Most of us are beyond ready to get back to the normal we knew a year ago. And for financial advisors, that means helping your clients prepare for the possibility of taxes returning to higher rates. As clients have questions about taxes, you have an opportunity to protect them with tax-efficient solutions.
There’s also a good chance that these same clients need life insurance. Which just happens to be a great resource for providing that tax efficiency we just mentioned.
To get started, think of your high-income clients. The easy solution for providing insurance is to look at a term policy. It’s relatively inexpensive and the application process keeps getting simpler. But that only gets you halfway there — it doesn’t solve the problem of tax efficiency.
Instead, consider a cash value life insurance policy that provides the needed insurance protection, AND allows them to accumulate money for retirement on a tax-advantaged basis. Let’s go into a little more detail about why this strategy makes sense.
Currently, high-income professionals are paying record low taxes. Consider a family of two working professionals, each making $150,000 per year, for $300,000 Adjusted Gross Income. In this example, the family falls into the 24% marginal tax bracket, which, adjusted for inflation, is the lowest it’s been in the past 70 years (see the chart below). To put it in perspective, in 1981 their marginal tax bracket would have been 64%.
Cash value life insurance can be used to hedge against a “return to normal” in terms of taxes for clients in this demographic. And under our new administration, there’s definitely a chance that taxes will increase in the near future.
Find out more about how cash value life insurance can help your high-income clients create a tax-diversified financial plan. We’re here to walk you through the basics and design the plan that’s right for each individual situation.
There can be no doubt that 2020 has provided an abundance of new challenges paired up with an unprecedented amount of change within our industry. An entire workforce has needed to adapt to a remote and virtual environment. At the same time, carriers and vendors have sought out creative ways to continue to keep moving business moving forward at a pre-pandemic pace.
Enhanced digital submission and delivery options, electronic health records, and simplified underwriting programs have all been beneficial in navigating this unfamiliar routine.
For the most part over the past six months, our carrier partners have been able to function normally – with minimal effect on service turn-around times. However, even with digital advancements, challenges ranging from regional storms to vendor closures are affecting some carriers’ ability to process business.
The most tangible delays had been limited to Principal, due to a massive influx of business submitted through their industry-leading Accelerated Underwriting program. Unfortunately, we’re beginning to see some delays at more than just a few isolated carriers. Turnaround times are beginning to be affected.
Managing expectations is central to driving a positive client experience. Policies are still being approved and issued. Lives continue to be impacted. We simply need to note that there are currently delays in the process.
Problem-solving is one of Ash Brokerage’s core values. We continue to look for ways to bring solutions to you and your clients. Should an obstacle arise, we see it as an opportunity. And while this year is uncommon in every sense, we’ve been rising to the challenge for nearly 50 years. We have the tools and, more importantly, the people, to get the job done right. We’ll help you navigate this landscape with transparency and alternate recommendations as needed.
Whatever the question, whatever the need. Ash Answers.
Over the last several weeks I’ve read several morose articles about the life insurance industry. Reports of companies “halting sales” and reporting “dim profits” make for sensational headlines but also paint a limited picture of an industry that is on the cusp of revitalization and is essential to the financial well-being of families, businesses and charities.
Make no mistake about it, record low interest rates, the specter of significant bond defaults and ratings downgrades, and potentially increased mortality do present challenges for the insurance industry.
But what’s missing in this message is the industry’s positive response, healthy balance sheets, and the core demand for its products.
While some companies have declined to make offers on older age or risk impaired insureds, virtually every company has found ways to approve more applicants with fewer underwriting requirements. Referred to as “accelerated underwriting,” insurance companies have programs that allow them to make competitive offers without a medical exam and these programs have been dramatically expanded over the last 10 weeks. Furthermore, insurance companies are pushing the envelope by coming to market with instant decision platforms where customers can get underwriting decisions within minutes of applying rather than waiting for an underwriting process that can take weeks or even months.
This crisis has become a catalyst to push this industry to a more digital and consumer-friendly acquisition process. To be clear, this change is sorely needed and long overdue. If you had asked a life insurance veteran six months ago what it might take to get the industry into the 21st century, I can envision a tongue-in-cheek response of, “a global pandemic.” But here we are, and necessity is the mother of invention. As a distributor of life insurance products, we’ve already made dramatic shifts in how we approach our business and the digital solutions we’re using. It’s time to change, and we’re not missing it.
Insurance companies, who all have substantial exposure to “investment grade” corporate bonds, will be financially impacted by downgrades and defaults in this sector. However, one of the silver linings of the “Great Recession” of 2008-2009 was that it stress-tested nearly every insurance company. Companies came out of that crisis stronger and better capitalized. Regulators and ratings agencies were forced to be more rigid and, as a result, risk-based capital ratios (a common measure of the capital strength of an insurance company) have gone from an industry average of 328% in 2008 to 424% at the end of 20181. With the minimum threshold for regulatory action set at 100%, the insurance industry is well-positioned for this crisis.
Unfortunately, this has been a business historically focused on growth in “premiums,” or the annual dollar amount collected by the insurance companies. The true significance of the life insurance business should be measured on lives insured and claims paid, not premiums collected. I don’t need data to prove that a tragic passing can have significant economic consequences to a family. No statistic demonstrates the impact to a small business of losing a key employee or shareholder. Nearly everyone insures their homes, automobiles and valuable assets based on a small probability of a substantial economic loss. So, too, should individuals insure their lives and their ability to earn income from a tragic death, disability or long-term care event.
The industry needs better processes, more consumer-focused products and an energized distribution system that is focused on education. From 2011 to 2019, life insurance ownership declined from 63% to 57%, despite 66% identifying a personal need for coverage2. The percentages of ownership compared to those identifying a need are even more disparate for long-term care, disability income and annuities (see chart below). The key to fixing this imbalance is consumer education and making our products more accessible. Insurance companies and distributors who adapt to this new paradigm will thrive.
To risk using a cliché, this crisis is the inflection point for a “new normal” in the insurance business. Over the next five years, the industry will completely digitize their processes, reduce time to approval from weeks to days, and get more people covered than ever. The process has started and will continue, and that is why I’m bullish on our future.
1. Source: ACLI 2019 Life Insurers Fact Book
2. Source: 2019 Life Insurance Barometer Study, LIMRA and Life Happens
The way you write insurance is everchanging. Calculators replaced ledgers. Smartphones replaced calculators. It’s as common to check in with your clients by text as it is a phone call. And as postal mail has been replaced by email, paper applications have been replaced with digital solutions. Technological innovations have added value for your clients.
Nobody likes filling out 50-page term insurance applications. And now you don’t have to. At the same time, you can increase the value you bring to your clients by leveraging accelerated underwriting programs not available through paper apps.
Term insurance is finally straightforward. Yes, we know it’s a bold claim. Over the past several years, the insurance industry has been trying to go digital. Each carrier has a different platform. A different process and different rules. Trying to figure them out has been daunting, to say the least.
We get it if you’re skeptical. What makes Ash Term Express different? And is it really worth trying to learn yet another digital platform? Yes, absolutely. We've taken the guesswork out of quoting, to bring you the best term options for your clients. So, let’s take a minute to discuss how it works and why it's different.
Avoids surprises with built-in health questions
more accurate quoting means less time for clients to change their minds and decline coverage
Identifies the best carrier
Take the guesswork out of the process by filtering which carrier’s accelerated underwriting (AU) program is best for your client
on average AU shaves process time by three weeks while taking the guesswork out of the process
Works on any device
quote and take an application from anywhere
This is the big one. By putting an emphasis on accelerated underwriting, we reduce time and frustration. Evidence shows that approval and placement rates are higher with accelerated underwriting. On average, AU cuts the process time by three weeks.
Let's look at an actual advisor. We'll call him "Paper Pete." Over two years, Paper Pete submitted 33 paper applications. Of those:
While four clients represent only 10% of this advisor’s business, for those four clients, the difference would have been huge. Their goals of protecting their families would have been completed faster and easier, giving you more time for other clients.
|Accelerated UW||Traditional UW||Savings|
|Cycle Time to Issue||34 days||56 days||22 days|
|Cycle Time to In-force||51 days||73 days||21 days|
*Based on 36,000 term insurance apps submitted to Ash Brokerage in 2019, with 23% applying for AU
It’s faster and more convenient for you and your client because underwriting is completed based on data, instead of on labs and medical records. And it means less time for clients to change their minds and decline coverage.
Ash Term Express encompasses two pieces: the Ash Quoter and the Ash Express Application. The platform understands and quickly lets you see which accelerated underwriting program is best for your client, if applicable. It also offers insight as to which carrier is most likely to accept the client’s health conditions — meaning more accurate quoting and fewer surprises during underwriting. You don’t have to guess which carrier will be best or duplicate work switching carriers.
|Cycle Time to Approval||38 days||44 days||6 days|
|Cycle Time to In-force||66 days||73 days||7 days|
*Based on 36,000 term insurance apps submitted to Ash Brokerage in 2019, with 23% applying for AU
And, once you’re ready to complete the application, it tailors necessary information based on client responses and carrier selection, so no time is wasted answering unnecessary questions. Information entered into the Quoter flows straight into the Express Application.
Switch back and forth between computer, phone and tablet. The platform is responsive and convenient.
Term insurance is a simple product. Getting a policy issued for your clients should be simple too. Using industry advances, combined with our own experience, Ash Term Express is the platform for today.
If you’ve put off going digital because of the hassle of navigating clumsy systems, the wait is over. Ash Term Express is 100% digital, simple and fast. Which means it’s perfect for our new virtual world. But to really understand the difference, you need to experience it for yourself. So, give it a try.
Check out this webinar replay where Todd Ruplinger, Chief Distribution & Innovation Officer, walks through how the new tools can help you make life (insurance) easier!
When it comes to the insurance industry, and specifically to how products are priced, men and women aren’t created equal.
Statistics prove that women live longer. So, when purchasing life insurance, they pay smaller premiums than men. Unfortunately, when it comes to disability insurance, that’s not the case.
All things being equal, a female will pay 30-50% more for a disability policy than her male counterpart. It’s because women are more likely to file a claim – not just for pregnancy, but for all types of claims.
The good news is that there is a solution. Multi-life. Most carriers offer some type of multi-life option, but I’m going to focus on Principal for this example. In addition to being one of the largest DI carriers in the market, they are also more flexible, and they offer unisex pricing options. To qualify as multi-life, they require policies to be placed on three or more people with a common employer. There is no requirement for the employer to contribute to the premium, although that’s certainly an option. In fact, the policies can be billed directly with no employer involvement.
Here we'll look at a 40-year-old female business owner in a white-collar occupation who lives in Indiana. For her policy, we’ll use a 90-day waiting period to age 65, and a $5,000 monthly benefit with residual. The premium for the policy, without any multi-life discounts, is $3,500 annually.
Now let’s assume that the client buys policies on two other employees. We just hit the magic number for making this a multi-life plan. Those two policies, after the discounts, can have annual premiums as low as $165 — which we can help you design. The client is paying a total of $330 per year for these two polices.
And now that the plan qualifies for multi-life, our client’s premium of $3,500 on her own policy is discounted to $2,300 annually. Her new premium, along with the $330 for her employees’ policies puts her total annual bill at $2,630. That’s an additional 25% savings, and her premium discount is locked in for the life of her policy — even if the other two policies are canceled later.
I believe that’s what we call a win-win.
Your Ash DI team can help you structure a multi-life plan for male and female owners. The discount on the females is much more significant — it lowers the female rate to be similar to that of a male — but don’t let that stop you from considering multi-life plans regardless of gender.
Take a minute to consider small businesses you work with. If multi-life is a viable solution to protect them and their employees, let us know. We’re here to help.
© 2018 Ash Brokerage LLC.