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Life Annuities Health Financial

February 2013

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ALSO INSIDE How to be the Most FASCINATING Person in the Room PAGE 12 Good and Bad: What People Really Think About Life Insurance PAGE 36 Seven Steps to Create a Perfect Appointment Process PAGE 50


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36 The Good and Bad: What People Really Think About Life Insurance


8 2013 Finds Players Taking Seats at the Annuity Table By Linda Koco Last year was a tough one for the annuity business. But all signs are pointing to 2013 looking more like business as usual.


SPECIAL FEATURE In our special ATRA report, we will explore what you need to know to help bring that relief to your clients. 23 How to Deliver Estate-Planning Relief with ATRA By Linda Koco For advisors and their clients who held back on making a plan while the “fiscal cliff” deal was hashed out, the permanence of the new estate tax law may be the trigger that spurs both of you to take action.

29 Plenty of Opportunities for Advanced Advisors By Gonzalo Garcia and Liz Weber Michel Advisors and clients can now plan in a more certain environment; availing themselves of tried and true techniques combined with terrific life insurance products.


12 H  ow to be the Most Fascinating Person in the Room An interview with Sally Hogshead Are you a Victor or a Maestro? And what do they mean anyway? Sally Hogshead, author of Fascinate: Your 7 Triggers to Persuasion and Captivation, explains the different ways in which the world perceives you and how you can use your strengths to grab your client’s attention. 2

32 Strategies to Soothe Tax Pain

InsuranceNewsNet Magazine » February 2013

By Joseph D. Anderson III Now may be a good time to have a conversation with your clients about certain tax strategies, in the wake of the tax changes that will go into effect.

By Jennifer L. Douglas The latest LIMRA research shows that, although consumer confidence in life insurance is generally high, the industry’s image has much room for improvement.


42 M  ore Product Debuts Don’t Necessarily Mean Smash Hits By Linda Koco A comparison between annuity debuts in 2011 and annuity sales results in 2012.


46 W  hat Your Group Health Clients Need to Know By Diana H. Johnson As the clock ticks toward the implementation of the Affordable Care Act, you can help families and businesses of all sizes work their way through the regulations and ensure that they make choices that make the most sense for their needs and budget.


50 Seven Steps to Creating a Perfect Appointment Process By Mike Steranka A roadmap to help prospects recognize you and your practice as an indispensable part of their financial health.

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52 The Wisdom and Science of Successful Habits

58 M  DRT: Pick up the Phone, It’s a Lifetime of Referrals Calling

By Bob Davies The success habits in life insurance selling (and all selling) are divided into four main groups: prospecting habits, calling habits, selling habits, working habits. This advice was spoken in 1940 and it still rings true today.

By Stephen Mathieu An advisor comes to the rescue after receiving a panicked late-day phone call from a client. His reward? A stream of referrals and a surprise!

60 NAIFA: 100 Years of Tax-Free Benefits

By Ayo Mseka The federal income tax – and the taxprotected status of life insurance – marks its 100th birthday this year.


62 L IMRA: Policy Count Drops with Agents

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54 H  ow to Keep the Conversation Going

64 B  oomer Insurance, Anyone?

By Bryce Sanders Strategies for establishing rapport, igniting the conversation and having a meaningful exchange with just about anyone.

By Larry Barton Larry Barton of The American College tries to envision what the future will look like when old age and physical ailments catch up with the baby boom generation.

EVERY ISSUE 6 Editor’s Letter 20 NewsWires

34 LifeWires 40 AnnuityWires

44 HealthWires 48 FinancialWires

INSURANCENEWSNET.COM, INC. 355 North 21st Street, Suite 211, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli ASSISTANT EDITOR Susan Rupe COPYWRITER Kathryn Rolston CHIEF OPERATIONS OFFICER Jim Barton CREATIVE DIRECTOR Jake Haas PRODUCTION EDITOR Natasha Clague SENIOR GRAPHIC DESIGNER Carlos Centeno GRAPHIC DESIGNER David Bullock


Anne Groff Brenda Salyer Joaquin Tuazon Mark Waters Jesse Barden Brian Henderson


Copyright 2013 All rights reserved. Reproduction or use, without permission, of editorial or graphic content in any manner is strictly prohibited. How to Reach Us: You may e-mail, send your letter to 355 North 21st Street, Suite 211, Camp Hill, PA 17011, Fax at 866-3818630, or call 866-707-6786. Reprints: Copyright permission can be obtained through InsuranceNewsNet at 866-707-6786, Ext. 115 or reprints@insurancenewsnet. com. Editorial Inquiries: You may e-mail or call 866-707-6786 ext. 117. Advertising Inquiries: To access InsuranceNewsNet Magazine’s online media kit, go to, or call 866-707-6786, Ext. 115 for a sales representative. Postmaster: Send address changes to InsuranceNewsNet Magazine, 355 N. 21st Street, Suite 211, Camp Hill, PA 17011. Please allow four weeks for completion of changes.


Legal disclaimer: This publication contains general financial information. It should not be relied upon as a substitute for professional financial or legal advice. We make every effort to offer accurate information, but errors may occur due to the nature of the subject matter and our interpretation of any laws and regulations involved. We provide this information “as is,” without warranties of any kind, either expressed or implied. InsuranceNewsNet shall not be liable regardless of the cause or duration, for any errors, inaccuracies, omissions or other defects in, or untimeliness or unauthenticity of, the information published herein.

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LETTER FROM THE module EDITOR 1: the seven ways to fascinate


howt oFasCInate.Com


The Good Kind of Trigger-Happyfascinate

module 1: the seven ways to



You are awesome. Remember that the next time you go to kick yourself. Or when you grab your own forehead in a pinch and mutter, “I … am … such … a … freakin’ … moron.” Eeeeaaasy there. We’ve all done that. Usually it’s because we’re doing the thing that we’ve always done to get in trouble. Bellowed at someone. Yammered too much before deadline. Alienated a whole roomful of people in a meeting. There’s something like that for all of us. OK, be prepared to have your mind blown: it might not be a bad thing, but too much of a good thing. You are being just too dang awesome. I’ll explain. When you read our interview with Sally Hogshead about fascination triggers, you’ll learn that you don’t have to be a certain kind of person to succeed. You need to be comfortable with how you succeed. (By the way, feel free to giggle at her name. She is well aware that it’s funny. And that you’ll remember it.) Say you’re the kind of person who might blast a bluster on occasion and intimidate people working with you. You just don’t know your own strength. Your primary trigger (there are seven) is probably Power. That means people actually do look to you for opinions and direction. Ease off the pedal, though. Perhaps you hold very high standards, frustrating people at the office and home. You might have a primary Prestige trigger. Others aspire to your standards but you have to help them get there. It does little good to hold an impossibly high bar. Help provide the means to reach it. You’re likely have one of these triggers as Primary or Secondary. That’s because when Sally spoke at the annual meetings for the National Association of Insurance and Financial Advisors (NAIFA) and





SALLY HOGSHEAD Million Dollar Round Table (MDRT), she had people take the Fascination Advantage test and those triggers – Power and Prestige – were the most common. People feel most comfortable, effective and in the flow when they are using their triggers to their best advantage. That’s when everything is clicking and the world seems effortless. Doesn’t everybody want more of that? When you try to be something you’re not, you’ll clash. You’ll seem disingenuous because you are. It’s helpful to remember that in others. Is your spouse driving you batty with the same ol’ predictably grating thing? Hold on there a moment. Maybe that thing was what you fell in love with all those years ago. Maybe it was the Passion that was missing from your life until you met her. Or perhaps it was the thrill of the Power you felt when he first walked in the room. We all have a gift and we are at our best when we share it and when we find it in others. Alrighty. Enough of that. I got a trigger to pull: Go be awesome. The world needs it as much as you do.

Module 1 the seven ways to fascinate

6 InsuranceNewsNet Magazine » February 2013

Steven A. Morelli Editor-in-Chief




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2013 Finds Players Taking Seats, Upping Game at the Annuity Table Companies are upping their stakes in new annuity markets. By Linda Koco


here was something for just about every annuity wonk in the beginning of 2013. Forethought is moving forward as a variable annuity player. ING has snatched up a former Hartford Financial exec to head its fixed annuity business. And, four new products debuted (two deferred income annuities, a new fixed indexed annuity and a new “simpler” variable annuity). If that has you panting for more, read on for a few details and takeaways:


The announcement that Forethought Financial Group has completed the previously announced acquisition of the 8

individual annuity new business capabilities of The Harford Financial is a dazzler as is news that the company plans to launch its first variable annuity in first quarter 2013. Forethought has already opened offices in Simsbury, Conn., and Berwyn, Pa., to support the annuity business, and says it will distribute through a broker-dealer which it acquired from The Hartford and has since named Forethought Distributors. Takeaway: The industry now knows for sure that Forethought means to be a player in variable annuities, not just a sign-holder. Annuity pros will therefore be interested in seeing what that new Forethought variable annuity will look like. The fact that the company isn’t starting from scratch, it bought Hartford’s product management, distribution and marketing units, will

InsuranceNewsNet Magazine » February 2013

be important to advisors. After all, Forethought is not a household name in variable annuity circles – not yet, anyhow – so the advisors will want to know about bench strength. For the same reason, it doesn’t hurt that Robert Arena will lead the annuity organization, called Forethought Annuity; he previously led The Hartford’s individual annuity business so he knows the ropes.


This company just hired David Bedard to lead its fixed annuities business. His name should ring a bell. Bedard was formerly executive vice president of global annuities for The Hartford Financial Services Group and earlier served as chief financial officer of the firm’s wealth management business. Now, as ING U.S.’s new president of annuities, Bedard is charged

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February 2013 » InsuranceNewsNet Magazine




with “driving growth and long-term success for ING U.S. in the fixed annuity market.” The company’s annuities segment includes traditional, indexed and immediate annuities. Takeaway: This is not a ho-hum hire. Bedard will be part of ING’s retirement solutions executive team, which collaborates on overall business strategy and direction. By putting Bedard into the picture, ING is following through on its intensions to align its annuity business with ING U.S.’s overall retirement strategy. Not incidentally, Bedard is a CPA. In the job he’s taking on, that number-crunching capability could come in handy.

Deferred Income Annuities (DIAs)

First out of the gate this year with a new DIA was American General Life Companies. They launched Future Income Achiever, which allows the client to select an annuity income start date between 12 months and 40 years from purchase, and which includes three death benefit options, a medical underwriting option and four annual payment increase options. Just seven days later, The Guardian Insurance & Annuity Co. entered the DIA market with its Guardian SecureFuture Income Annuity. Available for a minimum initial premium of $5,000, this DIA accepts additional payments up to 13 months before the selected income start date. Owners may elect to receive monthly, quarterly, semi-annual or annual income payments, and may change their choice at any time up until the day before the first payment is made. Takeaway: As noted last year, the DIA market is small but growing. There were six to eight players through year-end 2012, and now there are two more. Carriers are moving in this direction as part of their growing strategy to offer retirement income solutions, and in response to rising consumer demand for such products. Unlike traditional income annuities, these policies allow annuity owners to pick an income start date way into the future, if they like – a “set it and forget it” solution that appeals to some retirement-minded consumers.

Indexed Annuities

Security Benefit Life Insurance Co.’s new Foundations Annuity is an indexed annuity that the carrier is labeling as

2013 is opening up more like business as usual and less like a war zone. ‘‘next-generation.” The product “capitalizes” on the general account capabilities of Guggenheim Investments, which is a subsidiary of Guggenheim Partners. In addition, the policy includes an optional guaranteed lifetime withdrawal benefit rider along with a 1 percent bonus on first-year premium payments, three equities-linked interest-crediting strategies, and other features. The carrier is marketing the annuity-plus-rider combo as something that can provide clients with a “missing element” in traditional retirement portfolio drawdown plans, an element that will help maximize guaranteed income. Takeaway: Since Security Benefit is also a Guggenheim Partners company, it’s safe to say the insurer is leveraging its Guggenheim pedigree. That will be a market differentiator. As for the features, the index annuity world is chock full of products that have a lot of variety in design and features, and this will add to the array. The thing worth noting is that the carrier seems to be positioning the policy squarely in the retirement income arena. Given that the age 65-plus population in the U.S keeps growing – from 31.2 million in 1990 to 40.3 million in 2010 – it’s easy to see why.

Variable Annuities

Minnesota Life Insurance Co. made simplicity the focus of its first rollout for 2013, which is a variable annuity series called Guide. Offered as part of the carrier’s MultiOption variable annuity line, the series focuses on the most important benefits for clients, provides living benefits features at an additional cost, and streamlines the investment lineup., This is easier for clients to understand and is designed to meet the needs clients describe to their advisors, the company contends. What’s more, it’s a direct response to feedback from many advisors about how complex variable annuities have become, says Chris Owens,

10 InsuranceNewsNet Magazine » February 2013

national sales vice president-retail life and annuities. Takeaway: The issue of complexity has dogged variable annuities ever since the early 1990s when the designs went “modern,” sporting ever-expanding menus of subaccounts, guarantees, riders and options. Certain variable annuity prospectuses have become so long and convoluted, they rival some of the legislation that Congress enacts. It will therefore be interesting to see how these simpler designs fare in the marketplace, and what demographics they attract. In the rollout announcement, Owens points out that the new products offer “less complexity and guaranteed income in retirement.” That combo could be just what the older set wants.

Final Thoughts

The above are only a few of the annuity developments in the early part of the year, selected more for their variety than anything else. All are rooted in activities and trends of the previous year or years, so it’s not accurate to label them the handiwork of 2013. Still, their debut so soon after the resolution of the fiscal cliff fiasco is somehow reassuring, kind of like the first buds of spring. Takeaway: The annuity business had a tough go of it last year. Industrywide sales drooped in most lines, certain company deals reconfigured the annuity landscape, certain products were derisked to the bone, and certain advisors and distributors felt stuck in limbo. But 2013 is opening up more like business as usual than like a war zone. That could be a harbinger of a better year this year. Twelve months from now, we will know whether this was an auspicious beginning or not. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@

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Sally Hogshead says when you find your personality trigger, you’ll discover the true you. Are you a Maestro or maybe a Victor? If you went to the last annual meeting of either the National Association of Insurance and Financial Advisors (NAIFA) or the Million Dollar Round Table (MDRT), you would already know. Sally Hogshead spoke at both of these events and had participants take a Fascination Advantage test to identify which of seven fascination triggers they use most. Sally says the top two triggers shape your 12

personality. The attendees at the two meetings shared many similarities, which might mean that if you are an insurance or financial advisor, you also might share some of those characteristics. In Sally’s book, Fascinate: Your 7 Triggers to Persuasion and Captivation, she explains the triggers and the 49 personality archetypes formed by the combination of the test-taker’s top two triggers. Once you know this archetype, she

InsuranceNewsNet Magazine » February 2013

says, you can operate at your best. What makes this test different from all the other personality tests is that it reveals how people perceive you, rather than how you see the world. She is working on a new book, How the World Sees Us, which further helps people understand not only their own archetype but also how to deal with the archetypes in other people. But you don’t need to know that to understand what motivates sales. In an interview with InsuranceNewsNet Publisher, Paul Feldman, Sally discusses how the triggers draw in prospects and keep them as happy clients for years to come. (And also, Sally explains just what being a Maestro or Victor means.)

February 2013 Âť InsuranceNewsNet Magazine




The 7 Triggers of FascinaTion IF your prImary TrIgger IS

How you operaTe


You immediately create connections.

expressive, Intuitive, Dynamic, warm, Devoted

apply your natural optimism and energy to instantly build relationships.

You incite immediate and urgent action.

perfectionistic, reliable, Careful, routine-oriented, rational

Keep your team focused on deadlines, structure, and potential negative consequences.

reserved, Complex, understated, rational, Deliberate

Keep the focus on results, not drama. Carefully select what you reveal.

You’re in command of the environment.

Confident, Influential, opinionated, goal-oriented, Decisive

Become the opinion of authority.

You immediately earn respect for your results.

ambitious, aspirational, Discerning, Detail-oriented, Strong-willed

use admiration to raise the value of yourself and your company.

You change the game with innovation.

Innovative, Independent, Creative, Irreverent, entrepreneurial

Invent creative solutions that tweak tradition.

You build loyalty with stability and dependability.

reliable, Familiar, Stable, predictable, Comforting

repeat and reinforce patterns.


You reserve yourself and your communication for “best and highest” use.

FELDMAN: Why is fascination important? HOGSHEAD: Fascination is an intense, emotional focus. When you’re fascinated by people, you are completely focused on what they are saying. You’re more likely to listen to them, to buy from them, to trust them, to respect them. So in our lives, in the modern environment, in a competitive and distracted marketplace, it becomes increasingly critical for us to understand how do we not just talk at people, and not just sell to people. How do we actually fascinate them so they want to engage with us, become involved in our products, but more importantly, enter into a relationship with us? FELDMAN: How do you fascinate someone? 14

wHo you are

Copyright © 2011 by Sally Hogshead and Fascinate, Inc.

HOGSHEAD: There’s a certain way that you communicate that adds value to other people that I call the fascination advantage. And when you focus on it, this is when people become most fascinated by you. This is when they listen to your communication and take action upon it. When you successfully fascinate prospects or customers, they’re focused just on you. They’re not distracted. They’re not thinking about their next meeting. They’re not thinking about emails loading into their phone. They’re definitely not thinking about the competition. They’re thinking about you, and they’re thinking about your message and what you have to sell. When you’re fascinating people, their brains light up. The brain lights up almost like it’s in a state of relaxed happiness. They become in the flow. It feels effortless. Whatever message you’re try-

InsuranceNewsNet Magazine » February 2013

How To FaSCInaTe

ing to give to them, whether it’s selling a product, or building a relationship, or even just having a meaningful conversation with your kids. When you’re using your fascination advantage, you’re far more likely to connect with people in a way that’s heard, and remembered, and acted upon. FELDMAN: How does fascination work with the brain? HOGSHEAD: Every single human brain, throughout culture, is fascinated by the same seven triggers. I call them triggers because they are ways that the brain is instantly trained to focus on certain things. It’s almost like a shortcut when you’re trying to get somebody’s attention. These seven different triggers are neurologically based. I’ll give you a quick rundown of them.

Module 1 the seven ways to fascinate

module 1: the seven ways to fascinate


HOW TO BE THE MOST FASCINATING PERSON IN THE ROOM Power is about authority and control. Passion is about creating an immediate emotional relationship. Prestige is about elevating through respect. Mystique is subtle and understated. It’s about selectively editing what you say before you communicate. Alarm is about making sure that things stay on track, and stay safe with detail management. Rebellion is about creativity and innovation, changing the game. Trust is about stability, reliability. It’s familiar and dependable. One of the triggers represents the way in which your personality most naturally and authentically captures attention from other people. Your primary trigger is the way when you communicate, that you feel most comfortable and most articulate. FELDMAN: You say that we live in an ADD world today, how does fascination overcome this limited attention span that people seem to have these days?

only be nine seconds. That means that every time you introduce yourself or your message to somebody, you may only get nine seconds before they become distracted and they start focusing on something or somebody else. When you fascinate somebody however, not only do they listen to you but they want to become involved. They want to learn more, stay loyal, refer you and talk about you. They want to be more than just a customer. They want to be an advocate. This is incredibly important in trying to attract new prospects and maintaining the relationships we already have with our customers, because in an ADD world, people are always trying new things. They’ll work with you for a little while, then they’ll drop you in favor of your competition. Or they’ll have three different advisors all at one time for different things. It becomes really difficult to do things like sell life insurance, plan long-term investments or help people build their financial future.

HOGSHEAD: According to some new research, the average attention span might

FELDMAN: When you spoke at the annual meetings of MDRT and NAIFA, you


had the audience take the Fascination Advantage test beforehand and got a bit of surprise, didn’t you? HOGSHEAD: Yes. The really interesting thing is when we compared the two events, they tracked very, very closely. Out of the 49 archetypes, they share the same top two archetypes, which obviously is statistically significant. [Archetypes are the combination of two triggers that create a personality style.] FELDMAN: What were the common triggers and archetypes? HOGSHEAD: There were an extremely strong use of Power and Prestige. When we look at the personality that’s a Power plus Prestige or Prestige plus Power – they share a lot of character traits in common. These two archetypes are named the Maestro and the Victor. In other words, out of 49 archetypes, a huge percentage of them had the same two triggers, and it was so strong that the top two archetypes were the same one flipped, making them twins.

never, never

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February 2013 » InsuranceNewsNet Magazine




At MDRT, 7.2 percent of the group was the Maestro. At NAIFA, 8.9 percent of the group was the Maestro. Now, this is really significant. With 49 archetypes, hypothetically each one is going to have roughly 2 percent. But, actually, the number can be as low as .3 percent. The patterns that we see among both of these groups are very strong opinion, having a very clear idea of how to succeed and being very goal-directed. If Point A is where I am today and Point B is where I want to go, it’s very clear to this group how to make that happen; how to not only envision it, but how to also enact it. This is really important for an advisor to be able to do, because that’s really what an advisor’s core competency needs to be: seeing a goal, setting a goal, understanding how to get to the goal and then actually realizing that goal. FELDMAN: If you use the power and prestige triggers, how can you approach people in the most effective way so that you’re using these as an advantage? HOGSHEAD: People with power and prestige can be sometimes perceived as being a little bit intimidating because they have high standards. They have big goals. They tend to be high energy, and they can be imposing. So it’s important when these personalities first meet somebody that they

HOGSHEAD: For both of them, the highest dormant trigger was Rebellion. Rebellion is about innovation and creativity. People who use the Rebellion trigger tend to be highly entrepreneurial. They’re out-of-the-box thinkers who like to be unorthodox in the way they approach situations. Advisors tend to not be like that. Advisors tend to be better at figuring out, “What’s the environment? What’s the goal? And what are the steps that we need to take to get there?” Not necessarily reinventing the wheel. FELDMAN: Does that mean advisors get out of their depth when they set up and operate their own practices? HOGSHEAD: Many of them are entrepreneurs. They’re not entrepreneurs that are reinventing the product or reinventing the category. They are entrepreneurs who are built on relationships and on delivering for their clients. It’s important for them to surround themselves with others who can supplement that. For example, my personality archetype is the Catalyst, and the Catalyst is defined with Passion and Rebellion. So, I’m great at being able to deliver big, visionary ideas for my clients, but I’m very clear that when it comes time to do the spreadsheets, the scheduling, the detailed PowerPoint follow-ups, that the rest of my team is better suited for that.

to know our core personality advantages and how to optimize our own performance by supplementing our strengths with our team. This becomes especially critical for advisors who are the engine of their company. FELDMAN: How does the MDRT and NAIFA archetype stack up to other sales industries? Is it typical for top salespeople to have Power and Prestige as primary triggers? HOGSHEAD: No. Other sales industries tend to score higher on Passion and on Rebellion. And here’s why this is different. In other sales scenarios where you have customers walking through the door, such as at a car dealership, salespeople are going to be successful if they can walk up and instantly build a connection, and they only have 30 seconds to do that. Then if that sale walks out the door, they’re gone forever. In financial services, and within the insurance industry, it’s much more about building long-term patterns and being able to execute over the course of months, years and decades. So the personalities tend to be less explosively charismatic, and much more about being focused on the result that you want to achieve. Now, one caveat that I’d like to make about everything that we’re talking about right now – there’s no one way to succeed. There’s no one way to build relationships and communicate. So I want to be really clear that it is not that it is better if you have Power and Prestige, or Power and Mystique. It has more to do with making sure that you’re communicating, introducing yourself and sharing your message in a way that’s consistent with your core strengths. So, people can be extremely successful in financial services using, say, Rebellion. They are really creative and can see opportunities in the market that other people can’t see, because they’re able to brainstorm and think untraditionally. They can see the market’s going here, but we really need to be going over there. Sometimes you can succeed by going exactly in the opposite direction of everybody else in your industry. It’s more a question of how can you apply your natural strengths to serve you, your client and your company.

The triggers test is not a test about how you see the world, but about how the world sees you. understand how they’re being perceived. Because, remember, the triggers test is not a test about how you see the world, but about how the world sees you. And how the world sees somebody with the Power and Prestige trigger is that they’re seen as ambitious, admired, focused, respected, competitive, results-oriented. So the goal is not to temper those traits and tone them down. The goal is to make sure that they are channeled toward results for the client. FELDMAN: Was there a consistent dormant trigger, a trait they had but were not using? 16

So I hire for three triggers: Trust, Alarm and Mystique, which are best at implementation and execution. So my executive assistant is a Sustainer. The Sustainer is primary Alarm, secondary Trust. Sustainers tend to be very calm. They avoid chaos because they like to plan out every detail. They like to know exactly what’s going to happen. She’s very by the book. You know, like five minutes before our call started, she sends me an email and says, “Five minutes until your call. Your printouts are to your right.” Everything is planned out because that’s her gift, and that’s why I hired her. And for all of us, it’s important for us

InsuranceNewsNet Magazine » February 2013



module 1: the seven ways to fascinate

FELDMAN: If you have a similar primary triggers and secondary triggers to a client, does that create conflict?

How PoweR PeRsonAlItIes fAsCInAte otHeRs In tHe woRkPlACe

HOGSHEAD: It depends on the trigger. Our research shows us, for example, if you have two people who have a primary Prestige trigger, sometimes there can be a little bit of a conflict, because Prestige personalities want to be able to overachieve. It’s really important that you Confront problems to clear Command respect Communicate and inspire Shape and guide people the path for progress with intensity and opinions and your client have the same goals, so that you’re achieving but you’re on the same path and working in tandem with each other. The same is true if you were coworkers on a team, so that there isn’t a power struggle going on. Set high standards of Present with force Enjoy experiences that Have a participatory style On the other hand, people who had an use all of the senses that invites others to join in achievement (either subtle or energetic) Alarm personality are focused on details, on keeping things safe. They take a look Power and Prestige triggers were the most common at the whole landscape and see what can module 1: the seven ways to fascinate among attendees at the MDRT and NAIFA annual meetings. potentially go wrong. How do I make TOp 5 UniqUE cOmpETiTivE AdvAnTAgES OF pOWER pERSOnALiTiES sure that we stay on budget, on track, on schedule, within the framework? So OpiniOnATEd dEciSivE gOAL-ORiEnTEd those personalities work extremely well inFLUEnTiAL An individual with POWeR personalities focusing on They tend to be together, because they are motivated by As leaders, these POWeR as a primary typically are able connections with intensely focused on the same things, and they add value in personalities are often looked to trigger usually has to easily make others, POWeR would achievements. Their very similar ways. So it’s very easy for the for answers and strong beliefs. They decisions. They are have likely already drive to succeed advisor to work with a client, to make assistance, which are usually known generally known set the path and usually makes them for their candor, and to quickly size up begun leading ideal candidates sure that their money is invested con- usually provides them the opportunity they say what needs a situation and others for taking on large servatively, and to make sure that if the to guide co-workers to be said. They are determine a course down it. projects. economy changes, that their personal fi- and customers. usually formidable of action. When MYStIQUe would beCollect cOnFidEnT symbols of Focus on details Increase expectations debaters and Maintain high standards nancial landscape doesn’t change.

How PRestIge PeRsonAlItIes fAsCInAte otHeRs In tHe woRkPlACe

FELDMAN: The insurance and financial services business is about trust. How can you use these triggers to create trust? HOGSHEAD: Trust is different from all the triggers. Trust can’t be created instantly. You can instantly make somebody feel passionate or curious, but you can’t make somebody trust you immediately. So, that’s the challenge for advisors. There are three ways to build trust without taking years to establish it. The first is to identify patterns that you want to repeat. Trust is neurologically based on patterns. Our brain likes to see the same thing over and over again, to see the same logo, to see the same familiar face, to have the same behaviors repeated. It’s why we like to wear the same things. We like to go into our closet and put on our comfortable college sweatshirt, because we know it and love it. In the same way, advisors can make sure that they’re very consistent. Do what

for work, relationships and negotiators, making analyzing data, and achievement A POWeR personality them effective themselves ReBellIOn would be usually does not fear salespeople. coming up with new stretch goals and approaches, and rarely doubts their PaSSIOn would be ability to reach the

finish line.

Module 1 the seven ways to fascinate Tap into trends

Evoke admiration (and envy)

Rely on first impressions


they say, say what they do, and that rein- ence with sincerity, authenticity and reliforces those patterns. ability that they can count on over time. TOpThe 5 UniqUE AdvAnTAgES OF pERSOnALiTiES second cOmpETiTivE thing that advisors can ThepRESTigE third thing that people can do to do is avoid any surprises. When people accelerate trust is to build goals far into feel surprised, it causes trust. the future. Instead of justFOcUSEd talking about dETAiL-ORiEnTEd AmBiTiOUS a break in AdmiREd UncOmpROmiSing Even positive surprises can make people one transaction or one product, to take PReStIGe People with They are often Unrelenting in PReStIGe apersonalities little bit uncomfortable, because there’s and it ofa longerpersonalities context,tend both primary PReStIGe looked up tothings by theirgive pursuit usuallyin expectations. personalities to you theirset co-workers to centerthe theirpast. aarebreak So tend when into the improvement, future and referencing perfectionists in the set high goals and and acquaintances Prestige attention and up a meeting, don’t break it. If you say So, for example, if you’re trying to sell an way they present push themselves to because they are personalities do energy on rising you’re going there atlevel 2, don’t be perceived annuity, not you wouldn’t want justmore, talk themselves and theto be reach the next typically usually make up —to knowing work they of performance. experts orabout how concessions, nor do doing more, there atproduce. 3:30. If your email usuallyasgoes the transaction itself is having going they “settle". Good more, being more. out on the first of the month, makeachievers. sure They to are happen. You want to talk about what usually consulted enough is rarely that it goes out on the first. Your goal is to dothe on what andimplications good enoughfar for into the future and where them. how the annuity performs. to make people feel that they’re safe andto go. demonstrate comfortable, that you’re a familiar pres- When clients see things on a bigger time February 2013 » InsuranceNewsNet Magazine Module 1 the seven ways to fascinate

17 72


HOW TO BE THE MOST FASCINATING PERSON IN THE ROOM with a secondary Power trigger. But maybe with their kids they would have a different way of interacting. They might be the Subtle Touch, which is Mystique plus Passion. If they were in a situation where they were unsure of what was going on, they might be the Wise Owl, which is Mystique plus Trust, and they would hold themselves back a little bit more. They wouldn’t exert your opinions. People move horizontally across the primary trigger bar.

Sally Hogshead turned her “interesting” name into a mark of distinction.

scale, they begin to think of your relationship together not as being simply a month or a year or 10 years, they begin to think in terms of loyalty. FELDMAN: Isn’t there also the danger of trust becoming boring and you lose fascination? HOGSHEAD: Yes. Trust can become repetitive and boring. When people become too focused on being trusted, then they start to become irrelevant, because they just do the same things over and over again. They get stuck in ruts, and this can really be the downfall for a lot of advisors that I’ve worked with. Yes, they’re trusted, but they are so predictable that they have trouble attracting new clients. In order to stand out in any kind of a crowded and competitive marketplace, you have to actually do just that, you have to stand out. If you’re not willing to stand out, then you need to be ready to start spending a lot more money on marketing. You will have to buy yourself new customers because you’re not naturally attracting them based on your personality. FELDMAN: What are the most powerful triggers for consumers? 18

FELDMAN: Do people use different secondary triggers at different stages of their lives?

HOGSHEAD: In bringing new customers through the door, to prospect effectively, there are three triggers: Power, Prestige and Passion. Power and Prestige, we saw with both of the groups that we talked about. The Passion trigger helps people immediately connect with somebody through their eye contact, voice and body language. People immediately feel close and participatory with somebody with the Passion trigger, so those are great for bringing new customers in. But keeping people over time is very different. Keeping people over time has more to do with trust, which we just talked about. So, for financial advisors, the key is to understand how they can leverage their two triggers to not only attract new customers, either through community outreach, referrals, meeting people at events, but also to keep those clients over time and have them consistently bring new business. FELDMAN: Can a person’s triggers change over time? HOGSHEAD: Your personality has core competencies that are almost like your north star. So for example, the Veiled Strength is primary Mystique trigger

InsuranceNewsNet Magazine » February 2013

HOGSHEAD: Yes. You’re most likely to use different facets of your personality over time by staying with the same primary trigger, but going across that bar. People under 30 tend to use the Passion trigger. People between 30 and 50 in their prime earning years, and are in an aggressive mode in their career, tend to use the Power trigger. People 50 and above tend to use the Trust trigger. What’s really important to understand is that your personality has these key advantages, and when you’re using them, that’s when you’re performing at your best. It’s when you’re most likely to have a breakthrough or when you’re most likely to be in peak performance. It feels effortless. It feels like you don’t have to put a lot of energy into the awkward and energy-draining process of being somebody that you’re not. Once you apply this core strength and build your business around it, then it’s self-generative, because it brings you energy. Whereas being put in a position where you’re being evaluated based on triggers that are not the way that you’re built to succeed, it’s almost like if you were right-handed, and I gave you a pencil and told you had to write with your left hand. You could write with your left hand if you needed to, but it’s not comfortable, and it’s not the best use of your talents. And you’re not going to reach your potential.

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Investors say they are on track with their financial goals

Public Erupts over AIG Lawsuit Even though American International Group has paid back the TARP bailout plus some and the company embarked on a warm and fuzzy “Thank You” ad campaign, AIG found that public ire is still ready to roil. AIG’s Social media, traditional media, anywhere people can speak “Thank You” they spoke volumes at high volume about AIG’s consideration Ad of joining a lawsuit against the United States over the $182 billion bailout from the Troubled Asset Relief Program. AIG was asked to join the lawsuit by its former CEO, Maurice “Hank” Greenberg, and others contending that shareholders were mistreated in the takeover. Although AIG said it was legally obligated to consider the request on the behalf of shareholders, the public seethed at the notion. AIG shareholders rejected the suit at a meeting. Among the nastier comments on Twitter and elsewhere came some pretty rude mentions of current CEO Bob Benmosche, who has been credited with saving AIG. Meanwhile, AIG says it was Greenberg that got the company into the credit default swaps that swamped the company in the first place. Ex-CEO Maurice “Hank” Greenberg Speaking of those problematic financial instruments, AIG is asked AIG to join looking at suing banks that were on the other end of those deals. lawsuit. Not a lot of public ire on that move.


such as housing, utilities, food and Would young adults allocate money to transportation. saving for retirement? Given that young The result is an eyebrow-raiser. The adults are often preoccupied with pay- Millennials allocated 17 percent of lefting off school loans, buying homes and over monthly income to saving for restarting families, that’s an interesting tirement. This was second only to payquestion. ing down debt, such as student loans, Researchers for Prudential Retire- to which the Millennials assigned 20 ment decided to find out. They put out percent. Even more surprising, saving a test question to 800 employed con- for retirement also preceded leisure sumers in the 21 to 29 age group who spending such as shopping or going out are eligible to enroll in their with friends, saving for vacaMillennials’ employer-sponsored defined allocation of left-over tion or a house, contributing contribution plan. The test to an emergency fund or inmonthly income asked them to allocate 10 vesting for further education. percent to 20 percent of their Our take: These young folks monthly income to various could be a receptive audience to saving discretionary areas, after pay- for retirement to paying for insurance and annuity down debt ing all necessary expenses, presentations.

17% 20%





PROJECTED COST INCREASES FOR ALL TYPES OF MEDICAL PLANS are anticipated to be down by between 0.2 and 0.6 percent through the first half of 2013. Source: Buck Consultants, A Xerox Company

InsuranceNewsNet Magazine » February 2013


The long-term-care insurance (LTCi) industry has seen standalone LTCi sales shrink for the past several years and Congress has officially repealed the CLASS Act (which had called for establishment of a federal long-term care program). But that doesn’t mean the nation is turning away from LTCi initiatives. For one thing, sales of combination products (life with LTC benefits) have increased at least since 2008, according to a review of reports from LIMRA. In addition, hiring of those who provide elder care services is on the rise, says The Chicago firm reports that U.S. senior care agencies, which now number nearly 11,000, have grown by 40 percent since 2008, with 1,000 new agencies opening in 2012 alone. The firm also says that more than 4,000 caregivers and certified nursing aides are being hired monthly from

by subscribing senior care companies. Putting two and two together, it appears that people are finding ways to arrange for care, one way or another. Meanwhile, even though CLASS is now history, Congress isn’t leaving the LTC world on Lonely Street. In its new tax act, Congress called for establishment of a 15-member Commission on Long-Term Care. The purpose? To develop “a comprehensive, coordinated, and high-quality system that ensures the availability of long-term services and supports for individuals in need of such services and supports.” The Academy of Actuaries has already written to President Obama, urging him to appoint an actuary to serve on the commission. No surprise there. Other LTC experts will probably follow suit. What is going on appears to be something like a reconfiguration of the LTC world. Perhaps it will be a lemons-to-lemonade kind of thing?


For year 2013, financial advisors in the United States are expecting 8.4 percent growth, on average, in return on assets (ROA), according to a Russell Investments

[NEWSWIRES] survey. ROA refers to a firm’s revenue to assets under management and is a commonly used metric for goal-setting (as is assets under management, or AUM). The 8.4 percent figure is pretty optimistic. After all, in the same survey last year, advisors said they were expecting, on average, 7.6 percent growth in ROA for 2012; but they wound up realizing less, only 7.2 percent on average. In fact, only 21 percent reported that their ROA grew more than expected for 2012. But maybe these advisors are on to something. Another survey, this time of sales executives in various businesses, also drew optimistic predictions for 2013. Published in January 2013, a month later than the Russell survey, by The Alexander Group and WorldatWork of Arizona, this study looked at expected sales revenue rather than ROA. But guess what? The polled executives projected growth in sales revenue for 2013 at 8.4 percent. That’s up

from the 6 percent sales volume growth the executives had experienced in 2012 and also in 2011 – but below the anticipated 7.5 percent they had projected for 2012. The Russell researchers asked their advisors what market segment would generate the most ROA growth in 2013. The clear majority (64 percent) said clients nearing or very near retirement. Based on all the retirement surveys that have been published, that seems like a pretty good idea.

QUOTABLE For 2013, a theme is clearly emerging with the uncertainty generated by the ‘fiscal cliff’ and that is the notion of austerity. — Leon LaBrecque, chief strategist and founder of LJPR


If insurance advisors who also hold securities licenses have not yet considered the individual retirement accounts (IRA) market, this might be a good time to start. Three-quarters of traditional IRAowning households in 2012 told re-

Americans Make Personal Finances Low Priority for 2013


Most Americans might have forgotten their New Year’s resolutions by now, but even when they made them, financial health was low on the list. A survey found that a staggering 84 percent of Americans said that they will not include financial Americans who did not planning in their resolutions for 2013. The annuinclude financial planning on their New Year’s al New Year’s Resolution Survey from Allianz Life resolution list showed that the number of respondents who are not making financial planning a priority was at its highest level in four years. Why don’t people seem to care about their financial future? The top reason given was the respondents’ belief that they “don’t make enough to worry about it” (32 percent). Twenty-six percent said that they already “have a solid financial plan” and 20 percent attributed it to the fact that they “don’t have an advisor/ financial professional,” both responses rising 3 percent from the 2011 survey. The survey also indicated the respondents’ reluctance to seek professional help in improving their financial status. More than a third of respondents said they were less likely to seek advice from a financial professional in 2013, with 20 percent saying more likely to seek help and 44 percent saying they were unsure. Waistlines trump wallets in determining resolutions for the new year. For the second straight year, “health/wellness” topped Allianz Life’s survey as the most important focus area for the upcoming year.

searchers for the Investment Company Institute that they held traditional IRAs through investment professionals such as insurance companies, independent financial planning firms, full-service brokerages, or bank or savings institutions; so, the industry already has a presence in the market. But here’s the case-closer: Of the nearly 70 percent who said they had developed a strategy for managing assets and income in retirement, 60 percent said an investment professional was “the primary source” used to create the strategy. So, these

households do look to professionals for guidance about how to manage their IRA plans. Oh, and one more thing: 67 percent of traditional IRA-owning households with rollovers from employer retirement plans said that preserving the tax treatment of their accounts was a factor in deciding to do the rollover. That should ring bells for insurance and annuity professionals everywhere. If anyone has know-how on presenting tax aspects of financial products, they do.


It’s no wonder that industry professionals are uncertain about whether consumers will or will not annuitize their retirement plans. According to the Employee Benefit Research Institute, plan structure is the major deal. For instance, between 2005 and 2010, pension plans with no full or partial lump-sum distribution options had annuitization rates very close to 100 percent. But in defined benefit and cash balance plans with no restrictions on lump-sum distributions, the annuitization rate was only 27.3 percent. “Any study of annuitization that fails to take into account the impact of plan design on participant choice will likely lead to misinterpretations,” concludes

EBRI research associate Sudipto Banerjee. Enough said.

February 2013 » InsuranceNewsNet Magazine


SOME PEOPLE ARE NOT FEELING THE “RELIEF” part of the American Taxpayer Relief Act (ATRA) enacted just as the nation was about to zoom off The Fiscal Cliff. With this special report, we will explore what you need to know to help bring that relief to your clients.

How to Deliver EstatePlanning Relief with ATRA PAGE 23 22

Plenty of Opportunities for Advanced Advisors PAGE 29

InsuranceNewsNet Magazine » February 2013

new and

improve strateg d i

Strategies to Soothe Tax Pain PAGE 32


special feature: ATRA RELIEF

How to Deliver Estate-Planning Relief with ATRA

How to Deliver Estate-Planning Relief with ATRA If you’ve got some time to kill, you can read the American Taxpayer Relief Act in full at this address

T  he American Taxpayer Relief Act changed the rules, but they are now permanent, allowing advisors to get to work with their clients. By Linda Koco


efore the 11th hour tax deal that helped the Unites States avoid the fiscal cliff, a man sat in his life insurance advisor’s office mulling over what to do about federal estate taxes on his nearly $5 million estate. Let’s call him Mr. Estate Tax Inquirer. As politicians jockeyed for position over tax policy, Mr. Inquirer learned from the advisor that no one knew whether there would even be a federal estate tax in 2013 or, if there were one, what it might look like and how long it would it run. He learned that if Congress intervened with new law, the estate tax exemption amount would drop to $1 million in 2013, so he would need to buy some more life insurance to help offset a potentially crushing estate tax burden for his heirs. He learned about the amazing flexibility he will have via life insurance, but he also learned that if Congress axed estate taxes altogether, as some were predicting, he might not need life insurance after all. Uncertain about what lay ahead, Mr. Inquirer did nothing and left the advisor with a “maybe next year.” Well, next year is here, and so is certainty in federal estate tax law. With the enactment of the American Taxpayer Relief Act (ATRA) of 2012, Congress deemed federal estate taxes permanent. That should clear up the confusion and open the doors to renewed interest in estate planning and life insurance with the likes of Mr. Inquirer, right? The short answer is yes, but not in the estate-tax oriented sales format into which many advisors have been indoctrinated and trained. Instead, when dealing with people having estates of $5

million and under, life insurance sales will focus on liquidity and legacy issues, not necessarily estate taxes. In addition, advisors may increasingly move toward a consultative, fee-based approach to working with clients in this market.

The New Tax Law

The reason for this assessment rests with the terrain laid out by the new tax law: Individuals will pay federal estate taxes if their estates are valued at above $5 million ($10 million for couples), indexed for inflation. That’s permanent. In addition, the top estate tax rate is set at 40 percent for those same estates; the lifetime estate and gift tax exemption amounts remain unified; and portability continues so that surviving spouses can use their deceased spouse’s unused applicable exclusion amount. That’s a lot of certainty for the wellheeled folks who anticipate having estates above $5 million/$10 million –

especially in comparison to the past 12 years, which saw annually changing estate tax levels with a sunset to the law at year 10, a two-year extension, another sunset and frequent predictions that federal estate taxes would soon go the way of the dodo bird. The folks with smaller estates, below $5 million/$10 million, also enjoy certainty, but it is a certainty that may present a daunting challenge for life insurance advisors: How to interest consumers in this high-net-worth category in buying life insurance when estate taxes are no longer an issue? The Mr. Inquirers of the world may just pat themselves on the back and say, “Whew, it’s good I didn’t buy that life insurance. I won’t need it because my estate will be under $5 million.” This possibility is leading some industry watchers to predict, or worry, that life insurance sales in this market will trickle down to a very narrow stream.

No Can Do

Want to look up the new estate tax law in the American Taxpayer Relief Act (ATRA) of 2012? Alas, no can do — or at least, not easily. Granted, the law is simple enough to find in an online search. The provisions appear in a few paragraphs spreading over pages 11 and 12 of the PDF version of the law. Unfortunately, reading those paragraphs is like reading computer code or something just as esoteric. That’s because this section of the law amends two earlier tax laws, parts of which remain in effect and so are referenced but not repeated. The earlier tax measures are the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, and the Economic Growth and Tax Relief Reconciliation Act of 2001. For the undeterred, once you have a copy of the act, go to TITLE I — GENERAL EXTENSIONS, Subtitle A — Tax Relief, SEC. 101. You’ll find the paragraphs there under “(c) Modifications of Estate Tax.— ” Or, make it easy on yourself, and consult your favorite tax service or advanced sales expert. Those folks are busy compiling various summaries and analyses to satisfy every tax appetite, big and small. They even like doing it. — Linda Koco February 2013 » InsuranceNewsNet Magazine 23

special feature: ATRA RELIEF

How to Deliver Estate-Planning Relief with ATRA

The Opportunities

Not so, says Juli McNeely. The new estate tax environment will actually help life insurance advisors bring in sales in the under $5 million market, predicts the secretary for National Association of Insurance and Financial Advisors (NAIFA). In fact, she says, many agents have a lot of clients who were just waiting to see what Congress would do. Now that they know, they will “start to get serious” about planning. To illustrate, McNeely, who owns McNeely Financial Services, in Spencer, Wis., tells of one client whose major asset is a $3 million to $4 million family-owned business. Last year, the client was considering last-minute gifting of shares to some siblings. With all the uncertainty in the air, the family decided not to move forward. But now that the tax law has brought clarity, she says, “they are moving forward with additional planning based on the new knowledge.” “In fact, they are excited now,” McNeely said, “because they can do it correctly, in a better way.” Judi Carsrud, director of federal relations for NAIFA, believes the law will actually motivate clients in this net worth category to buy life insurance. There is “more demand on the (estate) money” in this market than in the wealthy market (with estates more than $5 million), she explains. Beneficiaries may need to pay state estate taxes, income in respect of a decedent, and other costs, so “the money has to stretch more,” she says. When clients see that, they will want to do some planning to help, and life insurance will factor into that. Clients in this market “may not buy large second-to-die life policies,” concedes McNeely, “but they will do other things, such as legacy or college planning.” The need for planning doesn’t go away with the new law, she stresses. Rather, “it gives us clarification, and now we can move forward.”

Some Ideas

Think basic planning. Advisors should continue to do basic planning with individuals in this market, suggests Randall A. Denha, an estate planning attorney with Denha & Associates, Birmingham, 24

Mich. “You never know whether some of those clients may come into substantial money later on, through inheritance, business success or even the lottery.” And remember, he says, the tax tail doesn’t always wag the dog and the planning for nontax reasons sometimes is more important than just the tax reason. He cites the example of a client who has a child who is a spendthrift, drug abuser or gambler. “It is unlikely that a parent would ever want the child to receive any of the inheritance until corrections are made. The same is true for divorced spouses and other creditor-impacting events. As such, asset protection planning is vital.”

“Advisors should still continue to do basic planning with individuals in this market. You never know whether some of those clients may come into substantial money later on.” Think planning for younger professionals. Estate planning is often viewed as something that advisors do with clients who are elderly, infirm or have substantial wealth or inheritance, Denha points out. But young professionals also need wills, powers of attorney and other estate plan documents. The new estate plan environment can be an opportunity to do some simple planning with those clients before life gets more complicated, he says. Think liquidity. For the under $5 million market, the liquidity sale will be very important, predicts Ben Baldwin Jr., owner of Baldwin Financial Systems, Arlington Heights, Ill. The low interest rate environment, aging population, concern about making money in volatile stock markets, and a host of other factors make this an important planning theme, he says. So selling life products with liquidity features will have appeal, even though there is no federal estate tax for these individuals.

InsuranceNewsNet Magazine » February 2013

Think cash. “You can never have enough cash when settling an estate, because a lot of the estate will be tied up in real estate,” says Barry Dyke, president of Castle Asset Management, Hampton, N.H. He tells of a widower who had a summer house worth $1.2 million when he died. The estate had no liquidity, so for two years, the brothers and sisters litigated over what to do with the property. They wound up selling it for $850,000 – and terminating their family relationships. “If there had been life insurance proceeds, it would have been easy for them to slice up the estate instead of liquidating,” he says. Think legacy. When clients get older, says Baldwin, they start thinking a lot about providing for grandchildren upon the grandparent’s death and also about having access to funds immediately, in event of funds being needed to pay for a child’s illness or special needs. To address this, he talks with clients about embedding cash (that they want to set aside) into variable universal life insurance. “People like the tax deferral and the fact that the cost of insurance charges are generally less than the taxes they would otherwise pay on the earnings,” he says. They also like the guaranteed interest account, he says, noting that on older variable universal life policies, these are paying 4 percent to 5 percent. On newer contracts, the accounts pay in the 3 percent range, “which is lower but still more than if the money stays at the bank.” Think high cash value life insurance. “That’s a warehouse for wealth,” says Dyke. ”Client money has to reside somewhere. The clients could put it in a bank, but they’d get low interest rate; in the stock market, but that’s volatile; in the mattress, but there’s risk at death and no interest; in real estate, but that’s not liquid; or in a business venture, but that’s risky and illiquid.” With life insurance, clients avoid a lot of those drawbacks, and also get tax benefits, guarantees and flexibility. Think single-premium whole life. A client could deposit $500,000 into one of these polices, says Dyke. “That would create a death benefit of $700,000 to $750,000, and the proceeds would be exempt from probate, which is a big thing in some states.” Later on, he adds, the client could annuitize it for



February 2013 » InsuranceNewsNet Magazine


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retirement income, and create a type of personal defined benefit pension plan. “People could always do this, but is it more effective in today’s environment,” due to the money management expertise of insurance companies and to the fact that a long-term care rider can sometimes be added to the contract. Baldwin likes the product for this market too. He illustrates by telling of an aunt who wants a tax shelter and to provide for a niece, but who doesn’t want to gift the money now. “In that case, we can put the money into a single-premium whole life policy which the niece doesn’t even know about,” he says. Think state estate taxes. Some clients forget or don’t know that their estates could be subject to their state’s own estate taxes, irrespective of what Congress does with the federal estate taxes, says Dyke. Not all states have estate tax laws, but those that do vary in exemption amounts and tax rates. “The state estate tax rate can be as high as 16 percent,” Dyke says. And while some states have very high exemption amounts (over $5 million),

others set the exemption amount at $1 million or $2 million, or even lower (New Jersey’s exemption amount in 2013 is $675,000). So it’s a fuzzy area, and some clients will need to do planning around it that could entail life insurance. Think other estate expenses too. In general, says Dyke, clients can anticipate that they will pay 2 percent to 3 percent of the estate value to cover estate costs such as probate, appraisal costs and legal costs. An estate of $1 million could cost from $25,000 to $30,000 in such expenses. Some clients may be interested in owning life insurance that helps cover those expenses. Think existing contracts. That’s what Baldwin does. A lot of clients have older contracts that advisors can use in new ways, he explains. To illustrate, he points to a 76-year-old owner of a variable annuity inside an IRA. The man can take lump sums out of the contract – more than was needed to cover the required minimum distribution but not so much as to void contract guarantees, Baldwin says. He pays taxes on the withdrawals and then

deposits the remainder into a non-qualified variable universal life policy. “That gives him liquidity – since he can make withdrawals from the life policy to cost basis for a small fee – as well as a death benefit for legacy. Meanwhile, each new deposit into the life contract helps minimize the life policy’s cost of insurance charges, which keep rising with age, and the client likes that.” This is a good strategy for clients in the under $5 million category, Baldwin contends, because “they tend to be mid-market Americans who have obligations, care about fulfilling them, and are interested in finding a tax shelter that is available to the common person.” Think flexibility. Because change is inevitable but also unexpected, estate documents need to be as flexible as possible so they allow for future flexibility, says Douglas I. Friedman, partner in the Friedman & Downey, a law firm in Birmingham, Ala. “Even though the new law is permanent, circumstances could change and the tax law could change, he explains, pointing out how much things

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InsuranceNewsNet Magazine » February 2013

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have changed from just 10 or 20 years ago. Life insurance is a “great product” for these clients because it provides the flexibility they may need to make adjustments later on, he says, adding that wills and other estate documents should be drafted with flexibility in mind, too. Think business market. “I encourage agents to look for business sales, because they are as sure as sure can be,” says Friedman. “Business people with a net worth under $5 million generally don’t need life insurance for estate tax purposes, but they still need it for key man, non-qualified deferred compensation, buy-sell and other business purposes, and they still need it for basic financial planning.” The main thing that holds agents back from the business market, he adds, is that they feel it is too complicated and some agents prefer selling to just one individual rather than, say, the owner and business partners or owner and spouse. The workaround? “Get educated in the business market,” he says. T hink Crummey. Moderately wealthy individuals could be lulled into

thinking that their irrevocable trusts which hold life insurance are no longer needed, predicts Denha. “While this may be true for some, it will not be true for many. Life insurance still plays a very important part in the planning process. Therefore, it’s important that Crummey Letters (annual notices to beneficiaries when the client has an Irrevocable Life Insurance Trust) are still sent, and tax laws still be respected.” Think about other taxes: The new law “does not impose new taxes on life insurance, annuities, pensions, retirement savings or employer-provided benefits,” according to an analysis from NAIFA. But many Americans do face increased tax liability due to other sections of the tax law. In view of that, various types of insurance products may hold more appeal for those who feel the impact of the increased taxes, the association says.

Advisor Business Model

For success in in the new estate tax environment, advisors in the under $5 million market should consider revising their

business model, says Baldwin. In particular, he recommends moving toward a feebased advice model or, if they remain in the commission-based model, providing disclosure of commissions to the client. Not all insurance advisors are overjoyed to hear those ideas, Baldwin allows, but he says he has his reasons. For instance, if a client buys a new variable universal life policy from an advisor compensated on commission, the contract will have a surrender charge for

For success in the new estate tax environment, advisors in the under $5 million market should consider their business model.

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February 2013 » InsuranceNewsNet Magazine


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How to Deliver Estate-Planning Relief with ATRA

Tax Deal Has Implication for Annuities Annuities appear nowhere in the new American Taxpayer Relief Act (ATRA) of 2012, but the federal Act does have at least three indirect implications for annuity advisors and clients. For example:

Insert Annuities Here

The “permanent” status of federal estate taxes brings certainty. This certainty could help lay the groundwork for teachable moments related to certainty — in the broad financial environment and in discussions of annuities. Advisors can use the law’s permanent status as a springboard to discussion about financial security and how annuities help clients build that security via tax deferred growth, guarantees, liquidity, death benefits and more. The measure increases taxes for individuals earning more than $400,000 a year ($450,000 for marrieds filing jointly). For instance, it sets the top income tax rate for these households at a permanent level of 39.6 percent, up from 35 percent in 2012. For the relatively few advisors who have clients in this very high income category, this may make the tax deferral feature of annuities more attractive, at least during the client’s accumulation years. However, the measure also sets taxes on capital gains and dividends at 20 percent for these wealthy households. Estate planning expert John Olsen of Olsen Financial Services cautions that this “could make annuities look relatively less attractive because income from an annuity is treated as investment income.” Advisors will need to sort out the pros and cons here along with the other tax law changes. The measure officially repeals the CLASS (federal long-term care program) that had been included in the Affordable Care Act but also calls for establishment of a 15-member Commission on Long-Term Care. The new commission will be charged with developing “a comprehensive, coordinated, and high-quality system that ensures the availability of long-term services and supports for individuals in need of such services and supports.” That could be an opportunity for annuity experts to correspond with the commission on combo products. The annuity and life insurance products that include long-term care benefits. Making such an effort may be worthwhile, especially since the new law states that the commission members shall include, among others, those who represent the interests of “consumers of long-term services and supports and related insurance products, as well as their representatives.” — Linda Koco

a number of years. So if the client accesses the account value during those years, the surrender charge will eat into the gain. By contrast, if it’s a fee-based sale, “that would remove the issue,” because there would be no surrender charge and the clients already know the fee they are paying the advisor. The lack of liquidity in surrender charge products can be a stumbling block, he maintains. The charge tends to “hold people up” and “make people feel 28

leery,” especially if they are seniors with uncertain liquidity needs and/or deal with advisors who keep trying to churn the business from one commissioned product to another, he says. Surrender/commission-free life insurance should at least be broached when the life agent is working in a team with an attorney, accountant or other professionals, Baldwin says. “That’s a fiduciary environment, and fiduciary will be the standard of care that will apply to the

InsuranceNewsNet Magazine » February 2013

agent in that situation.” If there is a lawsuit later on, he says, “the lawyers could hold the agent liable if there were options available at the time that the agent did not suggest.” Advisors who stay in the commissioned sales environment will have opportunities in the under $5 million market, too, Baldwin predicts. But he thinks disclosure of commissions is what will make this into a great opportunity. It will enable clients to compare the quality of advice they receive from the commissioned agent with that from what they have received from fee-based advisors or others they may have consulted, he says. But there’s a caveat. “I think the insurance company should provide the disclosure by sending out the ‘5500 Schedule A’ disclosure form, not the agent.” Why? There is more credibility if the disclosure comes from the insurance company, Baldwin contends.

It’s About Liquidity and Legacy

In the new permanent estate tax world, life insurance sales opportunities in the under $5 million market will stem primarily from liquidity and legacy needs, experts say, although federal estate taxes also will be a factor for the relatively few clients whose estates are likely to surpass $5 million someday. The good news is, some advisors have already started developing liquidity/legacy approaches for this market. That’s because federal law set the estate tax exemption amount at $5 million/$10 million, indexed for inflation, on a temporary basis for 2011 and 2012, so these advisors adjusted their strategies accordingly. In 2013, it will be business as usual for them, only now with permanence. For advisors who held back, due to the uncertainty that plagued Mr. Estate Tax Inquirer, the permanence of the new estate tax law may be the trigger that spurs them to move in the same direction. Friedman, the Alabama attorney, says it’s worth making the effort. “Someone who is good in life insurance and estate planning can be very successful in the under $5 million market,” he says. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@

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Plenty of Opportunities for Advanced Advisors

Plenty of Opportunities for Advanced Advisors S  ure, the estate tax income exclusion is high, but the new law left many favorite tools in the expert’s toolbox. By Gonzalo Garcia and Liz Weber Michel


he fiscal cliff-averting American Taxpayer Relief Act packed many things into a bulky bill but the most significant component for life insurance was the permanent estate tax. Here’s even better news. Even though some advanced life insurance and estate-planning advisors might have assumed much of their market disappeared, they should rest assured that many of their favorite tools are still available. Also, they should keep in mind that their clients’ income will likely far outpace the law’s income exclusion. First, a little background: The act retains the $5 million unified credit exclu-

sion amount per individual, $10 million per couple, but makes it permanent for estates and gifts made after Dec. 31, 2012, and indexes the exclusion for inflation. The exclusion will be increased this year over its current level of $5.12 million. Speculation is that this will increase to $5.25 million. The law increases the maximum gift and estate tax rate from 35 percent to 40 percent. In addition, the exclusion amount (for gift and estate taxes) remains unified and is permanently extended for estates and gifts made after Dec. 31, 2012. Portability, between spouses, of the unused credit is also made permanent as well as the generation-skipping transfer tax provisions. The law also extends the deduction for state estate taxes and it repealed the 5 percent surtax on estates larger than $10 million. There was good news in what the act

did not do. President Barack Obama’s 2012 budget proposal contained provisions that would have significantly affected gift and estate planning. Fortunately, these provisions were not incorporated into the law and will continue to provide individuals and families with gift and estate planning opportunities. OK, so now what? How do we help mass affluent and affluent clients plan in a more certain environment? First, assuming the annual exclusion amount rises to $5.25 million (which is a 1.02 percent increase over 2012), estates will no doubt grow faster than the indexing. So, if an individual has a $5.25 million estate in 2013 and that estate grows at a rate of 5 percent or 7 percent, it will outpace the indexing of the exclusion amount and the delta will be subject to estate taxation. As you can see in the accompanying chart, the estate is growing at a rate far

Estate with Growth at 5% Per Year

Annual Exclusion Amount Indexed at 1.025% Per Year












































Estate with Growth at 7% Per Year

Subject to Estate Tax

Subject to Estate Tax

February 2013 » InsuranceNewsNet Magazine


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Plenty of Opportunities for Advanced Advisors

faster than the indexing of the exclusion amount. Combine that with longer life spans, the easing of the recession and the fact that purchasing life insurance at a young age is more cost effective and you have a powerful argument for buying life insurance now. Second, many of our favorite estate planning tools survived the law, which means that the “tried and true” continue to be terrific estate planning techniques. Legacy Enhancement. The permanency of the exclusion amount will allow for significant gift tax free transfers. Clients can gift $5 million (indexed) and enhance this legacy through the purchase of life insurance inside of an ILIT for maximum tax efficiency. Further, add a long-term care rider to super-charge this idea. Trust Opportunities. With permanency, large gifts to dynasty and spousal access trusts are compelling. Likewise, gifts and sales to grantor trusts, with easier seeding due to the increased gift tax exemption, have the potential to remove significant amounts of wealth from taxable estates. The permanence in the gifting exemption may also allow for more funding of already established intentionally defective grantor trusts (IDGTs) and beneficiary defective grantor trusts (BDGTs). One concern over these estate planning arrangements is the unease over thinly capitalizing IDGTs or BDGTs calling into question their financial worthiness. This may be a good time to re-examine these installed techniques and see if they might benefit from increased funding to give greater financial substance to the arrangements. Dynasty trusts. Twenty-eight states plus Washington, D.C., allow irrevocable dynasty trusts with in-state trustees to endure for generations, and perhaps forever. If structured properly, such trusts can avoid estate or generation-skipping taxes. GRATs. Over a preset term, Grantor-Retained Annuity Trusts (GRATs) return principal to the grantor. If the asset appreciates, the trust pays the grantor a preset interest payment. Extra appreciation is tax-free to trust beneficiaries. GRATs are appropriate for grantors who do not want to part with principal or those who want to transfer 30

more than their individual exemption, as they can be structured with no gifttax consequences. Grantor trusts. Grantor trusts allow donors to pay capital gains and income taxes on investments in the trust on behalf of beneficiaries – thus increasing the amount in the trust for the beneficiaries. Because the IRS does not consider these payments a gift, they can be a tax efficient way to transfer wealth.

A Nudge Might Help Want to draw client attention to the new estate tax environment? Juli McNeely does. So, she says her firm will include information about the law in her firm’s next bi-weekly newsletter to clients. That should spur calls from people who were sitting on the sidelines, waiting to see if Congress would change the estate tax law or not. “Our message will be, ‘Now that we have the answer, we can make our plans,’” McNeely says. Spousal-access trusts. These trusts may be appropriate if an individual is worried about making an irrevocable gift with the spouse or other heir as beneficiary. However, risks include divorce, trustee denial of spousal payouts and IRS scrutiny if spousal payments are too predictable. Sale to an intentionally defective grantor trust (IDGT). This planning technique is a way to transfer more than the $5 million exclusion amount to heirs. The donor establishes a trust with

InsuranceNewsNet Magazine » February 2013

a gift and then lends it up to 10 times more than the gift amount to purchase an asset. As long as the asset appreciates, the trust can retire the loan (plus interest), with the remainder going to beneficiaries. Further, the current low interest rate environment makes this planning technique even more powerful as a tax efficient method to transfer wealth. Let’s not forget that, for smaller estates, life insurance can still be an effective tool to retire debt owed by the decedent. Life insurance is still a great tool for estate equalization and business succession planning. Qualified plans with life insurance as an asset suddenly are not quite so scary with an indexed $5 million exclusion amount. The “double taxation” often suffered in such an arrangement (estate tax plus income tax in respect of the decedent) is mitigated by the higher exclusion amount. Maximum funded life insurance policies outside of an ILIT also become attractive with the higher exclusion amount. You get the great tax-free buildup of the cash value in the policy coupled with the $5 million indexed exclusion amount. Clients may not need the hassle (or the irrevocability) of an ILIT. So they can access the cash surrender value for retirement and leave the death benefit free of estate taxes; if the death benefit is less than the indexed exclusion amount. Finally, with the low interest rate environment premium financing, it may be a great idea to maximize cash flow while purchasing needed life insurance. In conclusion, the law gave us permanence (for now) and did not obliterate some of our favorite estate planning tools. Advisors and clients can now plan in a more certain environment; availing themselves of tried and true techniques combined with terrific life insurance products. Gonzalo Garcia, CLU, Partner AgencyONE. Gonzalo is responsible for business development at AgencyONE. He can be contacted at Gonzalo. Liz Weber Michel, JD, Chief Marketing Officer AgencyONE. Liz is responsible for marketing and Advanced Markets at AgencyONE. She can be contacted at Liz.Weber



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February 2013 » InsuranceNewsNet Magazine


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Strategies to Soothe Tax Pain T  he majority of Americans will pay higher taxes in 2013. By conducting a review of your client’s portfolio, and working closely with your client’s tax professional, there are a number of 2013 planning opportunities to consider this year. By Joseph D. Anderson III


ax cuts approved by Congress on the first of this year were not enough to offset increases in other federal taxes for most Americans. As a result, an estimated 77 percent of Americans will pay higher taxes in 2013, according to the Tax Policy Center. The American Taxpayer Relief Act of 2012 (H.R. 8) takes the tax cuts on ordinary income passed in 2001 and 2003 and makes them permanent. The new law affects those who are single tax filers with incomes less than $400,000 and joint tax filers with incomes less than $450,000. Despite these permanent tax cuts, however, other taxes such as the payroll tax, the Medicare Surtax and investment tax will increase. Here is a rundown of the tax changes that will go into effect and how they will affect your clients.

Summary impact of the American Taxpayer Relief Act

Federal Tax Increase - For taxpayers with income in excess of $400,000 (single filer) and $450,000 (joint filer), ordinary income tax rate will increase from 35 percent to 39.6 percent and the long term capital gains and dividend rate will increase from 15 percent to 20 percent. Estate Tax Increase – The 2013 estate exemption is expected to be set at $5.25 million (the $5 million temporary exemption from prior legislation was made permanent and indexed for inflation from 2011). However, estate taxes for estates above that threshold will increase from 35 percent to 40 percent. The portability of the estate tax exemption among spouses is also made permanent. The gift and generation skipping tax exemption is also $5.25 million. Payroll Tax Increase – The 2 percent payroll tax cut was eliminated. The FICA tax rate of 4.2 percent reverts back to 6.2 percent on the first $113,700 in wages. This increase means a person with wages of $50,000 will have $83.30 less in monthly income ($1,000 annually) and those with wages of more than $113,700 will lose $2,274 this year.

Medicare Surtax and Investment Income Tax Increase – The long-term capital gain and qualified dividend tax rates of 0 and 15 percent were extended for those who make less than $400,000 (single filers) and $450,000 (joint filers). Those above that income threshold will be subject to a capital gain and dividend tax rate of 20 percent. It is important to note that the new investment income tax, sometimes referred to as the Medicare surtax, of 3.8 percent will apply to taxpayers with modified adjusted gross incomes (MAGI) exceeding $250,000 (married and filing jointly) and $200,000 (single filers). The additional 3.8 percent surtax applies to the lesser of investment income or the amount of MAGI that exceeds these thresholds. Phase-Out of Personal Exemptions and Itemized Deductions – With the return of the personal exemption and itemized deduction phase-outs, taxpayers with income exceeding $250,000 (single filers) and $300,000 (joint filers) may pay more in taxes. Phase-outs will limit and reduce tax exemptions and popular deductions such as state and local taxes, mortgage interest, charitable contributions and medical expenses. Despite this year’s increase in taxes, by conducting a review of your client’s

Individual Income Tax Rates for 2013 Taxable Income* Single


Ordinary Income Tax Rate

$0 - $8,950

$0 - $17,900


$8,951 - $36,250

$17,900 - $72,500


$36,251 - $87,850

$72,501 - $146,400


$87,851- $183,250

$146,401 - $223,050


$183,251 - $200,000

$223,051 - $250,000

$200,001+ $398,350

$250,001 - $398,350

$398,351 - $400,000

$398,351 - $450,000



Long-term Capital Gains and Qualified Dividends


*Based on estimated 2013 inflation adjustments. Amounts refer to taxable income except where noted.


InsuranceNewsNet Magazine » February 2013

Earned Income**

Investment Income







35% 39.6%

Medicare Tax

20% **Combined rated includes 1.45% employer contribution.

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combined value of $350,000, and pay no capital gain tax.

High Net Worth Tax Increase

Taxable Income $400,000 Single & $450,000 Joint (*Includes Medicare Surtax)

Income Type



% Increase 2013 vs. 2012

Wage & Business Income




Short-Term Capital Gain




Long-Term Capital Gain




Qualified Dividend Income




Interest Income and Passive Investment Income




portfolio, and working closely with your client’s tax professional, there are a number of 2013 tactical planning opportunities to consider as we begin the year.

2013 High Income Taxpayers Discussion Points

First, make sure first that any tax-related decisions are in line with your client’s longterm financial goals. Don’t let the tax tail wag the dog, but at the same time, don’t ignore some good planning strategies. Given that the higher wage earners will experience the most significant increase in taxes, it will be important to discuss the benefits of tax efficient investment strategies. Portfolio Turnover Ratios – For investors in taxable funds, reducing the turnover in a portfolio increases its tax efficiency. By holding investments for 12 months or more, high income investors are taxed at long-term capital gains tax rates of 23.8 percent versus the shortterm rate of 43.4 percent, saving the client 45 percent in taxes. Tax Deferral – For high income investors with assets earmarked for longer term retirement needs, consider the benefits of tax deferred investments. Tax deferred investments, such as 401(k) plans, IRAs and annuities allow the deferral of income on any gains as well as deferring taxation on portfolio turnover, rebalancing, and reinvested earnings and dividends until they are withdrawn. It is important to work closely with the client’s tax adviser to ensure that the clients understand the fees, charges, distribution rules and tax consequences associate with tax deferred investments.

High Income Taxpayers with Children in Lower Income Tax Brackets

2013 Middle Class Taxpayer Discussion Points

The 2012 Tax Relief Act also maintains that taxpayers in the two lowest income tax brackets will pay no tax on long term capital gains and qualified dividends. This means investors whose taxable income falls in the 10 percent and 15 percent tax brackets may be able to reposition some or all of their appreciated investments with no tax. This includes taxpayers, married filing jointly with taxable income less than $72,500 and single filers with taxable income less than $36,250 in 2013. When factoring in personal exemptions and standard deductions, the client’s gross income can actually be higher and still take advantage of the zero percent capital gain tax.

With a taxable income of only $27,600, the Smiths have an opportunity to realize up to $44,900 of long-term capital gains, remain in the 15 percent tax bracket, and pay no capital gain tax. Assuming the Smiths have an investment with a value of $150,000 and a cost basis of $200,000 and another investment worth $200,000 and a basis of $120,000, they could reposition those assets, with a

Passage of the tax act resulted in a permanent estate tax of $5.25 million for 2013 indexed for inflation, along with a tax rate of 40 percent, portability of the unused exclusion amount between spouses, and unification of the gift and generation skipping tax. As a result, it is a good time to review every client’s estate plans. To start the conversation, consider discussing the benefits of gifting assets to the next generation. In 2013, each person can gift up to $14,000 to anyone tax-free. This is referred to as the annual gift exclusion. Gifts greater than this amount will reduce the donor’s lifetime 2013 gift exemption of $5.25 million indexed for inflation. If a client decides to implement a gifting strategy, the next question will likely be: what assets should be gifted? Assets that will continue to generate income or appreciate may be gifted in order to get the subsequent appreciation and income out of the parents’ taxable estate. Furthermore, if the property has built-in gains, gifting that asset to children in the bottom two income tax brackets may avoid the capital gains tax if the children sell the asset this year. The bottom line is the new law provides some certainty when it comes to investing for 2013. However, Congress has more issues to address in the first three months of the year, including addressing the debt limit, the sequestration spending cuts, further tax reform issues and entitlement program reform. Now may be a good time to have a conversation with your clients about certain tax strategies. Joseph D. Anderson III, MBA, is director of the advanced planning group, Prudential Annuities. Contact him at Joseph.Anderson@

February 2013 » InsuranceNewsNet Magazine



LIMRA Finds 70% Of Respondents Failed Life Insurance IQ Test.

Study Shows Life Insurance Gaps in 4 Major Groups

59% unmarried mothers

43% married mothers




The slogan “Life insurance is not for the people who married unmarried die; it’s for the people who live” holds true in the fathers fathers wake of a study that indicates four major groups who need more life insurance: unmarried parents, large families, women and those with certain health conditions. The study, based on Genworth’s 2012 LifeJacket survey, showed that the major

reason why these groups are falling short on coverage is that they believe life insurance costs up to three times more than its actual price. Highlights of the survey show

that 59 percent of unmarried mothers are without insurance, compared with 43 percent of those who are married. For fathers, this gap is even larger, with 69 percent of unmarried fathers lacking insurance, compared with 34 percent of married fathers. Among those surveyed, most indicated they believe the best time to buy life insurance is when you are young and healthy. But affordable life insurance coverage is becoming more accessible for those who have been diagnosed with certain health conditions, thanks to advanced underwriting practices. In fact, many commonly diagnosed health issues – like asthma and depression – are no longer barriers to receiving preferred rates on life insurance, which is helping financial professionals close the gap for this group.


“The life insurance industry in the U.S. is in a good position to withstand the economic challenges of 2013, according to Fitch Ratings. Fitch cited a stable credit outlook, strong balance sheets and improved liquidity as its major reasons for its conclusions. But all is not rosy in Fitch’s prediction. The rating agency said the life insurance industry is vulnerable to severe but unexpected shocks to the economy. Low interest rates are a concern, but Fitch predicted that they would not have a negative impact on the industry in 2013.

However, if interest rates stay low much beyond 2014, it would result in weakened earnings and negative capital impacts. Fitch described the U.S. fiscal cliff and the Eurozone debt crisis as the main risks for the global economic and credit outlook, but it was confident that policy makers would DID YOU




take necessary steps to head off a fiscal catastrophe. Fitch also predicted that investment losses reported by U.S. life insurers will continue to be at low levels in 2013.


There seems to be a rising appetite for deals this year, one insurance researcher said, as more insurers acquire other companies in the United States and emerging nations. This effort is spurred on by the desire to add more capital in an environment of low bond yields and sluggish economic growth. MetLife and Prudential Financial are leading the pack in pursuing deals as they seek to increase shareholder returns. Faster economic growth and expanding middle classes in countries such as India and Latin America make these regions attractive to

U.S.-based insurers. MetLife, the largest U.S. life insurer,

THE NUMBER OF ACTIVE LIFE INSURANCE COMPANIES IN THE U.S. reached its peak in 1988, with 2,343 in business that year. Source: ACLI Life Insurance Fact Book

InsuranceNewsNet Magazine » February 2013

QUOTABLE Congress passing the legislation is welcome news because it ensures that the tax benefits of life insurance are intact and untouched. — Randall A. Denha, estate planning attorney on the deal that avoided the Fiscal Cliff

expanded beyond the U.S. with the purchase of American Life Insurance Co. from American International Group Inc. in 2010. Alico had operations in more than 50 countries at the time. Prudential acquired an individual life business from Hartford Financial Services Group Inc. Principal Financial Group Inc. agreed in October to buy Chilean pension provider AFP Cuprum SA for about $1.5 billion.


Life insurance executives looked into their crystal ball with cautious optimism for this year. They are looking at a modest sales growth of around 3 percent, but they added they are concerned about how low interest rates will affect their companies’ profitability. Executives surveyed by LOMA for its 2013 Forecast are cautiously optimistic about sales this year, with several expecting a modest growth of around 3 percent. However, the executives say low interest rates are a concern. The executives also gave their views on other factors that will have an impact on life insurance sales in 2013, which include: New technologies such as social media are changing consumer behavior and are here to stay. Customers will expect cutting-edge service from their insurance companies. Some mergers are expected, with one executive saying he expects some carriers will get out of certain markets to focus on their core offerings.

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February 2013 » InsuranceNewsNet Magazine



Listen to a full Podcast where LIMRA talks with Jennifer L. Douglas about her latest report, Consumer Confidence in Life Insurance Companies

The Good and Bad: What People Really Think About Life Insurance L  IMRA research reveals some surprising demographic perceptions about life insurance. By Jennifer L. Douglas


t is the moment that we all hope we never to have to face, yet it is also the time when the unquestionable value of what the life insurance industry provides shines through: filing a death claim for a loved one. This is the single greatest event where companies and producers will make a profound and lasting impression on the insured’s immediate family and, many times, on their broader circles of family and friends. In LIMRA’s recent study Consumer Confidence in Life Insurance Companies, a significant theme emerged. Among the consumer attributes explored, seeing the positive difference life insurance can make following the death of a loved one is one of the most compelling factors associated with confidence in the life insurance industry. Nearly half of consumers (45 percent) have seen or experienced this – and the closer they were to the experience, the more confidence they hold.

The Good and the Bad

Indiv idua ls w ith favorable claims experiences are also much more likely to agree with positive statements about the life insurance industry. For example, four in five consumers believe the life insurance industry plays a critical role following the death of a loved one. Among the remainder of this experienced group, most were undecided and only 4 percent disagreed. One area where there is notable disagreement is pricing, among those with positive statements. Having not seen the value of the coverage for themselves, forty-one percent of those with either no experience or a less than favorable experience suspect that life insurance products aren’t priced appropriately. This compares with 26 percent of those with a positive claims experience. Slightly fewer agree with the statement about transparency. It is interesting, though, that some consumers find carriers trustworthy despite questioning their 36

InsuranceNewsNet Magazine » February 2013

pricing and transparency. It would seem that trust would be all-encompassing. However, trusting that the company will pay at claims time is surely most important to consumers. Although not as significant as their propensity to agree with the positive statements, consumers who have seen life insurance make a difference are less likely to agree with negative statements about the life insurance industry. As with taxes and the weather, Americans just may enjoy complaining about the financial services industry. Only one or two out of 10 respondents disagree with these negative statements. At the same time, however, the industry has some champions. Consumers who have seen the positive benefits of life insurance are up to two times as likely to disagree with negative statements about life insurers as those without this experience.

Experience and Ownership

The impact of a positive experience is evident among both insureds and uninsureds. Further, the compounding effect of ownership and experience leaves 91 percent of this group expressing at least some confidence in the life insurance industry. Compare this with a 55 percent confidence rate among people who lack both coverage for themselves and exposure to such experiences. As the data also suggest, a favorable experience is an equally good, if not better, predictor of confidence than ownership alone. Owners are indeed more likely than non-owners to express confidence in insurers. But ownership and confidence are not interchangeable. In fact, life insurance owners as a whole do not agree with positive statements about the industry nearly as often as those with confidence or as those with a positive claims experience. The industry’s image has much room to improve among insureds and uninsureds alike.

Additional Differences

Other noteworthy relationships exist – including some that, again, are distinguished by whether the person has had a first-hand experience with the benefits of life insurance. In



Ten GOOD Things About the Life Insurance Industry

Ten BAD Things About the Life Insurance Industry

(By Experience*)

(By Experience*)

Percent of respondents who agree with positive statements by experience. The life insurance industry...

Percent of respondents who agree with negative statements by experience. The life insurance industry... 80%

plays a critical role following the death of a loved one


offers products that give people peace of mind


76% 66%

offers quality products that people need

38% 54%

helps people be financially responsible


40% 30%

35% 48% 38% 44% 30% 34% 26% 30%

contributed to the economic downturn

17% 26%


does a poor job reaching people like you




doesn’t offer products the average person can afford


is transparent


acts in a greedy manner


prices products appropriately


preys on vulnerable / unknowing consumers


is socially responsible

47% 53%

just wants a sale regardless of your particular needs


is trustworthy


offers products that are too complicated


provides quality customer service


finds loopholes to avoid paying claims


is financially sound

53% 63%

uses confusing language

22% 28%

is irresponsible with investments

Experience No Experience

Experience No Experience Source: LIMRA 2012

Consumer Confidence in Life Insurance Companies (By Experience*) 9%






Confidence in LI Companies






Quite a bit



29% 9% Experience, immediate family



10% 5%


Experience, close family/friend

Experience, acquaintance



None Not sure

No experience

Positive Life Insurance Death Benefit Experience 23%



*Have seen life insurance “make a positive difference” following a death


Percent of Respondents

February 2013 » InsuranceNewsNet Magazine




Consumer Confidence in Life Insurance Companies

Consumer Confidence in Life Insurance Companies

(By Ownership and Experience*)

(By Income and Experience*) 8%













46% 38%


40% 55%



51% 47% 64%




63% 44%








11% No exp





Yes exp

No exp

Yes exp

No Life Insurance 27%




Life Insurance % of respondents


12% 6%










13% 10%
















Confidence in LI Companies Extreme/Quite a bit Some None Not sure *Have seen life insurance “make a positive difference” following a death Source: LIMRA 2012

general, consumers in the prime buying age range, under 45, as well as those aged 65 and older have higher levels of confidence in the life insurance industry than do middle-aged Americans. Women are more likely to be on the fence, while men are more decided in their opinions of life insurers, more often agreeing with negative statements about the industry. Americans in the lowest household income bracket, under $25,000, have the least confidence in life insurers. Oddly enough, they are followed closely by individuals from households earning $75,000 to $99,999, who have much more negative opinions about the industry than people in the income 38

brackets immediately above and below them. This appears to be a relatively new phenomenon and, perplexingly, unrelated to their opinions of the economy or optimism surrounding their own financial situations. Again and again, this upper-middle-income group was also more likely to agree with negative statements about the life insurance industry. Most interestingly, this $75,000 to $99,999 household income group is not less likely to have had positive claims experiences. (Nearly half of both this group and those with incomes greater than $100,000 have had such experiences.) However, the absence of positive claims experiences may take the

InsuranceNewsNet Magazine » February 2013

greatest toll on those in the $75,000 to $99,999 income group. On the contrary, experiencing the positive role life insurance can play following a death appears to have the most profound effect on confidence levels in the highest income group.

Next Steps

So what can the life insurance industry do with this information? The industry can use this information to spread the word to the public as well as to legislators about the good it does. According to Americans who have seen for themselves – life insurance

Do MEDICAL beneficiaries, their families, and friends – the life insurance industry plays a critical role following the death of a loved one, gives its insureds peace of mind, offers people quality products that they need, and helps consumers be financially responsible. Companies should think of ways to include positive claims experiences in their marketing materials, in communications with current owners, and with their distribution forces. This would serve to both remind producers of the value of life insurance and help them show potential buyers what life insurance can do for their loved ones. With respect to claims, carriers already are doing an impressive job. But can they do even more? As mentioned earlier, this is the time where companies make a lasting impression on the insured’s family and friends. The one danger of doing more at the time of the claim is clear: appearing opportunistic. Therefore, the role of the company and the agent must become focused on service: • As part of the insurance benefit, make additional support services available at claim time – such as grief counseling, coordination of coverages, legal services, relocation assistance and wealth management. • Encourage and train your distribution force to play a more personal and visible role before, during and after the claim (look to the “agent of old” for inspiration). This works nicely with the fundamental shift in what the next generation of sales talent (Gen Next) want from their careers. More than anything, people in this generation want to “make a difference” and know that their work is having a positive impact on the world. Have newer agents, early in their careers, accompany veterans when they deliver benefit checks. Jennifer L. Douglas, M.S., is a strategic and developmental research director for LIMRA. She can be reached at Jennifer.Douglas@ This article was printed with permission from LIMRA’s MarketFacts Quarterly.


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[ANNUITYWIRES] 2013 A Boon Year For Annuity Advisors? Need any more proof that we are heading into a boom time for selling annuities? Consider this. Over the next two decades, nearly $18.5 trillion in retirement assets is set to go into play.

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Add to that scenario the fact that every day – for the next 16 years – nearly 10,000 baby boomers will blow out the candles in celebration of their 65th birthday and will be in need of a reliable source of retirement income. That combination will help make 2013 a boon year for retirement planners. This was the prediction of George Castineiras, senior vice president, Total Retirement Solutions at Prudential. “From my perspective the retirement outlook is very, very positive,” he said. “And that’s not just in 2013; that’s well beyond that.” Retirement planning will be especially important because many households are not prepared for this life-changing event, Castineiras said. With longer lifespans, low savings rates and the death of the traditional pension, an estimated half of all households are at risk for not being able to maintain their desired lifestyle in retirement. “The need for retirement is not going to go away,” he said.


Many of the next generation of retirees could see their standard of living drop as they face “shock events” such as health crises or financial market downturns. That was the word from the Society of Actuaries (SOA) in a recent report on retirement income. The report’s conclusions included: The decision to purchase an annuity must be weighed against the need for an adequate emergency fund. Moderate and high-income households can retire successfully with 20

percent less savings if they are willing to cut their discretionary spending by 15 percent.

Purchasing long-term care insurance reduces the need for emergency funds in lower income and wealthy households. Fewer than one-third of households will have “positive wealth” at death. 40


Deferred Income Annuities (DIAs) burst upon the scene in 2012, and their star is expected to rise in the coming year. In its “State of the Industry” report, the Insured Retirement Institute (IRI) forecasts that innovative products, combined with the consumer demand for retirement income, will lead to even more growth among products

such as DIAs. DIAs are sometimes referred to as “longevity insurance.” They allow the owner to defer the start of the guaranteed income stream until a later date. The IRI report predicts DIAs will become the fastest growing product in 2013, due largely to innovations and new offerings in this annuity class.


A combination of low interest rates and a lack of urgency among consumers are slowing the annuity industry’s growth in 2013. This will force annuity carriers to focus on the long-term if they are to grow,

InsuranceNewsNet Magazine » February 2013

QUOTABLE Market volatility and longevity risk, once not primary concerns to consumers, will influence behavior. We are seeing this now as consumers are demanding guarantees and certainty. — Insured Retirement Institute President and CEO Cathy Weatherford

according to the “2013 Life Insurance and Annuity Industry Outlook” compiled by Deloitte LLP. The study showed that low interest rates continue to be a major growth obstacle. In addition, consumers continue

to be preoccupied with more immediate financial priorities, such as paying down debt, and this also is a factor in

the growth of investment vehicles such as annuities. The report included some suggestions to help the industry improve its bottom line. They include: Taking advantage of opportunities to expand into new markets and reach customers directly. Making solid connections with consumers to “help close the retirement gap.” Simplify products. Recruit more talent to replace an aging workforce.

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Estate Tax Law: The Meaning for Annuities Annuities appear nowhere in the deal to avoid the fiscal cliff, but the legislation does have at least three indirect implications for annuity advisors and clients.

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February 2013 » InsuranceNewsNet Magazine


More Product Debuts Don’t Necessarily Mean Smash Hits S  ome product lines are rolling out debuts, but only one line is seeing a receptive audience. By Linda Koco


t would seem to be simple math that more new products in a particular line would lead to more sales. After all, advisors demand them to spur sales. But looking at the numbers does not bear that out in all cases. That is one of the surprises in comparing the product debuts and sales over the past few years.

Check Out the 2011/2012 Relationship

Let’s see how such an analysis might work. The comparison will be between annuity debuts in year 2011 to annuity sales results in 2012. Cautionary note: The 2011 product debut numbers discussed here do not include every single annuity that rolled out that year. Rather, the numbers come from a list informally collected from daily news feeds, e-mailers, articles, industry buzz and other resources. According to the LIMRA sales numbers, the only product line to show growth in sales for the first nine months of 2012 was indexed annuities. As annuity professionals know, the year was a rough one for the annuity business. Indeed, total estimated sales for the nine months were off by 8 percent compared to 2011, according to LIMRA. Even so, indexed annuity sales managed to grow by 6 percent compared to the same ninemonth period last year. Now, let’s see how this compares to product development activity during the year before. The annuity debut list mentioned above shows there were more debuts of indexed annuity products (31 entries) than any other type of product during 2011. (To reiterate, this is an informal collection of debuts, not inclusive of all debuts that occurred nationwide in 2011, so the comparison should be taken 42

as a point of interest and not a sure-fire indicator.) This may suggest that there is some kind of correlation between volume of new rollouts and sales in the subsequent years. By comparison, the second biggest product type in terms of product development was variable annuities, of which 25 debuts made the list. According to LIMRA’s numbers, variable annuity sales estimates for the first nine months of 2012 were down by 7 percent compared to the prior year.

What About Income Products?

Now for a word about income annuity products and retirement income solutions. In both 2011 and 2012, there were plenty of rollouts of these products. However, they were spread over fixed income annuities (also called immediate annuities), and guaranteed living benefits in both indexed and variable annuities. Beacon Research has pointed out that year-to-date income annuity sales

InsuranceNewsNet Magazine » February 2013

reached $6.8 billion at the end of third quarter 2012. That was up 9 percent compared to the same year-to-date period last year, with the deferred income annuity version of the products being strong sellers in third quarter, Beacon says. Was that bump-up in income annuity sales presaged by new income annuity debuts in 2011? According to the 2011 annuity debut list mentioned above, there were only five debuts of such products in the year. So at first blush, it appears the income annuity figures show no correlation between year-earlier debuts and current year sales. However, the same list shows seven other types of income solutions associated with annuities and 19 more, when adding in products with new rider options for income and “income solutions” for employer plans and more. So, overall, income product development was very strong last year (as was industry buzz about retirement income needs and issues). This pronounced rollout trend may have been a factor, then,

MORE PRODUCT DEBUTS DON’T NECESSARILY MEAN SMASH HITS in the increased sales of income annuities that Beacon’s report picked up for the first nine months of 2012.

A Factor, Not a Cause

The key word for this discussion is “factor.” As in, a proliferation of product debuts may influence sales of that type of product in the following year. However, it would be incorrect to say or imply that product debuts caused sales increases (or that fewer debuts in a product line caused sales declines). Sales upturns and downturns are influenced by so many factors, it would be impossible to say that any one factor is the reason for the trend.

The point here is to note that the volume of new product rollouts in the previous year may be a contributing factor to sales in the subsequent year. So, while assessing the product frontier for 2013 and the options available to offer clients, annuity professionals might want to take a few moments to look back at the product lines that grabbed the product rollout lead in 2012. Then weave in any market and sales surveys and competitive intelligence reports that might be available as well as ear-to-theground information. That combination is what might help guide annuity planning and decision-making for 2013. The product debut list used for this

According to the LIMRA sales numbers, the only product line to show growth in sales for the first nine months of 2012 was indexed annuities.

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discussion is private, not a public resource. But advisors and marketers can easily develop their own lists, relevant to their own field of expertise, by looking back at the new products they saw come through their shops last year. If nothing else, such a look-back will provide reminders of emerging product trends – and perhaps a glimpse into the “product thoughts” of the carriers with whom the professional deals. Incidentally, the debut list for 2012 was built in the same fashion as the list in 2011. It shows that variable annuity products came in first place by year end, with 21 debuts (plus several more that focused on new types of variable annuity subaccount offerings). Indexed annuities came in second, with 19 debuts. And various forms of income annuities and income solutions came in third, with 16 debuts. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@

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February 2013 » InsuranceNewsNet Magazine



Health Insurers’ 4Q Balance Sheets May Be Immune From Flu Effects

New Tax Increases to Help Fund ACA Five new tax increases went into effect this year to help fund the Affordable Care Act. Here is a rundown on what is going up and who will pay the bill: Cap on FSA contributions : Health-care flexible spending accounts (FSAs) require enrollees to decide in advance how much money they’ll contribute for the coming year. Most employers capped employee contributions at $5,000. But beginning in 2013, the Affordable Care Act caps annual employee contributions at $2,500. Deductions for medical expenses: Currently, taxpayers who itemize their returns can deduct the medical expenses from their taxable income that exceed 7.5 percent of their adjusted gross income. The health care act increases that threshold to 10 percent in 2013. The higher income threshold means many taxpayers with high medical bills will no longer qualify for the deduction. Seniors 65 and older and their spouses are exempt from the change until 2016. Medicare hospital tax hike: The Medicare Part A tax rate on wages – which pays for hospital, hospice, nursing home and home care services – will go from 1.45 percent to 2.35 percent for individuals with income above $200,000 and families with income above $250,000. Married couples who file separately and earn more than $125,000 are also subject to the tax hike.

QUOTABLE It’s a one-time opportunity to strive for complete coverage and catch up to the richer states. It is not fair that a working mom in Arkansas could be disadvantaged in the same way that if she were in Maine, she’d be advantaged. — Joe Thompson, Arkansas State Surgeon General on expanding government health coverage

because these new entrants to the market will have the initial backing of the federal government, they may have an unfair advantage over competitors. CO-OPs are required to meet the same state and federal quality and financial standards as other health insurance plans. So far, 23 organizations have been awarded $1.8 billion in CO-OP loans to offer coverage in 23 states. They will also

have to contend with the challenge of persuading health-care providers to align with an unknown and untested entity.

Investment income surtax: Tax rates on investment income will increase from 15 percent to 18.8 percent. The 3.8-percentage-point “unearned income Medicare contribution tax” applies to interest, dividends, capital gains, annuities, royalties and other types of investment income. But it only applies on investment income above the $200,000 and $250,000 thresholds.


Medical device excise tax: The 2.3 percent excise tax on medical device sales will affect products, from artificial hips and bedpans to stents and defibrillators. The tax is a tradeoff of sorts for the device industry, which, like insurers and pharmaceutical companies, will see substantial new revenue when the health law requires millions of people to start buying insurance in 2014.

wealth Fund. The group’s report also concluded that health insurance is becoming less affordable for low- and middle-income households,


A little-known provision in the Affordable Care Act will create these new member-based health insurance companies called Consumer-Oriented and Operated Plans, or CO-OPs, which are member-based. DID YOU



Minneapolis and Seattle already have CO-OPs in place, and their supporters say they allow consumers to have a say on contracts with providers, as well as on issues of patient access, quality of care and the efficiency of clinical care. But opponents of CO-OPs argue that

IF CONGRESS DECIDES TO START TAXING WORKERS’ HEALTH BENEFITS as a means to raise revenue as part of an effort to rein in the federal deficit, more than half of American workers would switch to a less costly plan or drop coverage. Source: Employee Benefit Research Institute

44 InsuranceNewsNet Magazine » February 2013

Health insurance costs rose far higher than incomes between 2003 and 2011, with a family’s premiums jumping 62

percent while income rose just about 11 percent, according to the Common-

with total insurance premiums amounting to 20-25 percent of median incomes in most states. Deductibles are also soaring,

doubling from 2003 to 2011. In 2011, average annual premiums for family plans ranged from about $12,400 to nearly $17,000. The report blamed the high cost of premiums largely on increased costs of providing care and what it called inefficiencies in the health care system.

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February 2013 » InsuranceNewsNet Magazine



Group Health–What Clients Need Your business clients are being forced to take a serious look at how to handle the shift in health care benefits and potential costs that are part of the Affordable Care Act as the law is implemented. By Diana H. Johnson


ove it or hate it, President Barack Obama’s re-election cleared the last major hurdle toward implementing the Patient Protection and Affordable Care Act.

Businesses are being forced to take a hard look at how to handle the shift in health-care benefits and potential costs that are part of the law going into effect in full next year. Here are some important points for your clients who are employers to consider: Employers may think they are a “small group” for benefit purposes but, come 2014, they may be wrong. The ACA defines small and large groups differently by provision and in my state, Maryland, the old small group definition of 2-50 employees isn’t the gold standard

46 InsuranceNewsNet Magazine » February 2013

This is a very scary and uncertain time, but licensed benefit professionals can help guide business clients to get the most in the new insurance landscape.


anymore. It’s entirely possible to be a small group and a large group at the same time under this law! Counting employees for ACA compliance purposes is about to become very important and more complicated than you would think. ACA defines full-time employees as those who work an average of at least 30 hours per week. However, it is unclear how this definition is measured and over what time period it is measured. When determining the number of full-time employees relative to the employer’s affordable coverage requirement, employers will be allowed to exclude any full-time seasonal employees who work less than 120 days during the year. Part-time employees are counted as full-time equivalent employees in determining whether an employer is subject to the employer mandate but part-time employees are excluded from the penalty calculation. The ACA does not define full-time employee for purposes of the automatic enrollment provision. The definition of a “ full-time employee” is about to change to 30 hours a week for benefit purposes. The definition of “full time employee” is expected to be released in 2014. The ACA requires each state to have a health insurance “exchange” to provide an alternative marketplace where individuals and small businesses will be able to purchase private health insurance coverage, effective Jan. 1, 2014. My state, Maryland, has elected to create state-run exchanges. All groups will be required to notify their employees about the exchanges soon, even though the exchanges are not operational yet. Subsidized coverage is only available to low-income individuals who do not have a valid offer of group coverage, and it’s only available through the “exchange.” This means that if the employer provides an affordable and quality coverage option, their employees and their dependents can’t peel away from the group and get reduced-cost coverage through the exchanges.

If an employer drops coverage and sends employees to the exchange, all of the employees, including those who do not qualify for the subsidies (typically the corporate decision-makers) have to go to the exchange for coverage too, and that coverage probably will be much more expensive than their group coverage today (particularly with no government or employer subsidy!) There are no business tax advantages to dropping coverage and paying penalties. The penalties are not tax deductible to the business and don’t go toward paying premiums for employees to purchase coverage elsewhere. That money just goes straight to the U.S. Treasury. I’m afraid that many businesses will do the math and decide to drop group plans and pay the penalty. It may cost them less and they are relieved of many administrative burdens. But I’m hoping that the majority of employers will realize that health insurance is still the best way to attract and retain employees. For groups of 100 and less, the looming changes to how health insurance policies must be structured and priced and what they must cover may have a dramatic impact on premium costs. None of the employer requirements have been officially released in a regulation yet, and employers must start complying in less than one year! Employers need to let the Obama administration know how they feel about this. This is a very scary and uncertain time. As a licensed benefit professional, you can help families and businesses of all sizes work their way through it and ensure that they make choices that make the most sense for their needs and budget. Diana H. Johnson, CEBS, CLU, ChFC, is vice president, employee benefits at The Avon-Dixon Agency, Easton, Md. Contact her at Diana.


Bronze, Silver, Gold, Platinum Become Familiar With These Metals Under the Affordable Care Act, insurers will be required in 2014 to offer plans that fit within four levels of coverage, Bronze, Silver, Gold and Platinum. Insurers don’t have to offer plans in all four levels, but within the health insurance exchanges, all insurers must offer at least one silver and one gold plan. The four levels of coverage indicate the percentage of health costs that a health plan would pay for an average person. Bronze: The insurer would cover 60 percent of all health care costs for an average person. Enrollees, on average, would be responsible for paying 40 percent of the costs. Silver: The insurer would cover 70 percent of all health care costs for an average person, with enrollees paying an average of 30 percent of the costs. Gold: The insurer would cover 80 percent of all health care costs for an average person, with enrollees paying an average of 20 percent of the costs. Platinum: The insurer would pay 90 percent for their covered benefits and an average individual would pay 10 percent out-of-pocket. The U.S. Department of Health and Human Services continues to release information about these standardized health insurance plans, and further details will be featured in an article in the March edition of InsuranceNewsNet.

February 2013 » InsuranceNewsNet Magazine



Survey: Americans give up hope on returning to pre-recession economy

The Trouble with Bubbles No matter what your business is in, you have a favorite bubble. You have your stock bubble, your bond bubble, your gold bubble, even a new real estate bubble. We’re not applying any science here, but the wet finger in the wind indicates that the bond bubble is getting most of the oxygen these days. Much of that concerns centers on The Fed and others buying boatloads of bonds, but also HAPPY NEW YEAR! that investors are seeking riskier bonds for better return. It’s almost as if people have to be punished for seeking a bigger buck out there. Hey, a lot of retirees need better than .02 percent on their principal. What did investors wake up to in 2013? Headlines such as CNNMoney’s “Beware the Bond Bubble of 2013” and others like it. If they could, they probably would have included the voice of Bela Lugosi doing his best Dracula as he recited the headline. They even had this plummeting line on chart looking like a dagger into an IRA’s heart. This all leaves advisors soothing breathless clients tired of decades of running from technology stocks, real estate, hedge funds, gold, silver, blue chips, Beanie Babies and whatever else they could put money in. Here’s what we suggest: Bubbles never burst, they deflate only to inflate later. Any day can be Doomsday if you are overexposed in any sector of investment. ! Ow


You might have noticed that the situation for pensions became a little more awful last year, but retirees might be comforted to know that it might improve from horrific to merely horrendous over the next few years. Milliman reported that the good news is its Pension Funding Index showed $54 billion in improvements in December on top of $33 billion in November. But the whammy of bad news was that the year still found the pension deficit at $412 billion, $74 billion higher than 2011. The pension benefit obligation is

now $1.748 trillion. Trot out the usual suspect. “It was DID YOU




a rough year on the liability side, with interest rates driving a $164 billion increase in the pension benefit obligation. People may be getting tired of hearing me saying it, but interest rates have been the story for the last four years and that’s not going to change in 2013,” said John Ehrhardt, the study’s co-author. Tired? Try exhausted.


They like you. They really like you. At least that’s according to the latest John Hancock Investor Sentiment Survey. More than half (52 percent) of respondents have a financial advisor and half

THE MARKET CAPITALIZATION OF ALL LISTED COMPANIES IN THE UNITED STATES is $16.4 trillion, according to The World Bank. About $1.12 trillion in dollars are in circulation, according to the Federal Reserve.

InsuranceNewsNet Magazine » February 2013

of them (56 percent) say their advisor can help them get better returns; others didn’t have faith in themselves (37 percent) or just didn’t have time (24 percent). But probably the most interesting aspect of the survey was that 70 percent of investors believe they are on track with their financial goals and 10

percent believe they are ahead. So, hats off to you advisors!


Folks hoping that the Securities and Exchange Commission would overhaul money fund regulations will get their wish this quarter, said SEC Commissioner Daniel M. Daniel Gallagher Gallagher. The SEC will make its second attempt before the end of March to revamp the rules for the $2.6 trillion industry, according to media reports of a speech Gallagher made. The commission had issued a report in December saying that reforms adopted in 2010 were insufficient and “no fund would have been able to withstand the losses that the Reserve Primary Fund incurred in 2008 without breaking the buck.” Many had speculated that the SEC would use the report as a reason for tighter regulations.




Remember all that stuff we said about the bond bubble? Fuhgeddaboutit! According to the BofA Merrill Lynch Fund Manager Survey for January, asset allocators assigned more funds to equities than at any time since February 2011, and their confidence in the world’s economy has reached its most positive level since April 2010. In fact, investors’ appetite for risk in their portfolios is now at its highest in nine years and more of them think equities are undervalued. Did you hear that the stock market bubble is about to burst?

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Seven Steps to Creating a Perfect Appointment Process  y professionalizing your B process you earn the confidence and business of your prospects. By Mike Steranka


he key to growing from salesperson to advisor is to professionalize your practice and procedures. That means bringing a team into the meeting process, using the right technology and crafting a financial plan that speaks to the individual client’s needs. Here is how to build a financial plan and appointment process like a professional:



Uncover their Pain, Offer a Solution but Don’t Show it Yet

I have lost more sales in my career because I solved the problem so quickly in my head that the prospect mistakenly took that as a sign that they were in perfect financial health. Do not solve their problem in the first meeting. It is imperative that we get them to come in for a second meeting to review the steps that we take to fix their problem. I go back to the reason they are in front of you and it comes down to one of the following points: • They hate their broker. • They are do-it yourselfers but they recognize they have problems that you might be able to fix. • Their broker retired, left his broker/ dealer and someone else that

InsuranceNewsNet Magazine » February 2013

they don’t know well. • They want confirmation that they are okay. • They want to demonstrate how smart they are. Find out why they came in and you will be able to quickly disqualify those who have no intention ever to do business with you.


Understanding the Appointment Process Nothing is more important to your business than having the opportunity to sit down with qualified prospects. Therefore, there’s no limit to the planning and systemization you should put into making sure you are absolutely prepared for every possible direction that first and

SEVEN STEPS TO CREATING A PERFECT APPOINTMENT PROCESS second appointments could go. Assuming the first appointment went well and you have made a favorable impression, they will schedule to come back. This is difficult enough but, provided you are likeable, knowledgeable and convince them they have a problem you can solve, they should come back. This is when the real work begins. The second appointment is where you will begin to make your presentation. What does it take to be prepared to make this presentation? I’ve found there are many different answers to this question. Some advisors have answered that a yellow pad and a pen are all they really need. Others have added to that list a brochure of the product they have decided to use or perhaps an illustration. To start the process, take a moment to list everything you do to prepare for the second time you will be meeting someone to discuss their financial situation. Assume that you have met them once and gathered enough information to feel comfortable making a recommendation and are prepared for that appointment. What do you do?


Prepare, Prepare, Prepare At our firm generally it is never just me presenting the plan to a prospect. I have a team of people and some combination of them will be in the appointment with me. It is always best to have this combination be the same as it was during the first appointment so the prospect has a feeling of repetition and familiarity. If you don’t have a team member on your staff who attends the meetings by your side, you should consider it. The preparation for the client meeting is simply a brief team meeting for you to collect your thoughts and discuss what you expect to happen. Sometimes team members will interpret what the client said differently. So it is best to talk about it beforehand, so everyone’s on the same page.


Using an Agenda Using an agenda will not only make you appear more professional, it will force you to pay attention and really capture the essence of a first appointment. It will also make you more money, because you have graduated from

salesperson to advisor. We use an agenda for every appointment except the first. We walk through the agenda line item by line item and get agreement or confirmation from the prospect that these are their goals, issues and concerns. We then point out the risk as we see it. Maybe they don’t have a pension and they need to create one. This risk section is very important because now the prospects are taking ownership of the risk as they are pointed out.


Research During this note-taking process and over the course of an hour-long appointment, some items may come up that would be considered research items. You as the planner promise to look into them for the next meeting. The next section is the action plan, which gives specific recommendations that we make in the second meeting.


Asset Summary For the second meeting, the asset summary is a one-page sheet that details the client’s entire financial picture. Basically, it is a net worth statement with lots of details. People love this detail as it makes them feel the most organized they have ever been with their finances, regardless of whether they do business with you or not. This is a value-added piece that helps separate you from your competition. Tell them that each time they come in you will have an updated asset summary. This implies that they will be doing business with you. When they come in for their second meeting, you must present your plan in a logical format. By following a system and a logical formula, you will have a lot of success. Our format is: • Agenda • Asset Summary • Income Plans Be sure to hit on the key points in your conversation with your client. Make it conversational, not gimmicky. You are truly trying to assist them in creating an income plan that, if


“Using an agenda will not only make you appear more professional, it will force you to pay attention and really capture the essence of a first appointment. ” implemented, will protect them the rest of their lives. There is a lot at stake for them and make sure they know that.


Professional Presentation We use a small round table that only has enough room for the number of attendees to the meeting, and we remove all chairs other than the ones we need so the prospect feels this meeting is entirely devoted to them. In this room we have a big white board and a 46-inch TV connected to a computer so we can bring up illustrations and software big enough for anyone to see it. On this computer, we keep open our proprietary income planning software with the prospect’s plan, annuity illustration software, financial calculation software, ACT and the Internet. We constantly use visual displays to convey our point and the prospects are usually impressed with the amount of technology we have at our fingertips. And impressing your prospects isn’t just for vanity. They need to have confidence that they are placing their money and trust into the hands of professionals. By putting all of these steps together, your prospects will recognize you and your practice as an indispensable part of their financial health. Mike Steranka, CEO of Retirement Planning Services, is co-author of The E-Myth Financial Advisor with Michael Gerber. Mike can be reached at mike.

February 2013 » InsuranceNewsNet Magazine


Download Albert Gray’s full white paper, “The Common Denominator of Success”


A rat learns helplessness with just one shock from an electrified plate. Humans can overcome their fears, and helplessness, through the power of habits.

The Wisdom and Science of Successful Habits A white paper from 1940 showed that modern ideas of building success come from hard-earned tradition. By Bob Davies


he science on forming habits is confirming the wisdom of the ages on how to achieve success. I discovered that recently when a friend, Jeff Golan, regional managing director for Principal Financial Group, sent me an old white paper that he found inspiring – “The Common Denominator of Success” by Albert Gray. I have to admit that I opened it expecting it to be some outdated boring what-you-can-believe-you-can-achieve type of stuff. I am happy to say that this paper caught my attention immediately with the first quote: “The common denominator of success – the secret of success of every man who has ever been successful – lies in the fact that he 52

formed the habit of doing things that failures don’t like to do.” Wow! This was written in 1940 and it is still a core underlying necessity today! Albert Gray delivered this at the NALU annual convention in 1940. Remember National Association of Life Underwriters? It is now the National Association of Insurance and Financial Advisors (NAIFA). In this article, I plan to add some recent scientific discoveries on forming habits to the wisdom of Albert Gray. I’ll first reveal some of the most profound statements from Gray in his address: “I had become convinced that hard work was not the real secret even though in most cases it might be one of the requirements.” In one of my presentations, I ask for a volunteer to come on stage. I ask them to state a goal that they have, such as in-

InsuranceNewsNet Magazine » February 2013

crease assets under management. Next, I ask them what they need to do to reach this goal. For the sake of simplicity, let’s say prospecting. Next, I ask them to tell me three things that might stop them. One, busy with current clients; two, need to prepare for meetings with prospects; three, not enough time. Now it gets interesting. I bring up three of the biggest guys in the audience. Each one of them represents one of the three obstacles just mentioned. Two guys stand in front of my goal-setter and grab his wrist with their outside hand and hook their inside arm under the person’s arm and the third obstacle stands behind the goal-setter and puts their arm across the person’s throat. I instruct them to resist and not to let him break through. Here we go with the competition: A person’s desires and commitment to action versus their obstacles. The person tries as hard as they can, yet they will

THE WISDOM AND SCIENCE OF SUCCESSFUL HABITS not break free. I yell “work harder” yet still no results; the three obstacles are just too strong. This is a perfect example that hard work is not the key. I ask the audience, “Did he try? Did he try hard? Did you cheer him on? Did it matter?” I do give a solution here. The solution is to accept that he does have limitations and obstacles, and to negotiate. Even though he has to prepare for prospective clients, meet with current clients and has limited time, here is what he commits to do this week. To highlight Albert Gray’s first point: Hard work is not the difference. Gray also made this statement: “Success is something which is achieved by the minority of men, and is therefore unnatural and not to be achieved by following our natural likes and dislikes nor by being guided by our natural preferences. We don’t like to call on people who don’t want to see us and talk to them about something they don’t want to talk about. Any reluctance to follow a definite prospecting program, to use prepared sales talks, to organize time and effort are all caused by this one basic dislike.” This is as simple as I have ever heard the core issue stated. We are going to avoid doing things that we view as being uncomfortable. It’s that simple! There are a number of scientific experiments that clearly show this. Put a rat in a cage with a gate. Place food at the end of a corridor and open the gate. The rat runs up the corridor and starts to eat the food. However, we don’t let the rat eat. Instead we place it back behind the gate. Next we place a metal grid on the floor separating the rat from the food. We also place a shock on this grid. We open the gate; the rat sees the food and starts to run over this grid. It gets a tremendous shock and instinctively retreats away from the grid. Now we take the shock off of the grid but leave the grid. When we open the gate this time the reality is that there is nothing stopping the rat from reaching its goal. However, what will the rat focus on? Will it focus on the opportunity

to get the food or the past painful experience with the metal grid? The rat will remember the shock and will never go over that grid again. This is called learned helplessness. It doesn’t matter what the truth is. The only thing that matters is what the rat is paying attention to. The rat has what is called a “cortical limbic loop.” This is a protective memory in the outer area of the brain associated with wants, needs and desires. It is linked to the middle area of the brain, known as the limbic system, which is associated with emotion, fear, avoidance and threats to survival. Just the sight of the metal grid triggers the limbic area and the rat is in automatic avoidance. We are genetically coded to avoid activities that we view as being threatening. Our instincts trump our intentions. Gray goes on to state that the biggest producers also do not like to do this prospecting either. It’s just that they have a purpose and have formed habits. “Successful men are influenced by the desire for pleasing results. Failures are influenced by the desire for pleasing methods. It is easier to adjust ourselves to the hardships of a poor living than it is to adjust ourselves to the hardships of making a better one. Just think of all of the things you are willing to go without in order to avoid doing the things you don’t like to do.” I couldn’t believe what a profound insight that Albert Gray had in 1940 that is as true today as it was then. Again, Gray says: “Every single qualification for success is acquired through habit. Men form habits and habits form futures. If you do not deliberately form good habits, then unconsciously you will form bad ones. The success habits in life insurance selling (and all selling) are divided into four main groups. Prospecting habits, calling habits, selling habits, working habits.” Now the question is how do you form habits? I have the answer. This was helped by another 21st century discovery, brain plasticity. Brain plasticity is the brain’s ability


to form new neurons and neurological networks. A neurological network is a habit. In its simplest form, it’s no more complicated than stimulus response. The alarm rings in the morning and off to the gym you go. You plan at the end of the week, you execute your plan in those four areas as identified by Albert Gray. It really is that simple. A habit is a neuron that has dentritic growth to the cortex and to a structure in the limbic system called the amygdala. The cortex is the thinking and planning area of the brain and the amygdala is the emotional area. A habit also has dentritic growth to the hippocampus area of the brain which is now the wiring for memory. The rat is hungry. It looks at the food but it has a protective instinct, a memory involving the hippocampus that links the metal grid with the amygdala as dangerous and to be avoided. Humans have another layer to add to this. We use language to rationalize our avoidance and believe that the truth is that we were just too busy to make those calls. I’ll end this by giving you a quick method to rewire your brain and form a new habit. Use behavioral contracts. Make one commitment to one activity this week that you are capable of doing but also know you won’t do unless you are held accountable to complete. Tell one other person that if you don’t take this action you will give them $100. You will instantly create a cortical limbic loop where the cortex, amygdala and hippocampus will view this penalty as the highest level of pain and instinctively compel you to avoid this pain by doing what you said you would do. It does take about 30 days for these dentritic projections to remain solidified and permanent, so use this consistently and wisely and you will rewire your brain, forming the habits you need for success. Albert Gray was absolutely correct even without knowing the science of it all! Bob Davies, M.Ed. Psychology, is a professional speaker, author, trainer and coach with his company, High Performance Training. He can be reached at Bob.Davies@

February 2013 » InsuranceNewsNet Magazine



How to Keep the Conversation Going In Part One, we were introduced to seven types of people you might want to meet. Here are the seven scenarios: The Big Fish – You’ve got one chance to connect The Stunner – They’re beautiful and you’re single The Casualty – You have a job. This friend doesn’t. The College Roommate – You were friends. Now they’ve made it big The Service Provider – They cut your hair or mow your lawn. The Sideline Parent – Their face is familiar, the focus is on the children. The Extremist – You are separated by strong political or social opinions. In Part Two, we will explore how to break the ice and keep the conversation going. 54

You identified the person you want to know better, now comes the first impression. You only get one of those! By Bryce Sanders


o you’ve decided to get out of your comfort zone and you’ve met the target person. Soon after you introduce yourself, you will find yourself in the land of awkward pauses and bad first impressions. How do you keep the conversation going and make the best impression? The best way is to identify interests in common. But before considering strategies, let’s acknowledge the obvious:

They aren’t idiots – The beautiful person knows why the single person is making conversation. All of these people can see several moves in advance. Be honest and open.

InsuranceNewsNet Magazine » February 2013


of a 3 Part Series Everyone needs something – Money isn’t everything. The wealthy need knowledge and expertise. The lonely want listeners. People with hobbies want to share. Find out what’s missing. Bring new information – Expertise has value. Wouldn’t it be great if every time the two of you spoke, they learned something new? Establish your value. Don’t be patronizing or awestruck – You are peers. Be confident.


A person I interviewed once remarked: “It’s conversation, not interrogation.” That’s important to keep in mind, because just as you do not want to go on and on about yourself, you also do not want to seem intrusive by relentlessly probing for information. First, find common ground. When you live in the same area and are around the

HOW TO KEEP THE CONVERSATION GOING same age, you probably have more in common than you think! Get them talking. Keep in mind that you have to volunteer information to get information – Asking where a person lives is harmless. It flows even better if you volunteer, “We live on Elm Street. Where do you live?” Follow a negative answer with additional information. Some people aren’t born talkers. If asked: “Do you play tennis?” you truthfully reply “No” and stop talking. Two or three “No’s” and they feel slighted. Say “No, I don’t play tennis, but I love golf.” You have given the other person encouragement to continue the conversation.

Your Strategies

Once you have established a rapport, then it’s time to find the conversation. People will think you are utterly charming if you have a meaningful exchange about something that matters to them. Of course, that is the essence of charm, to show people their own true value. Questions based on their specialized knowledge – You know what they do. It’s a field that’s always fascinated you. They’re an oil industry executive. They drill in hostile political climates. “How do you maintain the rights to your oil discoveries in countries without the same rule of law we have in the US?” Ask follow up questions. Travel – Most people take vacations, often around holidays. “Are you traveling this summer or staying close to home?” Stop talking. If they have a vacation planned, it’s likely to fit into one of two categories: You’ve either been there or you haven’t. If you haven’t, you may have always wanted to go. “How did you choose the destination?” If they’ve just returned, “What did you like best about the trip? Would you go back?” If you’ve been there before, offer to pass along restaurant or sightseeing ideas. What do you do for fun? – Get them talking about recreational activities. Executives might mention golf. Ask “What do you do when it rains?” If you’ve known the person previously you might ask, “Do you still…?” Enthusiasts like to talk with fellow enthusiasts or share with interested newcomers.


Children – Do they have any? Grandchildren perhaps? Most people enjoy talking about their children. Do your children and theirs attend the same school? Do your children know each other? “I read in the local paper your son won the county science award. You must be very proud…”

Real Estate – The housing market is on everyone’s mind. Some areas have suffered less than others. People make improvements from time to time. “It looks like real estate prices are rebounding. How are they doing in your area?” or “We love where we live. We decided to remodel the kitchen…”

Gardening – It’s hugely popular in the U.S. How much space is dedicated to gardening at the home improvement store? Wealthy people often have their grounds included on garden tours. Most people have lawns. Think weather. Droughts cause problems. “Are we ever going to get rain? My lawn is burning up. We have a lawn watering ban in our town. How’s your yard doing?”

Compliment – You might have started the conversation with a compliment or observation. It can keep the conversation flowing. “That’s a stunning brooch you are wearing. It looks antique. Is it a family piece?” They may be a collector. This gives you the opportunity to share your hobbies. What have you been up to? – You know them but haven’t seen them for years. You might know that they have hit a rough patch, but let them tell their story in their own words. If things haven’t been going well, it preserves their dignity. You also learn if you can help.

Matching Strategies to Scenarios

You’ve started the conversation. Keep it going:

For a neutral conversation, ask about upcoming vacations. Connection to Host or Event – You’re at a private party. What brings you together? “So how do you know our host?” You’re at a gala for the hospital. “How are you connected to the organization?” If they’re someone’s guest, ask: “Are you connected to other organizations in the community?” Socialize Peer to Peer – You know this person but never socialized. Invite them over for a barbecue or out for a drink. “We’ve seen each other for years. I would like to get to know you. We’re having a barbecue over the holiday weekend…”

The Big Fish – This corporate executive is considered an industry expert so questions based on their specialized knowledge would be a good fit. Show an understanding of the issues. How Does This Sound? “Mr. Fish, you’ve built your career in the electric utility industry. I’m also one of your shareholders. We now have energy deregulation in the state. Is this a good thing for the company?” Alternate strategy – Try travel. “Mr. Fish, we’re approaching the holidays. Do you stay in town or do you take a winter vacation?” The Stunner – If you meet at a party, try the connection to the host or event. It’s a bond you share in common. It’s logical. It’s difficult to be offended. How Does This Sound? “This is my third museum gala since moving here. I’m one of the volunteers on the committee. What’s your connection to the museum?”

February 2013 » InsuranceNewsNet Magazine



HOW TO KEEP THE CONVERSATION GOING Alternate strategy – You’re neighbors, socialize peer to peer. “You’ve been cutting my hair for 10 years, yet I’ve never gotten to know you. Let’s change that. We’re having a barbecue on Saturday. Why don’t you come? Have you ever tried slow cooking over indirect heat?” The Sideline Parent – Talking about children is the obvious choice. Assuming their ages are close, it’s likely you are both facing the same issues. Your children probably share the same friends, too. How Does This Sound? “Your son has real talent on the field. My son was just telling me about the touchdown he scored last week…” Alternate strategy – Real estate is a common link. “We were just named the top school district in the county again. How much effect do you think that really has on home prices?”

If you suspect someone is down on his luck, don’t be patronizing by offering “advice.” Try a comment about the economy to give them an opportunity to talk. Alternate strategy – Compliments often work. “I notice that’s a Piaget watch you are wearing. I’m partial to Rolexes myself. Yours is a classic. Have you had it long?” The Casualty – You suspect they’ve been downsized. Don’t be patronizing. Get the conversation rolling by asking tactfully, What have you been up to? It allows them to use their own words to communicate they are between positions. How Does This Sound? “It’s good to see you. It’s been months. Jeanne and I have been coping with the recession like everyone else. What have you been up to?” Alternate strategy – Try Specialized Knowledge. “I know a guy who is getting started in the online education business. He understands the technical side, but not the marketing side. If you know anyone who could give him some advice, please let me know.” It may not be your friend’s field, but he may know someone else he would be able to help. His own skills might work, too. 56

The College Roommate – You knew each other so well, then the years passed. You share great memories. Try a variation on what do you do for fun by remembering an activity they enjoyed in school. How Does This Sound? “When we were in school together, you were always playing squash. You were quite good, as I recall. Do you still play?” Alternate strategy – Another case where what have you been up to can be adapted. “We both graduated with mechanical engineering degrees. Now you’ve made it big in internet publishing. How did you get into that field?” The Service Provider – Speak as equals. Gardening using the lawn as the subject should provide common ground. (Be sure they have a lawn.) How Does This Sound? “This drought has been terrible. Our lawn is completely brown. Yours looks much better. What’s your secret?”

InsuranceNewsNet Magazine » February 2013

The Extremist – You are on opposite sides of the political spectrum. There must be some common ground! Most people travel on vacation. Travel involves the same wonder and challenges regardless of your politics. How Does This Sound? “You have a big anniversary coming up. Are you taking Maria someplace special on vacation to celebrate?” Alternate strategy – People are rarely offended by sincere compliments. “We are new to the wine game. You’re a serious wine guy. We always have great wines when we’re at your house. We’re tired of cabernets. What would you suggest?” Next Article – People like to talk. The object is to get them started. Probe for information and identify interests in common. This leads to part three – the rationale for seeing them again. Bryce Sanders is president of Perceptive Business Solutions in New Hope, PA. His book “Captivating the Wealthy Investor” is available on Contact Bryce at Bryce.Sanders@



NAIFA member benefits provide the resources you need to succeed - at every stage of your career! With more than 50 professional programs and products designed to enhance skills and provide value-added business services, NAIFA membership is your best career investment. Here’s a sampling of what NAIFA has to offer: Online CE NAIFA has partnered with RegEd to bring you an exclusive discount on all of your insurance continuing education needs. Monthly Webinar Series Featuring timely information and training on topics such as sales, prospecting, marketing, practice management, and legislative updates. NAIFA ClientCast® by RealWealth® A professionally produced podcast you can forward to your clients and prospects each month on a variety of topics including life, health, long term care, disability and critical illness insurance.

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February 2013 » InsuranceNewsNet Magazine


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


Pick up the Phone, It’s a Lifetime of Referrals Calling As I was leaving the office I took one last call, which led to a client adventure.

It was well after 5 p.m. on a Wednesday, and I was getting ready to leave my office when Marilyn called. She was in a panic...

By Stephen N. Mathieu


n August 1994, having just completed a workshop on financial planning to a widows’ support group, I was approached by a very nice lady named Marilyn. She mentioned she was left with a bunch of stocks and had no idea what to do with them. I recommended she come in to my office and bring them, so we could decide what the best strategy would be for her. Marilyn came in and brought the stocks, which consisted of about $150,000 of “blue chip” companies, all of which were paying dividends. In light of the fact that her cost basis was less than 75 percent of the current value of the stocks, she had quality stock in fine companies and didn’t need more income than the dividends were paying. I recommended she keep the stocks, however, I told her to re-title them from the joint names of her and her (deceased) husband to her name. Fast-forward a year. It was well after 5 p.m. on a Wednesday, and I was getting ready to leave my office when Marilyn called. She was in a panic as her engine had died on the highway about 10 miles from my office in Manchester and she didn’t know who else to call. She had my business card in her purse, so she called me. I got to her location and drove her to her home, which was near my office. I had the tow truck driver take her car to my mechanic, who would give it a look in the morning. The following morning, the mechanic checked out the engine, only to find she must have driven the car with no oil and no coolant for some time as she had cracked the engine block and ruined the engine. He called to give me the bad news; she would need a new engine. I called Marilyn, who was quite upset. Seeing how the car was already more 58

than 10 years old and she was in her late 60s, I recommended that she think about a new car, so she would not have to worry about the car breaking down on her. She started crying and told me she knew nothing about buying cars, and she didn’t know where the money would come from to buy one. It would use up virtually all of the money she had in the bank. I asked her if she had kept the stock and she confirmed she did. In the time that had passed, the stock values had risen by more than 15 percent. I knew we would be able to sell a few stocks to buy the car. I had my assistant pick her up and bring her to my office, where we sat down and went over the financial strategy to buy the car, and discussed how to replace the income stream that would be lost by selling the stock. We rearranged her portfolio to one that actually increased her income, while simultaneously giving her the cash she needed to buy the new car and not deplete her savings accounts. A combination of an immediate annuity and a managed income account satisfied her objectives. She was thrilled with the proposed solution and we implemented the plan. The following Saturday, I picked her up and drove her to a dealership where I was able to negotiate a great price on the car she wanted. Marilyn drove out in her new car, as happy as could be. Over the next few years, Marilyn gave

InsuranceNewsNet Magazine » February 2013

me several great referrals to people who have become great clients – but the story doesn’t end there. Almost six years after meeting Marilyn, in February 2000, I was at a local ski area with my children when my phone rang. It was Marilyn and she wanted me to speak with someone at her house about the investments I had set up for her. A man came onto the phone and the moment he began to speak, I recognized his voice. This was a man who had been in my home many times when I was a child; my father’s cousin. He was also a first cousin to Marilyn. When the dust cleared, we realized Marilyn was my dad’s second cousin; her mother was a first cousin to my grandfather. This made Marilyn my third cousin, and to this day I maintain (jokingly) that my worst and most troublesome clients are family members. Marilyn is still a client today and in her mid-80s. I think back about how this relationship would never have happened, had I not picked up that phone well after 5 p.m. on that Wednesday in 1995. Stephen N. Mathieu, CLU, ChFC, RHU, is founder, president and investment advisor representative of Legacy Financial Solutions Inc. in Manchester, N.H. He is a 20year MDRT member with one Top of the Table and 10 Court of the Table qualifications. Stephen can be reached at

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February 2013 » InsuranceNewsNet Magazine



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

100 Years of Tax-Free Benefits 100 years after insurance won its tax status, the industry has to fight again to keep it. By Ayo Mseka


he federal income tax hits an important milestone this year: It turns 100 years old. While it’s highly unlikely that Americans will pause to celebrate this notable anniversary, there is one tax anniversary that is worthy of the attention of all insurance agents and financial advisors – the 100-year anniversary of tax-free death benefits and tax-deferred cash value in permanent life insurance products. When Congress passed the federal income tax in 1913, it smartly recognized that taxing life insurance policy dividends would threaten Americans’ ability to withstand the death of breadwinners in their families. They realized that making life insurance more affordable through tax savings on life insurance death proceeds would allow Americans to invest and protect the financial security of their families and businesses. One hundred years later, the needs of American families have not changed.

The Critical Role of Life Insurance

Life insurance is a mainstay of the U.S. economy, providing financial security to 75 million American families and accounting for 20 percent of long-term savings, according to the National Association of Insurance and Financial Advisors. Half of the nation’s households report the need for more life insurance, and workers between the ages of 50 and 64 say they have only enough savings to carry them through just 16 months of retirement, NAIFA says.

Coming Soon: Tax Reform

While the lame duck 112th Congress enacted a fiscal-cliff averting bill, H.R. 8, on January 1, it didn’t address all the elements of the fiscal cliff (other than deferring the impact). It set up another series of intense deadlines. The need to raise the debt ceiling, fund the entire federal government (current funding authority runs out on March 27), and avert the sequester 60

“We work every day to keep our elected officials informed and to ensure that Americans are not penalized for investing in their futures.” – NAIFA President Robert Smith

(the new effective date is March 1), will set up another round of difficult negotiations over the next two months. As Washington grapples with the current budget realities of our nation (some $16 trillion debt is estimated in fiscal year 2013), Congress will once again focus on comprehensive tax reform as a way to reduce the national debt. Look no further than H.R. 8 and the new health law to view the types of changes that might be considered. Two new taxes that go into effect this year are aimed at households with an annual income above $200,000, or $250,000 for couples. These new taxes – a .09 percent increase in Medicare tax and a new 3.8 percent investment tax – are in addition to the capital-gains rate, which has risen to 20 percent for individuals earning $400,000, or households earning $450,000. In the coming years, more people will be caught by the new taxes because the adjusted gross income level that triggers them will not rise with inflation. The price of health-care reform should not come at the expense of responsible consumers who plan for their retirement needs and the financial security of their families. One hundred years ago, NAIFA members educated Congress and President Woodrow Wilson about the value of life insurance products. The good policy that was passed in 1913 can be

InsuranceNewsNet Magazine » February 2013

credited to legislators’ understanding of the role that life insurance products play in protecting the financial future of Americans. “NAIFA members are in every Congressional district in the U.S.,” NAIFA President Robert Smith, CLU, ChFC, J.D., LIC, says. “For more than 100 years, we have established trusted relationships with our elected officials, and we work every day to keep them informed and to ensure that Americans are not penalized for investing in their futures.” This April, Congress is expected to unveil a tax-reform plan that likely will impact life insurance products. NAIFA members, once again, will visit members of Congress to tell them that the current tax treatment of life insurance products must continue so that Americans will be encouraged to take responsibility for their financial futures. Every agent in the business is welcome to join us on Capitol Hill in April. For those who are unable to make the trip, we ask you to let your lawmakers know loud and clear that there is a policy in place today that they should support. That policy is the current tax treatment of life insurance products. Ayo Mseka is the editor-in-chief of Advisor Today, the official magazine of the National Association of Insurance and Financial Advisors. Contact her at

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InsuranceNewsNet Magazine is now available on Google Play for all Android phones and tablets, as well as on the iOS App Store for the iPad and iPhone. Simply search for “InsuranceNewsNet” on either app store or use the links below and you’ll quickly be reading our digital version of the magazine on your favorite mobile device for FREE. February 2013 » InsuranceNewsNet Magazine


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


Policy Count Drops with Agents S  ales capacity and an aging field force are two underlying trends that threaten the longterm growth of the industry. By Patrick T. Leary


t is commonly accepted that face-toface distribution within the insurance and financial services industry will continue to evolve rapidly. What is not agreed upon is how. Recently, LIMRA and McKinsey & Co. completed their latest joint research study which examined how various channels are responding to today’s environment. This study finds that some old challenges persist while new challenges have emerged. Overall, the outlook is positive for those organizations willing to embrace change, but time is running out to address some critical industry issues.

The Clock is Ticking

Two separate but related underlying trends threaten the long-term growth of our industry: sales capacity and an aging field force. While some channels have made progress, overall not enough talent is entering – and staying – in the industry to replace those retiring or leaving. Recruiting new talent in the industry remains relatively flat and turnover continues to be high, especially in the first few years. If this trend continues, it will have a significant impact on the industry’s ability to sustain profitable growth. This ongoing struggle has had additional impact: that of driving up the average age of today’s sales professional. This is especially the case in the independent insurance environment. The bulk of the independent agent force has more productive years behind them than ahead of them. Compounding the issue is that fewer career agents – the historical trainees for independent agent distribution – are following the traditional career path. Instead, they are choosing the investment and advisory environment to grow their practices. This presents a critical challenge for organizations that rely on independent insurance agent distribution: where will the agents of the future – and their business – come from? 62

More than ever, the aging of the field force also brings the issue of business continuity to the forefront. Assisting agents and advisors in the twilight of their career with succession planning becomes critical to provide for an orderly transition to the next generation of professionals. But sufficient transition plans are not in place. Fewer than half who are retiring within the next three years have a plan established; many have not even thought about it. Organizations must be proactive in working with these sales professionals to develop formalized frameworks that maintain and build firm value during the transition. Being proactive with senior practice leaders, identifying successors to ultimately take the reins of practice leader, is critical.

So What?

While consolidation, technology, and business efficiencies contributed to the decline in the number of insurance sales representatives, at the end of the day, there is no doubt that agent count plays a critical role in the amount of life insurance business written. (See chart.) When comparing the number of career agents with new life policy sales there is a close relationship, especially after 1985. Therefore, it is critical that organizations bring on new sales talent, but more importantly, retain them. Firms must follow through with new hires and create an environment where they can build client relationships, develop effective sales strategies, and succeed in those critical first few years. Once established, it is very likely that a new recruit will embrace the career and become a successful long-term practitioner.

Now What?

Firms must provide a value proposition beyond compensation that aligns with the needs of today’s most desired agents and advisors. Sales representatives today seek professional growth over higher payouts. They are looking for an environment that will best facilitate the growth of their practice, in a culture that best compliments their personal selling style. This is especially the case among

InsuranceNewsNet Magazine » February 2013

younger agents and advisors. No longer is it just about “being your own boss” or building personal wealth. Their success model includes the desire for professional growth and development, to be part of a team versus operating as a solo advisor, the ability to contribute to the strategic direction of the firm, and to make a difference in their clients’ lives. Not that compensation is unimportant; far from it. In today’s environment, getting paid well is an expectation; it is in other areas where organizations can differentiate themselves to attract and retain the best of today’s sales talent.

The Future is Now

Forces of change among manufacturers, distributors, sales representatives and consumers have created a reshaping of distribution, an environment which presents both challenges and opportunities for today’s financial services organizations. There is a new distribution landscape, one that financial services organizations can leverage to their success. While the clock is ticking on addressing issues around sales capacity and an aging field force, nimble organizations have their eye on the clock and are taking steps to address these challenges and position themselves for profitable growth in the future. Patrick T. Leary, assistant vice president, LIMRA’s distribution research, oversees LIMRA’s studies on distribution channels including affiliated and independent agents and advisors, financial institutions, worksite, broker-dealers and direct response. Contact him at



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February 2013 » InsuranceNewsNet Magazine




Boomer Insurance, Anyone? The industry will have several new scenarios to consider in order to accommodate the needs of the population as it ages. By Larry Barton


f you read this column, chances are that you travel on an airplane at least several times a year. Many of you are on a commercial aircraft and checking into a Hilton or Marriott a few times a month. The bottom line is that you are a “road warrior.” Now, think ahead 10 years, and imagine the needs of your clients as they travel. Think about disability insurance but also mobility insurance. Think about the liability of the various aspects of the hospitality industry that will face challenges for which there is no precedence. More importantly, there is no research, even among gerontologists, regarding how this one industry will adapt to the 76 million baby boomers who are just now entering their golden years – most of them vibrant, attentive to health and nutrition, and ready to re-engage with their children and grandchildren, whether in Peru or China, Miami or Bombay. So, just to get the dialogue under way, and to help the entrepreneurs out there who may agree that even half of my assumptions are correct, let’s see how you feel about aging, business travel and insuring against a volume of claims from the most affluent and educated retiree base in our history. [1] Consider Southwest Airlines. In 2011, on about 40 flights, I counted an average of six pre-boards, or “blue sleeves.” These are folks with no pre-assigned seats who have a legitimate medical excuse or who are shrewd enough to fake a small limp, just to get on first. They can’t sit in an exit row, but they get the satisfaction of early boarding, and usually do so at the front of the plane. God bless them. Now, multiply that by a factor of five – or even 10 – for the boomers. That’s a third of the plane that will need to preboard. (I love it when Southwest pilots, some of whom I know personally, will say: “Larry, this is a miracle flight to West 64

Palm. They needed wheelchairs to get on, but when we land – it’s a miracle! They just run off.”) [ 2 ] Now, on the compassionate side, let’s look at the legitimately disabled. Will Southwest, Delta or JetBlue deny anyone who claims a disability? If so, how and when? Do you need a letter from your physician or a cast on your leg? How about the shrewd ones who bring on “medical service dogs” (usually about the size of a Big Mac) to escape the “no pet” policy? I finally decided to ask a lady from Wisconsin last fall about how such a dog could provide a service for the disabled, and I thanked her for transporting the dog for some unfortunate soul. “Oh no, it’s for me,” she responded. “My psychologist agrees I need Freddie to accompany me, because I have a fear of flying.” Oh… OK, now I get it. [ 3 ] Now let’s think about all of the wheelchairs, strollers, oxygen masks and other apparatus that will be accompanying all of us on United, Singapore Air or Frontier. If you have ever been on a plane when there’s been just one medical emergency, especially on a flight abroad, you know how focused and attentive the crew will be to that one emergency. Will we have teams on board these flights as the collective demography of the travelers increases? OK, by now you’re saying: “What does any of this have to do with insurance?” Well, I have called a few disability carri-

InsuranceNewsNet Magazine » February 2013

ers and asked about how travel insurance and DI will change in the years ahead to accompany the tsunami of boomers who are about to climb onto cruise ships, river boats, airplanes, railroads and other modes of travel with all their maladies, medications and disabilities. Inevitably, and I just love this, their answer comes down to: “Well, I guess DI wouldn’t apply because we’re talking travel. If they have travel insurance, they’ll be OK. If it’s pre-existing, I’m not sure. But yeah, this is going to be a very serious situation, I guess, just in terms of the number of people needing help out there.” Think ahead 10 years to the next MDRT meeting, or American College Knowledge Summit and Commencement, or LIMRA annual meeting. We may have to have designated areas for special cases in large ballrooms, even at company meetings. Think I’m kidding? It’s already happening in Japan and other locations with large numbers of aging yet productive workers. Forget Obamacare. I’m looking for “We have six elderly with chest painscare.” Anyone interested in a startup? Do you agree? I invite you to write me at InsuranceNewsNet and share your perspectives. Let’s get a thoughtful dialogue started. Larry Barton, Ph.D., CAP, is president, CEO and holder of the O. Alfred Granum Chair in Management at The American College, based in Bryn Mawr, PA. Contact Larry Barton at

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