance, do you recommend asking for referrals or introductions when you’ve just closed the business, or after the underwriting? In our business, it could take 90 days for the whole process.

HOPKINS: In your business, I would consider bringing back a small gift at the end of the 90 days. I always believe a gift makes a difference, and I’ll tell you one of the gifts that you can do. The folks reading this could have fun with this.

When I was selling, I would go out with a very good camera and take a picture of the entire front of their home.

Then I would have an 8x10 print put into a nice little frame. When I’d come back, I would say, “John, Mary, I want to let you know that our whole transaction is settled, and I brought something for you as a little gift. It’s amazing how many people live in a home they love, and I can tell you love yours, and you don’t really have a nice color photo of the home. So I framed this for you. This is a picture of your property, and I was hoping I could come in. I’ve got a couple questions I’d love to ask you.”

Then, of course, you give them the gift, you walk in and sit down and say, “Our company has decided to try to build our business not only on advertising, but on word-of-mouth introductions from people we serve. Now, you seem really happy with what we’ve done for you. Am I right?”

I will assume they agreed. Obviously, you wouldn’t ask if they did not. “Well, I was wondering if I might take these three cards out and ask if you would know three friends or relatives who might enjoy what we’ve done for you, and let me serve them.

Now, can we do that real quick?”

In fact, in most businesses, you don’t have an opportunity for a beat back. So, rather than just going back to get a signature and a check, why not go back and get more sales? You’ve earned it!

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InsuranceNewsNet Magazine » February 2015

Choosing Your Words Wisely Many words common to sales and selling situations can generate fearful or negative images in your clients’ minds. The experience of hundreds of thousands of salespeople confirms that replacing such words with more positive, pacifying words and phrases is crucial.

Words and Phrases to Eliminate From Your Sales Vocabulary Instead of …

Use …

Sell

Get them involved or help them acquire

Contract

Paperwork, agreement or form

Cost or price

Investment or amount

Down payment

Initial investment or initial amount

Monthly payment

Monthly investment or monthly amount

Buy

Own

Deal

Opportunity or transaction

Objection

Area of concern

Problem

Challenge

Pitch

Present or demonstrate

Commission

Fee for service

Appointment

Visit, as in “pop by and visit”

Sign

Approve, authorize, endorse or OK

SEVEN STEPS TO SELL ANYTHING INTERVIEW

Replacing “sell” and “sold” What are the mental images these words create? No one likes the idea of being sold anything. The word reminds people of high-pressure sales tactics and usually turns them off. It makes the transaction sound one-sided, as if the customer really had little say in the matter.

So what can you use in place of these common words? Replace “sell” or “sold” with “helped them acquire” or “got them involved” – phrases that create softer images of a helpful salesperson and a receptive customer becoming involved together in the same process.

Replacing “contract” A commonly used word in sales is “contract.” For most people, “contract” evokes negative images. Contracts bring with them fine print, legalities and being locked into something. Instead, use “paperwork, agreement or form.” Do those words bring to mind threatening images? Maybe, but they’re a lot less threatening than the images the word “contract” evokes. And that’s exactly what you’re going for.

Replacing “cost” and “price” When I hear those words, I see my hard-earned cash leaving my pocket.

That’s why I train people to substitute the words “investment” or “amount” for “cost” or “price.” When most people hear the word “investment,” they envision the positive image of getting a return on their money. For products for which the word “investment” just doesn’t fit, use the word “amount” – it’s been proven to be less threatening to most consumers than “cost” or “price.”

Replacing “down payment” and “monthly payment” Most people envision down payments as large deposits that lock them into many smaller monthly payments for,

if not an eternity, at least a few years.

They see themselves receiving bills and writing checks every month. So replace those phrases with these: “initial investment” and “initial amount” or “monthly investment” and “monthly amount.” In the selling business, we call these terms “money terms,” and anyone who wants to persuade someone to part with money needs to use these terms well.

Replacing “buy” When people hear the word “buy,” they see money leaving their pockets again.

Use the term “own” instead. “Own” conjures images of what they’ll get for their money and many other positive thoughts.

Replacing “deal” This word brings to mind something people have always wanted but never found. Images of used-car salesmen are only too closely associated with the word “deal.” Top salespeople never give their clients deals. They offer “opportunities” or get them involved in a “transaction.”

Replacing “objection,” “problem” and “pitch” Customers don’t raise “objections” about your products or services. Instead, they express “areas of concern.” I never have problems with my sales. Every now and then I may, however, face some “challenges” with my transactions. I never “pitch” my product or service to my customer. Instead, I “present” or “demonstrate” my product or service – the way any self-respecting professional would.

Replacing “commission” As an authority or expert on your product or service, you don’t earn “commissions.” You do, however, receive “fees for service.” If a client ever asks you about your commission on a sale, elevate your conversation to a more appropriate level with language such as this:

“Mrs. Johnson, I’m fortunate that my company has included a fee for service in every transaction. In that way, it compensates me for the high level of service I give to each and every client, and that’s what you really want, isn’t it?”

Replacing “appointment” Consumers view an appointment as interfering with their regular schedule even if their schedule shows that time as free time. Rather than equate meeting with you to an appointment with a doctor or dentist, use the softer term “visit:” “I’d love to have the opportunity to visit with you. Would Wednesday evening or Thursday afternoon be better?”

Better yet, offer to “pop by and visit.”

What mental image does that create?

That you’re going to pop in and pop out.

That you’ll only be there a short time.

In the business world, a “pop by” can conjure the images of a brief handshake and exchange of information in the lobby, with no sit-down, conference room involvement at all.

Replacing “sign” What happens emotionally when people are asked to sign something? In most cases, a warning goes off in their heads.

They become hesitant and cautious.

They want to review whatever it is they’re signing, scanning the page for the infamous fine print. It’s been drilled into almost everyone from early childhood never to sign anything without careful consideration. And why would you want to create that emotion in anyone you were trying to get happily involved with your product or service?

Instead of asking your clients to “sign,” ask them to “approve,” “authorize,” “endorse” or “OK” your paperwork, agreement or form. Any of those word pictures carries the positive associations that you want to inspire in your clients.

Tom Hopkins, Selling for Dummies, Wiley Publishing, 2011

February 2015 » InsuranceNewsNet Magazine

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NEWSWIRES

Insurers Take Aim at IUL Illustrations bitly.com/qraim

TRIA and NARAB II Kick Off the New Congress

QUOTABLE

The new Congress began its first week on the job by tackling a bill that has implications for the insurance industry.

Both the House and the Senate passed legislation reauthorizing the Terrorism Risk Insurance Act (TRIA) in the wake of a terrorist attack in Paris that killed 12 people employed at a satiric magazine.

The bill would extend TRIA for six years. It would raise the current $100 million trigger for federal involvement in handling claims over a terrorist attack gradually to $200 million. There would be no change in 2015, but the trigger would be increased $20 million a year for the next five years to reach the $200 million. The current government “cap” of $100 million would remain under the legislation.

The bill also contained a provision re-establishing the National Association of Registered Agents and Brokers (NARAB II). A long-standing goal of both life and property/ casualty insurance agent trade groups, NARAB II would create an organization whose specific jurisdiction would be the oversight of insurance producer reciprocal nonresident licensing and continuing education standards on a national – not federal – level.

Under NARAB II, any producer licensed in their home state could choose to apply to NARAB and submit to a federal criminal background check. Accepted NARAB members would pay a membership fee as well as all requisite state licensing fees for each state in which they choose to do business. Members of NARAB would be held to a single nonresident licensing and continuing education standard for each line of authority.

PRIVATE PENSION FUNDS LOSING GROUND

Lower interest rates and

PRIVATE PENSION longer life expectancies FUNDS DEFICIT aren’t adding up for private

pension funds.

The average private pension fund held about 80 percent of what it needs to cover its obligations, according to a report

by Towers Perrin. That’s a decrease from 89 percent at the end of 2013 and represents an overall deficit among large corporate plans of about $343 billion, nearly double the shortfall of the prior year.

Low interest rates are one villain in this scenario as they reduce the amount of money a pension fund can earn from money already set aside, raising the level it needs to generate enough cash. The other factor socking pension funds is that re-

$343B

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tirees are living longer than previously anticipated. Last fall, new mortality tables from the Society of Actuaries (SOA) showed that between 2000 and 2014, longevity for the average male aged 65 rose by two years to 86.6. For women aged 65, overall longevity during the same period rose 2.4 years to age 88.8. The SOA estimated that those gains in lifespan could add as much as 4 to 8 percent to a private pension plan’s liability.

At the end of 2014, Congress proposed allowing some underfunded multiemployer plans to cut the benefits they pay to some current and future retirees in order to help cover higher premiums to shore up the Pension Benefit Guaranty Corp., the government insurance fund backing these plans. (Benefits reportedly would not be cut for disabled pensioners or those aged 80 years and older.)

Americans is expected to be over 65 years old by 2030.

Source: U.S. Census Bureau

InsuranceNewsNet Magazine » February 2015

It seems like the psychological after-effects of the recession are finally starting to wear off and advisors are becoming more optimistic about the market.

— Steve Onofrio, SEI Advisor Network

About a quarter of the roughly 40 million workers who participate in a traditional defined benefit plan are covered by multiemployer plans, according to the Bureau of Labor Statistics. Although many of the approximately 1,400 such plans are in good shape, an estimated 1.5 million workers are in plans that are failing.

LTCi LOOKING TO REVERSE SALES SLUMP

The American Association for Long-Term Care Insurance (AALTCI) forecasts long-term care insurance (LTCi) premium growth of 2015 between 8 and 10 percent in 2015 over last year, and policy sales are expected to grow by 3 to 5 percent over last year.

Jesse Slome, AALTCI executive director, said the 2015 projections are a welcome reversal from the “double-digit sales declines” experienced by LTCi carriers in 2014. He added that 2015 sales would be even higher if more financial advisors and agents re-entered the long-term care insurance marketplace.

“I don’t see that happening over the short term in 2015, but it is good to see some major insurers are investing heavily in trying to rebuild distribution for the product,” he said.

Carrier executives say the industry needs to do more to keep successful advisors selling long-term care insurance coverage and to attract new producers into the ranks.

“Expansion in the number of people selling long-term care is important too,” said Scott J. McKay, senior vice president and chief information officer of Genworth Financial, at the AALTCI annual meeting.

[NEWSWIRES] OBAMA ADMINISTRATION TO INVESTIGATE INSURERS FOR BIAS

Advocates for people with HIV and certain other illnesses have complained that insurers were unduly limiting access to benefits, in violation of Affordable Care Act (ACA) requirements. So the Obama administration said that it would investigate prescription drug coverage and other benefits offered by health insurance companies to see whether they discriminated against people with AIDS, mental illness, diabetes or other chronic conditions.

The administration said it had become aware of “discriminatory benefit designs” that discouraged people from enrolling because of age or medical condition.

In a letter to insurers, administration officials said that a health plan could be engaging in unlawful discrimination if its list of approved drugs excluded all medicines needed to treat a particular condition, or if it restricted access to such drugs by charging large copayments or requiring prior authorization.

The Centers for Medicare and Medicaid Services said it would focus on companies in the federal insurance marketplace. For each health plan, it said, it will try to determine the “estimated out-of-pocket costs associated with standard treatment protocols for specific medical conditions using nationally recognized clinical guidelines.”

The conditions, it said, are likely to include bipolar disorder, diabetes, HIV, rheumatoid arthritis and schizophrenia.

The ACA says that insurers must accept all applicants for coverage and cannot charge higher premiums because of a person’s pre-existing conditions or disabilities.

COMMERCE DEPARTMENT PROPOSES DMF RULE

How do you permit those who have a legitimate need to gain access to the Social Security Administration’s Death Master File (DMF) while reducing the risk of identity theft? The U.S. Department of Commerce is attempting to solve that dilemma by proposing a rule that spells out how “persons” can become “certified” to access the DMF information. The proposed rule would permit access to DMF data by those having a “legitimate” need, such as life insurers or those with fraud prevention interests.

Among other things, the proposed

NAIFA Mourns Passing of CEO Members of the National Association of Insurance and Financial Advisors remembered their late CEO, Dr. Susan Waters, as someone who was a strong advocate for the industry and who worked to strengthen the bonds between the association and its members. Waters, age 63, died unexpectedly at her home. Her last published interview appeared in the article, “More Women in Industry Leadership: Are We There Yet?” which appeared in the January issue of InsuranceNewsNet. Waters was named CEO of NAIFA in March 2010 and had served as NAIFA’s acting CEO since December 2009 and deputy CEO since October 2007. She had more than 23 years of experience in professional association management, as well as experience in the insurance industry. In 2013, Waters was the recipient of the American Society of Association Executives’ Key Award, which recognizes the association CEO who demonstrates exceptional qualities of leadership and displays a deep commitment to voluntary membership organizations.

In her career, she had served as the CEO of three associations, had been a licensed insurance broker, and had served as executive vice president of an insurance agency.

Michael Gerber, NAIFA’s chief counsel and chief of human resources, was named acting CEO. “Certification Program for Access to the Death Master File” would establish a “Limited Access DMF” process for allowing “certified’’ persons to be eligible for access to DMF information on a deceased person within three years of the death. The rule would replace the temporary certification program currently in place. The rule also includes auditing provisions, establishes certification fees, sets penalties for violators and creates an appeals process.

According to the American Council of Life Insurers (ACLI), in April 2014, there were 11 states that had already enacted statutes requiring insurers to use the DMF, or a similar comprehensive database, to search their insurance records to determine whether life insurance benefits may be payable.

At least eight other states had similar legislation that was pending signature or under consideration, wrote Roberta Meyer, vice president and associate general counsel at ACLI, in a comment letter to the National Technical Information Service (NTIS) at the time.

In addition, 13 insurance companies had entered regulatory settlements with state officials from 30 states requiring the DID YOU

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insurers to use the DMF or a comparable database to identify matches for possible unclaimed benefits or to allow a state auditor to compare the company’s records against the DMF, Meyer said.

GOOGLE EYEING CAR INSURANCE

Online shopping for car insurance is nothing new, but when Google gets into the game, you can bet the industry will pay attention.

Google has been operating an auto insurance comparison shopping site called Google Compare in Great Britain for the past two years. Now, Google Compare Auto Insurance Services is licensed to sell insurance in 26 states, and is authorized to sell policies on behalf of six carriers in at least one state.

Ellen Carney, an analyst with Forrester Research, said in a blog post that Google’s comparison site launch has been plagued by delays. “One thing’s for sure: Google Compare is going to have big implications for U.S. insurers,” Carney said.

As for Google, it’s not commenting.

Alan Landon, former Bank of Hawaii CEO, was nominated for a seat on the Federal Reserve Board.

Source: Honolulu Star-Advertiser

February 2015 » InsuranceNewsNet Magazine

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PLUS:

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InsuranceNewsNet Magazine Âť February 2015

How a QLAC Can Help Your Client Claim Social Security Early PAGE 26

W

orkers clicking through the turnstiles of retirement are turning over vast amounts of wealth out of plans such as individual retirement accounts (IRAs), but where should they go next?

Ahead are conductors yelling to board one of several trains. They are all compelling, but which one offers the best route to retirement? Time’s ticking, and people are boarding; they have to decide now. And here’s the kicker: This is often a decision they can’t undo.

Everything they saved for has led to this moment of decision. Welcome to IRA Rollover Station.

It’s a busy place. Lots of dollars flow through these halls. In fact, the market is expected to grow to half a trillion dollars annually by 2018.

Where is it all going? The answer is a good one for insurance, and perhaps more important, exciting for the industry’s future.

Here’s why: The IRA market is enormous. About $425 billion is expected to be rolled over from IRAs this year. If that is true, it will have risen by $25 billion over the previous year – the increase by itself would be about half the size of fixed index annuity (FIA) annual sales.

They fuel annuities. A mere nine years ago, 49 percent of money going into fixed index annuities came from IRAs; the majority, 51 percent, came from unqualified money. Last year, 62 percent came from IRAs and 38 percent from unqualified funds. Variable annuities (VAs) had a similar kind of growth, but started sooner with earlier consumer acceptance. But those trend lines are reversing, just as FIAs are surging.

Let’s take a look at what’s happening with IRA rollovers and how some expert practitioners in the field are helping clients work through this transition.

IRA TRANSFER STATION FEATURE With interest rates sinking to zero, a plain annuity was not the most attractive option. Fixed index annuities, with their low-downside-and-potential-upside message, attracted consumers. But when FIAs started offering guaranteed living benefits (GLBs) of different varieties, that sealed the deal for IRA holders, according to Todd Giesing, senior business analyst at the LIMRA Secure Retirement Institute.

“If we go back seven years, GLBs weren’t as prevalent as they are today in the index annuity space,” Giesing said. “And, now, consumers are taking rollover dollars from their IRAs, their 401(k)s, and bringing them in for the ‘income later’ story, to have that guaranteed lifetime income.”

How can the increase in IRAs rolling into FIAs be so tied to the riders? Partly by looking at the variable annuity experience.

VAs started earlier than FIAs and then found enthusiastic consumer acceptance with GLBs. VAs took off with the soaring stock market.

The crash in late 2008 also dragged VA sales, but they didn’t drop as drastically as the market did. Insurers also eased off selling VAs post-crash because the guarantees were difficult to sustain.

They also started dialing back on riders, even though the riders were a key reason consumers bought VAs. For example, in the first quarter of 2008, 90 percent of consumers elected a rider when one was available.

By the next quarter, companies were backpedaling furiously. That summer, some carriers went as far as offering to buy back the guarantees from policy holders.

Since 2010, the percentage of VA money from IRAs has been dropping, precipitously so in 2012. It is now at 59 percent.

First, a Warning

Jeffrey Levine, CPA, is an Ed Slott and Company IRA technical consultant who has a warning about a little-known tax court interpretation going into effect this year.

Rollover Market Presents Opportunity for Growth for All Firms and Advisors LIMRA Estimate of IRA Rollover Market (in Billions)

$515

$399 $322

$288

$160

All About Income

Consumers did not jam agents’ waiting rooms in 2008, chanting, “We want annuities!” But they did demand safety. In those days, even a key money market fund “broke the buck,” meaning it failed its central reason for existence – to be worth eternally at least the dollar an investor put in the fund.

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

Note: The term “IRA” includes all qualified retirement funds, such as 401(k)s. Years 2011 through 2018 are estimates/projections.

Source: Based on LIMRA Secure Retirement Institute’s analysis of Investment Company Institute, The IRA Investor Profile: Traditional IRA Investors’ Activity, 2007-2011 (Oct., 2013), IRS Statistics of Income, Accumulation and Distribution of Individual Retirement Arrangements, 2010 (Fall, 2013), Cerulli Associates and LIMRA analysis

February 2015 » InsuranceNewsNet Magazine

21

FEATURE IRA TRANSFER STATION The tax code allows taxpayers to complete only one IRA rollover once in a 12-month period.

“Prior to a court case earlier in 2014, the rule was understood to be an accountspecific rule,” Levine said. “So if you had IRA 1 and took a 60-day rollover out of that account, and you put it into IRA 2, if you later took a distribution from IRA 3 within the same calendar year, it was understood that that distribution from the third and separate account could still be rolled over. The court said, ‘Nope.’”

Apparently, even the IRS got that wrong, because the example Levine cited was one from the agency’s guidance on the rule.

“If you do a 60-day rollover from IRA 1 to IRA 2, you can’t do any other 60-day rollovers for the next 365 days – it doesn’t matter whether it comes from IRA 1, or IRA 3 or IRA 2,500,” Levine said. So, all the client’s IRAs are considered together.

“I think that’s going to be a change that perhaps destroys many clients’ retirement savings, because you have situations where clients have four or five different CDs or fixed annuities for the different interest rates,” Levine explained. “They have three different fixed annuities because they did various rollovers and locked in different rates. Now, every year as those CDs, annuities or whatever accounts come due, the client has always done a rollover to the other account that pays the highest interest.”

That was not a problem until this year, because the one-rollover-per-year limit applied only on an IRA-by-IRA basis.

Beginning in 2015, the limit will apply by aggregating all of an individual’s IRAs, effectively treating them as if they were one IRA for purposes of applying the limit, according to the IRS. Clients, starting this year, could unwittingly violate the rule by doing more than one rollover, just as they have always done. And once they do it, there is little that can fix it. Even time won’t heal that wound.

“Not only is that amount taxable for the year, but the second rollover that wasn’t allowed to go into the IRA becomes what’s called an ‘excess contribution’ and is subject to a 6 percent penalty for every single year it remains in that account,” Levine said, adding that it could be a lot of years.

“There was a major tax court case that said if you don’t file for a 5329, which is the form that gets filed to report excess IRA contributions, then you have no stat22

IRAs Continue to Be the Dominant Source of Money to Purchase Retail Annuities Percent of Deferred Variable Annuity Retail Sales IRA

Percent of Deferred Index Annuity Retail Sales

Nonqualified

IRA

Nonqualified 62%

59%

51%

49%

49%

51% 41%

’00

43%

42%

’02

’04

57%

59%

58%

’06

’08

41%

’10

’12

Q3 YTD ’14

38% ’06

’08

’10

’12

Q3 YTD ’14

Note: The term “IRA” includes all qualified retirement funds, such as 401(k)s Source: U.S. Individual Annuities survey, LIMRA Retail = IRA + Nonqualified annuity sales.

Fixed-rate deferred annuities = book value + market value adjusted annuities.

ute of limitations. So the IRS may pick up on this 20, 30, maybe 40 years later. They can come back and say, ‘You owe us back tax and back interest for the last 40 years.’

That’s 6 percent a year, plus penalties, plus interest. So it’s something that clients really, really have to be mindful of.”

Clients have ways around it. For example, trustee-to-trustee transfers are not limited. But if they don’t know about the rule, they won’t know about their options.

RMD Planning

The better-known complication with IRAs is the required minimum distribution (RMD). For people with large accounts, they come with a commensurately sized RMD impact on taxable income.

Levine said people have a few options, such as simply not retiring at 70.5. If the plan is with the same company, people can delay the RMD until they retire. If that’s not the case, they can use a qualified charitable distribution, which will not affect taxable income. One trade-off, though, is that a client cannot also take the charitable deduction.

Then, of course, there’s the Roth IRA.

InsuranceNewsNet Magazine » February 2015

Roth IRAs have no required minimum distributions during the account owner’s life. Once the Roth IRA owner dies, nonspouse beneficiaries are required to take minimum distributions from those accounts, but they can generally stretch those distributions so they’re a little bit smaller.

The question with converting to a Roth is essentially always “Am I better off paying taxes at today’s rates of income or tomorrow’s rates of income?” That answer largely depends on whether people think they will be in a similar or higher tax bracket or whether tax rates will be significantly higher when they take money from the IRA. Rates are near historic lows now, so that can often be the nudge that pushes people to pay tax now and convert their IRA to a Roth.

“In fact, you’re eliminating at least one unknown,” Levine said of choosing to pay today’s tax and opting for the Roth. “Clients have a million different unknowns in their retirement planning. What’s the market going to do? What’s inflation going to do? What are interest rates going to be like? What are taxes going to be like?”

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ANNUITIES | LIFE INSURANCE | RETIREMENT PLANS | MUTUAL FUNDS

Guarantees and protections are subject to the claims-paying ability of Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company.

1

Five- and 10-year premium schedules have a waiting period of five and 10 years respectively, even if premiums are paid in advance.

2

Health care practitioner must state informal care is appropriate in the plan of care.

Keep in mind that as an acceleration of the death benefit, the payment will also reduce the long-term care benefits, cash value and the death benefit and cash surrender value of the policy.

Additionally, loans and withdrawals will also reduce both the cash values and the death benefit. Care should be taken to make sure that your clients’ life insurance needs continue to be met even if the rider pays out in full, or after money is taken from their policies. There is no guarantee that the rider will cover the entire cost for all of the insured’s long-term care, as this may vary with the needs of each insured. A portion of the benefits paid may be taxable, depending on your specific circumstances. As with all tax matters, clients should consult their personal tax advisor to assess the impact of this benefit.

Life and annuities are issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Company, Columbus, OH. The general distributor is Nationwide Investment Services Corporation, member FINRA. In MI only: Nationwide Investment Svcs. Corporation. Nationwide Funds distributed by Nationwide Fund Distributors LLC, Member FINRA. Nationwide Life Insurance Company, Nationwide Life and Annuity Company, Nationwide Investment Services Corporation, and Nationwide Fund Distributors are separate but affiliated companies. Let's Face It Together and Nationwide YourLife CareMatters are service marks of Nationwide Life Insurance Company. Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2014 February 2015 » InsuranceNewsNet Magazine 23 NFV-0770AO.2 (9/14)

FEATURE IRA TRANSFER STATION But the longer clients wait, the more complicated the picture gets. “If you do a Roth conversion in retirement, that could also have other facts that aren’t applicable beforehand,” Levine said. “For instance, if you do a conversion later in life, you might trigger more Social Security taxation in that year. You might actually make your Medicare Part B premiums two years in the future higher than they otherwise would have to be. To do those conversions before you take Social Security or before you’re on Medicare, that obviously takes away that issue.”

SPIA Buyer Profile

SPIA Average Buyer Age:

73

Looking at the Whole Client

Looking at the issues early is a central message that Carlos Dias tries to convey to his clients.

Dias has two practices near Orlando, Fla., that serve two distinct clientele: the Portuguese community and professional athletes.

Because he is securities-licensed, he can look at the client’s overall financial picture. He also gleans their motivation at that moment.

“A lot has to do with their goals,” Dias said. “Are they short-term? Is it immediate income? Is it a little bit more long-term?

And if it’s long-term, a lot of times we may use the fixed index annuities, because they give the greatest potential for gain without going into something that you’re purchasing at a higher interest rate. But you have to lock it in for the same amount of time that you could be potentially receiving some higher gains.”

Again, RMDs are a key issue. They can be particularly problematic for wealthier families with larger IRAs. RMDs can become staggering. “The RMD on someone who’s got a million in an IRA is almost $37,000,” Dias said. “In that case, other income coming in, such as a little bit of a dividend income or Social Security, they’re already at that cusp of being taxed higher on their Social Security. So a good portion of their Social Security would be taxed.”

Dias said he tells his clients that the time to think about the RMD trap is long before 70.5, when people are required to take the minimum distribution.

“Right now, we have relatively lower tax brackets,” Dias said. “So removing money or doing Roth conversions – it’s best to do that before you take Social Security. So 24

Average Initial Premium:

$123,500

Percentage of IRA Dollars:

51%

Source for SPIA Average Buyer Age: LIMRA Secure Retirement Institute Guaranteed Income Annuities, 2010 Source for Average Initial Premium: U.S. Individual Annuity Yearbook 2013, LIMRA Secure Retirement Institute, 2014 Source for Percentage of IRA dollars: LIMRA Secure Retirement Institute, U.S. Individual Annuities survey, Q3 2014

everything is kind of at your leisure versus if you’re going to wait until later on in life, and then you’re forced to take almost $37,000 in income. Then you’re kind of stuck because your Social Security is stuck.”

He recommends having that talk with clients in their 50s, even it’s a little uncomfortable for them.

“In their 50s, it’s tough for them to talk about this because they just have the mentality of trying to accumulate as much as possible,” Dias said. “But no one’s ever given them a number to say, if you’re looking for XYZ dollar amount in retirement, then you’re going to need to have at least this amount of money saved up.’”

But people typically wait until their mid-60s, when they are about to retire, or when they’ve been laid off. “They say, ‘Well, now I have to go to my IRA or employer plan or whatever’ to get the money to make up for their income or the shortfall.”

Some near-retirees delay because they’re just plain scared, and that only makes things worse. “They don’t want to ask because they don’t want to get the bad news,” Dias said. “I had one lady recently whose husband had just passed. She didn’t know that her husband had stopped

InsuranceNewsNet Magazine » February 2015

paying the mortgage for a couple of months.

She just had a little bit of life insurance money that came from him. Besides that, she had this IRA, and now she had to plan for what kind of money she’s going to need because she just had a back operation.”

The situation was familiar to Dias. The client was 65 and, desperate to know what her options were. Her biggest questions were the ones he always hears: “how short am I of what I need? How can I guarantee that income?”

The answers at that point were limited.

“If she had maybe monitored it years prior,” explained Dias, “she would have had some kind of guideline and I would have said ‘You’ll have to contribute this much to get there.’”

Putting It All Together

Mark Lumia, a financial planner in The Villages, Fla., calls himself a retirement cash flow specialist. He looks at the big picture and puts together complex solutions to get clients the income they want.

Sometimes the answers might seem surprising to clients. For example, for one woman he used a strategy that had her paying back her Social Security at age 63.

“If someone has enough money where they don’t need Social Security, and I’m

IRA TRANSFER STATION FEATURE

DIA Buyer Profile

DIA Average Buyer Age:

Average Deferment Selected:

59 7.5 YEARS

Average Initial Premium:

$137,200

Percentage of IRA Dollars:

75%

Source for DIA Average Buyer Age: LIMRA Secure Retirement Institute ARSG Survey #402, March 2014 Source for Average Initial Premium: U.S. Individual Annuity Yearbook 2013, LIMRA Secure Retirement Institute, 2014 Source for Percentage of IRA dollars: LIMRA Secure Retirement Institute, U.S. Individual Annuities survey, Q3 2014

telling them to trade IRA dollars for Social Security dollars because they have something out there called a tax torpedo, that’s how we reverse it,” Lumia said.

The tax torpedo is why conventional wisdom can lead to trouble. Typically, retirees might take a Social Security benefit in order to preserve an IRA. After all, they can outlive the IRA, but not Social Security. But then they might still have to withdraw from their IRA, which is 100 percent taxable, perhaps even pushing them to a higher rate of taxation on Social Security.

So, in this case, Lumia counseled the client to use her IRA to reimburse Social Security and delay taking it – to pretty dramatic effect. Social Security can be paid back in the first year only. And Lumia told his client that her Social Security could almost double, with delayed credits and the cost of living adjustments (COLAs).

“So you’re basically purchasing an annuity from the government that has a guaranteed cost-of-living increase,” Lumia said. “There’s no other product out there like it. So she’s going to have a higher income there, but she’s still going to be required to take the RMDs. And when she has both of those things at 70, she’s going to have excess money.”

Then he turned to two variable annu-

ities she had: one was in an IRA and the other not. She had the nonqualified one surrender-charge free. The tax-penaltyfree amount that she could take out every year was $39,842. She retained $9,842 to replace the income she lost from stopping Social Security.

While she was still 62, he suggested that she was probably relatively insurable and that she put excess money into a $500,000 whole life policy. The policy would be overfunded with the $30,000 payment, but not enough to make it a modified endowment contract.

She can pay for seven years and then she will have $210,000 growing tax-free in the policy from then on. She can borrow or withdraw from it, or just leave it for the death benefit.

It fit together in a bigger strategy for her situation. When she hits 70.5, she will have to pull RMDs but she will also have the whole life policy’s cash value. But also, the strategy considers the contingencies.

“Let’s say the husband dies. When that happens, she’s going to lose one of the two Social Securities, and she’s going to lose half, or all, of his pension,” Lumia said.

“She’s also going to be taxed as a single taxpayer, not married and filing jointly.

She’s going to lose half of her standard

deduction and half of her exemption. That means she can have the same taxable income and pay $1,900 more in tax.”

Her husband was receiving Social Security, which was larger than hers, so she takes that over, rather than taking her own. She can start taking the RMD from the VA in the IRA when she is 70.

It made sense to draw down at least one of the VAs because of the fees, which totaled 4.85 percent. But Lumia certainly could make an argument for rolling the other one into a fixed index annuity.

He figured out the fee impact on the money over 10 years if a $600,000 VA were purchased in 2004, and compared it with an FIA’s performance. Once the fees were deducted and the return figured each year, you would end up with $606,609. Looking at an FIA with a 4 percentage point cap and a floor of zero, you would end up with $809,000.

“Even with a 4 percent cap,” Lumia said, “you averaged 3.04 percent rate of return versus 0.01 percent. So that’s why someone would take qualified money that’s in a variable account and put it into a fixed index.”

The moral of Lumia’s story is similar to Dias’: Plan early. In Lumia’s illustration, it was almost too late, because the client could pay back Social Security only in the first year.

The lesson for agents and advisors is that millions upon millions of people are rushing along through the stations of life to retirement age but not really looking up, afraid of where they are heading. But these examples and countless others show that when clients turn to professionals earlier, the planning opportunities are far wider for them – and for advisors.

“That’s what I mean by ‘retirement cash flow specialist,’” Lumia said. “I can help them increase their income and reduce their taxes, but also increase their lifestyle – just by using the rules that are out there.”

Steven A. Morelli is editor-in-chief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines, and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve may be reached at smorelli@insurancenewsnet.com.

February 2015 » InsuranceNewsNet Magazine

25

FEATURE

QLACs Can Help Reduce Need for Social Security Delays S ome who purchase a qualified longevity annuity contract actually can take their Social Security earlier than when they reach their full retirement age.

By Linda Koco

A

new factor in retirement planning this year is a fixed annuity that could allow clients to take Social Security earlier rather than delay for better benefits, according to Curtis V. Cloke.

Many advisors have been recommending the Social Security delay to help clients create an optimal retirement income stream in view of their available resources. They do this because Social Security benefits gradually increase for those who delay taking income beyond their full retirement age. The increases stop at age 70. A person who can afford to wait that long will get a larger monthly benefit than they would if they claimed benefits at, say, age 67.

Today, however, “there’s a new dimension in town and it’s called QLAC,” said Cloke, the CEO of Thrive Income Distribution System, Burlington, Iowa. QLAC stands for “qualified longevity annuity contract.”

This new dimension could, in some situations, make it unnecessary for clients to delay taking their Social Security in order to get the optimal benefits, Cloke told InsuranceNewsNet. In fact, he said, in some cases, people who purchase a QLAC actually can take their Social Security earlier than when they reach their full retirement age. (The earliest age for claiming is 62.)

The Impact

This will create more options for the 26

client and the advisor, Cloke said. That means advisors may “need to break their old thinking about” income stream recommendations, he added.

It will also enable some clients to feel less anxious about claiming Social Security. “Most clients will delay taking their Social Security benefits if there is a mathematical reason to do so,” Cloke said. But it’s against the nature of many people to

approaching retirement.

Created by federal regulations in July, QLACs are deferred income annuities (DIAs) for use in individual retirement accounts (IRAs) and 401(k) plans. The regulations allow plan participants to allocate up to $125,000 of plan assets into a QLAC. Such allocation will reduce the required minimum distributions (RMDs) the person must pay starting at age 70.5, with a consequent modest reduction in RMD-related income taxes.

In the past several months, carriers have been designing DIAs to meet the terms of the new regulations. In November, American General announced that its DIA Pathway Deferred Income Annuity was “eligible to be designated as a QLAC when purchased as a traditional IRA.” As more QLACs come out, advisors will be exploring when and how to use the products with various clients, Cloke predicted.

Case History

do that, so they feel uncomfortable when an advisor first recommends it.

Therefore, if an advisor can recommend a solution where the delay is not necessary to achieve the client’s income goal, that solution likely will meet with greater client acceptance.

Cloke said he discovered that QLACs can provide some flexibility in this area while addressing specific income requirements and requests brought to Thrive’s analytics team by clients who are

InsuranceNewsNet Magazine » February 2015

To illustrate one possibility, Cloke pointed to the case of a mass affluent couple whose case was submitted to his firm for testing. What follows is a high-level look at the case. Values shown are rounded.

A husband and wife both had jobs and pensions, and the husband had initially wanted to retire in 2016, at age 63. The wife was six years younger, but both wanted to retire at the same time.

According to the case backgrounder, the couple first started income planning in 2007 when they had $818,000 in investable assets. At the time, the husband had initially resisted the idea of delaying Social Security benefits beyond full retirement age, citing personal reasons.

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27

FEATURE QLACS CAN HELP REDUCE NEED FOR SOCIAL SECURITY DELAYS They decided to move nearly $148,000 of their assets into three DIAs, each having a 3 percent annual cost-of-living adjustment (COLA) option.

Those DIA cash flows were designed to fill in the projected gap in desired income that remained after deducting the couple’s Social Security and pension benefits, Cloke said.

The projected initial monthly income, with all sources combined, was $9,000. This would gradually increase due to the 3 percent COLA, reaching about $23,000 a month by time the wife reaches age 86.

The QLAC entered the picture in November 2014, when the husband was age 61 and much closer to retirement. The case backgrounder said that the couple had learned more about the advantages of delaying Social Security and so were more receptive to structuring their retirement plan with that in mind. To do that, the husband was considering drawing down from his qualified assets to create income during the period between start of retirement and start of Social Security, Cloke said.

Testing the Options

What is a QLAC? A QLAC is a deferred income annuity (DIA) that starts making income payments late in life. It is also known as a longevity annuity. The QLAC is a unique form of a DIA that can be used with certain retirement plans. Created by new federal regulations published in July, these DIAs allow plan participants to allocate some of their qualified plan money to a QLAC. This will reduce the required minimum distributions (RMDs) the person must pay starting at age 70.5, with a consequent modest reduction in RMD-related income taxes.

Federal regulations do allow QLACs to be offered with defined contribution (DC) plans such as 401(k)s as well as in the IRA environment. However, industry experts have been predicting the first QLACs to come out will be those for IRAs. That is because the IRA environment is perceived to be less complex than DC plans and because carriers want to wait to see if plan sponsor demand will grow for QLAC offerings with 401(k)s and other DC retirement plans.

Many producers work with IRAs, whether direct-sold or rollover IRAs from employer plans. The arrival of QLACs to the IRA market opens up another avenue for retirement income strategies they might want to consider recommending to clients.

The Treasury Department published rules in July 2014 aimed at improving access to longevity annuities not only in 401(k)s but also in IRAs. Supporters predicted the regulations will ignite a slow but unmistakable chain reaction in the income annuity world.

- Linda Koco

Thrive was asked to test the husband ’s idea. That testing uncovered a problem. “To make that approach work, the couple would have to take 7.7 percent a month from qualified assets,” Cloke said, noting that the test assumed a 5 percent gross rate of return on the portfolio assets. “The 7.7 percent distribution rate was just too high,” he said.

In studying possible workarounds, Thrive’s analysts tried plugging a QLAC into the plan.

The test used a joint cash refund QLAC, funded with $125,000 of the husband’s qualified money, with payouts scheduled to start at his age 85. Instead of delaying Social Security until age 70 for each spouse, the test included no delay. In fact, the test followed the couple’s stated preference, which was to start the 28

husband’s Social Security payments as soon as he retires at age 63, and the wife’s Social Security when she too reaches age 63.

Cloke said he was surprised to see that the plan with the QLAC included would reduce the distribution rate from the qualified assets to just 2.5 percent (from the 7.7 percent rate revealed by the previous test).

In addition, because of the QLAC, the RMD-related taxes decreased between ages 70.5 and 85, he said.

Such a plan means the clients would not have to delay Social Security until age 70 in order to meet their stated retirement income goal, Cloke said. The plan would provide the couple with a total

InsuranceNewsNet Magazine » February 2015

guaranteed monthly income – with the DIAs, QLAC, Social Security and pensions combined – of $18,800 starting when the husband reaches age 85, he said. “This income will continue, with 3 percent inflation, until the last spouse dies.”

At age 86, the wife would still have a guaranteed income of $23,000 a month, as in the earlier version of the couple’s plan.

In addition, Cloke said, the portfolio will likely have $100,000 more in it when the wife reaches age 86 than would have been the case under the initial projections from 2007.

“That’s a projection based on testing, not a guarantee, but the income will be guaranteed, regardless of portfolio performance.”

In this example, the QLAC was set to start making payouts when the husband reaches age 85, which is the maximum age specified in the federal QLAC regulations. But the clients retain the flexibility to change the QLAC income start date to sometime earlier than 85, Cloke said, adding, “Making such a change will impact the income payments, but clients can do it if they wish.”

Not Too Complicated

Are plans like this too complicated for most advisors to design and present to clients, or too complicated for clients to work with? “I don’t think so,” Cloke said. “It’s a fairly elementary process, once it’s understood.”

The main points to remember are twofold, he said. First, QLACs will increase retirement planning options and flexibility. Second, in some cases, QLACs can help advisors structure a plan that does not require the client to delay Social Security.

Linda Koco, MBA, is editor-at-large for InsuranceNewsNet, specializing in life insurance, annuities and income planning.

Linda may be reached at linda.koco@ innfeedback.com.

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February 2015 » InsuranceNewsNet Magazine

29

LIFEWIRES

Commerce Department Proposes Death Master File Rule bitly.com/qrmasterfile

LIMRA: Individual Life Up 4% in 3Q Despite double-digit growth in indexed universal life (IUL) and variable universal life (VUL) premium, total individual life insurance premium improved only 4 percent in the third quarter, according to LIMRA. This is a positive trend in light of the 1 percent drop in individual life premium over the first nine months of 2014.

Policy count dropped 1 percent in the third quarter and 3 percent for the first nine months of 2014.

IUL premium jumped 19 percent in the third quarter, resulting in 18 percent growth in the first nine months of 2014. In the third quarter, IUL represented the majority of all UL premium (51 percent) and 19 percent of overall individual life premium. Total UL market share was 38 percent in the third quarter.

VUL premium was up 22 percent in the third quarter, resulting in a 26 percent increase in the first nine months of 2014. This marked the eighth consecutive quarter of positive growth for VUL, which represented 8 percent of total life insurance sales in the third quarter.

Universal life (UL) premium rose 2 percent in the third quarter but fell 8 percent for the first nine months of 2014. Lifetime guaranteed universal life dropped 10 percent in the third quarter, following 48 percent and 30 percent drops in the first and second quarters, respectively.

Whole life (WL) premium increased 6 percent in the third quarter, growing 2 percent in the first nine months of 2014. WL premium represented 32 percent of the total individual life market for the quarter.

Term life premium was flat in the third quarter, falling 2 percent in the first nine months of 2014. Term’s market share was 22 percent in the third quarter.

19%

22%

2%

6%

2%

CONTACT CENTERS WILL DO MORE THAN ANSWER PHONES

When you think of “contact center,” the first thing that comes to mind is a roomful of people answering consumer phone calls.

A new LIMRA study challenges that image, concluding that the future of financial services contact centers will go well beyond answering the phone.

Contact center executives from 46 different financial services companies predicted that within five years communication by phone will decrease while the use of online chat, email and social media will increase. While the phone will remain a primary means of communication, 92 percent of executives predict that contact center phone usage will decrease in the future.

Nine out of 10 executives predict online DID YOU

KNOW

?

30

Northwestern Mutual has completed a

chat to increase, while 69 percent see gains in email usage and 62 percent say social media will increase in the next five years.

Nearly 7 in 10 executives expect an increase in complex inquiries and a decrease in routine ones. Executives are also looking for contact centers to increase revenuegenerating functions. Roughly 60 percent of executives anticipate their agents will do more cross-selling and up-selling and will engage in more direct selling five years from now.

NEW PRODUCTS

A new year brings new product offerings.

Here’s a sampling: Prudential has enhanced its PruLife Founders Plus and PruLife Index Advantage UL products. New to Founders Plus is the Plus 100 Account that credits interest based on 100 percent participation in the performance of the Standard & Poor’s 500, subject

$2.7B

InsuranceNewsNet Magazine » February 2015

sale of its subsidiary Frank Russell Company (also known as Russell Investments). Source: Northwestern Mutual

to a cap and floor, creating a broader range of interest crediting options that offer cash value growth potential in the policy. The Plus 100 Account complements Prudential’s Plus 50 and Fixed Account options.

The BenefitAccess Rider, currently available on Founders Plus, is now also available on Advantage UL. This optional rider allows for the acceleration of the death benefit due to a chronic or terminal illness. Benefit payments can be used for expenses unrelated to care, such as home modifications, income replacement, household chores or mortgage payments.

AIG launched AG Platinum Choice, a VUL policy with an optional chronic illness rider, a feature that offers policyholders more flexibility to access benefits while the policy beneficiary is still alive.

AG Platinum Choice offers a death benefit, cash accumulation and the opportunity to take advantage of market gains. AG Platinum Choice VUL is suited for individuals under the age of 65 who need life insurance protection while at the same time want to accumulate cash in a tax-advantaged vehicle. The chronic illness rider offers a payout of either 2 percent or 4 percent of the benefit amount per month, or at a per diem rate, which the Internal Revenue Service has set at $330 per day in 2015.

NEW CEOs AT TWO COMPANIES

Two life insurers will have new leaders at the helm in 2015.

James T. Blackledge was appointed Mutual of Omaha’s president in late 2014, and was named to succeed Daniel P. Neary as the company’s CEO James T. Blackledge sometime this year. Neary will retire this year after more than a decade leading Nebraska’s best-known insurer. Neary joined Mutual of Omaha as an actuary. He was appointed company president in 2003 and was named chairman and CEO in 2004. Blackledge joined Mutual of Omaha as an actuary in 1989.

He most recently served as executive vice president and chief information officer/ chief risk officer.

Tim Arnold took over as head of Colonial Life in January. He previously served as the company’s senior vice president, sales and marketing. Arnold joined Colonial Life in 2011, following Tim Arnold a 27-year career with Unum.

Pushing the limits of estate planning Estate planning has traditionally focused on what happens at death. Individuals have often been forced to choose between living less now and giving more later, or living more now and simply giving less later.

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EPIC helps your clients start earlier – focusing on clients today and in their retirement – so they maximize their

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Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Please keep in mind that the primary reason to purchase a life insurance product is the death benefit.

This material may contain a general analysis of federal tax issues. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. This information is provided to support the promotion or marketing of ideas that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal advisors regarding any tax and legal issues applicable to their specific circumstances.

Securian Financial Group, Inc. www.securian.com Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Both companies are headquartered in Saint Paul, MN. Product availability and features may vary by state.

Each insurer is solely responsible for the financial obligations under the policies or contracts it issues.

400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 ©2014 Securian Financial Group, Inc. All rights reserved.

F81291-18 12-2014 DOFU 9-2014 A04618-0914

For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public.

February 2015 » InsuranceNewsNet Magazine 31

LIFE

Your Planning Can Save Family Farms L ife insurance can provide some solutions to keeping the farm in the family while being equitable to the off-farm children.

By Louis S. Shuntich

W

hen our daughter Savanna was 4, we visited my wife’s parents at the family farm. As lunch rolled around, my father-in-law came in, grumbling, “I’ve had it with the problems on this farm! I am going to sell and get out of here.”

32

At this, Savanna walked up to her grandfather, looked up at this imposing man and said, “Oh, no, you’re not, Pop Pop! Because when I grow up, I want to have this place and come here to play with my cousins.” Hearing this, her grandfather lowered his head and simply said, “OK.” Before that, I don’t know how many times the old man said he was going to sell. I only know that he never said it again.

Savanna had the courage to tell her grandfather what he most wanted to hear – that his years of hard work and sacrifice

InsuranceNewsNet Magazine » February 2015

had formed a legacy to preserve for those he loved.

Inspired by Savanna’s courage, I began the conversation with my in-laws about preserving their legacy. As a result, we saved the family as well as the farm. If you doubt that both were at stake, consider this quote in High Plains/Midwest Farm Journal from a professor at the University of Nebraska who said, “Forty years ago, I lost my family and farm over these emotional issues.”

As a life insurance agent, you can provide

YOUR PLANNING CAN SAVE FAMILY FARMS LIFE a great service to members of your community who own a farm or a ranch by helping them with their succession planning. You can be the catalyst to get the family to begin the conversation on this vital topic. To give you some idea of how important this is, the U.S. Source: U.S. Department of Agriculture Department of Agriculture reports the average age of a farmer/ generations. The senior family members rancher is 57.1 years, and the fastest-growing should not assume that they know what the age group is those who are 75 years and younger generations want. You could hit on older. To put the size of the problem in per- some very touchy issues, but these must be spective, 2.2 million farmers dot America’s addressed if the family will determine realrural landscape. istically whether they can and want to keep Although 97 percent of farms are operat- the operation for subsequent generations. ed by families, the American Farm Bureau Use the following questions as guidelines in Federation reports that only 11 percent of helping the family start the dialogue: those farm families have a transition plan in place. The consequence of this lack of plan- » Does the next generation have the ning is that 70 percent of first-generation experience and skills needed for the chaloperations do not transition successfully lenges of farming or ranching? to the next generation, while 90 percent of second-generation operations do not make » Does the senior generation trust the it to the third generation, according to capability and commitment of the next AgChoice Farm Credit. generation to take over the operations?

The first thing to remember when starting a conversation with farm families is » Will the senior generation be willing to that they don’t like being sold to. Rather, relinquish control at some point? you need to develop a relationship in which they see you as a resource, educator and » Can the senior generation financially problem solver. To accomplish that, begin afford to retire? by asking them personal questions such as: » Can the current and next generations » How did they get started in farming? get along while running the farm or ranch together? » What was the most difficult challenge they faced? » Can the farm or ranch provide enough income to support those who want to » What is their greatest accomplishment? stay there?

families have some children who want to remain on the farm and other children who do not want or should not receive an interest in the farm. One alternative for being fair or equitable to the off-farm children would be for the parents to purchase life insurance through an irrevocable life insurance trust (ILIT) and make the offfarm children the ILIT beneficiaries.

Another way in which life insurance can help in succession planning is for parents to sell the farm or ranch to the children through a buy/sell agreement funded with life insurance. If the sale takes place during the parents’ lifetimes, the cash value of the policy can serve as a down payment with the rest of the purchase price made up of installment payments. Alternatively, if the sale takes place upon death, the purchase price may be covered by the death proceeds.

Assuming that the owner-operator decides to keep the farm or ranch in the family, when selecting a transfer technique, there are three possibilities to consider: outright gifts, gifts of an interest in the trust and sale of the farm or ranch to one or more family members.

As to an outright gift, there is the question of whether the farmer or rancher can afford to make the transfer, and if so, what the gift tax implications of such a transaction are. Besides the $14,000 gift tax annual exclusion, each individual has a gift tax applicable exclusion of $5.43 million in 2015. This means that for most families, gift tax exposure on the transfer will not be a problem.

Considering the recent acceleration in agricultural land values, however, some families could face gift taxes in making such a transfer. Consequently, if gift tax exposure is an issue, the parents should consider restructuring their ownership interests to take advantage of valuation discounts for lack of marketability and lack of control.

For example, assume a couple has two sons to whom they want to give

The average age of a farmer/rancher:

57.1 Years

» What is it like to raise children on a farm or ranch?

One area in which life insurance can provide a role in farm succession is when

After you have established a trusting relationship, you must determine the family’s goals and objectives in making the transition to the next generation. As with Savanna and her grandfather, there must be a dialogue between the owner-operator and the subsequent

2.2 Million farmers dot America’s rural landscape Source: U.S. Department of Agriculture

February 2015 » InsuranceNewsNet Magazine

33

LIFE YOUR PLANNING CAN SAVE FAMILY FARMS

97% 11%

a farm that is worth $20 million gift-tax-free.

One approach would be to establish a family limited partnership (FLP) and then transfer the farm to it in return for partnership interests. Then, using their annual gift tax exclusions and gift tax applicable exclusions, the couple could gift partnership interests to the sons. Without discounts, they could transfer $10,916,000 to the sons in 2015 gift-tax-free. With a 35 percent discount, however, for lack of marketability and lack of control, they could transfer $16,793,846 gift-tax-free to the sons.

By restructuring the farm ownership as an FLP subject to valuation discounts, the parents can give the sons an additional $5,877,846 gift-tax free in 2015. Since the farm is worth $20 million and the parents could give only $16,793,846 tax-free in 2015, they have another $3,206,154 to give the sons. They could do that in subsequent years using their annual gift tax exclusions.

This returns to the question of what the parents should do if there are other children in the family who do not want or should not receive an interest in the farm. The parents could consider giving the off-farm children a passive interest in the farm by incorporating it and giving the off-farm children non-voting stock while giving the two operating sons voting stock. That way, the two operating sons would control the farm and run it as they please while the rest of the children still would have an ownership interest.

Generally, this is a bad idea because the children receiving a passive interest are not likely to receive any income from the operation, would still have tax reporting

of farms are operated by families

70% 90% 34

If the parents cannot afford to give the farm to their children as an outright gift, they might consider the alternative of giving it to them through a grantor retained annuity trust (GRAT).

The parents would establish an irrevocable trust to which they would transfer the farm or ranch in return for an income interest for a period of years. Then, at the end of the parents’ income interest, the trust could terminate and the remainder interest (farm or ranch) could go to the children.

The advantage to the parents would be that they would receive an income stream from the trust for the designated period, after which the farm would go to the children. When the trust is established, the remainder interest designated to go to the children is a gift that may be offset by the parents’ gift tax applicable exclusions.

For example, assume that parents transfer a farm worth $1 million to a GRAT in return for the right to receive 4 percent or $40,000 a year for 10 years. Assume further that the present value of that income stream is approximately $350,000, which makes the value of the remainder interest $650,000. Under such circumstances, the parents could offset the value of the gift of the remainder interest against their $5,430,000 gift-tax-applicable exclusion in 2015 and pay no gift tax.

Further, if the property happened to earn a rate of return in excess of the government discount rate used to determine the present value of the children’s remainder interest, the gift would be undervalued for gift tax purposes. For example, if the farm earned 7 percent a year for the 10-year period, the children would get approximately $1.4 million even after the trust paid the father $40,000 a year. That would be more than double the $650,000 value placed on the gift of the remainder interest that was offset against the parents’ gift-tax-applicable exclusion.

Besides gifting their

of farm families have a transition plan in place

Source: American Farm Bureau Federation

issues to deal with and would have an interest they could not sell to realize anything of economic value from the farm.

Although a better alternative is to set up an ILIT to benefit the non-farm children, just because the two operating sons received a farm worth $20 million does not mean that the parents need to buy $20 million in life insurance for the off-farm children. The objective is not to make the children’s situations exactly

The failure to deal with farm succession issues ultimately can have a bad effect on family harmony. equal but instead fair or equitable. Their circumstances are not the same, because the two operating sons have to work the farm to gain the economic benefits while the off-farm children do not have to do anything to collect the death proceeds in cash.

of first-generation operations do not transition successfully to the next generation of second-generation operations do not make it to the third generation Source: AgChoice Farm Credit

InsuranceNewsNet Magazine » February 2015

farm to children, parents can consider selling it to a grantor trust for their benefit. The parents set up a trust with certain provisions that cause it to be characterized as a grantor trust. Typically, those features would permit the trustee to insure the grantor, loan money to the grantor or trade assets with the grantor.

The result would be that transactions between the grantor and the trust would be ignored for income tax purposes. In the next step, the grantor would seed the trust with a gift of assets equal to 10 percent of the value of the farm or ranch that is to be sold to the trust. Subsequently, the farm or ranch is sold to the trust for a series of installment notes. The reason for the preliminary gift is that the parties will want the transfer of the farm or ranch to the trust to be characterized as a sale rather than a gift. Consequently, padding the trust with an extra 10 percent of assets makes it look like a sale because the trust has assets over and above the farm or ranch with which to pay off the installment notes. Otherwise, if the Internal Revenue Service determines that the farm or ranch alone cannot service the debt, it will characterize the transaction as a gift rather than an installment sale.

In any case, the trust pays off the installment notes with the income from the farm or ranch plus income from the gifted property. The advantage to the parents is that, because the trust is a grantor trust, they may ignore any gain from the sale of the property.

Unless your farming or ranching clients have someone who can bring up the subject of succession planning, they are likely to keep on keeping on with abysmal odds against their keeping the property in the family. Worse yet, the failure to deal with succession issues ultimately can have a bad effect on family harmony. This means that by failing to act, they are betting the family and the farm with the odds of a favorable outcome stacked against them. Tell them this, and help change the odds.

“Life insurance isn’t that important in helping protect my clients.”

(Said no one ever.)

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With a legacy of excellence dating back to 1890, you and your clients can be confident we’ll be there when you need us. That’s the hallmark of the relationships we build.

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Louis S. Shuntich, J.D., LL.M., is director, Advanced Consulting Group, Nationwide Financial. Louis may be contacted at louis. shuntich@innfeedback.com.

INN-0215 • For agent use only. Policy form nos. I L601, I L602, I L603, I L0880, I L0760, LT02-E and I L1419 and any associated riders underwritten by Assurity Life Insurance Company of Lincoln, Nebraska. Policy and rider availability, rates, provisions and features may vary by state.

www.assurity.com

February 2015 » InsuranceNewsNet Magazine

35

Brought to you by:

ANNUITYWIRES

5 Trends for Fixed Annuities in 2015 Fixed annuities once were viewed as a conservative investment strategy, but they have emerged as an accumulation vehicle of choice for many soon-to-be retirees.

So what will 2015 bring in the fixed annuity world? Rich Lane, director of individual annuity sales and marketing for Standard Insurance, said that fixed annuity sales show no sign of slowing down in the coming year. He identified five trends that will help advisors better position themselves to sell fixed annuities in 2015.

1 The end of quantitative easing will

2 3

create uneasy investors.

Purchasers are getting younger.

Watch for new products.

4 Fixed annuities provide wealth

5

transfer benefits.

New annuity carriers could mean increased risk.

“When investigating options, consider things such as long-term investment outlook, industry ratings and investment stability,” Lane said.

4 RETIREMENT ACTIONS TO LOOK FOR IN 2015

The year 2014 closed with a number of federal-level retirementincome actions in the bag. Following are four that may hold particular interest for advisors as implementation gets underway this year.

[1] The myRA Retirement Account. Debuted by President Barack Obama in January 2014, this is a starter retirement savings program for low- to mid-income workers.

Insurance and financial advisors won’t be selling the bonds or the program, but their small-business clients will likely ask for insight into myRA once full implementation begins.

[2] QLACs. The acronym stands for qualifying longevity annuity contracts. In July, the Treasury Department issued regulations that allow the value of such contracts to be excluded from the required minimum distribution (RMD) calculations that qualified retirement plan owners – such as those who have 401(k)s and IRAs – must start performing annually at age 70.5. Advisors may soon find themselves discussing this option with individual IRA owners as well as with 401(k) plan sponsors that may be interested in adding that option to the company plan.

[3] Target date funds with annuities.

In October 2014, Treasury and the IRS released guidance that enables plan sponsors to include deferred income annuities (DIAs) in target date funds that are qualified default investment alternatives (QDIAs). This 36

should open a door for advisors to address retirement income issues with clients. Annuity carriers are working on developing DIAs for the QDIA environment right now, so they will likely be receiving market and product updates soon.

[4] Multiemployer defined benefit (DB) pension plan change. The $1.1 trillion spending bill includes significant changes to laws affecting multiemployer DB plans.

The major change is that plan trustees can now cut (“suspend”) the pension benefits of retirees if their multiemployer pension plan is endangered. Since there are approximately 10 million participants in multiemployer pension plans, some agents and advisors may have retired clients who one day experience such a cut. If so, the clients and families may need help with restructuring assets.

NONRETIREES SEEK SOURCES OF GUARANTEED INCOME

A new survey by Allianz Life has found that Americans who are still in the workforce overwhelmingly prefer products with guarantees over products that have higher growth potential but a risk of losing value.

The results show that even with the strong performance of the stock market, demand for guaranteed income remains high. The survey found that 78 percent of respondents said they preferred financial products with guarantees over products with higher growth potential.

Despite the seemingly strong demand for guaranteed retirement income products, many employers have been slow to offer annuities through employer-sponsored

InsuranceNewsNet Magazine » February 2015

retirement plans because of the long-term liability associated with them. Employers don’t want to be sued in the future if the annuity doesn’t perform as promised or if the annuity company goes belly up.

When asked about the most important way to prepare for retirement five to 10 years before calling it a career, 41 percent said putting some money into a guaranteed income product is the best course of action.

INSURERS INNOVATE TOWARD RETIREMENT INCOME OPPORTUNITIES

U.S. insurers are looking at new retirement income opportunities, according to Cerulli Associates.

“The annuity marketplace is undergoing significant fragmentation,” said Chris Nadai, Cerulli senior analyst. “The impetus behind this product transformation is to satisfy the consumer demand for annuities that provide guaranteed monthly payments in retirement, potential for account growth, tax deferral on the earnings and asset protection by insuring a minimum value of payments from the account.”

Cerulli’s report, “Annuities and Insurance 2014: The Evolution to Sustainable Retirement Income Solutions,” focuses on three key areas of the annuities and insurance markets: distribution; product development; and the asset management of core products, including variable annuities, fixed annuities, equity-indexed annuities and life insurance.

“The annuity industry must tap new sources of assets to increase net sales, whether it is accomplished by enticing feebased advisors, younger generations or constructing in-plan guarantees (e.g., defined contribution plans),” Nadai added. “While this recommendation aids in boosting the industry’s asset base, it would also assist the industry in overcoming the negative perceptions of relying on 1035 exchanges.”

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Annuities Stay in Play Even as Pension Funding Drops Although equities hit new highs last year, funding levels at corporate pension plans didn’t. That’s keeping demand going for annuities that fund pension takeover deals. bitly.com/qrpension

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February 2015 » InsuranceNewsNet Magazine

37

ANNUITY

In a recent GallupN survey, nearly halfN of investors saidN they startedN saving for retirementN before age 30.N

Rethinking Whether Younger Adults Are Candidates for Annuities Y ounger adults rank saving for retirement high on their list of financial priorities. What does this mean for annuity sales?

By Linda Koco

T

he year 2015 begins with a return to a discussion of whether adults in their late 40s and early 50s are candidates for annuity ownership. Only this time, the focus turns to even younger adults – people in their 20s and 30s.

Might individual annuities be an option for them?

38

The industry group-think says that workers in this demographic just won’t want to, or be able to, pay into an annuity for many years to come. For good reason: The younger adults have school loans to repay, families to form, cars and houses to buy, college education accounts to arrange for the kids, and, yes, technology to acquire. Besides, if they stash their cash in an annuity, they would face penalties if they needed to withdraw some or all of those funds before age 59.5; and if they buy annuities with certain bells and whistles, the costs for those features could

InsuranceNewsNet Magazine Âť February 2015

detract from account growth at a time in life when maximum tax-deferred buildup is the primary goal.

Some annuity veterans wonder whether younger adults could even understand an annuity when they are still wet behind the financial ears, so to speak.

But now comes news from Gallup that might prompt a rethink of the group-think.

Saving for Retirement Before Age 25

In a recent survey, Gallup found that 26 percent of more than 1,000 U.S. investors reported having started saving for

RETHINKING WHETHER YOUNGER ADULTS ARE CANDIDATES FOR ANNUITIES ANNUITY retirement before they turned age 25. That includes 7 percent who started before age 20.

In addition, 23 percent more began saving for retirement between ages 25 and 29, so nearly half of the entire survey group started before age 30.

None of this says anything about savings in annuities. Just savings for retirement.

We’ll come back to this momentarily.

To be included in the survey, the adults needed to have at least $10,000 invested in stocks, bonds or mutual funds. Only 20 percent of adult Americans fit that category, said the researchers, who conducted the poll on behalf of the Wells Fargo/Gallup Investor and Retirement Optimism Index, a joint project of Wells and Gallup.

Presumably, these individuals did not have $10,000plus in investments when they started saving for retirement. Most likely, many had less, perhaps much less.

The key point is that these adults, both retired and nonretired, started saving for retirement when they were younger. For instance, 91 percent of nonretired investors reported saving, with the average starting age being 29. Among the retired, the average starting age was slightly higher but not by much – age 35.

2012 found that 63 percent of millennials, then aged 21-29, were participating in their retirement plan at work and that “saving for retirement ranks highly in this generation’s list of financial priorities.” A 2012 survey by the American Institute of Certified Public Accountants and the Ad Council found that fully 94 percent of 25-to-34-year-olds were at least somewhat likely to make saving a priority.

What could possibly interest these younger savers in an individual annuity?

The tax deferral, the guarantees, the flexpay structure, the ability to 1035 exchange policies, the withdrawal privileges in the later years and the retirement income stream “for the day when.” Even the fact

promotions will probably not be the main attraction anywhere.

The main attraction just might be exactly what the deferred annuity was designed to do – provide long-term, taxdeferred retirement savings, with steady buildup over time, on a guaranteed basis in a fixed annuity or on a market-based gain basis in a variable annuity, with the ability to generate an income stream later on, in retirement.

The fact that the owner can feed the annuity on a flex-pay will be a definite plus in this market.

The Image of the Annuity

Annuity professionals never fail to mention that younger adults almost always turn up their noses at annuities. Sometimes this is due to lack of awareness, they allow.

But other times, it comes from a stereotype that “annuities are for old people” or from having seen headlines that bash annuities.

But today’s younger adults may be taking a different financial path from that of previous younger adults. Many are aware that cutbacks in Social Security benefits may occur one day, and that this will affect their finances.

The Gallup survey indicates people are already thinking about how they would manage that.

For instance, the researchers asked the following hypothetical question to nonretired investors in the poll group: How might knowing that they would not receive any money from Social Security in retirement influence their savings behavior?

Thirty percent said this development would motivate them to save a lot more money for their retirement, Gallup reported. Another 24 percent said it would motivate them to save a little more. So over half are already thinking about what to do.

Maybe, just maybe, an annuity could help them accomplish this goal, even starting right now.

Younger investors sometimes turn up their noses at annuities because of the stereotype that “annuities are for old people.”

Which Products?

The researchers did not report on which products these savers started out with, but a good guess is that it probably wasn’t annuities, for the reasons cited above.

More than likely, they started out with a retirement plan at work and/or a savings account at the local bank. For some, it might have been an individual retirement account or maybe an auto-investing plan with a mutual fund (perhaps guided by a parent or other trusted elder).

But what about today? Could it be that savings-minded younger adults might be interested in adding annuities to their retirement savings portfolio?

By the way, today’s younger adults definitely have savings on the mind. For instance, a Financial Fitness survey in 2013 found that millennials ranked investing as their third-highest financial priority, behind managing cash flow and getting out of debt. A Prudential study in

that the customer can buy an annuity independent of an employer could hold interest for those who anticipate frequent job changes.

A Word About Flex-Pay Policies

In the past two or three years, much of the annuity industry’s focus has been on income annuity products and riders. This has been a long time coming, and it’s a positive development, given the waves of baby boomers now reaching the shores of retirement.

But income annuities are not likely to appeal to most (or any) younger savers.

The young tend to want flex-pay, auto-pay or frequent-pay by whatever name.

To interest younger adult customers – who are moving into the middle-market that many carriers say they want to reach – maybe the annuity industry should start reminding everyone that flex-pay deferred annuities exist too. True enough, interest rates are still quite low, so the come-hither in the promotions will likely not be the rate. But then, interest rates are low everywhere, so rate-based

Linda Koco, MBA, is editor-at-large for InsuranceNewsNet, specializing in life insurance, annuities and income planning.

Linda may be reached at linda.koco@ innfeedback.com.

February 2015 » InsuranceNewsNet Magazine

39

ANNUITY

Using Annuities for Responsible Wealth Transfer T he tax bill associated with a large wealth transfer could leave a beneficiary with more problems than your client intended.

A fixed annuity can be part of a strategy to prevent this.

By Rich Lane

M

ost clients are conscientious about how their wealth is allocated, and they want to be as thoughtful about bequeathing that wealth to a loved one.

But have they really thought through their intentions? Have they taken steps to make sure their objectives are carried out? Leaving large sums of money to an heir, even with the best of intentions, can have unintended and sometimes disastrous financial consequences.

Setting Up a Fixed Annuity as a Wealth Transfer Strategy

Transferring a large sum of money to a loved one may seem straightforward, but there are a number of considerations clients should contemplate when doing so.

In particular, they should ensure that by transferring funds, they’re not creating an undue tax burden for an heir.

The tax bill associated with a large transfer potentially could eat up a significant portion of an inheritance and leave a beneficiary with more problems than the client intended.

A tool to help clients pass along their wealth responsibly may be the vehicle they used to accrue their wealth: a fixed annuity. Although annuities typically are seen as a means to grow assets and distribute them during retirement, a fixed annuity is also a sound option for transferring assets.

Not only does this take only a slight restructuring of the annuity’s payout, but it also can create a well-thought-out plan for how the beneficiary uses the proceeds.

The key is ensuring the beneficiary designation aligns with your client’s wishes.

40

Naming a Beneficiary Might Not Be as Simple as It Seems

To many clients, the beneficiary designation might seem like one of the most straightforward requirements of purchasing an annuity. However, it is important to discuss beneficiary designations with your clients and review them periodically.

We have all heard stories in which a beneficiary designation in place at the time of a client’s death was not what he or she had intended, leaving large sums of money in the wrong – or possibly unprepared – hands.

These questions can help you guide clients through these considerations: » Are all the deferred annuity death benefits going to the desired people?

Clients often don’t think about updating their beneficiary designation after life’s major events. A lot can happen from the time a plan was enacted to the next time that plan is reviewed. For example, Mrs. John Smith may not be the current Mrs. John Smith, due to divorce or remarriage.

InsuranceNewsNet Magazine » February 2015

During the periodic review, it is also important to determine whether the designation percentages are accurate and whether the payout strategy for disbursing proceeds still is the most prudent for each beneficiary. » Have worst-case contingencies been considered and covered? It is important to do more than designate only a primary beneficiary. Help your clients understand the importance of designating contingent beneficiaries as well. When clients fail to include this information, they risk having the proceeds go to their estate, perhaps entangling beneficiaries in a long legal process. This probably is not what the client would have wanted. » Do current deferred annuity products continue to meet the client’s needs? For many clients, it might be time to start thinking about annuities as a way to transfer assets instead of annuities as a tool to fund retirement. By helping clients revisit their financial plans and changing

USING ANNUITIES FOR RESPONSIBLE WEALTH TRANSFER ANNUITY the purpose of an annuity, you can help them meet new goals. This can help clients not only manage assets but ultimately transfer those assets to beneficiaries as part of an orderly, planned wealth disbursement. » Is your client’s financial plan inadvertently creating a tax burden for the beneficiary? As mentioned above, when paid in a lump sum, the payment stream from an annuity potentially can create a tax burden for beneficiaries. Do your clients know how proceeds from an annuity will affect the heir? Will it push the heir into a higher tax bracket? That could eat up large portions of an inheritance. » Do current products allow your client to predetermine how proceeds will be distributed to the beneficiary? Choosing the terms of the payout can reduce the tax burden to the beneficiary. Payments can be spread throughout the beneficiary’s lifetime. Some beneficiaries might prefer a steady stream of payments, while others might want a lump sum. Each scenario has important lifestyle and tax considerations.

The key to this wealth transfer strategy is ensuring the beneficiary designation aligns with your client’s wishes.

Annuities with restrictive endorsements provide an opportunity for a purchaser to determine how proceeds are disbursed.

A restrictive endorsement gives the purchaser “control from the grave,” taking the decision-making out of the hands of beneficiaries, who might not be ready for the responsibility, and putting it into the hands of the purchaser. The use of this endorsement can be a powerful tool that provides clients with peace of mind knowing the proceeds from the annuity will be disbursed in the way the purchaser intended.

For example, one of the advisors I work with recently assisted a grandmother who

wanted to gift money to her grandchildren.

The advisor wrote a restricted single premium immediate annuity (SPIA) with a fiveyear income stream instead of lump-sum payments. The grandmother was interested in this approach because she was worried her grandchildren would spend the entire payment if they received it all at once. Not only did this spread out the tax burden to her grandchildren, she liked the idea that her grandchildren would receive a monthly check from her after she was gone.

By advising your clients to think about these questions, you’re helping them take comfort and pride in their legacies. You’re demonstrating that fulfilling their wishes is important to you. That builds trust and helps build business.

Rich Lane is the director of individual annuity sales and marketing for Standard Insurance Co. Rich recently was elected to the National Association for Fixed Annuities (NAFA) board of directors for 2015. He may be contacted at rich.lane@innfeedback.com.

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41

HEALTHWIRES

Health Care Issues States Should Watch In 2015 bitly.com/qrstates

Florida Leads the Way

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Florida leads the nation in two crucial aspects relating to health insurance. The Sunshine State had the highest number of enrollees among the states with federally facilitated marketplaces. And Florida had the highest Floridians have signed up for Obamacare premium payments and deductibles among the states.

More than 670,000 Floridians have signed up for health coverage under the Affordable Care Act (ACA) for 2015, the most of any state using the federal marketplace. Texas was No. 2, with more than 379,000 consumers signing up. Florida is the second-biggest state using the federal exchange after Texas.

But in Florida in 2013, premium payments and deductibles ate up 12.4 percent of median household income for people 65 and younger – the highest impact nationwide.

The national impact was 9.6 percent. That’s what the Commonwealth Fund revealed in a report it released on state trends in the cost of employer-provided health insurance coverage from 2003 to 2013.

A Florida worker’s annual payment for their share of the insurance premium went from $750 in 2003 to $1,073 in 2010 to $1,408 in 2013. This is on a single-person, private employer-sponsored plan’s premium. Put another way, employees went from paying an average 21 percent of the cost in 2003 to 26 percent in 2013. They saw a 5.2 percent annual increase from 2003 to 2010 and a 9.5 percent increase from 2010 to 2013.

For family plans acquired through an employer, a Florida employee’s average contribution went from 30 percent in 2003 to 35 percent in 2013. The employee cost for the family plan in Florida went from $2,810 in 2003 to $4,685 in 2010 to $5,653 in 2013.

The average deductible for an employer-sponsored single-person health plan in Florida was $1,346, higher than the national $1,273. These are the costs patients pay before their health insurance kicks in. Ten years earlier, in 2003, the average deductible was $576.

ACA ENROLLMENT AT 6.6 MILLION AND COUNTING

The most recent 50-state report on the latest sign-up season under the ACA shows that more than 6.6 million people registered for the first time or re-enrolled in coverage as of Jan. 2. That figure doesn’t include people who are being automatically re-enrolled in health plans.

Health and Human Services Secretary Sylvia Burwell has set a target of 9.1 million customers signed up and paying premiums in 2015. Open enrollment runs through Feb. 15, and current customers can still make plan changes through that date.

The administration noted that about 87 percent of people who selected health DID YOU

KNOW

?

42

plans through HealthCare.gov will get financial assistance.

FEDERAL TAX FILERS MUST SHOW INSURANCE STATUS

The beginning of a new year brings us to the dreaded income-tax filing season.

This year, federal tax filers have the burden of showing their health insurance status in addition to all the income-related information that is required each year.

Individuals with private insurance, Medicare or Medicaid should see no impact and simply have to check a box on their federal tax returns. Those who don’t have insurance may be subject to a penalty on their federal income taxes just as they are on their state returns.

But there are more than 30 exemptions that could help, including exemptions for

Over the past 20 years, SHORTTERM DISABILITY CLAIMS related to obesity have increased by Source: Cigna

InsuranceNewsNet Magazine » February 2015

3,300%

Health insurance is expensive no matter where you live. High deductibles are now the rule instead of the exception.

— Cathy Schoen, executive director of the Commonwealth Fund Council of Economic Advisors

those who are uninsured for less than three months of the year, for households whose income level is below the minimum filing amount or for non-U.S. citizens without valid immigration documentation.

For individuals who purchased insurance through the health insurance marketplace, their tax liabilities/benefits also will depend on whether they qualified for an advance premium tax credit – government assistance to lower their monthly health insurance premiums – and whether their estimated household income at the time held through for the year.

Those who did receive tax credits will receive a 1095-A tax form from the marketplace indicating the amount.

Filers may forget about the tax credits because they didn’t directly receive them; they were instead paid directly to their insurance providers.

FIRMS COULD SKIRT LAW

BY HIRING VETS

The new Congress opened for business by considering a bill that would make it easier for smaller companies to avoid providing employee health care coverage by hiring veterans.

The measure is the first of many expected Republican bills aimed at overhauling the ACA. That 2010 law is phasing in a requirement that companies with more than 50 full-time workers provide medical coverage for their workers. The House bill, sponsored by Rep. Rodney Davis, R-Ill., would exempt from that threshold veterans who get health care from the Department of Veterans Affairs or the military.

Supporters say the measure would encourage employers to hire veterans.

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HEALTH

Private Exchange Enrollment Expected to Triple in 2015 With enrollment projected to reach 40 million by 2018, it seems like everyone is hopping on board the Private Exchange Express.

By Tom Henschke

T

here is a big train coming down the track in 2015. Advisors and their group clients must have a more complete understanding of the locomotive called “the private exchange” and how it fits into an ever-changing benefits landscape.

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Employer leaders – CEOs, chief financial officers, chief operating officers, human resource chiefs and benefit managers – are challenged to find the best path for their companies to succeed in this evolving health benefits setting. They are searching for concrete, realistic alternatives from their advisors.

While contending with each complexity associated with the Affordable Care Act (ACA), these business leaders want ways to reduce administrative costs, remain compliant, save money and stay within a designated benefits budget.

InsuranceNewsNet Magazine » February 2015

They are looking for practical alternatives to help them control costs by using a defined contribution strategy – to set a benefits budget and mitigate future premium increases.

That’s where any meaningful discussion will likely move toward private exchanges.

Private exchanges aren’t revolutionary. In the 1970s, companies began experimenting with defined contribution health benefits plans by offering employersponsored cafeteria plans. This model is now the foundation for the modern private exchange and follows a similar mi-

PRIVATE EXCHANGE ENROLLMENT EXPECTED TO TRIPLE IN 2015 HEALTH gration from defined benefit to defined contribution retirement plans witnessed over the past several decades.

What is different almost 40 years later?

The technology now available makes the process seamless, easier to deliver, and more systematic while allowing employers and their employees to have more health benefit choices.

What Are We Talking About?

Private exchanges enable employers to select a contribution amount made available to employees for the purchase of health insurance and other employee benefits. The employee can then choose from a wide variety of benefit selection options. Depending on the type of private exchange model, the employer can choose between fully insured and selffunded arrangements as well as decision support tools. Private exchanges allow employers to provide eligible workers with a subsidy to purchase policies that comply with the ACA and meet the specifications of state insurance regulators. Workers

may add their own salary-deferred contributions in an amount they select and may choose among differently priced plans from health insurers – taking into consideration factors such as varying premiums, deductibles and networks.

Private exchanges empower employees to review and select the best complement of benefits for their individual situations.

Proprietary decision support tools can help employees forecast their annual premium costs, estimate out-of-pocket expenses, and project the number of physician office visits, specialist and emergency room visits, and hospital days. These tools can assist employees in optimizing and selecting appropriate levels of life insurance and disability insurance as well.

A private exchange solution can serve larger categories of exchange users, including individuals, small groups, large and jumbo groups, consortiums, multiple-employer arrangements, active employees, part-timers and retirees. In addition to medical, dental and vision

insurance plans, some private exchanges may also offer life, disability, auto and homeowner’s coverage, pet insurance, and identity theft protection.

Interest in private exchanges has expanded quickly to include all industries and all employer size segments. This interest has led to the formation of private exchanges by such entities as insurance companies, unions, medical societies, technology firms and regional brokers.

What’s Ahead for 2015? » Private exchange enrollment is likely to triple in 2015 to 9 million consumers as more employers evaluate its merit, according to Accenture. The consensus is that private exchange enrollment will reach 40 million by 2018. » According to an Alegeus Technologies survey, there is strong evidence that 2015 will be a “tipping point” year of private exchange adoption, as survey participants reported high levels of familiarity

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45

HEALTH PRIVATE EXCHANGE ENROLLMENT EXPECTED TO TRIPLE IN 2015 and interest in exploring defined contribution and private exchanges. » More than 50 percent of companies surveyed by Prudential indicated they would direct their employees to private exchanges – including 28 percent who said they are very likely to do so or have already done so. » Of employers surveyed, 47 percent plan to consider or will be using a private exchange for their employees before 2018 – according to the Private Exchange Evaluation Collaborative (PEEC).

Lessons Learned

Across the nation, private exchanges are being created to help employers better manage health care costs and offer improved coverage options for employees. Greater migration to this model is predicted for the future.

Therefore, it is paramount for any advisor to be at the forefront in evaluating private exchange opportunities that bring additional value to the employer clients they serve – and want to serve – and to show how they can help transition those clients into private exchanges.

This can be accomplished by aligning a private exchange solution with the employer’s key health and wellness and cost-management strategies. Evaluating narrow networks and accountable care organizations while understanding the client’s culture, internal processes and long-term benefits strategy will ensure a smooth transition toward a private exchange model.

One of the inherent goals of a private exchange is to arm employees with the tools and the knowledge to make informed purchasing decisions on health care and other benefit plans. Incorporating decision support tools into employee’s experience encourages thoughtful consideration of their future plan usage, lifestyle changes and their overall health-related behavior.

These tools help ensure that employees select the best plans and products to meet their individual needs. As a result, the employees will reduce the level of “over-insuring” that often exists in a more traditional benefit delivery model.

For the employer, benefits administration technology capabilities should be 46

robust and flexible enough to implement various employer contribution models, deliver appropriate employee decision support tools, and support a broader selection of benefit plan types and options.

This effort will eliminate or mitigate any problems with internal administrative inefficiencies and employee frustration or dissonance.

47% Employers who agreed that if an industry peer moved to a private exchange, they would be more likely to do so.

can deliver connectivity with carriers and payroll systems, accommodate employer eligibility requirements, and deliver an effective front-end user experience.

Early adopters also are finding a competitive advantage in facilitating the renewal process and employee recruitment and retention. By offering more choices and tools, employees and their spouses

Employers who have implemented or plan to consider utilizing a private exchange for full-time active employees before 2018.

57%

Download the full Executive Summary of the December 2014 Private Exchange Employer Survey Findings bitly.com/inn-peec The big question for employers centers on whether their technology platform is savvy enough to facilitate multisite open enrollment and to use support tools while eliminating paperwork and allowing human resource personnel to concentrate more on developing appropriate workplace strategies.

What Lies Ahead for 2015

Private exchanges are with us to stay as part of benefit packages. They will continue to gain in popularity as employers and employees derive a comfort that comes from such outcomes as more predictable budgets, deeper consumerism and simplified benefit plan administration.

To do so, employers must follow through and perform the due diligence necessary to ensure private exchanges

InsuranceNewsNet Magazine » February 2015

are more engaged through private exchanges. Increased employee satisfaction and lower costs can also lead to more positive differentiation of one employer from its competitors.

It is therefore important for an advisor to prepare an action plan to accommodate employer clients seeking lower costs, an easier administrative lift, and better employee recruitment and retention through the benefits of a private exchange.

It’s always better to ride on the train than to be under it.

Tom Henschke is the manager of Exchange Solutions for First Niagara Benefits Consulting, a division of First Niagara Risk Management. Tom may be contacted at tom.henschke@ innfeedback.com.

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President and CEO of the Aspen Institute February 2015 » InsuranceNewsNet Magazine 47 Copyright 2014 The AALU ®. All Rights Reserved

FINANCIALWIRES

The Connection Between Happiness and Planning bitly.com/qrhappy

Muscles Over Money in New Year’s Resolutions We’re in the second month of the new year. How are those resolutions working out for you? Did you hit the gym every day, kick the cigarette habit, spend more time with family?

Most Americans who made resolutions for 2015 were more concerned with fitness over finances, according to an Allianz Life survey. Nearly half of those who took the survey said that focusing on health and wellness was their resolution for the year. This was ahead of the 40 percent who said they resolved to do a better job of managing their money.

A bright spot in all this is that nearly a quarter of respondents said they are more likely to seek the advice of a financial professional in 2015, up from 19 percent in 2013. More Americans (36 percent) also selected “financial professional” as their top choice if they had free access to assistance from a top professional. This put financial professionals ahead of nutritionist/dieticians, personal trainers and career counselors.

3 IN 5 DON’T HAVE ENOUGH FOR A RAINY DAY

A trip to the emergency room or a car repair could send three in five Americans ripping up the sofa cushions in search of loose change. Only 38 percent of Americans have enough money in their savings accounts to pay for unexpected expenses of $500 or more, according to Bankrate.com.

Those who don’t have access to emergency funds said they would raise the money by reducing spending elsewhere, borrowing from family or friends, or using credit cards.

The ability to use savings for unexpected expenses increases with age, income and education level. Senior citizens, people with annual household income of more than $75,000 and college graduates are more likely to be able to cover unplanned bills than are millennials, people with annual household income of under $30,000 and those without a college degree.

The survey also found that 82 percent of Americans keep a household budget, up from 60 percent in 2012. Even in this electronic age, most people keep a budget the old-fashioned way, either with a pen and paper or in their heads. Just 26 percent use a computer program or smartphone app for budgeting.

?

48

65 IS NO LONGER THE MAGIC AGE

Age 65 is no longer the time when workers get the gold watch and the handshake that marked the end of employment in days gone by.

More than nine in 10 working middleincome baby boomers have plans to retire one day, but many will be working past age 65, according to a new study commissioned by Bankers Life Center for a Secure Retirement.

Although boomers are optimistic about retirement, many are concerned about meeting their financial needs in retirement.

While one-third feel very or extremely confident about their retirement savings,

$8B $11B

THE AVERAGE RETURN ON AN INITIAL PUBLIC OFFERING was 20 percent LOSSES FROM CREDIT AND this year. The average increase in the first day (or “pop”) is 13 percent.

DEBIT CARD FRAUD IN THE U.S.

Source: Renaissance Capital Source: Javelin Strategy & Research

InsuranceNewsNet Magazine » February 2015

2013

KNOW

How much is enough to feel wealthy? For men, the answer is likely to be “more.”

Men are twice as likely as women to say they need to make $500,000 or more a year in order to feel wealthy, according to a Harris Poll. Men are also 25 percent more likely than women to require over $200,000 annually to feel wealthy.

The average salary per U.S. household in 2013 was $51,939, with men at a median of $50,033 and women at a median of $39,157 annually, according to the U.S. Census Bureau. Among full-time, year-round workers, women were paid 78 percent of what men were paid.

2012

DID YOU

MEN REPORT NEEDING MORE MONEY THAN WOMEN DO

Source: Fidelity Investments

two-thirds expressed some doubts, and a quarter said they are not confident.

Middle-income boomers view a halfmillion dollars in investable assets as the financial threshold for retirement security. However, most middle-income boomers have not achieved this level of asset attainment. Only one in 10 boomers had investable assets of $500,000 or more. Even more concerning was that more than half reported having less than $100,000 and one-third reported investable assets of less than $25,000.

One explanation for the lack of retirement assets: Boomers are heavily invested in their homes. While the median investable assets range from $25,000 to $100,000, the median home equity value reported by survey participants was $100,000 to $250,000.

MANY DC PLAN PARTICIPANTS CLAIM INVESTING IGNORANCE

37%

LIMRA looked at defined contribution (DC) retirement plans such as 401(k)s and found that although more employees are of respondents participating in their work- lack confidence place’s plans, those same employees are not very confident in their investment knowledge.

The 2014 survey has found that, among private-sector employees who are offered a DC plan at work, 79 percent participate, up two percentage points since 2013. Eighty percent of public-sector employees eligible for a DC plan participate, up from 79 percent a year earlier. While 401(k)s are wildly popular, over 40 percent of employees eligible for them at work are also saving for retirement outside of work.

The research also reveals a continued decline of defined benefits in the private sector: In 2014, just 16 percent of employers offered them.

Employees acknowledged they’re not as informed about investing and finances as they should be. In the public sector, for example, just 7 percent feel very knowledgeable about their investments. And few are very confident that they are saving enough to last through their retirement years. Knowledge is lacking in the private sector as well, where 37 percent of respondents say they are not very or not at all confident about investments or financial products.

But there’s hope. About half of employees agree that financial representatives can help them be more successful in investing than they could be on their own.

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FINANCIAL

In 2013, the auction house Christie’s sold the painting Three Studies of Lucien Freud by the Irish-born painter Francis Bacon for $142 million.

Investing in Art Could Leave Your Clients Hanging M ovies and TV romanticize the idea of owning fine art as an investment. Here is what your clients need to know before they hit the auction.

By Bryce Sanders

P

eople love to watch Antiques Roadshow on TV. Everyday folks haul in a painting in a battered frame. “How did you acquire this?” the expert asks. “I bought it for $35 at a yard sale five years ago,” the owner replies.

The painting looks awful and you think, “They saw you coming!” Then the expert explains the painting is worth $25,000.

Your client comes in the next day, cool to your portfolio suggestions. He says, “I’m thinking of investing in art. What do you think?”

The Case for Saying Yes to Art

Various indexes make the case for art as an alternative investment class. One index reports that art has enjoyed a 10 percent annual appreciation over several decades. The art market was great between 2002 and 2007 with annual returns estimated at 11.6 percent.

50

There’s always the chance of a big score.

In 2013, the auction house Christie’s sold the painting Three Studies of Lucien Freud by the Irish-born painter Francis Bacon for $142 million. Painted in 1969, it set a record for contemporary art.

Fine art can be beautiful. You can hang it on the wall and admire it daily. Stocks and bonds are electronic entries on a computer screen. Where’s the romance in that?

Because fine art is in short supply, the works of famous artists are extensively cataloged and tracked. When you own fine art, you own a rare treasure. Fine art is a status symbol among hedge fund managers and oligarchs. Nothing says, “I’ve arrived,” like owning something that others cannot.

Because fine art is so expensive, many museums cannot afford to own it outright. When they stage shows, they often borrow works from prominent collectors.

You might lend your painting to museum after museum. This brings you into the inner circle of other collectors and museum patrons, the mega-wealthy.

Art investment funds exist, though not in the mainstream. In April 2014, CNN reported “Wealthy Investors Flock to Fine

InsuranceNewsNet Magazine » February 2015

Art Funds.” These funds are targeted primarily at ultra-high-net-worth investors and institutions that consider art an alternative asset class.

The Case for Saying No to Art

At this point, your client has stars in their eyes. They see themselves as Pierce Brosnan, the sophisticated art collector in the movie The Thomas Crown Affair.

What else do they need to know?

Only the best art will do. Only a limited number of artists have created works that are considered to be collectable. Those works usually have auction price histories serving as a guide to their popularity. Your client will want to own an original work by the artist. Signed prints don’t count.

The mega-collector is seeking to acquire French Impressionist paintings by certain artists you would likely recognize as household names.

Even great artists have bad days. Artists who paint for a living often produce lots of canvases. They might paint daily. Sometimes they wake up grumpy, have an argument with someone or just don’t put their heart into their work. Those paintings still bear their signature but are considerably

INVESTING IN ART COULD LEAVE YOUR CLIENTS HANGING FINANCIAL less valuable because they aren’t examples of their finest work.

Dead artists have an advantage over living ones from the collector’s point of view. Dead artists aren’t creating new works. The supply of their work is limited. Living artists increase the available supply each time they have a show. New art is sometimes referred to as “wet art.”

Like hemlines and fashion, artists can gain in popularity or fall out of favor. The artist whose works your client collects must have staying power. Otherwise, like investing in the stock market, some sectors can cycle out of favor and remain on the sidelines until they regain popularity. This can take years.

The work must be in pristine condition. If it has rips or tears that have been patched at a later time, the painting has been restored and loses value. A dejected guest on Antiques Roadshow often is scolded for having refinished a piece of furniture when leaving it in its original condition would have bumped up the value considerably. The same is true of art.

Beware of forgeries. Anything worth owning has likely been faked. The mystery writer Jonathan Gash, known for the Lovejoy novels, offers the following formula: » The Impressionists collectively produced 1,000 paintings; » 2,000 of which are considered authentic; » 3,000 of which are in the United States.

Your client wonders, “How can this happen?” A painting might come with a story of a shady past; the buyer can own the painting, but it never can be displayed publicly. It’s easy to sell a fake to an unwitting buyer if the work never will be exposed to professional scrutiny.

“Provenance” is the art world’s term for “chain of previous ownership.” Under ideal circumstances, there’s an unbroken series of transactions from the original artist to the current owner. More likely, it will be proof of ownership via their previous purchase transaction from a reputable gallery or auction house, which they in turn would likely have records of provenance. Plenty of stolen works of art are still unaccounted for. During World War II, the Nazis appropriated privately owned art on a grand scale. The Lost Museum; The Nazi Conspiracy to Steal the World’s Greatest Works of Art, by Hector Feliciano, makes the point the Nazis kept remarkably accurate records of what was appropriated and the names of the previous owners. The descendants of the previous owners have a legitimate claim to the artwork today.

Art that’s worth owning is worth stealing. In The Thomas Crown Affair, Pierce Brosnan’s character was an art thief in addition to being a wealthy collector. Countless movies have romanticized art heists. Your client’s Old Master will need to be insured, and their insurance company will likely require a state-of-the-art security system. The insurance company might even require that the art be kept in a vault.

Next to consider is transaction costs. Whereas stocks can have relatively small spreads between bid and offer, along with posted costs to buy and sell, fine art often changes hands through auction houses. The buyer might be paying a 15-20 percent purchase commission plus sales tax. When it’s time to sell, there’s a selling commission too.

If this contributed to a fair and open transparent market, your client might be agreeable to paying higher fees as a cost of doing business. Not all sales are public, especially when the buyer or seller prefers anonymity. Mega-collectors in a financial bind might prefer a quiet, private sale at a lower price instead of a public auction that draws attention to their financial difficulties.

Investors like liquidity. “If I need to sell, how soon can I get money?” they ask. Stocks and bonds settle in three business days. Selling art is more complicated, especially if the work is best sold through a specialized sale months from now. Stocks have bids and offers visible throughout the day. The value of art is often defined by how much someone else is willing to pay at that moment.

Finally, many stocks pay dividends. Bonds pay interest. Paintings deliver neither. Your client gets the pleasure of enjoying the artwork, but forgoes reaping any financial rewards until the art is sold.

Your client now has a more balanced picture of the pleasures and pitfalls of owning art as an investment. It’s obvious that in both securities and art, they need a knowledgeable advisor. For investing and insurance, that’s you.

Bryce Sanders is president of Perceptive Business Solutions in New Hope, Pa. He provides high-net-worth client acquisition training for the financial services industry. He is the author of “Captivating the Wealthy Investor.” Bryce may be contacted at bryce.sanders@ innfeedback.com.

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www.WhaleClients.com February 2015 » InsuranceNewsNet Magazine

51

BUSINESS

Are You Too Nice to Close the Deal?

W hy making friends doesn’t always lead to making sales.

By Connie Kadansky

S

ean has been in sales for nearly 12 years. He has great customers, but he wants more. He knows what he needs to do: commit to prospecting consistently, and buckling down to close more sales.

So what’s the problem? By analyzing his prospecting activity, Sean has concluded that he’s spending an inordinate amount of time doing volunteer work and building relationships. But those activities haven’t added enough new clients to justify his time and financial expenditures.

Sean isn’t the only salesperson who has difficulty transitioning from relationshipbuilding to solid business-building. He isn’t aware of it, but he exhibits a form of sales call reluctance, and it’s interfering with his closing new business.

This type of call reluctance has been identified as “yielder” call reluctance.

It is common among salespeople, although they rarely recognize it. You see, salespeople with yielder call reluctance are people-pleasers. They are approvalseekers who lack assertiveness, often to their own detriment.

People-pleasers don’t move forward unless someone gives them a crystalclear signal to proceed. They don’t control the process of moving a prospect along the pipeline to becoming a client.

They let the prospect maintain control, and hence they just can’t seem to close a deal. Perhaps these salespeople: » Fear that the prospect would be offended by their sales efforts. » Leave appointments without getting the prospect’s firm commitment for the next step. » Have many unanswered questions they are afraid to ask.

52

Don’t get me wrong; relationships are important. But buyers primarily find and solve their own problems. Trying to gain their approval is a misspent effort. A successful salesperson finds the middle ground. She’s clear on goals and understands that it is OK to sell her services to meet her production goals.

The first step in overcoming yielder call reluctance is to understand what it is and how it could be affecting you. The following questions will help you determine whether you have this costly form of call reluctance: » Are you not prospecting consistently because you have difficulty asserting yourself? » Are you afraid to incite conflict by asking qualifier questions? » Are you afraid you will appear pushy or intrusive? » Are you afraid to bother the busy, disturb the indisposed or interrupt the otherwise engaged? » Are you building a number of relationships but not meeting your production goals?

» String out closing the sale.

If you aren’t turning qualified prospects into new clients, perhaps it’s time to look a little deeper.

In addition to experiencing yielder call reluctance, many salespeople who have trouble closing sales do not have a process or are deviating from their process.

Seventy percent of the sale is in prospect engagement and uncovering the need.

The sale is won in needs analysis. When salespeople emotionally adhere to their process with confidence and courage, the close unfolds organically.

Salespeople get their wires crossed when they believe that the buyer-seller relationship is more important than the sale.

There must be a balance. In the end, relationships and friendships do not pay the bills. Selling products and services pays the bills.

InsuranceNewsNet Magazine » February 2015

If you answered “yes” to any of these questions, you may be suffering from yielder sales call reluctance. Here are four steps to get you moving forward:

Step 1: Awareness

Be acutely aware of the behavior. When you find yourself yielding, simply observe your actions without getting angry with yourself. If you judge and berate your actions, you are doing more harm than good. Learn to become a scientist of your behavior. Self-reflection is the capacity to exercise introspection and the willingness to learn more about you. It is one of the best ways to self-correct. It’s particularly helpful to reflect on your actions through writing. After a meeting, ask yourself the following four questions. Write your answers down in a notebook. » What did I do well? The answer is: whatever you did right. You might write: “I showed up. I asked qualifying questions.

I was dressed appropriately.” You get the picture, right?

ARE YOU TOO NICE TO CLOSE THE DEAL? BUSINESS » What would I do differently next time? Think about different choices you could have made. Your reflection could say: “I will ask for an appointment. I will create a sense of urgency about getting together. I will ask for their contact information.” » What would I never do again? Dig deep. Is there anything you would never do again? You might promise yourself: “I will never walk away without asking for referrals. I will never again not have an answer to, ‘Let me think it over.’” » What did I learn about myself as a salesperson from this event? This is a key question. Don’t give it short shrift.

You could reflect: “I learned that there is a real need for my services. I learned that I am pretty good at answering tough objections. I learned that my confidence spirals downward when I walk away without asking for the business.” Allow yourself to be honest about what’s improving in your approach and what’s not working.

Step 2: Assessment

Pinpoint the extent of the problem. One way to do this is by recording your prospecting calls. Even if you use the recording for instructional purposes only, it’s a good idea to check with your compliance department or attorney before recording. Listen to the general impression your voice makes on these calls. Second, listen for any opportunities you might have missed. Third, pinpoint what you said on the calls that did land the appointment.

Have someone go on an appointment with you to share their observations and constructive feedback.

Step 3: Admission

The hardest part of changing your behavior is admitting that the behavior is costing you big bucks, not to mention your self-esteem and confidence. Would you rather be humble now or experience real humility when you are scooted out the door for lack of production?

Step 4: Application

Find a motivated, goal-oriented person who will role-play key scenarios with you. It’s fun if you find someone who will throw you curve balls. You can videotape your role-plays and analyze them just as you would a phone call.

It is a fantasy to believe that you can read an article and easily overcome habitlevel behavior. It takes hard work, personal commitment, introspection, positivity, fire in the belly and proper guidance. With training and coaching, it is highly probable that serious students of their craft can retrain their brain and learn to confidently prospect, self-promote and celebrate closing more sales.

Connie Kadansky, PCC, is a certified coach, professional speaker and trainer specializing in overcoming sales call reluctance. Connie may be contacted at connie.kadansky @innfeedback.com.

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February 2015 » InsuranceNewsNet Magazine

53

For more than 80 years, the Society of Financial Service Professionals has been helping individuals, families and businesses achieve financial security.

SOCIETY OF FSP INSIGHTS

IUL Illustrations Need a Makeover T he National Association of Insurance Commissioners takes a look at crediting rates in IUL illustrations.

By Richard M. Weber

W

hat’s the right crediting rate to assume in a variable or indexed universal life (IUL) policy illustration? If a long-term view of the Standard & Poor’s 500 has been 6.5 percent (without factoring in reinvested dividends for the 59-year period from Oct. 1, 1955, through Sept. 30, 2014), is that the appropriate starting point to answer the question?

The issue has been addressed several times in this column. It’s not only insurance agents who must wrestle with the answer. Attorneys, accountants and financial planners are interactively involved with their clients on many issues, and the sufficiency of a life insurance policy is as important to these noninsurance advisors as it is to the insurance agents who sell and service those policies.

The National Association of Insurance Commissioners (NAIC) also is concerned that constant rate illustration projections seem to inherently substantiate the illusion that a policy can be fully supported with crediting rates in the 6.5 percent to 8.25 percent range. The NAIC’s Life Actuarial Task Force has examined different perspectives in reviewing a number of proposals presented at its fall 2014 meeting. The task force has fast-tracked its review and is targeting July 1, 2015, as the date after which new IUL illustrations must conform to specific regulations limiting illustratable crediting rates.

Unfortunately, there is not a single point of view concerning the extent to which limitations should apply. The competing factions fall into several broad camps, which are typically focused on those insurers who sell IUL and those who do not. Several major mutual carriers have proposed that illustratable rates should be tied more specifically to 54

historic returns. Among other things, they recommend that numerical calculations provide a three-tier result based on: » Guaranteed expenses with guaranteed crediting rate » Current expenses with the midpoint of the maximum allowable crediting rate » Current expenses with an agentselected rate not to exceed the maximum allowable crediting rate.

The determination of a (pardon the pun) universal solution is elusive. There is the issue of appropriate illustration credit rates, and how agents and consumers can understand a three-dimensional product with many moving parts when viewed in a complex two-dimensional 47-page policy illustration. Another concern is presenting an understandable way to address the reasonable expectations agents and their clients may have regarding how cap rates can fluctuate between the level guaranteed in the policy (typically between 3 percent and 4 percent) and the current rate (for which 12 percent is typical among major carriers). It is questionable whether the following formula – attempting to assess the expected return on a call option underlying a carrier’s cap-setting process – could help!

Most commentators have missed the point. In early December 2014, the Society of Financial Service Professionals (FSP) submitted a preliminary commentary to the NAIC. While other submissions focused on how to limit illustration crediting rates, FSP provided examples stemming from its Historic Volatility Calculator (HVC). Insurance professionals understand that illustrated crediting rate scenarios do not help agents and their

InsuranceNewsNet Magazine » February 2015

clients form a meaningful expectation about how inherent crediting rate volatility may affect their “premium” choices over the insured’s lifetime. HVC is a supplemental analytical tool that takes the calculated planned premium from an IUL sales illustration and then further calculates 1,000 hypothetical illustrations utilizing randomized, historic point-topoint returns in order to test the likelihood of the illustrated planned premium sustaining the policy to the insured’s age of 100.

Results for a 47-year-old male in great health seeking a reasonable planned premium for $1 million of lifetime coverage in which the agent initially utilizes a 6.75 percent crediting rate assumption.

Planned Premium

$8,568 with nominal cash value at age 100

HVC Success Probability

477 out of 1,000 (12% assumed lifetime cap) or 67 out of 1000 (10% assumed lifetime cap)

Initial Recommended Illustration Rate

5.85% for a $10,000 revised planned premium (90% success probability)

The NAIC’s task force chairman has indicated that the focus on illustration rates will be only an interim step (ideally to be completed in March 2015), with the task force then opening up the basic life insurance illustration model law for revision as a long-term goal.

For several years, FSP’s Illustration Questionnaire Committee has brought together product experts, academics, actuaries, agents, and consumers to consider conceptual uses of technology such as digital tablets to bring a multidimensional and visual approach to answering that fundamental question: “How much will it cost?”

Richard M. Weber, MBA, CLU, AEP, is immediate past president of the Society of Financial Service Professionals. He may be contacted at richard.weber@ innfeedback.com.

Affluent & High Net Worth Prospects Have A Distrust Of You And What You Do Before You Ever Get A Chance To Show Them How You Can Help Them...

Let Me Show You 4 Key Reasons Why Your Clients & Prospects Don't Trust You... And The Solution To Overcome Each Of Them!

Over the past few years it has become increasingly harder to gain the attention and establish trust with the affluent clientele you want on your roster. This is especially true when every planner in your backyard is using the same song and dance, the same steak dinner at the same restaurants, trying to impress the same prospects. Ultimately no one is impressed or moved to take action because they don’t know who to trust!

have worked in the trenches for their entire lives, but they don’t know what you know and so they are scared and skeptical.

Trust is earned. It is built by establishing who you are, telling your personal story through known media you use and building a relationship through a specific system that’s proven to find and create connections.

#3 They Don’t Know You From The Guy Down The Block

In talking with top producing advisors and high net worth business owners on my radio show, my private clients and our extensive trust based research, I want to share with you four of the most eye-opening reasons that the prospects you are spending money to advertise to, are simply not paying attention to you…because they don’t trust you!

#1 They’ve Been Burned Before

Whether it was the market crash in ‘07 and ‘08, their employer stripping away their benefits or plain bad advice, you are at an immediate disadvantage due to the baggage a prospect carries from advisors who got there before you ever crossed their path.

This creates a huge trust barrier that you must overcome. And you won’t overcome it with invitations to dinner seminars, flimsy 4x6 postcards or “me too” marketing and advertising that you saw another advisor use so you copied them. This just makes you look like the guys that steered them wrong in the first place. Read on, because there is an answer for you…

#2 They Don’t Know Or Understand What It Is That You Do

How can someone trust you if they don’t understand what it is that you do? That is the case with most consumers, and especially for buyers of investment products and annuities.

They don’t know the things you know. They are good at being an engineer, an account executive, a Realtor or whatever profession they

The general public and even high net worth individuals are unfamiliar with how your charts and graphs work and many see them as sales-y pieces that are used to manipulate them and scare them into using your services. But read on, because there is a solution for you…

You showed up, unannounced in the mailbox, or a radio ad, or in the sports section of their newspaper with an invitation for them to leave their home to attend a workshop with a room full of people they don’t know, to see a person they don’t know try and sell them something.

Why should they trust you enough to respond?

Your core responsibility needs to be establishing a relationship with the folks you want on your client roster, so they instantly recognize you, and your importance in their life. Do you let your prospects “see” who you are in your marketing in order to make a connection with you, or are you selling the steak, or even worse, the features of your complicated service or product?

#4 No Proof That You Can Do What You Do

There are three ways to try and sell someone something. You can tell them what you do.

Someone else can tell them what you do. You can demonstrate what you do.

When you have a set of Trust Tools working for you in your business, you are able to display your Magic Powers and demonstrate your ability to help your prospect to reach their financial goals.

Nothing builds trust faster than demonstration.

Without these Trust Tools working for you, like a machine, you are living in a world of “he said, she said” and you will be on the losing battle more often than not, as you have not established trust, authority or demonstration of your worth.

Today, I want to show you how to create Unbreakable Trust in your business, by creating the tools and the system you need at all times if you desire to attract high net worth clients

and put more assets under your trusting management.

My name is Greg Rollett and I run a high level consulting and done for you marketing mastermind, known as the Ambitious Advisor. I’m also co-author of the BestSelling book, Celebrity Branding You. And today I want to demonstrate to you exactly how to Greg Rollett, Best-Selling get your market to Author & Trust Marketing Expert Trust You. I’ve just written a brand new report, called The Trust Triangle and produced an in-depth case study on how one advisor has built unbreakable trust using our done for you marketing systems and how you can apply them into your own practice immediately.

I am doing this to show you exactly how to answer and overcome the four points above.

There is no cost to you for any of this content rich, Trust Building information.

In addition to these 2 reports, I have just filmed a new training video that walks you through the Trust Triangle System with real examples that you can copy and implement into your practice right away.

I want to use this training to demonstrate how advisors who are even less skilled and knowledgeable than you are using these tools to overcome skepticism and advisor blindness to close new business, move up the chain to higher net worth clients and ultimately have the business and lifestyle you deserve.

You can claim your FREE copy of the Trust Triangle Report, The Tales Of The Ambitious Advisor and your example filled training video, please visit www.ambitiousadvisor.com/trust or call (888) 292-6438 today.

You can claim your FREE copy of The Trust Triangle, The Tales Of The Ambitious Advisor And Your Training Video, with instant access by calling (888) 292-6438 or by visiting www.ambitiousadvisor.com/trust February 2015 » InsuranceNewsNet Magazine

55

MDRT INSIGHTS

The Million Dollar Round Table is the premier association of the world’s most successful life insurance and financial services professionals.

The Appeal of Seriously Top Heavy Retirement Plans T he “cash balance” plan is a pension plan that business owners can use to reward both themselves and their key employees with outsized retirement plan contributions.

By J. Leland “Lee” Davis

T

oday’s business owners and professionals are plagued by any number of challenges. Yet many still manage to create and run highly profitable businesses.

Emerging Strategies

An emerging strategy called the “cash balance” plan is a pension plan that business owners can use to reward both themselves and their key employees with outsized retirement plan contributions. Business owners also can generate large tax deductions in the process.

Comparatively, today’s 401(k) plans have many nuances – from “safe harbor” provisions to the “new comparability” or cross-tested method. These nuances actually can help business owners tailor plans that are unique to their needs. One method allows owners and other highly compensated workers to participate fully in the plan, while the other allows larger contributions to be handed out to a specific class of employee, often highly compensated executives and key people.

Cutting-Edge Concepts

However, many advisors aren’t aware of the symphony that can be created with the combination of the 401(k) and a specialized pension plan. Among the cutting-edge concepts in this regard is the combination of the new comparability (cross-tested) 401(k) plan with the cash balance pension plan.

To illustrate the advantage of combining these two plans, consider the example of a hypothetical medical practice with six producing physician owners. Structured as an S corporation for tax purposes, this could also be any business with big earners. The following illustration shows the impressive 56

result of integrating a cash balance plan with a new comparability 401(k) plan, and the remarkable efficiency of the resulting scenario for the owners.

First, the new comparability profit sharing plan formula generates a $277,047 employer contribution, with $178,000 going to the physician owners themselves – about 64 percent of the total. Taken by itself, this is somewhat better than if those owners took out the same amount of money as income and paid taxes on it. The other advantage to implementing this type of plan is that the owners save income taxes in the range of $110,000 annually.

Then comes the magic of adding the cash balance pension plan to the equation. The large pension contribution of $705,728 generates more than $280,000 of tax savings annually in a combined 40 percent income tax bracket. Most important, more than $670,000 goes directly to the retirement account of the principals – that’s more than 90 percent!

Combination Advantages

» Using both plans in concert, each high-earning owner is able to put away an annual total ranging from a low of $157,000 to a high of $282,000. Keep in mind that future pension contributions may decrease with age, of course. That is far more than the $51,000 limit for 401(k) profit sharing plans alone. » This combination is also a wonderful

InsuranceNewsNet Magazine » February 2015

way to generate a huge retirement bankroll for the owners. Placing large amounts into tax-deferred plans like these allows owners essentially to control when the income taxes are paid by controlling when they take their distributions in retirement.

Key Points to Remember

Of course, the medical practice must put away at least some amount for the other employees too under this arrangement – $1,000 and under for each in the cash balance plan, and the 401(k) plan also needs a bit more for each employee. Here are some key factors to be aware of: Administrative guidelines must be followed; ongoing reporting is necessary; these expenses are considerations; and pension plans require continuing contributions and generally aren’t as flexible as profit-sharing plans.

Executed properly, a combination plan strategy reduces the tax bite and boosts tax-deferred savings immensely. Savvy advisors and their clients owe it to themselves to investigate these strategies. Implementing them properly can create a virtual gold mine for retirement.

J. Leland “Lee” Davis, LUTCF, is a Top of the Table member with multiple Court of the Table qualifications over his 25 years of MDRT membership. He is a partner in the Colorado-based wealth advisory firm J.L. Davis Financial Corp. Lee may be contacted at lee.davis@innfeedback.com.

Author’s notes: The plans illustrated comply with all ERISA and IRS regulations as we understand them.

The plans are complicated, and proper tax and legal advice is strongly recommended.

NAIFA INSIGHTS

Founded in 1890, NAIFA is one of the nation’s oldest and largest associations representing the interests of insurance professionals from every congressional district in the United States.

Planning for Your Success in the Next Decade and Beyond A dvisors must play a more significant role in educating middle-market consumers about the value they bring to the savings process.

By Ayo Mseka

N

AIFA has sponsored a research study, Advisor 2020, to help advisors position themselves for the opportunities that lie ahead.

Developed by the GAMA Foundation, Advisor 2020 features two studies.

“Study One: The Market of the Future,” presents four future business scenarios for advisors to determine where they see opportunity and potential. The scenarios are increased competition for the affluent market, lifestyle management for the retiree market, financial planning for the middle market, and portable benefits for the professional market.

After reviewing these scenarios, advisors are encouraged to “drill into the major trends” (or market drivers) that will help them anticipate evolving client markets, the products and services that will provide value, and the types of partners who can increase their professional success.

Study One

The three primary market drivers that will shape advisors’ practices in 2020 are: 1) Baby boomers. Baby boomers control more than half of the nation’s wealth; advisors who choose to ignore this generation will do so at their own peril.

Among the opportunities for advisors focusing on this group is lifestyle management. To take advantage of this opportunity, however, advisors must understand their clients’ behaviors and manage their living environments (in addition to managing their financial assets). The barriers that separate financial management from health and property management are beginning to blur, the book points out. Advisors would

be compensated by the value-added services they provide.

2) New generations and the underserved middle market. The wealth of the middle market is not as substantial as that of baby boomers, but growth in this sector makes them a force too large to ignore, according to the study. However, as middlemarket households partake in pre-tax savings incentives such as 401(k) plans, they will have less disposable income, posing challenges for agents and financial advisors.

As a result, advisors will need to play a more significant role in educating middle-market consumers about the value they bring to the savings process, as opposed to explaining the features of investment products and other tools. Advisors also will need to work collaboratively with a team of professionals.

3) Changing business environment.

Smaller businesses will drive the economy in 2020, Advisor 2020 predicts. Emerging businesses are less likely to offer defined-benefit plans and other financial benefits, and this business shift will create a growing underserved market for people who need insurance and financial products.

The need to provide more customized and comprehensive services to meet individual and small-group needs – including retirees, mobile professionals and the middle market – and the need to spend more time educating the middle market are among the reasons advisors may need to switch to a fee-based method of compensation.

Study Two

“Study Two: The Advisor of the Future,” the authors present the six change drivers for 2020: 1) Practice development in a diverse economy. Advisors will need to develop skills to serve growing diverse and niche markets.

2) The shifting needs of consumers and advisors. Advisors will need to find solutions that address the new risks to modern families, including single-parent families, unmarried couples, same-sex couples, and families formed by divorce and remarriage.

3) Technology for powerful sales and service. Advisors will have powerful customer relationship management systems that integrate social media and other data to provide sales and service insights anytime and anywhere.

4) Managing privacy and security. Advisors will be increasingly networked and will have access to a wide variety of personal data about their customers. They will be expected to ensure that client and corporate data are used appropriately and are protected from increasing threats such as cybercrime.

5) Advanced tools and insights for advisors and consumers. Successful advisors will be more skilled in working with big data and translating it into practical information that they can use for their practices. They also will have better tools for gathering market intelligence and analyzing data.

6) Shifting business models. Market, technology and regulatory changes will force greater competition and consolidation in the industry. The middle market will grow based on new products, and many smaller firms will thrive by embracing a culture of shared values.

You can obtain a copy of Advisor 2020 from www.naifa.org. The insights you will gain from reading this resource will help you plan for your future and meet it on your own terms.

Ayo Mseka is editor-in-chief of NAIFA’s Advisor Today. Ayo may be contacted at ayo.mseka@ innfeedback.com.

February 2015 » InsuranceNewsNet Magazine

57

AMERICAN COLLEGE INSIGHTS

With more than 87 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

Americans Overconfident and Unprepared for Retirement I f retirement planning were a subject in school, most Americans would receive a failing grade.

By James Hopkins

A

retirement crisis has been brewing in the U.S. for years. Today, Americans are underfunded for retirement by anywhere from $5 trillion to $14 trillion. While this huge retirement savings shortfall is concerning, new research – the 2014 Retirement Income Certified Professional (RICP) Retirement Income Literacy Survey – from the New York Life Center for Retirement Income highlights an even more troubling point: Americans know very little about retirement planning.

The RICP survey quizzed more than 1,000 Americans between the ages of 60 and 75, with moderate to high levels of investable assets ($100,000+), on a variety of crucial retirement planning questions.

The survey included both knowledge and attitudinal questions on a variety of important retirement planning topics, including Social Security, life expectancy, taxes, inflation, annuities, retirement income generation, medical insurance and long-term care. Only 20 percent of Americans passed the test. Furthermore, on average, Americans scored a 42 percent, with 60 percent being a passing grade.

It does not come as a great shock that Americans lack adequate knowledge about the essentials of retirement planning. It is extremely shocking, however, that the respondents stated they gave very little thought to most retirement planning issues. This was especially troubling because the demographics of this group included mostly retirees and those about to retire. For example, the majority of survey respondents did not put a great deal of thought into a retirement budget, where they would live in retirement, how they would spend their time in retirement, how they would find meaning in their lives in retirement, or 58

View the results of The American College RICP® Retirement Income Literacy Survey at bitly.com/inn-ricpsurvey the impact retirement would have on their relationships.

Combined with individuals spending little time thinking about major retirement issues was a high level of overconfidence with regard to retirement planning knowledge. Many respondents believed they understood issues like long-term care well, but were unable to answer basic questions about long-term care planning. For example, many respondents believed Medicare is the primary payer of long-term care expenses for retirees, when in reality Medicare is not designed to cover significant longterm care expenditures.

While the survey showed that Americans are ill-informed, spend little time planning and demonstrate high levels of overconfidence in their own retirement knowledge, there were some encouraging takeaways from the study. First, the respondents showed a base level of financial knowledge, understanding the basics of inflation and investment growth.

Additionally, Americans demonstrated more knowledge about Social Security than they did about most other retirement planning areas. Maximizing Social Security benefits is probably the most important aspect of retirement planning for many Americans, as roughly two-thirds of

InsuranceNewsNet Magazine » February 2015

retirees receive at least half of their retirement income from Social Security. Higher levels of knowledge in this area corresponded with respondents giving more thought to Social Security planning than they did to other areas of retirement planning. Additionally, respondents who had a retirement plan and a financial advisor demonstrated higher levels of retirement planning knowledge.

With a large percentage of Americans financially unprepared for retirement, overconfidence with regard to retirement planning knowledge could be devastating. Although more retirement planning education is required, Americans can do themselves a huge favor by spending more time thinking about key retirement planning issues and setting up a retirement income plan. Without spending the time to think about and understand the risks faced in retirement, Americans will continue to be unprepared for the retirement challenges ahead.

James Hopkins, Esq., RICP, is associate director of The American College New York Life Center for Retirement Income. Jamie may be contacted at jamie.hopkins@ innfeedback.com.

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More than 850 financial services companies in more than 70 countries turn to LIMRA first to help them build their businesses and improve their performance.

LIMRA INSIGHTS

Voluntary Options Continue to Resonate With Employers A s the labor market recovers from the Great Recession, employers are finding voluntary benefits can assist in their efforts to attract and retain staff.

TABLE 1 - CONSIDERATIONS IN SELECTING VOLUNTARY PLANS

By Ron Neyer

A

s employers face multiple challenges in putting together their benefit packages, how do voluntary options fit into the mix? Findings from a recent LIMRA study point to several developing trends affecting benefit strategies. Advisors should know that most of these changes suggest continued support for employee-funded choices.

Committed Sponsors

Employers do not envision making fundamental changes to their existing arrangements. Approximately seven in eight companies favor providing comprehensive benefit options to their workforce over a purely voluntary model. At the same time, 60 percent believe that employees must assume greater responsibility for their benefits.

Some have speculated that the passage of the Affordable Care Act (ACA) ultimately will result in fewer employers sponsoring insurance benefits. Although the full impact of health care reform is still largely unknown, nearly half of all companies expect their number of eligible employees to grow in the next three to five years. There also has not been large-scale migration toward using insurance exchanges or adopting a defined contribution benefits approach.

Many Benefits of “Voluntary”

Employers cite many reasons for offering voluntary benefits to their workforce.

“No added cost to the company” remains the most common rationale (rated as “very important” by 75 percent of all sponsors).

However, other factors clearly influence companies’ decisions. Roughly 70 percent use voluntary options to improve worker morale and/or attract and retain employees. The Great Recession made these 60

Percent of employers offering voluntary benefits

2010

2014

The coverage is guaranteed issue

65%

71%

May result in a significant cost savings for the company

70

63

A large number of employees will participate

54

62

The coverage is portable

47

43

Advisor recommends the coverage

45

35

considerations much less relevant in 2010.

However, today’s reinvigorated labor market has quickly reminded employers how voluntary benefits can assist with their staffing efforts. As a result, sales of voluntary benefits have increased by an average of more than 5 percent each year since 2010.

A Paternalistic Approach

Companies appear to be placing more emphasis on protecting their workers with the options they offer. This may stem, in part, from companies perceiving that some employees simply can’t afford voluntary benefits. Guaranteed issue has become most important in plan selection (Table 1), suggesting that employers are looking for plans that appeal to the masses. Sponsors also TABLE 2 - CONSIDERATIONS IN SELECTING VOLUNTARY CARRIERS

Percent of employers offering voluntary benefits

Best value

90%

Offers high-quality support services to employees

89

Offers high-quality support 84 services to benefits decision-maker Strong financial rating

79

Best product design

71

Lowest price

69 67

Broad portfolio of voluntary benefit options Name recognition with employees

53

Advisor recommendation

51 33

Previous relationship with the company

InsuranceNewsNet Magazine » February 2015

show increasing concern with participation levels, and focus less often on saving money and advisor recommendations. Yet six in 10 employers believe that worksite professionals generally deliver on their promises.

Employees are concerned about carrier selection. Although employers do not directly pay for voluntary benefits, nine in 10 consider their overall value (i.e., the combination of price and product design) to be a critical consideration in vetting providers (Table 2). Plan design and cost are very important independently, but a balance of these two objectives truly enhances customer satisfaction. Employers also will switch carriers to secure a better deal for their workers. Although takeover activity has somewhat lessened over the past four years, this movement continues to be driven largely by price. Support options are also a vital consideration, with tools designed for employee use even more critical than those accessed by plan sponsors.

Employers remain committed to sponsoring benefits as they strive to protect their workforce. Rather than seeing employee-funded plans as cost-shifting mechanisms, they view voluntary options as a means to enhance their existing packages (especially as the competition for labor intensifies). Value is most essential in carrier selection.

Ron Neyer, CLU, ChFC, is assistant research director, distribution research for LIMRA and is primarily responsible for LIMRA’s research and analysis of worksite marketing. Ron may be contacted at ron.neyer@innfeedback.com.

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