InsuranceNewsNet Magazine - March 2022 by InsuranceNewsNet

INSIDE: THE FEDERAL PLANNING ISSUE

iL e f • Annuities • Health/Benefits • Financial • u M ltiline

March 2022

THE

BIGGEST POOL The federal government is the largest employer in the nation and offers generous retirement benefits. Advisors are finding the market ripe for financial advice.

PAGE 18

Serving Those Who Serve Us – With Cassie Knight PAGE 8

Five Questions To Ask When Talking About Annuities PAGE 30

Now’s The Time To Plan For 2022 Tax Changes PAGE 38

Signal Advisors takes a big swing The only technology-enabled IMO, Signal is now the fastest-growing IMO, too

Luke Donald partners with Signal for the 2022 PGA Tour Season Full story on page 6

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IN THIS ISSUE

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MARCH 2022 » VOLUME 15, NUMBER 03

FEATURE

The Biggest Pool By John Hilton The federal government is the nation’s largest employer. How advisors are finding their niche in serving this market.

INFRONT

4A nnuity Sellers Face Rolling Economic Headwinds By John Hilton Interest rate hikes planned by the Federal Reserve may prove to be a massive disruption.

IN THE FIELD 12 A Different Track

By Susan Rupe Heather Zepeda had a negative opinion of the financial services industry until she decided it was time for a career change.

26 Help Clients Understand And Own Their ‘Enough’ Number By Jim Effner You give your clients a tremendous gift by helping them understand exactly how much life insurance they need.

INTERVIEW

8 S erving Those Who Serve Us

Cassie Knight found her calling in helping federal employees get ready for retirement. In this interview with publisher Paul Feldman, she describes the many benefits and options available to this group and how she keeps them from making an expensive mistake.

HEALTH/BENEFITS

34 Health Savings Accounts: Don’t Leave FICA Savings On The Table By Tom Torre Clients frequently are either misinformed or unaware about the ins and outs of how saving on FICA taxes through an HSA program works.

ADVISORNEWS

38 Don’t Wait Until Next Year! Prepare For 2022 Tax Changes

LIFE

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ANNUITY

30 5 Questions To Ask Clients When Discussing Annuities By Mike Vietri Help your clients pinpoint the right annuity for their needs.

By Lyle D. Solomon Decide with your clients how to deal with these proposed tax changes and determine whether any immediate action is necessary.

MULTILINE

42 Champlain Towers Collapse Could Change Condo Insurance By Andrew Bateman Condo owners, along with their association boards, are taking a closer look at their policies to make sure the appropriate level of coverage is in place.

BUSINESS

44 The Powerful Strategy That Leads To Stronger Connections By J.J. Peller Practicing and developing your empathy skills will attract more people who want to work with you.

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March 2022 » InsuranceNewsNet Magazine

WELCOME LETTER FROM THE EDITOR

Unpredictable: That’s What March Is

love the month of March — and not only because it’s my birthday month. I love March because it’s a month full of surprises — although not all of those surprises are good ones. If I can pick one word to describe March, it would be “unpredictable.” Here in Pennsylvania, March can bring record-setting blizzards or it can bring unseasonably warm days that push the flowers out of the ground and inspire people to swap their parkas for shorts. It can bring devastating floods or it can bring sunny afternoons and returning robins. March can be unpredictable with respect to special occasions too. Those who celebrate Easter or Passover know that sometimes those holidays fall in March, sometimes in April. You just never know about March. Thinking about March also reminds me of the industry InsuranceNewNet serves. Just as you never know about March, you never know what surprises lie ahead in life. So you make your clients aware of — and help them prepare for — unwelcome surprises that life might hurl at them.

Retirement Planning

Most clients look forward to the day when they can say goodbye to the 9-to-5 and enjoy a secure retirement. But, like March, the road to retirement can be unpredictable and confusing. One group of employees that needs special attention is the federal workforce. You might not be aware that the federal government is the largest employer in the country, with more than 2.8 million workers employed as of January. Those workers are automatically enrolled in FERS — the Federal Employees Retirement System — and retirement plan contribution rates among federal employees are high. But as the experts who specialize in helping federal employees prepare for retirement told Senior Editor John Hilton, many federal workers are unsure of how to make their benefits work for them in retirement. These employees need help figuring out the best time and the best way to embark on retirement. Opportunities are out there for those 2

InsuranceNewsNet Magazine » March 2022

who want to work in this market. And you don’t have to live in the Washington area to find a pool of prospects — federal employees are everywhere.

Avoiding An Unwelcome Surprise

March is also a month when many of us are in the thick of getting our tax returns filed in time for the April 18 filing deadline. It’s also a good time to get clients to start thinking ahead to what they can do this year to avoid a tax surprise next year. In our Advisor News section, Lyle Solomon gives us a rundown of the changes coming to income taxes for 2022 and how to prepare clients. And March marks nine months since the Champlain Towers South condominium complex in Surfside, Fla., collapsed, causing 98 deaths. The collapse came as a

shock to the residents of the high-rise, but didn’t come as a surprise to those who recognized the corrosion of supporting steel in the building as far back as 2018. In our Multiline section, Andrew Bateman breaks down what the Champlain Towers collapse means for condo insurance in the future. As March unfolds in its unpredictable way again this year, take some time to reflect as we approach another spring equinox, and renew your commitment to help others deal with the surprises in life. Susan Rupe Managing Editor

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INFRONT

Annuity Sellers Face Rolling Economic Headwinds Interest rate hikes planned by the Federal Reserve may prove to be a massive disruption. By John Hilton

he first weeks of 2022 gave investors the shivers as stock shares plunged amid geopolitical fears, inflation, COVID-19, and interest rate hikes. The Dow Jones Industrial Average fell about 7% before beginning a slow rebound in the last days of January. A series of interest rate hikes planned by the Federal Reserve might be the biggest disruption of all, analysts say. “The largest driver of this move has been the intensified level of uncertainty. The usual suspects for this uncertainty have been the Fed and their rate hike plans, hot inflation, and slowing growth,” wrote Lindsey Bell, chief money and markets strategist for Ally. Annuity sales are influenced by a whole range of economic factors, including market performance and interest 4

InsuranceNewsNet Magazine » March 2022

rates. While annuity sales rebounded strong from a pandemic-influenced dip in 2020, the outlook for the rest of 2022 remains murky, analysts say. In addition to interest-rate uncertainty, inflation concerns linger, and regulatory changes are causing disruption among distribution channels. It could all add up to a difficult sales year for annuities. But executives like Doug Wolff, president of Security Benefit Life, are banking on the power of annuities to deliver retirement security. “I think it will be a good year for annuity sales, even if some of the things we’re talking about — the potential for higher inflation, the potential for a market pause or correction — come into play,” Wolff said. “Because in some ways, they will just remind people of some of the power of annuities — being able to save, invest and accumulate dollars

in a relatively safe way.”

Strong Rebound

Growing annuity sales in 2022 will prove difficult simply because 2021 sales were so strong. Total annuity sales totaled $254.8 billion in 2021, up 16% from 2020. It was the best year for annuity sales since 2008 and the third-highest sales recorded in history, according to preliminary results from the Secure Retirement Institute U.S. Individual Annuity Sales Survey. Total annuity sales were $63.4 billion in the fourth quarter, 8% highDoug Wolff er than fourth-quarter 2020. “Strong equity market growth in the fourth quarter and in 2021 propelled double-digit growth in both traditional variable annuity and registered index-linked annuity sales, resulting in

ANNUITY SELLERS FACE ROLLING ECONOMIC HEADWINDS INFRONT strong year-over-year results,” said Todd Giesing, assistant vice president, SRI Annuity Research. The pandemic cut sharply into 2020 sales, setting up the nice comeback year. Forced technology gains and new ways of distance selling were among the positives to emerge from the COVID-19 shutdown. Many in the industry expected sales to take off for greater heights thanks to these gains. Although that may happen, there are new storms for producers to contend with — namely the Department of Labor Investment Advice Rule. The rule, written during the Trump administration and allowed to take effect by the Biden team, took full compliance effect on Feb. 1. The investment advice rule has two main parts: a new prohibited transaction exemption allowing advisors to provide conflicted advice for commissions; and a reinstatement of the “five-part test” from 1975 to determine what constitutes investment advice. It replaces the Obama administration fiduciary rule, which imposed substantial regulations on commission-based sales of annuities. A federal appeals court sided with industry plaintiffs and tossed out the rule in 2018. The Federation of Americans for Consumer Choice, joined by a number of independent insurance agents and agencies, sued the Department of Labor last month, claiming the new rule improperly “broadens the agency interpretation of who is considered a fiduciary.” For now, the new rules are the rules and will make selling annuities more difficult, said Sheryl Moore, head of Moore Market Intelligence. “There will be required forms for agents to disclose their commissions and say that Sheryl Moore they don’t have a conflict of interest and show some due diligence to show the products considered,” she noted. “Any

time there’s a change in the sales process, it has a negative effect on sales, at least temporarily.”

Rate Hikes

Goldman Sachs is forecasting that the Federal Reserve will raise interest rates five times in Todd Giesing 2022. Officially, the Fed is signaling its intention to raise rates in March. Subsequent rate increases will follow as needed, Fed Chair Jerome Powell has said, while officials monitor how quickly inflation falls from current multidecade highs back to the central bank’s 2% target.

investor may still need some accumulation,” Wolff explained. “A fixed indexed annuity is a way to do that but still have the client get a principal guarantee and some of the downside protection that comes with it.”

Market Fears

Harry Dent, Harvard University-educated economist and author, is among those predicting a market crash this year. Dent made a number of bold predictions through the recent decades, some right and some wrong. But he predicted the dot-com bubble burst in 2000 and the populist surge that ushered former President Donald Trump into office in 2016. In a November interview, Dent predicted “the biggest recession, or a depression,

Harry Dent, economist and author, predicted “the biggest recession, or a depression, of our lives” in 2022. Higher interest rates will make some annuities more attractive to consumers. Whether rates increase enough to lure buyers away from other options remains to be seen. “I would expect annuity sales to be up again in 2022,” Wolff said. “And I think if interest rates go up, it may be even more than what people are predicting at this point.” In particular, fixed indexed annuities could see a sales surge if rates climb. Momentum is already trending that way, the SRI reported. FIA sales were $63.7 billion in 2021, up 15% from the prior year, SRI found, and that marks the largest annual growth for FIA products in three years. “Sometimes I think a financial advisor’s toughest job is getting that investor to potentially take a little bit more risk, because they realize that

of our lives” in 2022 and added that the economy won’t recover its growth power until 2024. Should we see a massive market correction this year, annuity sales would no doubt suffer. Individual annuity sales dropped 11% in 2009, the year following the housing crash and the Great Recession. Again, Wolff is confident that consumers would find the protection offered by some annuity products to be a safe zone in a market downturn. “Sometimes that can cause a pause for people putting their money anywhere,” Wolff acknowledged. “But I still think that the power of both fixed and fixed indexed annuities is even more evident when there’s some hit in the equity market.” InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@ innfeedback.com.

March 2022 » InsuranceNewsNet Magazine

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He’s referring to Signal’s new partnership with Luke Donald, which he sees as symbolic of the “big swing” that is the company’s long-term vision. “We aren’t just building an IMO. We are building an end-to-end platform encompassing annuities and life insurance and then securities. From new business, to case design, to marketing and lead generation, to providing working capital for advisors, we are building something that simply doesn’t exist,” says Kelly. For Kelly, success stories like Bob Smith’s are clearly what it’s all about. “When I first started hearing the buzz about Signal, it was all about how they pay commissions in 24 hours. That made me curious – how are they doing things that all the other bigger IMOs haven’t done?” says Smith. “Turns out, it’s not only about the commissions. They are just obsessed with finding a better way of doing all the little stuff we’ve been doing the old way for years. And it’s making a real impact. I’ve tripled my business in two years.” “2022 is all about helping more advisors like Bob. Plus, we get to play some golf with Luke!” says Kelly with a laugh. “After all, if we’re not having fun along the way, what’s the point?”

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ReinventingTheIMO.com 7

INTERVIEW

SERVING THOSE WHO SERVE US Why the FEDERAL MARKET is widely underserved. An interview with Publisher Paul Feldman

InsuranceNewsNet Magazine » March 2022

SERVING THOSE WHO SERVE US — WITH CASSIE KNIGHT INTERVIEW

orkplace benefits can be rather straightforward. You have health insurance, maybe some group life or disability, a 401(k) plan, or some other retirement savings plan. But if you’re a federal employee, your benefits can be a lot more complicated. And retirement planning for those in the federal system can be problematic if they don’t understand their benefits. Cassie Knight observed firsthand how much federal employees need specialized professional help to make the most of their benefits and avoid a costly and irrevocable mistake. She lived in a community where the federal government and the military have a huge footprint, and her husband

But it wasn’t until after I took the course that I realized how many misconceptions there are about the benefits themselves. At the time, we were living in the Pacific Northwest area, an hour west of Seattle, in Bremerton, Wash. I don’t know whether you’re familiar with that area, but there is a large federal and military community there. We’re about an hour away from three or four military bases, not including the VA and all the federal offices that are in downtown Seattle. Not only did I have family and friends who were federal employees, but the federal government is such a big employer in the area. I thought, “Wow! People need to know about this.” I wanted to help federal employees understand how these things operate. So I made

insurance representatives and financial professionals don’t want to be the experts. In fact, it’s very difficult for them to fully understand all the complexities of working with federal employees. Our goal is to help save them time, money and energy so they can focus on what they do best and let us do what we do best, which is help advisors look like rock stars. That way, there’s no question of why a federal employee should do business with them, because they’re leading with service. We don’t work with federal employees, and we don’t work with financial professionals who only focus on the Thrift Savings Plan. We’re more geared toward insurance professionals who want to take a holistic planning approach, because this

Our goal is to help save them time, money and energy so they can focus on what they do best and let us do what we do best, which is help advisors look like rock stars. is a former civilian employee with the Department of Defense. Knight is a federal benefits expert consultant with Fed Options, based in Spencer, Tenn., which provides back-office support and training to financial professionals who want to work with the federal employee market. In this interview with Publisher Paul Feldman, Knight describes the unique needs of federal employees and how advisors can help them make the most of their benefits, and she reveals that federal employees are not concentrated just in Washington. PAUL FELDMAN: Financial advising for federal employees is an interesting niche. How did you get into this space? CASSIE KNIGHT: Almost 10 years ago, I went from being a captive insurance representative to being independent. The new IMO I was with offered the federal benefits education course. At the time, my husband was a federal employee, so I thought I needed to know this. I thought I would learn what pertained to me and what retirement would look like for him.

it my mission to educate the employees about what their benefits are and how those benefits affect them in retirement. At the same time, my agency kind of split up different sections of the state. They gave me the southeast part of Washington state, so I was traveling four to six hours to meet with employees. I had twin boys at home who were really young, and I thought, this is ridiculous. There’s no reason for me to be traveling like this when there’s plenty to go around close to home. I reached out to a marketing company to help me do better with marketing from home, how to be more efficient and things like that. They gave me an opportunity to work with financial professionals, just educating them about what I was doing with federal employees but on a different kind of scale. This brought me home to be with my babies. It was a win-win for that company and for me because I was able to be home and they filled a position that could support their advisors. I started in this role of helping advisors understand the different things that they need to know about working with federal employees. Throughout my experience with that company, I noticed that

must be coordinated with each benefit to help employees. I’m still doing the mission I started with, which is educating employees, but just on a much larger scale. And I feel fortunate to be able to do that. FELDMAN: How big is the federal employee market? And what kind of opportunities exist there? KNIGHT: Federal employees are really the backbone of the country. And these folks are working under the mindset that the government’s taking care of them while they’re employed and the government will continue to do that when they’re in retirement. But that’s not true. A lot of their life insurance gets very expensive because it’s five-year term and premiums start to double as they get older — anywhere between age 50 and age 65. Then, at retirement, that becomes a big deal because the government isn’t paying a shared portion of the premiums anymore. So, there’s a life insurance sale there. Employees get a pension and surviving spouse benefits, but those come at a cost too, so maybe you can coordinate that with March 2022 » InsuranceNewsNet Magazine

INTERVIEW SERVING THOSE WHO SERVE US — WITH CASSIE KNIGHT some life insurance or other products. There’s a pension maximization strategy that can happen with federal employees — a TSP rollover to annuities or assets under management. Depending on what that employee’s lifestyle is, most of the time they choose annuities because the employee feels they have a guarantee with the government. They like that feeling of security in retirement, so they like more guarantees. It’s interesting to me that I think financial professionals don’t realize — and neither do employees — that a lot of these benefits are just private insurance wrapped in a government package. The Federal Employees’ Group Life Insurance — or FEGLI — is administered with MetLife. You have the Federal Employees Health Benefits — or FEHB — program and multiple insurance plans. One thing that’s not talked about much in the federal employee space is federal long-term care benefits. Right now, John

Hancock has the contract for it, but many are unaware that it’s an option, or they don’t understand how it works. I think now is the time to educate employees about long-term care and the need for coverage. I love how certain products have some sort of living benefits that act like long-term care insurance, so employees’ money works for them in more than one way. And if you explain it to them like that, they say, “Sign me up. My money is working for me.” FELDMAN: You just listed so many different benefits that federal employees have — it’s no wonder they’re confused. Does the government provide them with much education on what their benefits are? KNIGHT: There’s a 60-day hiring window when they give you a crash course, depending on the agency you work for. You and I just went over a lot of information

TSP — Thrift Savings Plan — The Thrift Savings Plan is a retirement savings and investment plan for federal employees and members of the uniformed services, including the Ready Reserve. It was established by Congress in the Federal Employees’ Retirement System Act of 1986 and offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans.

FEHB — Federal Employees Health Benefits Program — The largest employer-sponsored health insurance program in the world, covering more than 8 million federal employees, retirees, former employees, family members and former spouses. Federal employees, retirees and their survivors enjoy the widest selection of health plans in the country.

The TSP is a defined contribution plan. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.

OPM — The U.S. Office of Personnel Management — This serves as the chief human resources agency and personnel policy manager for the federal government. OPM provides human resources leadership and support to federal agencies. OPM directs human resources and employee management services, administers retirement benefits, manages health care and insurance programs, oversees meritbased and inclusive hiring into the civil service, and provides a secure employment process.

FEGLI — Federal Employees’ Group Life Insurance — The federal government established the Federal Employees' Group Life Insurance Program on August 29, 1954. It is the largest group life insurance program in the world, covering over 4 million federal employees and retirees as well as many of their family members. Most employees are eligible for FEGLI coverage. FEGLI provides group term life insurance. It consists of basic life insurance coverage and three options. In most cases, new federal employees are automatically covered by basic life insurance, and their payroll office deducts premiums from their paycheck unless they waive the coverage. In addition to the basic, there are three forms of optional insurance employees can elect.

that we understand because we’re in the insurance world. But when you have someone who is just hired, maybe they’re 19 or 20 years old because a lot of people are typically younger when they start working for the federal government. You throw all these acronyms at them and people don’t realize what they’re doing as far as their benefit choices are concerned. A lot of times, they’ll talk among themselves and say, “What are you doing?” Or “What do you think I should sign up for?” And they don’t have any guidance, they have so much new-hire information thrown at them. A lot of times, they’ll just check a box, and they don’t even know what they’re signing up for. Then you see someone who has 10 years or more of service and they don’t even realize how much they’re paying for their life insurance. They might have an idea about FEHB because they have to enroll in health insurance but they don’t have to re-enroll every season.

InsuranceNewsNet Magazine » March 2022

SERVING THOSE WHO SERVE US — WITH CASSIE KNIGHT INTERVIEW And speaking of health benefits, a lot of people don’t realize at retirement that you have to coordinate the health benefits with the survivor benefit in order for their spouse not to lose health insurance. There are a lot of unintended consequences that can happen when somebody is filling out their retirement paperwork if they’re not careful, because some of those elections are irrevocable. Another benefit that we offer to financial professionals is being able to help employees with that retirement paperwork and understanding the consequences of their choices. I think employees simply don’t have enough time to understand what they’re doing. That’s where advisors can capitalize on that and help them understand what benefits they have so they can plan for the future. FELDMAN: What are some of the biggest surprises that federal employees discover when you start explaining their benefits to them? KNIGHT: One thing that can be complex, depending on the employee, is their service history. A lot of people who have had military service don’t really understand how it works with the federal government, and there’s an option to have that service count toward retirement. There are other types of service that can affect an employee’s pension and are often misunderstood by anyone who is not familiar with the federal system. So if you’re an advisor, you must do due diligence with the employee and help them understand their service history and how that will affect them in their retirement. That can be the key to helping an employee maximize their pension benefit. As for their pension benefit, some employees think they’re going to retire and start receiving it right away. But they don’t get the full amount for three to nine months — or even up to a year — depending on how long the Office of Personnel Management takes to finalize their paperwork. So, they need to prepare financially, to have some cash reserve to carry them through until that paperwork is finished. And then, the tax snafu that can happen, depending on the timing of their back pay and their pension benefit and all of these different things.

If an employee is not working with someone to help them with all that — whether it’s a tax professional or an insurance representative or someone who understands how to time their retirement and what complications will affect it — there are huge surprises to an employee. For example, if the employee is divorced and they have a former spouse who is entitled to a portion of their pension or a portion of the survivor benefit, and they haven’t sent in their divorce decree, that could delay the retirement application. There are many other things that can hold the retirement application up. Not filling it out completely can delay it. If you factor in all of these things, it can be delayed up to a year. That’s where we can help the advisor understand what the employees can do to shorten that time frame and ensure that the employees are taken care of during that time. When you can get people taken care of, they’ll want you to write whatever life insurance or annuity around what you’re doing with them that serves that purpose, because they feel you’re supporting them and answering their questions. It’s not just bringing that service to ensure those things are taken care of for the employee — it’s also about the employee’s beneficiaries, avoiding probate and all that. There are so many different pieces that we help advisors understand when it comes to federal employees and helping these advisors look like rock stars when they meet with these employees. FELDMAN: A good advisor will have a team of people who work with them, because you can’t give legal advice, you can’t give tax advice. You’re limited in the things you can do. KNIGHT: I completely agree. That’s why we’re here to help anyone who is interested in working with federal employees, because it is so complex, and we help them navigate those complexities. FELDMAN: How difficult is it to serve this market if they’ve never done it before? KNIGHT: I would say it takes a little while. I’m a quick learner, and like I said, my husband was a federal employee, and I have lots of friends and family who are federal

employees. For me, it was kind of a natural progression. And I already had seven years in the insurance world. I worked for State Farm Insurance, and we had a plethora of knowledge because we offer all lines of insurance. But when it comes to a learning curve, I would say it takes someone six months to a couple of years to get into working with federal employees. For one thing, they have to understand federal employee benefits. But then, there’s also location. Now it’s a little easier because you’re not limited to the number of employees in your area because you can do this virtually. FELDMAN: How are successful advisors serving this market? Are they mostly working with people on a one-on-one basis? Are they doing seminars? What is their method? KNIGHT: I think the most successful ones have a process in place. And that’s where we help them. They’re doing some sort of education with an employee, and it’s not just a one-hour lunch-and-learn. Most of the time, they’re doing a three-hour webinar or seminar for the employees. Then they have a meeting process that they’ll take the employee through and guide them through their benefits and get them to understand some of the complexities. They provide the employee with a benefit analysis of some sort to help them understand the consequences of their benefit choices. Then they can get into the planning, and they’re keeping the federal benefits separate from the planning aspect. They’re not getting personal with these employees right away; they’re helping them. They’re coming from a base of wanting to help employees understand what they have, so they’re leading with that service. The advisors who I see are having the most success are doing it virtually right now. They’re doing three-hour webinars and then following that process, but they are clear on those processes and having those systems in place. That is what is really helping people be successful in this market.

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March 2022 » InsuranceNewsNet Magazine

the Fıeld

A Visit With Agents of Change

A DIFFERENT

TRACK

InsuranceNewsNet Magazine » March 2022

A DIFFERENT TRACK — WITH HEATHER ZEPEDA IN THE FIELD

HEATHER ZEPEDA was single minded in pursuit of a legal career until she discovered life insurance was her true calling. BY SUSAN RUPE Heather Zepeda had achieved the goal she had sought throughout her school years — practicing law at a prominent international firm in Washington. Her practice focused on the defense of corporate clients in connection with domestic and international mergers and acquisitions. But she wasn’t happy, despite earning a good income and being on a good career track at the firm. “I was working incredibly long hours and had little to no personal life. And I didn’t feel fulfilled by the work that I was doing,” she said. “Even though my income was pretty great, I did not see that lifestyle as being sustainable for me. I didn’t feel as though I was having the impact I wanted to have. But I had onetrack-minded my way into law school and that legal career. So I never considered other careers.” One of Zepeda’s business connections knew she was looking for a career change and suggested the life insurance business might be a good match. But Zepeda’s previous experience with the business had been negative. “I hadn’t had the best experiences with insurance advisors,” she said. “I felt that I was condescended to a little bit by a couple of people. And it seemed to me that the insurance business was transactional business. Even though I had only a limited experience with the industry, I couldn’t see myself as part of it.” It didn’t help that Zepeda had been cold-called “pretty relentlessly” by people wanting to sell her insurance and that advisors she had met with had been what she called “very sales-y and very aggressive.” “At one point, I met with someone to discuss insurance and they asked me if I wanted my dad in the conversation,” she said. “And I was a successful professional in my 20s!” Despite her misgivings about an insurance career, Zepeda took up her contact’s suggestion that she meet with the

managing partner of the Northwestern Mutual office in Washington. And she didn’t look back. Today she is managing director of Northwestern Mutual’s Washington office, located on Pennsylvania Avenue, four blocks from the White House. She also manages leadership development as well as recruiting and new advisor training and development in five suburban Washington offices. She has been with the company since 2013.

Meeting Clients Where They Are

What changed her mind about entering the insurance business? “When I began to learn about the business, I learned how incredibly impactful it is, and how it really is about relationship building,” she said. “It’s about meeting the client where they are, understanding who they are and what’s important to them and how to help them get where they want to be. There’s a lot of problem-solving as well as trust building. That’s something I can appreciate, and it really resonated with me.”

in that conversation. Make sure both people are on the same page and that they understand what’s going on. Don’t make assumptions; don’t assume that either spouse is controlling the finances or making the decision. Get both people involved in the process as you’re building the relationship.” Zepeda’s advice to her team members also stems from her experiences with the industry when she was younger and single. “Don’t assume a woman will rely on other people to make financial decisions with her. And don’t assume she’s not well versed in insurance or planning either.” When Zepeda first interviewed for a job with Northwestern Mutual, the managing partner was in the process of opening the Washington office. He focused on recruiting people who wanted to change careers. The idea of working with others who came from different work environments appealed to Zepeda. And as the mother of a 6-month-old daughter, the idea of having some work flexibility instead of being expected to work 80 hours

Zepeda’s Northwestern Mutual office in Washington, located just four blocks from the White House.

Zepeda’s initial negative experience with the industry has influenced the way she approaches it now that she is on the other side of the desk. “When I’m working with the new advisors on my team, I help them be more aware of who it is that they’re talking to, or make them aware of things that they might be doing that show bias or would turn off the person they’re talking with,” she said. “I can take my experiences as a woman and talk to new advisors about things such as, if you’re talking with a couple, make sure you’re engaging both parties

a week also appealed to her. “In the beginning, we planned for me to come in the office and help him recruit agents for the first few months, then work on marketing and work on a business plan to launch my practice,” she said. Zepeda started as an advisor and began to develop a client base. But she soon started to recruit new advisors and bring them on to her team. She has about 20 advisors who work directly with her. Some are new to the business while others have been around for a number of years. She became managing director of the office in 2019.

March 2022 » InsuranceNewsNet Magazine

the Fıeld

A Visit With Agents of Change

Leo Tucker is Northwestern Mutual’s managing partner in Washington. He brought Zepeda on board when she started her career with Northwestern Mutual, and he called her “by far the most dedicated and passionate person I’ve ever met. “Not just about financial planning, but also as it relates to building a diverse firm and creating opportunity for both women and people of color. Her strategies around building an inclusive environment have enabled our firm to enjoy numerous awards and recognition. She role models what strong and inclusive leadership needs to look like today.”

Developing A Diverse Practice

Just as all her clients are different in terms of experiences and needs, Zepeda said the advisors she works with also have diverse backgrounds and experiences. “When I started in the industry, it wasn’t very diverse,” she said. “But in our office, we’ve brought in more women, more people from diverse backgrounds. But there’s also the understanding that if you’re bringing in people from different backgrounds and different experiences and who will have different practices in terms of who they potentially will work with, then you can’t develop everyone the same way.” Zepeda depends on word of mouth to recruit advisors. “We have to be out in the marketplace, meeting people and developing relationships with people who know us, either because they are clients or because they are other important relationships that we’ve cultivated over time,” she said. “We educate them about the ideal candidate for our office. What does that look like? Where is this person right now in terms of their profession? What are their characteristics? — that sort of thing. And we’re relying on those people we know to help us identify those individuals who would be the ideal candidates for us.” Zepeda advises financial professionals to meet clients where they are, and that also relates to the way she trains advisors. “As we train our people, we must meet them where they are as well. We’ve had to be thoughtful about everyone’s differences and really thinking what that means in terms of the way they’re approaching the marketplace,” she said. 14

Washington is a city of diversity, but when Zepeda started in the business, her office wasn’t reaching those diverse communities that needed help with insurance and financial needs, she said. “That certainly has been a work in progress for us,” she said. “Not every community is in the same place in terms of their perspective regarding financial planning, or maybe even their exposure it. And so again, that requires us as leaders to be a lot more thoughtful about the experiences of our new advisors.” Zepeda’s office has set its sights on serving a number of different ethnic communities, she explained, particularly the Black community. She helped to open a branch office in a Maryland suburb that has a large Black population. “The reception from the community was amazing, and they realize we are committed to helping grow wealth within the Black community,” she said.

It’s Important To Listen

Outside of work, Zepeda enjoys taking her daughter to an indoor rock-climbing gym. Her family recently started paddleboarding and likes to be outdoors as much as possible. She and her family also look for ways they can volunteer to help others in their neighborhood. Zepeda recalled how her own experience of listening to someone whose opinion she valued led her to the insurance business. “Entering this business never would have crossed my mind. But because someone I trusted referred me, I took a second look at it,” she said. “And I’m incredibly thankful because it turned out to be something so good for me. That’s why I believe we need to find people who, for whatever reason, are not getting out of their career path what they hoped to get out of it. But if they work hard and they care about people, we can take that person and make them a really great advisor.” Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Contact her at Susan.Rupe@innfeedback.com. Follow her on Twitter @INNsusan.

InsuranceNewsNet Magazine » March 2022

1. VUL Defender ranks #1 90% of the time for lifetime guarantees to A100. Average premium ranking for VUL Defender vs. top competitors based on combined averages for the following scenarios: lifetime no-lapse guarantee and NLG-A100; assumed 6% gross IR, company weighted average of funds; ages 20-70; male/female; Preferred Best, Preferred and Standard underwriting classes; full, ten and single pay; death benefit amounts of $250,000, $500,000 and $1M. Companies/products included: Securian Financial: VUL Defender® John Hancock: Protection VUL 21 Lincoln Financial: VULOne Nationwide: VUL Protector Pacific Life: Pacific Admiral VUL Prudential: VUL Protector (2021) This comparison does not take all material factors into account and must not be used with the public. These factors include but are not limited to: applicable separate account and indexed account options, rider availability, surrender periods, or fees and expenses. For information regarding these and other factors please consult each company’s respective prospectus. Product features and availability may vary by state. Variable products are sold by prospectus. Your clients should consider the investment objectives, risks, charges and expenses of a portfolio and the variable insurance product carefully before investing. The portfolio and variable insurance product prospectuses contain this and other information. A prospectus can be obtained at securian.com Please keep in mind that the primary reason to purchase a life insurance product is the death benefit. Insurance policy guarantees are subject to the financial strength and claims-paying ability of the issuing insurance company. Life insurance products contain fees, such as mortality and expense charges (which may increase over time), and may contain restrictions, such as surrender periods. Variable life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. There may also be underlying fund charges and expenses, and additional charges for riders that customize a policy to fit individual needs. Charges and expenses may increase over time. The variable investment options are subject to market risk, including loss of principal. Uncapped indexed account participation rates are subject to change and may be less than 100%. This could have the impact of the indexed account credit being less than the change in the reference index. The no lapse guarantee is subject to the terms and conditions contained in the policy and may not be in effect even if premium payments are made. Please review the policy carefully. Additional agreements may be available. Agreements may be subject to additional costs and restrictions. Agreements may not be available in all states or may exist under a different name in various states and may not be available in combination with other agreements. These materials are for informational and educational purposes only and are not designed, or intended, to be applicable to any person’s individual circumstances. It should not be considered investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action. Securian Financial Group, and its subsidiaries, have a financial interest in the sale of their products. Insurance products are issued by Minnesota Life Insurance Company in all states except New York. In New York, products are issued by Securian Life Insurance Company, a New York authorized insurer. Minnesota Life is not an authorized New York insurer and does not do insurance business in New York. Both companies are headquartered in St. Paul, MN. Product availability and features may vary by state. Each insurer is solely responsible for the financial obligations under the policies or contracts it issues. Securities offered through Securian Financial Services, Inc., member FINRA/SIPC, 400 Robert Street North, St. Paul, MN 55101-2098, 1-800-820-4205. Securian Financial is the marketing name for Securian Financial Group, Inc., and its subsidiaries. Minnesota Life Insurance Company and Securian Life Insurance Company are subsidiaries of Securian Financial Group, Inc. For financial professional use only. Not for use with the general public. The information presented above is solely intended for use by financial professionals. Such information is not intended for public consumption or dissemination.

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March 2022 » InsuranceNewsNet Magazine

NEWSWIRES

2021 GDP Hits Highest Rate In 3 Decades

The U.S. economy is showing signs of rebirth from the pandemic recession. Need proof? Gross domestic product climbed by 5.7% in 2021, with a growth rate of 6.9% in the fourth quarter alone. To put it in perspective, the last time the GDP grew at this rate was in 1984 during the Reagan administration. What fueled this growth? Inflation contributed to it, according to Laura Veldkamp, an economics professor at Columbia Business School, who noted that GDP includes the cost of goods, which rose because of inflation. But she added that when the rising cost of goods is taken out of the equation, the rate of economic growth is still high. But Veldkamp cautioned that the GDP party may be coming to an end, depending on what actions the Federal Reserve might take on interest rates. Rising interest rates could put the brakes on consumer spending and slow the GDP, she said. The storyline to follow in 2022 will be whether continued supply chain disruption impacts consumer spending and ultimately affects the GDP, said Tim Mahedy, a senior economist at KPMG.

OLDER WORKERS CALLING IT QUITS

Baby boomers have been calling the shots and setting the trends almost since they were born. So it’s no surprise that they are leading the exodus from the workforce in the middle of the pandemic shakeup. A recent CNN Business report found that nearly 70% of the 5 million people who left the labor force during the COVID-19 pandemic are over age 55. The rate of those retirees taking new jobs has also declined. A steady rise in the stock market since early 2020 and increasing property values enabled many boomers to afford early retirement, the report found. Other factors entering into boomers’ early retirement decisions include the desire for flexibility in the workplace, concerns over contracting COVID-19 at work, and changing personal priorities. DID YOU

KNOW

ACA ENROLLMENT HITS RECORD

A record number of 14. 5 m i l lion Americans signed up for health insurance through the Affordable Care Act marketplaces for 2022. The enrollment figure was nearly 2 million higher than the previous record of 12.7 million set in 2016, the final year of the Obama administration. The big driver behind the enrollment gains was new discounts on premiums. As part of the American Rescue Plan, Congress increased the subsidies consumers receive when they enroll in health insurance via the marketplace. The Centers for Medicare &

QUOTABLE

We expect [inflation] will stay above the 2% target for longer, meaning into 2023. — Dana Peterson, chief economist for The Conference Board

Medicaid Services said 92% of people in states that are on the federal marketplace will get the tax credits for 2022 coverage.

BANKS CLOSE A RECORD NUMBER OF BRANCHES IN 2021

It almost seems as though banks are joining video rental stores, phone booths and film developing shops on the list of things disappearing from American streets. U.S. banks closed a record number of retail branches in 2021, according to S&P Global Market Intelligence data. Banks shuttered a net 2,927 branches last year, closing 4,000 locations while opening more than 1,000. Wells Fargo led the number of net closures with 267. JPMorgan Chase had the highest number of branch openings with 169 new locations. Increased acceptance of digital banking combined with industry consolidation sped up the number of branch closures, S&P said. Mergers and acquisitions in the banking industry in 2021 hit their highest level since 2006.

54% of federal student loan borrowers said taking on that debt was not worth it.

InsuranceNewsNet Magazine » March 2022

Source: CNBC

COVER STORY THE BIGGEST POOL

THE

BIGGE PO The federal government is the largest employer in the nation and offers generous retirement benefits. Advisors are finding the market ripe for financial advice. By John Hilton

InsuranceNewsNet Magazine » March 2022

THE BIGGEST POOL COVER STORY

ST OL

hen Abraham Grungold decided on a second career providing financial counseling to active and retired federal employees, he did not have to go far to find a test case.

After all, he is one. Grungold retired in February after 36 years working for the federal government. He realized early on that his generous federal retirement plan could help him retire relatively wealthy — if he made smart choices along the way. He did better than that, riding out several economic downturns to retire a millionaire three times over. “The first 12 years of my federal career, Abraham Grungold I never earned more than $50,000 a year,” Grungold said. “A lot of federal employees think that they have to earn $100,000 a year in order to be a TSP [Thrift Savings Plan] millionaire. That’s just a misconception that employees have.” The federal government is the nation’s largest employer, with roughly 4.3 million employees, including military members, and it offers a unique set of benefits. Many federal active and retired employees were the first participants in the Federal Employees Retirement System established in 1987 to replace the old Civil Service Retirement System. The TSP plan is the centerpiece of the FERS, as the federal government engineered a massive shift from a defined benefit plan to a defined contribution plan. For employees like Grungold, the benefits are generous, but the onus is on the employee to make the decisions that lead to a comfortable retirement. The industry responded to the need, and a thriving niche advice market emerged to provide advice to federal employees. Grungold — an investigative analyst at the U.S. Postal Service Office of Inspector General for the past 18 years — is living in both worlds. “I saw a niche to be a financial counselor for federal employees,” explained Grungold, who started AG Financial Services three years ago in Plantation, Fla. “I understood all the benefits that the federal government provides its employees. I’m the guy who reads all the materials that come across every employee’s desk. Employees often just throw them in the trash.”

Modern System

By the mid-1980s, the federal government came to the same realization as private industry: Traditional March 2022 » InsuranceNewsNet Magazine

COVER STORY THE BIGGEST POOL

Retirement plan contribution rates are high among federal employees. (Source: Federal Retirement Thrift Investment Board 2021 Participant Satisfaction Survey)

Not contributing Less than 5% Contribute 5% More than 5% Don’t know

7% 10%

pension plans were going to chew up budgets if left unchecked. Workers were living longer and longer in retirement, and the money going out outstripped the money coming in. FERS came about amid a remarkable period of bipartisanship driven by the need to rein in Social Security and cut the federal budget. Despite initial opposition from labor groups and veto threats from the Reagan administration, Congress ultimately enacted a plan that reduced federal spending and completely overhauled the federal retirement system.

29% 51% 3%

The federal system comes with automatic enrollment in FERS, which leads to extremely high participation rates. (Source: 2021 Thrift Savings Plan annual report) 2016

2017

2018

2019

2020

<=29

96.8%

96.5%

97.1%

97.0%

97.3%

30–39

94.2%

94.5%

95.3%

95.7%

96.2%

40–49

91.3%

92.1%

92.2%

92.7%

93.5%

50–59

90.8%

91.5%

92.2%

92.7%

93.5%

pension plan, but with a lower level of benefits than the rich plan that existed at the time.

60–69

90.2%

90.6%

91.4%

91.9%

92.6%

• And a new voluntary thrift savings

70+

86.9%

87.7%

87.6%

88.2%

88.6%

Q1 Lowest Paid

89.1%

91/5%

92.5%

92.9%

93.8%

Q2 Lower Paid

87.7%

89.1%

90.1%

91.1%

92.2%

Q3 Midrange

90.2%

90.8%

91.3%

91.7%

92.9%

Q4 Higher Paid

94.4%

94.7%

94.9%

95.2%

95.7%

Q5 Highest Paid

96.6%

96.7%

96.9%

97.0%

97.4%

Salary Quintile

FERS includes three basic elements:

Age

InsuranceNewsNet Magazine » March 2022

• Mandatory Social Security coverage of civilian federal workers as a base.

• A basic and mandatory defined benefit

401(k)-type plan (patterned on the private sector), where worker contributions matched by the employer would be invested in a limited variety of investment funds. The changes applied to most federal civilian workers hired after 1983, including by the foreign service and intelligence agencies.

Social Security and the TSP are portable for employees who leave federal employment. On June 6, 1986, President Ronald Reagan signed FERS into law, and it took effect Jan. 1, 1987. At the time, Grungold was early in his federal career,

THE BIGGEST POOL COVER STORY working as an auditor with the Pension Welfare Benefits Administration. “When I went to my first meeting on the TSP in 1987, a lightbulb just went on in my head,” recalled Grungold, who has an MBA in finance from the University of Miami. “It made perfect sense to me. I knew I could reach the $1 million mark during my federal career.” FERS remains essentially the same plan introduced in 1987, with some tweaks. Most notably, the TSP evolved from three funds in 1987 to 10 today, with the addition of a new after-tax investment option. The TSP Modernization Act signed in 2017 by President Donald Trump loosened the restrictions on withdrawing funds from the accounts. TSP had been very strict about when users can access their own retirement funds, and the act essentially removed a lot of those old limits or penalties.

What To Do?

One major difference for employees in the federal system is they can retire and begin drawing benefits as early as age 55. At this relatively young age, participants have the option to dabble in a second career or just take an early retirement. There are costs with both. For starters, working longer earns the employee a better benefit, just like Social Security. The minimum retirement age (MRA) for eligible employees is 55 for anyone born before 1948. It is age 56 for workers born between 1953 and 1964, and age 57 for anyone born in 1970 or later. The formula can get complicated, but the main regulation is as follows: Anyone retiring at the MRA with at least 10 years but less than 30 years of service will see their benefit reduced by 5% a year for each year they are under 62 unless they have 20 years of service, and their benefit starts when they reach age 60 or later. If that wasn’t complicated enough, the federal government offers a Phased Retirement program. Employees in a phased retirement status continue to work on a part-time basis and draw partial retirement benefits during their continued employment. So many options for when to quit working and what to do with their TSP funds can leave federal employees dizzy, said Martavius Jones of Jones Wealth Management Group in Memphis, Tenn. Jones had been a financial advisor for about 15 years when his father retired from Martavius Jones a Veterans Affairs job in Memphis in 2009. That’s when Jones learned the nuances associated with the federal retirement system. “He said, ‘Son, they gave me this information when I started, and nobody’s ever talked to me about it since then,’” Jones recalled. “We’re talking about 11, 12 years that he worked with the VA, and nobody really sat down to help him better understand what his retirement options were.”

Top Three Mistakes Federal Employees Make Federal employees enjoy more options within the Federal Employees Retirement System. Workers receive a basic pension, Social Security benefits and a 401(k)-style defined contribution component they control. They also can opt to continue their life, health and longterm care insurance into retirement. It all adds up to a lot of choices when it comes to retirement planning. It also means lots of openings for mistakes and missed opportunities. Financial counselor Abraham Grungold, a recently retired federal employee, listed the three biggest mistakes FERS participants make: 1. Not paying yourself first. The government matches the first 5% federal employees contribute to the Thrift Savings Plan. So, it’s like a free 5% pay boost, Grungold said. “Many employees don’t take advantage of it because they have a lot of debt,” he said. “And they just seem to be focused on other financial aspects of their lives. So that’s the biggest mistake.” 2. Failing to invest aggressively. In the short term, the market goes up and it goes down. In the long term, the market only goes up. The Dow Jones Industrial Average is up 71% over the past five years. $100 invested in the S&P 500 in 1980 is worth more than $12,500 today. “Are you someone who likes to ride the roller coaster? Or do you like to ride the merry-go-round?” Grungold asked. “The people who ride the roller coaster can handle the ups and downs of the market. People who don’t want any stress, they like riding the merry-go-round. And they’re strictly in the government securities fund provided in the Thrift Savings Plan.” 3. Not working until age 62. The federal government considers age 62 the full retirement age to receive maximum benefits. “That’s the magic age,” Grungold said. “A federal employee will receive a 10% increase to their retirement annuity just for reaching their 62nd birthday. And a lot of employees just aren’t aware of that.” — John Hilton

March 2022 » InsuranceNewsNet Magazine

COVER STORY THE BIGGEST POOL

‘A More Comfortable Retirement’

The elder Jones referred other federal employees to his son, and they told similar stories. Martavius Jones, also a Memphis city councilman, would go on to earn his Chartered Federal Employee Benefits Consultant designation. Today, his practice marketing focuses largely on federal employees. According to the most recent data collected by the federal Office of Personnel Management, nearly 73,000 federal employees and annuitants live in Tennessee. In fact, it’s a myth that most federal workers live in the Washington metropolitan area.

position to have a more comfortable retirement with just a little guidance and advice along the way. And I like to think that’s what I can provide.” The perks of being a federal employee extend beyond FERS. Federal employees have the option to continue life insurance and health insurance coverage — and even longterm care insurance — into retirement. These options can make it easier for the advisor to craft a strong retirement plan that stretches employees’ dollars further, Jones said. But employees still need to be aware of what he calls the health care budget buster.

Tax Impacts

Cassie Knight is a federal benefits consultant with Fed Options and based in Spencer, Tenn. Knight was living and working as an independent insurance broker i n Wa sh i ng ton Cassie Knight state about seven years ago when the independent marking organization she was working with offered education programs to federal employees.

Federal employees are very enthusiastic about their retirement plan. (Source: Federal Retirement Thrift Investment Board)

Extremely Likely / Likely

85%

Neither Likely Nor Unlikely

12%

Unlikely / Extremely Unlikely California is home to the most active and retired federal employees, with more than 362,000. To serve these FERS members, federal employee-focused advisory firms such as Jones’ have popped up nationwide. “In advising federal employees, I still find that some of them really don’t have a good understanding of what’s available to them,” Jones said. “They are still in a

“They have about 10 years before they’re eligible for Medicare, so they do have the option of carrying their health benefits into retirement,” Jones explained. “So that’s something that’s a little bit easier for the federal employee, but it can be a little bit more expensive because most of that expense [for premiums] has to come out of their pocket.”

InsuranceNewsNet Magazine » March 2022

Eventually, Knight transitioned to working with federal employees herself. According to the OPM, Washington state is home to about 122,000 active and retired federal employees. “My goal was to help them become aware of what the benefits are and how they affect them in retirement,” Knight said. “I think the biggest thing was just wanting to

THE BIGGEST POOL COVER STORY provide the education to people.” Retirement distributions generally come with tax implications, and it’s no different for federal employees. When rollovers started in the 1970s, if the money that was withdrawn from the TSP (or other tax-advantaged account, such as an IRA) was rolled into another tax-advantaged account within 60 days, there was no tax due and there was no withholding. But that changed in the 1990s when the law changed to withhold taxes from any rollover that was not a direct rollover. It generally comes down to whether the employee needs the money or not. If not, leaving it alone, or directly rolling it over to an IRA, means the employee can avoid taxes until they are forced to receive the required minimum distributions at age 72. That’s not the only tax consideration for federal employees, Knight said. Employees may be getting a big lumpsum payment for back pay or a special retirement supplement check for their federal benefit earned while a FERS employee, she explained. Those dollars need to be planned for as the employee enters retirement. “Depending on the situation when an employee retires, in certain cases they can be bumped up to another tax bracket or put in a lower tax bracket,” Knight said. “Timing when things happen and how long they anticipate certain things to happen in their retirement picture is definitely something that advisors have to take into consideration because it could have unforeseen tax consequences.”

Pandemic Impacts

Like most of the workforce, many federal employees worked from home during the COVID-19 pandemic. Many of them also adjusted the timing of their retirement, Grungold said. “I was interested in retiring last year, but I saw that it would be difficult for me in my life to travel,” he added. “So, I chose to work an extra year beyond my plan. And I have seen a lot of employees do that. I’ve also seen some that just say, ‘I want to get out because it’s just too crazy.’ The pandemic scared a lot of people in many different ways.” Grungold’s business thrived during the pandemic, with federal employees seeking financial counseling. He does not sell products and never takes a commission, said Grungold, a former Securities and Exchange Commission investment advisor. “Say an employee needs term life insurance,” he said. “I tell them who I’ve used in the past, and then I give suggestions for a company that they should shop around with, and I usually name the large companies. If an employee is looking to address their IRA, I’ll suggest three or four companies that are well known.” A lot of government employees are eager to cut ties with the workplace once they retire, Grungold noted. And that means rolling their entire TSP nest egg to another plan. Grungold cautions against going all in with one retirement vehicle. “If you have a substantial amount of money, don’t put it just with one company,” he said, “because it’s like putting all your eggs in one basket. If that basket drops, you have a bunch of broken eggs.” In hindsight, the transition from the old civil service system to FERS is an example of win-win bipartisanship sorely lacking

in the current political arena. The government certainly came out ahead. The average monthly annuity payment to workers who retired under the Civil Service Retirement System in 2018 was $4,973. Workers who retired under FERS received an average monthly annuity of $1,834, according to federal data. About 96% of civilian federal employees were in the FERS system. Employees also seemingly came out ahead through the TSP defined contribution addition. The total value of TSP accounts increased by about $100 billion in 2021, from $709.6 billion to $811.7 billion, according to data presented at the January TSP board meeting. Unlike Social Security, officials say the FERS system is sound financially for decades to come. Still, various proposals are floated from time to time to shave the government’s contribution. Trump’s fiscal 2021 budget proposal would have required federal employees to contribute 1% more per year to their retirement accounts until the government and employees each contribute 50%. It also eliminated annual cost of living adjustments for future FERS retirees and reducing COLAs for retirees in CSRS by 0.5%. Most of the changes were proposed in all four years of Trump’s term, but Congress refused to include them in the final budgets. InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@ innfeedback.com.

March 2022 » InsuranceNewsNet Magazine

LIFEWIRES

Life Insurance Industry On Track For Record Growth The U.S. life insurance industry is on track to post

its fastest premium growth in nearly 20 years, according to S&P Global Market Intelligence Report. The report said strong consumer demand during the pandemic and a tailwind from a 12% overall expansion in premium sales in the third quarter of 2021 has readied the industry for a record-breaking 2021. Life insurers could see at least 6.5% growth in “premiums and considerations” for the full year if volume holds steady, the report said. Growth rates last exceeded 6.5% in 2011. However, final sales growth for the fourth quarter of 5.8% or higher would match or better the industry’s 2006 outcome of 8.1%, a percentage the report said is achievable.

INDUSTRY LEADERS SAY RECOVERY STILL FAR AWAY

NAILBA, FINSECA EXPLORE MERGER

The National Association of Independent Life Brokerage Agencies and Finseca announced that their respective boards of directors have voted to initiate a process to explore a merger, which would create a powerful industry lobbying group. This process is the culmination of significant due diligence conducted by a joint task force that included NAILBA and Finseca members and staff, the groups said in a news release. The next step in the process is to bring the joint task force work to the respective memberships. Finseca began operations in mid-2020 from the merger of the Association for Advanced Life Underwriting and GAMA International. NAILBA was formed 40 years ago as the organization representing independent brokerage distribution. DID YOU

KNOW

More than 65% of insurance leaders said they believe economic recovery is months away and might not happen before early 2023. That was one of the findings from a Digital Insurance survey. But the economy isn’t the only threat industry leaders fear, the survey found. Large companies worry about the war for talent as well as the lingering effects of the pandemic. Smaller companies are more concerned over the high cost of digital conversion. And midsize companies saw new entrants and competition as their top threat. One bright side of the survey was that agents will continue to play

QUOTABLE 59% of people would feel more secure if they discussed getting life insurance with their partner. — Faisa Stafford, president and CEO of Life Happens

an important role, particularly if they can integrate into the online experience. In addition, the survey showed the biggest job openings in the industry are in data analytics.

INSURERS OK ACCELERATED UNDERWRITING FOR TERM LIFE

Milliman released the results of its b i e n n i a l s u rvey on term life insurance and found that 26 of the 34 life insurance companies sur veyed u se accelerated underwriting programs for term life insurance. Two additional companies said they plan to implement such programs. Breaking down 2020 term life sales by underwriting, 18.3% were simplified issue, 36.3% were accelerated underwriting, 44.9% were fully underwritten and 0.5% used other underwriting approaches. Term sales increased year-over-year for the 2018-20 period, Milliman reported. Leading the pack were sales of 20-year term, which made up 41.4% of sales in 2020.

46% of Black Americans — 20 million adults — say they need (or need more) life insurance coverage.

InsuranceNewsNet Magazine » March 2022

Source: LIMRA

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LIFE

The reality is that you give your clients a tremendous gift by helping them understand exactly how much life insurance they need.

Help Clients Understand And Own Their ‘Enough’ Number The right amount of life insurance is whatever amount is needed to accomplish what’s important to your client — you’re there to help them figure it out.

By Jim Effner

ne of the great gifts you can give to your clients is helping them determine the right amount of life insurance. Most clients have a basic understanding of the purpose of life insurance. However, almost none of them could tell you what’s the right amount of life insurance. They have never been brought through a thorough planning process. If they bought life insurance outside of their group benefits, it was most likely a roundabout number, such as a $100,000, $200,000 or $500,000 policy. When I was a life insurance agent, I would ask clients how much coverage they had, and they often would reply “a 26

$100,000 policy” or something close to it. I would then ask them why they had that amount, and they would say, “I don’t know” or “That’s what my agent told me to buy.” It was just a number that sounded good! The reality is that you give your clients a tremendous gift by helping them understand exactly how much life insurance they need. There is no single universally correct amount of life insurance that works for everybody. The right amount of life insurance is whatever amount is needed to accomplish what’s important to your client — you’re there to help them figure it out.

Calculating Your Client’s Life Insurance Needs

When working with clients, I would explain that basic life insurance planning is broken down into three components:

InsuranceNewsNet Magazine » March 2022

1) Debt elimination. 2) Paying for education. 3) Income stream replacement. There are other uses as well, such as

philanthropic needs, family foundations, estate tax planning and so on. But the three components I listed are the ones that apply to most people. Before getting started with a client, I would remind them of all the areas that the plan will not cover, such as home repairs, new cars and family vacations. The client needs to understand that even if they address these three core components, their family will still have to make tremendous sacrifices if the client doesn’t make it home tonight. As a hypothetical example, let’s say $300,000 is what would be needed to pay off all the debt. Second, the client wants $25,000 in today’s dollars per year for four years for each one of their children. I will subtract out what they already have set aside for college savings and let them know the net present value to fund the future college costs. Then I will repeat to them the income replacement need that they stated to me. For example, “Mr. Prospect, out of the $10,000 a month that you’re currently living on today, you mentioned that if your

HELP CLIENTS UNDERSTAND AND OWN THEIR ‘ENOUGH’ NUMBER LIFE mortgage were paid off, you want $7,500 a month for your wife until she’s 65 years old. Then, you would want $5,000 a month in today’s dollars until her life expectancy.” Next, I will show the client a single number, the net present value, of how much money needs to be set aside for income replacement. Then I’d add the net present value for education, and I add in their debt. The three numbers added together make up the total capital required to meet the client’s income, debt and education goals if the client were to die today. Finally, I would subtract from that number the amount of coverage the client currently has through work and has bought on their own. The difference is what they need. Below is an example of how we reached those numbers.

the time. The other extreme is someone who says, “I’m not going to buy more life insurance. I have ‘X’ amount at work and ‘X’ amount on my own. I’m fine.” This is where you need a good enough relationship with your client to say: “My job today is not to tell you what amount you need to buy. My job is simply to ask good questions, listen and then use my systems and planning materials to tell you what you need. So having said that, the numbers are what the numbers are. “You can calculate these numbers six ways to Sunday, but based on what you currently have and what you told me your objectives were, $1 million is the amount you need. We don’t have to do that amount, but my job is to help you home in on what the right amount is first.

HYPOTHETICAL EXAMPLE

Income Replacement: Education: Debt:

$1,000,000 $200,000 $300,000

TOTAL: CURRENTLY OWN:

$1,500,000 -$500,000

TOTAL NEEDED:

$1,000,000

Responding To Your Client’s Feelings And Concerns

Here is one of the most important steps that many advisors miss: checking in with their client to see how they feel about their number. Using the example above, I would say to my client, “Based on what you’ve told me and what we covered, $1 million is the number required to satisfy the objectives we discussed. Before I go any further, how do you feel about that number?” How your client answers that question is going to determine the next steps. For instance, they may say, “That makes a lot of sense. Although I’m not excited about the additional expense, I believe that you’ve done a good job and that’s the number I need.” That happens only about 5%-10% of

“Before we go any further, let’s go back to the debt, education and income replacement numbers and figure out where you feel comfortable lowering them.” Then you must be quiet. Clients typically do not want to reduce the education amount or give their spouse less income. I also would say, “I can understand and appreciate your hesitancy to own this number. A million dollars is a lot of money for most people, but let me share what I think is really important in my practice as it relates to life insurance proceeds. “My job is to help you create a bucket for a fund that dictates your family’s future for the rest of their lives. The opposite bucket that most people think about is called a windfall profit. In other words, if you are healthy and working and you were

to win the lottery, $1 million would be a huge win. You would throw a big party, and that would be a great feeling. “However, if I were to walk in today and give you a check for $1 million, but in order to cash it, you had to sign in blood that you would never work another day the rest of your life, how would you feel about that?” Most people say they never would cash that check. That’s when I’d say, “Exactly. But if, God forbid, you don’t make it home tonight, and your spouse gets a check from the insurance company, your spouse will be in the first bucket. It’s a much different bucket than the one of windfall profit.” Finally, I let my clients know that if they don’t smoke and they’re in good health, term life insurance is relatively cheap. If we go the least expensive route, term life insurance probably costs less than what they pay for car insurance. They shouldn’t get too hung up on the total number. At last, we can take a deep breath, and the client will feel much better about what they’re doing. By the time you conclude your discussion, both you and your prospective client should be in sync knowing the exact amount they need to buy to accomplish what’s important to them. Simply by taking them through this process, you already will have delivered tremendous value to your client and demonstrated your professionalism to them. Although the client might not be doing cartwheels over their life insurance purchase, they understand it and they own it. This then paves the way for the next conversation on the different types of life insurance available and what would be the best fit for the client. Jim Effner is a financial services speaker and trainer with more than 30 years of experience who is dedicated to helping advisors master their sales skills and grow their practices. He is the author of Bridge Your Gap and the creator of P2P Academy. He may be contacted at jim.effner@innfeedback.com.

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March 2022 » InsuranceNewsNet Magazine

ANNUITYWIRES

2021 Annuity Sales Best Since 2008

TOTAL ANNUITY SALES:

2019: $241.9 million 2020: $219 million 2021: $254.8 million

Source: Secure Retirement Institute U.S. Individual Annuity Sales Survey

Annuity sales shook off the pandemic in 2021 and soared to even higher heights. Total annuity sales were $254.8 billion in 2021, up 16% from 2020. This represents the highest annual annuity sales since 2008 and the third-highest sales recorded in history, according to the Secure Retirement Institute U.S. Individual Annuity Sales Survey. Sales were $63.4 billion in the fourth quarter, 8% higher than fourth-quarter 2020. “Strong equity market growth in the fourth quarter and in 2021 propelled double-digit growth in both traditional variable annuity and registered index-linked annuity sales, resulting in strong year-over-year results,” said Todd Giesing, assistant vice president, SRI Annuity Research. Variable annuity sales were a big star of the year. Total VA sales were $32.3 billion in the fourth quarter, up 17% from the prior year. In 2021, total VA sales were $125.6 billion, 27% higher than the prior year. “We have not seen traditional VA sales growth at this level in over a decade. Heightened concern about potential changes to the tax code drove growth in investment-focused, nonqualified product sales,” Giesing said.

RILAS ACHIEVE RECORD GROWTH, CERULLI REPORTS

PRINCIPAL FINANCIAL COMPLETES $1.6B ANNUITY REINSURANCE DEAL

Principal Financial Group is sending its fixed retail annuity and commercial life insurance businesses to a division of the investment firm Sixth Street Partners. Principal had been looking for a buyer for the insurer’s annuity and life insurance lines since last summer. Investors are down on those products due to the struggle to turn big profits amid low interest rates. Principal expects deployable proceeds of approximately $800 million upon closing of the reinsurance transaction and through “additional transactions designed to improve the capital efficiency of its in-force individual life insurance business,” the insurer said in a news release. The company plans to return the proceeds to shareholders through share repurchases. DID YOU

KNOW

Registered index-linked annuities (RILAs), including those that are built on variable and fixed annuity contracts, reached $39 billion in 2021 sales, representing approximately 17% of total annuity sales, according to Cerulli’s report “U.S. Annuity Markets 2021: Acclimating to Industry Trends and Changing Demand.” With more brand-name insurers entering the space, RILAs have gained market attention, setting new records annually. Sales reached $11 billion in 2018 and more than doubled in 2020 to reach $24 billion. Driven by broker/dealer and advisor awareness and understanding, large insurers entering the space, and increasing supply, RILA product sales could hit $50 billion by 2026 if recent trends continue, Cerulli said. RILAs provide a menu of index-linked accounts of varying durations, with crediting methods like those seen on indexed annuities. The index buckets are coupled

QUOTABLE Group annuity insurers have historically been involved in manufacturing institutional investment solutions, and we see that continuing to be a growth area. — Steve Webersen, head of insurance research for Conning.

with downside protection options in which the insurer will absorb initial index losses up to a predetermined percentage, with the client dealing with any additional downside, or percentage “floors” where clients take the first losses and the insurer covering the rest.

NATIONWIDE NAMES NEW HEAD OF ANNUITY DISTRIBUTION

Rona Guymon is now in charge of annuity distribution for Nationwide. In this role, Guymon is responsible for distributing commissionand fee-based annuities Rona Guymon across all channels, including broker/dealers, wires, banks, IMOs, registered investment advisors, technology platforms and other partners, the insurer said in a news release. She fills the position that opened when Craig Hawley switched roles to lead Nationwide’s Retirement Solutions Distribution team earlier this month. With a distinguished career spanning over 24 years, Guymon is a seasoned financial services professional committed to creating greater value for financial professionals and their practice, the release said. As leader of Nationwide’s brokerage annuity distribution, Guymon “implemented significant structural changes, leading the team to help deliver best-in-class efficiency, while exceeding sales goals by a wide margin,” the release said.

42% of workers fear outliving their retirement funds.

InsuranceNewsNet Magazine » March 2022

Source: TransAmerica Center for Retirement Studies

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ANNUITY

5 Questions To Ask Clients When Discussing Annuities Take the mystery out of annuities and help clients determine the right kind of annuity for their needs. By Mike Vietri

nnuities — with their rules, riders and variations — can be a mystery to clients. Instead of causing their eyes to glaze over with long-winded explanations of this insurance product’s potential benefits, try asking questions to help clients determine whether an annuity might be right for them and, if so, what kind is most suitable. Here are some conversation-starting questions that can lead to real solutions.

What is your time horizon?

Find out when your clients will need access to the funds from their annuity. This is important for several reasons. One being that penalties, such as surrender charges and administrative charges, may apply if they need to cash out early. 30

about their personal tax liability, it’s important to talk about deferred taxation with annuities. The interest earnings on a nonqualified annuity or the contributions or earnings from a qualified annuity (a 401(k) plan or IRA) won’t be taxed every year. Instead, the owner will pay income tax on the withdrawals. Annuities do have contract minimums and maximums, and clients should refer to the product specifics from each carrier. The IRS also sets annual cost-of-living

2 More Things Your Clients Should Know About Annuities 1. Tax Deferral Many investments are taxed year by year, but the investment earnings — capital gains and investment income — in annuities aren’t taxable until the investor withdraws money. This tax deferral is also true of 401(k)s and IRAs; however, unlike these products, there are no limits on the amount one can put into an annuity. Moreover, the minimum withdrawal requirements for annuities are much more liberal than they are for 401(k)s and IRAs. (Insurance Information Institute)

What is your risk tolerance?

In the annuity decision tree, the two main branches are fixed annuities and variable annuities. Clients’ levels of risk tolerance will tell you which options are best for them. The first type is a fixed annuity, which guarantees a specific, guaranteed interest rate on the contributions. There is no downside with a fixed rate annuity. However, fixed rate annuities may not participate in the potential upside — except for a type of fixed rate annuity called a fixed indexed annuity. The second type is a variable annuity. With this option, the insurance company offers clients a choice of investments — usually mutual funds — for their annuity’s capital. If those investments grow, the annuity is worth more; if they fall, the annuity is worth less.

Here’s an example. If your client signs up for a 10-year variable annuity and then decides to retire and wants the money in three years, they will pay a percentage of the entire annuity’s value for each remaining year that the surrender charge applies, in addition to administrative charges. Surrender charges could be 5% the first year, then 4% the following year, 3% the year after that, and so on. The time horizon is also important when helping clients choose between immediate

2. Living Benefits Some annuities, often equity indexed annuities or variable annuities, offer a guaranteed living benefits feature at an extra cost. Subject to specific conditions and limits, periodic withdrawals can be guaranteed to continue for a period of time (or for life in some cases) even if the accumulation value has been reduced to zero as a result of the periodic withdrawals or poor market performance. (Pennsylvania Insurance Department)

and deferred annuities. An immediate annuity can start providing regular payments as soon as a month after the annuity is purchased, and at the latest, within one year. A deferred annuity is a contract with the insurance company to start paying the owner at some date in the future. During the time between the annuity purchase and the first payment, interest or investment earnings accumulate in the account.

InsuranceNewsNet Magazine » March 2022

What is your tax bracket?

Although clients should always consult their tax professional

adjustments for all types of qualified retirement plans and IRAs, which either remain unchanged or rise depending on Consumer Price Index thresholds. And the higher the client’s tax rate, the bigger the tax deferral advantage of an annuity can be. For example, suppose clients have a 32% tax rate, and they are looking at a 10-year deferred annuity that pays 3% interest. They may be eyeing other investments and wondering whether they should instead put the money somewhere that might provide a higher return. Walk them through the

5 QUESTIONS TO ASK CLIENTS WHEN DISCUSSING ANNUITIES ANNUITY math to figure out how much of their investment they would lose to taxes if they put that sum in a vehicle without the benefit of deferred taxation. Once taxes are taken into account, the remaining difference might not be worth giving up the peace of mind that an annuity can provide.

What are your worries about the future?

Everyone has different concerns about retirement and their family. This is where the wide variety of available annuity products really comes into play. One of the most prevalent worries today is losing everything you’ve worked for in a stock market meltdown. Sure, the pandemic rocked the stock market, but 2008 destroyed the stock market. People who are making these financial decisions today lived through those events. One day, maybe they had a lot of money in the stock market, and the next thing they knew, they had half that amount. People who were close to retirement in 2008 were affected big-time, and those who

are getting closer to retirement now don’t want the same thing to happen to them. If clients are concerned about protecting their retirement funds, fixed annuities are excellent options for them to consider. With prices rising and the Federal Reserve keen to be well positioned to act on inflation, cost-of-living increases are another topic that’s in the news now. Annuities can help in this area too. Talk with inflation-concerned clients about the possibility of adding a cost-of-living adjustment, which is an option available on some annuities. Finally, a common concern is outliving your money. If this is your client’s biggest worry, they may want to purchase a guaranteed living benefit rider, which would make sure their payments continue to the end of their lives, even if the principal in the annuity is used up.

If you die first, what do you want for your spouse?

addition to dealing with the grief of losing a loved one, financial worries can be an added burden to the surviving spouse. An annuity with a death benefit can be a boon for couples. If your client knows that their surviving spouse will have a monthly income that will allow them to cover expenses, stay in the same house, and pay for extras like vacations, they can get some peace of mind. By asking these five questions, you will gather important information from your clients, but you’ll share important information with them as well. By letting them know that annuities are not a one-size-fitsall product, together you can pinpoint exactly the right annuity to address both their worries and their hopes for the future. Mike Vietri is chief distribution officer at AmeriLife. He may be contacted at mike. vietri@innfeedback.com.

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HEALTH/BENEFITSWIRES If the Affordable Care Act marketplaces didn’t exist, would you go uninsured?

4 In 10 Enrollees Would Go Uninsured Without ACA With the 2022 enrollment period for health coverage in the books, a survey showed Yes

44%

Unsure

32%

23%

Source: HealthCareInsider

44% of those who have coverage through the Affordable Care Act would go uninsured without it. The HealthCareInsider survey also showed nearly half of those who signed up for coverage for 2022 went without insurance in the previous year. The “affordable” part of the Affordable Care Act seemed to hold true for most of those who enrolled in coverage. Seven in 10 (69%) rated their plan affordable. Nearly 38% described their plan as very affordable and 31% said their plan is somewhat affordable. About half of those who re-enrolled in an ACA plan for 2022 said they saved money. The 2022 open enrollment period was the second one to offer expanded tax credits to enrollees. One-quarter of enrollees said they will pay $50 or less each month for their premium after tax credits. A slightly lower percentage (22%) said their tax credits bring their premiums down to between $100 and $200 a month, while 18% said their 2022 monthly premium would range between $50 and $100. Sixteen percent of ACA enrollees said they will receive between $50 and $100 in monthly tax credits to help pay their 2022 premiums. Percentage of organizations increasing their mental health resources for their workforce 65% 2018

80%

88%

55% 2019

2020

2021

SOURCE: Guardian Life

WORKERS LOOK TO EMPLOYERS FOR MORE WELL-BEING SUPPORT

American workers said their overall health declined last year, and they want more help from their employers. However, most companies said they believe they do a good job helping their workers with their well-being. This contradiction was a highlight of the Guardian Life 10th Annual Workplace Benefits Study. This study confirms that workforce well-being declined overall since the onset of the pandemic, with COVID-19 (50%) as well as money and finances (46%) being the two leading causes of stress in workers’ lives. Workers’ mental health is taking a hit, the study showed. COVID-19 negatively DID YOU

KNOW

affected 28% of workers’ emotional health. Three out of four workers said stress and burnout are their biggest mental health challenges. The study showed workers could use some help in understanding their benefits. Only 28% of workers strongly agree that their employer does a good job of educating them about the benefits that are available to them and how to use them.

COVID-19 FORCED A FRESH LOOK AT BENEFITS

One-third of workers think supplemental insurance is more important now than they did before the pandemic. And almost half of workers — and 63% of millennials — purchased at least one new benefit because of the pandemic, with life insurance, critical illness insurance and mental health resources sought after the most. Those were among the findings in the

48 million Americans are enrolled in Medicare prescription drug plans. Source: American Association for Medicare Supplement Insurance

InsuranceNewsNet Magazine » March 2022

QUOTABLE When we invest in health care and make it affordable, people sign up. — Chiquita Brooks-LaSure, head of the Centers for Medicare and Medicaid Services

most recent Aflac WorkForces Report, which found that the pandemic still is having a meaningful effect on the way most workers approach their employee benefits. The survey revealed that employees expect to manage their benefits online but prefer working with an advisor in person. More than half (53%) of those surveyed said they prefer to talk to an advisor in person, while 31% favor a video meeting and 30% would rather do an online chat.

EMPLOYER-SPONSORED HEALTH INSURANCE COSTS UP SHARPLY IN 2021

The average per-employee cost of employer-sponsored health insurance jumped 6.3% in 2021 as employees and their families resumed care after avoiding it in 2020 due to the pandemic. This was according to Mercer’s 2021 National Survey of Employer-Sponsored Health Plans. With the highest annual increase since 2010, health-benefit cost outpaced growth in inflation and workers’ earnings through September, the survey noted. Additionally, spending on prescription drugs rose 7.4% last year among large employers (those with 500 or more employees). This was driven by an increase of 11.1% in spending on specialty drugs. Cost growth was sharper among smaller employers (50-499 employees) at 9.6%, while larger employers reported average cost growth of 5%. Smaller employers are more likely to offer fully insured health plans, suggesting that insurance carriers expected significantly higher costs in 2021 relative to 2020, the survey noted.

Business Loan Indemnification DI When a lender provides capital to a business, proof of disability insurance on the borrower is often required. The Business Loan Indemnification DI Plan continues loan repayment to a lender, should a borrower become sick or injured. And unlike overhead expense plans, the Loan DI Plan covers the loan principal as well as the interest.

Petersen International Underwriters Petersen International Underwriters

(800) 345-8816 F www.piu.org F piu@piu.org (800) 345-8816 F www.piu.org F piu@piu.org March 2022 » InsuranceNewsNet Magazine

HEALTH/BENEFITS

Health Savings Accounts: Don’t Leave FICA Savings On The Table Some clients still don’t see the value in offering a health savings account program to their employees. Help these clients understand the FICA savings being left behind.

By Tom Torre

he Federal Insurance Contributions Act, commonly referred to as FICA, is likely not a new term for most clients. At the highest level, they know it’s a payroll tax applied to both employees and employers. Barring a few exceptions, the FICA deduction comes out of each employee paycheck, and employers share in FICA by paying a matching deduction to the amount each employee is taxed. But when it comes to clients’ understanding of how setting up a well-structured health savings account program can save them and their employees substantial money in FICA taxes, a knowledge gap sometimes exists, causing clients to dismiss altogether the idea of setting up an employer-sponsored HSA program. They simply don’t see the value in HSA program FICA savings. Clients frequently are either misinformed about or unaware of the ins and outs of how saving on FICA taxes through an HSA program works — not to mention the many other benefits they and their employees are missing out on without an employer-sponsored HSA program.

A Little Education Goes A Long Way

When it comes to discussing HSA program FICA savings with clients, things can get confusing quickly. It usually helps to start off with a little FICA and HSA program education. First, clients must understand that the current FICA tax rate for both them and their employees is 7.65% each. Clients are responsible for matching each of their 34

Clients frequently are either misinformed about or unaware of the ins and outs of how saving on FICA taxes through an HSA program works...

employees’ FICA tax liabilities based off their gross taxable wages. So in essence, the total FICA tax is 15.3% for each employee/employer combination. Now for a little HSA program education. An employer-sponsored HSA program provides a savvy way for employers and employees to decrease their FICA tax liability and collectively save 15.3% that would otherwise be subject to FICA tax. How? By setting up an HSA program as part of the client’s Section 125 cafeteria plan benefit offering. This is a critical point both brokers and clients must be crystal clear on — clients can benefit from FICA tax savings only through an HSA program set up through a cafeteria plan, which provides employees with an easy way to make pretax HSA contributions through payroll deductions. The pretax payroll deductions reduce the amount of income that applies to FICA taxes on the employee side, and, in turn, clients directly save the 7.65% on any pretax employee contributions made through their HSA program.

Use Examples To Help Clients See The Savings Potential

Once clients receive some basic FICA and HSA program education, providing

InsuranceNewsNet Magazine » March 2022

real-world examples of FICA savings potential can often help them see the true value setting up an HSA program offers. A client with 50 employees sets up an HSA program in which each employee contributes $2,000 a year to their HSA through pretax payroll deductions. Through those contributions alone, the client will save $7,650 in FICA taxes annually. The FICA savings more than offsets any cost of offering the HSA program. If they pay $2.50 per account per month, or $1,500 annually, they still save $6,150 each year. When FICA savings are combined with the premium savings a high-deductible health plan typically offers versus traditional health plans, clients of all sizes and scopes can come out well ahead by offering an HDHP paired with an HSA program.

More Employee HSA Contributions, More Client FICA Savings

When it comes to maximizing client FICA savings through an HSA program, the more employees contribute to their HSA pretax, the more the client stands to save. Simply put, client FICA savings potential is tied to how well their employees engage

DON’T LEAVE FICA SAVINGS ON THE TABLE

HEALTH/BENEFITS

GET PAID FASTER!

HSAs Offer a Triple Tax Advantage for Employees The main hook for employees is an HSA’s “triple tax advantage.” What that means is an employee can save on taxes in three distinct ways with an HSA:

85 Percent of Policies are Issued and Commissions Paid Within 48 Hours

1. Their HSA contributions are 100% tax deductible up to the annual maximum limit. If they contribute pretax, their contributions aren’t included in their gross income and aren’t subject to income and FICA taxes. And if they contribute after tax, they can still deduct their contributions on their tax return to lower their overall tax liability. 2. Their HSA funds can be used tax-free for any qualified medical expenses.

It’s now possible to get your final expense policies issued quickly and your commissions paid fast.

3. Their HSA funds grow tax-free with no restrictions or “use it or lose it” limitations. SOURCE: Bend

with and use their HSA program. Educating clients on HSA program FICA savings and getting them to find value in and consider creating their own HSA program is excellent; however, it’s equally important to connect clients with the right HSA partner that can help them build the best HSA program for their business and proactively engage employees from the start to deliver maximum FICA savings.

Looking Beyond FICA Savings

Beyond FICA savings, with a solid understanding of how an HSA program works and benefits both them and their employees, clients can leverage their program as a powerful recruitment and retention tool. By offering an HDHP option with an accompanying HSA program, clients make it easy for their employees to save money on insurance premiums and taxes while better controlling their health care costs in the short and long term. HSAs are also one of the only tax-advantaged accounts that both lower an employee’s overall taxable income while simultaneously offering the added financial benefit of lowering their FICA tax liability. Even pretax 401(k) contributions and “before-tax” IRA contributions are still subject to FICA taxes. Helping clients understand that concept alone — so they can help their employees understand it — can lead to win-win benefits, including a happier, less financially stressed workforce.

The Right HSA Partner Can Help Maximize FICA Savings And More

Connecting clients to the right HSA partner is a must, because not all HSA vendors are created equal. Clients (and brokers) stand to benefit most from working with a provider that specializes in HSAs and has thoughtfully designed their experience — everything from program implementation and enrollment to ongoing administration, resources and tools — to make HSAs easy for everyone while maximizing HSA benefits, including FICA savings. When clients get quick integrations, administrative automations, a proactive platform that delivers proven results, resolution-focused support and the other features the right HSA partner can provide, they save themselves and their employees time, money and headaches. As HDHPs and HSAs continue to rise in popularity and use, building relationships with the best HSA providers and creating the right client-vendor connections will become more critical to saving clients money and keeping them on the leading edge of benefit offerings. Tom Torre is CEO of Bend, a startup specializing in providing health savings accounts for individuals, employers and partners. Tom may be contacted at tom. torre@innfeedback.com.

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March 2022 » InsuranceNewsNet Magazine

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Financial facts and figures powered by AdvisorNews.com

Americans Blame Their Stress On Finances

Gen Z Needs Help Generation Z is the youngest generation to hit the workforce. And although they are young, they recognize the need for professional financial help. Charles Schwab’s 401(k) Participant Study showed that although Generation Z has been working for only a few years, they already are thinking ahead to retirement.

Almost two-thirds of Gen Z said that their financial situation warrants advice from a professional. And compared to older Americans, they

are more willing to follow computer-generated advice as well as advice from humans, said Drew Kettering, head of digital solutions, Retirement Plan Services, Charles Schwab. Gen Z workers want help with managing their financial lives today so they can save more money for their retirement, he said. Gen Z is also less optimistic than other groups about reaching their retirement goals. In naming their retirement income sources, 36% named their 401(k) plans, 14% their savings and investments, and only 7% named Social Security benefits. More Gen Z participants believe that they are not on top of their 401(k)s and agreed that they do not know what investments to select for their 401(k) plans.

I guess Bob can stay...

Most Clients Likely To Keep Their Advisor … But

Clients are satisfied with their advisory relationships in general, but their loyalty is being tested. A study conducted by Absolute Engagement and Investments & Wealth Institute revealed the most significant client concerns have less to do with the level of service being provided and more to do with their own level of self-confidence about their financial future. The client experience needs to evolve, the survey pointed out. Advisors need to invest more time in client reviews, with a quarter of clients looking for more contact going forward. More than nine in 10 clients (91%) said they are somewhat or very likely to continue working with their advisor, but about one-third of clients say they have considered making a change. This is a 1% increase over 2020 and an 11% increase over 2019, the survey pointed out.

Most Americans See A Recession Coming

A majority of Americans remain worried about market volatility, with more than three-quarters saying they expect the market to be very volatile in 2022. That was the word from Allianz Life, whose survey showed 67% of Americans fear that new COVID-19 variants will lead to another recession. 36

InsuranceNewsNet Magazine » March 2022

DID YOU KNOW?

68% of respondents said inflation is their top concern for 2022.

SOURCE: Associated Press/NORC Public Affairs Research Center

Americans are stressed, and money is the reason why. That’s among the findings of a recent report by John Hancock. The report, titled “Retirement Stress, Finances and Well-Being,” showed a whopping three-quarters of Americans admitted they are moderately or extremely stressed, and almost as many blamed the state of their finances for that stress. Nearly half of those surveyed said the pandemic has had a negative or very negative impact on their mental health. And a lack of financial guidance is inhibiting their ability to prepare for retirement, with more than one-third (34%) of millennials and Generation Z saying they

need advice to help them get ready for their post-employment years.

Of the social media platforms out there, YouTube seems to be the most popular place for Gen Z (63%) and millennials (71%) to discuss financial planning, while TikTok is gaining popularity with Gen Z (56%), according to the survey. More than 60% of the respondents who receive their information online said that they have acted on that advice.

And as inflation hits 40-year highs, 74% say they are concerned about their purchasing power

over the next six months. Another 64% say their income is not keeping up with expenses, and the same percentage worry their income will not keep pace with tax increases. A further 57% of those who plan to retire in the next few years say market volatility will impact their plans, and 61% say they are worried their current financial strategy won’t cover their desired lifestyle.

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May 2020 » InsuranceNewsNet Magazine

ADVISORNEWS

Don’t Wait Until Next Year! Prepare For 2022 Tax Changes You may be helping clients get ready to file 2021 taxes, but now is the time for them to start thinking about the tax changes coming around the corner. • Lyle D. Solomon

ou may be reviewing the past year with your clients as they get ready to file their 2021 income taxes, but your clients also are looking ahead to tax changes that may affect their plans. You may have begun amending your clients’ plans for 2022 to account for changes such as higher tax brackets and a more significant standard deduction, among other things. Let’s take a look at some tax changes your clients will need help in preparing for in the coming year.

Tax Brackets And Tax Rates

Due to inflation, income limitations in all tax bands will be changed in 2022 for taxes submitted in 2023. There will be seven federal income tax brackets starting next year, ranging from 10% to 37%. Anyone with taxable income beyond $539,900 for single filers and $647,850 for married joint filers are subject to the top tax rate of 37%. Let’s check them. For individual single taxpayers: • 10%: Taxable income up to $10,275 (up from $9,950 for 2021). • 12%: Taxable income between $10,275 and $41,775 (up from $9,950 to $40,525 for 2021). • 22%: Taxable income between $41,775 and $89,075 (up from $40,525 to $86,375 for 2021). • 24%: Taxable income between $89,075 and $170,050 (up from $86,375 to $164,925 for 2021). • 32%: Taxable income between $170,050 and $215,950 (up from $164,925 to $209,425 for 2021). • 35%: Taxable income between $215,950 and $539,900 (up from $209,425 to $523,600 for 2021). 38

• 37%: Taxable income over $539,900 (up from $523,600 for 2021). For married individuals filing jointly: • 10%: Taxable income up to $20,550 (up from $19,900 for 2021). • 12%: Taxable income between $20,550 and $83,550 (up from $19,900 to $81,050 for 2021). • 22%: Taxable income between $83,550 and $178,150 (up from $81,050 to $172,750 for 2021). • 24%: Taxable income between $178,150 and $340,100 (up from $172,750 to $329,850 for 2021). • 32%: Taxable income between $340,100 and $431,900 (up from $329,850 to $418,850 for 2021). • 35%: Taxable income between $431,900 and $647,850 (up from $418,850 to $628,300 for 2021). • 37%: Taxable income over $647,850 (up from $628,300 for 2021). These higher levels are intended to provide relief to Americans who find themselves paying more when the cost of living rises due to inflation. Although this may appear to be Congress and the IRS sympathizing with taxpayers, it is actually part of an automatic inflation-adjusted tax bracket modification.

Standard Deductions

On top of the change, taxpayers’ standard deductions will increase next year, and that increase may help clients achieve their financial goals. The standard deduction for individual taxpayers and married taxpayers filing separately will increase to $12,950 in 2022. For married taxpayers filing jointly, it is $25,900 and $19,400 for heads of household. The standard deduction will be $1,350 higher for individuals over age 65 and $1,650 higher for unmarried individuals who do not have a surviving spouse in 2021. For the 2022 tax year, individuals over 65 would pay $1,400 more, and those unmarried and without a surviving spouse will

InsuranceNewsNet Magazine » March 2022

pay $1,750 more. The high inflation rate that everyone witnessed last year affected budgets and constrained cash flow, but the tax adjustments that will take effect in 2022 could aid a lot of middle-class people. Michael Fischer, director and wealth advisor at Round Table Wealth Management in Westfield, N.J., said, “We’d also expect corporate rates to increase slightly from the current 21% to possibly 26.5% or 28%, which have both been suggested.” He also expects a tax reform bill will be passed at some point in 2022. Capital Gains Tax Earnings from selling an asset are subject to capital gains taxes. Short-term gains are taxed as ordinary income, whereas long-term gains are taxed at 0%, 15% or 20%, depending on the taxpayer’s filing status and taxable income. The IRS has raised the long-term gain income limits for the 2022 tax year. The tax rate will be 15% for: • Single filers: income range $41,676 to $459,750. • Married filing jointly: income range $83,351 to $517,200. • Married filing separately: income range $41,676 to $258,600. • Head of household: income range $55,801 to $488,500. No tax rate will be charged to the income level below $41,676, and a 20% tax rate will be imposed on all these incomes above this income range. Check out the income thresholds that might make investors subject to this additional tax: • Single or head of household: $200,000. • Married filing jointly: $250,000. • Married filing separately: $125,000. • Qualifying widow or widowers with dependent child: $250,000. Earned Income Tax Credit The earned income tax credit is a refundable tax benefit available to low- and

DON’T WAIT UNTIL NEXT YEAR! PREPARE FOR 2022 TAX CHANGES ADVISORNEWS

moderate-income employees. The sum is determined by the family’s earnings plus the number of children in the family. Individuals without children may also be eligible for EITC. Earned income credits will vary from $560 to $6,935 in 2022, depending on the earnings and number of children. You may have noticed that in 2022, the amount of tax credit accessible to people without children fell dramatically. That’s because the American Rescue Plan Act increased the amount from $543 to $1,502 in 2021; however, this increase did not carry over to the 2022 tax year. Contribution Limits The IRS will allow retirees to contribute an extra $1,000 annually to a qualified account such as a 401(k), 403(b) or 457 beginning in 2022. Workers will be able to contribute a total of $20,500 next year. Inflation is expected to grow in 2021; thus, hikes are necessary. For those ages 50 and up, the catch-up contribution ceiling remains at $6,500. This implies that employees over 50 can defer up to $27,000 in income in their employer-sponsored qualifying plans. Furthermore, these plans’ total employer and employee premiums have been increased from $58,000 to $61,000, allowing more money to be invested in them. If your clients have a health savings account, recent revisions will significantly impact your clients who qualify. The maximum yearly HSA contribution for individuals was previously increased to $4,950 in 2022, a $150 increase. The maximum amount of HSA contributions for a family plan has increased by $250 to $7,400. HSA balances can be carried over year after year, and interest can be earned tax-free. Roth IRA Conversions Shortly before President Joe Biden was inaugurated last year, he laid out the following goals for his “Build Back Better” agenda. This legislation includes funds for infrastructure, social assistance programs and other projects, such as climate change. Backdoor Roth individual retirement account conversions (when an account holder converts a regular IRA to a Roth and pays the applicable taxes) would be prohibited under a proposal in Congress, and all Roth conversions would be subject to new requirements.

You may encourage your clients to perform backdoor Roth conversions this year rather than waiting until April 15. Your clients must act before Dec. 31. Early modification may allow them extra time to pay any taxes that aren’t due until the following year’s Tax Day. In other words, if they convert to a Roth in December 2022, they won’t have to pay taxes until April 2023. The maximum yearly contribution for single, head of household or married filing separately (if your clients didn’t live with spouse during the year) taxpayers with marginal average gross income less than $129,000 in 2022 will be $6,000 ($7,000 if 50 or older). The contribution is reduced and not allowed for those with a MAGI of $129,000 to $144,000 in 2022, and it is reduced and not permitted for MAGI of more than $144,000 in 2022. The contribution is $6,000 ($7,000 if age 50 or older) for couples filing jointly or qualified widows or widowers with MAGI of less than $204,000. The contribution is lowered and not allowed for those with MAGI of $204,000 to $214,000 in 2022 or more than $214,000 in 2022. The contribution is reduced or not allowed for married filing separately taxpayers (if the client lived with a spouse at any point during the year), depending on whether their MAGI is less than $10,000 or more than $10,000. By 2032, Congress is expected to restrict Roth conversions to single filers with annual earnings of less than $400,000 or married filers with annual earnings of less than $450,000. Because many financial advisors serve “mass affluent” clientele, a moratorium on Roth conversions is unlikely to cause significant disruptions for this group.

Gift And Estate Tax

The yearly exclusion limit for gifts to anybody (except donations of future interests to trusts) will rise to $16,000 in 2022, while the annual exclusion limit for gifts to a noncitizen spouse will rise to $164,000. In 2022, the baseline exclusion level in New York will rise from $5.93 million to $6.11 million. In 2022, the eligible exclusion amount for Connecticut estate and gift taxes will increase from $7.1 million to $9.1 million. In 2023, this sum is expected to equal the federal estate and gift tax exclusion amount. I’m referring to a section of the tax

legislation that affects high net worth individuals. Under this part of the tax law, the exclusion will be hiked to $12.06 million per person in 2022 from $11.7 million in 2021. A married couple can now defer federal estate and gift taxes on a total of $24.12 million. The estate tax is imposed at 40% on the largest estates. The wealthy can escape the estate tax by passing wealth to heirs early. They do so by giving large gifts — often in the millions of dollars — that eat up the $12 million exemption limit, as well as by giving a number of $16,000 yearly exclusion donations that don’t count against the limit. In 2022, a person can give $12.06 million to heirs and avoid paying federal estate or gift taxes. On the other hand, a married couple can provide $24.12 million to heirs and avoid paying federal estate or gift taxes. For a couple that has previously given away $720,000 in their lifetime, the new, more significant exemption implies they can give away another $720,000 in 2022. Lisa Featherngill, national director of wealth planning at Comerica Bank’s Dallas office, said the exemption increase means “almost $300,000 of additional assets that a person can give away either during life or at death without incurring a 40% transfer tax. While the estate exemption is increased for inflation in 2022, the current law will sunset in 2025, which means that it’s time to utilize the exemption now, before it is cut in half.” Considering the deadlines of the various proposed tax law changes as well as their significant implications, you should consult with your clients now. Decide with them how to deal with these proposed tax changes and determine whether any immediate action is necessary. Lyle D. Solomon is principal attorney for the Oak View Law Group in Los Altos, Calif. He may be contacted at lyle.solomon@ innfeedback.com.

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March 2022 » InsuranceNewsNet Magazine

MULTILINEWIRES

QUOTABLE

Car Insurance Rates Rise In 2022

Lockdowns are history and Americans are ready to take to the road. Auto insurance rates are reflecting that race to pre-pandemic activity, with ValuePenguin predicting an increase of 0.6% in 2022 after falling in 2021. ValuePenguin’s State of Auto Insurance in 2022 report said the average cost of auto insurance is expected to reach $1,935 annually, with 22 states seeing car insurance premiums increase in 2022. Michigan, Florida and Louisiana will have the highest car insurance premiums in 2022, and Maine, Texas and Wisconsin the lowest. Car insurance premiums will continue to rise in 2023 as Americans return to their pre-pandemic lives, ValuePenguin predicted. More cars on the road will lead to more accidents, more claims and higher premiums. A steep increase in distracted driving, more expensive repairs from smart technology in cars, and supply chain shortages will also contribute to rising premiums.

23 CHARGED IN CAR CRASH SCHEME

Twenty-three people in four states and Canada were cha rged w it h a nearly $1 million fraud scheme involving staged car crashes. The scheme involved at least 14 vehicle accidents over three years, according to an 81-page indictment filed in U.S. District Court in Richland, Wash. No one was inside the “victim” vehicle during at least three of the staged accidents, hammers were used to break car windows in at least two, and weighted items were placed on the front passenger seat in one vehicle so the airbag would deploy on impact, federal prosecutors said. After some of the wrecks, the accused “sought emergency room and medical treatment for fictitious, fabricated and exaggerated accident symptoms and injuries,” and even hired personal injury lawyers to pursue their fraudulent claims, the indictment states. The staged crashes often occurred at night on remote roads with no witnesses present, prosecutors said.

ANOTHER INSURER GOES BELLY-UP IN LOUISIANA

Hurricane Ida wreaked havoc in August, and along with causing $75 billion in damages, the deadly tropical cyclone claimed a property insurer. Louisiana’s Department of Insurance took over Americas Insurance Co. in a court-ordered receivership, making it the third financially troubled insurer to require rescue in recent months. The New Orleans-based insurer has approximately 24,000 policies and 13,000 Ida-related claims. It controlled 1.31% of Louisiana’s homeowners insurance market and was licensed to operate in the state since 1991. The Louisiana Insurance Guaranty Fund, a state-sponsored safety net also known as LIGA, promises up to $500,000 in payments for unpaid claims and $10,000 for premium refunds for policyholders whose insurers go insolvent.

It is in the insurer’s best interest to make sure that we are matching risk to rate for the motoring public because that’s what’s fair to everybody. — Christopher Stark, National Association of Mutual Insurance Companies

CYBER PERILS ARE THE TOP RISK

Cyber perils outrank COVID-19 and broken supply chains as the top global business risk in 2022, according to the Allianz Risk Barometer. Cyber incidents topped the Allianz Risk Barometer for only the second time in the survey’s history (44% of responses) while business interruption dropped to a close second (42%) and natural catastrophes ranked third (25%), up from sixth in 2021. Climate change rose to its highest-ever ranking of sixth (17%, up from ninth), while COVID-19 dropped to fourth (22%). Driving the fear of cyber perils is the recent surge of ransomware attacks. Data breaches and software vulnerabilities compound the risk of cyber perils, the barometer report said. The report noted the rise of natural catastrophes and climate change to third and sixth positions, respectively, with both trends closely related. Recent years have shown the frequency and severity of weather events are increasing due to climate change. For 2021, global insured catastrophe losses were more than $100 billion — the fourth-highest year on record.

DID YOU

KNOW Allstate and John Hancock are teaming up on a program that

will reward safe drivers with potentially cheaper life insurance.

InsuranceNewsNet Magazine » March 2022

Source: The Wall Street Journal

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MULTILINE

Champlain Towers Collapse Could Change Condo Insurance Condominium insurance is expected to see significant changes in the wake of last year’s highrise collapse in Surfside, Fla. By Andrew Bateman

he collapse of the Champlain Towers South in Surfside, Fla., in June is bringing increased scrutiny to the condominium insurance market. Ninety-eight people died after the building fell, highlighting the need to review the legal requirements and standards related to ongoing maintenance and structural integrity of condo buildings across the country. Condo owners, along with condo and homeowner association boards, are asking important questions about the safety of their communities and taking a closer look at their policies to make sure the appropriate level of coverage is in place. 42

Insurers, meanwhile, are closely reviewing their condominium master policies, asking serious questions about board operations, reserve funding, maintenance and regulatory compliance. Prior to the collapse, the property/ casualty insurance market already faced challenges from capacity constraints and higher-than-expected losses stemming from a significant number of natural disasters in recent years, including hurricanes and wildfires. The resulting hard insurance market has translated to higher P/C premiums, stricter terms and reduced limits on coverage. This trend — already expected to continue for the next few years — will likely be exacerbated by the Surfside fallout.

What This Means For Insurers

Insurance professionals must work quickly to set new parameters for condominium master policies, particularly P/C coverage. Increased focus should be on maintenance

InsuranceNewsNet Magazine » March 2022

and reserve funding to ensure the safety of the structure and protection of condo owners’ investments and well-being. In areas with recertification ordinances, it’s critical to request proof of recertification as soon as possible. It may be necessary to cancel, or not renew, policies for buildings not in compliance with inspection requirements. Priority should be placed on buildings in at-risk areas, such as coastal Florida. Coastal Florida already has experienced upheaval in the P/C market in recent years, with some insurers pulling out of the market entirely. The prevalence of older condo buildings such as Champlain Towers South presents greater liability and risk due to hurricane exposure, historically underfunded reserve accounts that fund future capital improvements, and the tendency of some association boards to delay maintenance.

Gaining A Foothold On The Future

It’s essential for boards of directors,

CHAMPLAIN TOWERS COLLAPSE COULD CHANGE CONDO INSURANCE MULTILINE managers, agents, attorneys, engineers and insurers to be proactive in assessing risk and updating coverage limits. It’s also important for insurers to recognize the new opportunity this presents. Insurance professionals should focus on strengthening their relationships with policyholders and inform them all of the services available to them to manage risk and plan for the future. An effective risk management program ensures due diligence of risk exposures and identifies necessary mitigation tactics. Agents and brokers can assist condo and homeowner associations with building inspections, reserve studies and other risk management services to provide a safe environment for employees, residents and guests. Insurance professionals should work with policyholders to identify and address gaps in the condo association’s bylaws and policies to ensure maintenance takes precedence. Regular and preventive maintenance should be viewed as part of an overall risk management strategy and not as an unwanted expense. Association bylaws and policies may need to be amended to include provisions requiring periodic assessments of the structural integrity of the building, as well as ongoing maintenance and general upkeep. Professional engineers can evaluate the building’s structural integrity and other critical areas, including balconies, parking facilities, stairwells, pools and other common elements. By detecting problems early on, associations can save significant amounts of work and costs down the road and prevent avoidable tragedies. Studies of funding reserves can help association boards — and insurers — gain insight into the property’s structural integrity and fiscal health. Reserve studies help condo and homeowner associations develop a proactive, fiscally responsible approach to long-term maintenance and assess how well the reserve fund is keeping pace with common area deterioration, as well as the ability to cover emergencies. The study provides funding plan recommendations to avoid the need to take out costly loans or levy special assessments in the future. The study helps the nonprofit corporation bring to light that having a strong financial plan in place is part of the board of directors’ fiduciary duty. The duty of the board is not to lower assessments or ignore future financial needs.

One area that is often overlooked in P/C policies is debris removal. In many cases, associations will find their current coverage limits are insufficient to cover debris removal. Identifying Coverage Gaps

Insurance professionals can work closely with policyholders to establish the appropriate level of association coverage for all potential liabilities. In many cases, association boards will find their current policies will not be sufficient to cover potential property damage and personal injury claims. Policies should include coverage for these six areas at a minimum: 1. Property. Covers physical damage to condo association buildings, common areas and other specified property. 2. General liability. Protects the association against injuries that take place on property covered under the policy and protects against lawsuits for allegations of property damage. 3. Crime and fidelity. Protects the money the condo association has in its operating and reserve accounts from embezzlement, check fraud and misappropriation of funds as well as computer, social engineering and wire fraud. 4. Excess liability (umbrella). Provides coverage beyond the limits of the general liability policy to protect against unforeseen losses. 5. Directors and officers. Liability protection for members of the board of directors. 6. Workers’ compensation. Coverage for injuries incurred by employees, contractors, freelancers or volunteers while working on condo association property. Beyond these six areas, insurance professionals should recommend other important areas of coverage, if applicable.

These areas include sewage backup, ordinance or law coverage and flood and earthquake insurance, as well as coverage for wind and hail damage caused by hurricanes. Cybersecurity coverage should also be considered if the association conducts a significant portion of its financial transactions — including dues collection — electronically. One area that is often overlooked in P/C policies is debris removal. If a structure is damaged from a storm or fire, debris removal is a critical step in the rebuilding process. In many cases, associations will find their current coverage limits are insufficient to cover debris removal resulting from significant building or property damage. Condo and homeowner associations that take a proactive approach to risk management, particularly long-term maintenance planning and reserve funding, will benefit from protecting the safety and security of their buildings. They also will protect the unit owners’ investments and resale value. These steps may also translate into more favorable terms, limits and rates of coverage. Laws and regulations related to condo and homeowner association boards differ by city, county and state. It’s anticipated the Surfside condo collapse will spark new regulations across the country to prevent such a tragedy from happening again. Insurance professionals can become trusted sources for risk management, assisting policyholders with important risk mitigation tactics as well as keeping policyholders up to date on any changes in regulatory requirements. Andrew Bateman is a client executive with TriSure. He may be contacted at andrew.bateman@ innfeedback.com.

March 2022 » InsuranceNewsNet Magazine

BUSINESS

The Powerful Strategy That Leads To Stronger Connections Since every individual you work with or want to work with is their own most interesting person, you must use empathy to better understand them and their worldview. By J.J. Peller

ho is the most interesting person you know? You’re likely running images of dozens of different faces through your mind. Maybe you’re thinking of some celebrities or famous entrepreneurs or world leaders. But the one person you might not have considered as the most interesting person you know is the person you see every day when you look in the mirror. That’s right, you are the most interesting person to yourself. Likewise, everyone is most interested in themselves. Why should this matter to you? 44

If you’re in the people business, then you must master your ability to interact with other people. To successfully interact with other people, you must understand how humans think, feel and behave. Here is the cornerstone strategy that will uphold every other human relations skill that you possess: empathy. Don’t believe me? A quick Google search will prove that troves of business outlets are talking about this topic.

What Is Empathy?

The dictionary defines empathy as the action of understanding, being aware of, being sensitive to and vicariously

InsuranceNewsNet Magazine » March 2022

experiencing the feelings, thoughts and experience of another of either the past or present without having the feelings, thoughts and experience fully communicated in an objectively explicit manner. Let’s boil this down to a much simpler statement: Empathy is about intentionally working to understand how another human is feeling at any moment. Since every individual you work with or want to work with is their own most interesting person, you must use empathy to better understand them and their worldview. People deeply desire to feel seen and heard. And deploying empathy in relationship development will help you

Empathy represents the foundation skill for all the social competencies important for work.

— Daniel Goleman

THE POWERFUL STRATEGY THAT LEADS TO STRONGER CONNECTIONS influence other people to feel seen and heard. If you can make someone feel seen, heard and understood, you’ll have a new friend. Once someone is a friend, they’re well on their way to becoming a client or center of influence.

Why Is Empathy Important?

To quote Theodore Roosevelt: “People don’t care how much you know until they know how much you care.” This maxim has been promulgated throughout the years. But why has it become such a truism? Think about it this way: If you don’t genuinely feel and believe someone cares about your well-being and success, will you fully welcome their advice and guidance? Likely not. If you want to be positioned to provide someone advice and guidance based on your knowledge and expertise, you must help them truly feel and believe that you care about their well-being and success.

Three Keys To Empathy 1. Be fully present

Don’t think about the call you’re waiting for. Don’t glance around to see who else might walk by that you should talk with. Don’t think about everything else happening around you. Be in the moment. I agree this is much easier said than done. Still, like any skill, it can be developed with intentional practice. If you don’t feel you can be fully focused on the person you’re in conversation with, then politely inform them that you want to catch up sometime soon when you can be fully present. The person will likely respect and appreciate your genuine desire to invest time with them when you can be fully present with them.

2. Listen for everything

Too often, we listen only for the things that we want to hear and respond to. Unfortunately, this kind of biased listening prevents us from hearing everything that the other person is communicating. Keep in mind that people say more than the words that come out of their mouths. We “speak” with our facial expressions, our body language, our tonality and our energy. Additionally, we often

BUSINESS

If there is any one secret of success, it is the ability to get the other person’s point of view and see things from his angle as well as your own. — Henry Ford communicate as much by what we don’t say as by what we do say. If you can attune yourself to the person you’re being present with in a dialogue, you can receive more of the message. If you can receive more of the message, you can be more empathetic.

When you show deep empathy toward others, their defensive energy goes down, and positive energy replaces it. That’s when you can get more creative in solving problems.

- Steven Covey

For a moment, think back to the definition of empathy. If you’re aware of someone else’s thoughts and feelings — even when they don’t explicitly communicate those thoughts and feelings — you can be more empathetic. Using this skill, you’re helping that person feel seen, heard and understood.

3. Acknowledge what you hear

What do you do after you’ve been present with someone and listened for everything they communicate? Acknowledge what you hear. Tell the other person what

you’re hearing them say. As an example, if I go on an entire monologue about several of the different projects I’m working on, you might say something like, “It sounds like you have many different things going on in your life right now.” Simply showing that you’re listening by making a general reflection statement like this can go a long way in building rapport. This third step is about demonstrating empathy — helping the other person truly see and feel your empathy in an explicit way. People will feel your empathy if you’re fully present and proactively listening. Acknowledging what you hear, too, will take your empathy to a higher level.

Your Next Step: Practice Empathy

Make this a priority in the next conversation you have. By practicing and developing your empathy skills, you’ll build rapport and attract more people who want to work with you. J.J. Peller is an Executive Business Coach with Carson Coaching. He is an Associate Certified Coach through the International Coaching Federation. J.J. offers services to help financial advisors unleash their full potential and accelerate growth and success. He may be contacted at jj.peller@innfeedback.com.

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March 2022 » InsuranceNewsNet Magazine

INSIGHTS

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

The Post-Pandemic Working World? It’s Our Choice

n March 2020, staff meetings, client appointments and so many other aspects of our business came to a screeching halt with the onset of the COVID-19 pandemic. And since conducting business in person was largely ruled out at that time, we had to find new ways to be together without physically being together. In the past two years, as working from home became standard practice, the new normal became virtual. Enter Zoom, Microsoft Teams and a slew of other digital services. Now with vaccines widely distributed and many professionals returned to their offices or preparing for that transition, we get to decide what the post-pandemic working world will look like. We have a choice to start back up the way things were before or run a few updates in our models as we look to the future. This is a unique opportunity to choose how we turn back “on.”

PwC reported that 75% of financial services employees said their ability to collaborate was the same or improved during the pandemic. Improvements in the workplace spurred by new technology are not limited to office management. The option of virtual meetings created an opportunity to broaden the scope of client meetings as well. For example, we can now include the children of current clients in conversations about generational wealth transfer, even when those children are out of state or even out of the country. Meetings such as that would have been exceptionally challenging to coordinate in person. In my experience, it seems as though many advisors have defaulted to the headspace of “we did it that way before, so we’ll do it that way again” without giving it a second thought. But I advocate for a more thoughtful approach to our return to a “normal” work environment. Conduct a thorough review of your professional habits, as well as your business. What changes were beneficial to your business during the lockdown? What aspects didn’t work as well? If there was something you were able to do for your clients more effectively using new virtual tools during the pandemic, then keep some version of that moving forward while dropping the things that went poorly. It does not have to be a zero-sum game.

Reevaluating How We Work

Consider Clients Amid Transition

We get to decide what the post-pandemic working world will look like. We have a choice to start back up the way things were before or run a few updates in our models as we look to the future. By Ted Rusinoff

Some aspects of my business became far more effective under virtual conditions. My sales team used to operate only in person before the pandemic, meeting infrequently. Now they meet more regularly, albeit virtually, and they have developed a better rapport with one another. Interns I used to have minimal interaction with are now much more accessible to me and others over Zoom. Their mentoring experience improvements help them, our business and our industry. Others feel the same way: A Remote Work Survey conducted by 46

The most important factor to consider while determining how to navigate the return to the office is asking what the client wants. To continue developing your client relationships, ask them what new aspects of your business they would like to see continue after the pandemic and what they would like to see return to “normal.” Balance the external feedback you receive with your own attitude on how you would like to run your business. Perhaps that will mean reassessing your future with particular clients and even parting ways with some.

InsuranceNewsNet Magazine » March 2022

Taking an honest and transparent approach to the transition, however, will ultimately benefit both you and your clients. I often talk about making extra deposits into the “benefit-of-the-doubt account.” What I mean by that is that you should invest heavily in the relationships you have with your clients. Listen to them, respond to them and be someone they will want to stick with, no matter the circumstance. That sort of proactive support helped us navigate the pandemic when it started, and that same type of support will help us all navigate a fluid, new normal. Be brave enough to honestly answer questions about what worked better during the pandemic. Recognize that not everything has to revert to the way it used to be because we have a unique opportunity to pick and choose now. In March 2020, everyone’s routine abruptly stopped, and we were all jammed up. But like driving home at the end of a beach vacation when everyone departs at different times, the roads are not quite as busy this time around. We all have the power to transition back to regular life at our own pace and in our own way, and that opportunity should not be ignored. Ted Rusinoff, M. Tax, is a 13-year MDRT member with one Court of the Table and eight Top of the Table qualifications. From Stow, Ohio, he serves as Wealth Design Partners’ managing partner and the chief operating officer of Secured Advantage. He has more than 30 years of experience as a financial advisor and is an Excalibur Knight and a past president of the MDRT Foundation. Ted may be contacted at ted. rusinoff@innfeedback.com.

INSIGHTS

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.

College Funding: A Critical Part Of A Complete Financial Plan Choosing what college to attend and determining how to pay for it are two of the biggest financial decisions for students and their families. By Brock Jolly

s winter snowstorms give way to spring break trips and pool parties, another annual rite of passage is developing behind the scenes. That evolution is not birds chirping or spring flowers blooming as the weather begins to warm. As I’m a financial advisor who specializes in working with families of college-bound children, the transition to which I pay close attention is the transition of students from high school to college. We have a tremendous opportunity to help families plan appropriately for this financial commitment. When choosing a higher education path, most experts agree that the most important aspect of the decision process is finding a school that is the right fit. From my perspective, the most important aspect is financial fit. Can the family afford the cost of the college being considered, and if they choose the school, what is the financial impact of that choice? A family must demonstrate financial need to qualify for need-based aid programs at the federal, state and institutional levels. But beyond that, there are no guidelines as to how financially prudent choosing one college over another may be. According to The College Board’s Trends in College Pricing and Student Aid study, in 2021, the cost of attendance at an instate public university was $27,330 a year. For elite private schools, the price can exceed $80,000 per year! This means that the cost of college for two children could fall between roughly $220,000 and $640,000. However, there are two big assumptions in this equation. First, that the cost of college doesn’t increase over the years: and second, that the student graduates on time.

Unfortunately, statistics tell us a different story. According to the National Center for Education Statistics, the average student takes nearly six years to graduate, and college costs have increased by 3.2% per year over the past 30 years. And some families have more than two children! To add insult to injury, student loan debt has grown to over $1.6 trillion, making it the second-largest line item on the collective American debt balance sheet, with average debt of $28,400 per borrower. Consider the impact on a young person graduating from college with $28,400 of student loan debt. If they are to repay that loan over 10 years at an interest rate of 5%, that’s a monthly payment of $300. If the young person had instead been able to invest that money and could earn the same 5% on their investments, at the end of 10 years they would have $46,775. Simply by holding that sum, making no additional contributions and earning 5% per year to age 67, they would have $258,012 at retirement. We offer five tips for advisors to help families navigate the college funding maze. 1. Begin early. Although many families may not be ready to swing by your office and set up their college savings strategy on the way home from the delivery room, the earlier you can encourage families to start planning, the better. 2. Be flexible. Section 529 plans have emerged as a college funding tool of choice, but they have advantages and disadvantages. Additionally, trying to project the cost of your child’s college education 18 years from now is virtually impossible. The key now is to save the money and figure out the specifics later. 3. Educate and enlighten. An out-ofstate or private school may have better weather or a more competitive basketball team, but is the juice worth the squeeze in terms of cost differential? If the same

major is available in a family’s home state, might that be a more attractive option? If not, consider tuition reciprocity programs such as the Academic Common Market, Midwest Student Exchange, New England Regional Student Program or the Western Undergraduate Exchange. 4. Find merit or need-based scholarships. We encourage students to start searching for scholarships early. Most students wait until the second semester of their senior year of high school, when there may be fewer available options, or they may not be particularly motivated due to a classic case of “senioritis.” Several years ago, we had a student who won a national science fair and qualified for a $25,000 scholarship as a sixth grader! 5. Negotiate. If a student is highly qualified based on merit or if a family is eligible for need-based aid, we always encourage them to negotiate with the schools to get their best offer. Encourage families to use offers from peer institutions or to explain any extenuating circumstances to influence top-choice schools to provide their best possible offer. The schools may not budge, but it never hurts to ask! Next to choosing who to marry, selecting what college to attend is perhaps one of the most significant decisions of a person’s life. Perhaps that’s why Gallup suggests that college funding is the top financial fear of most American families. By helping address these concerns, we can add tremendous value for a family and create resources that can be used for other purposes in the future. Brock Jolly, CFP, CLU, ChFC, CLTC, CASL, CFBS, RICP, CEPA, is a financial advisor with Veritas Financial and the founder of The College Funding Coach. He also serves as NAIFA treasurer. He may be contacted at brock.jolly@innfeedback.com.

March 2022 » InsuranceNewsNet Magazine

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

INSIGHTS

Women’s Increasing Wealth Means More Need For Planning Advisors can expect women to benefit from a broad range of education and product options due to varying life stages and ongoing changes in their financial condition.

Individual versus employer-sponsored life insurance Source: 2021 LIMRA Insurance Barometer Study

By Elizabeth Caswell

ife insurance as part of a well-constructed financial portfolio has become increasingly important as women continue to accumulate more economic power. According to LIMRA’s 2021 Life Insurance Barometer Study, 44% of U.S. women ages 18-75 currently own life insurance. Among people who own life insurance, women are more likely than men to have both individual and employer-sponsored — or group — insurance.

Drivers Of Planning Needs

Women are primed to build on the growing financial affluence in their lives and will need guidance to manage their wealth and achieve their goals. Financial advisors can expect women to benefit from a broad range of education and product options due to varying life stages and ongoing changes in their financial conditions. According to LIMRA research, nearly four in 10 women have a financial advisor. In addition, four in 10 women under age 45 are looking for a financial advisor, as is nearly one in five women over 45. The primary drivers for women seeking guidance include: Wealth transfer: Women currently control one-third of U.S. household financial assets, an estimated $10 trillion and growing. The value of wealth transfers to women by the end of the decade is estimated at another $20 trillion, providing ample incentive for financial advisors and insurance companies to create solutions that women need and expect. Education and earnings: Women continue to outpace men in matriculation and graduation from college, Pew Research 48

Center found. More women are deferring marriage and children, providing more time for career development and wealth accumulation. Women who divorce later in life are increasingly choosing to remain single, and financial independence is becoming more commonplace. Many women are working beyond the age of 65, according to the Washington Center for Equitable Growth. This makes it essential for advisors to be successful working with women of all generations. According to LIMRA research, women of all ages say they need life insurance. In fact, 80% of women ages 25-44, 75% of those ages 45-54 and 64% of those 55-64 acknowledge this need. Nearly half of all women over 65 say they need life insurance. Women are as likely as men to cite the need for five to 15 years of replacement income should a primary wage earner pass away. More than one in five say they aren’t sure how much life insurance they need. Caregiving of family member(s): Six in 10 U.S. women between the ages of 18 and 64 report that they currently provide at least part-time care for a family member or have done so in the past, AARP Public Policy Institute and the National Alliance for Caregiving report. Responsibilities for older family members often include assisting with activities of daily living, and those responsibilities may extend to managing financial affairs for

InsuranceNewsNet Magazine » March 2022

two households — their own and an aging family member’s. Caregivers are ever mindful that if something should happen to them, their relative’s care would also be in jeopardy, making them more aware of the value provided by life insurance. Caregivers are also a ready audience for conversations about a broad range of insurance products including long-term care and disability insurance. The self-reported need for disability insurance grows as women age, from 36% to 61%. According to our research, four in 10 women ages 5564 say they need disability insurance. Financial advisors seeking women as clients need to remain mindful of gender differences in communication and decision-making styles. As the balance of overt financial influence in households continues to favor women, progressive and proactive financial professionals who work with women can expect their businesses to flourish. Elizabeth Caswell is assistant research director, member benefits, LIMRA. She may be contacted at elizabeth.caswell@innfeedback.com.

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With nearly 100 years of experience, The American College is passionate about helping students expand their knowledge and opportunities as financial professionals.

Trust: A Major Factor Driving Consumer Decisions Understanding how to build and sustain trust-based relationships is fundamental to connecting with consumers. By Domarina Oshana

an I trust the world? It is an existential question. It is also a subject of theory and ongoing research in the social sciences. The development of trust is the first stage of psychosocial development, occurring or failing during the first two years of life. It affects everyone 24/7, 365 days a year. Trusting other people is necessary for survival, and it keeps societies and economies functioning efficiently. Trust has emerged in news stories and social media throughout the pandemic. Internationally recognized trust researcher Sandra J. Sucher discussed it in an interview for her book The Power of Trust: How Companies Build It, Lose It, Regain It. Researcher and storyteller Brené Brown hosted podcasts on how to approach the topic of trust in a way that is productive and actionable. Posting on LinkedIn, Brown included a quote card that went viral and read, “Trust is not built in big, sweeping moments. It’s built in tiny moments every day.” Fortune dedicated a special report to the theme of trust. In “Trust and Consequences,” the magazine focused on trust and business ethics, presenting a collection of stories that make a compelling case for “why it’s time for a new era of accountability in business.” The takeaway: Trust has the potential to create exceptional success if developed, yet it can destroy the most successful business. In the financial industry, trust is a major factor in driving consumer decisions. Trust enables the financial services sector to provide products and services to clients. Understanding how to build and sustain trust-based relationships is fundamental to connecting with consumers. Trust also is

pervasive — it is relevant at every level within financial institutions, regardless of job title and seniority. We see this encapsulated in the words of the late Professor John O. Whitney of Columbia University Business School, who said, “An enterprise that is at war with itself [misaligned] will not have the strength or focus to survive and thrive in today’s competitive environment.”

A Signature Theme

Trust is a signature theme for The American College Cary M. Maguire Center for Ethics. We believe building trust-based relationships can serve as a strategic asset for financial institutions. We have been studying trust in financial services systematically and objectively for the past year to develop insights and strategies that can help financial services leaders manage this vital topic. Our multi-method research tackles some functional challenges in the financial industry. For example, we know that there are disparities in the access of underrepresented groups to capital and banking services, but what actions can financial institutions take to stand out as trustworthy to historically underrepresented groups and those with low trust? Our research can help leaders better understand how trust expectations, and the factors that influence those expectations, affect the development and success of products, services and relationships.

A Nuanced View

Our findings provide a nuanced view of trust in the financial industry. Interestingly, while existing survey results from Edelman showed that financial services remains one of the least-trusted sectors in business, we found that when we examine trust in the context of service industries such as health care, education, telecommunications, state/local government, media/entertainment and the federal government, financial services comes out right in the middle. Another notable finding is that among types of financial services providers,

consumers particularly trust community banks and credit unions. When we looked at generational differences, we found that millennials have the highest levels of trust across service industries, including financial services. Household income also affects trust level. This is important because it helps build a business case for financial inclusion. As income increases, so does trust in all services. While low-trust consumers are more likely to be low income and high-trust consumers are more likely to be high income, both seek value from the financial institutions with which they engage, and both aspire to build wealth. This is a timely finding, as demands for business leadership to narrow the wealth gap and promote economic empowerment in the U.S. persist. Thought-provoking analyses that stimulate further consideration include a working paper from the National Bureau of Economic Research, an article in Fortune that questions the existence of a financial literacy gap and a framework for collective impact from The American College Center for Economic Empowerment and Equality. Contrary to what most people believe, trust is not a fuzzy feeling or a quality that is either present or absent. Trust is actionable. As a key leadership competency of the global economy, trust is muscle that leaders can exercise by developing strategies to create, grow, extend and restore it among stakeholders. We aim to empower financial leaders and institutions with the necessary stakeholder perspectives and leadership toolkits in the journey to build trust and thereby advance business ethics. Domarina Oshana, PhD, is a social scientist and research development professional. She is the research director for corporate programs for The American College Cary M. Maguire Center for Ethics in Financial Services. She may be contacted at domarina.oshana@innfeedback.com.

March 2022 » InsuranceNewsNet Magazine

InsuranceNewsNet Magazine - March 2022

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