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Life Annuities Health /Benefits Financial


May 2017




Real-Life Success Stories From Agents Who Upped Their Revenue Games With Taxes and Insurance PAGE 4.



DENNIS PRYOR 11 Years with Liberty Tax

Whether you’re a successful, experienced agent or a startup rookie trying to build up a book of business, you’re always trying to find additional revenue. This is where Liberty Tax comes in.

WILLIAM DANIELS JR. 17 Years with Liberty Tax

We have 20 years’ experience helping insurance agents augment their income and complement their agency businesses, and we’d like to do the same for you. Please join us for a special webinar to see what a Liberty Tax franchise can do for you: Additional Revenue Stream for Insurance Agents: Liberty Tax Has You Covered Wednesday, May 24 at 1:00 PM EDT Register at Dennis Pryor and William Daniels Jr., who are both insurance agents and Liberty Tax franchisees, will tell you why, how and what happened after they combined Liberty Tax with their insurance businesses. We think you’ll be impressed by their experiences.

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Preview the real-life success stories of Dennis and William on PAGE 4.


Liberty Tax Service provides makes learning how to correctly file taxes very simple as well. Learning IRS laws does take some time, but if you stay on top of them, it’s not difficult to get a good understanding.


CROSS-SELL CLIENTS AND UP YOUR REVENUE GAME William Daniels Jr. and Dennis Pryor are two insurance agents who looked to the future and saw the value in combining insurance with a Liberty Tax franchise. Both have built successful businesses that provide year-round opportunity and two streams of revenue, largely from one pool of customers. Both will tell you that the benefits have been many and the challenges few. What specifically made you look at a Liberty Tax Service franchise? Dennis: When I first found Liberty Tax Service, I really was just interested in purchasing a franchise. I had an established client base in my insurance business, and I was looking for a service to cross-sell. After comparing Liberty Tax Service to other franchises, I specifically liked the structure of the Liberty Tax system. I felt the royalties and franchise fees were fair, and I really liked the security of knowing the tax industry is one that will never go away. What were the top things that made you buy? Dennis: The three main factors that made me decide to purchase my first office were: 1. The structure and support Liberty Tax Service offered me as a franchisee, 2. The experience and knowledge of our CEO John Hewitt, and 3. The earning potential in an industry that I knew was here to stay.

What has made it a good move? William: Three examples of what’s made it a good move for me are: 1. Additional cash flow from insurance customers, 2. Low overhead to get started, and 3. More opportunity to touch our clients with services. This makes them even more inclined to stay with us and to take advantage of our multiple services. Where do you see overlap between insurance and taxes? William: Both require people who know how to deal with other people. It’s not something that can be taught. So, if you have good insurance people, they will be good tax people. What did you have to learn to be a tax franchise owner, and how difficult or easy was the learning? Dennis: For starters, you have to learn the Liberty Tax Service system, the ins and outs of the preparation software, tax codes and filing procedures, and most of all, you

Were you able to keep your insurance clients? Were you able to convert them to your tax business? How did you do this? Dennis: We have retained around 80 percent of our overall insurance clientele, and over the past five years have converted over 1,500 of them to tax clients as well. The transition from one to the other came pretty natural. When our clients come in to pay a premium or handle other transactions, we let them know that we now offer tax preparation services as well as our insurance, and vice versa. While doing our customers’ taxes, especially since the implementation of ACA, we let them know we offer a solution to the healthcare penalty and leverage our insurance products as a way to save them some money. How have your clients benefited from this combination? William: They like it because they have someone they can trust with all their personal information on the tax side and the insurance side. What have been the downsides? William: We’re very busy during our tax season peak, so we try not to do both insurance and taxes at every desk. Instead, we maintain a designated insurance person who can write policies during peak. If a customer really wants to discuss insurance at that time, he or she will go to the designated person. Otherwise, we talk with our tax customers about the insurance services we offer; then we set up follow-up insurance appointments for them after tax season. We average about 25 new policies a month from tax customers who come back for that follow-up. What advice would you have for someone in insurance who is interested in breaking into the tax business? Dennis: Like anything new you try, there is a learning curve. You have to understand the sales window on the tax side, and your

From diminishing commissions to regulatory challenges and heightened competitive pressures, the insurance industry and each agent who represents it are bombarded with issues that can deeply affect business. Take the Affordable Care Act, for example. Changes that came with that law have dealt rough financial times to many health insurance brokers. Nearly half of those surveyed in the 2014 Aflac WorkForces Report said they have considered or are considering leaving the business, while 67 percent said many of their peers have already left the business. During my years of covering the industry and talking with agents and advisors, I became acutely aware of the challenges faced by those in the industry. With this changing landscape, insurance agents are wise to seek additional avenues of revenue. To deny the changes or remain stagnant with a practice would be akin to business suicide.


Owner of Red Label Writing and former editor in chief of National Underwriter Life & Health and Retirement Advisor

opportunity to make a sizeable income is very short. So set aside ample time and make sure you have plenty of help during the January and February months. How many tax clients have you added to insurance in last five years and, vice versa? Dennis: We have added over 2,900 tax clients to our insurance clientele, and we have converted over 1,500 of our insurance customers to our tax clients. Look into your crystal ball; tell me, what does the future hold? Dennis: The future looks bright and offers unlimited growth potential for Liberty Tax franchisees. I see millions of people looking for insurance options outside of ACA. I see equal amounts of people who are going to have questions and concerns about the changes being discussed at the White House. Hear directly from Dennis and William and take the first step towards your own additional revenue stream by attending a free webinar.

DENNIS PRYOR Farmers Insurance Group, 20 years; Allstate, 3 years; Independent agent at present Liberty Tax franchisee for 11 years, owns 10 locations

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CROSS-SELL CLIENTS AND UP YOUR REVENUE GAME William Daniels Jr. and Dennis Pryor are two insurance agents who looked to the future and saw the value in combining insurance with a Liberty Tax franchise. Both have built successful businesses that provide year-round opportunity and two streams of revenue, largely from one pool of customers. Both will tell you that the benefits have been many and the challenges few. What specifically made you look at a Liberty Tax Service franchise? Dennis: When I first found Liberty Tax Service, I really was just interested in purchasing a franchise. I had an established client base in my insurance business, and I was looking for a service to cross-sell. After comparing Liberty Tax Service to other franchises, I specifically liked the structure of the Liberty Tax system. I felt the royalties and franchise fees were fair, and I really liked the security of knowing the tax industry is one that will never go away. What were the top things that made you buy? Dennis: The three main factors that made me decide to purchase my first office were: 1. The structure and support Liberty Tax Service offered me as a franchisee, 2. The experience and knowledge of our CEO John Hewitt, and 3. The earning potential in an industry that I knew was here to stay. WILLIAM DANIELS JR.

Allstate, 10 years; Independent agent at present Liberty Tax franchisee for 17 years; owns 9 locations

How long did it take for you to be sure this was a good move? When did it pay off? Dennis: It didn’t take long for me to feel good about my decision. We made a profit our very first year, and our second year our profits more than tripled.

What has made it a good move? William: Three examples of what’s made it a good move for me are: 1. Additional cash flow from insurance customers, 2. Low overhead to get started, and 3. More opportunity to touch our clients with services. This makes them even more inclined to stay with us and to take advantage of our multiple services. Where do you see overlap between insurance and taxes? William: Both require people who know how to deal with other people. It’s not something that can be taught. So, if you have good insurance people, they will be good tax people. What did you have to learn to be a tax franchise owner, and how difficult or easy was the learning? Dennis: For starters, you have to learn the Liberty Tax Service system, the ins and outs of the preparation software, tax codes and filing procedures, and most of all, you have to develop a good understanding of the IRS tax laws and procedures. Learning the Liberty Tax Service system wasn't complicated. The knowledge of our CEO and the proven systems he has incorporated for franchisees makes it easy to follow. The tax preparation software and training


Liberty Tax Service provides makes learning how to correctly file taxes very simple as well. Learning IRS laws does take some time, but if you stay on top of them, it’s not difficult to get a good understanding. Were you able to keep your insurance clients? Were you able to convert them to your tax business? How did you do this? Dennis: We have retained around 80 percent of our overall insurance clientele, and over the past five years have converted over 1,500 of them to tax clients as well. The transition from one to the other came pretty natural. When our clients come in to pay a premium or handle other transactions, we let them know that we now offer tax preparation services as well as our insurance, and vice versa. While doing our customers’ taxes, especially since the implementation of ACA, we let them know we offer a solution to the healthcare penalty and leverage our insurance products as a way to save them some money. How have your clients benefited from this combination? William: They like it because they have someone they can trust with all their personal information on the tax side and the insurance side. What have been the downsides? William: We’re very busy during our tax season peak, so we try not to do both insurance and taxes at every desk. Instead, we maintain a designated insurance person who can write policies during peak. If a customer really wants to discuss insurance at that time, he or she will go to the designated person. Otherwise, we talk with our tax customers about the insurance services we offer; then we set up follow-up insurance appointments for them after tax season. We average about 25 new policies a month from tax customers who come back for that follow-up. What advice would you have for someone in insurance who is interested in breaking into the tax business? Dennis: Like anything new you try, there is a learning curve. You have to understand the sales window on the tax side, and your

From diminishing commissions to regulatory challenges and heightened competitive pressures, the insurance industry and each agent who represents it are bombarded with issues that can deeply affect business. Take the Affordable Care Act, for example. Changes that came with that law have dealt rough financial times to many health insurance brokers. Nearly half of those surveyed in the 2014 Aflac WorkForces Report said they have considered or are considering leaving the business, while 67 percent said many of their peers have already left the business. During my years of covering the industry and talking with agents and advisors, I became acutely aware of the challenges faced by those in the industry. With this changing landscape, insurance agents are wise to seek additional avenues of revenue. To deny the changes or remain stagnant with a practice would be akin to business suicide.


Owner of Red Label Writing and former editor in chief of National Underwriter Life & Health and Retirement Advisor

opportunity to make a sizeable income is very short. So set aside ample time and make sure you have plenty of help during the January and February months. How many tax clients have you added to insurance in last five years and, vice versa? Dennis: We have added over 2,900 tax clients to our insurance clientele, and we have converted over 1,500 of our insurance customers to our tax clients. Look into your crystal ball; tell me, what does the future hold? Dennis: The future looks bright and offers unlimited growth potential for Liberty Tax franchisees. I see millions of people looking for insurance options outside of ACA. I see equal amounts of people who are going to have questions and concerns about the changes being discussed at the White House. Hear directly from Dennis and William and take the first step towards your own additional revenue stream by attending a free webinar.

DENNIS PRYOR Farmers Insurance Group, 20 years; Allstate, 3 years; Independent agent at present Liberty Tax franchisee for 11 years, owns 10 locations

ADDITIONAL REVENUE STREAM FOR INSURANCE AGENTS Attend this exclusive webinar: Wednesday, May 24, 2017 at 1:00 PM EDT Register at


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MAY 2017 » VOLUME 10, NUMBER 5


24 Too Busy to Die By Steven A. Morelli

The rich, famous and talented are too wrapped up in continuing to be rich, famous and talented to take time for mundane tasks such as estate planning. Here is how advisors can get their sophisticated clients to slow down enough to make the tough decisions.

PLUS: Free Poster in Center Spread!


12 S tars Align for Tax Reform Chance


By John Hilton As attention pulls away from health care, Republicans work on coalescing tax plans.


52 T he 5 Biggest Myths and Hidden Truth About Disability and DI By Richard M. Weber What it takes to get your clients to face reality about their likelihood of becoming disabled.

40 Surrendering or Selling Brings Tax Consequences By Louis S. Shuntich What the IRS looks at when a client surrenders or sells their life insurance policy.


44 V  As Outlook: Worse Before It Gets Better


14 1 0X Leader: It’s Your Turn

An interview with Jay Abraham What does it take to achieve personal or professional greatness? Jay Abraham says greatness is right among the things and abilities you already have. In this interview with InsuranceNewsNet Publisher Paul Feldman, Jay sketches out the roadmap that will lead you to achieving preeminence.


InsuranceNewsNet Magazine » May 2017

By Cyril Tuohy The variable annuity sales volume of $100 billion won’t disappear overnight, but new sales have been thinning faster than the polar ice cap.

48 A  dvisors Not Talking Annuities, Even Though Clients Want Income By Cyril Tuohy Research shows consumers are hungry for retirement income strategies. So why aren’t more advisors discussing annuities with them?

58 Three Overlooked Questions That Can Affect a Financial Plan By Bob Curtis A quality financial plan takes the definition of “risk tolerance” further to include a client’s longevity, liquidity, health and inflationary risk.

60 The Gender Pay Gap Leads to the Gender Retirement Gap By Michael S. Ross Women face a number of retirement challenges because of their traditionally lower lifetime earnings than men. Here is how you can help them prepare for their post-employment years.



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View and share the articles from this month’s issue

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MAY 2017 » VOLUME 10, NUMBER 5


66 MDRT: Help Clients Tame the Debt Monster

64 THE AMERICAN COLLEGE: Helping African-American Clients Bridge the Wealth Gap

By Aurora Tancock When clients take inventory of all their debt, they have taken a major step toward eliminating it.

By Jocelyn Wright Decades of discriminatory policies and practices have contributed to the current financial state of AfricanAmericans and other minorities.


62 Don’t Make a $50 Million Mistake

By John Pojeta The ability to keep an open mind is one characteristic that differentiates good advisors from great advisors.

EVERY ISSUE 10 Editor’s Letter 22 NewsWires


68 LIMRA: Striking the Emotional Spark That Leads to Buying Short-Term DI By Yuliya Babushkina Employees don’t purchase short-term disability insurance, because they don’t understand the product or its value.

65 NAIFA: You’re Only as Good as Your Team By Elie Harriett Your back-office staff and employees are the team that provides the client experience.

38 LifeWires 42 AnnuityWires

50 Health/Benefits Wires 56 AdvisorNews Wires

67 Advertiser Index 67 Marketplace


275 Grandview Avenue, Suite 100, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli MANAGING EDITOR Susan Rupe SENIOR EDITOR John Hilton SENIOR WRITER Cyril Tuohy VP FINANCES AND OPERATIONS David Kefford VP MARKETING Katie Frazier


John Muscarello Jacob Haas Bernard Uhden Shawn McMillion Sharon Brtalik Joaquin Tuazon Ashley McHugh


Tim Mader Brian Henderson Emily Cramer Christina Takach Kathleen Fackler Darla Eager Bobby Mack

Copyright 2017 All rights reserved. Reproduction or use without permission of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail, send your letter to 275 Grandview Avenue, Suite 100, Camp Hill, PA 17011, fax 866-381-8630 or call 866-707-6786. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 866-707-6786, Ext. 115, or Editorial Inquiries: You may e-mail or call 866-707-6786, ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to or call 866-707-6786, Ext. 115, for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 275 Grandview Avenue, Suite 100, Camp Hill, PA 17011. Please allow four weeks for completion of changes.


On Being Undeniably Good


he video opens, showing a way, Mann isn’t to be seen. One can only glimpse of the lineup: Jeff speculate that he quietly unplugged his Lynne, Tom Petty, nonde- guitar, slunk off stage and threw his inscript white guy, nondescript strument into the dumpster out back. white guy, black guy in what That was Prince. It didn’t matter where appeared to be a purple suit and red hat. you put him, he was going to excel. When Was that Prince? It had to be, right? Who you think of the prospects of a short, else could that be? slight, African-American born in late But the viewer had only a split second be- 1950s Minnesota, rock god doesn’t come fore the next camera angle showed the stage to mind. Then again, that could be said of but eclipsed that person on the far right. After all, a lot of people were typically crowded on the stage of a Rock ’n’ Roll Hall of Fame tribute performance. This one was 2004’s nod to the late George Harrison, who was inducted into the hall that year. As the group followed the paces That moment when you throw your respectfully through While My guitar over your head, confident that Guitar Gently Weeps, the camera the universe will catch it. cut to Marc Mann, a member of Lynne’s band, who performed a faithful another irrepressible Minnesotan, Robert rendition of Eric Clapton’s guitar lead. At Zimmerman. But he had to leave Minnetwo minutes and 10 seconds into the video, sota to become Bob Dylan. Prince stayed finally a camera angle showed that it was in the Minneapolis area. in fact Prince over there strumming along. Prince took the spotlight this month So, the group proceeded perfectly, in our annual feature of celebrity esploddingly, respectfully, until three min- tate-planning failures because he died at utes and 30 seconds when Prince stepped age 57 without a will. It was a notable exforward and took the final solo. And it’s ception to his lauded attention to detail. as if the solo took a psychedelic drug and In truth, it’s difficult imagining him sitting channeled Jimi Hendrix along with every- down to do estate planning. Especially bething that came after him into this sub- cause of the way some advisors approach lime few minutes that refined the mun- the subject, like a dentist with a drill. dane into the magnificent. A few advisors in the article appeal to He edged out to center stage, wowed something greater that certainly would have the band, fell back into the audience, spoken to Prince — the dream. We had an where someone caught him and pushed inkling that he was generous to young muhim back all while he still played. sicians, but we found out about his constant When he finished, he unbuckled his gifts to charity only after his death. guitar, threw it straight up over his head, But he could have given so much more. turned and walked away. People on the Because he didn’t do any planning, his esstage have since said they had no idea tate will be giving up 50 percent of its $200 where that thing went. million in federal and state estate tax. That is The performance is still dumbfounding an enormous pile of money that could have 12 years later. Prince did not rehearse the gone to what Prince valued. It is difficult to solo because Mann had taken all three so- imagine that he would not have wanted that. los in rehearsal, even though Prince was I interviewed an excellent group of adasked to do them. Prince wasn’t angry. He visors and attorneys for the article but simply told the producer that he would could use only a sliver of the wisdom they take the final solo and it would work out passed along. That story could have filled just fine. By the end of the video, by the the magazine. 10

InsuranceNewsNet Magazine » May 2017

One of them was Tom Fanning, who is the founder of an estate-planning insurance and financial services agency that serves multimillionaires and billionaires. How did he break into that market? He acted as though he was already there. Make no mistake. He did the work first. When Fanning was coming up in CIGNA, he was the only one out of 20 trainees to last three years. That was through knowing the stuff. But it was also due to scrappy resilience. When he ran into an objection that he couldn’t surmount, he didn’t slump over the phone. He asked senior people how they would have answered it and took what worked. He’s also a scrapper, going to toe to toe, challenge to challenge. But, hey, he’s a New Yorker. When dealing with other fast-talking type As who want things done right with a minimum of fuss, he makes it clear he’s their guy. That might not be everybody’s market, but the point is to mirror the client. These are people who feel like they’re a mark for everybody who sees them as a huge commission check. Trust is hard-won. Just like Prince, Fanning wants to achieve a level of excellence that appears to unfold in front of his audience effortlessly. It’s like one of the comedian Steve Martin’s best lines: Be so good they can’t ignore you. This was Martin’s full quote from a 2007 interview with Charlie Rose: “When people ask me, ‘How do you make it in show business?,’ I’ve said this many years and no one ever takes note of it because it’s not the answer they wanted to hear. What they want to hear is here’s how you get an agent, here’s how you write a script, here’s how you do this, here’s how you do that. What I always say is be so good they can’t ignore you. And if someone is thinking, ‘How can I be really good?,’ people are going to come to you. I think it’s much easier doing it that way than going to cocktail parties.” Steven A. Morelli Editor-In-Chief

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Stars Align for Tax Reform Chance  s attention pulls away from A health care, Republicans work on coalescing tax plans. By John Hilton


ax reform has achieved a near-mythical status inside the halls of Congress, where simple spending resolutions are paralyzed by ubiquitous gridlock. Reality intervened on Nov. 8 when Republicans swept into power. Tax reform became a reality, if only because it is a top

giving people a child care tax credit. Capital gains rates would be left alone in the new plan. Otherwise, it is unclear how Trump will propose to change tax laws. On Feb. 9, he promised a “phenomenal” tax plan in two or three weeks, but has yet to release anything concrete. His tax proposals changed over the course of his campaign — by Election Day, his plan had moved closer to the blueprint that Ryan and other House leaders prefer. Both plans would consolidate the

insurance: tax-free inside buildup; the taxfree death benefit; and the ability to remove life insurance from a taxable estate. » Corporate and capital gains tax rates. Republicans historically favor cuts here, but Trump’s populist backing casts a long shadow. » The estate tax. Long on the GOP chopping block, the estate tax continues to survive.



1. Proposes having three tax brackets — 12, 25 and 33 percent — down from the current seven.

1. Streamlines the number of tax brackets from seven to three — 12, 15 and 33 percent.

2. Increases the standard deduction for joint filers to $30,000, from $12,600, and the standard deduction for single filers from $6,300 to $15,000.

2. Increases the standard deduction to $12,000 from $6,300 for single individuals and to $18,000 for single individuals with a child. Married couples filing jointly would see their deduction increase to $24,000 from $12,600.

3. Caps itemized deductions at $200,000 for married-joint filers or $100,000 for single filers. 4. Eliminates the estate tax, but would enact taxes on capital gains at death. No position on gift taxes. 5. Proposes a one-time tax for domestic businesses with trillions of dollars overseas, hoping to incentivize these companies to bring their foreign capital back to the United States. 6. Offers manufacturing companies the choice to deduct the full cost of their capital expenses (“full expensing”) in exchange for no longer being able to deduct net interest payments.

3. Eliminates all deductions except for mortgage interest and charitable gifts. 4. Abolishes the estate and gift taxes. 5. Proposes a territorial system that would only tax companies based on the location where goods are sold. 6. Allows businesses to immediately and fully write off capital investments. 7. Cuts the top corporate tax rate to 20 percent.

7. Proposes a 15 percent corporate tax rate. The top rate for corporations is currently 35 percent.

priority for both House Speaker Paul Ryan, R-Wis., and President Donald J. Trump. The financial services industry has plenty to lose in any tax reform package, especially if past proposals are any indicator. As of mid-April, various ideas were circulating, with Politico reporting that the Trump team developed a new tax plan between the election and the inauguration. That plan reportedly includes reducing the corporate tax rate to 15 percent and 12

InsuranceNewsNet Magazine » May 2017

number of individual income-tax rates to three from the existing seven; the top rate would drop to 33 percent from 39.6 percent currently. Whatever plan comes from the White House, it is sure to look different when Congress gets done with it. Here are a few things to look for in any tax proposal: » The “three thin threads” crucial to life

» Tax deductions. Tax debate always includes negotiations on deductions. Republicans hope to streamline allowable deductions.

Threads of Life (Insurance)

Life insurance relies on a set taxing formula to work, what the Association for Advanced Life Underwriting (AALU) describes as the three thin threads. Take those tax benefits away, and the product

STARS ALIGN FOR TAX REFORM CHANCE INFRONT becomes much less attractive. Although the insurance industry has gone to battle many times to protect the tax treatment of life insurance, threats remain. In February 2014, then-House Ways and Means Committee Chairman David Camp, R-Mich., released a proposal for tax reform containing detailed provisions modifying the taxation of insurance companies. The Camp draft includes seven tax ideas related to life insurance that are not found in the proposals from Trump and the House Republicans. Those tax ideas deal with life insurance reserves and elimination of deductions. While lurking in the background, Camp’s ideas could be incorporated into any draft tax reform legislation. Michael Lewan, longtime Democratic strategist, doesn’t think any changes are coming on the tax treatment of life insurance. “The life guys have done the spade work over many years to protect buildup and other tax-free or deferred benefits,” he said. “My sense is there is little appetite to hurt widows and orphans, even filthy rich ones.”

Business/Capital Gains

If the House Republican tax blueprint carries the day, tax reform has the potential to be “the most substantial change in a century to how businesses are taxed,” wrote the accounting firm KPMG in a recent analysis. “Rather than taxing companies based on income generated in the United States, the proposal would tax a company’s U.S. cash flow, while exempting foreign sales and taxing imports,” KPMG explained. “The proposal, which is aimed at boosting U.S. business and exports and reducing the U.S. trade deficit, could have material implications to the U.S. dollar, as well as other economic effects.” Trump’s plan would reduce the top corporate tax rate from 35 percent to 15 percent, and would allow many non-corporate businesses, like sole proprietors and partnerships, to pay that low rate. The House would cut the corporate rate to 20 percent. “The reduction in corporate tax rates would require companies to revalue their existing inventory of deferred tax assets and liabilities,” KPMG concluded. “The immediate consequence would go

through the income statement as income or expense depending on whether the insurance company is in a net deferred tax liability or asset position.”

Estate Tax

The pressure is on lawmakers once again to repeal the estate tax, which both Trump and Ryan want to do. A coalition of 32 agricultural groups recently sent a letter to House Ways and Means Committee Chairman Kevin Brady, R-Texas, and Ranking Member Richard Neal, D-Mass., asking that any tax reform package include permanent repeal of the estate tax. Sometimes referred to as the “death tax,” the levy is imposed on the net value — less an exemption — of an owner’s assets transferred at death to an heir or heirs. For the 2016 tax year, the exemptions for the estate tax are $5.45 million for an individual and $10.9 million for couples. Transferred estates valued at more than those figures are subject to a maximum tax rate of 40 percent on the amount of assets above those levels. Those landowners often take out large life insurance policies to ensure their heirs can pay that tax bill. The estate tax will generate about $275 billion over 2017-26 under current law, according to the Congressional Budget Office. There are several bills floating around Congress to eliminate the tax, but it is unclear how they would be reconciled, or whether the estate tax will again survive.

Tax Deductions

Several changes in tax deductions are making the rounds between the White House and Congress. Many of the ideas impact the business world. Here are three big ideas: » Full Expensing – House Republicans have called for full expensing (in lieu of depreciation and amortization) for investments in both tangible property and intangible assets. Trump has proposed to allow only U.S.-based manufacturers the option of electing full expensing of plant and equipment. » Interest — As part of the proposals to move to full expensing for business invest-

ments, a limitation on the ability to deduct interest expense has been proposed. The GOP plan eliminates the current deduction for net business interest expense associated with debt incurred to finance such investments. U.S.-based manufacturers that elect full expensing for investments would be required to give up the ability to deduct interest expense under Trump’s plan. » Net Operating Losses (NOL) — The deduction allowed with respect to an NOL carryforward in any year “will be limited to 90 percent of the net taxable income for such year determined without regard to the carryforward,” reads the GOP plan. NOLs will be allowed to be carried forward indefinitely, and will be increased “by an interest factor that compensates for inflation and a real return on capital.” The Trump proposal does not discuss the treatment of NOLs.

Deal or No Deal?

Coming off the disastrous attempt to repeal and replace the Affordable Care Act, both Congress and the White House have a lot riding on tax reform. Consultant Kenneth Kies expects a more deliberate process that could last until the August recess. “If it doesn’t get done by the August recess, then the probability of it happening will start to decline, because when the House members, particularly the House Republicans, come back in the fall, they will be focused on the 2018 elections,” said Kies, managing director of the Federal Policy Group. While Kies puts the odds of a tax reform bill passing Congress and landing on Trump’s desk at 70 percent, Lewan doesn’t see it happening. “In practice, any legislation that does not explode the deficit and debt will have a few winners and lots of losers,” said Lewan, former chief of staff to Sen. Joseph Lieberman, I-Conn. “Losers make noise and trouble.” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at

May 2017 » InsuranceNewsNet Magazine


It’s An interview by PAUL


InsuranceNewsNet Magazine » May 2017

Y Your Turn with JAY ABRAHAM FELDMAN, Publisher


our imagination might see greatness as someone who has the magic touch of wisdom and success, maybe even with a cape slightly fluttering behind them. But greatness is not the person — it’s the practice. If it seems like only other people get to be the kind of leader who can build exponential success, Jay Abraham would like to set you straight. For more than 30 years, Jay has been teaching leaders how to create a foundation for whatever success they sought. He is a marketing master and author of influential books such as Getting Everything You Can Out of All You’ve Got. He has helped at least 10,000 clients in 465 industries worldwide increase their bottom lines by more than $9.4 billion. His ideas are so compelling that Publisher Paul Feldman has interviewed Jay four times for the magazine. Jay says that achieving greatness personally or professionally is not a grand leap over tall buildings, but many steps toward improvement. Just like the title of his most famous book suggests, greatness is within near reach, right among the things and abilities you already have. Knowing the right questions and the honest answers are what builds the map to guide you on your way. In this interview with Paul, Jay reveals some of those questions and shakes up some perceptions along the way. May 2017 » InsuranceNewsNet Magazine


INTERVIEW 10X LEADER FELDMAN: You have worked with a lot of different companies in more than 500 different industries and you’ve seen what makes companies special. Usually it starts with people at the top thinking differently. Tell me some things about what people are not doing when they’re thinking and planning for their companies — and what they should be doing. ABRAHAM: Let’s take the concept of thinking differently and break it into a couple of elements. The first element is a surprise. In big companies, $50 million to $100 million, the leader is not really a great leader. But also, he or she is not a strategist. This type of leader tends to be very tactical. They don’t have a long game. The activities in marketing, interrelationships, prospect-building and migration are not really integrated into a strategically wellhoned and sustainable machine. These leaders do have episodic, static and erratic activities. They don’t really focus on growth in terms of growing their peoples’ ability, knowledge and success. They don’t understand preeminence. Preeminence is a long and powerfully meaningful differentiation that I’ve done work on before. The leaders I’m talking about here don’t understand that difference between preeminence and prominence. They don’t really appreciate what it’s like to be on the recipient side. And recipient refers to two different categories. The first category is their team members and the second is the prospect. Leaders don’t really understand that the way to get people to be attracted and then committed, and then loyally stay, is by representing three things: value that they define and appreciate, understanding empathy, and sustainable connection. Most people in your industry don’t have good sustainable connection, whether they’re in the life, investment or property/ casualty segments of the industry. I’ve got eight cars — they’re all expensive — I’ve got three homes. I think our

insurance people only call us to remind us when the premiums are due. And it’s hilarious because relationship-building is one of the keys to success in that industry. FELDMAN: How do you get to exponential thinking? ABRAHAM: The first thing is to extend yourself and travel outside your industry. The more you travel, the more you see differing lifestyles, different climates, differing geography, topography, morals, clothes, architecture. The more you travel outside


The most powerful realization is that most entrepreneurs engage in activities that are suboptimal, meaning they could replace or expand their marketing, selling, sourcing. There’s no law that says you have to approach your market in only one form. We teach what’s called the Power Parthenon. It’s building your business on a multitude of complementary access points, distribution modes, sources. These feed into your business so that you are far more prone to be working on the geometry of the business instead of singularly doing what everybody else does. I’ve been working on what’s called optimization methodology. I first learned it from the Deming Organization. He (W. Edwards Deming) was the father of manufacturing optimization process improvement. I then worked for the largest multivariable testing organization in the world, Qual-Pro. And they tested about 100,000 variables that could affect the performance of a salesperson, products on a shelf in retail, a salesperson in the store, a phone room. And you see variation that can be 20-30 times and there are about 51 different leverage points in a revenue-generating system. Everyone’s got a system, even if it’s dysfunctional, that can be improved. Nobody even knows what the impact points or the leverage factors are.

means 10 times. The “x” is the multiplication symbol and is read “times.” It refers to being 10 times as good as the average person in your field or increasing your business tenfold.


InsuranceNewsNet Magazine » May 2017

your industry, the more you are exposed to a myriad of higher, better-performing, more powerful, effective and impactful alternative ways to market, sell, communicate, access, migrate, convert, retain. You learn all the different ways to refer. You learn all the different relational capital sources. You learn how to use media much more masterfully. You learn what value means in different sectors. You learn how relevancy is a dynamic concept that changes continuously. You have to understand what relevancy means at the moment to different factions you deal with. You learn all kinds of things that can perform better, safer, faster, more high-yielding now and more residual-yielding later.

FELDMAN: Can you give us a couple of ways to expand marketing? ABRAHAM: Sure. If I were counseling a professional, the first thing I would do is try to find out who within that professional’s existing client base had affiliations with organizations or associations. And we would go to those organizations and become their recommended advisor. And as such we would create and disseminate from that organization all kinds of educational material. We would fund activities that the organization would sponsor. They would keep all the proceeds if it were for profit. If we wanted to get to the


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The more you travel outside your industry, the more you are exposed to a myriad of higher, better-performing, more powerful, effective and impactful alternative ways to market, sell, communicate, access, migrate, convert, retain. outside market, we would find four or five complementary professionals that were in no way, shape or form competitive and we would get them to fund all of our marketing. And we’d create a full-day activity designed for whoever our target audience was — high-net-worth people or entrepreneurs or CEOs — when we wanted to really get the relationships of different kinds of target prospects. We would figure out a holistic way that impacted them in other forms. For example, I’ll use medical. When specialists are trying to get referrals from generalists, their default method is to knock on the door and introduce themselves and take them out to lunch or dinner. It’s very ineffective, particularly if the generalist already has another provider. We started looking at what that generalist was really struggling with in their life; things like managing their business, controlling costs, dealing with their own stress, weight loss. We would provide information to them on behalf of the specialist that would deal with more holistic things and we would win their trust and also their cases. When it comes to media, we would do all kinds of surveys and unique things that we would co-brand with either local, regional or national media that would become the default event people would look forward to reading in the magazine every six months. We did all kinds of different surveys that were co-branded. 18

InsuranceNewsNet Magazine » May 2017

If you don’t get referrals, it says that you have a very, very poorly-bonded relationship with them. If you get referrals intermittently, it’s because you don’t have a strategic, systematic approach in place. When I do seminars — which I used to do all the time — I would say, “Whose business is between 50 and 100 percent predicated on referrals? Please stand up.” And it would be a third or half the room. I’d say, “OK, let’s go around and randomly see how many dollars it is and how much percentage of the business it is.” And it was usually profound relative to the business. Then I would say, “Now remain standing if you have in place at least one formalized, systematic referral-generating process that you adhere to at all times for all the staff so that you’re maximizing the referral process.” Ninety percent would sit down. Then I’d ask how many had two, and 90 percent of them would sit down. Three? Everybody would sit down. There are so many different stratagems. One is that you start the very relationship by saying referral generation is the bedrock of your business. You establish in the beginning what clients should expect from you above and beyond your contemporaries. You can say, “We hold ourselves to a high report card. At certain intervals, we want to be judged. We will ask you to refer every year in order to remain our client

because we’re going to invest a lot more into you than you will imagine. You give us two quality referrals such as yourself. The reason we want referrals is because that frees us from diverting time, attention and capital on marketing and advertising, and we can invest more in support and service and research and representation of you.” That’s one approach. Another approach is when you have lots of activities at different convergent points where you have your clients bring colleagues from another field. And they can be high-level briefings on emerging trends. They don’t have to have anything to do with insurance. They can be investment. They can be regulatory, but not regulatory for insurance, but regulatory in the industry, human resource, marketing, selling, online — anything that adds value. And you invite your clients and they can bring one or two others along. You can do all kinds of social events that are unique. FELDMAN: I know that you’ve worked with insurance and financial advisors and you continue to work with them. What are some things that advisors should do that could cause them to have a breakthrough without doing that much? ABRAHAM: The first thing is to add value continuously to their client base. The


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INTERVIEW 10X LEADER second is to connect with their client base more frequently but with value. The third is to get their client base to see them caring more about their well-being and not just their account. Even with my accountant, he comes around once every six months and in the meantime, I’m fending for myself unless I call him up and engage him in billing. Look at your list and value correlations. Obviously there’s the 80/20 rule. But there’s some really cool methodology

skill sets. They have to have hindsight so they can understand what they’ve done well and what they’ve not done well. A lot of people basically just keep digging holes. The more stressed they get or the more marginal their business, the faster and deeper they dig holes. First of all, they never ask whether they should dig a hole. Second, if the answer is yes, should they be digging where they’re digging? If the answer is no, where should they be digging? When they get the an-

normally a fraction of what really could be possible now and on a residual basis. A mentor says, “OK, Paul. Tell me what you want to do. And let’s listen and then evaluate it.” And because they have a concept from outside of what’s possible, they’ll say, “Paul, I’m not going to allow you to subordinate and diminish your aspirational and achievemental level just because you don’t believe that a far higher achievement is possible.” There are two ways to build. One is to

There are two ways to build. One is to come up with a oneof-a-kind, outrageous breakthrough that in itself can catapult you 10 times up. That’s very rare and very hard. The other is to create a number of improvements in everything you do. They can all be done very easily and pragmatically. that’s 20/20/20 and goes down to like 4 percent. But start with the 80/20 and look at where the majority of the revenue is coming from, both direct and referral, and then ask yourself, “Am I investing accordingly?” All categories of prospects are not worth the same amount of time and investment. You’ve got to see what’s called an allowable cost — what you can afford to invest in order to grow. You’ve got to decide whether you really want to be a sophisticated, strategic marketer or an erratic and occasional tactician. Or you can decide to be none of the above and just be a very, very poor networker trying to troll occasionally and get whatever. The role of an entrepreneur or business leader is to be the strategist, to spend very deep, reflective thinking time. He or she has to master this trilogy of 20

InsuranceNewsNet Magazine » May 2017

swer to that, should they be digging it with a spoon or a power trowel? Three, should they be the one digging? FELDMAN: Strategic thinking is a challenge for a lot of people. What are some steps to start thinking strategically? How do you get yourself from that linear mindset to an exponential mindset? ABRAHAM: The key to greatness is somebody who has a concept of how much is possible. I have a continuous debate between coaches and mentors. I think mentors are superior to coaches for a very meaningful reason. A coach typically — no diminishment of their value — will say, “Paul, let’s figure out what you want to do and let’s work backwards and plan to do it.” They’ll accept your vision, which is

come up with a one-of-a-kind, very rare, outrageous breakthrough that in itself can catapult you 10 times up. That’s very rare and very hard. The other is to create a number of improvements in everything you do, a number of replacements and ways of doing things better, a multitude of access points. And all those cumulatively give you hundreds and hundreds of percent increase with very great safety and no big risk. They can all be done very easily and pragmatically, meaning you do them one at a time. When I work privately with a client, we break their business into two parts: What they’re doing now, and what they should, could and must be doing if they really want to go for breakthrough thinking, for monumental and orders-of-magnitude type of growth both financially and personally. But what we start with is that almost ev-

10X LEADER INTERVIEW erything they’re doing now is underperforming and we try to make it better. It can even be something like how the office signage is presented. By changing each of the elements, you can double or redouble your business. We’ve tested things such as the way people start a sales presentation on the phone. It’s laughable, but even today, the majority of people who are trying to connect by phone are shocked when they get voicemail. When that happens, I have in my quiver a sequence of very provocative, powerful and meaningful messages that I will leave that are not just, “This is Jay trying to catch up.” I get callbacks or I have a dialogue that keeps building relationships with people. There’s strategy to everything and most people don’t grasp it. FELDMAN: Is there anything that you might want to add? Do you want to add to what we’ve discussed thus far? ABRAHAM: There are two things I’d like to add. There are two quotes I always use. They’re not original, but they’re so powerful in their implication. The first one is that most entrepreneurs and business owners struggle perpetually and are tormented non-verbally. It means they never say this out loud, but they’re tormented with two very destructive questions. And the questions that they torment themselves with are, “Am I worthy of this goal? Can I compete today with all the changes, with the lowered commissions, with the rigid constraints of regulation?” When you realize how much more is possible from time, effort, opportunity and investment in all these new ways of doing things, the right thing to ask is not whether you are worthy of the goal. But is your current goal worthy of you and how much is possible? When you start realizing that most of us have been content with a mere fraction of a fraction of what is possible — boy, then the question changes and you start getting excited. The next quote is laughably true. It’s from a famous advertising icon, Leo Burnett: “If you reach for the moon and the stars, one thing is certain. You won’t end up with a handful of mud.”

Most people think that to become innovative you must have technological breakthroughs. Technology can absolutely be an accelerator to your ability to be innovative. But all innovation really means is bringing greater benefit, advantage, value, protection to a target audience in a way that they value it and desire it immediately from you. How you deliver it technologically is not what you’re really focused on. You’re focused on this concept of contributing greater value. Value needs to be defined by the audience. FELDMAN: You’ll be speaking at our event in September. Do you have any words that you’d like to share for our readers on why they just have to be there? ABRAHAM: Yes. Because I’m on a mission and a crusade. I’ve been doing this for a long time. Anybody who does a search on me will see the reputation I’ve created worldwide and the advocates and champions I’ve built.

I plan to present three different integrative parts: One is to share very clearly and profoundly the elements of being preeminent, of being really the most respected, the most trusted, the most important factor in your client’s life, for life. The second is I’d like to do a rapid-paced distillation of all the more powerful, more profitable, more efficient, effective and impactful ways other companies in other industries are doing what you do in your industry. And I’d like to also break down the revenue impact points people never look at. Then with those two pieces of knowledge squarely instilled, installed, downloaded, actuated, we’ll do a couple of hours of problem-solving questions and answers, challenge resolution, and opportunity mining for people. So I’m not going to give a bunch of superficial veneer axioms that are inspiring but not really transformative or transactional. I’m on a mission to really be the catalyst of monumental growth, change and contribution for everyone I can be exposed to.

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Warning: Debt and Deficits Will Explode Government debt and budget deficits are both set to careen higher in the next 30 years if current patterns hold, according to new projections by the Congressional Budget Office. The federal debt will reach 150 percent of gross domestic product in 2047, largely from increases in Medicare and Social Security costs, the CBO report said. In addition to increasing debts, the CBO said the budget deficit will more than triple from the projected 2.9 percent of gross domestic product in 2017 to 9.8 percent in 2047. The deficit at the end of fiscal 2016 stood at $587 billion. The CBO cited rising interest rates as another factor adding to the increasing debt burden. Rising deficits will add to the debt load because the government will be forced to borrow more at higher rates to cover expenses that will exceed revenues. The CBO recommended the government cut spending and increase revenue to get the debt and deficit more in line with historical averages. For starters, the government would have to come up with the equivalent of $620 billion in 2018.


The Trump administration is ready to play “Let’s Make a Deal” with members of the House Freedom Caucus after a GOP version of health care reform died hours before coming up for a vote in Congress. Vice President Mike Pence met with the conservative Republican wing of the House offering a compromise health care reform proposal. House conservatives had helped doom the American Health Care Act (AHCA) before a scheduled vote on it took place. Conservatives took issue that the AHCA did not repeal the Affordable Care Act’s requirement that all health insurance policies available in the marketplaces must cover essential health benefits. The compromise would give states the opportunity to issue a waiver so they don’t have to imDID YOU




pose those requirements, on the condition that states show that getting rid of the essential health benefit coverage requirements will lower the cost of premiums. The compromise would keep the current regulations allowing dependents to remain on their parents’ policies until age 26, as well as keeping coverage for those with pre-existing conditions.


Alexander Acosta could be the next secretary of labor after President Donald Trump’s first choice Alexander Acosta for the job, fast-food executive Andrew Puzder, withdrew from consideration. Acosta faces Senate confirmation. Acosta is currently Florida International University’s law school dean and is the former head of the Justice Department’s civil rights division.

Anthem lost $374 million on its individual health plans last year. Source: Bloomberg

InsuranceNewsNet Magazine » May 2017


First term presidents have a window of opportunity to do big things in their first year in office, but it doesn’t stay with them forever. — Kenneth Kies, managing director of The Federal Policy Group

Puzder bowed out of the confirmation process after it was revealed he had employed an undocumented housekeeper and had been accused of abuse by his wife in the 1980s, a claim she later rescinded.


The rich are getting richer, and there are more of them. As of the end of 2016, there were a record 10.8 million millionaires in the U.S., according to a new study from Spectrem Group. That’s an increase of 400,000 over the previous year. Last year, there were 9.4 million individuals with net worth between $1 million and $5 million, 1.3 million individuals with net worth between $5 million and $25 million, and 156,000 households with more than $25 million in net worth, the report said. But that rising tide of millionaires is not lifting everyone else’s economic boat. While the number of millionaires is at a record level, the middle class is shrinking, the Pew Research Center reports. The percentage of American adults who are considered middle-income fell from 55 percent in 2000 to 52 percent in 2014, according to a Pew report.

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InsuranceNewsNet Magazine Âť May 2017

Broadening to the Big Picture

Jamie Bush has been helping families manage multigenerational wealth for nearly 40 years as the principal of Bush & Co., a financial services firm in Boston. He not only has seen generations of clients but the evolution of advising for insurance and finance. But he sees that typical estate-planning specialists still have a one-track mind with clients. “People who are in the business, lawyers and insurance folks especially, have a tendency to view it as something that you just have to be crazy not to do,” Bush said. “And we tend to speak both legal and insurance-ese, which doesn’t always help people warm to the task, because we start sentences like, ‘When you die,’ or, ‘If you die,’ which is cute, but stupid. Then people don’t even want to hear the next thing out of your mouth.” The sophisticated client likely has heard it before. So, Bush has learned to approach estate planning through other means. For example, clients might not have thought about what happens if they become injured and can’t speak for themselves.

It is not exactly estate planning but Bush said it opens the door for what-if scenarios: “I think it’s up to us to be a little tactical and say, ‘If you get hit by a car and it doesn’t kill you but you’re at Mass General, they will not speak with your spouse because of our privacy laws. In many cases, they won’t even disclose the details of your current malady.’”

Karen Weisgerber is a wealth psychologist with Cambium Consulting in Waban, Mass., who works with advisors and clients on how families handle wealth. The first hurdle is the awesome finality and that does not necessarily mean the AP Photo/Chris O’Meara, File


rince’s best songs ring with lyricism, surprise and innovation that shimmer close to perfection. That perfection — or the drive for it — might also be the reason he died without a will. Advisors to the wealthy and ambitious say that unraveling the relentless reflex for perfection is the key to drawing type A personalities to the planning table. They are too busy to slow down, least of all to plan for dying. Advanced planners and advisors in the growing field of wealth whisperers are well aware of the deeper currents under the usual objections. Typically, agents and advisors blame the dark subject itself — Death. Let’s face it, dying is a little bit of a downer. But an advisor can be pretty sure the client has heard the dire warnings before. And that client may have already been at the foot of the estate-planning path previously before slipping away. So, what’s keeping the client from taking steps in the right direction? That’s the applied art of estate planning.


Prince AGE: 57 DIED: April 21, 2016; Chanhassen, Minn. CAUSE: Fentanyl overdose ESTATE MISTAKE: Died without a will. That leads to a discussion about healthcare proxies, which can expand to talking about other what-ifs the clients might not have considered. That’s important because the clients already have thought about the consequences of not having a will. “They’ve already overcome that objection in their minds or in their hearts,” Bush said about the concern around a messy estate. “So, there are those things like, ‘What about you?’ Usually you have to go another way with people who haven’t gotten around to writing a will over the last 20 years. Because you’re not going to be the one who persuades them by saying, ‘If you die.’” Another route can be asking about somebody else’s situation. “Sometimes asking what your parents’ estate plan looks like is a way to back in, because they should care what their parents’ estate plan looks like,” Bush said. “By talking about someone else’s estate plan, it just takes the pressure off their having to die.” Despite all his experience, Bush sometimes will need to turn to a professional who can uncover deeper motivations.

person’s death. Weisgerber said the planning itself has the feeling of forever about it — pretty weighty stuff. But it doesn’t have to be. “It’s the sense that once they sign it, it feels finalized even though it may not be,” Weisgerber said. “There’s often a sense of, ‘What if things change in our lives? What if things change in our kids’ lives?’ I’ve seen people get as close as you can to signing on the dotted line and just taking a step back and saying, ‘If I were to die tomorrow, is this really what I want to happen?’” And those are the few who have gone through the long process of developing estate-planning documents. Often, procrastinating perfectionists haven’t even started. “They’ll say, ‘Knowing myself, I’ll never get back to this. So, I really want it to be right the first time,’” Weisgerber said. “And some feel it as panic.” It helps if clients know if there is a step-by-step process that will lead them through the tough decisions. Weisgerber also said that awareness helps relieve the client of the fear that the advisor is only May 2017 » InsuranceNewsNet Magazine



Jose Fernandez AGE: 24 DIED: Sept. 25, 2016 CAUSE: Boating accident ESTATE MISTAKE: Did not have a will.

looking for an angle to make a sale. “They’re always aware that they’re, for lack of a better word, targets,” she said. “They step back because they’re thinking that they’re going to get pushed into another product.” Her firm lets clients know that there is a process in which they get to choose what is best for them. A map of the maze offers perfectionists a sense of control. But more on developing plans later. We are still faced with opening the door with people like Prince who are too busy to slow down for estate-planning. That job becomes even harder when dealing with those who come into significant wealth early in life. Sure, people of a certain age can think of 57-year-old Prince as young but then there are sports stars like Jose Fernandez. At a mere 24, Fernandez was already a Florida Marlins sensation with a blazing fastball and crafty curveball. He had already cheated death in shoddy boats trying to reach the United States from Cuba two times before finally reaching Texas on the third attempt. In that voyage, he dove into a turbulent sea to rescue his mother. But he would die off Miami in another boat — a 32-foot SeaVee speedboat that flipped during a 3 a.m. careen home from a bar on Sept. 25, 2016. He had everything to live for, a promising career and a baby on the way with his girlfriend. Planning for the what-ifs was probably 26

InsuranceNewsNet Magazine » May 2017

the furthest thing from his mind and he did not leave a will. His mother and girlfriend have had to petition the court to try to direct his $2 to $3 million estate, which is also facing two lawsuits seeking $2 million each for the families of two other people killed in the accident. The effects of not having a will can reverberate for generations, especially when it involves significant assets. And when it is Pablo Picasso, even a single piece of art can be worth a vast estate all by itself. In 2015, a painting of his sold for $179 million, the record at the time for a piece of art.

Picasso was known during his 91 years as a breaker of rules and traditions. Estate planning was no different. When he died in 1973, he left 45,000 pieces of art, several homes, $4.5 million in cash, $1.3 million in gold, an undisclosed value of stocks and bonds, a wife, ex-wives, mistresses, legitimate and illegitimate children and grandchildren — but no will. It took six years and $30 million just to straighten out who got what. And that was just Act One of the drama to come, which is still unfolding nearly 45 years later. A French court did what many attorneys would advise against when it named one of Picasso’s sons as the legal administrator of the estate. Claude Picasso leads the organization that controls what happens with the Picasso name and images, including rights. Needless to say, some family members are not happy about that. That was pretty much the guaranteed result of that arrangement, said Avi Z. Kestenbaum, a trusts and estates attorney and partner with Meltzer & Lippe, a top firm based in Mineola, N.Y. “Separation is very important,” Kestenbaum said. “Don’t tie these people together. Utilize neutral persons in roles if there is a concern with disputes. If there are multiple parties involved with competing interests, then perhaps a neutral party should be the one overseeing the estate. And if it’s not a neutral party, put

Pablo Picasso AGE: 91 DIED: April 8, 1973; Mougins, France CAUSE: Cardiopulmonary failure ESTATE MISTAKE: Died without a will, requiring several years of battles costing at least $30 million.



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Visit *Per IRC 101(a). Outstanding loans and withdrawals will reduce policy cash values and the death benefit and may have tax consequences. Life insurance is issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in NY and/or NJ) and Pruco Life Insurance Company of New Jersey (in NY and/or NJ). All are Prudential Financial companies located in Newark, NJ. Neither Prudential Financial, its affiliates, nor its financial professionals give legal or tax advice. Your clients should consult with an attorney, accountant, and/ or tax advisor concerning their particular circumstances. © 2017 Prudential Financial, Inc. and its related entities. FOR THE EDUCATION OF PRODUCERS/BROKERS ONLY. NOT FOR USE WITH THE PUBLIC. 0300963-00001-00 May 2017 » InsuranceNewsNet Magazine



Audrey Hepburn AGE: 63 DIED: Jan. 20, 1993; Tolochenaz, Switzerland CAUSE: Abdominal cancer ESTATE MISTAKE: Did not specify which son got particular memorabilia.

it in dispute resolution. So if there is an argument or a dispute, there could be provisions in the documents to decide how the disputes are resolved.” But even in cases where there is a will, there is still a way for heirs to fight over the details — when the details are not spelled out. That was the case with Audrey Hepburn. Hepburn had estate-planning in place when she died at a relatively young age of 63 in 1993 from a rare abdominal cancer. She was known for her film roles, particularly in Breakfast at Tiffany’s. But her most enduring legacy might have been as a style icon, which is why her trove of memorabilia, including clothing, is of considerable collector interest today. It is also why her two sons haven’t been able to divide the contents of her collection, which the will told them to split equitably. Nearly 25 years after her death, the sons have only recently come to terms on how to even talk about the material. Kestenbaum said he recommends a four-step process to avoid conflicts among beneficiaries. 1. Don’t put people whom the beneficiaries don’t like in a position of power over them. Just putting somebody in a position of power over them is going to make them angry. “That way, it’s not your evil 28

InsuranceNewsNet Magazine » May 2017

stepmother or your evil sister or your evil brother who’s your executor and trustee,” he said.

has been able to set a client’s estate planning on the rails.

2. Use as many neutral people as possible.

Brutal honesty is Thomas J. Fanning’s suggestion. As the founder of Heritage Strategies, with offices in Manhattan, Miami and Long Island, he’s helped wealthy families get their estates and life insurance straight since 1990. With clients like Prince, Fanning says it pays to be direct. “I work with a lot of multimillionaires, billionaires, and when you get somebody like a Prince, you have to recognize he’s an icon in his industry,” Fanning said. “You can say, ‘You strive for perfection every day. You’re always critiquing yourself, doing your songs and running your business. If you don’t apply that to your estate, your heirs and other people are going to say, ‘Maybe Prince was not as bright as we thought he was. How could he leave all of this the way it is?’ That gets the ego.” Fanning recalled how being blunt helped a billionaire overcome his reluctance to plan his estate and rehabilitate his bratty kids at the same time. “He had a will, but he said, ‘Tom, the IRS gets 50 percent, my kids get $500 million.

3. Don’t leave assets for people jointly. 4. Clients can discuss the planning with the loved ones before they die, so they know what to expect and what the wishes are. To help with that last rule, if clients are not up to having that conversation, they don’t have to have it while they are still living. Kestenbaum’s firm has been recommending using a document as a tool. “We’re using a lot of wish letters, which isn’t a legal document, but it’s essentially a love letter explaining to the children, explaining to the family the reasons why planning was done a certain way,” Kestenbaum said. “‘It wasn’t done because I loved this one more or less. Here are my reasons.’ I think that sometimes can mitigate the anger if things are said in the right way.” But this is all predicated on getting clients to the estate drawing board. How does an advisor pull in the focus of clients too young or too busy to plan? Sometimes Kestenbaum turns to a particular financial and insurance advisor who

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FEATURE TOO BUSY TO DIE clients. Now he is mostly coaching other advisors on an approach similar to Fanning’s. Don’t focus on the will and the documents, but instead on a higher purpose — the dream. “Many of them started with nothing,” Leimberg said of self-made successes, particularly sports stars and other celebrities. “They were street kids with nothing but big dreams. A lot of them would like to create foundations. A lot of them would like to go back to the high school where they came from and help the kids back there in a way that no one could ever help them. Instead of just saying you need to plan — here’s a dream. What if you went back to that school? What if you could build playgrounds?” The client can use that stature to bring local businesses together to help the community through the project. The dream can grow into something far larger. “Aside from the urgency and the significance of action,” Leimberg said, “you have to give them a goal, a dream. Entertainers, sports people are very goal-oriented.”

Muhammed Ali AGE: 74 DIED: June 3, 2016; Scottsdale, Ariz. CAUSE: Septic shock, Parkinson’s ESTATE MISTAKE: Didn’t prepare children for the larger estate share to stepmother.

Life Insurance to the Rescue

That’s enough. Plus, my kids are spoiled,’” Fanning said. “I’m brutally honest and I asked, ‘Who brought up your children? Did you and your wife bring them up? So why are they spoiled?’ He just looked at me.” He followed that bowlful of tough with a dash of love. “‘I’m not trying to hurt you. I’m just trying to make a point here,’” Fanning said before walking to a white board. He wrote “Current Situation” on the left side and “Revised” on the right. In the middle, he listed “IRS,” “Family” and “Charity.” Under the Current Situation side, he wrote $500 million next to IRS and then next to Family. Next to Charity, he wrote zero. “I said, ‘Hey, would I cry if my father left me $500 million? Of course I wouldn’t,’” Fanning said. “’But you’re giving zero to charity and $500 million to the IRS to produce methane gas from cow dung. Are you trying to tell me that that it wouldn’t be better that you directed this $500 million to help underprivileged children, cancer research, AIDS? I’m not even going to ask you which one makes more sense.’” Then he drew a box around “Charity” and wrote “Foundation” on the right. 30

InsuranceNewsNet Magazine » May 2017

“How would you feel if your children had the responsibility of delegating this to different charities? Whether they’re 30, 40 — I’ve seen 50-year-olds turn around. So, are you willing to give this all to the IRS or give it to your family to manage it for the good of humanity? It’s your choice.’ He just looked at me and asked, ‘Can I do that?’” As Weisgerber does and suggests, Fanning has a process he can hand clients. In fact, he can literally hand it to them because it is a book he and others in his practice put together containing all the pieces of complete estate planning. Fanning was inspired to produce the Heritage Book thinking about his father’s structural steel fabrication shop, where huge structures came together from plans. So, he thought he should make a book of templates that break down the pieces that go into sturdy, substantial estates. Stephan R. Leimberg, CEO of Leimberg and LeClair, an estate and financial planning software company, is an attorney and former advisor who has had experience with wealthy

But projects like that require dedicated capital. “Their monies are tied up in record projects or production projects or they’re doing a film and they’ve got every nickel tied up in that,” Leimberg said. “But the use of life insurance sometimes will enable them to have a $10, $20, $50 million pot of money.” If clients are not convinced they can devote their working capital for the project, life insurance creates a pool large enough to make the engine go. Only a sliver of their income would be needed to sustain the dream for generations. “The key is not how do I do it, but how do I continue it perpetually?” Leimberg said. “How do I assure a perpetual continuation of the dream? It’s one thing to build one school. It’s another thing to make sure that school lasts forever and to set up a series of schools. That requires a lot of funding, sometimes more than even these very successful entertainers can make. But leveraging with life insurance, for example, can multiply what people think they can do.”

Keeping It Quiet and Peaceful

Another theme running through the stories

TOO BUSY TO DIE FEATURE of estates gone wrong is infighting among heirs. In the case of Muhammad Ali, when the world champion boxer died of septic shock at 74, he had several children from different relationships. He was living in Arizona with a wife who helped him through his difficulties with Parkinson’s disease, but was a stepmother to nine children. Most of them were not happy to learn she got a double share of the $80 million estate, $12 million opposed to their $6 million. One solution to the problem is to prepare the heirs before the time of death by telling them of the plan and the reasoning. Another is life insurance. “Life insurance is free of probate,” Leimberg said. “That means nobody knows about it.”

That means the client can direct a charity to be quiet about the gift or to publicize it. It also keeps the public from knowing how much, if anything, that individuals receive. That even means family members don’t have to be aware of what other family members received.

An Estate Full of Blues

Then there is the issue of identifying who is in fact family, as in the curious case of B.B. King. The legendary bluesman was perpetually on the road, but was not necessarily lonely. Since his death, 15 children of 15 different women have come forward to challenge the estate. King apparently not only did not disavow any of them during his life but also was quite generous with them. However, since his death, the thrill, or at least the

B.B. King AGE: 89 DIED: May 14, 2015; Las Vegas CAUSE: Congestive heart failure, complications of Alzheimer’s ESTATE MISTAKE: A little lax on claims of paternity.

May 2017 » InsuranceNewsNet Magazine


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here’s a growing trend in the insurance industry that nobody is talking about: Some brokerage general agencies are selling insurance directly to the consumer. When I got into the insurance business 20+ years ago, there was a very clear line between retail and wholesale; it was unheard of for a BGA to enter the direct-to-consumer space. As new technology came around, one company boldly crossed this line — and with great success. Now, almost half of the BGAs/wholesalers have inhouse call centers. Agents should be cautious. If you work with a BGA who has a D2C division, recognize that your upline is your competitor. At the very least, they are in your same market seeking clients. A more disreputable agency could access your clients’ information for their own D2C lines; they could reach out for policy reviews, referrals and/or conversions — and avoid sharing profits with you. Also, who’s to say BGAs who are selling direct and selling leads aren’t keeping the best for themselves? There are ways for BGAs to take advantage of new technology without stepping on their agents’ businesses. At Levinson & Associates, for example, we’re not selling to consumers; we package the technology, tools and products and hand them over to our agents, who build their own call centers with turn-key ease. Not only do we avoid competing with our own downline, but we are fully available to focus on their retail businesses by not focusing on our own. Have an honest conversation with your BGA or IMO. Ask them about their involvement in the retail side of the business. If they could potentially compete with you, it’s up to you to discern whether or not they’re harming your business — or to choose a new partner who focuses strictly on serving you, the agent. • Bill L. Levinson is the managing partner of Levinson & Associates, a life and annuity IMO based in Florida and found online at


Alan Thicke AGE: 69 DIED: Dec. 13, 2016; Burbank CAUSE: Ruptured aorta ESTATE MISTAKE: Failed to update planning documents.

money, is gone. They are demanding their share of the estate, reportedly worth up to $40 million. Some of the claimants even said King had assured them they would be provided for. The story got even more curious because none of the 15 women were his two wives. Reportedly, he didn’t have children with his wives because he had too low of a sperm count.

So, why wouldn’t King have disavowed the extramarital claims? Janice Forgays, an attorney with PRW Wealth Management in Quincy, Mass., has an idea. “I think it depends on what’s important to you,” Forgays said. “He probably felt like it’s nice to have all these people that want-

ed to be connected to him. So I don’t find that surprising.” If he wanted to be sure they were included in the estate and spare everybody the fight, he had the opportunity to spell it out. “Typically what we do in both wills and trusts is we enumerate who the beneficiaries will be,” Forgays said. “And it can be a limited group. You can say to my children alive today and their names are X, Y and Z. You delineate the group in your documents so that there’s no question if somebody else comes forward.” Some of the would-be heirs might claim King wanted to provide for them, but the courts need it in writing. “That’s what courts do,” Forgays said. “They don’t try to bring in some other interpretation, because that muddies the waters even more.” A well-drafted statement of intent would prevent many of these problems, Forgays said, even if it is not with the estate-planning documents. The next crucial step is to make sure the documents are updated. That was the apparent issue with Alan Thicke’s estate. The sitcom dad died at 69 of a ruptured aorta while attending a hockey game with his younger son, Carter. The 19-year-old was devastated by his father’s sudden death, but had another surprise when details of the estate plan came out. Instead of naming his older son, Robin,

Carrie Fisher AGE: 60 DIED: Dec. 27, 2016; Los Angeles CAUSE: Heart attack ESTATE MISTAKE: Unsettled wrongful death lawsuit is still pending against estate.


InsuranceNewsNet Magazine » May 2017


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Zsa Zsa Gabor AGE: 99 DIED: Dec. 18, 2016, Los Angeles CAUSE: Heart attack ESTATE MISTAKE: Sold her mansion, but didn’t accommodate her husband after death.

as Carter’s guardian, Thicke named his own brother. But the plan was 10 years old and had not been revisited. The brothers claim that their father would have decided differently if he had updated his planning. Forgays said it is up to advisors to make certain clients are up-to-date. “One of the great roles of the advisor is just to stay on top of it and remind people,” said Forgays, who has extensive insurance company experience. “I see it all the time where people haven’t updated their documents in 20 years. And I ask, have you heard from your attorney at all? No.” Part of the issue is that the will and other documents are transactional. And that is how attorneys work, Forgays said. They are not going to monitor that unless they are paid for it. “That’s where I see the other advisors like the wealth manager and the life insurance sales representative,” Forgays said. “They at least can try to keep the process going and remind people that they need to get things updated. And for people in the sales arena, that’s a great opportunity to review whatever is in place and maybe find something better for them.” Carrie Fisher’s estate might be facing a roadblock. When she died of a heart attack at age 60 a few days after Christmas 36

InsuranceNewsNet Magazine » May 2017

last year, she had a pending lawsuit. The Star Wars actress and author was named in a lawsuit over the heroin overdose death of a 21-year-old actress who lived on Fisher’s estate for a period. The actress’ mother is pressing the lawsuit despite Fisher’s death. It is unlikely to be resolved before the estate is settled, so the case is likely to hold up the disbursing of money. Beneficiaries might get an allowance in the near term or nothing until it is resolved. So, just who is first in line? According to Forgays, it’s the IRS. Then it’s administrative costs, which are any taxes and services, such as advisors and attorneys. Then it’s primary beneficiaries who have special bequests. Last would be residual beneficiaries. Zsa Zsa Gabor’s husband definitely ended up at the end of the line. When Gabor died in December at the age of 99, it was an eviction notice for Frederic Prinz von Anhalt, husband No. 9. That’s because Gabor had sold her Bel Air mansion in a “life estate” deal, which means she and her husband could live there as long as she was living. Even though her husband was a relatively youthful 71, they had not planned for what would happen next. That is up to advisors to think through the scenarios,

said Kestenbaum, the planning lawyer from New York. “We need to play out all the different scenarios in our documents and in our planning,” he said. “We don’t know who will die first. We can’t predict. Planning could have dealt with that, could have given him the right to live in the house until his death, meaning it could have been the last to die of the two of them.” In that case, it could have been an advisor not taking in the whole picture, which often can happen. “Every client is different. So there’s no one-size-fits-all and that’s where the empathy and the sympathy come in,” Kestenbaum said. “If we’re empathetic, we’re going to look at that client and we’re going to put ourselves in his or her shoes. Simply by having empathy, simply by caring, we’re going to realize every client needs something a little bit different from us.” 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. Steve may be reached at steve.morelli@

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IUL Sales Dip 1.3% in 4Q, Flat in 2016


$8,671 5%


Indexed universal life (IUL) sales dipped 1.3 percent to $534.5 million in the fourth quarter of 2016 compared to the year-ago period. The drop was due primarily to declines from two sellers, according to industry tracker “Wink’s Sales & Market Report.” Despite that fourth-quarter drop, IUL sales, measured by premium revenue, rose to a record $1.86 billion for 2016. That was just a hair above the $1.85 billion in 2015, Wink’s said. The average indexed universal life target premium reported for the fourth quarter was over $8,671. This was an increase of more than 5 percent from the third quarter, Wink’s reported.



Black American households represent Life insurance sales are not down because an opportunity for life insurers. Six in of a lack of sales effort; they are down be10 Black American households (approx- cause the industry needs to do a better job imately 9.9 million) indicate they are like- of “connecting the dots.” ly to buy life insurance for themselves or That was the word from Brian Winanother member of their household in the ikoff, head of AXA U.S. life, retirement next 12 months, compared to just 45 per- and wealth accumulation businesses at the cent of the general population. 2017 LIMRA Distribution Conference. LIMRA research found that nearly half Population in the U.S. is increasing while of Black Americans believe they more Americans fear outliving their monshould have more life insurey. Combine that with 51 percent of of Black American ance. Market segments workers who don’t contribute to households own some of Black American form oftheir life insurance. most likely to buy are retirement plans and the 40 households own some those under age 54 and percent of Americans without life form of life insurance. couples with children. insurance and “you clearly have a of Black American If they believe they pent-up demand for our households own some need more coverage, products,” he said. form of life insurance. what’s holding them The supply of back from buying life insurance of Black it? Black Ameriproducts availAmericans of Black cans said some able are today of Black likely tohas Americans Americans purchasebeen life of Blackreasons prevent“never feel they need are likely to insurance Americans more life ing them from morewithin robust, purchase life 1 year. ” feel they need insurance. of Black insurance Winikoff said, more lifebuying life insurAmericans within 1 year. of Black insurance. are likely to ance include havwith rates lower Americans purchase life feel they need ing other financial insurance than ever. more life within 1 year.The priorities and having challenge, he insurance. a difficult time deciding said, is in matching the supply of products what to buy. Among those who are likely with consumer demand. to buy, two-thirds said they find it difficult Carriers must adapt to today’s consumdeciding what type and how much cover- ers and how they want to be reached, he age to purchase. said. In addition, carriers must realize they











Pacific Life was the No. 1 seller of IUL in the fourth quarter of 2016. Source: Wink’s Sales & Market Report

InsuranceNewsNet Magazine » May 2017




This was not only a recordsetting year for indexed life sales, but 4Q 2016 was the secondgreatest quarter ever in terms of sales. — Sheryl J. Moore, president and CEO of Moore Market Intelligence and Wink Inc.

can’t be all things to all people and determine where they fit in the marketplace.


George Huguely V made headlines when he was convicted of the 2012 second-degree murder of University of Virginia lacrosse player Yeardley Love. Now a Maryland judge has decided that one insurance company will no longer have to defend Huguely in an upcoming multimillion-dollar wrongful-death lawsuit. For years, parties in the suit have waited for a judge to resolve two other lawsuits against Huguely, each filed by a different insurance company with which Huguely’s mother had a policy. Chartis Property Casualty Co., a holding company of AIG, and State Farm both have contended that the policies covering Huguely became null when Huguely was convicted of Love’s murder. A lacrosse player himself, Huguely and Love were in an on-again, off-again relationship until her death in 2010. Huguely also faces a $29.45 million wrongful-death lawsuit, filed in April 2012 by Love’s mother, Sharon Love. The insurance companies filed suit the following year.

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Insurance products issued by: Minnesota Life Insurance Company | Securian Life Insurance Company Securian Financial Group, Inc. 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. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Both companies are headquartered in St. 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 ©2016 Securian Financial Group, Inc. All rights reserved. For financial professional use only. Not for use with the public. This material may F88056-2 Rev 3-2017 DOFU 3-2017 130415

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May 2017 » InsuranceNewsNet Magazine



Surrendering or Selling Brings Tax Consequences When clients surrender or sell their life insurance policies, it is important that they have an understanding of the tax results of their actions. By Louis S. Shuntich


hen we sell life insurance to our clients, we like to think our clients will keep their policies until they die. But the reality is that a significant amount of life insurance is eventually surrendered or sold by policy owners. When clients surrender or sell their life insurance policies, it is important that they have an understanding of the tax results of their actions. How much life insurance is surrendered or sold? Data from the American Council of Life Insurers showed a 6.8 percent voluntary termination rate for 2010, and that 21 percent of those terminated policies were surrendered. In addition, a study showed that during 2008, policies with a collective face value of $11.8 million were sold to investors. With so much activity in the way of surrenders and sales, it is important that policy owners have an understanding of the tax consequences. In 2009, the IRS issued two Revenue Rulings that dealt with the tax treatment of proceeds received upon the disposition of a life insurance policy. Rev. Rul. 2009-13 deals with the income tax consequences on the surrender or sale of a life insurance policy by a person who purchased it for insurance protection. Rev. Rul. 2009-14 deals with the income tax consequences to an investor that receives death proceeds or the proceeds from reselling a policy purchased for profit. Rev. Rul. 2009-13 — This ruling involves three fact patterns. 1. A purchases a policy on his life and pays $64,000 in premiums before surrendering it for $78,000. A is taxed on the $14,000 of gain as ordinary income under Internal Revenue Code § 72(e). 40

InsuranceNewsNet Magazine » May 2017

2. Instead of surrendering the policy, A sells it for $80,000 to B, who has no insurable interest in A. This transaction is taxed under IRC § 1001 as a sale or exchange of the policy, and therefore gain is determined as the sales price minus A’s adjusted basis. For this purpose, A’s adjusted basis is the cumulative premiums paid (investment in the contract) minus the cost of insurance. Assuming the cost of insurance is $10,000, A’s adjusted basis is $54,000 ($64,000 cumulative premiums minus $10,000 cost of insurance). Consequently, A’s taxable gain is $26,000 ($80,000 minus $54,000). Of this amount, $14,000 is taxed as ordinary income and $12,000 as capital gain. In that regard, the characterization of $14,000 of the gain as ordinary income is based on the “substitute for ordinary income doctrine” under which the amount of ordinary income is limited to what would have been taxed as ordinary income had the contract not been surrendered. Further, the remaining $12,000 of gain is treated as capital gain because life insurance is generally a capital asset. 3. A buys a 15-year level-term policy on himself and pays $500 a month in premiums. After eight years and paying $45,000 in premiums, he sells the policy to B in the middle of a month for $20,000. (Assume that B is an investor who has no insurable interest in A.) For this purpose, the IRS ruled that the cost of insurance on a term policy is the premiums paid and the adjusted basis is the unearned premium. Consequently, since the policy was sold in the middle of the month, one-half of the

$500 monthly premium is unearned and represents A’s basis in the policy of $250. This means that A’s taxable gain on the sale is $19,750 ($20,000 minus $250). Further, all of A’s gain is capital gain since he could not have surrendered a term policy for a cash value. Rev. Rul. 2009-14 — This ruling was drafted as a continuation of Fact Pattern 3 above with the following three scenarios. 1. After buying the term policy from A for $20,000, B pays an additional $9,000 in premiums before A dies, and the insurer pays B $100,000 in death benefits. Since there is no exception to the transfer for value rule under these circumstances, the entire gain of $71,000 ($100,000 minus $29,000) is ordinary income. 2. Assume that before A dies, B resells the policy to C for $30,000. For this purpose, B’s basis in the contract is what he paid A ($20,000) plus additional premiums paid by B ($9,000) for a total basis of $29,000. Further, since B bought the policy for investment purposes, there is no reduction in his basis for the cost of insurance. This means that B’s taxable gain is $1,000 ($30,000 minus $29,000), and it is all capital gain because he could not have surrendered a term policy to the issuing company for a cash value. 3. Assume that A sells the term policy on his life for $20,000 to a foreign corporation, which pays an additional $9,000 in premiums before A dies. Because there is no applicable exception to the transfer for value rule, the corporation has ordinary income of $71,000 ($100,000 minus $29,000).

SURRENDERING OR SELLING BRINGS TAX CONSEQUENCES LIFE Here is a summary of how the IRS applied the law to the above fact patterns. » Upon the surrender of a cash value life insurance policy, the amount received is ordinary income to the extent it exceeds the cumulative premiums paid. » If a cash value policy is sold to a third party, there is ordinary income to the extent that the cash value exceeds premiums paid with the balance of the gain treated as capital gain. » The total gain on the sale of a cash value policy (ordinary gain and capital gain) is determined by using as basis the total of premiums paid less the cost of insurance. » On the sale of a term policy, basis is the unearned premium and the entire gain is capital gain. Generally, the two options for disposing of a life insurance contract are to surrender it or sell it. Either way, consideration must be given to determining whether there is

a gain on the contract for income tax purposes. That calculation requires figuring the difference between what the policy holder received and what they are deemed to have given for the contract. In the latter regard, what is considered to have been given depends on whether the transaction is a surrender governed by IRC § 72 or a sale covered by IRC § 1001. In the case of surrenders, IRC § 72(e)(6) states that the amount given is the “investment in the contract.” That amount consists of the aggregate amount of premiums or other consideration paid, minus the total amount previously received under the contract that was excluded from gross income. Turning to the sale of a policy, the amount given pursuant to IRC § 1011 is the “adjusted basis.” This comprises the cost of the policy as modified for “expenditures, receipts losses or other items properly chargeable.” In determining what is properly chargeable, the IRS has stated in Rev. Rul. 2009-13 that since a life policy may have both investment characteristics and insurance characteristics, it is necessary to

reduce the adjusted basis of the contract by the “cost of insurance” before the sale of the policy. This approach results in a reduction of adjusted basis and a greater potential for taxable gain on the sale of a policy. The problem is that the IRS' reasoning in Rev. Rul. 2009-13 represents an inconsistent interpretation of existing case law and its own regulations. Worse yet, while requiring that the cost of insurance must be deducted from adjusted basis, the IRS does not offer a safe harbor method for determining what the cost of insurance is for a policy that is being sold. The practical solution for a policyholder is to contact the issuing company and ask for the cost of insurance on the contract. Alternatively, some companies’ illustrations contain schedules of the cost of insurance on their policies. Louis S. Shuntich, J.D., LL.M., is director, Advanced Consulting Group, Nationwide Financial. Louis may be contacted at louis.

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2.76 Million Households Ready to Buy Annuities


Brace yourselves for more households entering the ranks of the annuity owners. The number of U.S. households likely to buy an annuity rose 3 percent to 2.76 million in 2016 compared with 2013, an analysis of the annuity market has found. California, Texas and Florida are home to 720,300 households likely to buy annuities. Last year, those three states made up 26 percent of the U.S. household market likely to buy, research from Information Asset Partners found. The top 10 states with households likely to buy annuities are California, Texas, Florida, New York, Pennsylvania, Illinois, Ohio, New Jersey, Michigan and North Carolina. Together the top 10 states account for 53.4 percent of the likely-to-buy household market.


It was called one of the largest amounts of money recovered in the North Carolina Department of Insurance’s history. Eighty-one senior citizens across North Carolina were refunded more than $11 million after the department spent seven years investigating two former insurance agents who are accused of selling unsuitable annuities. Milton Hooks, 72, of Rocky Mount, and James Mangum, 69, of Tarboro, pleaded guilty to six counts each of obtaining property by false pretenses. The two men were arrested in 2012. They were accused of fraudulently persuading clients to shift more than $10 million in assets from life insurance policies and 401(k)s into annuities that were unsuitable for their situations, acDID YOU




cording to the department. That enabled the defendants to obtain more than $620,000 in commissions from three insurance companies: American Equity, AmerUs and North American. Those companies agreed to refund the victims’ money with interest after the scheme was uncovered.


Jackson National was the top combined seller of variable and fixed annuities for 2016, with a total of $18.6 billion in sales, according to LIMRA Secure Retirement Institute. Jackson topped the list of variable annuity sellers at $17.1 billion for the year. Allianz Life was the top seller of fixed

Ohio National Financial Services entered the fixed indexed annuity market for the first time with the launch of ONdex FIA. Source: Ohio National

InsuranceNewsNet Magazine » May 2017

companies offering There are will11be a company that we’ve never heard of before and QLAC (qualifying longevity annuity never thought of before contract) products. While coming this is in and taking share of a small andmassive new partmarket of the DIA our business. market, we expect to see an uptick — Kevin Kennedy, managing in sales in 2016. director/head of individual annuity business for AXA Distributors

annuities for the year, with sales of $10.2 billion. It was followed by New York Life at $9.9 billion, AIG at $9.2 billion, American Equity Investment Life at $7.1 billion and Athene at $5.3 billion. On the variable annuity side, Jackson was followed by TIAA at $13 billion, AXA at $10.4 billion, Prudential at $7.9 billion and AIG at $7.8 billion. AIG was the No. 2 combined seller of variable and fixed annuities for 2016. It was followed by TIAA, New York Life and Allianz Life.


Way too many Americans are afraid of running out of money in retirement. As a result, just 15 percent are “very” confident about their financial futures, according to a new study. Workers’ top retirement fear (51 percent) is “outliving my savings/investments,” stated the Transamerica 2016 study on American workers and retirement readiness. As the generation that is currently entering into retirement, baby boomer workers have a median savings of $147,000 in all household retirement accounts, up from $99,000 in 2012. Twenty-two percent of baby boomer workers have less than $55,000 saved.


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May 2017 » InsuranceNewsNet Magazine


VAs Outlook: Worse Before It Gets Better V  ariable annuities have long been hot sellers for agents, but times have changed. Regulations and other pressures have squeezed the VA market. But the products aren’t likely to disappear, analysts say. By Cyril Tuohy


he long-suffering variable annuity market will get worse before it gets better, a product expert with Morningstar said. No one is predicting the death of the variable annuity market. However, between new regulations issued by the Department of Labor, investment restrictions in subaccounts and stingier guarantees, variable annuity sales aren’t expected to pick up anytime soon. The variable annuity sales volume of $100 billion won’t disappear overnight, but new sales have been thinning faster than the polar ice cap. “There’s a void right now,” in variable annuity sales, said Kevin Loffredi, senior product manager for Morningstar. New sales of variable annuities fell 20 percent to $23.96 billion in the fourth quarter from the year-ago period. Sellers hit the brakes in the face of new regulation, confused distributors and waning attention paid by insurers, Morningstar reported. New sales of variable annuities fell 21.4 percent to $101 billion in 2016 compared to 2015, the mutual fund tracker reported. For the fourth year in a row, variable annuity assets under management have held steady at about $1.8 trillion.


The DOL fiduciary rule, which raises investment advice standards for retirement accounts, has many sales reps looking over their shoulders and talking to lawyers about advisors’ potential future liability and “best interest” advice thresholds, Loffredi said. 44

InsuranceNewsNet Magazine » May 2017

Photo: Todd Winters


“If the home office isn’t encouraging reps to nurture them [variable annuities] and tell people how to use them, then interest in the product will wane.” — Kevin Loffredi, senior product manager for Morningstar There is a sense among broker/dealers and within insurance company home offices that variable annuities are adrift. “Annuities are sold and not bought, that’s true, but they need to be nurtured at the broker/dealer. If the home office isn’t encouraging reps to nurture them and tell people how to use them, then interest in the product will wane,” Loffredi said. And wane they have, from $141.2 billion in 2013 to $135.9 in 2014 to $128.1 in 2015 and to $101 billion in 2016, according to Morningstar data. In the past, the entirety of a $600,000 rollover might have ended up in a variable annuity. With the DOL’s best interest standard, the variable annuity might now only receive $400,000, with the remainder rolled into another type of investment — an exchange-traded fund, for example. FINRA regulators, who last year levied a record fine against MetLife in connection with variable annuity sales, have identified variable annuities for heightened supervision because of their costs and complexity. “As for the DOL rule, in my view, it caused variable annuity product development activity to slow of late, especially during the period when the rule was in draft form,” said Steven D. McDonnell, president of Soleares Research.

“Now at least insurers know what they will have to work with,” McDonnell added. But the fact remains that the variable annuity market was shrinking long before the DOL proposed its restrictive fiduciary rule last year. So regulation isn’t entirely to blame for the rapidly shrinking market.

Under Pressure

Variable annuities remain under pressure from the yield on the 10-year Treasury note, which is a gauge of how rich a benefit variable annuities can provide to investors. Low Treasury yields force insurers to pull back on the benefits. Higher yields offer insurers opportunities to be more generous. With the yield on the 10-year Treasury note still depressed by historical standards, insurers are limited by what they can hedge and set aside in reserve, Loffredi said. Insurers don’t want to get caught by a severe market downturn, as they did nearly 10 years ago when financial markets collapsed. When interest rates subsequently plummeted, insurers suddenly found themselves obliged to continue paying generous variable annuity benefits. Meanwhile, new money invested in fixed income portfolios was generating lower returns. This time around, insurers have raised






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ANNUITY VAS OUTLOOK: WORSE BEFORE IT GETS BETTER the costs of benefits and the lifetime guarantees on their variable annuities. Benefits not only have been priced in the range of 300 to 400 basis points, but insurers also are limiting the investment freedom advisors have with subaccounts, Loffredi said. Insurers have eased up on some of their variable annuity control levers as the financial crisis recedes further. But lowering fees and loosening investment restrictions don’t appear to be among them since insurers remain on the hook for the guarantees, Loffredi said. “Fees are still expensive, and the investments still require stricter guardrails, so the insurance company is limiting its equity exposures,” he said. In a bull market, when investors see their 401(k) accounts growing steadily, the managed volatility funds within the

that buyers, unimpressed by what they’ve seen, have turned away.

Where have they turned?

Many have sought refuge among fixed annuities — fixed indexed annuities in particular. Fixed indexed annuity sales soared 12 percent to a record $61 billion in sales in 2016 compared with 2015, industry data show. As recently as a few years ago, variable annuities grabbed 70 percent of the total annuity sales market. But 2016 is the “the first time in a long time” that variable annuities have dropped below 50 percent in annuity market share, said Todd Giesing, assistant research director for LIMRA Secure Retirement Institute. Last year, fixed annuity sales rose 14 percent to a record $117.4 billion while

Going Down — Variable Annuity Sales Decline

(in billions)

$141.2 $135.9

Source: Morningstar

$128.1 $101.0



variable annuity deliver muted returns by comparison. Reps are dealing with phone calls from clients who don’t necessarily grasp that their investments are in managed volatility subaccounts, he said. Clients point to their galloping 401(k)s and scoff at the tepid growth of funds in variable annuity subaccounts. This makes it hard for advisors to sell the variable annuity contracts, Loffredi said. In bear markets, which managed volatility strategies are designed to hedge against, investors rarely credit volatility management for muted losses, since investors are guaranteed a return by the insurer.

Fixed Side Competition

There’s no question that variable annuities have been made to look uglier over the past few years. So it should come as no surprise 46

InsuranceNewsNet Magazine » May 2017



sales of their variable annuity cousins came in at $104.7 billion, LIMRA reported earlier this year. Indeed, quoting activity for income annuities — single-premium immediate annuities and deferred income annuities — reached a record in the December 2016-February 2017 time period, said Gary Baker, president of Cannex USA. In the previous three years — February 2014, 2015 and 2016 — advisor quote activity increased on average by 18 percent compared with the previous December. However, quoting activity rose 28 percent this year, he said. Industry analysts estimate there’s about $220 billion up for grabs in the entire annuity market. Morningstar’s variable annuity data does not include sales from CUNA and Voya Financial, and reports new sales

only. Total sales include internal transfers within an insurer. Under a “total sales” measure, Morningstar would have reported $102.2 billion in variable annuity sales in 2016.

A Bounce Back?

The heights to which the variable annuity market once soared appear to have vanished, at least in the short and medium terms. But any talk about the disappearance of the variable annuity market would be premature. “In order for the variable annuity industry to rebound, insurers will have to devise products that do not rely on risky guarantees, but will somehow still resonate with advisors and their clients,” McDonnell said. “This will take time, creativity and innovation.” Insurers indicate they are prepared to innovate, with many coming out with feebased variable annuities to entice more financial advisors. Rising interest rates also help sales of all annuity products. Remember, too, that insurers have been “managing down” variable annuity sales as they reduced their risk exposures. Leaving fees and investment restrictions aside, some variable annuities offer rollup rates of 6 to 7 percent, so there are still a lot of rich benefits to be gleaned from a variable annuity if you know where to look, Loffredi said. Some insurers offer variable annuities with little or no investment restrictions, so it pays for advisors to shop around. Demand for guaranteed income, however, continues to rise as many nationwide surveys show millions of Americans born after 1964 find themselves underprepared for retirement. Will the rebound into the variable annuity market turn into a stampede? No, Loffredi said. Will the sales slide level off and will sales improve once again? Yes, most likely, he said. “My opinion is that variable annuity usage would level off or increase slightly but not a flood going back in,” Loffredi said. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.

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May 2017 » InsuranceNewsNet Magazine



Advisors Not Talking Annuities, Even Though Clients Want Income By Cyril Tuohy


onsumers love annuities but are hesitant to buy them. And annuity buyers are trending younger. Those are among the findings of recent research into consumer attitudes toward lifetime income products. Retirees and preretirees overwhelmingly want their financial advisors to present them with a smorgasbord of retirement income strategies, but few advisors actually do. That was the finding of the third annual Guaranteed Lifetime Income Study. Consumers also believe financial advisors have a responsibility and a duty to present them with financial products that provide guaranteed lifetime income, the study said. And there’s where the disconnect begins. There’s a gap between what consumers say they want and what consumers say advisors are giving them. That gap is a sign of a stubborn “disconnect” between what annuities can provide and what consumers say they want, said Doug Kincaid, research director for Greenwald & Associates. “With both the consumers and the advisors, that goes unspoken,” he added. Greenwald conducted the joint survey with Cannex, an analytics platform that supports the exchange of pricing information for annuity and bank products. The survey polled retirees and preretirees with more than $100,000 in household assets. Nine in 10 survey respondents said financial advisors should present them with multiple retirement income strategies. In addition, 60 percent of respondents said advisors have a responsibility to present them with products that offer 48

InsuranceNewsNet Magazine » May 2017

guaranteed income benefits as part of a retirement income strategy.

A Question of Positioning

Of the respondents who have an advisor, 68 percent said they had discussed strategies for drawing income in retirement, the survey found. But the survey also found that only 28 percent of respondents said their advisor mentioned annuities with guaranteed lifetime income as a strategy. Separate annuity research concluded that consumers tend to view financial advice as information about where

Kincaid said. So income-generating products tend to get short shrift when in fact, dozens of annuity product types exist in the market. “The data shows when it comes to their investment portfolios, consumers are focused on risk assets, including equities, but at the same time want to ensure that in retirement they will have the income to meet their needs,” Gary Baker, president of Cannex USA, said in a news release. “The lack of familiarity about specific products underscores the importance of

Consumers Hungry For Advice on Retirement Income Strategies Nine in 10 consumers say that advisors should present multiple retirement income strategies and help each client decide which strategy fits their needs. Six in 10 consumers actually believe financial advisors have a responsibility to present products that offer this benefit to their clients. This desire for advice does not appear to be met, however. Currently, a third of those working with an advisor have never discussed these strategies, while only about three in 10 have discussed guaranteed lifetime income products as part of a strategy. to invest, instead of how to draw down assets during the income phase of the investment cycle. Consumers said their discussions with advisors tend to veer in the direction of investment choices, growth rates and returns. These metrics are more important during the accumulation phase of a retirement portfolio. Left behind is how to protect income or how to structure guaranteed income streams more efficiently in the drawdown phase of the portfolio. “People are being advised, but not being advised about drawing income,”

providing advisors and clients options to meet both needs,” he added. Consumers often find it difficult to quantify how much a guaranteed income stream for life is worth, Kincaid said. When asked how much they would be willing to invest to receive $1,000 a month for life, two-thirds of respondents had no clue, the research found.

Bridging the Divide

The chasm between the retirement income strategies consumers say they want and the paltry options they say advisors are giving them could be bridged

SOURCE: Third Annual Guaranteed Lifetime Income Study

R  esearch shows that consumers want a lifetime income, but only 28 percent of advisors are talking annuities.

ADVISORS NOT TALKING ANNUITIES, EVEN THOUGH CLIENTS WANT INCOME ANNUITY if retirement income discussions are reframed, the study concluded. When talking about guaranteed lifetime income positioned to supplement Social Security in covering fixed expenses during retirement, more than 50 percent of respondents see annuities as desirable, the survey found. Clients are three times more likely to buy an annuity when advisors discuss retirement income strategies with them, the research found. The survey also uncovered the following: » 58 percent of respondents said that an annuity was a desirable way to safely increase the amount of income they could take from their investments each year.

SOURCE: Third Annual Guaranteed Lifetime Income Study

» 55 percent said annuities were desirable to cover essential expenses in coordination with Social Security and pension income. Financial advisors have a responsibility to present financial products that provide guaranteed lifetime income in retirement as an option to clients.


29% Agree No Opinion Disagree


» 49 percent said annuities were a desirable way to make sure that supplemental expenses such as health care costs and mortgage payments were covered every year. Previous Greenwald surveys have picked up on the fact that consumers intuitively grasp the value of annuities and lifetime income, even though overall individual annuity sales remain flat.

Annuity Buyers Trending Younger

Not only are consumers becoming more intrigued by the benefits of owning

annuities, but the average age of income annuity clients is going down. The average age of primary annuitants for income annuities dropped to 65.6 years old in 2016 from 66.6 years old in 2015, according to the annual Cannex USA survey. The average age of joint annuitants for income annuities also dropped to 63.1 years old last year from 64 years old in 2015. What’s driving the trend? Defined benefit pensions continue to disappear, so younger clients are purchasing guaranteed income streams before retirement, Baker said. An increase in deferred income annuity (DIA) sales also is contributing to the drop in average buyer age, Baker added. “The item that jumped out at me in the report is that the average age of clients is going down and that’s because there are more deferred income annuities being sold than in the past,” Baker said.


Advisor has discussed strategies for drawing income in retirement


Advisor mentioned annuity with guaranteed lifetime income as a strategy “There’s been a gradual shift from single premium immediate annuities (SPIAs) to deferred income annuities (DIAs) over the past five years.” The ratio of SPIAs to DIAs has moved from roughly 75 to 25 percent in 2014 to 70 to 30 in 2015, to 65 to 35 last year, he said.

DIA Buyers Younger Than SPIA Buyers

DIAs are being positioned to younger buyers as a means to establish their own pension in pre-retirement, Baker explained.

The average age of DIA contract buyers is between 59 and 60 years old, the data show. The average age of SPIA buyers is between 69 and 70 years old. SPIA buyers typically want to purchase a contract before minimum distribution requirements from their retirement accounts kick in at 70.5 years old, Baker said. “That overall mix between the qualified and nonqualified may be changing too because of the dynamics between SPIA and DIA,” he said. A monthly payout frequency remains the most popular payment interval by far with 87.4 percent of quotes tied to that cycle in 2016, a slight increase from the 86.7 percent in 2015.

New Jersey Leads in Quotes

More income annuity quotes in 2016 came from New Jersey — 152,680 — than from any other state, according to the Cannex USA survey. The data is surprising since states such as Florida and California have much higher overall populations. Data show that 12.2 percent of all quotes came from New Jersey, compared with 9.5 percent from Florida and 8.86 percent from California. The reasons so many quotes come from New Jersey, with a population of 9 million, could be because of the concentration of financial advisors living and working there, Baker said. The New York metropolitan area has by far the highest employment level of financial advisors in the U.S., according to the Bureau of Labor Statistics. In the southern part of New Jersey, financial advisors serve people living in and around Philadelphia, still a wealthy market by nationwide standards even if not as large or as wealthy as New York. That makes New Jersey a unique demographic when it comes to wealth concentration and the number of advisors catering to that wealth. InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.

May 2017 » InsuranceNewsNet Magazine




HSAs’ Popularity Grows, With 20M Enrollees

Know this: We are not giving up.

Health saving accounts (HSAs) keep on growing, according to a survey by America’s Health Insurance Plans (AHIP). More than 20 million American consumers enrolled in an HSA in 2016, AHIP reported. HSA participation has grown steadily over the past decade – from 3.2 million in 2006 to 20.2 million in 2016. On average, plans surveyed in 2015 and 2016 enrolled an additional 648,000 consumers, an average net increase in HSA participants of 3.4 percent.


Long-term-care insurance is commonly thought of as nursing home insurance, but most claims start and end while the policyholder is living at home. The American Association for Long-Term Care Insurance (AALTCI) found that the majority of new claims that started in 2016 (54 percent) began in the home. That’s a 3 percent increase over the result of the AALTCI’s last study conducted in 2012. The AALTCI study found that 14 percent of new claims began with the claimant in an assisted living community and 32 percent began in a nursing home. The analysis found that nearly 56 percent of claims also ended in the home.


Opponents called the Affordable Care Act a job-killer but one segment of the economy picked up jobs as a result of the law. The DID YOU




— House Speaker Paul Ryan, on efforts to repeal and replace the Affordable Care Act

health care sector gained about 500,000 jobs under the ACA, according to a Goldman Sachs report. Since 2012, the employment in the health care field moved upward as the ACA provided health coverage to more Americans and they took advantage of that coverage to obtain treatment, the report said. The Goldman Sachs projection is based on an estimate that every percentage-point increase in insurance coverage is associated with a 0.6 percent rise in health care employment and health care consumption.


Colorado voters said no to a statewide single-payer health insurance system last year. But California could end up being the first state in the nation to go that route. State Sen. Ricardo Lara introduced a bill that would make California the first state to adopt a single-payer system. It’s not the first time such a move was made in the Golden State. Single-payer bills made

MNsure, Minnesota’s health insurance exchange, saw record enrollment for this year. West Central Tribune (Willmar, Minn.)

InsuranceNewsNet Magazine » May 2017

Source: Associated Press

it through the state’s legislature in 2006 and 2008 but were vetoed by then-Gov. Arnold Schwarzenegger. The plan wouldn’t come cheap. A 2008 study showed that even with a tax on Californians and steps to pool health care funds, the state would still be $40 billion short of what it needs to implement the system.


The world is getting fatter and one health insurer is raising the alarm. Obesity rates have more than doubled since 1980, according to the World Health Organization. Thirteen percent of adults worldwide are classified as obese and nearly 40 percent are considered overweight. Now Aetna is calling for urgent action to limit the global fallout from rising obesity levels. Aetna’s report, “Globesity: Tackling the world’s obesity pandemic,” calls upon governments, food producers, retailers, employers and insurance companies to combine their efforts to tackle the obesity crisis. The report concludes that the only way to tackle globesity is through a holistic approach combining health incentives, taxes and education programs.


Overweight: 40% Obese: 13%


The 5 Biggest Myths and Hidden Truth About Disability and DI Your clients may think disability happens to other people, but the odds of it occurring to them might surprise them into action. By Richard M. Weber


arly in my insurance career, I began working with a young attorney. He had been in practice for 10 years, was married with two young children, and seemed to be an ideal prospect for life and disability insurance. There was just one problem — he thought he was invincible. “And if I do become disabled, you can just prop a phone up to my ear and I’ll continue to earn my living,” he’d say. Fortunately, I had the presence of mind to ask him if he knew anyone who had missed work recently due to cancer, heart disease, arthritis, multiple sclerosis or lupus. He did. He quickly realized that his solution for propping a phone up to his ear 52

InsuranceNewsNet Magazine » May 2017

wouldn’t actually cut it if he became disabled. He better understood the necessity and bought an individual disability insurance (DI) policy to protect his income. Our clients generally can’t imagine themselves in less than perfect condition, so they inevitably ignore or — worse yet — assume away reality. Here are some of the other myths our clients believe and how we can help them see the truth.

Big Myth No. 1: “It won’t happen to me”

Psychologists call it cognitive dissonance. In the face of the unpleasant possibility, we simply re-create a world without disabling forces. But there is credible data suggesting even the healthiest and ablest can become disabled. » Encourage your clients to check their Personal Disability Quotient at They can explore their

own specific statistics within the generic 25 percent chance they’ll miss work sometime in their career for 90 days or longer due to disability. In an associated poll conducted by the Council for Disability Awareness, two-thirds of respondents were shocked the statistics were that high. They believed the probability of becoming disabled was less than 2 percent! » The chances your client’s house will burn to the ground this year is 0.03 percent, according to U.S. Fire Administration statistics. There’s an 18 percent chance your client will total their car during their lifetime, and there’s a 25 percent chance they will experience a disability lasting at least 90 days, according to the Council for Disability Awareness. Your clients likely have homeowners and auto insurance — in most circumstances they have to. Although disability insurance isn’t “required,” the underlying risk

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HEALTH/BENEFITS THE 5 BIGGEST MYTHS AND HIDDEN TRUTH ABOUT DISABILITY AND DI has a substantially greater likelihood of occurring.

Big Myth No. 2: “There’s always workers’ compensation”

Many people believe if they do become disabled, it will likely result from an accident occurring at work and, by extension, believe that “workers’ comp” will provide income replacement. But in fact, the Council for Disability Awareness reports 90 percent of all disabilities are from illness. And although it’s true that workers’ comp replaces a portion of income in the event of a work-related injury or illness, the

But in the final analysis, you can help your client consider the cost of not having insurance for disability, especially in light of the Council for Disability Awareness’s findings that there is an initial 25 percent chance of a disability occurring and as much as a 40 percent chance a 90-day disability will last five years.

Big Myth No. 4: “I’m too young; disability happens to older people”

The Council for Disability Awareness reports approximately 22 percent of new disability claims filed are from people

SOURCE: Social Security Administration

TOP 10 CAUSES OF SOCIAL SECURITY DISABILITY CLAIMS 1. Musculoskeletal Problems 2. Heart Disease 3. Cancer 4. Mental Health Conditions 5. Diabetes

council’s statistics show there’s less than a 5 percent chance that disabling injuries and illness are work-related.

Big Myth No. 3: “It’s too expensive”

No one wants to become “insurance poor,” and clients don’t need to buy insurance for every risk. For example, the likelihood of being hit by an asteroid is one in 700,000 and is an unlikely exposure to insure. However, for risks that don’t happen very often, but which have a high financial consequence, insurance is an ideal and affordable way of shifting the financial impact. There are numerous ways to acquire disability insurance, from plans covered or offered by employers to association plans to individual coverage. All have their own benefits and commensurate costs. 54

InsuranceNewsNet Magazine » May 2017

6. Nervous System Disorders 7. Strokes 8. Autism 9. Accidents 10. Complications From Pregnancy and/or Childbirth under age 40, and 30 percent of all disability claims are made by those in the 20-to49 age group. But here’s another example of cognitive dissonance: The Council for Disability Awareness indicates more than 20 percent of workers under age 40 believe they are more likely to win a Mega Millions Jackpot than to become unable to work due to illness or injury. In reality, there is less than a one in 260 million chance of winning the jackpot, versus a one-in-four chance of an income-interrupting disability.

Big Myth No. 5: “I’ll apply for Social Security benefits”

The Social Security Administration (SSA) reports its final award rate for disabled-worker applications averaged 36 percent for claims filed from 2004 to 2013.

SSA reported it denied an average of 61 percent of disability claims. For claims that were approved, the average monthly Social Security disability benefit was $1,165. It’s probably not enough to pay the mortgage, put food on the table and give the kids a modest spending allowance. Let ’s consider some add itiona l information: The American Journal of Medicine reports that every 90 seconds, someone files for bankruptcy in the wake of a serious illness. In fact, more than 50 percent of all personal bankruptcies have underlying, unpaid medical expenses. » Only one-third of today’s workers have disability insurance through work, leaving an estimated 75 million Americans without coverage. Yet the Federal Reserve reports that three-quarters of workers today do not have enough emergency savings to cover six months or more of their expenses and half of all households could not raise $400 for an immediate financial emergency. » According to a 2012 FBI report, the risk of a home robbery is .113 in 100, but people believe they’re more likely to be robbed than to become disabled (in spite of the 25 percent likelihood of incurring a disability lasting at least 90 days during people’s working years). Convinced? Share the facts and help your clients explore the benefits and costs of indemnifying them and their families in the event of an income-disabling sickness or accident. Using an online DI insurance quote calculator — such as the one found on the Guardian Life website — makes it easier for your clients to evaluate disability income insurance. It provides them information online about how much disability coverage will cost and lets them see what increases or decreases the price. That way, when they work with you to purchase insurance, they already have a good understanding of the pricing and coverage they want. Richard M. Weber, MBA, CLU, AEP, is president and principal of The Ethical Edge, a consulting firm providing fee-only analytics and services to insurance firms, family offices, and high-net-worth individuals. He serves as a consultant to Guardian Life. He may be contacted at

The only difference today’s client sees is a company name, fees and advice. Imagine never having to place a phone call to a client and explain why they need to adjust their lifestyle and income after a market correction. THIS IS WHAT YOU CAN OFFER YOUR CLIENTS AND YOUR PRACTICE INSTEAD: • A structured product that works like a safety net in a down market • A way to transition underperforming assets and achieve market-like double-digit gains • Eliminate taxes on retirement income • Place new AUM and retain 100% of existing clients • Use an asset class that was made to thrive under volatility If you don’t investigate this and start offering it to your clients, another advisor will, and it could deplete your AUM and cost you significant income. Respond now to see a ledger of historical returns from this new asset class against all other traditional investments.

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May 2017 » InsuranceNewsNet Magazine



Powered by

More Women Are the Household CFOs The average woman holds down numerous jobs in her household — cook, laundress, seamstress, housecleaner, gardener, childcare professional, nurse, pet care specialist — and an increasing number of women are adding the title of chief financial officer to their household resume. That’s according to an Allianz Life study. The majority of women in the study (51 percent) say their duties include serving as their family’s CFO. Additionally, more married women (37 percent) report being their family’s primary breadwinner — an increase of six percentage points over a 2013 Allianz study. When it comes to managing their household’s long-term savings and investments, more than half said they either have a “great deal of responsibility or do it all.” The study found that 58 percent of women believe they are more financially savvy than their spouse or partner, and nearly seven out of 10 said that their quality of life improved from becoming more knowledgeable and involved in managing finances. But having professional support helped to boost women’s financial confidence, the study found. Thirty percent of women said they depend on a financial professional for guidance, and 75 percent of that group said they wish they had done it sooner.


Financial professionals continue to preach the message that consumers need to plan for their future long-term-care expenses. But it turns out that those who provide that care face some expenses of their own.

4 in 10

Americans are or were caregivers

1 in 3

Caregivers provide financial support

A Northwestern Mutual study found that many Americans are not taking steps DID YOU




to mitigate the impact of caregiving on their finances or personal lives. According to the study, four in 10 Americans are current or past caregivers, while one in five non-caregivers expect to step into this role in the future. Nearly two-thirds of caregivers said they provided financial support to the person they care for. In fact, that financial support made up nearly one-third of the caregiver’s monthly budget. One in 10 caregivers reported having to resign their job or change career. Among those caregivers who incurred added expenses, half said they reduced discretionary living expenses while more than a quarter increased work hours to assist with the added financial demands. Future caregivers who expect to accrue financial costs anticipate even more pervasive lifestyle changes. Threequarters believe they will need to reduce living expenses while half foresee working more. However, despite recognizing the potential burden, one in three has taken no steps to plan.

Prudential Investments changed its name to PGIM Investments. Source: Renaissance Capital

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

InsuranceNewsNet Magazine » May 2017


With Do Not Call lists, with no home phones, with very few people using traditional means that people in my generation of the business started with, I think it’s proof that advisors are having a tougher time getting through to the people that need the advice. — Brian Heckert, past president of MDRT

FINANCIAL STRESS TAKES A PHYSICAL, EMOTIONAL TOLL That anguished cry you hear is that of stressed-out American workers anxious about their finances. Guardian Life’s annual workplace benefits study revealed anxiety over personal finances is the leading cause of emotional stress among American workers. Single parents and members of Generation X are the two groups struggling most with finances. A majority of workers indicated they are stressed over saving for retirement and college education, managing debt and protecting their family in the event of death, serious illness or injury.


Only 18 percent of Americans are very confident they will have the savings they need for a comfortable retirement. At the opposite end of that spectrum, three out of 10 Americans say they are so stressed out about their retirement savings they even think about it at work. The Employee Benefit Research Institute found that people have calmed down about their finances since the Great Recession took its toll on jobs and savings. But even though Americans are returning to work and the stock market has recovered, the EBRI found retirement confidence remains in short supply.


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May 2017 » InsuranceNewsNet Magazine


Three Overlooked Questions That Can Affect a Financial Plan Strengthen the advisor-client relationship by demonstrating the value of human analysis and a quality financial plan. • Bob Curtis


t’s always a good time to sit down with clients to review their financial goals and plans. But the new Trump administration gives advisors an extra reason to touch base with clients who may be wondering how this change may impact public policy and the financial markets. The change in administration also may leave clients questioning their financial plans and insurance strategies. Addressing client concerns and asking thoughtful questions allows you to deepen your relationship with your client, provide additional value and create a quality financial plan that meets their comprehensive needs. Refocusing clients on their existing

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InsuranceNewsNet InsuranceNewsNet Magazine Magazine »» May May 2017 2017

plan by revisiting goals and expectations is a good way to encourage clients to participate and take ownership of their plan. Once you have identified any major changes such as retirement goal updates, use this opportunity to take the conversation and the plan one step further by talking about risks.

Risk categories

Clients often are unaware of the severe impact certain risks can have on their financial plan. This lack of awareness represents an opportunity for financial advisors, but where do you begin? The typical risk tolerance questionnaire primarily is focused on market risk

— more specifically, the client’s tolerance for losing money. However, a quality financial plan takes the definition of “risk tolerance” further to include a client’s longevity, liquidity, health and inflationary risk. Stepping outside the common boundaries of the common risk tolerance questionnaire will help advisors set themselves apart. Our firm conducted research on more than 1,600 financial professionals, reviewed data from 1 million plans and gathered insights from 40 financial industry thought leaders. All are in agreement that there are three primary risk categories that should be explored in a quality financial plan. See the chart on the next page for specifics from the survey. Our research further showed that these categories and specifics frequently


are overlooked while addressing the risks in a quality financial plan. Without the proper analysis, these factors can have a significant impact on the plan’s accuracy and the appropriateness of investment recommendations. What is really surprising, shown in the chart below, are the risk categories that can be financially devastating to households that are not deemed required for all client plans.

Ask the right questions

Talking about risks is never easy, but advisors are in a particularly good position to prepare families for the unexpected. Again, this type of information gathering goes beyond the typical questions on a risk tolerance questionnaire. By asking about potential risks, you will get to know your client better, and may uncover additional financial needs. Asking these types of questions also helps to gain a more holistic understanding of a client’s financial situation and will give you more information to make recommendations that are in their best interest. Here are some questions that will uncover potential risks.

Health-Based Risks • Disability risk • Life insurance needs • Long-term care needs • Health care exposures • Longevity risk

Market Risks

Other Risks

• Client market risk tolerance • Spouse market risk tolerance • Household market risk tolerance • Concentrated stock risk

• Inflationary risk • Property/casualty risk • Liquidity risk

Do you have life insurance? Ninety-seven percent of advisors surveyed said this was a necessary question. However, aside from life insurance-centric firms, fewer than 10 percent of financial plans actually included a life insurance needs analysis and only 22 percent of financial plans included life insurance. Do you have disability insurance? Ninety-one percent of advisors surveyed said disability insurance is an important element of a financial plan. A severe injury right before retirement could create an unrecoverable situation for any household, and probably presents one of the most significant risks to any financial plan. Disability insurance is important for

ADVISOR OPINION — RISK EXPOSURES Client market risk tolerance



Co-client market risk tolerance




Household risk tolerance


Inflationary risk



Longevity risk



Life insurance needs/policies



Disability insurance needs/policies


LTC needs/policies Property/casualty insurance



9% 5% 25%

everyone, but it is extremely important for single-income-earning couples. Of the 1 million plans reviewed, 41 percent belonged to single-income-earning couples but only 3.5 percent of plans included disability insurance. Do you know what your property and casualty insurance covers? Twenty-five percent of advisors surveyed said that a property and casualty discussion is not necessary. This is concerning, as a 2015 Gallup study showed 70 percent of Americans and 80 percent of baby boomers own their own homes. If someone is injured on your client’s property or your client is in an auto accident and is sued for damages beyond what auto insurance covers, their retirement savings can be considered an asset for purposes of paying damages. This can derail a retirement savings and investing plan.

Communicate the risks

Take the time to explain the purposes for each question. Describe how a client’s financial situation potentially will be affected if the risks these questions address are not accounted for. Clients who understand the reason for a recommendation are more likely to embrace it and understand its importance to the overall financial plan. Asking and discussing these questions, and putting appropriate insurance policies in place, will lead to a quality financial plan while elevating the advisor-client relationship. Bob Curtis is the founder of PIEtech, the creator of MoneyGuidePro, software for the financial planning industry. Bob may be contacted at

May 2017 2017 »» InsuranceNewsNet InsuranceNewsNet Magazine Magazine May

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The Gender Pay Gap Leads to The Gender Retirement Gap Because of their lower salaries, glass ceilings and time taken from work for caregiving, women, on average, start retirement retirement with less money than men have, but they need more money to fund retirement than men do. • MIchael S. Ross

say that the younger generation of women can count on living longer lives. The sooner they start planning and saving for retirement, the better.

ur industry has been male-dominated, in terms of its professionals and its clients, for most of its history. Over the past several decades, as more women entered the workforce, our industry was slow to respond to the expanding role that women were playing in making financial decisions for themselves, their businesses and their families. The financial services industry has long viewed women as a secondary market at best — or at worst, as a niche market. However, women now wield unprecedented economic and financial clout — the U.S. Department of Labor reports women make

What We Know

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up nearly half of the U.S. work force and frequently out-earn their husbands. The good news for advisors and their female clients is that women will continue to hold management and professional positions, generating significant incomes. While previous generations of women made significantly less than men for comparable work, the gender pay gap for younger generations is narrowing, according to a study from PayScale and Millennial Branding. Women will need our services right from the start of their careers as they will most likely have to fund the vast majority of their own retirements. Suffice it to

In addition to the well-publicized gender pay gap, there is another gap that women need to be aware of — the retirement gap. Because of their lower salaries, glass ceilings and time taken from work for caregiving, women, on average, start retirement with less money than men have, but they need more money to fund retirement than men do. Why? Because they will live a long time and are likely to live some of it alone, as women are four times more likely to outlive their husbands. That’s the word from The Women’s Institute for a Secure Retirement’s 2016 report, “What Women Need to Know.”


Countless studies have shown that retirees’ No. 1 worry is outliving their income. For women, this is a real concern, because longer life spans mean higher spending for everything from meals to health care. There is a big need to assist people with what might be a 20- or 30-year drawdown of the money they accumulated over the previous 30-40 years. Retirement today isn’t like what your grandparents or great-grandparents experienced. Back then, you could retire at 65 and put all of your money in a certificate of deposit because you might be gone by age 75. Not anymore. Today’s retirees might have a time horizon that could be longer than the time that new parents have to save for their children’s college. Although everyone needs our help with retirement savings, this is especially true for single, divorced and widowed women. Many of these women need our financial guidance, especially if they alone are responsible for all of life’s expenses as they age. Following are a few ways that we can help and benefit from a woman-friendly practice. Please know that there are some generalizations here and not all people, be they men or women, act in the same way.

Encourage Savings

Women should be encouraged to start saving as early as they can, and save as much as they can. It is also critical to encourage female clients to increase their contributions each year. I once enrolled a 22-year-old woman in her first 401(k) plan. She told me her plan was to retire at 55. I reminded her that by retiring at 55, she might possibly be retired for longer than she was employed.

Be Patient

If you are a male advisor, remember that women have a more complex and sophisticated decision-making process than men do. Women may ask more questions and want to see more alternatives than men do. Furthermore, women like to see data but also seek out others’ opinions and experiences. These factors all go into their decision-making process. Compare that to men who might look at the bottom line and pick a mutual fund that has the best return over the past year, for ex-

Top Five Retirement Challenges for Women Based on Earnings 1. Approximately two out of five working women earn less than $30,000 per year. 2. Approximately three out of five working women earn less than $40,000 per year. 3. Of the 62 million wage-earning and salaried women (age 21-64) working in the U.S., 45 percent participated in a retirement plan.

4. Across all employer retirement plans, men tend to have higher average account balances. The gap gets wider with age — women who are 70+ years have less than half the balance of men the same age.

5. Women's earnings average $.79 for every $1 earned by men – a lifetime loss of over $300,000. ample. So, be a patient educator.

Does she have a plan?

Both men and women tend to feel more confident having a game plan. If you don’t offer individual financial planning, maybe consider partnering with an advisor who does. It is critical for women to have a financial game plan.

Longevity Insurance

Women should allocate between 40 and 80 percent of their retirement assets to guaranteed income sources, according to a landmark 2008 University of Pennsylvania Wharton School of Business study. Consider suggesting annuities as part of your clients’ retirement plans.

The Benefits

If you can help your female clients feel more confident, you may reap some of the benefits that go along with helping women. Women make twice as many referrals over the course of a business relationship, according to a 2012 marketing study. Women often make referrals because they feel responsible for helping those closest to them. Keep in mind, it is best to ask for referrals from the standpoint of how you can help the people they care about, not for how it can benefit you. Women are also the gateway to the next generation. Assets, or the ownership of the business, often go to the spouse before they go to the children. If you do a good job for mom, you’re in a good position to retain the children as clients. So,

Source: The Women’s Institute for a Secure Retirement

if you’re working with a male client who is married — even a client who appears to be primarily responsible for managing the couple’s finances and who is your primary contact — make sure you include the wife in meetings, reviews and client appreciation events. Finally — and this is really a reminder to male advisors — 85 percent of women are gender neutral when it comes to choosing an advisor, according to Penn Mutual’s MyWorth Survey. The three biggest factors that influence women’s choices of an advisor are trust, rapport and competency. Go through your client list or book of business. Who can you help to better plan for retirement this week? Michael S. Ross, a 12-year MDRT member with three Court of the Table honors, has been helping clients for the past 23 years. Michael focuses his practice on helping women, families and businesses plan for their financial and retirement needs. He is on the NAIFA-Massachusetts Board of Directors and has served on various MDRT Committees. He may be contacted at

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Don’t Make a $50 Million Mistake N  o matter how long you’ve been in the business, keeping an open mind to new ideas can open new paths to grow your practice. By John Pojeta


hen we talk about ways advisors can grow their practices, we talk about a number of opportunities: appointment setting, strategic partnerships, seminars, techniques for improving direct mail campaigns, thought leadership and so on. All of these things, however, assume a willingness to change, to step outside into the unknown to try something new, which is a rare quality. Time and time again, we see this as a key differentiator between good advisors and great advisors. Many people believe they have an open mind, but the sort of open-mindedness I’m writing about here is the ability to set aside fear, doubt and your assumptions about how things “should be.” This also means thinking less about your peers and more about your own potential. Jason Calacanis is a well-known angel investor, hosts a start-up podcast and puts on multiple events a year on helping young companies grow. Despite his experience, he often laments that he passed on his opportunity to invest in Twitter. When he met Evan Williams, co-founder of Twitter, he saw that Williams was driven and intelligent, but Calacanis just didn’t see the value of a service like Twitter, so he opted not to invest. He now calls that choice a “$50 million mistake.” When he saw the success of Twitter, Calacanis recalibrated how he thought about new ideas and new opportunities. He didn’t want to make another mistake that big, so he started thinking more about the people pitching him ideas, while keeping his mind open to concepts that might seem counterintuitive at first. The result? He was one of the early investors in Uber when many others passed. We see similar stories play out in this industry. For example, I was at a conference recently, and I met a man from San-


InsuranceNewsNet Magazine » May 2017

ta Barbara who has been an advisor for 47 years. He was sitting next to a colleague of his who had been in the industry for 50 years. They were exchanging the sort of good-natured ribbings and putdowns that you would expect to hear from old friends hanging out in a bar during a conference. As I wrapped my mind around what someone could learn and accomplish after 50-some years in the business, I couldn’t understand why someone with

extra drink or two in the name of celebrating the old days. And he liked how conferences energized him, giving him a way to enter his work reinvigorated and excited. But then he said, “I never know when I’ll meet someone who will change my business.” He told a story from when he was in his 40s. He was at a conference like this one, your typical national conference where everyone knew everybody, and if you had

“I’ve never been more wrong. … What I realized is that you just never know.” Jason Calacanis, venture capitalist on turning down Twitter that level of experience and success would still bother traveling for an industry conference. So I asked him. “Look. I know what I get from coming here,” I said. “What do you get out of this?” The first half of his answer was not surprising. He enjoyed the change of pace. He liked catching up with old friends. It was fun to pick up a few fancy meals on someone else’s tab and maybe have an

any sort of clout in the space, the younger attendees knew it. A young man, about 24 years old, approached the older advisor and said that he was missing out on a huge opportunity to grow his business. The older advisor had a big book of life insurance business with some annuities, and the “kid” was telling him about a new way to handle those relationships so that the older advisor could transition

DON’T MAKE A $50 MILLION MISTAKE BUSINESS into managing their money. The advice was coming from someone younger with seemingly less experience, but objectively, the opportunity made sense. So for the next three years, the older advisor paid the younger advisor to coach him on how to manage client money and how to talk

never tried before is the hallmark of an advisor who sets the trends rather than follows them. Humans are naturally resistant to change. We are even more resistant to it when we’ve risen to the point of being experts in our field. That ability to embrace the discomfort

The question should become “Does this make sense?” and not “Does this make me feel good?” to his current clients about making the transition. It transformed his business forever, and it put him way ahead of what he would have accomplished on his own. That lesson has stuck with him. After decades of being in the business, this advisor still goes to conferences with his mind open, looking for that new idea that opens the door to new growth, even when other advisors might discount it. This willingness to look outside of the box, to explore new opportunities, and to consider trying something you’ve

of leaving your normal day-to-day activities — such as taking coaching and advice from someone 20 years younger than you — means that you can capture new business opportunities in places that other advisors aren’t willing to go because it’s difficult. So the question should become “Does this make sense?” and not “Does this make me feel good?” We see many advisors pass on potential growth because they might be skeptical of a sales coach’s ability to find qualified prospects, because the sales process of a cold

appointment might mean having to take some advice from a sales coach, or because they prefer the comfort of selling to obtaining referrals. All of these concerns have very little to do with the actual opportunity or the ability of the people setting appointments on their behalf and much more to do with their own discomfort. Be open to new ideas for every facet of your business. Be open to the discomfort and potential failure if getting it wrong means eventually getting it right. Old ideas won’t take you to new places, and you won’t benefit from new ideas unless you are willing to change. If you keep your mind closed long enough, you’ll eventually pass on your own personal Twitter and kick yourself later. John Pojeta is the vice president of business development at The PT Services Group. He previously owned and operated an Ameriprise Financial Services franchise for 16 years. John may be contacted at john.pojeta@

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With over 90 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

Helping African-American Clients Bridge the Wealth Gap A  frican-Americans are lagging behind their white counterparts in retirement preparedness and wealth building. How the financial services industry is helping address this issue. By Jocelyn Wright


e African-Americans have known for years that when America gets a cold, we get pneumonia. This statement especially holds true when it comes to the growing retirement crisis. While Americans in general are severely underfunded for retirement, black Americans in particular lag even further behind. According to The Ever-Growing Gap: Without Change, African-American and Latino Families Won’t Match White Wealth for Centuries released in August 2016 by the Center for Enterprise Development’s Racial Wealth Divide Initiative, the average black household has less than $20,000 in retirement savings compared with more than $130,000 for the average white household. In fact, almost 75 percent of African-Americans have less than $10,000 in retirement savings, compared to just 48.6 percent of white Americans. Multiple factors contribute to this wealth gap. They include reduced homeownership in the wake of the biggest recession since the 1920s. This is particularly important given that housing equity makes up a substantial portion of wealth for so many. African-Americans were especially devastated by the foreclosure crisis and the effects of underwater mortgages. As a result, significant wealth was lost in our communities due to the Great Recession. Also troubling is the fact that more than half of African-Americans (54.3 percent) work for employers which do not offer retirement plans. Even when these plans are made available, blacks not only participate at a lower rate, but they contribute at a lower rate than their white counterparts. When it comes to retirement security 64

InsuranceNewsNet Magazine » May 2017

— or more appropriately called retirement insecurity — the data is startling. In a report issued by the Center for Global Policy Solutions (CGPS) addressing the retirement dilemma of African-Americans, the authors state that more than two-thirds of African-Americans are considered liquid-asset poor. This means that blacks do not possess sufficient assets to make ends meet. Further, 83 percent of African-Americans lack the resources needed to last throughout their lifetime, even with their shorter average life expectancy.

in the African-American community. By providing at least $250,000 of coverage for 200,000 families, the company is well on its way to reaching the $50 billion goal sometime this year. The tax-free proceeds received from the insurance policies can be used by the beneficiaries to make a down payment on a home, provide startup capital for a business venture or pay for college tuition, thereby minimizing student loan debt. Additionally, increasing the number of African-American financial advisors

Decades of discriminatory policies and practices have contributed to the current financial state of AfricanAmericans and other minorities. African-Americans also rely on Social Security benefits for a greater percentage of their retirement income than whites do. Social Security represents 100 percent of retirement income for more than 36 percent of blacks. This leaves many black retirees living at or near poverty levels. What can the financial services industry do to help close the racial wealth gap? First, it is important to understand that the racial wealth gap is not entirely due to a lack of financial education or poor financial choices on the part of blacks. It runs much deeper. Decades of discriminatory policies and practices have contributed to the current financial state of African-Americans and other minorities. Some of these discriminatory policies exist to this day. We simply cannot plan our way out of this situation. New York Life’s African-American Community Empowerment Plan represents an example of what our industry can do to help close the racial wealth gap. In an effort to change the financial future of families through inheritance, agents within the organization have committed to generating $50 billion of life insurance protection

also can contribute to better economic outcomes for black communities. More African-American advisors would help rebuild the trust that has eroded over the years and place a greater emphasis on the importance of working with an advisor. The American College of Financial Services has launched an African-American Diversity Scholarship aimed at doubling the number of black financial advisors from the current rate of about 8 percent over the next 10 years. While it will take generations to close the racial wealth gap, these are steps in the right direction. The financial services industry must work alongside other thought leaders to dismantle the systemic policies that have had and continue to have a negative financial impact on black and other minority communities. Jocelyn Wright is the chair of The State Farm Center for Women and Financial Services at The American College. Jocelyn may be contacted at jocelyn.


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.

You’re Only as Good as Your Team A  team that helps you support your clients’ needs during and after a sale is the magic ingredient for more sales, more generational business, more referrals, and nearly perfect client retention. By Elie Harriett


o agent, broker or sales force is truly in business on their own. Even sole proprietors rely on the help of others to get their clients the insurance coverage they need. The other people whom the proprietors rely on include their back-office staff and employees as well as the service personnel within the insurance companies. With an increasing number of competitors fighting for your clients’ business and more and more companies trying to get you to contract through them, we must make customer service a top priority.

Putting Clients First

Here is what we have done to make customer service a top priority. We created a path to the customer-service experience we want our clients to have. Customer service is a primary driver for referrals, making this one of our most important things to get right. The support we get from the team behind us directly impacts the support we can give to our clients. Here are our considerations: » Your team is more than you and your staff. It’s also the back office you go through. If you need to get something, how will they jump into action for you? Most jump right in and help you with illustrations and sales presentations with almost superhuman speed. But after you make that sale, are they still there? If you can’t answer a question, do they help? Are they easily reachable? Our marketing partners need to be real partners. That means we want their help with sales; we want their help with service. All clients need to know is that they called us, we handled it, and they can go on to enjoy their day. » How accessible is the insurance

company if you need an answer directly from the “horse’s mouth”? If you are an agent working for the insurance company directly, this is not an issue. For the rest of us who broker independently, this can be a big deal. I have one company that refuses to allow us to assist our clients, telling us to have the client call them directly. On the opposite end, there is a company that gives us a direct representative whom we call for virtually every issue we have in terms of sales and service. Clients call us, and with one phone call or email, we can get the problem looked into and it’s almost always handled. » When both of my parents needed insurance, guess where I put them without hesitation? When clients let me choose the company, that’s how I pick. I pick not by price, but by service! When we put the focus on service, referrals go up, sales go up, client retention is phenomenal, and customer satisfaction is through the roof! » What is a client’s experience in reaching you? Here’s a fun experiment: Have a friend try to call in with a question. It can relate to anything — from a claim issue to a request for a sales appointment. Then have the friend tell you what they thought of the experience. We are very sensitive to how our clients reach us. Do they always get a machine first? Can they understand the person who picks up the phone? How quickly can they get to you, and how hard is it?

In our practice, our clients have our cell phone numbers and know there’s a chance they could get voicemail if they call those numbers. But there’s also an office number, and during work hours, there’s always at least one person there to take the call. Our first test by a client is how well we can be reached if they need us. We try to make sure this experience is first-rate. Everything old is new again, and people are tired of talking to machines that tell them that “your call is important to us.” We try to show callers how important it is by answering the phone. From soup to nuts, we make it obvious that our clients come first. Our partnerships behind the scenes, both the partnerships clients will never speak with and the ones who are the first contact in their moments of crisis, are a major factor in our success equation. Having a team that helps us support our clients’ needs during and after a sale has been that magic ingredient that has allowed us to gain more sales, more generational business, more referrals and nearly perfect client retention. Elie Harriett co-owns Classic Insurance & Financial Services, an independent agency specializing in individual Medicare-related insurance. He is a trustee of NAIFA-Ohio. Elie may be contacted at elie.harriett@

May 2017 » InsuranceNewsNet Magazine



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

Help Clients Tame the Debt Monster Y  our clients are unable to reach their financial goals until they face their debt and plan how they will eliminate it. By Aurora Tancock


ebt transcends all adult age groups — from those beginning their careers to those in retirement. No generation is immune from potential debt problems. However, there are many ways financial advisors can help their clients manage and eliminate debt.

Complete a Cash Flow Analysis

One of the first things financial advisors should do with a client is complete a cash flow analysis to gain insight into their current financial status. The analysis identifies income and expenses to determine how clients are managing their finances and will highlight whether the client has accumulated debt that should be addressed. Completing a cash flow analysis helps identify whether clients are spending more than they can afford, which ultimately causes debt. This exercise also provides visibility into where adjustments can be made to improve the client’s financial situation.

Set Up a Financial Plan

After completing a cash flow analysis, advisors should help clients set up a financial plan. During this exercise, advisors review the client’s debts against their assets to determine overall net worth. Doing so provides insight into whether the client can meet their financial needs and obligations. Setting up a financial plan also helps identify the client’s short-term and longterm goals — whether those goals include a vacation, purchasing a home or retiring — and determine the best strategy to meet them.

Take Inventory of All Debt

Financial advisors also should take an inventory of all the client’s debt and compare the interest rates on each credit card or loan with the payment on each ac66

InsuranceNewsNet Magazine » May 2017

Debt Consolidation Worksheet Name:

John and Jane Doe


123 No Place, Ontario

Prepared by:

Joe Advisor



Current Obligations (Name of Company)

Date: 5/1/2017

Customer Evaluation of Home


Loanable %


Maximum Loan


400,000 75% 300,000

Balance of 1st Mortgage/Lien



Loanable Equity



Estimated Balance

Monthly Payment

Proposed Loan Current Obligations (column B)




Additional Cash to You (must be less than loanable equity)








Current Mortgage













Amount of Loan (1+2)






Balance of 1st Mortgage/Lien Total Mortgage







name of debt





name of debt





New Mortgage Details 180

Amortization Period (months)


Annual Percentage Rate


Total $

Monthly Savings





Monthly Payment with Proposed Loan* (compare to column A)



Annual Savings





For illustration purposes only. Actual numbers may vary. Proposed loan is based on information provided by the customer and credit bureau. Loans are subject to normal credit approval. Clients should exercise caution when obtaining loans for the purpose of leveraging and investing in the stock market or equities, and such discussions should be fully disclosed with the client's legal and/or accounting professional advisors. Some expenses may apply (CHMC, Appraisal & Legal). Have you ever had a debt consolidation before?



count. Sometimes advisors find that people are paying the most money toward their largest debt, assuming it is a good strategy to pay it off. Instead, the best approach is to concentrate on the account with the highest interest rate, which will save money in the long run. It is also important to ensure clients understand the difference between good debt (mortgage) and bad debt (credit card). For example, while student loans are considered good debt, the amount and length of the loans can impact a client’s overall debt load and affect the amount of a mortgage loan for which they qualify. Once clients have a clear understanding of the different

types of debt, they can make better financial decisions such as limiting bad debt in the form of credit card use.

Establish a New Monthly Payment Plan

Once an inventory of all debt is complete, advisors should establish a new monthly payment plan with their client. While clients still can pay approximately the same amount toward their total debt each month, their individual debts will be reprioritized to pay down first those with the highest interest rates. This approach allows the client to continue eliminating payments while also saving the extra money that would have gone toward those debts with the highest rates.


Consolidate Debts and Insurance Coverage

Advisors also should determine whether their client’s debt can be consolidated into a product charging less interest than their current credit cards, which sometimes charge up to 20 percent or more. One option is to renegotiate a mortgage loan and add their other debts to it, creating a single monthly payment at a reduced rate. Advisors can show clients how much quicker this approach will pay off their debt. To pursue this route, homeowners must have enough equity in their properties and a good credit rating to qualify. In addition to consolidating debt, the other option is to consolidate life insurance coverage. Clients often have separate life insurance policies — one on a mortgage, one on a line of credit and another to cover lost income. Combining the coverage amounts into one contract often provides large savings because the cost of life insurance per thousand reduces as the coverage amount increases. This also means having to make a payment on only one policy premium.

Review Spending Habits

It is also important to review the spending habits of clients and identify where cuts can be made to help pay down debt. Perhaps clients can trim spending on dining out, entertainment, or unnecessary household and personal items. Even savings from simple changes like making coffee at home and packing a lunch for work can add up. This extra money should be put toward high-interest credit card or loan debt.

Evaluate Mortgage Loans

Financial advisors should also evaluate and include any mortgage costs and lines of credit. Clients should meet with their mortgage planning specialist to evaluate what a mortgage will cost them and let their advisor know what could be incorporated into their full plan. Sometimes people unknowingly purchase properties that are too expensive because they underestimate fixed monthly costs. This is also easy to do when clients qualify for high mortgage amounts and low interest rates. When people spend too much income on living expenses, they are more likely to rely on credit cards they cannot pay off, which perpetuates the debt cycle. Despite how easy it is to create and increase debt, there are many strategies advisors can use to help their clients establish a plan to manage and eliminate debt. Sometimes it starts with simply making clients more familiar with their income and expenses so they make better financial decisions and live within their means. The sooner debt is controlled, the sooner they can start living debt-free and focus solely on saving for their future. Aurora Tancock, CFP, FLMI, AIAA, is president and owner of Aurora Tancock Financial Services, a financial planning firm located in Ontario, Canada. She is also an author with more than 30 years of experience in the financial services industry. Aurora is a 17-year member of The Million Dollar Round Table with six Court of the Table honors. Aurora may be contacted at





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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.

Striking the Emotional Spark That Leads to Buying Short-Term DI L  IMRA found that the major challenge carriers face is how to CONNECT with employees emotionally to inspire them to purchase short-term disability insurance. By Yuliya Babushkina


hort-term disability insurance was first introduced more than 70 years ago, yet just a fraction of employees are familiar with these products and the value associated with them. It’s no surprise, then, that employees who have access to shortterm disability insurance at work are slow to purchase it. For carriers, this translates into a less than 40 percent participation rate by employees and a perpetual headache of trying to figure out how to convince potential buyers to purchase this seemingly inexpensive and exceedingly beneficial insurance policy. In order to get in-depth and honest opinions from employees about their decision process, LIMRA conducted a series of focus group conversations. Employees from 22 companies met and discussed their concerns with short-term disability insurance, and why they did or didn’t elect to purchase it. It became evident that the reason employees don’t purchase is they don’t understand the product or its value. LIMRA found that the major challenge carriers face is how to create an initial spark — connecting with them emotionally — in order to get employees to want to learn more. Focus group participants were not shy about giving their best advice on how to grab their attention and make them more likely to buy short-term disability 68

InsuranceNewsNet Magazine » May 2017

products. An honest discussion among them presented a simple, but inventive tactic that carriers should consider when approaching short-term disability sales. Here is what employees told us. » Change the name of “short-term disability insurance,” so I am not thinking about morbid health issues that can happen to me. Instead, focus on the positive

things that this insurance will give me at the time of need. Make it catchy to get my attention! » Originate specific scenarios for someone like me, and explain why I need this coverage. That will “hook me” as an individual. » Narrate in common language — one that I understand! Tell me the key details of short-term disability insurance and explain how it works. » Navigate straight to the point — build communications that are “short and sweet.” Don’t make me read the entire book on short-term disability insurance! » Explore a variety of channels to reach me, such as emails, pamphlets, TV ads

and billboards. Nothing is off-limits. » Create an app or other tool to help me investigate more about benefits. I need a techy solution to play out different scenarios! » Tell me the cost. How much will I spend, and what will I get for my money? It is clear from the focus group discussions that before making any purchase, consumers want to establish some sort of emotional connection to the product. The emotional bond is followed by a psychological relationship that links abstract shortterm disability insurance terminology with each unique individual’s life. Whatever decision the consumer makes, it’s all about feeling good psychologically. Carriers need to evoke positive sentiments about short-term disability insurance before they call on intellectual content, such as key benefit statistics, to help employees fine-tune their decision process. To purchase short-term disability insurance, individuals need to know benefit cost and what it covers, but to begin the process they must first connect to the product. Emotional, psychological, and intellectual connections are all organic steps of the complex purchasing process and the source of successful employee motivation. Yuliya Babushkina is assistant research director at LIMRA. She may be contacted at

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You there, reading this magazine. YOU’VE BEEN SEEING OUR ADS ON THIS BACK COVER FOR 6 YEARS NOW.

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What if we backed it up with first-class selling & closing support, a million-dollar website for your practice, and a CEO (still a world-class producer!) eager to share his simple selling secrets?

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Why would we do that? We find that roughly 80% of the people who come to visit us decide to contract with us.



InsuranceNewsNet Magazine - May 2017  

Too Busy to Die: How advisors can help perfectionists plan

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