Nowadays, we have an “awareness month” for just about anything. Well, May is no exception. In our industry, May is known as Disability Insurance Awareness Month. Everyone in the business is out there focusing on getting the word out in May. It gets me to wonder, why are we not talking about disability insurance every month?
For some, disability insurance is their primary business, but those advisors are few and far between. A typical advisor may discuss disability insurance as a reactive topic. But, as a wise man once said, if your wait for a client to bring up their need for disability insurance, it's too late. They're probably already uninsurable.
As experts, we have a responsibility to educate the millions of workers in this country on not just their need, but the flip-side of that coin … What would their life look like without income protection? That visual is quite disconcerting.
I’m a believer in real-life stories resonating most with people. Just this morning, I was searching for content to post on a social networking site, and I came across a video that made me pause.* Here was this young guy, just starting his professional career, otherwise healthy, and BAM! While he was crossing the street, he was hit by a drunk driver. Thankfully, he survived, but the repercussions were catastrophic. He spent a considerable amount of time in the hospital, had endless amounts of rehab, and is still not fully recovered. He has residual effects from the accident, and even though he is mostly recovered, he is still unable to work.
Thankfully, this young person understood the importance of individual disability insurance and had purchased policies while he was healthy. Unfortunately, he is in the minority. Having this coverage has allowed him to focus more on his recovery, and not so much on the strain of the unexpected accident.
People don't believe they will become disabled. It’s an inherent flaw in each of us. We see other people have medical issues, or get into catastrophic and tragic accidents, but we will refuse to see that we are one action away – one car ride, one cross of a busy street, one fall from a ladder, one major diagnosis – from something happening to us.
Talk about disability insurance. All year long. Talk about it with each of your clients who are working full-time and rely on their paycheck. Ask the tough questions – you may uncover more ways you can help your friends, family and clients. Disability insurance is much more than adding a revenue stream to your portfolio. It’s more than premium. It’s about protecting your client’s most valuable asset – their ability to earn a paycheck.
Meghan Cormany, sales development specialist for disability insurance, helps provide sales concepts and solutions to advisors, so they may add value and protection to their clients. Meghan has been an integral part of the Ash Brokerage DI team since 2008 and is a leader in disability sales.
Editor's Note: This post was originally published on the Ash Brokerage blog in 2015. To date, it's the most popular post on our website. Why? We think it's because our underwriters aren’t afraid to discuss a challenging and potentially taboo topic that's becoming relevant to more of your clients every single day. The piece below has been updated to reflect changes since the original was posted. If you have any questions or concerns about underwriting, don't be afraid to ask our team! They'll always find an answer.
Marijuana use is a hot and evolving topic in life insurance underwriting. For those of us who’ve been around the insurance block a time or two, we can certainly remember the days when any type of marijuana use resulted in an automatic decline. Today, the answer isn’t so cut and dry.
To understand the topic, look at today's legal treatment of marijuana:*
As of March 2018, 29 U.S. states, plus the District of Columbia, have laws that legalize marijuana in some form
Nine states – Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon, Washington and Vermont – as well as D.C., have adopted the most liberal laws, which legalize marijuana for recreation use
Several more states are either considering legislation or potential ballot measures in 2018
In recent years, our industry has increased acceptance of applicants using marijuana recreationally and for medicinal purposes. We have seen offers from best class nonsmoker to decline.
Minimal use is acceptable with some carriers; while moderate to daily use may result in a decline. Multiple factors impact risk assessment for applicants using marijuana, including:
Amount and frequency of marijuana used
Method of delivery into the body
Underlying condition for which marijuana was prescribed
Other potentially related factors: avocations, driving record and occupation
Some carriers will offer smoker rate classes to an applicant who smokes marijuana, while others will offer nonsmoker rates if use is minimal and potentially preferred rates if the client otherwise qualifies.
Applicants with a valid marijuana prescription to treat symptoms of an impairment may be assessed an additional rating for their impairment. Certain impairments or co-morbid conditions will result in an automatic decline, even if the applicant has a valid prescription or lives in a state which has legalized recreational marijuana.
Applicants with a history of alcohol or drug treatments, or applicants currently using multiple recreational drugs, are considered an unfavorable risk. Likewise, applicants with significant mood disorders and past criminal activity are also considered unfavorable.
Cannabidiol, also known as CBD, can be derived from hemp or marijuana. CBD products created from marijuana have very high levels of THC, therefore applicants using CBD products created with marijuana will fall under the carrier’s guideline for marijuana use. Applicants using CBD products produced from hemp will not be considered as marijuana users.
Other things to note for underwriting:
Today’s insurance labs cannot measure quantity of use, nor how the marijuana was delivered into the body
Some carriers automatically test for marijuana, while others will reflex the test as deemed necessary
Most carriers will request an attending physician statement (APS) and/or copy of the valid prescription for applicants being treated with medical marijuana
Marijuana sales remain illegal at the federal level, but the marijuana industry is growing like a very profitable weed. According to Tom Adams, managing director of BDS Analytics, national marijuana sales will rise to $11 billion in 2018, and to $21 billion in 2021.*
With the federal government still viewing marijuana sales as illegal, almost every insurance carrier will not offer insurance on any employee of a marijuana farm or dispensary, or owners of farms or dispensaries. As of today, only a small handful of traditional life insurance carriers will consider select clients on an individual basis for personal coverage only.
Since there are so many variables influencing the underwriting decision for both recreational and medical marijuana users, it’s impossible to recommend a carrier without having all the facts. The good news is at Ash Brokerage, you have a dedicated staff of seasoned underwriters available to answer your questions regarding marijuana usage and assist you every step of the way. We’d welcome the opportunity to talk with you about your client’s specific needs.
Additionally, the Ash Brokerage website has numerous impairment questionnaires, including a marijuana questionnaire, which are useful in evaluating medical, financial or avocation risk. They’ll help you uncover potential issues before collecting a formal application, and ensure your call with your Ash underwriter is productive.
For more than 34 years, Charlie Kuhn has taken a personal interest in every case. To her, it’s more than a file – it’s a person trying to protect the people they care about, and she can think of no better vocation than to help provide financial and emotional security for others. Through her personal commitment to continuous professional growth, Charlie is one test away from becoming an Associate of the Life Management Institute. She is already an Associate of Customer Service with LOMA, has passed all three of the Academy of Life Underwriting exams, and is certified in EKG interpretation.
Ash Brokerage Questionnaire: http://go.ashbrokerage.com/WC2018-04-UW-8151_LP-Content.html
*CNN Money, “The U.S. legal marijuana industry is booming,” Jan. 31, 2018: http://money.cnn.com/2018/01/31/news/marijuana-state-of-the-union/index.html
At the end of 2017, I shared some meaningful statistics about the impact our industry/business has on so many lives. It prompted me to pause and start asking more questions about why we’re really in this business. To be truthful, I’ve been frustrated by the anemic growth the industry has experienced in protection products.
I’d like to start with a couple of questions: Is every family and business you serve ready for one of life’s moments that could strike at any time? Have you proactively put a risk management strategy in place for each of your clients?
I ask that you read this very closely as I hope it inspires you to act.
Toward the tail-end of last year, I reached out to our friends at Protective Life. I asked them a question they hadn’t been asked before (much to my surprise): “How many death claims have been delivered because of our long-standing relationship?”
It took about 90 days to get the information sorted and assembled, but I just received a file from them and goosebumps ensued – as did a feeling of connection and pride to our work and this industry. I couldn’t believe that over the course of our relationship with Protective Life, we have delivered 453 claim checks to beneficiaries totaling more than $152 million – $152,582,605, to be exact. And that’s with just one of the carriers we work with.
What was sobering for me was looking at the names on the list, knowing that someone cared enough about their family, their business or their favorite charity to own insurance. I thought of the lives that were impacted. It also led me to notice the names of the advisors who helped place that coverage. They had the courage to have the conversation. I tried to envision those conversations, as well as the tears and words that were exchanged when the advisor delivered the claim check.
I know what it’s like, as I’ve delivered several of those checks myself. Trust me, people aren’t talking about their asset allocation, rebalancing and tax management in those moments.
I’m trying to figure out why more advisors don’t have conversations around planning for the moments in life we’re all going to deal with. It just seems the focus today is on AUM growth – life insurance and other protection products can wait for another time. All advisors are going to have clients who pass away, become disabled, need long-term health care or live longer than expected. So why aren’t these conversations taking place with each and every client?
I know insurance is a very personal thing to discuss, and there are a lot of moving parts. I also know the process of acquiring coverage isn’t straight-through and simple. But that’s where we come in.
We are your risk management partner/consultant. We will be here to help you design, implement, place and service your clients’ policies. You don’t have to get your hands dirty; we do the heavy lifting. You just need to bring your heart and courage to the planning table.
I will end my diatribe by saying “thank you” for giving us the opportunity to serve you and your clients. Go out and make it happen! You will be making a difference in someone’s life.
One of our key programs at Ash Brokerage is our Life Audit. This program looks at currently in-force life insurance policies and performs a stress test to see if the policy is still performing to meet the client’s needs.
When we first introduced this program, we were inundated with requests on policies that, in the advisors’ words, were blowing up. Most of these were interest-sensitive universal life policies or variable universal life policies that had not performed according to the original illustration that was presented to the client.
Let me be clear: Nothing was wrong with any of these products. They were solid policies sold by, mostly, reputable insurance agents and financial advisors. The problem is they were sold with unrealistic long-range interest rates or woefully underfunded premiums and ignored for long periods of time.
This UL implosion has led most advisors to run 180 degrees in the other direction and continually ask for more guarantees, sometimes lifetime guarantees, in order to protect their clients. Guaranteed UL isn’t a new concept, but in the past 15 years it has been the highest sold universal life product in the industry.
Many of these sales are appropriate, as older clients are using insurance to take care of potential estate taxes or leaving a legacy to their families or a favorite charity – I love to see that type of planning and appreciate the positioning of the guaranteed product.
However, many illustration requests we receive are for younger individuals who, by positioning them into a GUL, are being blocked by the many other benefits that a life insurance policy can provide.
If you were buying a car and the dealer said it was guaranteed to last three years or 36,000 miles, whichever comes first, you would be hesitant to purchase it. While three/36,000 may be the max warranty, most dealerships tout their brands’ reliability and often show their vehicles still performing at 200,000-plus miles. You want to buy a vehicle based on what it can do, not what it’s guaranteed to do.
In “Apollo 13,” Gene Kranz told his team “I don’t care what anything was designed to do, I care about what it can do.” It’s the same with life insurance. Sure, the basic benefit of life insurance is if you pass away, it will pay a tax-free benefit to your beneficiaries. But what else can it do?
A properly designed permanent life insurance policy can do a lot for your client. However, if you’re only asking for that “max guarantee,” you may be limiting their options and hurting your own credibility.
In our line of work, there’s a question that comes up from time to time. And, it’s being asked more frequently: What should I do with this life insurance policy?
With recent estate tax reform, married couples can now shelter more than $22 million from estate taxes at death. So families with a net worth less than $22 million find themselves wondering what they should do. They have life insurance to pay for estate taxes that no longer exist.
These families and their advisors should proceed with caution, thoughtfulness, and all the relevant facts as this is often a long-term and highly consequential decision. Here are 10 options to consider.
1. Do nothing. The current estate tax law “sunsets” at the end of 2025. Should the political climate shift – as it seems to do frequently – future legislators could create a more draconian estate tax regime. Our mantra has always been, “It doesn’t matter what the estate tax is today – it matters what it is when you are no longer here.”
2. Repurpose the coverage. Even if a family won’t need their life insurance for estate taxes, they may have other considerations – estate equalization for illiquid assets, for example, or the desire to provide a meaningful legacy to children, grandchildren or a favorite charity.
3. Surrender or exchange the policy. Proceed with caution as cost basis planning can be incredibly important and impactful! If you surrender a policy with a significant amount of tax-deferred gain, that gain will likely be heavily taxed. On the flip side, if you surrender a policy with cost basis that exceeds the current cash value, you lose that basis forever. Consider a 1035 exchange for a new insurance or annuity policy and allow the cash value grow tax free until it’s at least back to basis. We recently pointed out this option to a wealthy family. They were able to preserve nearly $2 million in cost basis on the purchase of a sizable, no-lapse guarantee contract that had zero cash value. (Call us for case studies of how this works).
4. Consider a life settlement. Believe it or not, there is a secondary market that acquires life insurance contracts. It’s possible to sell your policy to a third party for a value in excess of the current cash surrender value. However, consider this: If a policy is attractive for investors, it might be pretty attractive to keep!
5. Change funding to maximize return. Do a thorough Internal Rate of Return (IRR) analysis on your coverage to find the optimal funding pattern. One of the most common mistakes we see is policies that are funded to age 120, when a mortality study might suggest 90 or 95 would be sufficient. Through our efforts, we have been able to produce rates of return that are 50 to 200 basis points better by simply managing the policy’s funding schedule.
6. Consider an asset swap. Provisions of an Irrevocable Life Insurance Trust (ILIT) often provide the ability to substitute an asset of equal value for your life insurance policy. This may be a good way to repurpose the policy (see number 2 above).
7. Take a “wait-and-see” approach. See if you are able to stop, lower or modify the premium payment pattern to keep options open for future changes. Again, the tax law is temporary. And don’t forget: Your clients likely aren’t getting healthier. You may want to keep their insurability locked in.
8. “Pay up” the policy. Consider reducing the face amount to yield a lower premium, or even no premium. Many policies can be adjusted to a “reduced paid-up” status, or new coverage can provide a guaranteed death benefit with no additional premium outlay.
9. Talk to the beneficiaries. Your client’s children may consider funding the coverage for its future investment return.
10. Plan for other needs. Simply because your clients don’t need coverage at death doesn’t mean that insurance isn’t a good solution. Many new policies offer living benefits for extended care or even retirement income. And, the return on these policies is hard to match! Check out our December webinar replay for details on how this works.
Here is an even better suggestion: Call us. We will help you navigate the new tax laws and make it easy for you and your clients to make an informed decision. Whatever the question, whatever the need. Ash Answers.
Register for our April 12 webinar where Tim and Sam will walk through each option in a more detail.Register Now
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