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ALSO INSIDE: How Former Agent Charlie “Tremendous” Jones Motivated the World PAGE 14 What’s the Best Age to Purchase Life Insurance? PAGE 38 Indexed Annuity Complaints Plummet PAGE 30






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ANNUITY 42 I ndexed Crediting Enigma By Sheryl Moore Some things make a natural match— but why low interest rates and new ways to credit indexed interest on indexed annuities remains a mystery to most.

44 I ndexed Annuity Complaints Plummet

By Jack Marrion Research has revealed that the total 2011 indexed annuity investor complaints were the lowest in seven years—six-times lower than in 2007.



24 A  dvisor Roulette

10 Y ou Say EIA, I Say IA – Let’s Call

the Whole Thing… Something Else By Linda Koco With so many names and acronyms for various types of annuities, even seasoned annuity professionals sometimes find them confusing.

By Linda Koco and Steven A. Morelli Documentation can help protect agents from charges of unethically or illegally writing insurance and annuity cases for elderly clients.



HEALTH 48 B  itter Pill By Bryce Williams After a provision of the PPACA goes into effect in 2013, insurance-based options can help employers stay in the drug benefits game.


LIFE 34 6 Degrees of Separation (From Their Money)

By Tom Virkler Clients can take advantage of favorable estate tax laws, but they have to get over certain money control issues.


38 W hat’s the Best Age to Purchase

14 B  ecoming Tremendous An expose on Charlie “Tremendous” Jones How insurance agent, Charlie “Tremendous” Jones, became one of the most popular motivational speakers in the world. 2

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INSIGHTS 54 M  DRT: This is the Year for Estate Planning? By D. Scott Brennan With the Tax Act expiring soon – now is the time to help high net worth clients move money from the taxable to the non-taxable side.

56 L IMRA: Back to the Basics of Selling By Todd Silverhart With life insurance ownership at a low, it is It is crucial that the industry leverages technology to better reach more Americans.

PERSPECTIVES 58 L ife Insurance Apps on the Rise An interview with Lee B. Oliphant, president of MIG Group In this exclusive interview, Oliphant discusses the recent increase in life insurance applications and what producers need to know about it.

EVERY ISSUE 8 Editor’s Letter 22 NewsWires 32 LifeWires

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When most people imagine going back in time to talk to someone, they probably think back to a few hundred or maybe even a few thousand years. I would choose a decade or two to watch Charlie “Tremendous” Jones in action. He is our motivational master feature this month. We did something different by featuring somebody posthumously. Even though Charlie had his book store in Mechanicsburg, Pa., right down the road from our Camp Hill office, we hadn’t met him before he died in 2008. We’re the poorer for it, because by all accounts, he was a once-in-a-lifetime kind of person. People did not forget that they met Charlie “Tremendous” Jones. Well, for a while, their bruises would have reminded them. He would hug men when he met them. He would poke people in the chest and grab them by their arms to make a point. Legs, too, actually. But he could get away with it. Through the miracle of YouTube, you can see how he did it in his talks through videos posted by many people including his daughter, Tracey, who now runs Tremendous Life Books. You can see audience members recoiling with laughter at what he was saying and fear of what he would do next. Tracey said she has seen other speakers try Charlie’s style, but it just ended up being awkward. She’s a nice person, so she didn’t say they were obnoxious but you and I have endured that kind of guy. First of all, Charlie earned his wisdom, picking himself up from a disadvantaged Depression childhood and some setbacks in his life. He also experienced extreme success in many things, including building a large regional MONY office in central Pennsylvania, before taking to the speaking circuit.

But more than all that, Charlie had the passion. He believed in helping people achieve their potential. He didn’t talk about the power of positive thinking; he radiated positive everything. He was all about transformation and the biggest agent of change for him was books. His favorite line was, “Five years from now, you will be the same person as you are now except for two things: the people you meet and the books you read.” Charlie probably inspired thousands of people to read more. He certainly moved many of the people he spoke with to look at things in their lives a bit differently and maybe even make significant changes. He made anything seem possible. Above all, he preached urgency. He said you feel the difference when you are animated by a mission. You don’t sit around whining about stuff and wondering why everything seems to go wrong. In fact, one of Charlie’s favorite routines was a big wind-up about a bit of precious wisdom that he learned from all his years in business. He would warn his audience to brace themselves for this blast of genius and then he would let it go: “Nothing works!” And then he would hoot, which he did often. Since I have learned of Charlie, I will often take a moment to watch a video of his to remind myself what’s important in life and work. And, then, not to take it all so seriously. Tremendously, Steven A. Morelli Editor-in-Chief








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You Say EIA, I Say IA – Let’s Call the Whole Thing… Something Else


ames and acronyms for types of annuities can be confusing. Even experienced annuity professionals sometimes see unfamiliar words or grouping of letters and ask, what does that mean? A good example is the deferred income annuity, or DIA in industry-speak. That’s a pretty new industry term for a policy that starts paying its income stream late in life, say at age 85, even though the owner bought it many years before, say at age 65. The long delay between purchase and benefit stream distinguishes it from traditional income annuities, often called IAs in annuity circles; the IAs typically start the income stream immediately or within the first year at the latest. For obvious reasons, it is good that the DIAs and IAs have different acronyms. That helps people keep the products separate in their minds. Alas, it turns out that the IA acronym shares mental space with another annuity product—the indexed annuity, which some indexed annuity insiders refer to as IA. It is true that many indexed product people more commonly use the term fixed indexed annuity, or FIA, for their annuity products. That certainly helps distinguish the policies from IAs of the income annuity kind. But since not everyone in the annuity industry is on board with that, it pays to listen carefully to discussions where those two letters are being tossed around together. Pure and simple, sometimes an IA is an income annuity and sometimes it is a fixed indexed annuity.

FIA or EIA? Fixed indexed annuities have another nomenclature challenge, too. Securities regulators still often refer to the products as EIAs instead of FIAs. The EIA acronym refers to the products’ original name, equity indexed annuities, an appellation given because the early designs only 10

InsuranceNewsNet Magazine

May 2012

included equity indices. The industry has been working hard to use FIA instead, ever since the mid-2000s, so as to differentiate the products from securities. Besides, many products now include multiple index options, including bond indices and fixed accounts, so the equity reference has become outmoded. Securities regulators don’t talk about why they continue using the EIA name, but some insurance people think it has something to do with securities regulators’ long yet unsuccessful campaign to regulate the products as a security. Perhaps they believe that it will help their case if the word “equity” continues to appear in the product name and be referenced in the acronym? Back in the insurance sector, annuity professionals who work regularly with indexed annuity products don’t seem to confuse FIAs with EIAs. But advisors who only sell the products occasionally or who are new to the business do get a little fuzzy on which term to use and whether the two terms are different. [A somewhat similar trend occurs in the variable annuity business concerning the product’s guaranteed living benefit (GLB) features—the guaranteed lifetime withdrawal benefits (GLWBs), guaranteed minimum withdrawal benefits (GMWBs), guaranteed minimum income benefits (GMIBs) and the like. Veteran advisors know these terms and acronyms cold, but the newbies and occasional sellers don’t. The indexed annuity business has another acronym issue as well. A couple of insurers have been selling registered indexed annuities, or RIAs for short. Those are indexed annuities that the carriers have registered as a security (in similar fashion to variable annuities, or VAs, which carriers also register as securities). Most indexed annuity people don’t talk much about RIA products. It’s a small marketplace and sales so far are minimal.

But every time the RIA acronym pops up in an annuity discussion, a few people invariably contact the source to find out what the term means. Some people confuse RIA annuity products with registered investment advisors—the distributors that sell securities products and that also go by the RIA acronym. (In fact, insiders hardly ever refer to these distributors as registered investment advisors, no doubt because RIA is so much easier to say.) That could lead to some boggling banter. For instance, what if a rep places an RIA (the annuity) through his RIA (the distributor)? Would the rep then tell his colleagues, “Hey, guess what? I just placed an RIA through my RIA.”

DIAs or Longevity? Back to the DIAs mentioned earlier. These deferred income annuities are also called longevity insurance policies and very occasionally, longevity annuities. That’s three names for the same product. Fortunately, for now, the longevity products do not yet have their own acronyms (putting advisors up one on that score). But the industry doesn’t yet seem to have settled on what will be “the” name for this product line, so all three names are in play at the same time, especially DIA and longevity insurance. Here is a challenging thought: imagine what would happen if industry insiders end up using all three names interchangeably and if they were to start referring to them willy-nilly as DIAs, LI (for longevity insurance) and LAs (for longevity annuities). Advisors would have to keep checking the product literature to be sure they were using the right product solution for the client’s need. Another confusion is popping up in the emerging market of contingent deferred annuities, or CDAs. These products are

Do MEDICAL also called standalone living benefits, or SALBs, a term used in the late 2000s and still used today in certain circles. CDA products are designed as annuity contracts that can be sold as an option with 401(k) plans, mutual funds, or managed money accounts (where the advisor manages the client’s investments for a fee). In general, the products guarantee an income stream after withdrawals have depleted the investment fund. The earlier term—standalone living benefits, or SALBs—captured the spirit of these products well enough. After all, the products are standalone options (i.e., not embedded features). However, that term does not mention the annuity word, and that has caused some head-scratching. The newer term—contingent deferred annuities, or CDAs—does identify the product as an annuity as well as spotlight its contingent nature. Who knows, it might stick. But, hey, it could work out that someone will start thinking up even more clever names for the GLWB/CDA product line later on. If they do, here’s a really great way to go. Why not call all of those incometype products GWATI—for “guess what annuity this is.” After all, that’s what some people have to do.

A Verbal Handshake Whatever the outcome, one thing is for sure: annuity insiders are not going to stop using acronyms for products old or new. Acronyms put shortcuts into communication mazes. They give handles to the new and the difficult-to-remember. They function like verbal handshakes between industry professionals. And they lend inthe-know panache to those who use them. But when talking or writing about newer and evolving products and strategies, insiders might want to let up on the gas a little, lest they start confusing more than communicating. One way to do that is to use the actual name of the product class, repeatedly, so as to leave no doubt. And perhaps define it, too, especially if the product is new or “seems like” another. Save the acronyms for later, much later. IMHO. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.


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How An Insurance Agent Grew Into One of the Most Popular Motivational Speakers in the World

By Steven A. Morelli 14

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May 2012



HE VOICE WAS straight out of a Depression-era newsreel or movie. “When you make a decision, you make it aloooooone,” Charlie “Tremendous” Jones told his audience, with an accent reminiscent of Mr. Potter in It’s a Wonderful Life. Think of how Lionel Barrymore would say “Savings and Loan,” as Mr. Potter and you get the timbre and cadence. But the similarity ends there. Mr. Potter wanted to own the town—and Charlie Jones wanted to give it all away. He was all heart—and all hands, too. When he talked to men, he hugged them, poked them, grabbed their shoulders and, sometimes, even their legs if they sat in the front row. But never the women. He said the only woman he would hug was his wife. He was old school like that. Charlie wasn’t always “Tremendous,” and he would have been the first person to tell you that. He started out as Charles Edward Jones and his first selling job was hustling Liberty Magazines in 1933 when he was six. He said his limited education left him with a stilted vocabulary. So his answer to most questions was “Tremendous!” And so that became his middle name, although he was not comfortable with it at first. He was a voracious reader and soon developed a tremendous vocabulary that he wielded to become a popular motivational speaker and an author of several books, including, “Life is Tremendous.” He also owned a bookstore in Mechanicsburg, Pa., called Tremendous Books. And his daughter, Tracey Jones, has operated the store since he died of lung cancer at 81 on Oct. 16, 2008. Many of the lessons Charlie drew on came from his stellar career as life insurance agent with the Mutual of New York (MONY). He started in 1950 at 22 and a year later received his agency’s “Most Valuable Associate Award.” Ten years later, he received MONY’s top management award for recruiting, manpower,

Front-row mayhem at one of Charlie Jones’ conferences.

“How long does a man have to live before he learns that 95 percent of all the energy he will ever expend on a project will be expended on getting started? It’s the same principle as flying to L.A. or home to Baltimore. It’s all about the power to take off, to get airborne, and then you coast while making course corrections. That’s the way of getting it done.” development and business management in expanding the Central Pennsylvania office, based in Harrisburg. He joked that he had gotten out of life insurance sales and into management because, “I ran out of friends and relatives!” He left MONY in the 1960s to start an insurance business—but that failed. Charlie felt he couldn’t go back to MONY and didn’t know what he could do next. That’s when he started public speaking. “He would just speak for free to anybody,” Tracey said. “I don’t care if it was one person or 10 people or a thousand. He refined his message out of his heart, out of necessity, out of having to get his name out there and feed the kids—he had very organic growth, just got out there. He realized that he had so many great stories to tell as a husband and a father and a businessman that I think that’s when he really fell into that knack. He didn’t say

“I believe a man is a fraud who would take a commission for selling something and not want to share his career with somebody who will never know our joys unless we share it with them.”

I’m going to stop and be a motivational speaker and writer. He just did it.” Charlie took his show on the road with his seminars and consulting services in 1965 and grew from there. He published Life is Tremendous in 1967, which has since sold more than 2 million copies. His love of books led him to start Executive Books in 1967. Tracey Jones changed the name to Tremendous Life Books in 2009 in honor of her father. And the business has served as a touchstone for Charlie’s fans, old and new. “At least three times a week somebody will ping me on Facebook or somebody will find his stuff out there,” Tracey said. “Or somebody will call and I’ll hear crying on the other end and I’ll know it’s going to be a dad story. My mom said the other day, ‘Tracey, it’s like he’s not even gone.’ I don’t know of a higher compliment.”


Although Charlie had the timing and the jokes of a comedian, the laughs were the sweetener to help the lessons go down easier. On the subject of not quitting, he May 2012

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Charlie wasn’t afraid to be outspoken.

“A guy says, ‘I wish I could get somebody who will accept me for me.’ You’d better hope you never get anybody that low! When two people come together, they come to grow together. Growing means growing pains. And if they don’t allow each other to change each other, they wind up fighting to change each other. Listen. The key to a successful marriage is not compatibility. It’s commitment. Make a decision and make it yours and die by it.” said people have to start with their decisions—that choices don’t have to be right but they have to be made. “I never made a right decision in my life!” Charlie said during a seminar, “But nobody ever found out about it—because I made them right later!” That was the first step—making a decision. He had little patience for people waiting to make the “right” decision. “Don’t those guys kill you?,” he wrote in The Price of Leadership. “Always trying to figure out how to make a right decision. In building my agency during my sales years, I never did figure out how to make a right decision.” The next step was making the decision yours. That was his point when he said a person has to make a decision alone and that too many people avoid hard decisions by collaborating on a non-opinion. “They say, ‘Let’s go ahead—and not do it,’ ” he said in a seminar, adding, “Have you ever seen a monument dedicated to a committee?”

It wasn’t enough for Charlie to make people laugh; he wanted to teach people how to use humor for their own success. Like many of his points, he introduced the subject as his own journey of discovery. He described how he would be jumping for excitement about something but still failed to engage his listeners. That was when he learned to use jokes and stories to drive home his point. “First, I will go to your ear with a point,” he said, describing the process. “Then I’ll get to your heart with a story or illustration. I’ll help your heart see what you heard with your ears. Then I’ll wait for your eyes to light up and say, ‘I see what you mean.’ ” He illustrated this with an example of how to help clients recognize their own mistake and fix it. He told a long joke of two carpenters eating lunch where one worker opened his lunchbox to find a dreaded peanut butter sandwich yet again, leading into a tirade about how much he hated peanut butter sandwiches.

The other guy asked why he didn’t ask his wife to pack something different. The complainer replied, “Hey, you leave my wife out of this—I pack my own lunch!”— a punch line he emphasized by grabbing the arm of a man in the front row. Later he got in the face of another audience member and said he wouldn’t tell a client that he brought a problem on himself. “Why? Because I know how that sounds. I’m going to tell him that peanut butter sandwich joke. And you know what he’ll see when I tell him this story? He brought it on himself! Instead of being mad at me, he’s going to be laughing at himself!” He delivered that point as he yanked the giggling audience member’s leg. His “hands-on” delivery wasn’t just for the stage—that’s the way he was, Tracey Jones said. “Because it was his natural personality, he could get away with it,” Tracey said. “I see people trying to imitate it and I’m like, don’t try, you can’t pull it off. It was just weird how he was able to just be so tough but yet so connected to people. I think it was because he never shied away from what he stood for but he never was critical of what anybody else stood for.” Charlie’s physicality and his humor were often successful because he mastered the element of surprise. His listeners never knew what to expect, as in one when he mentioned that his wedding anniversary was coming up that day. “In a few more months, we’ll have been married 57 years,” he said, waving to stop the applause during the seminar, saying, “Wait a minute! Wait a minute!—It hasn’t been that good.” He was joking, of course. Charlie made a life’s study of what made a happy marriage, another area of wisdom he was willing to share. “Divorce begins the moment a woman begins to expect something of her husband he can’t deliver or he expects something she can’t deliver,” Charlie said in a

“A guy says, ‘Don’t you think you’re a hypocrite for acting happy when you’re miserable?’ I say, ‘Don’t you think you’re a hypocrite for acting miserable when you’re happy?’ Do you want to be a happy hypocrite or a miserable hypocrite? I made up my mind: I’m a happy hypocrite! Woo-hoo!” 16

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1977 interview. “Marriage really begins when she realizes she deserves nothing and owes him everything and he realizes he deserves nothing and owes her everything.” As always, he related that point to his own experience, as when he wrote about hearing his wife pray one night. “I was irritated by some little thing and I heard her say, ‘Dear God, thank you for this good husband. Forgive me for not being a better wife.’ And I’ll never forget it. I was so crushed, it broke my heart. I realized I was a scoundrel, a mutton-head. I was the one who wasn’t the right kind of husband or father.” But even as dedicated a family man he was, Charlie wasn’t one to say family was above all. For one thing, he was guided by his religious faith and was also pretty religious about working. “Show me a man who talks about what he puts first ahead of his job, I’ll show you a guy who doesn’t put anything first but himself,” he wrote. “I never saw a man who was any good at anything who wasn’t good on his job. A man must learn that a job is just a sacred a trust as marriage. He’s got to learn to love and honor and cherish his job, just like his marriage. If he doesn’t, his job won’t reward him anymore than his marriage, unless he does the same thing with it. That’s not easy to learn.”


Charlie did not forget his hardscrabble roots and gave back to kids coming up under similar circumstances. “Because Dad came from a really difficult upbringing, he was always looking to children who were falling through the cracks and encouraging them,” Tracey said. Jim Donovan, a personal development coach, wrote in a post about seeing that first hand. “On his country property is part of a carnival and a building that is decorated for Christmas all year round,” Donovan

Charlie’s daughter, Tracey, leafs through his books in his office.

“My best friend went into the life insurance business. Naturally, he came to see me first. He told me this story I couldn’t get over. Great insurance, waive a premium, cash that boosts your collateral, twice as much back as you put into retirement. I said, ‘Sign me up!’ And then he told me how much money he got paid for doing me this favor. I said, ‘How long has this been going on? I want in on this!’ ” wrote. “As we sat, singing Christmas carols in July, he explained the reason for the decorations. On weekends he would invite children from the orphanage in nearby Reading, Pa., to come and spend time there. When I asked why, he replied, ‘So that they will remember that there was one day in their life that someone loved them.’ That, in my opinion, is the essence of Charlie ‘Tremendous’ Jones. He was a man whose heart was bigger than even his towering stature.” As he suffered from cancer, Charlie was still dispensing wisdom in a final interview with a local TV reporter. “The secret to success is learning to be thankful,” he said, his booming voice squelched to a gasping whisper. Even in his condition, Charlie dashed off a joke that revealed his inner peace while putting the reporter at ease.

“God never made a job that would make a man, but he made any man who could make a job.” 18

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“I’ve lived my life according to experiences. So I think I’m 1800 years old. And I’m tired. I gotta get outta here.” That was typical of Charlie, living like there was no tomorrow but appreciating the moment. In a video he made while in ill health, he beamed as he talked about the “pageant of triumphs” his life had been. Even a quick Google search will reveal story after story of how Charlie touched someone’s life through his spirit, humor and generosity. And those recollections usually end the same way: You were richer for, and never forgot, meeting Charlie “Tremendous” Jones. To learn more about Charlie, visit Steven A. Morelli is editor-inchief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at

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The hypothetical example assumes a 50-year-old starts with a $100,000 initial premium plus 6% on the BAA 12 and Lifetime Income Withdrawals begin on a single life basis at age 60 based on 3.5% of the Income Base. Although indexed earnings, if any, are credited at the end of each two year term, the equivalent annualized growth is shown in the example. Non-Guaranteed Assumptions: • 100% BalancedAllocation Income Percentage for SGO • Plus 5% Fixed Rate for SGO • .95% Rider Charge (Spread) • 1.0% Declared Rate • 2.95% Strategy Charge (Spread) • 55% S&P 500 Index Allocation • 45% Declared Rate Allocation

This hypothetical example assumes a new contract was issued each business day over the last 30 years utilizing the closing price of the S&P 500® Stock Index on those days. The example assumes that the contract was held for 10 years with no withdrawals or surrenders. The Index Allocation and Declared Rate allocation indicated in the example above are assumed for all years. These allocation percentages and rates are not guaranteed. The use of alternate rate assumptions would produce different results. Although this product was not available for the period of time referenced above, actual historical prices of the S&P® 500 Stock Index have been used in this example. This example is intended solely for comparative values and is not an indication of the annuity’s past or future performance. Although the BAA has no traditional “cap” on indexed earnings, the Index Allocation options are set by the company. The Rider is not available without purchase of the base annuity contract. Product features, limitations and availability vary by state. See the product and Rider Disclosure Summaries for details. Home office approval is required for cases that will exceed $1 million in force on any one annuitant. Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. Market Indices do not include dividends paid on the underlying stocks, and therefore do not reflect the total return of the underlying stocks; neither an Index nor any market-indexed annuity is comparable to a direct investment in the equity markets. Clients who purchase indexed annuities are not directly investing in a stock market index. Guarantees provided by annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Respond and learn how insurance products can positively impact your retirement. “Standard & Poor’s”, “S&P”, “S&P 500”, “Standard & Poor’s 500” and “500” are registered trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Aviva Life and Annuity Company. The product is not sponsored, endorsed, sold or promoted by Standard & Poor’s and Standard & Poor’s makes no representation regarding the advisability of purchasing the product. The BalancedAllocation Annuity® [BAA12 (09/09) and BAA8 (09/09) or state variation], is a fixed-indexed annuity. The BalancedAllocation Lifetime Income Rider™ [BAAIR2 (10/11)] is an optional rider for which charges are deducted. They are issued by the Aviva Life and Annuity Company, West Des Moines, IA. For agent use only, not for use with the general public.

18946 061292

[ NEWS WIRES] The Long Pause Even though the Supreme Court has already decided on the Affordable Care Act cases, the public won’t know the verdict for probably another few months. The best guess is June 25, because Demonstrators gather outside the Supreme that’s the last day of the court’s term. Court during health-care reform argument. The justices heard three days of arguments in March and gathered right afterward in a super-secret meeting to vote on the cases and appoint the opinion writer or writers. (At least that’s what we think the justices did.) The arguments focused on the mandate that everyone must have health insurance or pay a fine (or a tax, depending on the argument). The justices’ questions made the mandate’s proponents a tad anxious about its prospects. Justice Antonin Scalia suggested that, if the government made people purchase health insurance, broccoli might be next. So goes the domino theory, no matter how healthy the outcome. Another reason to bet against the mandate would be the justices’ questions about the entire law’s viability if the mandate were removed, which would make life more difficult for insurance companies. The mandate was the linchpin of a compromise between carriers and the law’s framers. Insurers agreed to universal coverage without regard for pre-existing conditions but required that everyone be in the risk pool. Otherwise, young and healthy would likely opt out and leave insurers paying for more care while receiving less premium. All this, of course, has significant impact on health insurance producers. But we hear that many have already changed their business models to include different products, wider service or both. Others have decided to join larger firms that can handle the dizzying details or to move onto something else altogether. No matter what the outcome, reform has already led to historic change in distribution.


Prices for long-term care insurance policies offered today range from 6 percent to 17 percent higher than comparable coverage a year ago, according to the American Association for Long-Term Care Insurance “2012 National LongTerm Care Insurance Price Index.” The average cost for a 55-year-old single individual, who qualifies for preferred health discounts, is $1,720 for $165,000 to $200,000 of coverage today, the association says. By comparison, in 2011, the same coverage would have averaged $1,480 annually. Jesse Slome, executive director of the association, blames today’s historic low interest rates and yields on fixed income investments for the higher prices. Between 40 and 60 22

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May 2012

percent of the dollars an insurer accumulates to pay future claims comes from investment returns, he notes.


The Guardian Life Insurance Company of America recently debuted a lumpsum benefit rider for individual disability income policies. Available in the Guardian ProVider Plus portfolio, the patent-pending rider pays a one-time, lump-sum benefit equal to 35 percent of all benefits paid for total or residual disability over the lifetime of the policy. This benefit will pay out after the policy expires at age 65 (or 67, depending on policy configuration). Why offer a lump sum benefit in a product typically

written to provide monthly benefits? A period of disability during the prime earning years can interrupt a person’s savings accumulation, but the rider could help the insured regain economic footing later on, says the company. And the insured can use the lump sum benefit as desired, it adds.


AIG Benefit Solutions thinks some employers might like to offer a lump sum payout feature along with their long term disability plan. So the carrier developed Income PLUS, a rider that pays a lump-sum to disabled workers, in addition to the regular monthly long term disability benefit. The benefit pays out following a 180day elimination period, subject to an income replacement benefit maximum of 80 percent (for monthly benefit and lump sum combined). A feature like this “can be a solution for the employer who is managing to a tight benefits budget but wants to be able to offer employees solid coverage options,” says Christine Latore, director of disability product management.


Well, at least that is the conclusion the American Association for Critical Illness Insurance reached after studying results from its survey on critical illness

QUOTABLE Interest rates (in 2011) drove the pension funding deficit to record levels, and the record deficit drove everything else. We saw record pension expense and, for the first time in the history of this (Milliman) study, these pensions invested more heavily in fixed income than in equities. —John Ehrhardt, consulting actuary and co-author of Milliman’s “2012 Pension Funding Study”




WHILE 93 PERCENT OF THOSE WITH $25 MILLION+ IN NET WORTH say they expect to live comfortably in retirement, only 60 percent of people with $100,000 to $999,000 in net worth agree with that statement. Source: Spectrem Group, Chicago

insurance purchases in 2011. The study found that 29 percent of male buyers and 31 percent of female buyers bought critical illness policies with benefit levels of $10,000 or less, according to the association which partnered up with General Re Life Corporation to do the study. By comparison, only 9 percent of men and 8 percent of women sprung for policies written at over $50,000. The survey looked at data on 57,200 purchasers of individual critical illness insurance.


There is a new retirement income organization in town, and its name is the Defined Contribution Retirement Income Coalition. The group is the offspring of two trade groups—the Defined Contribution Institutional Investment Association and the Retirement Income Industry Association. Its mission: to design a framework for the associations’ previously-announced joint effort to establish a group of financial services and retirement industry firms that want to improve collaboration among providers of retirement income products, services and solutions. It also plans to help create a framework that will lead to more widespread inclusion of life income options in defined contribution plans. The founding organizations are welcoming inquiries from other financial services and retirement industry organizations that are interested in joining the coalition, so check with the founders for more details.


Ever hear of RICP? Probably not until March 2012 when the American College started announcing that it is now offering the “Retirement Income Certified Professional” (RICP), a retirement income designation program. The three-course program uses online video delivery and aims its content at advanced financial professionals who are looking for education on structuring retirement income plans for clients. It says RICP differs from the Chartered Advisor for Senior Living (CASL), a


Consumer Sentiment Conundrum The “uncertain economy” is making its presence, felt not only in the volatile stock market but also in diverging consumer sentiment surveys. For instance, Ameriprise Financial reported survey results from December showing a downshift in the confidence department. It found that just 33 percent of boomers felt very confident about their ability to assure a financially secure future for themselves and their family— down from 51 percent five years earlier. But, just two days later, Principal Financial published survey results showing a different picture. In its Well-Being Index for 4Q 2011, the carrier found an uptick in confidence among American workers. Specifically, 43 percent expressed some level of confidence in their ability to achieve their financial dreams—up 10 percent from the previous quarter. Then again, the Insured Retirement Institute came out with a study in early April, indicating that confidence in retirement security was “severely depressed” in February and March. Only 36 percent of boomers are confident they will have enough assets to live comfortably during retirement, the trade group found, with the confidence shortage even higher among single and middle-income boomers. Given that studies differ in so many ways, divergent findings are not unexpected. But could it be that both trends are going on at the same time, with the pressure of the long economic recovery darkening broad-based confidence but with some glimmers of optimism lighting up the corners? If so, that could be a signal that client needs and preferences may be about to change. five-course designation program that the College also offers, in that CASL focuses on financial issues facing seniors while RICP zeros in on building retirement income plans.


Most insurance experts agree that today’s market volatility is a big driver for sales of insurance products having lifetime guarantees. Now, registered investment advisor Curian Capital, LLC is saying that market volatility is likely to become a driver of alternative financial products, too. That’s based on the company’s November 2011 survey of 1,000 financial DID YOU



advisors. The researchers found that, as a result of continued market volatility, 60 percent of the advisors are planning to increase their use of tactical asset allocation and alternative investing strategies. Their reason: to diversify and stabilize their clients’ portfolio returns. If that happens, that will represent a substantial increase from today. After all, only 3 percent of the surveyed advisors said they currently have more than 25 percent of assets under management allocated to alternative investments. By the way, the Curian study had another interesting finding as well: two-thirds of surveyed advisors expect to increase their use of variable annuities in 2012.

THE VAST MAJORITY OF WORKERS WHO LEAVE THEIR EMPLOYERS with a loan outstanding—80 percent of African Americans, 76 percent of Hispanics, 71 percent of whites and 67 percent of Asians—subsequently default on them. Source: Ariel Education Initiative and Aon Hewitt May 2012

InsuranceNewsNet Magazine


The Glenn A. Neasham case still reverberates throughout the annuity industry. Many insurance producers are wary of doing business with seniors, particularly in California, where Neasham was convicted of felony theft for selling an indexed annuity to an 83-year-old woman. Although the annuity was approved by the state for buyers up to 85 years old, Neasham’s client had dementia at the time of the transaction, according to the prosecutor. Neasham and his assistants said they did not see any signs of it. Neasham was sentenced to 300 days in jail, which was reduced to 60 days. He is out on $20,000 bail pending appeal. After Neasham was convicted in October, the client’s son asked Allianz Life to refund the $175,000 annuity. Allianz did in January, with interest. Companies, associations, wholesalers and schools are conducting sessions on what went wrong in the case and looking at preventive procedures. Richard M. Weber, the president-elect of the Society of Financial Service Professionals and principal of The Ethical Edge, moderated a member webinar

on the case for the society in April. Experts interviewed in this program suggested to their audience that insurance and financial advisors must understand the implications of the case. Advisors are on notice that working with seniors put them at peril until they, their insurance companies and regulators determine a “safe harbor” that agents can follow to determine client competence. “Many advisors seem to think it couldn’t happen to them because they are committed to focusing on the interest of the client,” Weber said. “But beware of cognitive dissonance, because in today’s tricky regulatory climate—varying by product and state—what happened to Neasham could potentially happen to any agent without a well-considered process that they follow and document.” That is also the message that Richard W. Duff said he is trying to get across to fellow producers. He testified for Neasham in the trial and has since taken up the cause. He said all of the post-mortem sessions and new procedures are missing the point. “He didn’t commit a crime. This poor guy is hung out to dry and we are, too,” Duff said. “Who knows who is going to be charged next?” MORE


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IN THIS SECTION: The Case of the Missing E&O Many producers ask if Neasham had an errors and omissions policy and why it did not help. Neasham did have coverage, but it was null and void as soon as criminal (rather than civil) charges were levied against him. PAGE 25 Document Your Case, Save Your Career Some have suggested producers should conduct a minimedical exam on senior clients, but a doctor familiar with insurance cases says that might not be the best way for agents to protect themselves, and most agents do not have the skills to conduct such an “exam.” PAGE 27 Client’s Boyfriend, Son Play Role in Neasham Case The client’s boyfriend says he never knew Fran Schuber had dementia. PAGE 30

Visit for more on the Neasham case and for a link to a support fund that Neasham established.


The Case of the Disappearing E&O by Linda Koco


here was the errors-and-omissions carrier?” Advisors everywhere have been asking that question after learning that the errors-and-omissions (E&O) policy that annuity agent Glenn Neasham had did not provide him with defense support. Prosecutors had charged the advisor with theft for selling an indexed annuity to an 83-yearold woman, later said to have dementia. Neasham exhausted his personal resources to pay for his legal fees and was still convicted. The question that advisors are asking about the E&O carrier reveals the confusion that exists about what this insurance for agents and advisors will and won’t cover. It also lays bare a critical vulnerability that agents have if they are uncertain about what to expect from this specialized professional liability coverage. First, the short answer to the question: Neasham’s E&O carrier did not get involved in the case because Neasham was accused of the crime of theft. He disputeed the charge but it was brought as a criminal action and E&O policies do not cover crime-related claims. E&O policies do protect agents and other financial professionals from financial loss due to claims for errors or omissions, experts say. Although policies differ, the coverage generally pays defense expenses related to those claims and also helps cover settlements and court costs up to policy limits. “But in a typical E&O policy, there isn’t coverage for intentional wrongful acts,” says attorney Robin M. McConnell, an E&O expert at the Stone, Rosenblatt & Cha law firm. “Socially and historically, we don’t allow people to buy insurance policies for criminal action.” In event of crime, “you will have to pay the defense costs and the damages also, if you lose. That could be hundreds of thousands of dollars,” says Lawrence J. Rybka, president and CEO of ValMark Securities. Another area typically not covered is fines or penalties imposed by regulatory authorities, say experts.

“But in a civil case where there is an errors and omissions claim, your E&O policy will step in and help you,” says McConnell.

Other Points of Confusion Advisors have other uncertainties about E&O insurance, too. Experts say some do not understand the features of their policies, don’t think about updating their coverage regularly, don’t know what to do in event of claim, and don’t adopt procedures that help deter claims from ever arising. The nuances of all this can be a bit surprising. For instance, all E&O coverage is written on a “claims made” basis. Advisors may know that fact, but they may not understand what that means in everyday terms. Claims made means the policies cover claims that are reported during the current policy period, says the National Ethics Association (NEA), an organization that follows E&O trends for its members. If the policy includes retroactive or prior acts coverage, as good plans do, and if the advisor keeps E&O coverage continuously in force from year to year, it will even cover claims for acts or omissions that happened in the past, as far back as the day when the continuous coverage started. But if there’s a gap in coverage, the policy won’t cover for events that occurred before or during the gap. For that reason, gaps are something to “avoid at all costs,” says McConnell. Agencies would be liable for claims and losses during the gap, she explains, “and there is the potential for individual liability too, depending on the company and case particulars.” Even advisors who do keep their E&O coverage in force need to be continuously watchful. Specifically, they need to review their new policy every year, says Rybka, a certified financial planner who holds a

law degree. That’s because, at annual renewal time, “E&O contract exclusions can and do change,” Rybka explains. In addition, carriers can—and do—change deductibles, premiums, policy limits, rider options and other policy features at renewal time. So, if advisors don’t pay attention to the changes, they may think they have coverage for a certain exposure or limit or be subject to a certain deductible or provision that is no longer available. McConnell says advisors should regu-

Glenn Neasham with his daughter. larly go over policy features, limits and related matters with the E&O broker to be sure that these things fit with the firm’s current business needs and the products it sells. The needs and products may have changed from when coverage was first purchased, she explains.

Read the Policy A related issue is one that worries virtually all E&O experts. This is a pervasive feeling that many advisors do not ever read their E&O contracts, not even when they first purchase the policy. Some of this is understandable. As Rybka points out, his own firm’s contract for advisors is 68 pages long. “The exclusions are up front and then the riders add some of it back,” he points out. The length of the policies, the variety of options, provisions and limits, and the failure to read and understand the terms of coverage can combine to create costly misunderstandings. May 2012

InsuranceNewsNet Magazine



For example, once they get their E&O policy, some advisors don’t read it and assume that the E&O carrier will protect the advisor’s reputation if a claim should arise, says Robert D. Merz, president of The Merz Agency, an independent life brokerage agency. “They think they will have their day in court, and that they will be vindicated.” But that’s not what happens –or at least not all the time. Even though E&O coverage will cover the agent’s financial loss from being sued, Merz says carriers sometimes just settle a claim rather than expend the time and money to take the case to court. That tends to happen when the carrier’s interests and the advisor’s interests are not aligned, points out Rybka. Reading the policy and asking for explanations won’t stop that from happening, but it will help advisors know what could happen so they can make more informed decisions, say experts. Even some veteran producers are not aware of what could happen, they caution. For instance, they are not aware that things done or not done in the past can “come back to haunt them” in the form of E&O claims that don’t resolve as desired, says Merz. Many do make the right recommendations, he allows. “But some fail to note the details in the file, or sometimes they don’t file what they do have.” Then, if they are sued many years later, they will have few or no documents to support their defense. For that reason, Merz says he often finds himself reminding advisors to read their policies and to put notes in the files as a matter of routine. He tells of a recent case where the client had developed melanoma but decided to “roll the dice” and decline the opportunity to convert a life policy at normal rates. Merz said: “Let’s put a note about that in the file, and let’s also include the client’s follow-up email.” If the heirs come by later to complain, he says, the agency has documentation on the client’s decision.

Other Questions Here are some other E&O pointers all 26

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May 2012

agents and advisors A Paralegal Might Help should be aware of: IDEA Financial advisor Jean A. Dorrell says Mu st i n su ra nce she can’t imagine going without E&O agents carry E&O insurance. But she and some other insurance? “Most life financial advisors she knows also companies require subscribe to a type of paralegal sertheir appointed agents vice providing education and resources on risk mitigato have the coverage, tion where securities and financial matters are conwith a minimum limit cerned. The service includes hands-on legal support of $1 million,” says such as: a brief yearly legal consultation; legal referPerry Even, area senior rals at discounted rates; and coverage of costs for arbiv ice president for tration and mediation up to specified limits. Dorrell, a Arthur J. Gallagher & certified estate planner and founder of Senior Financial Co. and an E&O broSecurity, says she has never used the legal services. But ker. “The requirement if a dispute were to occur, she would look to the service started showing up in for arbitration or mediation support, rather than wait the late 1980s, and it’s until the issue turns into a formal complaint. close to universal now,” he says. Rybka’s firm requires it for all its advisors, too. advisors with multiple claims may not Are there extra considerations for even be able to stay in the business.” independent agents and advisors? Rybka points out that one carrier has Yes, says Even. “Independents are more a “three strikes” rule; the advisor’s covat risk than producers who are under the erage terminates if he or she has three umbrella of a broker/dealer, insurance E&O events. company field force or other supervisory What types of E&O claims are most arrangement. They have a real legacy to frequent today? Most of them involve protect, so they need to be risk man- cutting edge and innovative prodagers. That means they need to think ucts and strategies, such as alternative about transferring the E&O risk to an investments, says Even. He cites liminsurance company as well as make ited partnerships and real estate investsure that the breadth of their E&O pol- ment trusts as examples. Others include icy matches the footprint of their firm, life insurance related strategies involvespecially as it grows.” ing very large policies, and cases where Where can advisors find E&O cov- the customer ends up at a different place erage? Only five or six carriers write than when they started the transaction, the coverage today and “most people Even says. Rybka agrees and points to obtain their coverage through a group an E&O claim he recently heard about program,” says Rybka. His firm offers involving premium financing; the transa group program to its producers, and action was for $3.5 million. several advisor associations also offer A re l i fe a genc ie s se ei ng a n group plans. But individual coverage is increase in claims? The frequency also available, albeit individual coverage and severity of claims for life, annuity is generally more expensive, he says. and health agents in the private sector Do carriers routinely cancel cov- has not changed much over the past 20 erage on advisors whose claim they or more years, says Even. But agents paid? It can happen but it’s not auto- still have to document transactions matic, says Even. The outcome may with customers thoroughly, and work depend on whether the broker is in a hard to make sure commitments with group program or an individual plan. customers are met, he says. “When It will also hinge on case and prod- those things aren’t done, that’s when uct specifics. “The agent may be able you’ll have a problem.” to maintain coverage from that carHow stable is the E&O market rier or another one, though perhaps for itself? There have been no carrier exits a higher premium,” he continues. “But for several years, Even says. “In fact, a


couple of new carriers entered the market in the last few years.” In what areas do life and annuity agents get into trouble with E&O claims? “There are three major areas,” says Merz. “First, what’s in the client file? It’s good to document everything because you won’t remember things 10 or more years from now. Second, what’s not in the file (such as a recommendation against buying a product)? And third, what was it that the agent should have done but didn’t (such as following up on red flags)?” Where can advisors get help with an E&O claim or question? Advisors

should contact their broker, says Rybka. “A good broker will help you understand the language and negotiate for you with the carrier.” He says he knows of once instance where the broker helped turn a “no coverage” decision into a decision to pay a fixed amount to the client bringing action. Another option is to “consult an attorney who will contact the carrier and spur it to fulfill its duty under the policy,” says McConnell. “But do it quickly, because if a lawsuit is filed, there are timelines involved.” Where do business ethics fit into the E&O picture? One way to think about this is for agents to ask themselves

whether they are proud or embarrassed about what they did, suggests Merz. “If you are proud, you know that you’ve probably done the right thing. That’s not to say that ethical people can’t be sued, but the chances are less than if the agent didn’t try and didn’t document what they did.” Advisors can use that question to evaluate, say, whether to offer an older client a product that pays a big commission and/or has little or no liquidity, Merz says. To some advisors, “the cost of coverage may seem expensive,” McConnell sums up, “but it’s not as expensive as dealing with claims on your own.”

Document Your Case, Save Your Career by Linda Koco


nsurance agents can protect themselves from charges that they wrote insurance and annuity cases on people suffering with Alzheimer’s disease, and they don’t need to conduct a mini-mental exam to do it, says a forensic and geriatric psychiatrist. What they do need is thorough documentation in the client’s file, says Dr. Bennett Blum of Bennett Blum, Tucson. His suggestion comes in response to comments made about the Glenn Neasham court case in northern California. Neasham is an annuity producer who was sentenced in February for theft, stemming from sale of a $175,000 indexed annuity in 2008 to an 83-yearold woman. Prosecutors have said that the woman had dementia at time of transaction, but Neasham says he saw no signs of that. The case has spurred discussion around the country about whether advisors should start requiring elderly clients to take, and pass, a mini-mental exam before selling the elders a policy. This type of exam typically comprises five or six short questions that “test” a person’s memory capabilities. Blum thinks such exams will not help protect agents from dementiarelated complaints or lawsuits. His reason: “Insurance advisors typically do

not have the knowledge, skill and background to administer and interpret the results,” he says. “They are not social workers, nurses, psychologists or other such professionals.” If an untrained person conducts the exam, he explains, that increases the possibility that the tests will produce false positive and false negative results. Even when skilled professionals give the tests, he adds, “the findings must be correlated with actual behavior.”

A More Effective Approach

that are handling class action lawsuits involving insurance and annuity products and potential elder financial exploitation. He says he provides these reviews as part of his duties as background consultant for the law firms. “In almost 100 percent of the cases I have seen, the advisors have only included information about the client’s name, address, phone, product desired and amount of money involved in the transaction,” Blum says. Omitted are details about client statements or client answers to questions that would help reveal the client’s cognitive abilities or memory problems, he says. The psychiatrist says he is aware that insurance companies and agencies are

Blum believes that a more effective and simpler approach is for the advisor to document statements made by the client during the sales process as well as client answers to questions. The case has spurred discussion Seeing those comments about whether advisors should start i n t he contex t of t he entire sales process will requiring elderly clients to take, and help attorneys and courts pass, a mini-mental exam before review what the sales perselling the elders a policy. son did and the conditions under which the person did it, he contends. It will also help the subject to strong suitability regulations advisor identify whether an elder is and that many carriers and agencies do competent to do a financial transac- require, collect and keep documentation tion or not, he adds. in support of suitable transactions. Blum says he bases his suggestion But those are not the files that Blum on files he has reviewed for law firms sees. He says he sees the records of May 2012

InsuranceNewsNet Magazine



agents that end up involved in those class action lawsuits. He contends that actual statements by the client help show whether a client is normal and dealing appropriately or unusual and possibly unable to function.

Examples For instance, the advisor could ask why the client has decided on purchasing a particular annuity. If the client answers, “I reviewed annuities from several companies and I like yours the best,” the advisor should include that statement in the file, Blum says. Likewise document questions from the client, he suggests. For example, if a client asks—“When can I start collecting on this policy?” or “If I don’t collect from this policy, will the money be transferred to my estate so my children can benefit?”—then the advisor could put that into the file. At the conclusion of a transaction, when reviewing everything with the client, the advisor can also ask the client to summarize the purchase and its risks and benefits, Blum suggests. “Put the answer in the file, too.” Information like that could become important later on if someone should challenge the transaction on the basis of memory problems, Blum says. ”If there is documentation about what the client was saying and understanding, this can show the ability to think and reason.”

Big Believer Jean A. Dorrell is a big believer in documentation. As a certified estate planner and founder of Senior Financial Security, she says she has long maintained a “heavy, heavy, heavy documentation” process that helps her detect “clues and signs” of possible dementia or other problems in older clients. Here are some pointers she recommends, based on her process: • Learn about the signs of Alzheimer’s and dementia. • Note if the client keeps calling, asking the same question and/or forgetting previous discussions. 28

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• See the client several times, noting the family situation and the identity of the decision-maker. • Involve the elder-client’s child or children, and note any signs that the child is controlling the parent. “If that is the case, I don’t want to be involved,” says Dorrell. • If visiting the client’s home, note any signs of possible problems with daily living. Is the client a pack-rat? Is there a smell of urine? Is the person confused or does he/she have difficulty remembering? • Make a point of asking the same questions at different meetings with the client to see if you get the same answers. • Ask the client to repeat back what has just been said. • After placing the case, send the client’s adult children a letter telling them what has been done, for their records. Include contact information for them to call if they have questions. Ask each child to sign the letter and send it back to you for your records. “If they don’t send it back, we call them, sometimes as many as four times, or we ask the parents to have them sign the letter when the children next visit.” Her staff scans those letters into the file, so there is documentation that the advisor kept the children in the loop.

as well as other information—one for the client and the other for the client to share with the children or another trusted party. • Look to see if memory-related medications are on the list of the client’s prescriptions. Advisors often see this list when clients apply for long-term care insurance, Dorrell points out. Also, “if the long-term care insurance company turns down or accepts a client for coverage, you have documentation for that,” she notes. One concern that some people have with advisor documentation is that the advisor might document comments that the person never said. “It will always happen that some bad people will lie in the documentation,” Blum concedes. But when there are multiple meetings in multiple situations, and the advisor documents them all, it becomes harder for a person to forge or fake the documentation, he says. The more likely outcome is that relevant documentation will give the court

Actual statements by the client help show whether a client is normal and dealing appropriately or unusual and possibly unable to function.

• Survey elder clients every year. “Ask questions such as: Do you understand the benefits of your policy? Is there anything you don’t understand? Are you happy with our services?” Dorrell suggests. Keep the survey results with the other documentation. • Do annual client seminars or bring the client in for an annual visit. During that time, Dorrell says she goes over the client’s annuities and other products, the survey results and related items. She also gives the client two copies of a DVD containing this

reason to consider a case further, he says, as compared to a case where there is no such documentation and the advisor speaks from recollection. Some people believe advisors can deal with the veracity issue by recording the agent-client conversations. But Blum cautions that recorded words can be digitally altered. Even if there is no digital alteration, recordings can work against an advisor, he adds. That could happen if the attorney takes just a part of the recording, out of context, and plays it over and over again before the jury. Hence, his suggestion that advisors concentrate on doing thorough, relevant documentation throughout the transaction process.


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Client’s Boyfriend, Son Play Role in Neasham Case by Steven A. Morelli


rrors and omission insurance coverage is just one of many questions producers had in the wake of Glenn Neasham’s conviction. In the comments section on InsuranceNewsNet articles about the case and elsewhere, readers also asked about the role of the client’s boyfriend and family. The client, Fran Schuber, 83, visited Neasham at his Lakeport, Calif., office on Feb.1, 2008, with her boyfriend, Louis Jochim, to discuss buying an annuity similar to one owned by Jochim. A CD of hers worth $239,000 was about to mature and the couple thought she would get a better return from an indexed annuity. Jochim had made about 10 percent on his annuity the prior year. After assessing Schuber’s assets and needs, Neasham recommended a $175,000 Allianz MasterDex 10, a twotiered indexed annuity that had been the most popular for several years running. She bought other CDs and had $100,000 in liquidity remaining. Although Allianz Life has a policy of calling all applicants 75 and older, the company instituted the practice just a few weeks after the Schuber sale and had not called her, a company spokesperson said. A prosecutor said that Schuber was diagnosed with dementia in 2003 and argued the sale was theft because the annuity limited her access to her money. The MasterDex 10 had a minimum five-year deferral with a minimum 10-year payout of the annuitzation value, according to Allianz. After the five years, the owner could annuitize and get a guaranteed income for 10 or more years up to life. During the deferral period, the owner could take out 10 percent of premiums annually as a penalty-free withdrawal. In addition, if the owner went to a nursing home, the owner could take the full value out over five years. The MasterDex10’s annuitization value started with a premium bonus and then could accumulate with the choice of fixed or indexed interest allocations. The product was not designed for lump-sum surrender. 30

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Neasham was convicted of felony theft from an elder and sentenced to 300 days in jail, which the judge reduced to 60. Neasham has said and two of his assistants testified during the trial that they did not see any signs of dementia during two meetings with Schuber. A question many readers have had is why didn’t Jochim tell Neasham about Schuber’s dementia? Jochim said he didn’t say anything because he did not know about the dementia. “I didn’t know there was anything wrong with her,” said Jochim, who lived with Schuber and knew her for more than 15 years. “In the later years she was getting forgetful, sure, but she still did her own work. She cleaned house, did some dusting, made her bed herself if I wasn’t there to help her. And she’d do some things in the kitchen.” Jochim said he was not aware of any dementia issues or diagnosis until Neasham’s trial, which started in September 2011. The prosecutor, however, said Jochim told investigators soon after the sale in 2008 that he knew. “The boyfriend told my investigators a few months after the transaction that she had been diagnosed with Alzheimer’s, so it seems a little strange that it wouldn’t have been mentioned during this transaction,” said Rachel Abelson, the Lake County deputy district attorney who prosecuted the case. The district attorney’s investigators had become involved after Schuber and Jochim visited a bank branch to take money from the maturing CD to purchase the annuity. The branch manager called the county elder abuse unit to complain about Jochim’s influence over Schuber. Investigators interviewed Schuber and Jochim at their residence on April 1, 2008. An audio recording was made of the meeting but prosecutors denied the existence of the tape until closing arguments during Neasham’s trial. It was not played for the jury. But the jury did see a video of an interview with Schuber from the summer of 2011 in which she by all

accounts appeared to be suffering from dementia. During the trial, which started in September 2011, Schuber’s son, Ted, had his mother “conserved,” meaning she and her assets were turned over to his care. Neasham had contacted Ted Schuber during the sale process in 2008 because he was concerned that Fran Schuber had named Jochim the beneficiary rather than her son. Neasham said he explained the annuity to Ted Schuber and discussed the beneficiary. Ted understood and said his mother was free to do whatever she wanted, Neasham said. Ted did say he was worried about his mother’s health, but Neasham said he was not specific. Neasham then had Fran Schuber and Jochim sign a letter that they understood the annuity and acknowledged that she wanted Jochim to be the beneficiary rather than her son. During a phone call with InsuranceNewsNet, Ted Schuber hung up as he was asked why he did not tell Neasham about his mother’s dementia. Jochim said Fran Schuber named him because she did not want to leave her son anything. “She has one son and I hate to say the word, but she hated him the whole time we were together,” Jochim said. “I never wanted anything she had. She gave everything. She wanted me to have it. She was willing to give it outright to me and I said that would not be right. I just wanted her to have that money for herself whenever she got old. And the only time he came around in all those 15 years is [when] he wanted her to turn over everything she owned to him.” Jochim moved out after Schuber was conserved, he said. “It’s the hardest thing I’ve ever done in my life, to walk away.” Steven A. Morelli is editor-inchief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at



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TERM LIFE INSURANCE REPRESENTS 65 PERCENT OF COVERAGE and nearly 40 percent of all new individual life policies issued in the U.S. Source: LIMRA, 2011

Indexed Life Sales On A Roll At nearly $1 billion in target premium, indexed life insurance sales in 2011 were up by nearly 40 percent over the previous year, says That is based on data from 42 insurers representing over 99 percent of production, the firm says. This was the second consecutive sales record year for these products. Fourth-quarter sales hit a new record too, coming in at $321.1 million. The quarter’s sales were up nearly 28 percent over third quarter and up over 45 percent compared to fourth-quarter 2010, making for the fourth consecutive record quarter of indexed life insurance sales, says.


During its 2012 session, the Florida legislature passed an appropriations bill (HB 5001) that calls for the creation of a taskforce to study conversion of life policies to long-term care (LTC) plans. The specific charge is to examine “methods to allow an insured under a life insurance policy or the contract holder of an annuity, to convert the policy or annuity to a long term care benefit,” and to report back to the legislature in 2013. The study will include analysis of cost savings to tax payers derived through the conversions as part of a required Medicaid spend-down eligibility regimen, says Chris Orestis, president of Life Care Funding Group. This is a “positive step forward,” says the long-time advocate. Life insurance to a LTC plan conversion is the “legal right of every policy owner in the United States,” he says.


Lincoln National Life has won a lawsuit, filed by Oklahoma State University, over a unique fund-raiser that had encouraged alumni to buy $10 million individual universal life policies and list the university as the beneficiary. An A.M. Best report says that Cowboy 32

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Athletics, the fund-raising foundation of the university’s athletics department, and billionaire financier T. Boone Pickens were the plaintiffs. They had sued Lincoln in an attempt to recover $33.3 million in premiums, related to the 2007 fund-raiser, on grounds that they had cancelled the policies within the 10-day free-look period. But the U.S. District Court for the Northern District of Texas ruled otherwise. According to Best, the court said the university was not entitled to cancel the policies under the free-look period because the contracts were purchased in 2007 and canceled in 2009.


Life insurance sales has a “missed opportunity,” and that opportunity is in the middle market, says a Conning Research & Consulting report. The researcher found that this missed opportunity has grown over the last five years to reach $10.2 trillion. Conning Director Terrence Martin says the financial crisis and recession were key drivers, since both had “farreaching effects on income, asset values and debt levels.” Going forward, the rising cost of health care, especially in the middle market, may lay open “an

emerging, largely unrecognized need for life insurance planning,” he adds. Penetrating the mid-market is not without challenge. Another Conning Director, Stephan Christiansen, points to distribution issues (such as cost and access) as examples. But he says increased use of the internet channel and social media marketing support may help. In the underwriting area, Christiansen says predictive modeling and a more automated underwriting process hold promise. No doubt, insurance and financial advisors have some ideas too — maybe it’s time to let’em rip.


“SOLAR” stands for self-owned life and retirement, says the U.S. insurance division of ING. Employers can use these arrangements to provide key executives with supplemental retirement income through a cash-value life insurance policy, in addition to providing death benefit coverage and tax-deferred growth in accumulation value. If you haven’t heard about them, that could change. The insurer says employers are increasingly adding the arrangements to compensation packages as a way to reward and retain valued talent. The benefits differ from corporateowned life insurance (COLI) arrangements, ING points out, in that an employee (instead of an employer) owns the policy. The employer can pay for all or some of the annual premiums, ING continues, and this may be tax-deductible for the business.


Most consumers find it overwhelming to calculate the total amount of life insurance needed to pay for a lifetime of expenses. —Michael Babikian, executive VP and CMO of Transamerica Brokerage



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Clients can take advantage of favorable estate tax laws, but they have to get over certain money control issues B Y TO M V I R K L E R


n old Baptist pastor named Vance Havner once said, “It doesn’t take much religion to apply scripture to somebody else’s life!” And the same is true of financial advice. In these heady, waning days of the $5 million lifetime transfer tax exemption (recently raised to $5.12 million), it is an easy task for a planner to assess the situation of their very wealthy clients and quickly suggest that $5 million to $10 million worth of assets be moved out of the taxable estate before that planning window closes at the end of the year. It seems like such an easy decision for someone worth, say, $30 million or more. After all, how many yachts does it take to water ski? But, as Pastor Havner reminded us, it’s easy to determine what might be best for someone else without fully appreciating all the practical effects. The reality is that it is difficult to give up control of something irrevocably, even where it would appear that the transferred property will never be needed. Fear of “donor’s remorse” can cool the enthusiasm of wealthy clients, despite the opportunity for hefty estate tax savings. Generally, four concerns prey on the minds of a client considering a transfer: 1) What is the significance of the tax savings achieved?; 2) Is there a possibility of reclamation of the property down the road if needed?; 3) If it can’t be reclaimed to what extent might I use and enjoy the benefits of the property?; and 4) If I can’t reclaim or use the property now much control over it might I maintain? Be ready to reference at least six planning opportunities for clients hesitant 34

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May 2012

to let go of assets, each with a different dynamic between these four competing urges. All of which provide separation from the transfers in varying degrees, with differing results. Since not all separations are equal, one might suit the situation better than another. The good news is that they all work well to assuage the same concerns, even for smaller transfers. And here is a breakdown of the six degrees of separation:

1) Do You Trust Your Spouse? A spousal lifetime access trust (SLAT) allows vicarious access to the transferred property. The client can transfer separate property to a trust in which his or her spouse has a lifetime interest in the form rights to income, certain withdrawal privileges and discretionary distributions for health, maintenance, education and support. In some cases, the spouse can even be the trustee who decides when distributions are to be made. Proceeds from life insurance on the grantor inside the trust are not includible in the taxable estate of either spouse. Disadvantage— The grantor/donor client must be married and probably would do well to make sure there is no degree of separation from the beneficiary spouse. Also, if the beneficiary spouse dies, the surviving donor

spouse loses vicarious access to the trust assets. Sometimes insurance is purchased on the beneficiary spouse and owned by the donor spouse.

2) Either a Borrower... If you can’t continue to own or have vicarious access, then consider the ongoing opportunity for the use of the property, especially if it is liquid. The standard provisions of most trusts give the trustee power to make loans of property, even to the grantor. A properly drafted loan agreement with reasonable terms between the client and trust allows the grantor use of the trust principle. Interest payments based on the applicable federal rates (AFR) and made to the trust are not subject to gift taxation. At death, any existing indebtedness is repaid back to the trust and is not included in the taxable estate. Un-borrowed funds that remain in the trust can be used to purchase life insurance or premiums can be made with the interest payments made on the loan by the client to the trust each year.

3) ...Or a Lender Be Under a private financing arrangement the client can lend money to a trust in return for a promissory note and interest payments each year in the amount of

PLEASE NOTE: This article is not to be confused in any way with the social pastime activity referred to as the Six Degrees of Kevin Bacon.

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LIFE | 6 DEGREES OF SEPARATION — FROM THEIR MONEY the AFR, which are currently very low. The spread between what the money can earn in the trust and the AFR can be used to fund life insurance in the trust whose proceeds will be outside the taxable estate. When time comes to repay the loan principal, all the appreciation on the property and much of the income it earned has been kept out of the estate. If, under a worst possible circumstance scenario, the trust defaults on a payment or the entire loan, the amount in either case is a potentially taxable gift from the lender. Disadvantage—The loan amount is ultimately included in the taxable estate.

4) A Tail Wagging the Dog Creating a family, limited partnership with a minority controlling interest allows the client to maintain control while getting the bulk of the asset value out of the taxable estate. The normal valuation discounts, especially in a depressed market, and minority interest and marketability discounts allow for further leverage of the lifetime exemption. Disadvantage—The small ownership interest maintained by the client limits the extent to which he or she might benefit from the use of the property.

Most insurance companies see policies.

5) Use It, Then Lose It Exemptions or exclusions to protect transfers from gift taxation might be hard to come by in some situations, especially after December 31. Various iterations of a grantor retained annuity trust (GRAT) can allow for the tax-favored transfers from the taxable estate using both the discounting techniques common to family LLCs in addition to that which results from the period certain stream of income payable to the donor/grantor as calculated under the IRS rules. Disadvantage—If the donor does not survive the period certain, the property reverts back to the taxable estate. Protection against the potential tax cost of this mishap is often accomplished through the purchase of life insurance on the donor during the term of the income stream.

6) Charity Begins at Home The focus of planning efforts can often become too narrow. Sometimes potential

estate tax liability is not an issue—especially when a client has no heirs, has heirs for whom they have already provided sufficiently or have some that they just plain don’t like. The intended beneficiaries may be nonprofit entities and the client, aware that all transfers at death are protected by the unlimited charitable estate tax deduction, plans to do nothing during life. Suggest the advantages of some from of a charitable remainder trust (CRT) or its simpler form, the charitable gift annuity (CGA—the poor person’s CRT) which gets property to the non-profit donee gift tax-free, but also can generate an income stream to the donor and provide a current income tax deduction that might play a significant role in other current planning needs. The ability to help a client view and assess a planning situation as something more than just an irrevocable transfer with some gift tax savings is a valuable service. Informed suggestions that will motivate them to seek the more specific and indepth advice of their legal and tax advisors may well result in the implementation of a plan where insurance protection is desirable and, at the same time, allow your client to experience various degrees of “eating their cake and having it, too!” And just for the record—This article is not to be confused in any way with the social pastime activity referred to as the Six Degrees of Kevin Bacon. In a 1994 magazine interview, the actor humorously suggested that he had either worked with everyone in Hollywood or with someone who has worked with them. Almost immediately, the remark gave rise to the informal party game in which a name in the cinema world has to be connected by association to Bacon in as few steps as possible, based on involvement in various films. He disliked the game at first, but would later soften to the publicity and other rewards that all the attention would bring his way. Tom Virkler, JD CLU, is director of CPS Advanced Markets, where he assists brokers, as well as other professional advisors involved in work with clients, concerning matters of estate and business planning and issues of income and transfer taxation that attend the sale, implementation and administration of products and plans. Tom can be reached by telephone at 706-354-0401 or at

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hen you become a home- but they may want maximum coverage owner, you purchase home for the least price. Obviously, that calls for insurance. When you buy term. Or they might be savers but don’t your first car, you purchase feel like they have enough income to put auto insurance. The same money away and buy life insurance. That goes for renters insurance, business insur- is a perfect argument for permanent. All ance and so forth. Well, what about life the better is the option to take out a loan insurance? later in life if an emergency or opportuMany clients often question which age nity pops up. is the best age to look into this policy. The point is to draw out what suits the You know every age is good, but your cli- client. If you do this right, you’ll have clients would expect you to say that. How ents who will be willing to turn to you do you show them the value of insurance for help throughout their lives. Pair this throughout their lives without seeming with a solid annual review and you’ve got like you are just trying to sell them some- a built-in business booster. thing? You can point out a few factors that can hint toward what time is the T hose who a re Once you are right time and examples that illusma r r ied shou ld trate the value. And as an insurance never wait until 30 married agent, it is important to let your clior older to purchase ent know about these factors. life insurance. Once So, the next time a client asks—“When one says “I do,” the coverage should follow is it a good time to purchase life insur- immediately. Without it, couples would ance?”—here’s what you can say: be putting each other at risk for financial devastation if something unexpected Twenty-six is the most should happen. For example, if a husband does not -20s common age for indiyour mid viduals to get married, have coverage and passes away, his wife according to statistics. would be left with the mortgage, finances This also shows that this is a and children. If there is no coverage in common time that individuals are moved place, there won’t be a second income to into their own place and have a career. help pay the bills. All too often, a spouse Those who are outliving the single life is left with an entire mortgage and ultiare still 100 percent at risk. Chances are mately loses the house. What client do the client still has parents and siblings. you know that would ever want this to Consider this scenario: the individual happen to their loved one? and her sister have co-signed on a lease. If Here again is an excellent opportunity the client should unexpectedly pass away, to connect with your clients. Talk to the the contract will be left entirely in the sis- couple about their values and vision. If ter’s name, leaving her with a chunk of they are worried about saving, here again debt without any financial help. This is is an opportunity to talk about the many a great example to give your clients. It features of permanent life insurance. You may have them purchasing life insurance probably have stories about individuals before you know it. and businesses that sustained themselves Also, it is a good idea to let your client through tough times by taking out polknow that life insurance can be designed icy loans. Or maybe you can recount how to cover final expenses. A family will others very late in life had a plump life already have enough to deal with if a policy that they built by putting a little loved one should pass away unexpectedly, away from an early age. never mind the expensive funeral costs. But this is typically when term makes Having coverage will make this situation the most sense. Young parents are hypermuch easier on family. focused on their children and worry Is term or permanent the best choice about what would happen to their kids at this age? This is a good question to if one or even both parents died. They explore with clients to fit their style and might lean toward the greatest amount needs. Their incomes are probably low for the least price, especially with all the

household and child-rearing expenses. Here is another opportunity to illustrate with a story. If you have ever delivered a death claim to a young widow and widower and made a difference in their lives, tell the story. If you never have, but someone you know has, tell that story.

While you Those who look into coverage in your beasre t wh i le i n t hei r health prime will have much lower premiums than those who decide to wait. A life insurance premium is determined by a number of factors — from health, age, weight, height, risks, etc. Many times, the younger someone is, the better their health is. It is much better for clients to insure their life now, while coverage is cheap. Always remind your client that if they wait too long, they may not receive the best rate or even coverage at all. It is much better to be safe than sorry. Do you know of someone who waited too long to get coverage? You might have a story of giving a client a quote for coverage but he or she postponed a decision. Later, the client returns to find the rate has increased or a health issue made them uninsurable. Again, if you haven’t had this happen, someone else you know might. Find the story. Purchasing life insurance really depends on the person and the factors in their lives. And this is exactly the information you should be passing along to your client. The bottom line: whether your client is single, married, divorced or separated, life insurance is a crucial policy to have. Not only will it protect a client’s possessions, final expenses and debt—but it will also, most importantly, protect their loved ones. How do you persuade clients to do the right thing? You don’t. Tell the right story and clients will persuade themselves. Lloyd B. Sabatelli is the agency principal at New York based Marchetti & Sabatelli Associates, Inc. His insurance experience includes the creation of a niche marketing program. He can be reached at

May 2012

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[ ANNUITY WIRES] Indexed Annuities Struggled a Bit, But Still a Hit Indexed annuity sales had a tough fourth quarter, but that did not stop the product line from hitting some new records. Consider: fourth-quarter sales fell by just under 5 percent, compared to third quarter, and by just under 1 percent when compared to the same period last year. But on a year-over-year basis, indexed annuity sales rose by nearly 1 percent to hit a new record of $32.3 billion, according to In fact, 2011 marked the fourth consecutive record year for indexed annuity sales, says Sheryl J. Moore, president and CEO of Moore Market Intelligence, which owns Furthermore, indexed annuities took a 48 percent share of fourth quarter’s fixed annuity sales, according to Beacon Research. The researcher says that was a record high for the product line. (Beacon’s estimates put indexed annuity sales at $33 billion for the year, nearly on par with the AnnuitySpecs. com figure.) Considering Beacon’s numbers, that total fixed annuity sales in 2011 fell by 1.1 percent to $75.6 billion, the record-setting performance of indexed annuities in 2011 is a definite head-turner. So what drove those sales? Well, according to Moore, it was sales of indexed annuities with guaranteed lifetime withdrawal benefits elected. Those sales represented 58 percent of total sales in the fourth quarter, she says, noting that this was yet another record for the product line.


Income annuity sales grew by almost 18 percent in fourth quarter and nearly 7 percent in 2011 to a total for the year of $8.5 billion, according to estimates from Beacon Research. They also hit a record 13 percent share of fourth quarter fixed annuity sales, Beacon says. Considering that lower interest rates and a flatter yield curve reduced payouts, the products did “remarkably well,” comments Beacon CEO Jeremy Alexander. Why the momentum? Income DID YOU




annuities generally provide the most retirement income bang for the buck. And both advisors and clients are becoming aware of how these products can be used to create a personal pension, he says.


A lot of speculation exists over whether variable annuities can hold their own when up against, say, mutual funds. Apparently, they can and do. According to a study of 500 financial advisors commissioned by AllianceBernstein,

THE HARTFORD FINANCIAL SERVICES GROUP WAS FOUNDED IN 1810 as The Hartford Fire Insurance Company. It entered the life insurance business in 1959 when it bought Columbia National Life.

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May 2012

LLC and the Insured Retirement Institute, the average allocation for new clients is 29 percent into variable annuities and 14 percent into mutual funds. The other allocation categories are IRAs (14 percent), life insurance (8 percent), unified managed accounts/ mutual fund wrap accounts (6 percent) and other (29 percent).


The 2011 annuity sales results from LIMRA make a strong case for heft. That is, the top-five selling carriers really cleaned up. For instance, the top five annuity carriers, based on total sales, wrote 42 percent of all annuity sales in 2011, the researcher reports. In the variable annuity category, the top five carriers wrote 56 percent of all variable annuity sales that year. As for fixed annuity sales, the top five did not capture as much share as did the variable annuity top five, they still made their presence felt in their market, taking 38 percent of all fixed annuity sales in 2011.


MetLife accounted for the most annuity inflows in 2011, as tracked by the Depository Trust & Clearing Corporation’s Insurance & Retirement Services. The carrier earned a 17 percent market share for that. Jackson National came in second and Prudential/Pruco, third. AIG Companies and Lincoln National were fourth and fifth, respectively, but they nearly tied.

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Low Rates Mean an AMAZING NUMBER OF CHOICES for Indexed Crediting B Y S H E RY L M O O R E


here are some things that just go together and you cannot imagine one without the other. You know what I’m talking about... Summer and popsicles. Ball games and “the wave.” Sonny and Cher (oh, wait— scratch that one)… um, John and Yoko. Sheryl and indexed insurance products. You get the idea. But did you know the indexed annuity industry also has two things that go together “like peas and carrots?” Perhaps you haven’t noticed how low interest rates seem to go hand-in-hand with new ways to credit indexed interest on my favorite type of annuities? Well, if so, you can now consider yourself notified of what I like to call the “indexed crediting enigma.” Before I explain this phenomenon, I want to make sure you have a proper understanding of indexed crediting. There are four simple questions to ask in order to understand how to calculate the indexed interest on indexed annuity products. 1. What is the index used? Indexed annuities earn interest based on the performance of an external index such as the Standard and Poor’s 500 index (S&P 500®). This is what makes it an “indexed” annuity. Interest can, however, also be based on external benchmarks such as a bond index, a commodity, a mutual fund or a 42

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May 2012

combination of two or more of these options. (And no, this would not make it a “commodity annuity,” it is still referred to as “indexed.”) Indexed annuity purchasers have 24 different choices for indices upon which to base their indexed interest on today. Plus, most indexed annuities also offer a fixed crediting method option, which credits interest just like a fixed annuity. 2. What is the index crediting method used? When we look at the index to determine the interest that should be credited, what calculation do we use? The indexed crediting method is what establishes which formula we are using to calculate the indexed interest. The most common formula used to calculate indexed interest is: ( A - B ) / B. What value is used for A and B? A is the starting index value and B is the ending value. Those are also determined by the crediting method. The three most common crediting methods utilized on indexed annuities are annual point-to-point, monthly averaging and monthly point-to-point. All three of these crediting methods use some variation of the aforementioned formula to calculate the gain on the annuity. Indexed annuity purchasers, however, have their pick of up to 21 distinctly different ways of calculating their indexed interest today.

3. What is the index crediting frequency? In order to calculate any potential gain on the contract, we need to know over what period of time we are measuring the index (a.k.a the index crediting frequency or indexing term). If we are reviewing the index over a one-year term and crediting any potential interest at that time, then this is what we call an “annual reset.” If we look at the index and credit interest at the end of a two-year term, it is a “biennial reset.” Today, there are nine crediting frequencies available on indexed annuities, ranging from oneto 12-year terms. 4. What is the pricing lever used (a.k.a. “moving parts”)? All gains on indexed insurance products must be limited through the use of a “pricing lever.” If the indexed interest was NOT limited, the insurer could not afford to offer a minimum guarantee on the product in addition to indexed interest. Indexed annuities’ minimum guarantees are important because they provide a promise that the purchaser will never lose money as a result of market losses. So then, what are examples of different “pricing levers” that enable purchasers to have this peace-of-mind? Participation rates, caps and spreads are the most common ways of limiting

INDEXED CREDITING ENIGMA | ANNUITY indexed interest. Albeit true that each of these “moving parts” functions differently, they are all just three different ways of doing the same thing: limiting any indexed interest that may be credited to the annuity contract. And although these three pricing levers are universally recognized in the indexed insurance market, other methods have been used to limit potential indexed gains. Methods such as thresholds, breakthrough levels, multipliers and even forced asset-allocation models (normally a variable annuity feature) have been used to limit indexed gains on annuities. Simple, right? Maybe when considered individually, but when combined into one product, these choices present A LOT of options for both the agent and the annuity purchaser. And talk about choices... just over a decade ago, we had as many as 56 different methods used to calculate the indexed interest on indexed annuities! This, along with all of the different index choices, crediting frequencies and pricing levers that have ever been offered on indexed annuities, would result in hundreds of thousands of indexed crediting combinations if offered simultaneously! Yet the “indexed crediting enigma” continues to grow. This chart below illuminates how indexed annuity crediting choices have changed over just the past few years:

You’ll notice that the number of differ- London Gold Fixing Price, and the S&P ent choices was fairly minimal in 2005. GSCI. And if you think that is a big jump This was due to mandates from broker/ in light of past trends, consider that five dealers (B/Ds) on the maximum num- new crediting methods have also been ber of crediting options that could be introduced recently: annual point-tooffered on indexed annuities in order to point with breakthrough level, two-year meet their “approved list” criteria for reg- point-to-point with breakthrough level, istered reps selling indexed products. But inverse performance triggered, modified since that time, B/D’s criteria have eased substantially. It is terribly difficult to And that is a lucky thing for insurance companies convince people that indexed trying to get the attention annuities are not “complex...” of independent agents during a time when the average annual point-to-point cap is a mere 3.32 annual point-to-point and performance percent. Indexed annuity rates have been triggered with multiple indices. depressed since the collapse of the econAnd if I haven’t yet caught your eye, omy in 2008, but they have never been as you can now sell indexed annuities low as they are today. This has resulted using a “breakthrough level” or “mulin product manufacturers “innovating” tiplier” as the “moving part” in addition via new indexed crediting mechanisms. to our traditional participation rates, These new mechanisms may not offer caps and spreads. any greater intrinsic value over previous It is terribly difficult to convince peoindexed crediting mechanisms, but they ple that indexed annuities are not “comallow the product manufacturer to adver- plex” when you need a doctorate in tise more attractive rates on the indexed mathematics to figure out how much annuity, thus getting the agent’s attention. interest will be credited to your retireAnd just how are we getting the agent’s ment income vehicle. Although that is attention as of late? In just the past cou- true, the vast majority of indexed creditple of months, the “indexed crediting ing is still quite simple, less “exotic” and enigma” has expanded dramatically. Five relatively easy to calculate. new indices have been introduced on That being said, one must also conindexed annuities including the LIBOR, sider that it is “complex” to make the MSCI EAFE, MSCI ACWI, the PM right retirement vehicle choice when one product offers the potential for doubledigit returns and another offers potential gains that are no greater than the number of fingers on one of your hands. (Never mind the fact that the product with the more attractive rate subjects the purchaser to market losses.) It is often difficult to tell our story, and it has never been more difficult than today. So, until Bernanke tells us rates are turning around, the enigma will continue. Sheryl Moore is President and CEO of Moore Market Intelligence, an indexed product resources in Des Moines, Iowa. She has over a decade of experience working with indexed products and provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at

May 2012

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he Financial Industry Regulatory Authority (FINRA) reports lower investor complaints—with 2,979 received in 2011 compared to 3,208 the previous year, and also well below the 5,405 reported in 2008. The number of disciplinary actions filed, however, increased from 1,073 in 2008 to 1,488 in 2011. FINRA barred 329 reps from the securities industries and managed to collect $68 million in fines—a 50 percent increase from the previous year. 2979 FINRA customer complaints versus 50 FIA ones. The National Association of Insurance Commissioners (NAIC) and FINRA make it easy to find total complaints, but they are the exception. The North American Securities Administrators Association (NASAA) won’t release state securities complaints until much later. And the Securities Exchange Commission (SEC) has revised their reporting so that I can’t find 2011 complaints at all (although it appears they initiated 488 new cases last year). But I was able to document at least 16,130 securities complaints in 2010. It is impossible to make exact comparisons. There are perhaps six to 10 times as many registered reps and advisors out there as there are fixed indexed annuity (FIA) agents, and FIA assets are in the billions while securities assets are in trillions. I estimate, however, there were roughly 500,000 FIA sales in 2011 (IC, 2/12) and only 50 complaints, meaning 99.99 percent of indexed annuity buyers did not file a complaint.

The Lowest Indexed Annuity Complaints in Years By 2007, the indexed annuity carriers were averaging one customer complaint for every $109 million of premium sold. But over the last four years, indexed annuity complaints dropped dramatically. In 2011 there was one indexed annuity complaint for every $660 million of premium. Total 44

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indexed annuity closed-customer complaints against carriers offering indexed annuities in 2011 were 50, contrasted with 80 the previous year. 2011 complaints were the lowest in 7 years and 6 TIMES LOWER than they were in 2007. Led by Phoenix (PHL) Life and Security Benefit, 20 of the top 30 indexed carriers had no indexed annuity coded complaints last year. Other top carriers with zero complaints were EquiTrust, American National, American General, Americo, Lincoln Benefit, CUNA, Reliance Standard, Western National, Liberty, UNIFI and Sagicor. Looking back at the 54 carriers that have written indexed annuities over the past seven years— including both currently active and inactive sellers—37 of all indexed annuity


carriers received zero complaints. The worst complaint record for a top-20 annuity carrier was one complaint for each $73 million of sales. The NAIC gathers data on customer complaints from all of the state insurance departments. This information is available on the Consumer Information Source part of the association’s website ( on a per company basis and is not comprehensive. The sales data source is Beacon Research Fixed Annuity Premium Study and direct reports. I reviewed and totaled the number of closed-customer complaints for 2011 relating to

Complaint Factor Chart This chart compares the complaint ratio per dollars of annuity sales of the top nine index annuity sellers with the industry average NAIC index annuity coded complaints, represented by 1.0, since 2002. To wit, if a carrier’s complaint factor is 3.0 it means the carrier had three times the industry average complaints per dollar of sales, if the factor is 0.5 the carrier had half the industry average complaints; zero means no complaints for the carrier. Lincoln National Life and Great American were tied with the lowest level of complaints for the last ten years with the average insurer generating five times more index annuity complaints than these two carriers.

INDEXED ANNUITY COMPLAINTS PLUMMET | ANNUITY all indexed annuities that are currently offering annuities or have offered annuities within the last 7 years. And, all in all, indexed annuity coded-complaints declined significantly for the fourth year in a row. In both total complaints and in relation to sales, the 2011 complaint ratio is the best since 2004. No C ompl aint C ar r ier—T he one active carrier that has never received a complaint in the 10 years I have been compiling statistics is Union Central (UNIFI). Total Annuity Complaints—There were a total of 281 complaints against these carriers coded as general annuity complaints. Although often many of these carriers also offer stated rate and variable annuities, I believe a percentage of these generic annuity complaints are miscoded indexed annuity complaints based on the relative sales of the different annuity lines. Even so, total 2011 complaints against indexed annuity carriers decreased 81 percent when compared to 2008. Suitability & Misrepresentation Complaints—It is difficult to single

out complaints for misrepresentation or unsuitable selling because this data is not broken out by product type, but only by carrier. Misrepresentation and suitability complaints were 121 and 65 respectively, which is significantly better than the previous year and down over 80 percent from the 2008 high point. These complaints are not indexed annuity specific.

Caveats I find there were 50 specifically-coded indexed annuity complaints. The NAIC reports 53 in its report, “Complaints By Coverage Type.” The reason for the difference is because I tally the actual complaints per carrier for only those carriers that sell, or have sold, indexed annuities. The NAIC’s totals include miscoded indexed annuity complaints against carriers that do not offer indexed annuities. My numbers, however, are not 100 percent accurate either. It appears there were 10 annuity complaints that were miscoded as variable annuity complaints (because the indexed annuity carriers with these complaints do not offer

variable annuities). And if some or all of these were included, then the average sale per complaint would drop. But a dozen other indexed annuity carriers also offer variable annuities and it is probable some of their indexed annuity complaints should have been coded as such—as “VA.” These closed customer complaints cover the gamut—from fraud to delays in policyholder services. And although the complaints are closed, I am unable to determine how many were resolved in favor of the carrier versus the agent. The database relies on voluntary reporting from the state insurance departments and may not be thorough. And lastly, this does not include indexed annuity complaints filed with securities regulators. Jack Marrion runs Advantage Compendium, a research consultancy to the annuity industry. His book for annuity producers, “Change Buyer Behavior And Sell More Annuities,” explains how consumers really make buying decision and steps the producer can take if they need to change the consumer’s mind. He can be contacted at

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Wellness Programs On The Rise

OUT-OF-NETWORK PRIMARY CARE PHYSICIAN CO-PAYS are now 53 percent higher than in-network co-pays, compared to a difference of just 16 percent in 2011. Source: HighRoads, Woburn, Mass., and the Corporate Executive Board

13% 60%

There has been a lot of talk these last few years about how wellness programs can help improve employee health — and the health-care claims experience. But are employers buying in? Yes, 2010 2011 new research suggests they are. For example, 60 percent of nearly 1,600 employers with 1,000 or more workers had some type of wellness program in place in 2011, according to the Human Capital Practice of Willis North America. That’s up from a mere 13 percent in 2010. The initiatives include physical activity programs (53 percent), tobacco cessation programs (49 percent) and weight management programs (45 percent). Likewise, 79 percent of large and 44 percent of midsized U.S. companies offer wellness programs, according to ADP Research Institute. But here’s a surprising wrinkle: ADP Research also found that over 60 percent of the companies with wellness programs do not measure their return on investment (ROI). And that’s even though the majority of these companies report their wellness programs met or exceeded their senior executives’ expectations in regards to reducing overall health-care costs. Hmm…don’t you think the execs would want to take the ROI to the board of directors?


Kenneth R. Melani got fired from his post as president and CEO of Pennsylvania’s largest health insurer, Highmark. This followed his arrest a week earlier for assault and trespass charges stemming from engaging in a fist fight with the estranged husband of his mistress, the Philadelphia Inquirer said. The change in fortune took just one week. On March 25, Melani was arrested. On March 29, Highmark put Melani on unpaid leave. On March 30, Moody’s Investors Service changed the outlook on Highmark’s insurance financial strength rating and senior unsecured debt to negative from stable and warned of a possible rating downgrade on debt if certain things don’t happen, according to the Pittsburgh Post-Gazette. Then, on April 1, Highmark terminated Melani. DID YOU




While the local community buzzes about the scandal, Highmark has signaled it is moving on. It has named its board chairman, J. Robert Baum, acting CEO and is now looking for a new CEO. It also released its 2011 financials—revenues up to nearly $14.8 billion (from $14.6 the year before) and net income down to $444.7 million (from $462.5 million the previous year).


Dependent verification is essentially a process for doing health plan audits to detect ineligible participants, according to Colonial Life & Accident. This is one of five strategies that the insurer is suggesting that employers use to help control benefit costs. The audits can reveal a significant number of ineligibles, including over-age dependents,

SIXTY PERCENT OF WORKERS IN THE GREATER WASHINGTON, D.C., AREA think it’s not very or not at all likely they or a family member will be diagnosed with a serious illness like cancer or with a chronic illness. Source: The 2012 Aflac WorkForces Report

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May 2012

those who aren’t blood relatives or a spouse as well as former employees who haven’t been removed from the plan, the carrier says in a white paper.


In response to a decade of increased hea lth insurance costs, a growing number of employers are adopti ng h ig h-deduc t ible, con su merdirected health plans, according to Unum. That can lower costs and give employees a greater role in selecting the coverage that’s right for them. But it can also leave employees exposed to higher out-of-pocket expenses for deductibles as well as for expenses that may fall outside traditional health insurance coverage, says Mary Ann Beliveau, assistant vice president at the carrier. What to do? Unum’s strategy is to offer supplemental health offerings that help offset the impact of those out-of-pocket expenses—for instance, wellness options that pay a benefit for some preventive screenings, and a group accident plan that offers multiple benefit-level choices.

QUOTABLE Health insurance exchanges are meant to appeal to individuals who must buy coverage on their own, yet the level of interest among those who obtain health insurance at work [nearly 40 percent of surveyed workers are interested in exchanges] could have important implications for the future of employer-sponsored coverage. — Rick Millard, senior director of the health care practice at J.D. Power and Associates


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Maybe an ‘egg whip’ will help employers swallow losing a retiree benefit tax break BY BRYCE WILLIAMS


n 2013, a provision of the Patient Protection and Affordable Care Act (PPACA) goes into effect that will have a huge impact on employers offering prescription drug benefits to their Medicare-eligible retirees. It could cause employers to drop the benefit altogether. The good news is insurance-based options can help employers stay in the drug benefits game in a way that makes more financial sense. The PPACA provision I’m referring to will eliminate a tax deduction that is part of the Retiree Drug Subsidy (RDS). The main feature of the RDS is a direct payment to employers from the federal government equal to 28 percent of an

per retiree—turning that $639 payment into a $766.80 value. For employers with thousands or hundreds of thousands of retirees, those numbers quickly add up. And what it means is that employers that still want the subsidy will have to take a hit to their balance sheets to get it, starting in 2013. The RDS was created at the same time as Medicare Part D prescription drug plans for individuals. Both were authorized in the Medicare Modernization Act (MMA) of 2003, and both went into effect in 2006. The intent of the RDS was to give employers a financial incentive to continue providing drug benefits for their Medicare-eligible Although many employers are through their concerned about the end of the retirees group health plans. RDS tax deduction, it’s always Although many employers are concerned been a mixed bag. about the end of the RDS employer’s drug expenditures for retir- tax deduction, it’s always been a mixed ees. In 2011, the Centers for Medicare bag. In the beginning, many employers and Medicaid Services (CMS) estimated rushed to take advantage of it because it that the RDS direct payment would be seemed like an offer too good to refuse. $639 per retiree. But after a few years of experience To gain a perspective on the added with the RDS, employers discovered impact of the RDS tax deduction, con- that the costs of administering the prosider the employer with a marginal tax gram, and the mandated paperwork that rate of 20 percent. In addition to receiv- goes along with it, were onerous. So, the ing the direct payment of $639 per RDS always has been impractical for retiree, that employer also would be able all but the largest employers (and even to deduct $127.80 in related expenses for large employers), it comes with an 48

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unwanted administrative burden. In addition, employers often are surprised to discover that federal subsidies offered to individuals enrolled in Medicare Part D plans are almost twice the size of the RDS on a per retiree basis. This means a plan sold on the individual market will cost less than a plan with the same benefits sold as part of an employer-sponsored group plan— an idea that seems preposterous at first. After all, we’ve been led to believe that employers can get better rates for group health plans than individuals can get for individual plans because groups spread the risk and increase purchasing power, keeping costs down. Netting it out, when the RDS tax deduction goes away, the existing gap between federal subsidies for Part D plan holders and the RDS will get wider than it is now. Then employers almost certainly will be looking for alternatives to offering retiree drug benefits through their employer-sponsored group plans. Besides dropping retiree drug benefits completely, employers have three viable insurance options. They are: 1) Direct-contract Employer Group Waiver Plans (EGWPs or so-called “egg whips”) — A direct EGWP is a self-insured program in which an employer sets up its own Medicare prescription plan by entering into a contract directly with the Centers for Medicare and Medicaid Services


(CMS). The employer provides drug benef it s a nd re ceives pay ment s directly from the CMS. 2) 800 Series EGWP — An 800 Series EGWP can be either a self-insured or insured contract that an employer purchases from a third party, which in turn enters into the contract with CMS. In this option, the third party provides benefits and receives payments from the CMS. 3) Transitioning retirees to the individual Medicare Part D plan market — This third option involves moving retirees from employer-sponsored group drug plans (defined benefit plans), to individual Medicare Part D plans subsidized by employers’ contributions to health reimbursement arrangements (HRAs), or defined contribution plans. A quick look at all three reveals the following: The benefits of EGWPs, regardless of which of the two approaches an employer chooses, include reduced cost and risk, fewer FASB or GASB obligations and the elimination of future OPEB liabilities. The 800 Series option has the added benefit of transferring the administrative burden to a third party, although for a fee. The downside of both EGWP options is that they can be complicated and expensive to administer. The simplest option, and the one that offers the greatest short and long-term benefits to employers and retirees, is to transition retirees to the individual Medicare plan market, where they can purchase Part D plans. Here is how it works: • First, the employer sets up HRAs on behalf of retirees, if it doesn’t already have them. • Second, the employer conducts an actuaria l ana lysis, t y pica lly through a third party health benefits manager, to determine the HRA contribution that will make purchasing a Medicare Par t D plan affordable for the both the employer and the retiree. • Third, the employer works with a hea lth benef its ma nager to

develop and execute the transition. Employers should be advised to entrust their retirees to Medicare experts who can provide choice, guidance and ongoing advocacy once retirees are fully transitioned to the individual market. For example, some health benefit managers can provide the actuarial analysis, set up and administer HRAs, have licensed advisors available by phone, and operate a private Medicare exchange to ensure choice and competition. • Fourth, armed with employer subsidies in HRA accounts, retirees are free to compare and choose Part D plans on the private individual Medicare market.

of the cost of any drug outside the initial deductible. Importantly, these new discounts will not be offered to people enrolled in employer-sponsored group plans. Further, the federal government has not yet made it clear when if ever these discounts would be applied to EGWPs. The only way employers with EGWPs can ensure that their retirees get the same doughnut hole benefits as individual Medicare Part D plan holders is through an EGWP/wrap, which is an EGWP with a wraparound provision. Of course, the wraparound would add additional complexity and cost. In summary, once the tax deduction associated with the RDS disappears in 2013, transitioning retirees from employer-sponsored group drug benefit plans to the individual Medicare Plan D market offers employers a simple and straightfor wa rd way to stay in the game of providing drug benefits to retirees. They can capture the greater value found in Part D plans while

The benefits of the Medicare Part D option are similar of those to EGWPs— reduced cost and risk, fewer FASB or GASB obligations and the elimination of future OPEB liabilities. In addition, a benefit that is comparable to an 800 Series EGWP is being able to transfer the The simplest administrative burden to option is to a third party. But there is one advantransition retirees tage of the Medicare Part to the individual D option that EGWPs don’t have bu i lt i n, Medicare plan market, where which is that the PPACA they can purchase Part D plans. i ncludes prov isions to close the so-called “doughnut hole” associated with pre- capping both the cost and future liascription drug plans for Medicare-eli- bilities of drug benefit plans. And gible individuals over the next few years. all of this can be achieved without The doughnut hole is the gap in Part abandoning their role as sponsors of D coverage between an initial coverage retiree drug benefits. amount and the catastrophic limit, in which retirees must pay full price out- Bryce Williams is CEO of Extend Health, a leading provider of health of-pocket for their prescriptions. benefits management service that As of 2011, pharmaceutical manu- includes the nation’s largest private facturers offer individual Part D plan Medicare exchange and redefines how employers offer and deliver holders a 50 percent discount on brand- retiree health benefits. He can be name drugs when they reach the cov- emailed at erage gap. Over time, federal subsidies will increase the discount to 75 percent and apply it to generic drugs as well. By 2020, Part D beneficiaries will be @InsNewsNet responsible for no more than 25 percent May 2012

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Unmarried + Unaware ESTATE RISKS FOR LIVE-IN PARTNERS Did you know there are more than 1,000 laws that protect the traditional married couple—and cause those who never take the “leap” a lot of financial woes? But couples have many reasons not to get married. With an older couple, perhaps significant financial benefits from the deceased spouse may be lost in a second union or health insurance benefits could cease. In the case of a pre-nuptial agreement, drawn up in couples marrying at any age, it is not uncommon for the person with the larger estate to write in protections in the pre-nup. These protections, for example, could include a provision to prevent the widow from “shacking up” with a new partner. Or perhaps a life estate is given in the residence but would be lost if the beneficiary meets someone new and marries. Most people with money are advised to include these protections in their prenup as well as their will or trust. Other reasons a couple may choose not to marry? They may have an alternative lifestyle and marriage is not legal in the state they are residing in. Or their extended families are unfamiliar or uncomfortable with their lifestyle choices. Perhaps the couple is like Kurt Russell and Goldie Hawn or Brad Pitt and Angelina Jolie. They’ve been together for years and see no point in making it “official.” They subscribe to the theory that they don’t need a piece of paper to be together forever. 50

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Whatever the reason, live-ins should consider ways of protecting one another, financially speaking. For instance, who owns the home they are living in? It could be in just one person’s name—but when asked, the owner would not want their partner kicked out of the home upon their death or incapacitation. This is when a property “life estate” is essential. In certain states, people can even name a beneficiary to own the property after the life estate expires. Some states allow beneficiaries to be listed right on the deed—Arizona, Arkansas, Ohio, Missouri, Kansas, Nevada, Texas, Colorado, Illinois, Wisconsin, Florida, South Carolina and New Mexico—with many other states considering the passage of this law. In the aforementioned states, one simply needs a “quit claim deed,” filed with the county where the property is located. That deed gives a life estate to the partner and then names a beneficiary (or more than one beneficiary) to own the residence, once the life estate expires. The life estate would expire if the living partner dies or moves off the property. While leaving real estate to a partner (or at least the right to live there) is important, for many people, their largest assets are their retirement accounts—IRAs, 401(k)s. If you were a teacher, preacher

By Jean A. Dorrell

or nurse you might own a 403b or a TSA (tax sheltered annuity). If you were selfemployed, you might have a SEP IRA or a Keough plan. Therefore, it is important to understand that individual retirement accounts (IRAs), pass through a beneficiary document, not a will or trust. In fact, the beneficiary document is so powerful that it overrides the will and the trust. So, if a beneficiary document is never filled out, the IRA goes through probate—even if the trust names someone to receive it. Make sure to check beneficiary forms! Don’t be like William Kennedy, who retired from Dupont and owned 401(k) worth $400,000. He never took his exwife off the beneficiary document, so she got the money when he died. His daughter sued and it went all the way to the Supreme Court. The Supreme Court unanimously ruled that beneficiary documents override everything else. It didn’t even matter that Kennedy had his ex-wife sign away her rights to that account when they were divorced. It only mattered that she was still listed as his beneficiary. With traditional married couples in most states, the spouse automatically inherits the IRA. But if people are not traditionally married, they should name the person they love on the beneficiary document itself. Or else they risk a nasty probate with family members getting the retirement account instead of the partner they wanted to have it. People can also set up the IRA to pay an income stream


Like Kurt Russell and Goldie Hawn, more couples are choosing not to get married. The U.S. Census Bureau reported a 25 percent increase in unmarried cohabitating couples between 2000 and 2010.

to the intended beneficiary, allowing the principal to go to the family. That way the partner gets an income for life without touching the principal. Annuities are another great tool for generating an income people can’t outlive. Your clients can do a rollover IRA annuity and even restrict what the partner receives to income, instead of principal. Restricting the income with any other investment besides an annuity is going to require an expensive trust to be set up. Using a trust in conjunction with an IRA might sound like a good idea, but in reality it can cause a mess for a family. That is because trusts hit the highest tax bracket at only $11,000 in income, whereas an individual would have to earn more than $370,000 in income to be in the same bracket. Simply using a trust can wipe out the beneficiary of 35 percent (today’s

highest tax bracket) of the account if you are not careful. Be sure someone who has a pulse and a birthday is designated on the beneficiary document to be on the safe side. A third financial protection for a livein partner would be to consider who the client would want to make financial and health care decisions if they become incapacitated. Most people, when asked, would want and trust their partner to make those decisions, depending on the history of the relationship. Without a document naming a live-in partner, a family member might be appointed instead. Simply setting up a durable power of attorney for the financial side and naming the partner could help protect clients from family members they haven’t seen in years making financial decisions for them. You can bet that the long-lost family member is going to get rid of the partner as soon as possible. Greed does funny things to people. I’ve seen families stop talking to one another because one of them got “grandma’s skillet.” If

it’s the partner the client trusts to make health care or financial decisions, be sure they name that person on the proper documents. A health care proxy will be important to set up for medical decisions. People should let their doctor know ahead of time. If it’s a second opinion clients want, they will need to sign a HIPAA letter with the doctor’s office, giving them permission to release your medical records to an unmarried partner. Then your partner can take the client to another doctor for a second opinion. All of these items are things we don’t usually think of until it’s too late. But if you want to protect clients and those they love—but may not be married to—start putting a plan in place now. Jean A. Dorrell, CEP, is a certified estate planner and founder of Senior Financial Security in Summerfield, Fl. For more information, visit She can be contacted at Jean.Dorrell@

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ne of the most effective features when it comes to generating business and making money using Facebook as a marketing tool is Facebook Events. Here’s why… When you create a Facebook event and invite someone to come, Facebook sends an invitation to everybody invited announcing the event and that invitation goes to two places. One, to their Facebook notifications (which all users see when they login to their account). And two, to their regular e-mail inbox associated with their Facebook account. That means you can get your message in front of your invitees two times, without looking like a spammer. And nobody likes a spammer— especially people who use social media! Not only will your invitees get those two notifications when they are invited to your event, but you also have the option to send them additional e-mails that go straight to their Facebook e-mail inbox. This will allow you to send reminders, event updates, follow-up e-mails, sales messages, etc. In addition, you can target these messages based upon their RSVP status. This allows you to send more targeted and 52

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specific messages to your invitees, which is an extremely valuable marketing tool! This is why I create Facebook events around everything I can possibly create a Facebook event around, whether it’s an announcement, special deal or promotional offer, or a virtual or live event where you can sell the prospect later. Remember: Facebook events aren’t just for parties anymore. I use the event page to drive traffic to another simple webpage where the prospect can take me up on my offer or register to attend my event. It is very important to lead these prospects to an outside site so that you aren’t confined to Facebook’s capabilities and rules, and so you can collect the information that you need from customers and prospects, including their credit card info (if applicable to your promotion). In order for this strategy to work, and for you to start experiencing those big social media paydays using the Facebook events feature, it is very important that you make sure you optimize your Facebook events pages to work for you so that your prospects want to take part in the event and/or the offer.

Here are the components you need to optimize: Event Page Graphic — Create a graphic that is fun, colorful, and inviting. After all, you are inviting someone to an event. Also make sure the graphic clearly showcases what the event is about. If the event page visitor only looks at the graphic, and nothing else, they should have a clear idea of what you want them to do. Your image can be up to 200 pixels wide by 600 pixels tall in size, which means that you or your graphics designer have a lot of space that you can use when designing this image. Event Info — Fill out the event info section completely as to not leave any visitors who arrive on your event page wondering what it is about. In the location AND details section of the event page, you should put a URL (the website link) that will take the visitor to the page you created outside of Facebook where they can register for your event, take advantage of your promotion, etc. When you put a URL in these two sections, Facebook will create a clickable hyperlink, which makes it super easy for your prospects and clients to get to that outside site.


Comments — The great thing about Facebook event pages is that people will post their thoughts about the event in the comments section, which can persuade other visitors to your event page to come to or want to attend or take you up on your offer. I call these usergenerated testimonials, and to me they are very powerful. Make sure to interact with visitors here so you can answer their questions and keep the conversation and excitement going. Don’t forget, you need to promote your events page on Facebook to get people to RSVP. If you don’t drive traffic to this page, nobody will find it. In order to promote your event page on Facebook I suggest inviting your Facebook friends to the event through the Facebook “Select Guests” feature that can be found in your event editor. Facebook will make you manually select each one of your Facebook contacts to invite them, and if you have a lot of connections on Facebook, this can take quite a while. To save some time, use Google Chrome as your browser (it’s free!) and download the “Facebook Inviter” extension from the Chrome web store (also free!). This will add a “Toggle All” button to the page that pops up where you select your friend to invite, and allows you to select all of your friends to invite at the click of one button. Of course there are other ways you could promote your offering or event on Facebook, but I recommend that if you use any other social media promotional strategies to annouce your offering, you bypass the events page and send all other traffic from Facebook straight to the page you created outside of Facebook. The main reason to use the Facebook events feature is to take advantage of the notifications and e-mails that they allow you to send. At this time, there is no other way to blast a message to the inbox of all of your Facebook connections at one time except by using this strategy, which is why it is crucial to use for your next promotion or event. Being able to send notifications and messages to all of your contacts at once on Facebook yields great results. But when promoting the event using other Facebook or Social Media

“You can get your message in front of your invitees without looking like a spammer. And nobody likes a spammer.” Strategies you will see more of your connections taking action by sending them directly to an offer or event page off of Facebook because this will allow you to bypass the extra step of sending them to your event page. Here are two additional ideas to get you started when it comes to promoting an offer or event using Facebook. 1. Share your event or promotion on your Facebook profile and fan page using status updates. Use compelling copy to sell your connections on your event or offer. What are the benefits for them attending? How will it help them? What will they discover when they attend? The perfect formula for an effective status update is interest-sparking copy followed by a clickable link to an outside site where the user can take a call to

Invite Your Friends From: To:

(use commas to separate)


You Your friends’ emails

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action. Here is an example: Every time you post on your Facebook wall, your announcement is featured in the news feed of your Facebook connections when anyone logs into Facebook. By creating status updates, you can begin to get your message in front of more of your connections. I recommend only promoting your event or offer using status updates once a day in addition to other less promotional posts. 2. Use Facebook ads to increase traffic to the page. Facebook’s advertising platform is very advanced and unique in that it allows you to target who can view your ads by their psychographics, demographics and geographics. Google AdWords can’t even do this. Send ad traffic to your event page outside of Facebook, and make sure when you create your ad you effectively target your ideal customer. Put these simple strategies into place for your next event or promotion and you will experience big social media pay days in your business before you know it. Mara Glazer is a marketing and social media strategist, public speaker and like many of her fans, followers, and friends, highly successful female entrepreneur. Mara has been featured in hundreds of marketing training videos. Mara regularly consults with business owners and sales professionals on social media monetization techniques to help them generate Big Social Media Pay Days in their business. She can be reached by e-mail at

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This is the Year for Estate Planning a client to use the insurance company’s money at a discount rather than their own because they can buy the life insurance dollars and fund the trust with it—at a deep discount. Being a member of the Million Dollar Round Table (MDRT) has certainly helped me address estate planning issues and develop solutions that ensure my clients’ assets are transferred to the next generation in the most efficient matter. It’s important to remember you don’t have to be all things to all people; you just have to be a few things to the right people. Providing effective counsel to your clients today will benefit future generations to come. This, believe it or not, brings me back to the Cubs. Did you know that poor estate planning is part of the Cubs’ history of futility? When William Wrigley III died without life insurance, the family had an estate tax problem and had to sell the team to the Tribune (who later solid it to the Rickets family)—for just over $20 million. (This is what almost what one of the Cubs players makes in a season!) Today the Cubs are worth around $1 billion. Life insurance and estate planning sure could have paid off for the Wrigley’s. At least they still have their name on the Stadium… for now. Let’s not allow our clients to make the same mistakes by missing this opportunity to protect their assets and leave a much more sizable legacy for the next generation.


t the same time this issue of about transferring assets from one genInsuranceNewsNet Magazine eration to the next—or for someone who hits the streets, Major League just hates to pay taxes of any type—the Baseball will have just finished the first chance to do some really effective planmonth of the 2012 season. And, among ning is now. my fellow Cubs fans, I again heard the This is both an opportunity to help our familiar chorus, “This is Our Year.” In current clients and a chance to attract reality, it probably isn’t, as the team works new clients. To find prospects that are to re-build. a fit for estate planning, “The That same refrain it’s best to have worked holds true for life insurbiggest threat with a lot of tax accounance professionals and tants and tax attorneys – to our clients’ ou r h ig h-ne t-wor t h to know who these peoestates is being ple are, and be comfort(HNW) clients, too. This complacent...” really is the year… for able talking with them estate planning. That’s about this topic. You also because the 2010 Tax Relief Act is in really have to “play detective” to find cliplace until the end of 2012. Right now, ents with large enough assets that need our HNW clients have the opportunity to your help. I look for three things: move quite a bit of money from the tax1. Illiquid Assets able side over to the non-taxable side—so there is about seven months left for us to 2. Appreciated Assets do some pretty big planning. In fact, the 3. Ownership (of either companies timing has never been better. or property) For irrevocable trusts that have life insurance policies that have policy loans, Any one of these is typically difficult D. Scott Brennan of South Bend, IN is a 29-year member of MDRT, I suggest that clients transfer money from to sell in the event of a death. When peo- on the Executive Committee and the taxable side of their estate and put ple own a lot of anything, they generally will become the 87th MDRT Presithat into the trust and pay those loans owned it because they loved it—and most dent in September. Brennan is a member of the Quarter Century off—and it should go to the bottom line people in that position don’t want chil- Club with nine Court of the Table in a non-taxable fashion. dren or trustees selling these assets off, and one Top of the Table qualificaIn my mind, the biggest threat to especially at a discount if they’re trying tions. He is a member of AALU, a past board member of LIFE and a past president of The Forum 400. He can our clients’ estates is being complacent to keep the tax man at bay. It’s better for be contacted at and not acting on this immediately— or thinking that Congress is going to The Million Dollar Round Table is the premier association of the world’s make changes on this that are going to most successful life insurance and financial services professionals. be favorable to taxpayers. I wouldn’t bet on that. For anyone who is concerned 54

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Back to the Basics of Selling


s LIMRA’s technology research director, I spend a lot of time looking at how the industry could better leverage technology—in particular, social media and mobile technology—to grow our business. With life insurance ownership in the U.S. at an all-time low, it is vital we break through and reach these uninsured or underinsured Americans. The fact is, more than two-thirds of Americans actively use social media. And, more often than not, it is through a mobile device. It is important that we communicate on the platforms that people are using. Can you imagine relying on faxes—like we did years ago—in this day and age? People assumed that when LIMRA suggests that companies leverage social media and mobile devices to increase field productivity and to reach the consumer directly, that we were suggesting that the messages we communicate should change. Based on our research, that couldn’t be farther from the truth. According to LIMRA’s research, the “life triggers” that propelled consumers to purchase life insurance remain the same—like starting a business, having or adopting a baby, changing marital status or buying a home. And while many Americans gather their news and information using the Internet, three-quarters of Americans who bought life insurance over the past two years did so because a sales professional met with them face-to-face. But how do you get to that face-toface meeting? Consistently, our research has shown that most people are more likely to purchase life insurance if they are referred by a friend or family member. Yet, in our 2011 Life Insurance Buyer/Nonbuyer study, half of consumers who shopped for life insurance said they were willing to give a referral but nearly a third were never asked. This is the difference between getting to a new client or not. Once a producer is in front of them, our newest data suggest that if there is a 56

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needs analysis presented, three quarters of the people will buy life insurance. Not only are they more likely to buy, but on average they buy about twice as much. Yet, nearly six in 10 consumers who met with a producer in the past two years didn’t get a needs’ analysis. Beyond the basics of selling, there is an inherent trust issue between consumers and producers and the companies they represent. Consumers are very wary of producers and the process—avoiding it if at all possible. Overall confusion and lack of trust are the biggest reasons. Once they meet with a professional, 73 percent end up buying life insurance. Why? Those we surveyed said they bought because they trusted their agent/advisor. So the key is getting producers to engage and to build trust. LIMRA’s research reveals that there are specific things that producers can do to build that trust. I like to call it the three tenets of “Behavior Economics”: • Listen—Do a thorough job of factfinding—find out who your customers are and know their goals and dreams.

• Teach—Sit down and, in a simple manner, explain the products—avoid using industry terms—show them which products would be best for them. Give them three choices: good, better or best. • Become a trusted advisor—Develop ongoing relationships with your customers—keep in touch and periodically review their financial plans with them to ensure they are up-to-date on what they need. At its core, our industry’s purpose is to help people attain financial security and I believe we can make a difference. Today’s increasingly complex financial marketplace requires consumers to be more financially savvy and our industry must do more than sell—we must educate and motivate. Todd A. Silverhart, Ph.D., corporate vice president and director, LIMRA Technology in Marketing and Distribution Research and Markets Research, is responsible for directing LIMRA’s technology research program and its markets research program. He can be reached at

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Life Insurance Apps on the Rise An interview with Lee B. Oliphant, CEO and President of MIB As CEO and president of MIB Group, Lee B. Oliphant oversees one of the leading indicators of the life insurance industry – the MIB Life Index. MIB’s 450 North American member companies use its MIB Checking Service to protect against anti-selection and improve risk selection for individually underwritten life insurance. Compiled from this activity, the MIB Life Index serves as a reasonable proxy for new life insurance sales. In an interview with InsuranceNewsNet, Oliphant discussed the recent increase in life insurance applications and what producers need to know about it. INN: What is the overall trend in the Life Index? OLIPHANT: We were seeing 3 or 4 percent

decreases on an annual basis in the overall composite Index. But, over the past couple of years, we’ve seen some stabilization across age groups—where it is relatively flat or even up a little bit in calendar-year 2011 through March of this year. March results in the Index showed moderation after significant growth experienced from December 2011 through February of this year. While these gains are encouraging, it will take sustained increases and sales to younger generations for the life insurance industry to grow. INN: What do you see happening within the demographic groups? OLIPHANT: When we look at some of

the demographics, the 60-plus age group is the fastest growing group in the Index—going from single-digit to doubledigit, year-over-year growth over the past couple of years. The demographic itself is a growing percentage of the U.S. population with boomers just moving into retirement age. But we’re also seeing now how that group is the beneficiary of the largest generational wealth transfer in history, with an increasing

need for life insurance for tax and estateplanning purposes. The next age group, 45-59 years old, has stabilized a bit over the last two years after successive 3-4 percent declines. This is encouraging as the younger ages in this group represent individuals in their peak earning years and their spending power is combined with the need for insurance. We see this group continuing to strengthen from 2012 forward as the economy slowly strengthens. The last group, which is the largest in the total overall Life Index, is the under45 age group. This group actually has lost ground over each of the last five years, dropping by 4 or 5 percent through the end of 2011. This is a group with traditional needs for insurance—beginning a family, paying a mortgage and starting their children’s’ college savings—but it’s probably been the hardest hit group from

tends to be a little bit different nowadays. They are more of an Internetbased buyer, tending to rely on social media more. As the industry embraces social media as a marketing tool, I think it will reach this group more effectively. But that’s a challenge for the industry—how to serve a group that has really changed dramatically over the past number of years in its buyer behavior and buying patterns. INN: We have all seen the LIMRA statistic, showing the 50-year low in life insurance ownership. Do you see any changes coming to that in light of the recent uptick in your data? OLIPHANT: With the increases that

we’ve seen in eight or nine months and have certainly seen in the past couple of months, it’s a little bit too short a timeframe to make a prediction. But I think that we can attribute some of the increases to the consumer sentiment or confidence level rising 30 points since October. It represents the biggest, fourmonth increase of any time over the past three decades. So, I think that there is certainly an increasing level of confidence in the economy. That manifests itself in multiple ways, whether it is the financial markets or even the activity level for insurance.

“The 60-plus age group is the fastest growing group in the Index...”


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May 2012

a disposable income perspective with the downturn in the economy. That’s been reflected in the Life Index over the past four or five years. Also, buyer behavior in this group

And, by the way, the decrease was not just in ownership. The American Council of Life Insurers cites that, from 2008 to 2010, the average face amount of insurance actually decreased—which is very unusual. The average-sized policy in that three-year period decreased about 10 percent. Whereas, for years and years, the average face amount increased by a couple of percentage points. But I think that trend will reverse itself and people will buy larger amounts of insurance as well as upgrade the insurance coverage that they have inforce now. INN: Can we expect growth in the Life Index also? OLIPHANT: January and February were

very strong. But, in March, we see that growth has been moderated. That said, I think you’re going to see better numbers in 2012, as compared to 2011. INN: What should producers glean from your data? OLIPHANT: The oldest age group

(which is seeing double-digit growth for each of the past couple of years), is a tremendous opportunity over the next couple years for agents to focus on. The 45 to 59 year-old age market is beginning to improve after years of decline. That presents a great opportunity because these are peak-earning years for folks not only with new insurance policies, but to upgrade what they have. Younger ages in this group have the need for family protection and the means to purchase or upgrade with an improving economy. With generational wealth transfer, the older ages in this group have increasing needs for estate planning as they enter their retirement years. With the under-45 age group, the industry has to understand their buying behavior patterns and the need to simplify the sales process. It’s a different mindset. I think that the first two offer the biggest opportunity for producers and agents.


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Ohlson Group



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If you have comments for Lee, he can be reached at

May 2012

InsuranceNewsNet Magazine




The prospecting approach I’ve been taught does not work well for me and, frankly, I find using it quite uncomfortable. Essentially it requires that I ask people to look at their cell phone and pick out some names of people they could refer to me. Have you ever heard of that strategy before?


The granddaddy of this approach was when you were supposed to ask people to look at their Rolodex and do the same. Suggesting that the prospect looks at his/her cell phone would make sense if they were to say something like “I would be glad to refer to you to my friends, I just can’t remember who they are.” I am sure that this approach works for some people and with some prospects. That handful of agents, whose personality make-up compensates for the inadequacies of the sales approach they had been taught, will get names no matter how they go about asking for it. But for the most part, when you ask people to do something, you have to sell them on your idea first. You may want to keep in mind that whenever you approach someone with a proposition (that was not their idea), they will want to know what your motivation is for asking them—and why they should do what you are asking them to do. People do things for a reason—and you need to give them such a reason in order to compel them to act on your request. This also applies when you are asking for referrals. Your request for names should address at least the following three issues: 1) why you are asking, 2) why they should give you names and 3) you should leave your prospect with a rationale they can use to justify the referral should their friend take exception to being recommended to an insurance agent. By referring a friend to you, your prospect takes a risk. When you ask people what 100 things they want to experience in their lifetime, this list seldom includes a referral to an insurance agent. So your prospect anticipates that their friends will raise questions about the referral and will be wary of damaging his/her relationship with those friends. Answering the three questions I mentioned above should answer your prospects concerns. So let’s consider what these answers might look like.

The Traditional Approach

Frankly, I am not sure what these answers would be when you ask people to give you names just because you expect referrals or because you expect part of your compensation to be names. I am sure that you can come up with more legitimate-sounding answers than I can. So, I will just try to approximate for now what you might reasonably say to justify to your prospect why you are asking them and why they should comply with your request. Csaba Sziklai*, PhD, has trained thousands of agents to sell more insurance and love their work. In his career as a sales psychologist, Csaba discovered the secrets behind why some agents are much more successful than others. He used that insight to create his breakthrough “Advocacy System” used by carriers and agents on becoming client advocates to sell more insurance for all the right reasons. *(Pronounced Chubba Sik-lie) 60

InsuranceNewsNet Magazine

May 2012

1. Your motivation: If you want to be truthful, as you should always be, you can say that you need new prospects to grow your business and asking for referrals is one of the ways you get them. 2. Why to give names: When you do business with people you stipulate up front that names are part of the way you are compensated, so you expect them to pay up. Or, if you expect names, you might tell them what the person who taught you this approach thought the reason was why people should comply with this expectation. 3. Prepare your prospect: I don’t have any suggestions as how to prep your prospect to answer his/her friends’ questions if you are using the above approaches. Nonetheless, you should have a rationale to offer your prospects so they know what to say to their friends if they question his/her motive for referring them.

A Different Approach

By the way of contrast, here is what these answers might sound like with a different prospecting approach. When you use the “Advocacy Recommendation Strategy,” for example, your motive is to speak for those that have no voice in decisions about insurance, so you see prospecting as a moral obligation since it is the only possible way you can ensure to reach people and be able to advocate for their dependents. Obviously, you also want to make a living, but your compensation is not an issue as long as it is not perceived by your prospect to be your only and main motivation. The persuading argument to get prospects to refer is that they understand that without talking to an agent like you, hardly anyone will protect their dependents and the consequences of failing to protect may be disastrous for those dependents. And finally, you give your prospect a language that articulates this idea for their friends and makes them understand that the referral was an act of friendship. This is a prospecting business and you need to do it on a daily basis. It is like brushing teeth: you cannot skip two weeks and make up for it by brushing fourteen times the next time you do it. If your prospecting language feels awkward and uncomfortable to you, it is your intuition telling you that there is something wrong with it and you need to find another way that you are more comfortable with. Prospecting is not only a key to your success in this business, but it also determines how big of an impact you will have on people’s lives.

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InsuranceNewsNet Magazine - May 2012  

Advisor Roulette - How you can be risking your career with every sale.

InsuranceNewsNet Magazine - May 2012  

Advisor Roulette - How you can be risking your career with every sale.