InsuranceNewsNet Magazine - February 2012

Life

Annuities

Health

February 2012

Scientific Sales Breakthrough! P.12 It’s Costing More Money to Die! P.26

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February 2012 • Volume 5, Number 2

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CONTENTS

View and share articles from this month’s issue

36

ANNUITIES 36 P urchasing Power Principle

By Jacob Stern A comparison with the S&P 500 shows how indexed annuities are the better guard against inflation and can protect clients’ purchasing power.

20

38 Are Your Clients Tax

INFRONT

Diversified?

20 B eware the Tax Monster

10 DIAs Mix It Up with SPIAs in Income Annuity Market

By Linda Koco SPIAs have been available for decades, but only recently have they begun to attract enough sales to make annuity watchers pay them heed.

By Linda Koco Tax planning can scare clients—but it’s a huge opportunity for advisors who know tax-advantaged products and how they fit the client’s needs.

28

12

28 The New Kitchen Table

By Clark Wooten The key to conversion is connecting the right message with the right digital channel to engage consumers in meaningful dialogue about life insurance.

FEATURES

32 Case Study: Planning

12 The Science of Sales An interview with Christophe Morin Morin delves deep into why people buy, how they make buying decisions and react to sales presentations.

InsuranceNewsNet Magazine

HEALTH 42 How to Use Social Media

to Target Health Insurance Prospects

By Mark Shuster Social media can help you break through barriers to not only educate prospects, but to ultimately provide them with the insurance they need.

LIFE

2

By Sonja Hayes Since we can’t predict the future of income tax rates, position clients so that they will always be in the most advantageous place possible.

February 2012

Through Grief

By Steve Plewes Building strong relationships and ensuring astute planning can help keep your clients afloat through major life changes.

$

46

FINANCIAL 46 Human Capital

By John F. Nichols Clients work hard to maintain their lifestyle, build nest eggs and save for their kids’ education, but they need to protect their human capital first.

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12 INN 02.12

CONTENTS February 2012 • Volume 5, Number 2

VIEW ONLINE LEADS DIFFERENTLY

BUSINESS 48 Reboot Your Marketing

By Maribeth Kuzmeski New strategies like social media and viral marketing are changing the way we do business— has your marketing plan adapted as well?

PERSPECTIVES 50 Selling the Insurance Story An interview with Robert Miller, president of NAIFA Robert Miller has a reputation of being an outspoken, straightshooting representative for the advisor community, bringing a unique perspective to his position.

INSIGHTS 52 MDRT: Tax-Planning Kaleidoscope

By Philip E. Harriman With tax changes around the corner, now is the time for clients who have assets they aren’t using to solidify their financial arrangements.

53 L IMRA: We Are a Mobile Nation

By Mary Art With the world growing more mobile every day, insurers must find a way to develop an effective mobile strategy to ensure future success.

EVERY ISSUE 8 Editor’s Letter 18 NewsWires 26 LifeWires

34 AnnuityWires 40 HealthWires 55 Advertiser Index

54 Ask the Sales Doctor 56 Off-the-Wall Sales Stories

First-rate customer service More consumers ready to buy NOW Unique fraud-detection engine

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WELCOME | LETTER FROM THE EDITOR

What Really Lurks in the Murk?

BY STeven a. morelli, EDITOR-IN-CHIEF Who is the biggest and baddest of the monsters and villains that loom large in the collective imagination these days? Zombies? Vampires? Serial killers?

Congressmen?

Amateurs! We all know it’s The Tax Monster. The creature is blamed for the bad economy, for income inequity, for investing inaction and for diminished retirement. All those points are certainly arguable (vociferously!) but the last one is difficult to disagree with. Taxes erode retirement money and any other longterm savings for that matter.

That erosion happens with taxes at any rate, but clients are really anxious about future tax rates. That is what Contributing Editor Linda Koco found in researching this month’s feature Beware the Tax Monster. Makes sense considering the appetite driving the beast. That would be the staggering national debt, which is $15 trillion and climbing—if by climbing you mean being shot out of a cannon.

For a thrill, visit www.usdebtclock.org, but not right after lunch if you have a weak stomach.

We are aware that the Bush-era tax cuts are scheduled to expire at the end of the year. Maybe they will; maybe they won’t. We are aware the estate tax exemption is supposed to drop to $1 million from the current $5.12 million and the rate is supposed to jump to

55 percent, up from 35 percent. Again, maybe they will; maybe they won’t.

If we’re confused and uncertain, imagine what it’s like for clients. When advisors don’t know the answers, their clients get a little anxious. After all, how do you advise without the facts?

Linda found out that advisors should not worry about what might or might not happen. They need to know their clients want security. Yes, we don’t know what will happen with the estate tax, but we do know clients’ families will need to be taken care of when the clients die. We know they need a plan and liquidity to carry out that plan.

The tax uncertainty was a major part of the discussion with Robert A. Miller, President of the National Association of Insurance and Financial Advisors (NAIFA), for this month’s Perspectives.

Besides the anxiety clients have over taxes, the industry itself is having its own fitful sleep. The debt-crazed Tax Monster has shifted its eyes more than once toward the tax status so important to insurance products and the clients who rely on them.

NAIFA and others are lobbying to defend the tax exemption for the death benefit and inside cash build-up. Miller said that members confess deep concern about what’s going on in Washington, D.C., so much that they are worried

»

they won’t be able to stay in the insurance business.

Miller is a level-headed guy who has built a successful Wall Street insurance business against some steep odds.

He had many choices early in his career and could have bailed out of insurance and gone into the financial direction or practiced law. But he persevered.

He draws from that experience as he reminds members that they are always facing challenges, from Washington and everywhere else. That never changes but we change. We get better.

So, it gets back to taming the scary monster. Producers help clients grapple with their fears, be it taxes or whatever lurks in the dark corners of the future.

But producers have their own demons capable of distracting them from their goals. In those dark times, it is always helpful to remember the eternal secret of success: personal excellence exorcises any devil.

Steven A. Morelli Editor-in-Chief

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Timely issues that matter to you.

BY

Linda Koco

DIAs Mix It Up with SPIAs in Income Annuity Market

A

bout 5 percent of income annuities, listed on the database of CANNEX, are deferred income annuities (DIAs)—the new kids on the income annuity block. But they are getting known around the neighborhood.

These products, which the industry increasingly refers to as DIAs, allow buyers to defer income for several years after purchase, says Gary Baker, president of CANNEX USA. “DIAs are starting to trend now, and judging by the carriers who are calling and asking questions about the products, we expect to see at least five more carriers start offering DIAs in 2012,” says Baker, whose Springfield, Mass., firm is the U.S. division of CANNEX Financial Exchanges, Toronto. The firm gathers and compiles interest rates and calculation values on income annuities.

More than 60 U.S. insurance companies offer some form of income annuity, Baker estimates. “Twenty of them are on the CANNEX Exchange, and they represent about 70 percent of the U.S. income annuity market as measured by sales.”

Fully 95 percent of CANNEX-listed products are traditional single premium income annuities (SPIAs). Buyers deposit lump sums into these policies and begin taking monthly payouts (income) from them right away or within the first 12 or 13 months of purchase. SPIAs have been available for decades but only in the past year or so have they begun to attract enough sales to cause annuity watchers to pay them much heed.

The DIA Products The DIA products are the ones that carriers are starting to look at now, Baker says. “Most of the quotes we see on these are for DIAs that defer income for seven to 10 years.” The target market is a client 10

InsuranceNewsNet Magazine

February 2012

in the mid-50s to mid-60s.

Carriers that are interested in the contracts see them as income products that advisors and clients can use for “time segmentation or bucketing,” he says. That refers to setting up buckets of money that make payouts over varying durations, such as years one to five, six to 10 and 11 to 20 of the client’s income plan.

The fact that DIAs generate higher payouts than SPIAs—because their payouts don’t start for several years after purchase—also has appeal, he says.

Example: A 65-year-old man who deposits $100,000 into a DIA that defers lifetime income for 10 years and that includes a 10-year period certain guarantee for the beneficiary would pay out, on average, $1,040 a month after policy year 10. By comparison, if the same man takes out a lifetime SPIA with the same amount of money and a 10-year-certain option, he would receive, on average, $553 a month starting right after policy issue. (The numbers show average monthly income for the top five carriers in the CANNEX database.)

DIAs are very similar to so-called longevity annuities, Baker adds, except that the longevity purchase typically defers income for 20 or more years.

As product development continues in this area, the industry is starting to use the term DIA for the seven- to 10-year products and longevity insurance or longevity annuities for the 20-year-andup products, Baker notes.

Most DIAs are written so that once income payments start, they continue for the remainder of the annuitant’s lifetime. But DIAs do vary in design, depending on the carrier, Baker adds.

For example, some allow the income to start after the first policy year, while the rare few allow it to start after the first two policy years.

Income Annuity Features In general, income features in both SPIAs and DIAs fall into two broad categories, says Baker. These categories are guarantees and liquidity features. Carriers vary in which features they offer.

In the guarantee category, roughly 60 percent of products in the CANNEX Exchange database offer a guarantee period/period certain option, so that if death occurs within the stated period, the beneficiary will receive the income stream for the rest of the guarantee period. Twenty percent of the products offer a cash or installment refund.

Just 20 percent are life-only contracts that offer no guarantee period at all.

A lot of quotes go out with the 10-year period certain option included, Baker notes. “That option is popular because it removes the behavioral barrier to purchase—that is, the concern that if the person buys a product without that option and then dies soon after, the estate will get none of the money.”

The fact that the 10-year period certain option costs very little extra is a factor, too, he says. For example, a $100,000 SPIA purchased by a 65-yearold man above would pay roughly $574 a month if he buys a $100,000 life-only SPIA, but only $23 less ($553 a month) if the SPIA is a life with 10-year period certain products.

As for the liquidity features, these can be triggered after purchase, while the annuitant is still alive, says Baker. These features include return-of-premium, cash withdrawal (full, partial, or accelerated), and commutation.

The partial cash withdrawal feature started showing up in income contracts about three or four years ago, Baker recalls. They typically allow the owner to take out 12 months of payments in a single check one time during the life of the contract, though a few may allow

DIAs mix it up with spias in income annuity market | INFRONT

more than one time.

The average age of the SPIA buyer in the CANNEX database is 70, and the average single premium this year is $225,000.

“The distribution firms are telling me that clients are putting from 20 to 40 percent of their life savings at age 70 into these products,” Baker says. “They are using the income payments to help cover basic living expenses, and keeping the rest of their portfolios invested and their legacy plans in place.”

Issues with Income Annuities Income annuities do pose issues, however. For example, Gary S. Mettler, vice president and director of advanced sales at Presidential Life Insurance Co., cautions that when it comes to dealing with marital property claims, illiquidity is both the bane and the benefit of SPIA contracts.

“Not only are traditional SPIAs and newer DIAs illiquid as to cash surrender values or commuted values,” he writes

in, “Oh No! DIAs & SPIAs in Marital Property Estates,” a white paper released in December, “but the annuitants and contract features such as COLAs (cost of living adjustments) and rights of survivorship, period certain durations, payment amounts and dates can’t be altered after the contract issue date.”

How does all this shake out and how is marital interest determined for these contracts? The 12-page white paper addresses several aspects of the problem.

For instance, Mettler writes that “the timing of contributions, in this case paid premium, determines marital interest [existing case law varies by state]. If contributions are made during the marital period, they are marital property and earnings thereon are marital property. If contributions are made prior to the date of marriage or after the date the marital interest ends [this date varies by state] then, these are separate property and the interest thereon is separate property.”

Baker mentions a few issues, too. One

is how specific tax issues involving the IRS Code will be resolved. “These are currently being addressed in Washington,” he says. Another issue is how to resolve questions over how to keep the income annuity assets on brokerage, bank and advisor statements of assets under management (AUM). “We need a standard methodology that shows the values of any asset that has been annuitized.”

Of course, every emerging product has issues to be worked out and peculiarities to be understood. The CANNEX sales growth projection shows that producers and distributors are willing to learn more about DIAs. Our guess is, because DIAs help fill in the gaps in retirement planning, these products will be an even more popular resident in the income annuity neighborhood.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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February 2012

InsuranceNewsNet Magazine

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12

InsuranceNewsNet Magazine

February 2012

the science of sales | FEATURE

W

e’ve all experienced those perfect presentations, when everything went right and your product was a clear solution to your clients’ problem. But, for some reason, they just didn’t buy and you can’t point your finger at the reason why. You ask your client why and they may not know either, other than it just didn’t feel right.

Perhaps, the real reason resides deeper inside the body than you thought...

Last July, we spoke with Christophe Morin about his research into why consumers buy as well as how the human brain makes buying decisions and reacts to sales presentations. Since we received such positive reader feedback and won an editorial award to boot, we decided it was time to revisit the interview and delve deeper into what we felt was groundbreaking and yet still controversial for some of our readers.

In our previous interview, Morin explained that the majority of decisions are made from a small part of the brain

called the limbic system, which he commonly refers to as the “reptilian brain.”

This area of the brain is also responsible for many of the survival skills that we are born with and is the heart of where buying decisions are made or lost.

This science, called neuromarketing, is now being used by advertisers, marketers and direct sales companies across the globe to understand what drives and influences consumer buying decisions.

That’s where Christophe Morin lives.

His research and training has helped thousands upon thousands of people, from CEOs to salespeople, understand how to more deeply bond with prospects and clients.

In this interview with InsuranceNewsNet Publisher Paul Feldman, Morin says it is not enough to just engage the “reptilian brain,” you have to stir emotion to trigger the chemicals that lead people to take action.

FELDMAN: In your latest work and research, you say that most people are

selling the wrong way. What should salespeople be doing?

MORIN: Resist the temptation to explain before you actually sell. A lot of the classical school in selling would still say you have to allow your customers to think about your value proposition. And they need information in order to do that.

We’re turning this model upside down because evidence from the scientific community shows that we are wired to engage at the higher level of our brain, the cortex—but only if we are excited at the reptilian level.

Therefore, you have to seduce and sell before you explain. We’ve all met people who, within literally seconds, give us that excitement, confidence and response that really motivates us to seek more information and details about how we can do business with them.

FELDMAN: Is there a particular style of communicating with the reptilian brain?

February 2012

InsuranceNewsNet Magazine

13

FEATURE | the science of sales MORIN: Seductive with speed and simplicity. We are wired to not engage the cortex before the reptilian brain. We want to understand the same way that kids understand. We want to understand with the minimum amount of time and complexity. The problem, with most people who sell insurance or financial services, is that they are putting huge cognitive loads on our brain and they’re not even ashamed of it.

What’s hard in sales is creating simplicity. And very few people are willing to work hard to create a simple message.

We talk about the importance of timing your event so that you have a very strong beginning and end.

FELDMAN: How important are the visual and emotional components of a sales presentation?

MORIN: Those two elements are critical to a successful sales experience. With the power of delivering visually—it’s your body language, your ability to approach people without fear, to smile, to control your voice so that you can produce what we call “chi.” It’s your energy through the entire way you’re articulating the message that goes beyond the message.

Some studies have shown that when you meet someone, 55 percent of the effectiveness of influence is through body language—your body movement and ability to make eye contact. Then, 38 percent is your voice and 7 percent is what you say. The best sales people are masters of the way they move, the way they approach you and the way they advance with you—actually mirroring your body language. It’s the way they talk to you that exudes confidence, sincerity and honesty.

Then there is the emotional piece. We are creatures that are fundamentally and biologically wired to activate chemicals in order to move physically and intellectually. When you look at the history of how our brains evolved, consider that we were initially way more preoccupied by physical movement than we were by ideas or the generation of thoughts. Yet the chemicals involved in both are the same.

I heard someone say that the only reason we have a brain is because we need to move physically. And that’s quite a 14

InsuranceNewsNet Magazine

February 2012

“If you can’t be happy and excited, you’re in the wrong job because selling is creating happiness.” statement. It resonated with me because, in many ways, I’m encouraging people in sales to allow prospects to move physically toward them. If they do, that means they’ve created essentially the chemical messages that are activating the decision-making process as well. And we all know that when we like people, we just want to be closer to them. Well, the same is true in sales. And understanding this idea that you need to trigger movement toward you, it’s very different than conventional thinking.

FELDMAN: How is that contrary to conventional thinking?

MORIN: In many ways we have lost this very basic understanding that we are moving beings. Even the word “move” is probably my favorite word in the English language. It has a double entendre—we can move physically; we can move emotionally. The chemicals that make us move physically are essentially the same that make us move emotionally. Therefore, when you create an emotion by this excitement—whether it’s anticipation, love, laughter, you name it—those states have a chemical expression that makes us move physically and cognitively.

FELDMAN: You mentioned laughter, is this why some people like to tell a joke to break the ice and engage people?

MORIN: Yes, laughter will make people move. It’s almost impossible to laugh and not move. There have been many, many studies looking at what’s called “approach behaviors.” We don’t realize that all of our rituals, whether it’s handshaking or hugging, are actually a cognitive engagement.

FELDMAN: If I’m a sales person and I have somebody sitting in front of me, what should I be doing to get movement toward me?

MORIN: If you are invited to sit down, you

should find an opportunity to actually occupy space and demonstrate by your own movement that you have so much passion, enthusiasm and energy that you can’t stand still. Now, you don’t want to display agitation, nervousness or look like you can’t stay comfortable. But, if you are able to command the occupation of the space, you’re sending a very powerful message in terms of your energy, your chi, your enthusiasm and fearlessness.

That energy is very attractive to people who want to trust you and therefore you create a pull. It’s a magnet for people to say, “Wow, I want to know more.”

But sometimes you’re restricted in your ability to do that. When you can’t stand out because you don’t have the space, we recommend moving very slightly toward people at critical moments— when you’re leaning toward them, you’re essentially indicating that you are fearless, passionate and that your ability to approach others is because you want to help and serve them.

This only works if you are acting out of integrity and with the highest moral and ethical standards. The good news is, most of the time, when we see people not acting upon good standards, we can detect it. We detect it in their eye movements.

We detect it in the way they behave and how incongruent some of those behaviors can be.

FELDMAN: Can you explain the connection between emotion and a chemical reaction?

MORIN: The truly fascinating thing about emotion, figured out over the past 10 years, is that we need emotional cocktails.

We need those chemicals to be active so that our neurons are firing in a particular direction. And when they do, they end up wiring together. What’s been discovered is that we use emotional moments as memory markers. So if you’re pitching to me, not only am I going to have trouble with too much information, but on

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is President and CEO of The Ohlson Group, Inc. and President of Safe Money Places International, LLC. 877.844.0900 | www.ohlsongroup.com | info@ohlsongroup.com

...a different experience

February 2012

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FEATURE | the science of sales top of that, I’m wired to forget more than I’m wired to remember. We protect ourselves from remembering a lot because it’s costly to our brain.

Another discovery made was that emotional responses provide signals of importance. I’m sure if you scan your own life for those moments you remember the most, invariably you will find that they were moments of high emotional intensity—some positive, some negative. So getting to that emotional cocktail is critical to imprint the moment, to the importance of making a decision and to the importance of acting now in people’s brains.

FELDMAN: So, to imprint your message, you would suggest taking people back through other emotions or history to create new associations?

MORIN: Yes. Sales mastery happens when people know what emotions are relevant.

You have to be very careful. Playing with emotion is a dangerous game. Some people appeal to fear when they should be appealing to empathy or anticipation.

If you are acting on the wrong emotions, you can be perceived as a manipulator. So it has to come from what you know or what your mission is. What is it that you’re trying to really do to help and support others? The best sales people are those who just know, even if it’s intuitive, what emotions are appropriate and relevant.

FELDMAN: How do you know which emotion is appropriate?

MORIN: By diagnosing their pain; if you can identify with me in the most honest and truthful way, you can touch frustrations and fears that are valid. For example, maybe I’m not breathing as well as I should be at night. So if you’re able to touch this level of pain and present a solution that is credible, then how can I not be engaged? How can I not listen to a message that is meant to be liberating?

By definition, our brain is risk-avoidant.

We want to pay more attention to potential threats because they can be costly to our existence. We are wired and attracted to those messages that hold a promise of 16

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reducing risk or eliminating pain and frustration.

FELDMAN: You use the “wheel of emotion” in your training. Can you explain that?

MORIN: We have about 16,000 emotions, which translate to about 16,000 words describing emotional states. A lot of our existence is to sort out how we feel. Do we feel anger?

Do we feel sadness?

Researchers have identified a number of core emotions. In our wheel of emotion, we present eight universal ones. Four and a half are basically negative: fear, sadness, surprise, disgust and anger. And three and a half are positive. Surprise is a half because it can be negative and positive. You also have joy, trust and anticipation, which is the most powerful positive emotion.

Anticipation is an expectation that you will be rewarded. It’s a pleasure that you’ve been looking forward to, such as a vacation. It’s also the possibility of stopping a pain or a frustration that you’ve been experiencing. Anticipation is connected directly to our level of dopamine.

So dopamine will rise if you create an emotional cocktail around anticipation.

Antonio Damasio is the world’s most famous neuroscientist. He said, “We are not thinking machines that feel. We are feeling machines that think.” Beautiful, beautiful statement. You’re not going to be able to move anybody anywhere without emotions.

FELDMAN: How about fear? It can move people away from you, but it can also move them toward you.

MORIN: That’s right. Be very, very careful to trigger or play with anger because it can be negative—but it can also be productive. You could argue that the movement in Egypt and other movements toward democracy come from that state of anger and transformed into something positive. But anger can

follow the absolute opposite way in violence and destruction. That is a very potent, powerful emotion that has been behind the best and the worst of human existence.

So, for instance, most people are angry at big banks. If you’re a small bank, it might be quite smart to leverage that emotion to attract people toward a smaller bank.

FELDMAN: One of the primary reasons people buy insurance is to protect loss, which is fear. Is it possible to not invoke fear during the sales process?

MORIN: Fear can be problematic, but it is the most powerful emotion of all.

If you put people into an MRI and you present pictures of different people who are smiling or neutral or showing fear, our gauge will instantly go to people who have fear. In fact, our gauge goes to the white space in people’s eyes. Predators, by the way, don’t have white space because they don’t want you to see where their eyes are going. So we are biologically programmed to ignore happy and neutral and to focus on fear.

There are certainly problems to the degree that they’re producing chemical responses. It could be stressful. But it’s a huge motivator.

So, how can you sell insurance without invoking fear? I’ve helped and consulted insurance companies and usually

the science of sales | FEATURE the best do that one way or another. And it can be done with integrity. It can be done without manipulation or deception. The possibility that your house will burn is real. The possibility that you will die before you have left enough money for your family exists. So, how can you really sell insurance—to cover the possibility that your house will disappear or that you will disappear—without mentioning that it might?

FELDMAN: People know that death is inevitable, yet they are in denial that it will actually happen to them. That is obviously a challenge when selling life insurance. How do you overcome that?

MORIN: Stories are one of the best ways we can relate to a message because stories typically are not supposed to sell. They’re just a narrative around something that is relevant to your situation.

So you’re telling me the story or showing me a short video of a gentleman who never thought that any wrong could happen to his belongings and what have you.

And it did happen. Then there are the consequences. You can see his sadness and his anger. You can see a message that doesn’t really need to be decoded other than emotionally. So rather than trying to access my logic in selling insurance, just give me the opportunity to relate to a story.

FELDMAN: What are some strategies you recommend to help salespeople put themselves and their prospects at ease?

MORIN: We would, at a minimum, really allow people to relax and smile more naturally and teach them the importance of producing facial expressions that are inviting. Some people are a bit too serious. Just to relax and feel centered might create a very different visual expression.

So it’s not so much as making a fixed smile as it is just to relax, feel happy.

Nobody is going to be effective in sales if you’re sad and stressed. That also means that if you’re in a bad mood or you just had a bad experience, don’t choose that moment to make your most important sales call.

Learn to pitch when you feel good

about yourself. And frankly, if you feel lousy, you’re probably never going to be a good sales person. And so you have got to confront people sometimes and tell them, “Look, if you can’t be happy and excited, you’re in the wrong job because selling is creating happiness.” If you can’t be excited and happy with what you do, it’s never going to come across as something that people need to do now.

FELDMAN: You advocate the use of “props” in sales situations. What would be a prop in insurance sales? Would it be an illustration?

MORIN: No, props are three-dimensional objects. It’s really important because we are attracted to real and concrete objects more than anything else. So in selling insurance, you could bring cash. If you’re talking about saving $10,000, you can bring $10,000. You may laugh or smile, but some of our clients have done this.

FELDMAN: Actually, there was a very famous salesman, Ben Feldman, who did that. There was the anecdote that he and security guards would bring a million dollars to the prospect’s office. Then he would put pennies on of top of it and say these pennies buy these million dollars.

MORIN: Well, brilliant. And that’s on the side of anticipation. If you look at the wheel of emotion, you can have props that fit every single one of those emotions. We coach our clients to be very careful, considerate and authentic in choosing and using a prop.

FELDMAN: We have a problem of what I would call a reverse prop. And that’s the paperwork and compliance. All of these things are scary to clients. What’s a way of easily putting them at ease? How do we get them into a comfort zone?

MORIN: By the time you do the paperwork, you’ve already made up your mind.

So I think you want to focus on the pain of not doing the paperwork. It may be more effective to show that there is a need to protect in the terms of the contract, to protect the clients and protect the insurance company so that it doesn’t go out of

business. You don’t want a contract with an insurance company that will not have the funds and resources by the time you have a claim. Also, create metaphors and visuals instead of just text, text, text.

At the level of the reptilian, the complexity and how tedious and cognitively costly all this stuff is can revert to not wanting to engage. So the challenge for insurance companies, which I’m sure they’re aware of and yet I don’t see any evidence that they’re doing anything about it, is to make it much more approachable, more visual and less suspicious in the way they draft, explain, and articulate the terms of the contract.

It is up to the salesperson to do that. It takes discipline and practice to be effective. Some people are just sort of naturalborn reptilian sales people. But many are not. And in order to be better, they really do need to practice. They need to do the homework in creating a simple message and making it more visual. If you use props to accelerate understanding, learn to use the props so that you’re not making a fool out of yourself.

All of this is no different than practicing a sport. You don’t become good at a sport without practice. Practice is a mechanism in our brain that makes everything we do move from the cortex to the reptilian structure. When you teach your kids to ride a bike, it’s very hard because they have to calculate everything. Therefore, they’re using their cortex. But after a lot of practice, they don’t even have to think about it.

When we drive, we’re not thinking much about what it takes to drive because it is in an autopilot format in the cerebellum, which is that little brain right behind the brain stem. It’s where we store pilots.

And the more you practice, the less you have to think about what you do and you’ll just do it. » Check out our past interview with Christophe Morin at bit.ly/innmorin Plus: Read more about the science of neuromarketing at www.SalesBrain.com February 2012

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27.7%

More Adult ‘Kids’ Have Health Insurance

24.7%

[ NEWS WIRES]

That’s the word from the Employee Benefit Research Institute (EBRI). The nonpartisan Washington-based research organization says it checked out federal data to see what the Affordable Care Act’s mandate to offer coverage to adult children ages 19–25 has done so far.

The mandate officially went into effect in September 2010. Many employers, however, started their plan years in January 2010 and so many insurers Adult Children with Health Insurance Coverage adapted their employer plans to reflect the mandate then, EBRI says.

It looks as if consumers took advantage of the expansion. For instance, 27.7 percent in this age group had employment-based coverage as a dependent in 2010, up from 24.7 percent in 2009, according to Current Population Survey as reported by EBRI. In addition, roughly 27.1 percent in this demographic had dependent coverage from October-November 2010, up from an average of 26.9 percent in January-September 2010, according to Survey of Income and Program Participation data reported by EBRI. The upward trend continued into the first half of 2011, too, EBRI reports, citing data from a National Health Interview Survey.

The jury is still out on how these shifts are impacting sales at individual insurance broker firms. One thing is for sure, though: The expansion is giving new meaning to the term “family coverage” at the worksite.

2009

SAME-SEX ADVISORS PREFERRED

In the world of financial advice, gender dynamics take on a birds-of-a-feather overtone.

According to The American College, approximately 61 percent of female small business owners prefer to speak to a female financial advisor, and 75 percent of men prefer to speak to male financial advisors. By extension, then, if an agency wants to break into the growing female market—or wants to take all comers, male or female — agency managers might want to consider bringing some female advisors on board.

But there’s a rub in that, and The American College caught it. Bureau of Labor Statistics data show that only 30.8 percent of women were personal financial advisors in 2010. Meanwhile, a 2008-2009 study by the college’s State 18

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February 2012

2010

Farm Center for Women’s Business Research says that 10.1 million businesses are owned by women, and that one in five businesses earning more than $1 million in revenue are owned by women.

What to do? “The financial services industry needs to do a better job of recruiting, training and retaining women as financial advisors if it is going to successfully meet the demand of female small business owners,” says Mary Quist-Newins, director of the college’s Center for Women and Financial Services.

FINANCIAL ADVICE SITS ON THE BACK BURNER

Despite pressures in the economy and in personal situations, Americans aren’t banging down the doors of their local financial advisors.

One survey, from Allianz Life of North America, found that 31 percent of 1,000 Americans said they will be “less likely” to look for help with financial planning in 2012. Another survey of more than 1,000 Americans, this one from New York Life, found that only 14 percent plan to seek professional help with managing their finances in 2012.

“It’s troubling to see that despite all of 2011’s economic volatility, Americans are placing less emphasis on addressing their financial security,” comments Katie Libbe, vice president of Consumer Insights at Allianz. New York Life Executive Vice President Mark Pfaff, has found an encouraging note in that those most likely to say that they will seek a financial professional’s help include parents, college graduates and those ages 30–44, but he also hopes more Americans will think about engaging a professional. “While many believe they can go this alone, or hide their heads in the sand, the continued economic uncertainties that persist today would be better managed with professional assistance,” he says. Yes, but how to get buyin on this? That’s the question.

TWO VIEWS ON THE PRODUCT COMPACT

In December, a few speakers at the first public session of the Federal Insurance Office took jabs at the Interstate Insurance Product Regulation Commission (IIPRC) for not performing as contemplated when it started up in 2006 as a speed-to-market initiative. Complaints included that some states still are not members of the centralized product filing authority, and that the 40 states that

“ QUOTABLE

“As fewer financial advisors offer insurance as a part of their practice and traditional life insurance producers grow older and retire, insurers will need to find innovative ways to attract college grads and young workers into the industry.”

— A key prediction for 2012 in the annual insurance industry forecast published by LOMA

DID YOU

KNOW

?

Twenty-eight percent of 29 business and human resources leaders say they have implemented compensation clawback provisions.

[ NEWS WIRES]

SOURCE: The 2011 Asset & Wealth Management Compensation Pulse Survey of Russell Reynolds Associates

do participate do not represent all of the country’s premium volume.

But a few weeks later, Milliman put out a new report on the IIPRC, quoting IIPRC Executive Director Karen Z. Schutter as saying the Compact has had “momentous growth” in the number of compacting states, uniform standards and filing companies. The Milliman report points out that more than 130 companies are registered with the Compact, an increase of 58 companies from Milliman’s 2009 report. So maybe the Compact is not a shooting star, but it doesn’t seem to be a deflated balloon either.

INSURANCE JOBS UP FOR AGENTS

In November, employment in the insurance agents/brokers sector was up —by 643,200 jobs or 0.4 percent.

Employment in the life insurance sector was up, too, by 374,000 jobs or 0.3 percent. That is according to adjusted November figures out from the U.S. Bureau of Labor Statistics as reported

by A.M. Best.

The percentages may seem small, but the actual jobs numbers could be bellwethers, especially when viewed against what else went on that month.

In November, according to the Best report, the adjusted figures show that the insurance industry’s total employment was down by 100 jobs, so the trend line was essentially flat.

But there were some notable declines in that same month—the health insurance sector down by 420,700 jobs (-0.8 percent); the property/casualty sectors down by 452,300 jobs (-2 percent); the title insurance sector down by 64,900 jobs (-4.1 percent); and the TPA sector down by 127,200 jobs (-1.1 percent).

What about December employment?

BLS numbers show the insurance industry added 3,300 jobs in December, Best says. That’s not a tsunami but it’s a little swell—one worth watching.

BIG CORPORATE PENSIONS SUFFERED IN 2011

The deficit for 100 of the largest corporate pensions has reached a record

All Aboard!

This Is Not A Gravy Train Although some parents are definitely adding their young-adult children, ages 19 to 25, to their group health plans at work, as per the EBRI report on the left, parental wallets aren’t necessarily an unlimited gravy train.

Consider this: although 90 percent of more than 2,100 Americans, ages 21 to 65, agreed that parents should help with college tuition and financial emergencies not of the child’s doing, they stop short at the idea of paying 100 percent of tuition if the cost is particularly high as well as bailing kids out of debt caused by overspending.

Those numbers are from an online survey conducted by MetLife Mature Market Institute. In general, Americans believe parents’ financial responsibility to their children ends when the children finish college, the researchers found. And if the kids don’t attend college, Americans think the kids should get a job. “Americans have a strong desire to help their families financially, but their generosity is not unbounded,” comments Institute Director Sandra Timmermann.

Those could be good talking points for agents to bring up with clients who have children or with clients who are themselves young adults. While the agents are at it, they could note one more point, too—namely, that 70 percent of boomers whom MetLife surveyed said that enjoying retirement takes precedence over leaving an inheritance. That should perk up their ears. $464 billion, according to Milliman. In December, the Seattle firm says, these pensions epitomized the poor performance of 2011, experiencing a $59.7 billion decrease in pension funded status.

The year-end funded ratio was only 72.4 percent, the firm notes. But, there is a brighter side to the bad news: The 2011 funded ratio “could not eclipse the record of 70.5 percent set in May 2003,” the consulting firm says.

ADVISORS LESS IMPRESSED WITH SOCIAL MEDIA

Advisors are seeing “limited or diminished returns” from social media, according to an Aite Group survey of 204 U.S. financial advisors.

In 2011, for example, only 19 percent of surveyed advisors said they use social media to reach new prospects, down from 36 percent in the Boston firm’s 2009 survey of 142 advisors.

In addition, in 2011, only 9 percent said they use social media to differentiate their practice from competitors’ practices,

down from 21 percent in 2009; and just 6 percent said they have seen an increase in revenue or fees from using social media, down from 16 percent in 2009.

“It’s hard to criticize advisors for aggressively going after new clients, but many seem unwilling to admit that social media may be better suited to communicating with existing clients than to finding and acquiring new ones,” comments Aite Senior Analyst Ron Shevlin. Good point.

Of course, if existing clients don’t use social media, then communicating with those clients that way won’t have much impact either.

GEN-Y HEADING HIGHER

Forty-one percent of the Gen-Y age group (18-29) rated their overall level of financial security positively in December 2011, up 20 points from October, according to the COUNTRY Financial Security Index. In addition, 40 percent of Gen-Yers said they expect 2012 to be better for them financially than 2011.

Maybe they know something?

February 2012

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T

B Y L I N D A KO C O

ax planning can be downright scary for insurance and financial services clients. Tax-monster scary. That’s because people are afraid that the federal government is going to raise taxes as part of its efforts to reduce the massive $14.9 trillion national debt. In fact, 45 percent of nearly 1,700 Americans polled by Principal Financial a few months ago named “increased taxes” as one of their top five concerns for 2012.

This would appear to be an ideal opportunity for insurance and financial advisors to help clients better position themselves to deal with concerns—and fears. It’s an opportunity for advisors who are up to speed on tax-advantaged products and strategies, and how they fit into a client’s needs.

The problem is, not all advisors have tax solutions at their fingertips. Many have been spending a lot of effort over the past few years on helping clients recover from recession-related losses—of jobs, homes, investments, etc.—so tax planning moved to the back seat.

Now, however, it may be time to change the focus. Several experts have offered ideas on what this might entail.

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Beware the tax monster | FEATURE

The Monster is Fear The tax monster is not some ghastly green blob that stalks people from closets or under beds. Rather, it is fear— i.e., fear that tax increases are coming, and that they will rob people of financial security in insidious, if not devastating, ways.

Clients are now openly talking about this, says Dean Vagnozzi, principal of abetterfinancialplan.com. The comments come right along with anger over stock market losses that clients have suffered and worry that they may suffer such losses yet again.

Virtually all of his clients believe that income taxes will go up.

Some worry about capital gains tax increases, too. (Note: in 2012, capital gains will be taxed at a maximum rate of 15 percent for assets held longer than one year. After 2012, the top rate is scheduled to go to 20 percent, but Congress could always change that.)

The roots of the tax increase fear include not only the $14.9 trillion national debt, Vagnozzi notes, but also the impact of health care reform, the instability in the global economy, and many other economic shifts and trends.

The non-stop dickering in Congress is stirring the pot, too. Whether it’s debate about income tax increases, or reductions in the federal estate tax exemption amount, or the 3.8 percent investment income surtax in the health care bill, or the continuation of the Bush payroll tax cuts, “people are losing confidence,” says David Foster, an advanced sales attorney at Ash Brokerage.

The California Society of CPAs says 67 different tax benefits were set to expire by year-end 2011. That’s an “extraordinary” number, says the group, which puts the cumulative lost tax benefits to consumers from those expirations at roughly $30 billion.

But since some of the tax benefit expirations were still under the Congressional microscope in late December, uncertainty ruled the day as 2011 came to a close. In Foster’s view, “Everything is coming and going, and no one has any confidence about where it’s going to go.”

Seize the Opportunity

fears have been another trigger. “If peoVagnozzi takes that uncertainty as a rea- ple do make gains in the market, they son to be optimistic. “The opportunity are seeing that they have to pay taxes for insurance advisors to assist people on those gains, and if taxes go up, they with tax planning using life insurance is will have to pay even more in taxes on now,” he says. “If you don’t seize it, you the gain.” will miss out.”

By comparison, he says, the income He is convinced of this because he tax-free death benefits in life insursays clients are now open to discussing ance, the tax-deferred accumulation, life insurance and tax planning in ways the tax-free policy loans (and withthat they were not only a few years ago.

Before the last recession, he recalls, people routinely rejected the idea of using life insurance, which he had been recommending for tax-planning and asset-management strategies. “They would complain about the fees and cost of insurance charges or the Source: A 12-minute online survey of nearly 200 financial limited upside potential. professionals, November 2011. The survey was commissioned by Insured Retirement Institute and conducted by Cogent Research.

They would tell me they could do better in the stock market.”

But now, clients are calling him back. drawals, if structured properly), and “They say things like, ‘I didn’t put as the guarantee that they won’t lose much money into life insurance as I money all look very attractive. “I don’t wanted to but now I want to.’ Or, ‘I didn’t have to convince them” to talk about buy that life insurance we discussed life insurance, he says. They want what before but, well, when can we discuss it?” life insurance offers.

Massive losses in the stock market triggered some of these calls, Vagnozzi allows. “They are noticing that the fees and COI charges in life policies pale in comparison to what they lost in the market.” But tax

TAX FACTOID: Eighty percent of financial professionals think taxes should not be raised, either in general or among the top 2 percent of earners.

FEATURE | Beware the tax monster

Consider Some Strategies Since each client’s situation is unique, addressing the tax monster is not a mere matter of saying, “Here’s a life policy. It’s all you need.” Advisors who are refreshing their tax-planning strategies will need to be ready to talk about taxes in various ways, in view of the current climate. Here are five ideas to consider: 1. Life Insurance Trusts. David Malkin, president and CEO of NJL&C, has been talking with wealthy clients about the value of using life insurance trusts,

generations will remember the name of the person who arranged for that income.

As for tax benefits, he points out that the client pulls money out of the estate and puts it in the trust, thus removing the money from estate taxes. In addition, “the gifts are tax-free to the recipient (unless the trust earns income that is not distributed, in which case the money is taxable to the trust).”

If taxes will be going up, this can be an important consideration, he says, because “everything grows tax deferred.”

Upon the death of the grandparents, he cautions, the trustees do have to invest the money wisely so it will continue to grow and also to minimize taxation. The investments might include tax-free bonds, in years when bonds are doing well, for i n st a nce, or rea l estate or stock portfolios. The point is, he says, “that trust planning involves ‘tax thinking’ all the way through.”

2. Back to Basics. What advisors need to do is not adopt a tax strategy for a rising tax environment so much as adopt a back-to-basics approach to planning, says Foster of Pennsylvania. Aggressive tax strategies may not work for typical clients of most insurance agents, he explains. His reason: the typical agency client tends to have a net worth range of $1 million to $3 million, not enough to require the intensive tax analysis and structures needed by the super-wealthy. In addition, if tax strategies are aggressive, they can raise questions that can flag an IRS audit down the road, he cautions.

3. High-Net-Worth Approach. Foster recommends looking carefully at the client’s net worth. Tax issues could be important for clients with discretionary funds in the $3 million to $5 million or

FINANCIAL STRESS: Nineteen percent of 2,000 American adults say they are coming up short on monthly income, while 39 percent say they are just getting by.

Just 40 percent say they are making enough to save.

Source: The Citibank Economic Pulse survey conducted in mid-November 2011 by Hart Research Associates.

especially dynasty trusts. The clients tend to be still-healthy grandparents in their 60s and early 70s, who have $5 million or more, but some have had smaller potential estates.

He nudges them to put some of their money into a trust that then purchases a second-to-die life policy, typically for $1 million but sometimes more. Often, those named as heirs are grandchildren, great grandchildren and even generations yet to be born.

“People love it,” he says, because it creates a huge legacy that enables elders to ensure that their heirs, throughout the generations, will receive annual gifts. “They like the fact that the heirs will receive an annual check from their deceased grandparents or great grandparents,” Malkin says, adding that the likelihood is high that the future 22

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February 2012

more range, he says. These clients tend to be most concerned about the economy (“will my business stay afloat in these hard times?”) and secondarily about tax increases (“will taxes go up?”).

In such cases, he suggests presenting life insurance as an asset class. In this scenario, the advisor would recommend moving a portion of the discretionary funds into a cash value life policy, while the remainder stays in stocks, mutual funds or other vehicles. An indexed life policy would be good in these situations, he says, “because these policies generate decent returns that grow tax deferred.”

What the advisor should not do is present the policy as a death benefit sale, Foster contends. These clients are not focusing on that, he says.

The life insurance industry “hates” the idea of presenting life insurance as an investment (because it is insurance), Foster allows. “But if the advisor presents the life insurance purchase as a way to reposition and reallocate existing assets into another asset class, that is planning, not an investment strategy.” What’s more, these clients like to do planning.

Very high-net worth people, especially those with $20 million and up, will be interested, he predicts, because at that asset level, estate taxes are very important. But he thinks people with more modest discretionary funds, such as a professional earning $500,000 a year, may not be interested, due to uncertainty over their future cash flow or to a desire to avoid using products with surrender charges.

4. Mid-Market Approach. Vagnozzi of Pennsylvania says he is finding people in the mid-market who are increasingly interested in tax solutions along with safe-money solutions. In fact, he says he has been selling life insurance to Generation-X people who gradually roll money out of their individual retirement accounts (IRAs) and into life policies.

IRAs do provide tax-deferral, and GenXers know that. However, he says, after suffering stock market losses in their accounts due to the recession and the ensuing volatility, many Gen-Xers tell him they consider it “ludicrous” to lock

Do MEDICAL

2012: DOOM OR BOOM? | FEATURE

their money up in IRA products for 25 more years or until they retire. Instead, Vagnozzi says, they want to use products with liquidity as well as tax efficiency, and they want their money to be in a safe place that will not decline in value.

Furthermore, when they learn that IRA assets are includable in their estates and that beneficiaries will be taxed on the proceeds at ordinary income tax rates, Gen-Xers start viewing the estatetax free aspect of life insurance proceeds as very appealing, he says.

What’s the solution? Vagnozzi recommends that these clients roll money out of the 401(k) in chunks over four to five years. For example, a 35-year-old client had $200,000 in an IRA that, at its highest value, had been $270,000. Rather than suffer any more losses in that account, the man started pulling out $40,000 a year, Vagnozzi says. The client pays the income taxes due on the withdrawn amount and also the 10 percent early withdrawal penalty. Then, with the remainder, he buys an indexed universal life policy. The plan is for the client to do the same thing in each subsequent year until the IRA is depleted and all the posttax money is in life insurance.

“This way, the government gets its tax money, the man’s family is protected by life insurance, the money is liquid (access via tax free policy loans), the principal is protected and there is upside potential,” Vagnozzi says.

Some people do want their IRA money to stay in the IRA and keep working for them tax-deferred until retirement when they think they will be in a lower tax bracket, Vagnozzi allows. “This solution is not for those clients. It is not a onesize-fits-all solution.”

This is a solution for the person who doesn’t want to leave their money in an IRA where they suffered big losses but who does want the benefits of life insurance, he continues. “For them, it’s an easy pill to swallow. And now is a perfect time to discuss it.”

As for the expectation of being in a lower tax bracket during retirement, that expectation may not come to fruition, he cautions. “If the tax monster makes taxes go up, you might not be in a lower

IMPAIRMENTS

for Life Insurance Make Your Head Spin?

Breast Cancer with Negative Receptors Regurgitation of the Tricuspid Valve

Lacunar Strokes

EBCT Score in the 95th Percentile

NT-proBNP of 400 Hypertrophic Cardiomyopathy

Sleep Apnea with Bi-Pap

Stress Imaging Study with Apical Defects

Bicuspid Aortic Valve Positive CDT Remitting Relapsing MS

Hepatitis C with Bridging Fibrosis Enlarged Aortic Root

Elevated GGT, SGOT and SGPT

Lowered Ejection Fraction

Episodes of DVT

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NOTE: All conditions, scenarios, and medical impairments may not be considered insurable by the insurance companies.

February Magazine Only the insurance company can accept or deny an application after 2012 a formalInsuranceNewsNet underwriting process.

Informal 23 inquiries and trial applications do not guarantee coverage or rate classes. FOR AGENT USE ONLY • NOT FOR CONSUMER DISTRIBUTION

FEATURE | Beware the tax monster

Focus on Income, Not Taxes If you believe that future income tax rates will be higher than current marginal rates, then suggesting that clients use a tax strategy based on tax deferral in annuities will be “problematic,” predicts John Olsen, principal of Olsen Financial Group, St. Louis, Mo. That’s because growth in a non-qualified annuity is taxed as ordinary income when the owner takes the money out. If income tax rates have gone up during the annuity’s accumulation years, a client could wind up in a higher tax bracket than originally projected and therefore could end up paying more taxes on withdrawals than planned in the original tax strategy.

In general, Olsen says, annuities are a “terrible” device to use to pass wealth on to the next generation on a tax-efficient basis. For instance, the products are subject to federal estate taxes (on amounts over the federal estate tax exemption amount, which is scheduled to drop to $1 million in 2013 but which Congress may decide to handle differently). In addition, there are income-in-respect-of-the-decedent considerations to factor in.

He urges advisors not to base an annuity recommendation on tax considerations, because there are so many variables in what could happen with taxation and different kinds of taxes. “You have to guess.”

Instead, Olsen suggests looking at the purpose the client is buying a product. “What is the job the darn thing is supposed to do? If it’s to produce a guaranteed income, consider an annuity. If the person is not trying to do that, why buy an annuity? Annuities are all about income. If the person doesn’t need income, it might not be the product to offer.”

tax bracket, particularly if you were successful in the working years and retire with a lot of money lying around.”

5. Behavioral Issues. Having an understanding of buyer behavioral tendencies can help advisors work with a client who is concerned about all the tax uncertainty or that taxes will go up, explains Victor Ricciardi, assistant professor of financial management at Goucher College.

Not knowing what will happen with taxes or the economy affects buyer behavior and decision making, Ricciardi says. “That is a major issue for advisors, because the uncertainty leads to a ‘status quo bias’ that causes inertia and paralysis in decision-making. As a result, many customers won’t do anything.”

However, the professor predicts that this should resolve after the November elections, “assuming that we get longterm tax treatment from Congress, not another temporary measure.” But if Congress doesn’t resolve the uncertainty, 24

InsuranceNewsNet Magazine

February 2012

chances are that the markets will resolve it themselves and that major inflation and other problems could result.

Ricciardi thinks it’s better for everyone if Congress passes a permanent tax agreement, because then people can plan. Later on, new administrations can come in and make changes, as needed.

His advice to advisors is to consider offering clients not only traditional products and strategies, but also alternatives. And if a customer has money searching for a retirement savings home right now, perhaps suggest dividing it into chunks and investing it gradually over the next year or two in tax-qualified retirement accounts, not all at once. “Also think about using a combination of accounts—Roth IRAs, traditional IRAs, 401(k) s, etc.—plus tax planning.”

Many consumers today are “anchoring,” he points out. That means they are setting a reference point or focus based on what happened in the past, whether

it was a positive or negative experience or a bull or bear market. When that happens, behaviorists find that people let their anchors guide their decisionmaking in the present. But since no one really knows what will happen with taxes in the future, that anchoring tendency could lead to some bad tax decisions, Ricciardi cautions. Advisors will need to guide clients to make their decisions with that awareness in mind.

In general, the message from the experts boils down to this: “No one knows for sure what will happen with taxes, but it does seem likely that some taxes will go up. So, let’s plan with what we know now and the products and strategies we have now. But let’s stay diversified and also keep our options open.”

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@innfeedback.com.

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[ LIFEWIRES] Bank Life Sales Try To Grow Again Bank life insurance sales have taken a Quarterly Bank Life Sale —Total New Premium ($ in millions) dip over the past few quarters. They were recovering a little bit in 2011— 482 513 425 with 3Q up nearly 5 percent over 2Q— 417 363 381 347 363 and 2Q up nearly 11 percent over 1Q. 328 313 But at $363 million in premium, 3Q 202 229 225 180 190 sales were 30 percent below the record of $513 million set in 3Q 2010, according to the Kehrer-LIMRA Life Report. 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q That is a sobering number, but not 2008 2009 2010 2011 entirely unexpected, according to Kehrer-LIMRA. A year ago, the researchers explain, a few life insurers made changes that “torpedoed” bank life sales in subsequent quarters. Those changes included Allstate’s decision to drop out of the market as well as Transamerica’s decision to take its leading product off the shelf, the researchers say.

It could be that independent life agents will view the 3Q news as a sign that bank competitiveness in life sales is on the wane. But that may not be the case.

As Kehrer-LIMRA points out, bank life sales are once again trending in the “right direction,” and based on the life products being sold there, “bank-based reps are starting to get the hang of the wealth transfer life insurance sale.”

Then again, the clientele and products sold in banks are not exactly in the independent advisor’s sweet spot. For example, 95 percent of premium sold in banks today is paid in one lump-sum, according to Kehrer-LIMRA, noting that a lot of the sales entail simplified-issue, single-premium products. Most likely, it will be a while before independent life insurance advisors will go head-tohead with banks’ sales teams.

It’s Costing More to Die

If you think the United States is the only country struggling with end-oflife challenges, think again. Dr. Kate Woodthorpe, a lecturer in sociology at the University of Bath in England, says that in England and Wales, the number of deaths is expected to rise by 17 percent, or an additional 80,000 deaths a year, by 2030. That’s up from an all-time low of 491,348 deaths in 2009.

Meanwhile, she says in an Annual Cost of Dying report published by Sun Life Direct of London, people are living longer, using more personal and government resources, even as costs for social care go up, living standard expectations DID YOU

KNOW

?

26

are high and expectations for intergenerational wealth transfer continue.

WHAT THEY DON’T KNOW ABOUT LIFE

Some consumers are just plain clueless about life insurance. Even the state regulators are finding that out. Consider this: more than two-thirds of consumers recently surveyed by the National Association of Insurance Commissioners (NAIC) didn’t know that certain types of life insurance include a cash value. In addition, 65 percent don’t know that certain types of life insurance include a dollar amount that is guaranteed to increase in value and may provide tax benefits, and nearly half don’t

The three days when the most people die of natural causes, in an emergency setting, are Dec. 25, Dec. 26 and Jan. 1. Meanwhile, the number of life insurance policies issued at that time of year tends to drop. Hmm… food for thought? Source: ANICODirect.com

InsuranceNewsNet Magazine

February 2012

think of life insurance as an investment option.

That is so, even though almost half told the researchers that “low risk” and “taxadvantaged growth” are priorities when investing in today’s volatile market—and even though 63 percent of consumers do have life insurance, NAIC says.

Those could be talking points with clients, especially considering the source.

OUTLOOK STABLE, NOT SUNNY

At least someone has some positive news for the U.S. life insurance industry in 2012.

That “someone” is Fitch Ratings. It has found the industry’s outlook to be “stable” for 2012. That is based on “very strong balance sheet fundamentals” that should help “somewhat” to mitigate concerns over challenging macroeconomic conditions, Fitch adds.

In addition, the Chicago rating service says the industry’s “liquidity profile has strengthened significantly relative to precrisis levels.” This might sound good but don’t plan a party just yet. Fitch cautions that the positives of 2011, such as earnings performance and investment results, will be “pressured” in 2012. And why is that? The usual suspects are to blame: low interest rates, increased hedging costs and ongoing market volatility and pressure from variable annuity holdings.

Fraud Plot Backfires

A woman, her son and an accomplice have all been convicted of a life-insurance-motivated murder of the woman’s husband, Alberto Rodriguez Macias, in March 2010.

The California trio shot him in an attempt to collect nearly $1 million in life insurance death benefits, according to a report in the Merced Sun-Star. But instead, all three got the slammer. The Merced County Superior Court hit the ringleader—the wife, Laura Hernandez—with 15 years to life in a plea agreement, according to the report. As for the other two: triggerman Edgar Garcia got 21 years and Laura’s son, Erick Camarillo, got six. So, what’s the moral of this story?

Don’t try and waste someone or else you may end up wasting many years of your own life instead.

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The New Kitchen Table Prospects ready to hear about life insurance —where they live

By Clark Wooten ho’s to blame for life insurance ownership falling to a 50-year low? Implicate the economy, which has hurt the housing market, incomes and retirement funds and provided a new set of rules for what job security really is and means to people. And point fingers solely at consumers.

It’s possible that today’s consumers are bred to be more narcissistic than in years-past or perhaps believe they are immortal. Blame the Twilight series for the latter and reality TV for the former. But the debate about life insurance or the lack thereof — something so beneficial in protecting against the 28

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February 2012

inevitable — can be caused by a multitude of reasons. Regardless the varied reasons, whether business is blossoming or taking a major hit, life insurance carriers must adopt new practices, lingo and channels to sustain success or acquire it—just like other businesses.

According to Acxiom’s “Life Insurance Consumer Dynamics Study,” four out of 10 adults have no coverage. And one of 10 relies solely on policies from others, including employers. Nearly half of adults fall into one of two categories: uninsured or underinsured.

Unlike auto insurance, life insurance is a discretionary purchase. But since death is inevitable, why is there

a consumer disconnect between it and the importance of life insurance? It seems to be an issue of communication, at least in part.

Are today’s life insurance marketers truly leveraging all the tools available to them to engage their customers or prospects? A key finding in Acxiom’s survey is that many life insurance marketers may simply be underutilizing digital media channels as a supplement to engaging with today’s consumer. Rather, they are relying on traditional marketing practices that still work for some consumers but fail to leverage opportunities offered by the newer online options.

The New KiTCHEN TABLE | LIFE

The study also found that Millennials and Gen-X are both still responsive to direct mail pieces about life insurance, yet they consider email and website interactivity to be acceptable alternatives. Politely positioning your life insurance offerings via digital channels to busy consumers can possibly go further than forcing them to sift through all the glossy, irrelevant noise that’s been batched and blasted into their mailboxes.

For instance, fast-moving Millennials have a lot of firsts that need to be accommodated —marriage, child, home — all of which should motivate them to purchase life insurance. Gen-X, on the other hand, is usually on the second round of everything—perhaps divorce or another marriage, a second home and more children. And in today’s economy, boomers are either settling down or remaining revved up to support themselves or help support their adult children and/or grandchildren. The point is: most carriers already offer products to accommodate consumers during all of life’s stages. The key is connecting the right message with the right digital channel to engage consumers in meaningful dialogue about life insurance that leads to conversion.

Perhaps five or 10 years ago, life insurance marketers could debate whether their audience was online or not. But the truth is that they are there now— and not just for celebrity gossip or retail shopping but to educate themselves on a variety of things, including life insurance. Aside from the Millennials and Gen-X and probably contrary to other research and some expectations, boomers are using and being influenced by these channels: 68 percent of Millennials used social media as part of their life insurance shopping process 43 percent of Gen-X conducted searches online to find information about life insurance 33 percent of boomers report online information was among the top three influencers in their final decision Additionally, boomers are becoming seniors at a rate of 10,000 per day for

Are today’s life insurance marketers truly leveraging all the tools available to them to engage their customers or prospects? the next 20 years. Brace yourself for the influx of digitally savvy seniors in the coming years.

Using Digital It will serve life insurance marketers well to embrace emerging digital channels such as Internet ads, email and social media to connect with today’s empowered consumer. They are smart, savvy and you can’t sell them anything — overtly anyway. They want to educate themselves and will raise their hand when they want attention.

Carriers have to start by implementing a technology solution that captures demographic and behavioral data from their email marketing campaigns and website. This will help them build an online presence that listens and responds to the behaviors of consumers,

Consumers using the Web for insurance information

41

%

37 6

%

%

of respondents have no life insurance of any kind

have shopped for life insurance in the last 12 months

allowing them to better engage in relevant dialogues. It is a pull over push.

When consumers search and shop for life insurance information online, there is no threat to the industry. It does, however, unearth a bevy of opportunities for carriers and marketers to flex some creativity and analytical muscle to convert shoppers. People use social media channels like Facebook and Twitter to catch up with friends and family to discuss the latest happenings.

But take these interactions a step further and understand that consumers, especially Millennials and Gen-X, are also using social channels to solicit advice from family, friends and colleagues about life insurance. Research indicates these two demographics are engaged with their networks at the beginning of their analysis or during

Over

25%

of Millennials (also known as “Gen Y”) and Gen-Xers identified looking at different providers online as the first action taken in researching life insurance

55% 89% &

of Boomers of Millennials visited insurance carrier websites while searching online for information

are currently reviewing or plan to review life insurance in the next 6 months

45

%

of Gen-Xers used social media as part of the shopping process.

Source: Acxiom

February 2012

InsuranceNewsNet Magazine

29

LIFE | the new kitchen table

Digital Influence on Life Insurance Shopping Process

Millennials

Gen-X

Boomers

Looking at different providers online was the first action taken in researching life insurance

27%

26%

19%

Online searches to find information about life insurance in general — learn about the different types, etc.

39%

43%

29%

Visited insurance carrier websites while searching online for information

55% 73%

86%

Used social media as part of the shopping process

68%

45% 22%

Online Information /General Articles were among the top 3 influencers in final decision

49%

39% 33%

Shopping done Primarily Online

48%

42% 26%

Received quotes in the past 12 mos. via:

Website

30%

20% 11%

Email

42%

40% 19%

Website

29%

19% 8%

Email

30%

30% 28%

(multiple responses possible)

Made life insurance

change/purchase in the past 12 mos. via:

(multiple responses possible)

Millennials Born 1977–1998

Gen X Born 1965–1976

Boomers Born 1945–1964

Source: Acxiom Life Insurance Consumer Dynamics Survey, conducted by BIGresearch, June 2011

Most insurance companies see only policies.

the evaluation of options. Gen-X is more likely to reach out for final validation of what they planned to do while Millennials appear more likely to seek affirmation of their decision after the fact. (Put the senior demographic aside for now when it comes to chatting online about their life insurance decisions, but a solid strategy to engage this group in the very near future is a smart thing to keep in your marketing arsenal.)

It’s not necessary or recommended that you abandon traditional methods.

Your digital marketing strategy should augment or integrate with your current marketing practices, while expanding your multichannel efforts at reaching consumers. If you’ve used direct mail programs over the years, use these insights along with your other data to begin segmenting your target. Then, assimilate emerging media channels to effectively and efficiently deliver more personalized, relevant messaging to each audience. Email, for example, allows marketers to leverage an understanding of different types of customers to deliver messages that resonate. Achieve this by

mapping unique content to the buyer based on information they’ve identified as an interest to them.

Though getting consumers proper life insurance coverage is the goal, once this is done, there may be opportunities to focus on the underinsured consumers or up sell other forms of insurance products. Boomers may benefit from more options such as long-term disability, long-term care and Medicare supplements. In accordance with survey data, 10 percent of currently uninsured Millennials and Gen-X may represent more than five billion dollars in opportunities, and converting just 10 percent of uninsured boomers may be worth as much as three billion dollars in annual premiums. Incorporating digital alone isn’t a panacea for the life insurance industry. But, it could prove to be the critical ingredient to achieving sustainable growth.

Clark Wooten is vice president and market group leader for Acxiom, the insurance and investment services firm. He can be reached at Clark.

Wooten@innfeedback.com.

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31

Planning Through

GRIEF

How a Strong Relationship and Astute Planning Kept a Client on the Right Path B y S teve P lewes

O

ne of the most rewarding aspects of being a financial advisor is guiding clients through major life changes and seeing the impact you have on their lives. This, however, also puts advisors in a position of great responsibility, where a client’s well-being may rest in their hands.

I found myself in such a scenario with two of my clients, whom we will refer to as Bob and Ann. They relied on my guidance through our long and close relationship, further teaching me the importance of my role.

I met Bob through his workplace. He was a pharmacist enrolled in his employer’s benefits plan, which I managed. We set up a personal meeting and, over some time, we began planning for retirement for him and his wife, Ann. Using an

element of planning that I picked up during an MDRT Annual Meeting, we set up benefits, such as life and disability insurance, that travel with him in case he switched employers, solidifying our longterm relationship. And over the span of several years, we adjusted products to their needs and created a stable financial plan for their upcoming retirement and concurrent move from Maryland to South Carolina.

Bob and Ann trusted my guidance and implemented all suggestions I provided for their investments. They kept their faith in me and our plan—even through minimal short-term losses—and ultimately were able to watch their investments grow. We became good friends and I enjoyed sharing in the successes of their family: kids, graduations, marriages and grandchildren. Eventually, my

I realized I needed to mak e all fina ncial decisions and proc esse s as stra ight forward as possible. Bec ause whe n face d with such a great loss, even simple things c an suddenly see m complex and overwhe lming.

32

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February 2012

clients retired and sold their home. They relocated to South Carolina to begin their life as a happily retired couple, reaping the benefits of careful planning and lifetime of hard work.

But then the unthinkable happened.

Bob passed away only two months after moving into their dream home in a new state. His sudden death left Ann alone in a new place, without any family or friends nearby or even time to adjust to retirement. My responsibility as a trusted advisor to my clients now involved helping Ann through this emotional experience. Because of the strong relationship I built with Bob and Ann over several years, she knew it took no more than a phone call to me to ensure her finances were in order. After being contacted by Ann, I knew all of our planning would prove to be more valuable than we anticipated.

Since Ann was in such monumental grief, I realized I needed to make all financial decisions and processes as straightforward as possible. Because when someone faces such a great loss, even simple things can suddenly seem complex and overwhelming. This

CASE STUDY: planning through grief | LIFE concept—less can be more—has been reinforced continually throughout my involvement with MDRT in meeting after meeting. My goal was to keep Ann financially comfortable without putting her through another difficult process.

First, I asked Ann how much money she needed in order to live the lifestyle she envisioned after retirement. Then I showed her how much money was available to her by using what I call a “Cash Flow Planning Chart.” We divided all the assets available into basic boxes to illustrate their income-generating potential and then showed her some suggestions as to where we could move the money and how it would generate income—all on one simple chart.

We had several different investments to navigate. Bob and Ann had a savings account, a joint bank account at an investment firm and a managed money account. They both had IRAs and Ann also had a 401(k). Plus, there were life insurance proceeds. All these tools worked smoothly when planning a stable cash flow for Ann. The biggest complication we encountered involved Bob’s nonqualified annuity. Bob began taking systematic investments out of it and there was no option to change that arrangement. We were required to leave the nonqualified annuity in place, which was restricting to our goal. To overcome this challenge, we used a nonqualified variable annuity with a unique rider that treats the income as an annuitization. For Ann, this translated to $500 per month from this annuity, with as much as $400 of the payment untaxed. By using this product, we were able to create a powerful combination of a guaranteed income for life and the ability to keep much of it tax-free.

Bob’s nonqualified annuity supplied Ann with $4,000 per year.

We also reconfigured Bob’s IRA into a spousal IRA rather than a beneficiary IRA because Ann, being much younger than Bob, would have been forced to take required minimum distributions based on Bob’s age rather than her own. By changing it to a spousal IRA, we gave her the power to make her own decisions about the funds, which was an integral

part of my job as her advisor during this difficult time. Consolidating these IRA accounts generated an income of approximately $15,000 each year.

We put some of the life insurance money and the proceeds from the sale of their Maryland house into savings and then put the rest into a managed money account. These arrangements generated about $31,000 per year. Plus, Ann’s 401(k) was worth $4,000 per year and Social Security was providing a monthly income of $1,500. Through our planning, we created a total income potential of $78,000 per year from $882,000 of assets. Ann’s South Carolina home was mortgage-free.

Ann decided she did not need all the money we could generate for her, so we decided to create a level of income that suited her lifestyle. After determining how much money she would need per month, we saved the rest so she could have money for the future and accumulate more wealth. Ann receives a net income of $4,100 per month, allowing her to stay retired and to fill her time with activities she enjoys. Since most of it is guaranteed income, she does not need to worry about having to find a part-time job, needing to remarry for benefits or do anything else she does not want to do in order to secure her financial stability. She has a large cash reserve capable of covering at least two years worth of her expenses in case she encounters any large, unforeseen financial hurdles.

This reserve also allows her to ride out

any stock market fluctuations, which is especially comforting in times of great market uncertainty.

The benefits of such thorough planning became evident to Ann soon after Bob’s death when she joined a widow’s support group. Ann expressed her relief to me, explaining how many of the widows she met were not only enduring the stress of losing a husband, but also that of having a difficult time financially. Five years after her husband’s death, Ann says she is thriving both financially and emotionally. She has money to take care of all her needs, plus the means to enjoy her life.

Aiding Ann through her loss helped underscore the importance of creating a painless, easy-to-understand planning process for my clients. Without the simple charts, Ann might have been overwhelmed by the process, creating the potential for us to miss some greatly beneficial opportunities. Because of the longterm relationship I had built over the years, Ann and I worked well as a team, giving her the retirement she deserves, even in the face of a tragic loss.

Steven A. Plewes, CLU, ChFC, is a 24-year member of the Million Dollar Round Table (MDRT) and has received seven Court of the Table and three Top of the Table qualifications.

Plewes serves as MDRT’s divisional vice president of the best practices division. He is the principal of Advisors Financial Group in Gaithersburg, Md., where he specializes in income and distribution planning for corporate executives and widows. He can be reached at Steven.Plewes@innfeedback.com

y to:

stor Email your

.com

dback e e f n in i@ ll smore February 2012

InsuranceNewsNet Magazine

33

Brought to you by:

[ ANNUITY WIRES]

401(k) plans and IRAs (73 percent each).

Both of these figures represent meaningful increases over last quarter’s lows (66 percent for 401(k)s and 67 percent for IRAs in Q3).” Connect the dots.

Why Aren’t Annuities On The Menu?

In late 2011, 1,000 current-retirees and near-retirees identified several sources of income and financial security for their retirement years, but apparently annuities did not make the list.

The telephone survey defined “near-retirees”— boomers age 50 or older — as the very group that the insurance industry considers to be a key market for annuities. Here is what the researchers found about income source expectations of the near-retirees they interviewed: 62 percent named Social Security as a major retirement income source; 39 percent named 401(k)s; 37 percent named monthly pensions; 34 percent named income from parttime work; and 27 percent named IRAs. Perhaps the researchers did not ask about annuities, or maybe they asked but the answers were not statistically significant. Either way, these findings provide telling insight into the retirement income expectations of near-retirees. Advisors might find the insight useful as they counsel clients about how annuities can help balance out the retirement income plan.

GENWORTH JUMPS IN THE INDEXED ANNUITY RING

Genworth Life and Annuity Insurance Company is now a player in the fixed indexed annuity arena.

The Richmond, Va., carrier tossed its hat into the ring with a product suite aimed at “security-conscious consumers”— those who are “weary of investment volatility and eager to protect their money from unpredictable market fluctuations,” according to Paul Haley, senior vice president-annuity product development.

They may be weary but if they buy these products, they won’t lack for modern design features. Consider the initial offerings: SecureLiving Index 7, a sevenyear surrender charge policy with market value adjustment (MVA), and SecureLiving Index 10 Plus, a 10-year surrender charge policy with MVA. Both products offer five crediting strategies, 10 percent penalty-free annual withdrawals beginning in year two, an optional income protection rider with daily benefit base growth, a waiver for confinement to a 34

InsuranceNewsNet Magazine

February 2012

medical care facility, and annuitization options. The policies include a bailout provision, too.

IS CASH BECOMING A HOT POTATO?

In 4Q of 2011, 62 percent of investors surveyed online for the Hancock Investor Sentiment Index said they feel that now is a bad or very bad time to be holding on to cash in the form of CDs, money markets or similar products.

That is up from 53 percent in 3Q. The index is published quarterly by John Hancock Financial, Boston, and reflects the percentage of those who say they believe it is a “good” or “very good” time to invest, minus those who feel the opposite. The finding about cash raises an interesting question: if more investors start snubbing cash, what might their feelings be about annuities? The survey announcement doesn’t say, but it does mention the following: “Three out of four investors said they believe that now is a good or very good time to be investing in retirement products such as

BANKS’ FIXED ANNUITY SALES INCH UP, BUT…

Fixed annuity sales in banks hit $4.1 billion in 3Q of 2011, an increase of 3 percent compared to the year before, according to the American Bankers Insurance Association, Washington.

Fixed-rate non-market value adjusted annuities accounted for at least twothirds of banks’ fixed annuity sales, says Jeremy Alexander, president and CEO of Beacon Research, the Evanston, Ill. service that provides estimated fixed annuity sales data to the association.

As usual, says Alexander, the non-MVA products drove overall results.

The news wasn’t so good where quarter-to-quarter sales are concerned, however. Fixed annuity sales in banks fell 19 percent between 2Q to 3Q, ABIA reports. Alexander attributes that decline to third quarter’s “very low” fixed annuity interest rates and the overall flight to the safety of Treasury bills and government guarantees. But if the John Hancock finding— that more investors are starting to think that this is a bad time to invest in cash products such as CDs and money market funds—then who knows what next quarter’s results will bring?

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Purchasing Principle Annuity strategy deflects inflation better than S&P 500

By Jacob Stern

ost producers who offer indexed annuities understand the many benefits of the product: annual reset, protection of principal, ability to participate in a variety of markets and tax deferral. But one important aspect that is often overlooked is how these products can help protect our clients’ purchasing power of their dollars.

Many people in retirement, or nearing it, want to ensure they can continue their lifestyle. But many do not understand the effect that inflation can have on their dollars. Inflation is a silent killer of purchasing power and many simply ignore this factor. Using the U.S. Labor and Statistics website, anyone can view the official inflation numbers.

There have only been a few times when inflation was below zero and is often in the 2 to 3 percent range. For example, if inflation were at 3 percent for a year, people would have to earn 3 36

InsuranceNewsNet Magazine

February 2012

percent on their funds just to be able to purchase the same amount of goods as they did a year ago.

To make matters worse, if the person happens to be invested in vehicles that can lose value, it magnifies the situation. In this article, we will examine how inflation can destroy a person’s purchasing power and how market losses are magnified by inflation. When beginning a conversation with clients about how much income they need in retirement, many agents forget to factor in inflation.

Inflation, like losses and gains in investments, has a compounding effect that’s almost always to the downside (since deflation rarely happens, even during a recession). So, purchasing an indexed annuity can provide clients an added layer to combat inflation and protect their purchasing power.

The Numbers I analyzed many years of S&P 500 data to fully understand how inflation can

erode purchasing power. I started with March 2000 and baselined the S&P 500 to 1000 (actual value was 1498, but because we are looking at the percent changes, using a baseline of 1000 makes it easier to understand). In the analysis, I also assumed purchasing an indexed annuity with a modest cap of 5 percent (annual point-to-point) at the same time in March 2000.

Fast forward five years to March 2005, and the baseline S&P 500 was at 851. However, factoring in inflation, the “purchasing power” S&P 500 was at 751. This means that if clients were 100 percent invested in an S&P 500 fund, they lost approximately 25 percent of their purchasing power. If the person looked at their annual statement from their broker, they would only observe a 15 percent loss (1000 down to 851). But because inflation has a compounding effect, the purchasing power was further depleted.

In March 2005, the S&P 500 value of

Purchasing Power Principle | ANNUITY

same amount of goods in 2011 as they could in 2000, 1300 unlike purchasing an S&P 500 fund.

Never Forget Inflation

Inflation’s Impact on Purchasing Power ( S&P 500 vs. IAs )

900

Inflation can be a damaging enemy for a client’s retirement funds. It is 500 ver y impor ta nt that agents discuss inflation with their YEAR clients, explaining 2000 2005 2009 2011 how detrimental it can be to their standard of living Baseline Value After Inflation Baseline Value After Inflation during retirement, using examples similar to those provided above.

Jacob Stern is CEO of Imeriti, a By changing the conversation from national insurance marketing organization based in San Diego. Imeriti gains or losses to purchasing power, cli- has been wholesaling investmentents can gain a better appreciation of oriented life insurance to financial the power and protection of the indexed institutions, stockbrokers, financial planners and broker/dealers for more annuity. It is one of the few instruments than 30 years. He may be contacted at Jacob.Stern@ that can help clients hedge against infla- innfeedback.com. tion and reduce their volatility.

Value

the baseline indexed annuity stood at 1100. As most agents understand, the down years in the market simply turn into zeros instead of losses for the client. In addition, with annual reset, gains in the indexed annuity can still be achieved even though the S&P 500 value is below the original value of 1000.

So, the clients had gains of 10 percent over five years in their indexed annuity. Inflation brought the indexed annuity’s purchasing power to 971. If the client had the indexed annuity, they would have only lost approximately 3 percent of their purchasing power compared to 25 percent in an S&P fund.

March 2009 was an especially tough purchasing power time for people who invested directly in the S&P 500. The baseline S&P 500 value was at 625. Factoring in inflation, the person’s purchasing power was down to 499. So, the person lost more than half of their purchasing power when compared to what they could have purchased in 2000. The indexed annuity, however, performed much better. The baseline value stood at 1213 in March 2009, a little more than a 20 percent gain on their money nine years later. Inflation kept the purchasing power of the indexed annuity at 970 so people lost just 3 percent of the overall purchasing power instead of 50 percent.

Fast forward once again to March 2011. The baseline S&P 500 was at 1082, but the purchasing power value was only at 823. This means that over the 11-year period, clients lost approximately 18 percent of their purchasing power. Another way to think about this situation is that the clients can now only purchase 82 percent of what they could have purchased in March 2000.

For people in retirement and on fixed income, this situation would directly affect how the person lived. Take a look at the indexed annuity, however, which provided a much better situation for the client. The baseline value of the indexed annuity was 1337 and the purchasing power was 1016. The indexed annuity kept up with inflation over the 11-year period. Obviously there were no real gains with the indexed annuity, but the clients could still purchase the

S&P 500

February 2012

IAs

InsuranceNewsNet Magazine

37

by Sonja Hayes

T

axes are a certainty in life, as Ben Franklin said, but here is another one: Taxes will drive you batty. That’s because taxes will increase, decrease or stay the same—and you can’t predict which route they will take.

Although we are left guessing about future rates, we do know that we are experiencing some of the lowest marginal tax rates in history. In 2013, existing tax cuts for ordinary and capital income are set to expire.

But who knows what Congress will do by then.

In addition to this scheduled increase in marginal tax rates, 2013 will also have the implementation of a new tax on investment income. This is a 3.8 percent Medicare tax on investments, while Medicare taxes have traditionally been paid only by individuals and only on earned income. In 2013, this tax will be applicable to individuals and on income

38

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February 2012

once it exceeds certain thresholds. For a married couple filing jointly, this threshold is $250,000 Adjusted Gross Income (AGI). And for a single person, the threshold i s $2 0 0,0 0 0 AG I . O n c e these income levels are

reached, this surtax will apply to their investment income. Similarly, this tax will apply to a trust once it has undistributed net income of at least $12,200.

For a better understanding of the impact of this additional tax, let’s examine a typical middle-aged family.

Meet the Spencers, Greg and Nancy, both 45, and their two kids, John and Jennifer. Greg and Nancy have an adjusted gross income of $300,000.

Of this, $250,000 comes from wages, $24,000 is from their rental home on the beach, $10,0 0 0 is interest from CDs and money market accounts, and the remaining $16,000 is derived from various stocks, bonds and mutual funds. At this income level, the Spencers will be subjected to the additional 3.8 percent Medicare surtax on $50,000, which c o m e s t o $1,9 0 0 .

Although this does not seem like a large number,

Are Your Clients Tax Diversified? | ANNUITIES

when added to the additional ordinary There is one question to ask the achieved above will be lost since Roth and capital gains taxes that will be due, Spencers: Why are you paying taxes contributions occur on an after tax Greg and Nancy liken this to a reduction on money today you are not using? This basis. Finally, the Spencer’s could purin their annual rate of return. is the question the Spencers should be chase life insurance however they are The Spencers are always looking for asked regarding each line of income on already adequately insured. ways to reduce their tax liability, but their tax return.

This leaves the Spencers with the abilthey do not want to reduce their curAfter establishing that the Spen- ity and desire to invest in the tax later rent income or spending. Furthermore, cers do not have a current need for category. This category includes qualthey want to have as much money set this $10,000, our goal becomes one ified retirement plans and non-qualaside for retirement as possible. Initially of removing it from the tax return. ified annuities. Having already made they work with their financial advisor to As long as the Spencers wait until the the maximum contribution to any IRA determine their current and retirement CD had matured, there are no conse- and 401(k) accounts, one suggestion is income needs. The advisor they chose quences to removing these dollars from to take the money from the CD upon has a history of working with retirees the CD and investing them elsewhere. maturity and purchase a deferred annuand is licensed to sell both insurance One suggestion would be to invest in ity. While in the accumulation or tax and securities products. This exercise a taxed later or taxed preferred envi- deferred stage there will not be a current shows they can maintain their current ronment. Tax preferred investments tax implication to this investment. The lifestyle with less income. Their advi- are the most desirable as there is the result is that the $10,000 being genersor suggests they increase their pre-tax potential for these dollars to escape ated by the CD will no longer be an item contributions to their employer on the tax form. Keep in mind, sponsored retirement accounts. once distributions from the annuBy doing this, their wages remain ity begin, all or a portion of the the same; however the taxable payments will be taxed. Followincome is reduced because traing this re-investment, the total ditional retirement plan conMedicare surtax will be $1,140, tributions occur on a pre-tax for a 40 percent reduction in the basis. After increasing their presurtax due. While similar opportax contributions to their retiretunities exist in reference to the ment accounts, their income from reallocation of other investments, wages is $240,000 and their surthere could be tax consequences Taxation Expenditure tax is reduced to $1,520. surrounding their reinvestment.

At this point their advisor eduThis income audit and the reinTax Now Retirement cates the Spencers on the benevestment of assets that follows fits of incorporating tax diversipositions the client in a “win-win” fication into their planning while position, regardless of what tax Tax Later Mortgage conducting an income audit. An rates do in the future. If income income audit is where incoming tax rates decrease, this client is in Tax Preferred Legacy investment dollars are categoa better position with these dolrized into one of three categolars removed from their taxable ries, while the same is done with equation. Likewise, with these expenses. Our three income catdollars removed, the client is in egories are taxed now, taxed later and taxation entirely. These investments a better position if tax rates increase. tax-preferred. Meanwhile, they exam- include Roth accounts, municipal bonds And finally, even if tax rates remain the ine three common expenses, which are and life insurance. Today, the Spencer’s same, the Spencers’ overall tax situation the mortgage, retirement and those dol- income is too high to participate in a is improved. Until we can predict the lars designed for estate planning. The Roth IRA. They could consider mak- future of income tax rates, the next best income from the CD is an example of a ing a nondeductible contribution to an thing is to position a client so that they taxed now asset, but the Spencers hope IRA and then immediately converting will always be in the most advantageous to leave this money to their children if to a Roth IRA. While there are income position possible. they have not needed it during retire- limits on a Roth IRA contribution, the ment. While the Spencers pay taxes income limits on Roth conversions were Sonja Hayes is director of advanced planning and solutions at Prudential each year on the interest that is being eliminated as of 2010. This strategy Annuities. She can be reached at Sonja. generated from this CD, the money would enable them to fund $10,000 in Hayes@innfeedback.com. itself is not now being used. Instead it a Roth each year. If they contribute to is rolled over into the next CD. a Roth 401(k), the income reduction we

“There is one question to ask: why are you paying taxes on money today you are not using?”

February 2012

InsuranceNewsNet Magazine

39

[ HEALTHWIRES] Complaints Put AARP’s Tax-Exempt Status On Radar A new round has begun in the long-simmering complaint that the powerful seniors’ group, AARP, is actually a for-profit business and should not enjoy a tax-exempt status. Many insurance interests, including those in the health insurance business, have long voiced this complaint — often privately but sometimes publicly, in an under-the-breath fashion.

Now, three Republicans on the House Ways and Means committee have put the complaint out on the public radar screen.

Here’s what happened: in December 2011, the three committee members sent a four-page letter to Internal Revenue Service Commissioner Douglas Shulman asking the IRS to examine new information regarding AARP’s financial arrangements with HearUSA and UnitedHealth Group. This request follows a year-long Committee investigation and an April 2011 report that, according to Ways and Means, raises “serious concerns” about whether AARP is fulfilling the requirements of a tax-exempt organization.

After collecting additional findings, the committee members then sent the IRS their Dec. 21 letter and—not incidentally—also posted it on the Ways and Means website for all to see.

In the letter, the members charge that AARP has contracted to do more than license partner use of its name. “The AARP relationship with both United and HearUSA seem to suggest a pattern of business partnerships and activities that permits AARP to engage in for-profit businesses under the cover of its tax-exempt status,” they allege.

Agents can still get a copy of the letter and review the issues it raises at http://1.usa.gov/lettertoIRS.

DAILY DEAL SITES: THE NEW COMPETITORS?

Websites like Groupon and LivingSocial have begun competing for a share of the consumers’ health care wallet, according to an Associated Press report by Joseph Pisani. These “daily deals” websites are now offering “markdowns” on health care services such as teeth cleanings, eye exams, chiropractic care and medical checkups, as well as deals on elective procedures such as Botox injections and Lasik eye surgery, the report says.

In fact, DealRadar.com data shows that one of every 11 deals offered online is for a health care service, AP says.

The advantage for participating providers? They get paid right away — i.e., as soon as the consumer buys the deal.

And who’s buying? The story suggests 40

InsuranceNewsNet Magazine

February 2012

several possibilities, such as people looking to save money, try something new or fill in gaps in health care coverage.

One buyer is a small business owner who had previously cancelled his own health insurance due to a premium increase, the writer notes. It doesn’t sound as if anyone is offering discounts on major medical through this venue, but agents will want to keep a heads up on this market all the same.

BOOMERS FACE BIG HEALTH EXPENSES, DESPITE MEDICARE

The Insured Retirement Institute is the latest to weigh in on average health care costs, but this time the study is on expected health expenses just for baby boomers in their 60s. The estimates are staggering. A healthy 65-year-old male

can expect to have health care expenses total $350,000, including premiums, for the rest of his lifetime, the IRI report says. For a 65-year-old woman, the total is 13 percent more—at least $417,000.

And here’s another bite: the average person on Medicare will have outof-pocket medical expenses totaling more than $4,300 per year. IRI president and CEO Cathy Weatherford got it right when she said the findings underscore “the importance for Americans to properly plan for retirement and to consult with an advisor to ensure they will have enough money to cover health care costs and other necessary expenses in retirement.”

WHAT FAMILIES PAY FOR HEALTH CARE

An average family of four spent $3,633 on out-of-pocket health care costs in 2011, according to Simplee. That’s up 19 percent over 2010, says the health care expense and coverage tracker and payment firm.

In addition, the same family spent $5,208 in insurance premiums in 2011, making for a total average health care expense per family of nearly $9,000 in 2011. That’s a lot, but there is one other figure to keep in mind. The average family of four was billed a total of $15,512 in regularly priced medical care in 2011, the firm says. Considering that insurance probably has or will pay much of that, the insured families no doubt ended 2011 in better financial shape than families without insurance.

“ QUOTABLE “Any discussion about reducing the deficit is going to focus on how we reduce the growth in healthcare costs. And employers are adopting more effective tools to keep putting downward pressure on healthcare cost increases.”

—Ken Thorpe, professor of health policy at Emory University in Atlanta

@InsNewsNet

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.:: By Mark Shuster ::.

s producers and coverage experts, we’ve learned rather quickly that it is essential for us to rethink our insurance marketing strategies. Over the past few years, health care in America has developed quite a negative undertone. From “Obamacare” to simply a general lack of understanding, our prospects have developed a tough exterior. So how can we break through these walls to not only educate them, but provide them with an insurance product that they need?

42

InsuranceNewsNet Magazine February 2012

The answer is within social media. As a health agent, if you haven’t considered incorporating social networking within your sales and marketing plan, now’s the time to pay attention to the numbers. Thirty-four percent of consumers use social media to search for health information, according to “How America Searches: Health and Wellness,” a survey from digital marketing company iCrossing in January 2008. And you can be sure that the aforementioned percentage has grown since then.

How to Use Social Media to Target Health Insurance Prospects | HEALTH

What’s the Appeal of Social Media?

The Internet is the most widely-used resource for health-related information and research. And, you can bet that a good portion of that research is performed to locate and analyze potential health insurance providers.

As mentioned previously, 34 percent of health “searchers” use social media tools such as blogs, Twitter and Facebook, to explore health-related topics.

Social media is especially appealing to the 18-to-34-year-old searchers. But it’s possible, with continued commitment and relevance, to reach the more seasoned age groups.

Still, the question remains: why’s there so much buzz about social networking AND how can health agents use it?

It really boils down to community building. Consumers love feeling that they belong to something, especially something genuine and authentic. More importantly, they want to belong to something that matters—no one wants to feel as if they are simply being sold a product or fed a “salesy” marketing line.

As a health producer, being active in social media can span farther than just providing the opportunity to build new business. Social networking also aids in your overall branding as well as provides you with an effective outlet in which you can improve your customer service.

Using Social Media to Build Your Health-Related Community First and foremost, to cultivate an active social community you must be human and have a conversation. Your clients and prospects won’t be so apt to “like” a Facebook fan page that bombards them with promotional pitches, nor will they be quick to “follow” an agent’s Twitter account if it’s nothing more than a stream of sales-speak. To really find success among your health prospects, and inevitably maintain renewals, you must move that conversation into a relationship.

A social relationship is dependent upon many things, with one very key

aspect being your words. The tone in which you “speak” through your social media efforts is also very important as well as the substance of content.

As health agents, it’s important that we follow the “80:20” rule. Eighty percent of what we share socially should be relevant, interesting and unique aspects of the world around us. This means that the majority of what you post on Facebook or tweet through Twitter should NOT be about health coverage per se.

Of course, you’ll want your content to relate back to health insurance or wellness in some way, but you never want the bulk of your social updates to seem like health spam.

Your community doesn’t want to be sold something—they want to uncover a solution to a problem they didn’t even know that they had. They want to pick the brains of others from their community as well as share ideas and successes. If all of your social media content is focused on closing a sale or pushing a policy, chances are you’ll miss out on the social networking boat altogether.

Leave that remaining 20 percent of your time to socially promote specific coverage information or highlight your expertise as a leading, local health agent.

One example of strategic content that draws a significant response is to provide your social community with facts and advice. If you establish a tradition, in which you update your social account(s) with a valuable and interesting wellness fact daily, weekly and so on, your social following will catch on.

The goal is to get them to communicate back to you via “liking” or leaving a comment. This is the most basic form of community interaction and, by

of consumers

use social media for health info

Make use of your Facebook profile section so people know what you do at a glance.

openly responding, you are providing an excellent, almost immediate, form of customer service — showing your client or prospect that their voice matters.

(Again, this doesn’t directly mention health insurance, but it allows you as an agent to position yourself at the forefront of your customer’s mind.) The overarching goal is for them to remember you, turn to you and recommend you.

And because there is always so much chatter surrounding the health care industry, it’s wise to stay abreast of the current issues and break the news to your community first. As a health agent, you want to brand yourself as a superior resource for timely events, legislature changes and any other sort of medical rules or regulations. By updating your social accounts to reflect local and national health-related news, you are enhancing your credibility as a worthy February 2012

InsuranceNewsNet Magazine

43

HEALTH | How to Use Social Media to Reach Health Insurance Prospects

source of information for your fans and followers.

It’s important that you take the time to showcase your industry expertise when covering news and health-related events. Don’t simply post an update and walk away. Nurture the relationship you have with your community members— answer their questions, provide them with further details and thank them for their interest or support. What’s most valuable about social media is the ability to communicate with your health prospects in real-time.

Look at the screenshot on the right, for example; you can see that the interaction between client and agency happened within minutes. A question was asked, further information was provided and overall the interaction successfully educated the community about a particular health insurance-related event that could affect many. As a health agent, it’s important that you communicate trends and changes to your community efficiently. And what better way than through social media, where you know they will be present?

When news breaks, you can be the authority to educate your community in a conversation about the issue. But you have to already be engaged with people for them to accept your authority.

relationships and posting relevant, intriguing information, the more your Additional Tips for Attracting brand and reputation will be.

Here are some additional tips you can Health Insurance Leads Looking to further evolve your health use when looking to add a little life to insurance community? Interested in your insurance community: increasing your Facebook “fans” or Ask for Recommendations. There is Twitter following? Well, it really all no more powerful form of promotion for comes down to dedication. The more your business than the testimony of a sattime you spend cultivating real-world isfied client, and Facebook now provides with the unique opportunity to acquire recommendations from members of their community.

Join Groups. Whether you are branding yourself as an independent health producer or marketing your entire health insurance agency, you can join relevant Facebook groups through your personal account. Make it a point to join insurance-related groups and “like” various insurance media sources such as trade journals or Keep away from the “sales-speak” and engage people in a conversation. popular industry blogs.

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InsuranceNewsNet Magazine

February 2012

Overall, there is a lot that you can do to both prospect and build your community. It’s important to keep in mind, however, that it is your words and tone that your community will be watching and judging. Strive to be their trusted, leading resource for all things health and wellness related. Offer a vast wealth of information that applies to health insurance, but don’t come off overly “salesy.”

Just remember that your audience wants to interact, so always strike up a conversation and respond. Think outside the box, ask for recommendations and integrate yourself into the “social insurance world.” The more creative you are, the more likely you are to see a significant social following increase as well as community retention.

Mark Shuster is co-founder of Health Insurance 4 Everyone. With more than 20 years of experience, Shuster has sold over $32 million in personallyproduced business, making him one of the highest producing health insurance agents. He can be reached at Mark.

Shuster@innfeedback.com.

FEATURE TITLE | HEALTH

“Imagine Making $60,000 or More Selling Life Insurance in Your Jeans and T-Shirt— and Never Having to Cold-Call Again!”

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irst things first — forget everything you’ve ever learned about how difficult it is to make $60,000 or more selling life insurance.

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So, if you’re interested in making $60,000 or more per year WITHOUT… • Cold-calling or asking for referrals • Dealing with “no-show” appointments • Wasting money on overpriced, non-exclusive leads • Racking up miles on your car • Business expenses ...I have exciting news for you.

But first, allow me to introduce myself. My name is Byron Udell.

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AccuQuote in 1995. Over the past 17-years, AccuQuote has grown to become one of the nation’s largest and most respected brokerage firms, with over 170 employees.

Forbes, Kiplinger’s, Money, and The Wall Street Journal Call On Me Regularly Actually, they and other major media call on me regularly to comment on valuable information related to the life insurance industry. As you might imagine, this gives our agents instant credibility when working with our clients.

Why This Really is a Remarkable Sales Opportunity…

As one of our agents, you’ll receive all these great benefits immediately: • More FREE leads than you can handle (prospects contact US — via the web, email or phone) • No cold-calling drudgery (you’ll only call and speak with prospects that requested a life insurance quote) • Large support staff handles and processes all the paperwork, so you can focus on what you do best — selling!

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Simply pick up the phone and call us today at (800) 442-9899 ext. 260.

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She will give you complete details on this exceptional opportunity. Why not do it now, the minute you finish reading this? You’ll be glad you did.

February 2012

InsuranceNewsNet Magazine

45

By John F. Nichols

At

$

a Million Dollar Round Table (MDRT) Annual Meeting, noted economist Moshe Milevsky spoke about “human capital” and that struck me as an excellent way for clients to understand their true worth—and what they have to lose.

We work hard to maintain the lifestyle we want, build our nest eggs, save for our kids’ education or, at least, the next version of the iPad. Financially, what are we worth? What’s our net worth? Hopefully, it’s a positive number. But that’s the trap. And just as my father used to say, “First things first,” you also need to build and protect your human capital first and then your financial capital will follow.

So, What is Your Human Capital Worth?

Some clients might be unsure of the answer to this question because they are unsure of what the question is asking.

“Human capital” refers to the stock of skills and knowledge embodied in the 46

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February 2012

Human Capital | FinancIAL

Human capital is the stock of skills and knowledge acquired to perform labor that produces economic value. ability to perform labor so as to produce economic value. It is the skills and knowledge gained by a worker through education and experience. Therefore, expenditures on education, training and especially medical care are perhaps the most important investments in human capital.

This strategy focuses on the financial aspect of one’s life. By working with your client and creating their balance sheet, you can then lead the client in a discussion of human capital.

First, have the client create their balance sheet using their personal company —Client Name, Inc. Then, list the assets on one side and the liabilities on the other. Do the math to calculate their net worth (assets – liabilities = net worth).

Ask the client, “What’s missing?”

(Most clients will have no idea, so help them out.) What’s missing is the client’s human capital. Human capital is calculated as follows: the client’s income multiplied by the number of years they will earn it by working.

For example, the client earns $100,000 a year and plans on working for 17 more

years ($100,000 X 17 years = $1,700,000).

The calculation could include estimated pay increases, bonus compensation and even a second income. Now ask your client, “Would you be interested in protecting your hope? May I show you an idea on how to preserve your future human capital value?”

Human Capital Case Study Upon returning from the 2008 MDRT annual meeting, I met with my client Dr. Tom and his accountant, Jim. After a few minutes of discussion, I took out a blank sheet of paper and wrote “Dr. Tom, Inc.” at the top center. On the left side, I wrote “assets” and on the right side, I wrote “liabilities.” I gave it to Dr. Tom and his accountant and requested that they list out the assets and liabilities for “Dr. Tom, Inc.” After Dr. Tom completed the exercise, I wrote “net worth” at the bottom right of the paper and asked Jim to calculate the net worth of “Dr. Tom, Inc.” He proceeded to write in the number and then handed the paper back to me.

With a puzzled look, I asked what we were missing. Dr. Tom wasn’t sure, so

Is Your Human Capital Worth Protecting?

Assets (Net Worth)

$1,200,000

Human Capital (Capabilities) Age: 40 years old Income: $100,000

$2,500,000

I wrote “human capital” with a question mark on the asset side and handed the paper back to him. He didn’t understand what human capital meant. We discussed the value of his income as an asset and the future value of it.

Suddenly the light bulb went on in his head. We multiplied his current income by the number of years he wanted to work. We assumed no increases in salary and still the number surprised him.

I then asked Dr. Tom, “Would you be interested in protecting your hope? May I show you an idea on how to preserve

Balance Sheet of You, Inc. Assets Bank accounts House Stocks & bonds Cars Pension

Assets

Human Capital

Debts & Liabilities

Note: Human capital Mortgage is converted to Credit cards financial capital Student loans as you age.

Debts & Human --- Liabilities = NET WORTH + Capital

your future human capital value?” I do not use illustrations or proposals, or debate on contract language. I simply ask questions to help my clients think about their bigger future and how they may want to protect it.

Is Your Potential Protected?

Human capital is the most valuable asset class on your personal balance sheet. Doesn’t it make sense to protect and preserve all that you have worked for—your net worth and your ability to build your balance sheet—your human capital? Just be sure to remember what my father said, “First things first.”

John F. Nichols, CLU, MSM is Founder of Disability Resource Group Inc., a provider of disability products and services. He serves as NAIFA Secretary and is a Life and Qualifying MDRT member with two Court of the Table and four Top of the Table honors. John can be reached at John.Nichols@ innfeedback.com.

February 2012

InsuranceNewsNet Magazine

47

How Technology Has Changed Prospecting Forever

By Maribeth Kuzmeski

I

delivered a presentation on marketing strategies at MDRT’s Annual Meeting. Today, just six years later, that presentation would be very different—including aspects of marketing that didn’t even exist then.

Today, marketing includes new media, social media, viral marketing, video, virtual seminars and managing your online reputation. If you’re thinking that your marketing doesn’t have to change and new strategies like social media and viral marketing don’t affect you—I’d like to share that times truly are changing and continue to progress. Even the way we get our “bread and butter” referrals has changed. And the reality is that, without adding some of these new aspects of marketing into your plan, the results you are having may begin (or already have begun) to dwindle. I believe that change in marketing is good and here are four examples: 1) Referral acquisition is no longer reliant on word of mouth: Just a few short years ago, in order to cultivate referrals, financial and insurance

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professionals needed to deliver good products and service, communicate consistently and give clients an experience to talk with others about. Today all of that is still true, but it becomes meaningless unless what people are ultimately saying about you matches what can be found online.

If someone says, “You have to go see my agent, she will help find the right solutions,” you have only reached the first step. Before coming in to see you, that person will likely search for you online and that is where it gets critical and very different from the past. Today, nine out of 10 people will search for you online before coming in to visit with you.

Why? Because they can (and should) do some due diligence before sharing personal financial information with someone. The problem begins if they can’t locate you online or what they find is not up-to-date, clear and shares about

you and your firm. Or, even worse, if what can be found out about you after a Google search doesn’t come close to matching the perception that they had in their mind of you after being referred.

It is a big reason for not converting referrals into appointments and sales.

Ask yourself; does my online presence, including my website and online bio, match with who I really am?

2) Diminishing attention spans require standing out like never before: The attention span today is 17 seconds.

That means that it is more important than ever to share what makes you unique to attract the attention of potential prospects. You need to give yourself a fighting chance to have someone pay attention and remember you—otherwise you become a gray suit on a gray wall and blend in with the rest.

Standing out from the crowd for an advisor is not an easy task. There are

“The attention span today is 17 seconds”

Reboot Your Marketing | BUSINESS countless financial professionals trying to differentiate. Most have similar offerings and compliance requirements that keep descriptions of products and services fairly black and white. It’s true that standing out from the crowd is risky, but it may be equally risky to run a conservative, “under-the-radar” firm these days because you risk becoming an anachronism. While successful firms stick to their values, they also find ways to be so exciting that people don’t have a choice but to pay attention—and buy.

Following are a few questions you can use to define your uniqueness: • What do your current clients say about you? (if you don’t know, ask) • What do you do that no one else does (or few others do)?

• What target market do you focus on serving?

• What expertise do you have?

• Do you have a named service system that others do not?

• What is offered that could be considered “above and beyond?”

3) Direct marketing has been replaced with viral, social marketing: A viral message is an idea, notion or practice that’s transmitted from person to person. It ignites and motivates people to move the message. Most viral marketing begins with information that is attractive to share with others. Today, viral marketing is happening primarily in social media.

You may think that social media is a fad and will go away or will not affect financial professionals. The truth is that social media is here to stay—in one form or another. There are more than 800 million people on Facebook sharing and passing along information to one another. The fastest growing segment on Facebook is the over-65 age group. LinkedIn has more than 120 million users—most of which are executives and businesspeople, actively using the medium.

Social media helps to build your unique and individual brand, giving you the exposure that simply could not be

BECOMING UNIQUE 1. Have a prepared statement that describes the uniqueness of your business.

Avoid the features and get to the benefits. Think from someone else’s perspective: “Why does this business matter to me?”

2. Spend some time determining what really makes you unique. However, think about this not from your perspective, but from your clients’. Ask or survey them to find out what they believe makes you unique. It can be a very insightful exercise either positively or negatively.

3. Give people the help they need to spread the word about you. Develop a robust online presence starting with a compelling website. People will search for you online—what they find needs to match what others are saying about you. And, give your fans something they can share with others—an interesting article that can be downloaded from your website or a feature on your business’ Facebook page. Help your clients to send you viral.

The key is to have something that is unique, let others know about it, and give them ways to share it with others. Without these, you may seem surprisingly unexceptional.

afforded a few years ago. It is a standout tool for communicating with clients and prospects that will help you to build a larger network of business contacts. And it is incredibly beneficial in converting referrals you have received into appointments at a higher percentage than ever before. And finally, social media can be very effective at building trust. People are skeptical—but having a Facebook business page and a LinkedIn profile can warm them to who you are, including the firm’s personality, style, knowledge and expertise.

Yes, there are limitations for social media due to compliance challenges in retaining online conversations. But, by following best practices and guidelines, social media can become a powerful tool to spread the word about you.

4) Managing your reputation today includes online: Whether you have actively developed an online presence or not, one of the most important tasks in 2012 is protecting your reputation.

Just like you would protect your credit, regularly check for activity connected to your name and your business. Anyone can post information about you whether you have a strong web and social media presence or not. Ultimately, it’s better to develop your own online reputation so you are in control of generating positive search results through your online posts and profiles.

One of the easiest ways to monitor your reputation is by setting up a

Google Alert which will inform you of anything that has appeared about you online. Google Alerts are email updates of the latest relevant Google results based on your choice of query or topic.

Go to www.Google.com/Alerts and set up a free alert on your name and your firm’s name. Whenever anything appears online that you or someone else has posted about you, an email will be sent to you with a link to the online occurrence.

It can be overwhelming to ref lect on how much has changed in marketing over the past few years. And it can be even more overwhelming to think that marketing continues to change. If you want positive change in your business it may be time to stop ignoring the changes in marketing and embrace them. The smartest move you make in 2012 may be eliminating your old marketing plan and drafting a new, fresh roadmap to winning all the business that you deserve.

Maribeth Kuzmeski, MBA, CSP, is president of Red Zone Marketing, a consulting firm helping agents, advisors and teams continue to grow their businesses. She is a frequent national media contributor and international speaker and is the author of five books. She can be reached at Maribeth.Kuzmeski@innfeedback.com.

@InsNewsNet February 2012

InsuranceNewsNet Magazine

49

PERSPECTIVES | WITH ROBERT MILLER

Selling the Insurance Story An interview with Robert Miller, president of the National Association of Insurance and Financial Advisors.

Robert Miller is midway through his tenure as president of the National Association of Insurance and Financial Advisors (NAIFA) and has developed a reputation of being an outspoken, straight-shooting representative for the advisor community.

He brings a different perspective to his position because his practice, Miller-Pomerantz and Associates, is in lower Manhattan, where he advises Wall Street workers and other high-net-worth clients. But he is far from elitist in understanding and acting on the concerns of NAIFA’s members. Miller covered so much ground—and did it so well—that we have a much longer version of this interview online.

INN: What do you see as the most significant issues for your members this year?

Miller: Everybody’s caught up in the debates over fiduciary responsibility. I tell people out in the field that, odds are, we’re all going to become fiduciaries in a way that’s going to allow our model to continue, because we’ve been telling our story and we differentiate ourselves from the traditional investment advisors.

But in terms of the future, obviously tax reform is lurking. And while nobody thinks Congress will get around to it until the fiscal end of 2012 or 2013, if we don’t set the groundwork for making them understand who we are and what our products do, we’re going to be in trouble. If all of a sudden you’re taxing the inside buildup and the death benefit, I think that’s going to significantly damage a lot of people who the Congress has no intention of damaging.

point. When you go out to the hinterlands around the country, they do have a sense that we’re crying wolf. AALU’s main focus has been on tax reform—and will always be on tax reform.

When I go into the field, I don’t act hysterical and I don’t say this is doomsday. I paint the picture that this is not a Republican or a Democratic issue; it’s a national issue. No matter what your philosophical way of looking at the country is, even Democrats will have to realize that you

oversimplifying. But it works.

So our job when we lobby is not to scream hysterically and say, “Oh my God, you can’t tax insurance products!” Our job is to build up a story, and it’s a completely real story about who insurance agents are, what we do out in the country and what the benefit of our products is to America. And I think that is a very significant story that they have to hear again and again and again.

“Insurance products represent 20 percent of all savings”

INN: Certainly, a tax on the inside buildup and death benefit would be bad for the industry and the public. It is an alarm that has been rung each year, particularly by the Association for Advanced Life Underwriting (AALU). Why is it different now?

Miller: I am also a member of AALU,

by the way. I think you’re making a good

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February 2012

can only have so much debt before something is going to have to be done about it.

The insurance industry comprises more than a billion and a half dollars of what they call “tax expenditures,” which is essentially money that is passing through without any tax revenue going to good old Uncle Sam. No Congress person that we’re talking to is saying that they’re definitively going to tax the insurance industry products. But on the other hand, when you have a bullseye that big on your back, you’d have to be foolish to think that they’re not going to take a hard look at you. To a degree, I’m

INN: What is that message?

Miller: That we’re relationship builders. We’re not a transactional business. I think if we ever became a transactional business, that would be the death knell of us— and that would come from something other than Congress.

We bring in the dollars when the going is its toughest. We can’t replace the love of a lost family member and we can’t replace a significant partner in a small closely held business, but what we can do is bring in money that buys their future.

Once legislators understand the significance of what we do and they realize that insurance products represent 20 percent of all savings in this country, Congress is set up to make intelligent choices. They can understand what potential unintended consequences would be if the rules were changed and families had to

Selling the Insurance Story | PERSPECTIVES buy twice as much insurance in order to get the same kind of protection because they’re taxing the death benefit.

INN: Isn’t the industry a little vulnerable as to who they’re insuring? Middle America is not, by and large, getting insured. But the rich are, according to LIMRA’s data that show life insurance ownership is at a 50-year low while the total coverage amount is growing.

Miller: That’s a good point. There is

also talk about it in the field—that if we don’t insure more of America, somehow they’re going to figure out how to insure without us. So I think that is a point well-taken. On the other hand, you’re still insuring more than 75 million families, and an overwhelming majority of those families are falling into the under$100,000 breadwinner category.

When I go out and I talk to my clients, I’m dealing in one segment of the marketplace. But I’ve spoken across this country for the past six years, and I’ve gone from towns like Ogallala, Neb., to Cody, Wyo., and the only significant financial advice

that people are getting is through their insurance agents, and they’re getting it mostly on a non-fee-based basis. And these people are buying $25,000, $40,000, $50,000 dollar policies—and the industry still consists of an overwhelming majority of those.

So when you talk about 75 million families, maybe you cherry pick 100,000 out of that, but the overwhelming majority is still dependent on those individual insurance policies they buy from their insurance agents.

INN: When you talk to members on the road, what are their concerns?

Miller: Well, they’re all concerned about regulators and legislators eventually dictating what they can and cannot do—or whether they’ll have a job or not.

their business. NAIFA is in Washington in order to protect that, but the members are still worried about it. My job is to present them more with the subtleties of what goes on— it’s not all black and white and not all legislators and regulators are out to ruin a business.

NAIFA doesn’t stand against regulation, we’re for intelligent regulation. We understand we’re going to be regulated— and there isn’t an industry that shouldn’t be regulated. I tell people that the government is not some monolithic force sitting there in Washington. So, I’m trying to personalize the government to our members as much as I’m trying to personalize our members to the government.

INN: Is it related to fiduciary?

But wait, there’s more!

Miller: Yes, it’s related to fiduciary.

Go to insurancenewsnet. com/RM to read the rest of this engaging interview.

They all have an idea that there are two different definitions of fiduciary. We do make them aware of some of the political things, but for most of our members, they should really be worrying about

If you have comments for Robert, he can be reached at Robert.Miller@innfeedback.com.

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February 2012

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51

MDRT INSIGHTS | By Philip E. Harriman, CLU, ChFC

Tax-Planning Kaleidoscope:

Just When Your Eyes Adjust, the Scene Changes

A

s an advisor, you likely have heard about the estate tax changes that allow people to pass down large sums of money to next generations tax-free. But keep in mind that this is only effective for one more year.

From a tax-planning perspective, it is important to be cautious of this estatetax exclusion, scheduled to return to a $1 million exemption at the end of 2012.

The reality is this change will affect a vast number of individuals. It is crucial to help our clients plan for this change and advise them on taking advantage of tax-free giving, because this may be a once-in-a-lifetime opportunity.

Now is the optimal time for clients who have assets they are not using, or want to leave a legacy to their family or charity, to solidify financial arrangements. This kind of planning is ideal for clients who have income-producing assets and still anticipate making gifts. For example, in trust vehicles, the income can continue to support the beneficiary upon

their passing as well as offer certain tax advantages and assets to adequately pass down to the next generation.

If you look back through history, relative to the estate tax landscape, it has been a kaleidoscope to say the least. It’s been repealed and reenacted more than a few times and the exemptions have changed almost insensibly.

Unfortunately, politicians have a difficult time understanding when it comes to income tax-planning—people plan their finances similar to how farmers plant their crops. Farmers routinely plant corn seeds in May and then harvest them i n Au g u s t . B ut what’s distinctive about estate planning is that people are planting acorns and hoping for big oak trees—it is very difficult for families to plan their legacy with such unpredictable legislative decisions.

When using life insurance to accumulate tax-sheltered wealth, it’s important to remember it is a valuable financial

“Life insurance is not a belief; it’s a financial tool that does things no other financial instrument can.”

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tool. Sometimes I hear potential clients say right from the start, “I don’t believe in life insurance.” My response is, “Life insurance is not a belief; it’s a financial tool that does things no other financial instrument can.”

Similar to how a carpenter has various tools in a tool box, each financial tool is specifically used to help build different things. It can be practically impossible to build something without a certain tool. Life insurance plays a similar role; it is a valuable financial resource in the tool box of life. It’s imperative for financial professionals to be mindful of how this resource can create money or liquidate cash where none existed before.

We need to stay focused on this financial tool and be sure it doesn’t get manipulated in a fashion which makes it ineffective when trying to pay taxes, benefit charity, and restore money consumed during life or trying to create money to equalize a legacy for children or grandchildren.

Advisors need to encourage their clients, who will be impacted by the estate tax under the current law between now and the end of 2012, to put their financial affairs together in a fashion that will speak for generations to come.

Time is running out. If you have clients hesitating to complete their planning, it is essential you persuade them to make these decisions this year— because it may be their best and last opportunity.

Philip E. Harriman, CLU, ChFC has worked with family-held and non-profit businesses in the areas of retirement planning, business continuation arrangements and estate planning for more than 30 years. Phil is a 30-year MDRT member with 17 Court of the Table and 13 Top of the Table qualifications. He can be reached at Philip.Harriman@ innfeedback.com.

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

@InsNewsNet

LIMRA INSIGHTS | By Mary Art

We Are a Mobile Nation – How Are Insurers Responding?

O

ne in two Americans owned a smartphone by the end of 2011, according to Neilson’s estimates.

What does that mean for insurers?

How are they changing to accommodate mobile devices into their business model?

LIMRA examined the mobile initiatives of life insurance companies to find out.

Life insurers have three basic audiences to reach: the general public, policyholders and producers. The majority of insurers already has, or is planning to have, mobile initiatives for at least one of these groups.

Among companies that offer mobile access or plan to offer mobile access in the future, the most common options are mobile applications (apps) and websites that have been modified to be mobile friendly. Companies are most interested in offering separate mobile websites in the future, which are more affordable to the company than apps are.

A significant driver for companies to invest in mobile initiatives is to provide better service and access to producers. Already, almost a third of companies have some sort of mobile initiative in place and another 30 percent plan to launch a mobile program specifically for their producers within the year. According to nearly nine in 10 of those companies surveyed, producers—especially those marketing to younger generations— are demanding mobile support from carriers. Also, the number of producers using mobile devices in their practices has nearly doubled from 2008 to 2010, according to previous LIMRA research.

Three-quarters of companies said investing in mobile initiatives was important to keep pace with their competitors and nearly as many expect these investments will increase sales.

An IBM study found that 10 percent of shopping on Cyber Monday was done through mobile devices. With life insurance ownership at an all-time low, insurers are seeking a way to better engage consumers. And providing access to information via mobile devices may be a way to reach these uninsured or underinsured consumers.

Current Status of Mobile Initiatives

by Type of Stakeholder Have already launched some mobile initiatives

Public 28%

Policyholder

Producers

11% 30%

Plan to launch within 12 months

17 23 30

Plan to launch in more than 12 months

21 23 17

Have no mobile initiatives for this stakeholder/ do not have this stakeholder

34 43 23

Another area of opportunity lies within the retirement market. With more than $400 billion per year rolling out of employer-sponsored retirement plans and into IRAs, plan providers are looking for ways to keep these assets under management. Retirees and pre-retirees who are proactively contacted by their retirement plan provider around the time they leave their employer are twice as likely to keep their retirement plan assets with the plan provider, according to another LIMRA study. Will mobile devices facilitate this contact? It appears that the plan providers think it might. LIMRA found that about one in three retirement plan providers currently offer mobile access to their sites.

But making these changes does not come without challenges. Seven out of 10 companies report having trouble allocating adequate human resources to properly launch and manage the new mobile initiatives.

In addition, companies said they struggle to manage the different mobile devices, platforms and operating systems.

Half of the companies said defining the return on investment for mobile investments and ensuring data security have been issues of concern.

LIMRA has five recommendations for developing a mobile strategy: 1. Monitor mobile interest. Mobile adoption is changing quickly. While mobile may have been unimportant to your stakeholders when you established IT objectives last year, it is probably more important now.

2. A sk your stakeholders … and listen. Reach out with surveys, focus groups and interviews to learn what mobile services and features your various stakeholders really want.

3. Offer a consistent message. Regardless of the channel used to access your company—full site, mobile site or mobile app—offer a consistent message about your brand.

4. O bserve other financial firms.

Banks, asset management companies and health care providers often offer mobile options now. Once their stakeholders get used to these mobile services, they may expect it from life insurance carriers, too.

5. Apply mobile best practices. Understand the devices, the environment and the users. Mobile users trade convenience (and loading time) for the depth of information found on larger screens.

Overcoming these challenges and finding a way to develop an effective mobile strategy is a top priority of insurers. We expect there to be a learning curve for adopting mobile technology, but it is undoubtedly an important platform for the future of the insurance industry.

Mary Art, research director of LIMRA’s technology in marketing and distribution research, is responsible for new research in the technology area. Art joined LIMRA in 1978 and was promoted to scientist in 2004. She can be reached at Mary.Art@ innfeedback.com.

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

February 2012

InsuranceNewsNet Magazine

53

ASK THE

ADVANCED SALES DOCTOR Q:

Sometimes I get objections that are really off the wall and I often feel like telling my prospects just how stupid their question is. (But, of course, I know I can’t do that!) How should I handle a really dumb question?

Rx:

No matter how dumb it seems to you, it makes sense to your prospect. By affirming the legitimacy of the concern, you’re saying that you’re willing to look at the problem from their perspective. Remember, you’re validating your prospect here, not necessarily agreeing with their view.

Think of an objection as an indication that your prospect has encountered an issue that he or she needs help with rather than an obstacle on the way to the sale. When you sense an objection is coming, move toward your prospect with an attentive expression communicating that you welcome the objection. This is one way of reducing the adversarial overtones of your relationship with your prospect. And, as a rule of the thumb, if you cannot immediately think of an answer, keep affirming the objection until the answer comes to you!

Q:

My GA, a very successful producer in the past, graciously shares his secrets of success, but I’m not comfortable using his language. He gets frustrated with me for balking at using a proven approach. What should I say to him?

Rx:

The problem is that your GA succeeded in a world that doesn’t exist anymore. You’re selling to a vastly different consumer. People speak a different language today than they did 20 to 30 years ago. Some of the scripts I heard people teach made me feel like I was in a time warp. They are stilted and sound contrived, just like the language you hear when watching an old movie.

Communication has become a more dynamic process. Your language needs to be to the point, fast-paced and totally clientcentered. Your prospect does not want to spend the first hour of your meeting “building a relationship” with you, hearing about

After more than 30 years of coaching and studying insurance professionals and the insurance sales process, Hungarian-born clinical psychologist Dr. Csaba Sziklai (pronounced Cha-ba Sick-lie) has become known throughout the life insurance industry as “The Advocate’s Advocate.” As the author of the “Advocacy System,” Dr. Sziklai has been asked to speak at numerous insurance industry events and has conducted hundreds of sessions for many of America’s top life insurance companies.

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your company, the way you do business or the story of your life.

At this point, the only thing that they’re interested in is what they will get out of this meeting.

We all need to face the fact that our way of doing things may be dated and, if so, revise our thinking and approach.

And with all of the changes today, we have to do it more often than ever.

I heard that only 7 percent of what I say to my Q: prospects contributes to how they see me – the rest of it is determined by my body language and tone

of voice. Should I just focus on making faces instead of doing my usual presentation?

Rx:

Non-verbal communication unquestionably plays a vital role in how your prospect perceives you. But language is the primary way to convey your agenda. Your body language may reinforce your verbal message—or it may be incongruent with it, weakening your credibility.

Inconsistencies and contradictions in your presentation will do the same. You can make sure what you say is free of contradictions, but managing your body language is more difficult because it is a spontaneous, mostly unconscious expression of your current state of mind. So, it will inevitably betray you—especially if you feel frustrated, stressed or bored—by involuntary reactions like changing the size of your pupils or tightening your lips.

Rather than trying to micromanage all of these reactions, focus on controlling the attitudes and mindsets that trigger them. Prepare for your meeting by reminding yourself that you are about to make an important contribution to your prospect’s life and that you’re going to enjoy your time with them.

Need a prescription for success?

Send your sales psychology questions to SalesDoctor@innfeedback.com.

Advertiser Index

For more details on an advertiser, use the contact information below or visit www.InsuranceNewsNetMagazine.com/spotlight

Advertiser Website

Phone Page

Accelemark

www.accelemark.com

877-936-0044

51

AccuQuote

www.accuquote.com

800–442–9899

45

American Equity

www.american-equity.com

888-647-1371

3

American General

www.americangeneral.com

800-677-3311

25

Aviva

www.avivausa.com/joinaviva

800-800-9882

30-31

Brokers Alliance

www.advisortaxfacts.com

800-290-7226 ext.147

Covenant Reliance Producers

www.socialmediamasteryreport.com

866-907-4275

9, Insert

Eugene Cohen Insurance Agency, Inc.

www.cohenagency.com

800-333-4340

23

Fairlane Financial

www.888fairlane.com

800-327-1460

35

Financial Independence Group

www.figmarketing.com

800-527-1155

41

Gradient Financial Group

www.gradientib.com

800-407-4137 Back Cover

Levinson & Associates

www.yourfreecollegescholarship.com

800-375-2279

Inside Front Cover

Life Sales, LLC

www.lifesales.net

800-486-5400

Inside Back Cover

M&O Marketing

www.reducetaxestoolkit.com

800-228-5964

11

Netquote

www.netquote.com/feb15

877-415-5153

4

Ohlson Group

www.ohlsongroup.com

877-844-0900

15

Petersen International Underwriters

www.piu.org

800-345-8816

27

Prudential

www.prudential.com

800-292-0054

6-7

Welcome Funds

www.welcomefunds.com

877-227-4484

5

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off-the-wall sales stories

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SM

BUILDING AGENCIES FOR SUCCESSFUL PRODUCERS

3 We recruit agents for you and pay you on their production.

3 We profile these agents so you only assist those who are worth your time.

3 We provide you and your agency with back office support from contracting to case design 11 hours a day.

3 Finally, we remove the financial concerns.

Call 800-486-5400 INN_FP_a2A_1111-0227

For agent use only—not for distribution to the general public. New York production does not qualify.

2NDOPINION Millions of Americans routinely fail to take deductions they are entitled to, thus overpaying their taxes by billions of dollars collectively. With over 80 percent of tax returns containing errors, odds are your clients may have errors on their tax return. The IRS isn’t required by law to tell you, so if you don’t find the mistakes or don’t request a refund within three years, the IRS wins. And you lose. The good news is there is something you can do about it!

The 2nd Opinion Tax Sales system will allow you to help clients make sure they are paying their share of taxes. Not a penny more and not a penny less. Our team of CPAs and preparers will review your client’s tax returns for mistakes or missed deductions. If they find something, they will file the refund for your client.

2ND OPINION SALES SYSTEM • Your clients keep 100% of any refund money we find.

• If we identify errors, we will re-file the return for your client.

• You’ll receive over 100 proven tax reduction techniques that have saved taxpayers thousands of dollars every year.

• We’ll give your client concrete next steps to capitalize on any missed savings.

• Your client walks away with personalized suggestions that will lower future tax bills.

If they don’t, your clients will know their preparer is

2ND OPINION

doing a good job for them. Either way, your client wins and you get to offer a valuable service that your competition is not offering.

“

The 2nd opinion tax service offered through

Gradient Insurance Brokerage

Gradient Tax as given me a steady flow of prospects. Everyone files taxes but few know if it is done correctly. Having another

Gradient Home Mortgage

made, helps me put more money back in

Gradient Investments

my client’s pockets and differentiates me from my competitors.”

- HERSTLE J.

“

Gradient Tax

Gradient Securities Gradient Advisors

REGISTRAR

GRADIENT

I N SUR ANCE BROKERAGE, INC.

800.407.4137 | www.gradientib.com

Life

Gradient Positioning Systems

CPA review what was done and look for missed deductions or mistakes that were

Annuity

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