Our world is full of complicated information. And the insurance industry is notorious for creating products that can be hard to understand. I’m sure we’ve all had clients suffer from “analysis paralysis” when trying to decide between multiple solutions. But it doesn’t have to be scary.
As advisors, we experience success when we can break down the complexities into a strong solution that the client can understand. And, believe it or not, it IS possible to simplify the way we help our clients fund a long-term care plan.
Once you’ve talked with your clients about long-term care and helped them understand the value of a written plan, it’s easy to stall out. But a written plan is only half the story. If they decide to use an insurance strategy to fund the plan, they will need our expertise to figure out the best way to proceed.
To keep it simple, there are four main categories to consider when finding the funding. Learning about your client’s complete financial picture will be your guide when deciding which funding option to recommend. And, once you’ve got that figured out, your Ash team is perfectly positioned to help create an individual solution for each client. The key is to choose a funding method that won’t force the client to sacrifice lifestyle or other financial goals.
Let’s look at each option, and which type of client it is most likely to fit best.
As advisors, we’re juggling lots of moving parts to create a solid financial plan. The upside is that by understanding the complete picture we’re in the perfect position to take assets from vehicles that don’t meet the client’s needs and use them to fund a long-term care plan. Because without a solid plan for long-term care, the entire retirement plan is at risk. And that’s something to be afraid of.
When you believe in something, you talk about it. To everyone. Some clients seem to embrace it. Others seem to blow it off. That can be hard, but it seems to be the nature of our business.
For us, that conversation is long-term care planning. We understand why having a plan for the future matters so much. Sometimes it’s hard for clients to grasp. But it’s something we believe in strongly, and a message that we’ve worked hard to share. You may have brought up the topic with your clients and gotten mixed results.
So, when we say have the conversation with everyone, we mean it. But rather than blindly bringing up the need for an LTC plan, it makes sense to start with the clients who will be most receptive to what you have to say.
Not sure who those clients are? Start by looking at their ages and determining which stage of life they are in. In each group, your most likely prospects will share some of the same characteristics.
The common thread: At any age, your strongest prospects are those that have seen first-hand a loved one experience a long-term event. They’re planners. They believe in insurance products and the protection they offer. And they can to afford to purchase those products.
Once you’ve identified who you want to talk to, reach out to your Ash LTC team for strategies and solutions. We’ll help you create a plan that fits for each individual, no matter what stage of life they are in. There’s only one thing you have to do: Just Ask.
In every successful business, there’s always a handful of people you couldn’t do without.
Some are out in front. Others, behind the scenes. Either way, they are the people that make the business go. Without them, the business owner would be lost.
Maybe it’s the top sales person, bringing in more revenue than everyone else. Or the office manager who takes care of the day-to-day tasks — tasks that everyone else doesn’t even realize needed to be done. Or it’s the programmer who provides the skills needed for technology to be an asset instead of a headache. It could be all three.
Think about your business owner clients. What would they do if they lost an irreplaceable person? Would they have to close the doors? Or sell the business?
In our industry, we’re committed to planning for the future. We protect individuals, families and businesses from life’s “what ifs.” We help them prepare financially. And we help them avoid risk whenever we can.
When working with your business owner clients, don’t overlook the need for key person disability insurance.
There’s a good chance that you’ve talked to your business owner clients about purchasing life insurance on key employees. If that’s the case, they’ve already identified those essential people that drive the success of the company. If not, that’s the first step. Talk to your business owner clients and figure out who they consider key employees.
Once identified, discuss what the employer would do without them. Although we often look at life insurance first, there’s a higher chance that the person will become disabled, not die. Fortunately, we can protect against that.
Key Person DI helps a business owner replace lost revenue when an essential employee becomes injured or disabled. And there are lots of options out there, and lots of ways to customize coverage to fit specific needs.
Most key person DI policies work the same, with the benefit:
Let’s think about that in practical terms. You have a business owner whose key employee is out on a disability, and they aren’t sure how long the illness will last. After personal concern for the employee, cash flow is most likely the next big need. With a key person DI policy in place, it’s a huge relief to know that the business will have cash benefits to spend on hiring a temp or outsourcing certain responsibilities. It means they can stay afloat while still being supportive of the employee. In many cases, it’s the difference between barely surviving and being able to continue to move ahead.
We mentioned that there are many ways to design a policy, and we weren’t kidding. But there are some general guidelines to use when figuring out the right level of coverage. And your Ash team is always here to help.
Specifically, you should consider:
Although nothing can replace an employee that’s, well, irreplaceable, key person DI can offer financial protection. In addition to providing funds for a temporary replacement or to offset the cost of recruiting new talent, a key person DI policy can assure clients and partners that the business is financially stable. And it’s a great employee retention strategy.
Don’t limit your discussion of key person coverage to life insurance. The need for DI protection is just as important — and just as achievable.
One of the most common threads I’ve seen in successful financial advisors is a tenacious focus on the client outcome. Outcomes are the results that outstanding advisors provide clients to achieve goals, solve problems and provide financial fulfillment. This is not to understate or minimize the process and client experience along the way – both of which are intensely important – but results provide advisors with tangible proof of their value to reinforce client relationships.
Let’s highlight three strategies that led to outstanding client results. I will take you through how advisors engaged with their insurance partners to solve problems and achieve the best outcome for their clients.
Early this year we had an advisor approach us with an opportunity to assist in putting together an insurance portfolio for two business partners. Let’s call them Jim and John. The two clients built an extremely successful manufacturing business that was well capitalized and generated significant cash flow. Jim and John needed to arrange a buy-sell agreement and funding strategy.
Based on the advisor’s discovery session with Jim and John, their goal was to ensure they had enough insurance coverage to fund the buy-sell arrangement, and they didn’t like the idea of “renting” term insurance. The clients believe that in 15-20 years they will be exiting the business and it is important to them to either have cash value built into their coverage that they could take with them or permanent insurance they could repurpose for estate planning. While this may sound relatively straightforward, the typical “cross-purchase” arrangement makes this more difficult to accomplish as the partners would essentially own each other’s policy. While cross-purchase is still a workable strategy, a more streamlined solution for this type of scenario is to establish a partnership to own the policies with an operating agreement that will govern the buy-sell.
The benefit of using a partnership to own and govern a buy-sell agreement is threefold.
The advisor suggested the clients consider creating a partnership agreement funded with cash-accumulating life insurance. Jim and John agreed to the strategy and began underwriting while also engaging with their attorney to draft the appropriate agreements.
Jim and John were both approved with favorable underwriting terms and put the advisor’s recommendation in place. Each of their policies is projected to last for their lifetime and have cash values at their target retirement age that well exceed the premiums paid. The outcome of this scenario is the coverage Jim and John needed with an ownership structure that accomplishes what they wanted.
The fastest-growing line of business at Ash is our long-term care business or, perhaps more appropriately named, our healthcare in retirement business. In speaking with advisors across the country, there is a palpable demand from their clients for solutions to fund potential long-term healthcare events. Virtually everyone has now witnessed a grandparent or parent go through an extended care event and the strife and complexity that often accompanies it. The question is no longer if a client will need care, but when and how to fund the care.
One of our most successful advisors found a unique funding mechanism to seamlessly provide his clients with a substantial amount of LTC coverage without impacting their cash flow or investable assets. This advisor has a group of clients with significant cash accumulations in underperforming whole life contracts. These contracts were earning a relatively modest, albeit safe, rate of return every year and required an annual outlay. Few clients needed the insurance death benefit and the money in the contracts was more of a contingency pool of assets rather than dollars needed for retirement income.
Knowing that one of the primary reasons a client might need those “contingency” whole life dollars is a significant long-term healthcare event, the advisor looked for a different strategy. The advisor recommended a tax-free exchange to an asset-based long-term care policy. Asset-based LTC is relatively simple: The client deposits money with the insurance company (since this was a rollover, it was a single lump sum) and in return gets a pool of dollars for long-term care that is often three-five times the initial lump sum and is indexed for inflation. In some of this advisor’s cases, the LTC pool of dollars represents a tax-free internal rate of return in excess of 8% at life expectancy. The drawback of the asset-based strategy is a very modest death benefit – essentially a return of the premium. Since this group of clients weren’t concerned with death benefit, but knew the impact of an LTC event, this solution fit very well.
This advisor was able to provide his clients with certainty and peace of mind about long-term care, all with very little disruption to the client’s financial picture. By repositioning an asset that was no longer serving the client’s needs, he was able to mitigate one of the biggest risks in retirement, a long-term health event. This is a very positive outcome.
This summer, we had an advisor approach us with a client who had been oversold a portfolio of annuities. The annuities had significant surrender schedules, high fees for guaranteed income riders, and the client (let’s call him Joe) had no need for the income in retirement. These annuities were ultimately going to pass to Joe’s family, and he was relatively unsure why he had acquired them.
Joe’s advisor brought his portfolio of annuities to Ash and asked us to help model some scenarios integrating insurance. We put together projections for maintaining the current annuity portfolio but also looked at using the guaranteed income features to fund an insurance strategy for the client. The insurance strategies created a far more compelling net result for the client and added in some potential long-term care coverage as well.
The outcome for this client was a better, more sound planning result that was a custom fit for his circumstances, not an advisor’s commission statement. Our models proved the value of insurance and created a platform for this client to make the right decision.
2019 was a great year, and by focusing on bringing solutions to every client, every time, we can keep this momentum going in 2020. And beyond.
In this industry, we’re planners by nature. It’s what we spend our time doing — working out a plan for a client to help them achieve their dreams. Much of our planning is for the what-ifs. If this event ever happens, what does that mean for my client? We plan for individuals. For families. For businesses.
So let’s discuss the often-overlooked need for a disability buy-out plan. Businesses must plan for the possibility of a partner becoming disabled. And it’s essential that the planning takes place before the disability happens. Either first-hand or through stories, we’ve all experienced tragic events that force businesses to sell to the lowest bidder, discounting years of work and sacrifice. Those outcomes are the result of not having a plan in place in advance.
Just establishing the need for a plan is a great way to start. Ask your clients some basic questions, giving them things to think about should one of them become disabled:
Unlike common life valuations, there is not a goodwill multiplier or a gross sales multiplier. Just use the tax documents to follow the steps above and you’re ready to go.
Experience teaches us that plans change. But without looking forward, without preparing, we won’t be able to help clients – or ourselves – achieve success.
The key here is to help your client create a formal written plan, regardless of how they decide to fund it. In many cases, disability insurance is the answer. But even if it’s not, just having a plan is what matters.
And as always, the Ash Disability team is here to provide solutions. Just let us know what you’re trying to accomplish, and we’ll help you see it through to paychecks, made possible.
© 2018 Ash Brokerage LLC.