InsuranceNewsNet Magazine - September 2013 by InsuranceNewsNet

Life Annuities Health Financial

September 2013

THE MATCH OF THE CENTURY BETWEEN THE HEAVYWEIGHT CHAMPIONS OF LIFE INSURANCE

PAGE 22

PLUS Terri Sjodin helps you build the Perfect Elevator Pitch PAGE 12 Is $1M of Life Insurance Enough These Days? PAGE 34

“Owning life insurance is fundamental to a family’s financial security.” – Marvin H. Feldman,

President and CEO of the LIFE Foundation

This year marks the 10th anniversary of Life Insurance Awareness Month (LIAM). At Sentinel Security Life, we proudly join industry leaders in recognizing LIAM and doing our part to inform Americans about the importance of life insurance protection for their family and loved ones. Families without life insurance... • 41% of adults are uninsured.1 • Consumers often overestimate cost of life insurance by nearly three times2 , which deters them from purchasing a policy. • Families are faced with hardships such as funeral expenses, debts, every day living expenses, etc. when a family member passes away. • Tremendous strain is put on surviving family members to make ends meet.

Families who are underinsured... • Households that describe themselves as underinsured currently hold half the amount of coverage they believe they need.3 • The needs of families who are underinsured become compromised. Often times, sacrifices have to be made in order to cover one expense over another. • Many experts recommend at least 10 times your gross annual income in coverage.4

Fully insured families... • Coverage is actually lower now than ever before, making full coverage affordable and attainable. • Families who are fully insured are able to maintain their quality of life, giving them ample time to plan around the death of a loved one.

Sentinel Security Life’s New Vantage® life insurance can offer everything your clients need to become a fully insured family. These whole life insurance products have been providing families with financial security since 1948. Sentinel Security Life’s New Vantage® offers rates that never increase, and benefits that never decrease. Help your clients gain peace of mind and meet their life insurance needs.

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1. LIMRA. 2011. Person-Level Trends in U.S. Life Insurance Ownership. LIMRA, Windsor, CT. 2. LIMRA. 2012. Consumers Overestimate Cost of Life Insurance. LIMRA, Windsor, CT.) 3. LIMRA. 2011. Trillion Dollar Baby — Growing Up; The Sales Potential of the U.S. Underinsured Life Insurance Market. LIMRA, Windsor, CT. 4. Based on the average per capita income of $40,584, according to the Bureau of Business & Economic Research

SSLAD-INN 09/13

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SEPTEMBER 2013 » VOLUME 6, NUMBER 9

» read it

online

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IN THIS ISSUE

View and share the articles from this month’s issue

36 Forget the Wife, Lose the Sale

By Liz Michel and Cathy Neifeld If you are selling to a married couple and you don’t engage the wife, you run the risk of losing the account.

ANNUITY

40 F ixed Annuity Interest Rates Ticking Up By Linda Koco A creep-up in interest rates could bring a little steam into the annuity sales environment.

42 M ore IAs Feature ‘Enhanced’ Death Benefits

INFRONT

22 WHOLE LIFE VS. UNIVERSAL LIFE

8 Getting the Pulse of Life Month By Cyril Tuohy September marks the annual observance of Life Insurance Awareness Month (LIAM), and that observance takes on greater urgency than ever this year. Marv Feldman, president of the LIFE Foundation, tells InsuranceNewsNet how this year’s campaign is going high-tech.

In honor of Life Insurance Awareness Month, we bring you the Match of the Century as Whole Life and Universal Life go head-to-head in a battle for supremacy!

24 UL Evolves into Legacy-Protector and Robust Wealth Generator By Guy Baker Universal life offers flexibility and the opportunity to generate significant returns.

By Linda Koco Enhanced death benefit features, once only in the domain of variable annuities, are spreading into the indexed annuity market.

HEALTH

46 H ealth Insurance Exchanges Open Oct. 1, Ready or Not By Susan Rupe Will the exchanges be ready for their Oct. 1 opening day? And, will this mean opportunity or extinction for health insurance advisors? Here’s an overview.

28 Whole Life Changes with the Times and is Perfect for These Times By Anthony Domino Jr. Whole life is experiencing a resurgence in popularity, as advisors and consumers rediscover the appeal of cash value and predictable returns.

12 FEATURES

12 H ow to Create the Perfect Elevator Pitch An interview with Terri Sjodin Practice makes perfect and the same holds true of crafting the perfect “elevator pitch.” Terri Sjodin has perfected the art of the elevator pitch in her speeches and in her book, Small Message, Big Impact. In an interview with InsuranceNewsNet publisher Paul Feldman, Terri tells how perfecting this little presentation can impact your career in a big way. 2

LIFE

34 Is a Million Dollars Enough Today?

By Mark Peterson A million dollars doesn’t go as far as it used to, and many clients may need twice that much in order to meet their financial goals.

InsuranceNewsNet Magazine » September 2013

52 FINANCIAL

52 Variable Annuity Changes Rattle Advisors, Clients By Cyril Tuohy VA carriers have been making some adjustments to their product lines as they make sure they can pay for their VA promises out of fees and investment returns while still making a profit.

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ALSO IN THIS ISSUE SEPTEMBER 2013 » VOLUME 6, NUMBER 9

BUSINESS

60 LIMRA: Retirement Planning Begins with Income Protection

54 W hy Your Sales Training Needs an Architect

By Robert A. Kerzner Life insurance ownership is hitting historic lows at a time when people are more in need of financial security than ever.

By Dan Seidman The content of your sales training is important, but that content will have little impact without the right structure in which to deliver it.

62 N AILBA: Some Clients Need Flexibility to Plan Long-Term Care Funding

INSIGHTS

56 MDRT: Success is a Marathon, Not a Sprint

By Raymond S. Phillips Jr. The trend in the life insurance industry has been to offer policies with riders that help to pay for long-term care needs.

By H. Larry Fortenberry To make it in the financial services industry, you must think long term and connect with others in the business.

64 The Last Word: Simple, Innovative Ways to Invigorate

58 N AIFA: Managing Time is an Art Form

By Larry Barton Some outside-the-box ways to get your sales back on track in the final months of the year.

By Robert A. Arzt Simple steps can help you identify ways to squeeze more productive hours out of your day.

EVERY ISSUE 6 Editor’s Letter 20 NewsWires

In this rock ’em sock ’em world, how do you protect your clients and grow your business at the same time? Join our panel of industry experts as they discuss hard-hitting topics and weigh in on the ultimate test: doing what’s right by your clients in a time of product changes and regulatory expectations. Join us for a lively debate that can’t be missed. Seating is very limited, register today and see who prevails!

32 LifeWires 38 AnnuityWires

44 HealthWires 50 FinancialWires

INSURANCENEWSNET.COM, INC. 355 North 21st Street, Suite 211, Camp Hill, PA 17011 tel: 866-707-6786 fax: 866-381-8630 www.InsuranceNewsNet.com PUBLISHER Paul Feldman EDITOR-IN-CHIEF Steven A. Morelli ASSISTANT EDITOR Susan Rupe CREATIVE DIRECTOR Jake Haas PRODUCTION EDITOR Natasha Clague SENIOR GRAPHIC DESIGNER Carlos Centeno CHIEF OPERATIONS OFFICER Jim Barton MARKETING STRATEGIST Katie Hyp DIRECTOR OF MARKETING Anne Groff AND SALES

TECHNOLOGY DIRECTOR REGIONAL ACCOUNT MANAGER (NORTHEAST) REGIONAL ACCOUNT MANAGER (CENTRAL) REGIONAL ACCOUNT MANAGER (SOUTHEAST)

Joaquin Tuazon Tim Mader Craig Clynes Brian Henderson

REGIONAL ACCOUNT MANAGER Emily Cramer (WEST)

SALES COORDINATOR Missy Hepfer MARKETING COORDINATOR Christina Keith

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

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

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September 2013 » InsuranceNewsNet Magazine

WELCOME

LETTER FROM THE EDITOR

Summer’s Slow Slide

EPTE MBER IS NEITHER the delight of summer nor the glory of autumn. It’s the doused campfire and the set alarm clock. It’s the bang of Labor Day and the whimper of work. It’s the year’s bummingest buzzkill. It’s time to get back to work. Agents and advisors re-engage with clients who are suddenly more interested in insurance and financial planning. Salespeople look to the rest of the year and its long slog toward the annual goal. Lobbyists wade into another season of bills and brickbats. Many things start but not much happens, yet. It’s easy to fall into the rhythm of the cycle. Every time of the year has its own things to do as we move people along. Strangers morph into prospects into clients into referrals. It’s difficult to understand our impact as we constantly look for the next opportunity and accomplish all the tasks on our lists. The years and people flow in and out, just as jaded teachers see the latest class as yet another wave lapping on the beach of their classrooms and fading to another part of the building, then another school, then another town. I see a version of this cycle behind my house, in a small park tucked in the middle of our block. In my neighborhood with its many renters, new kids discover the park each summer. My wife and I have to teach a new group to respect the space, be kind to the equipment and pick up after themselves. We remind them that they are part of a community that cares about the park. In the first few years, it seemed a little frustrating to have to do this year after year, especially because they don’t seem to pay much attention to the noise coming out of our mouths. Well, my wife connects with them to some degree. I’m pretty much blah, blah, blah. But some kids pop out of the pack, like Jackson, a pudgy, grinning imp of a 6-year-old. He often came over and asked what I was doing in the garage and I answered his stream of questions. I showed him how to put the chain back on his bicycle as he poked at my hearing 6

aid, asking what it was. I was often around as his dad wasn’t, just as mine wasn’t. I figured I may as well be the neighbor I wished I had. Maybe Jackson will pass that along, radiating down the line like a smile glimpsed in a crowd. I don’t know if I’ll ever see Jackson again but sometimes I notice teenagers stopping by the park they used to rule. I’m sure they see that it isn’t quite the green expanse they remembered and I wonder what they recall when they see the older version of me. I realized those moments around the park mean something, whether I mean them to or not, as each September scoops these children away. Of course, sometimes something trips up September’s sedate march from summer to fall. Those who lived through Sept. 11, 2001, will always remember that day. Their children will remember it, too, but maybe not their children or the generation after. It’s difficult to imagine, but that infamous date will settle into the history books next to the others, such as Dec. 7, 1941. Sept. 15, 2008, is fading even faster. Five years later, people already are sketchy on the collapse that led to the deepest recession since World War II. On that date: L ehman Brothers filed for bankruptcy: One of the most venerated investment houses closed after 158 years of operation. M errill Lynch got absorbed by Bank of America: That $50 billion deal was more of a shotgun wedding orchestrated by Treasury Secretary Hank Paulson. A IG fell: The insurance giant could not come up with the money necessary to meet billions of dollars in collateral calls triggered by its credit and rating downgrades. The days and months that followed featured new, unimagined lows until The New Normal became regular-old normal. Now, we’re used to underemployment and anxiety about the future.

InsuranceNewsNet Magazine » September 2013

Well-intentioned financial reform that was supposed to protect the public has been blunted by bickering. Instead of refining good rules by which everybody can play, we are by half-measures building a Dodd-Frankenstein that could choke the life out of an industry without realizing it. I spent a few days at the Society of Financial Service Professionals’ annual clinic, which is part of FSP’s annual meeting. They really focus on the “professional” part of their name and buckle down on learning. One of the concerns I heard was of clients’ growing desire to race back to stocks and abandon the careful planning consistent with their values and goals. FSP members discussed ways to steer people back to their vision. But I’m sure many other advisors are fine with moving the money, charging the fees and making the commissions. Later, the tide will pull back again and where will those clients be? They will drift into an old age darkened by fear and uncertainty while their former advisors look to the next wave of prospects. When your clients look back on what you did with them, will it be with gratitude for securing the future for them and their successive generations? Did you serve them or did you serve yourself? This is worth considering as we go about our business during the cooling embers of summer. Nothing much happens in September. But sometimes everything does. Steven A. Morelli Editor-in-Chief

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INFRONT

TIMELY ISSUES THAT MATTER TO YOU

Don’t miss our Whole Life vs. Universal Life feature PAGE 22

Getting the Pulse of Life Month The LIFE Foundation coordinates the annual observance of September as Life Insurance Awareness Month (LIAM). This effort carries a greater burden each year as the number of life insurance policies in effect in the United States continues to decline.

INN: How’s it going with this year’s Life Insurance Awareness Month?

INN: How are you getting metrics? Does that mean you are tracking ads?

MARV FELDMAN: We’re very, very excited about this year because of the changes that we’re implementing. Of course, having sportscaster and former NFL quarterback Boomer Esiason as a spokesperson doesn’t hurt.

MARV FELDMAN: We’re going to be doing pre-roll advertising [ads that run before a video online]. We tried that in May with our disability insurance awareness program.

LIFE is joined by 100 companies and industry groups in the yearly awareness campaign, but recently, many of the sponsors have been asking for proof that this campaign is bringing results. LIFE president and sales master Marv Feldman has been working on a satisfactory answer for these sponsors. In this interview, Marv discusses what’s new with the campaign.

INN: It sure is a good time of year to have him aboard.

MARV FELDMAN: Yes, from the industry standpoint we are getting a lot of great feedback about having him as a spokesperson during the football season. We’re also reaching out digitally to people so that we can do a much better job of tracking and getting the metrics that the industry has been clamoring for. We think that’s going to help a great deal from the consumer standpoint.

InsuranceNewsNet Magazine » September 2013

INN: How do pre-rolls relate to the videos you already have? MARV FELDMAN: We have two series of stories: realLIFEstories and LIFE Lessons. RealLIFEstories tell about somebody who had life insurance and how that life insurance, disability insurance or long-term care insurance worked in their particular situation when it became a claim. LIFE Lessons are just the opposite. Those are stories of young people who have lost a parent or a guardian

Do MEDICAL

IMPAIRMENTS

for Life Insurance Make Your Head Spin? Breast Cancer with Negative Receptors Regurgitation of the Tricuspid Valve

Lacunar Strokes

EBCT Score in the 95th Percentile

NT-proBNP of 400 Hypertrophic Cardiomyopathy

Sleep Apnea with Bi-Pap

Stress Imaging Study with Apical Defects

Bicuspid Aortic Valve Positive CDT Remitting Relapsing MS and that death severely affected the young person’s financial ability to pay for college. Our traditional stories run three to four minutes. That’s too long in today’s marketplace. So we’re taking our new stories and making 15-, 30-, 60-second video spots. That’s what’s being used as the pre-roll advertising to make sure people have the attention span to watch it to the end. INN: Do you have any sense of how they are working? MARV FELDMAN: We did some blind studies of one group who hadn’t seen the pre-roll and another group who had. Our completion rate was about 83 percent. I think the industry average is closer to 70 percent. From an awareness standpoint, there was a 94 percent increase on awareness of disability insurance from the people who had seen the video versus the people who hadn’t seen it. Those are the metrics that we’re using to track our awareness campaign.

Hepatitis C with Bridging Fibrosis Enlarged Aortic Root

Elevated GGT, SGOT and SGPT

Lowered Ejection Fraction

Episodes of DVT

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NOTE: All conditions, scenarios, and medical impairments may not be considered insurable by the insurance companies. Only the insurance company can accept or deny an application after»a formal underwriting process. Informal inquiries September 2013 InsuranceNewsNet Magazine 9 and trial applications do not guarantee coverage or rate classes. FOR AGENT USE ONLY • NOT FOR CONSUMER DISTRIBUTION

INFRONT

GETTING THE PULSE OF LIFE MONTH

INN: What market are you targeting?

WHO benefits

YOU or your

IMO?

MARV FELDMAN: The middle market, basically in the 25-45, maybe up to age 50, age group. We target a lot of women because they control so much of the wealth and are involved in the decision-making process. Many companies are looking at alternate distribution systems, such as MetLife selling insurance at Walmart, and also new online programs. We’re trying to make sure that the resources we develop can be used by various companies regardless of what distribution system they’re using. We want to make sure our material can be used in wirehouse, bank or direct distribution, as well as by carriers and brokers.

“I think life insurance is a very important subject to talk about — and not just for those with families. Young people today don’t understand why they need it... Sitting down and having that conversation is something that all parents can do as their children get older.” Boomer Esiason, national spokesperson for Life Insurance Awareness Month 2013

INN: Most of our readers are independent agents and advisors. How about those folks? MARV FELDMAN: We work very closely with NAILBA (National Association of Independent Life Brokerage Agencies). As you’re aware, NAILBA represents probably 50 percent of the premium that’s written in the industry now. So we’re making sure that the NAILBA members have access to our resources so they, in turn, can push that information out to the various broker groups that they have. You may have a NAILBA representative who could have 1,000, 2,000 or 3,000 agents that they will reach out to. They can take something of ours, send it out and say, “Here’s something you might be able to use with your clients.” INN: Is it important to focus on the emotional aspect with this messaging? MARV FELDMAN: Absolutely. We key on the emotional side because one of the things that we’ve known for years is that people make the buying decision emotionally. Then they justify the decision with the numbers and the statistics and the illustrations and all the other material that goes with it. But first you have to have the emotional buy-in. That’s what we do so well at the LIFE Foundation. So we’re not trying to deal on the other side. That’s what the companies do best. Companies don’t do well on the emotional side. 10

INN: Right. That’s been the province of agents for so long. MARV FELDMAN: That’s exactly right. So our job at the LIFE Foundation is not to sell the product. Our job is to make the client aware of what the products do, so that when the agent makes the call, emotionally the client has made the decision. Then it’s up to that agent to convince the individual that it’s the right decision.

InsuranceNewsNet Magazine » September 2013

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InsuranceNewsNet Magazine Âť September 2013

FEATURE

An interview with

terri sjodin

E’VE ALL HEARD THE TERM “ELEVATOR PITCH,” that minispeech designed to grab someone’s attention, tell them what you do and get them interested in your services – all in the time it takes to ride in an elevator. Although an elevator might not be where you meet most of your potential prospects, having a great elevator pitch is something no business owner or salesperson should take casually. Elevator pitches can turn strangers into prospects and can be used anywhere. Whether the meeting is random or planned, whether you’re speaking at a sit-down event or in front of an audience, you should be prepared to capture your listener’s attention quickly. Since you never know when you will have that chance encounter with your next ideal prospect, you must be able take full advantage of the opportunity. So what’s your elevator pitch? How many do you have? How effective are they? How can they be better? You can’t “wing it,” says Terri Sjodin, and one size doesn’t fit all. The best salespeople in any industry are the ones who are best at telling their story while captivating their audience. Actually, when you present an elevator pitch, you create art, according to Terri. You weave a compelling case to help people make the right decisions about their finances and their future. You are the orator who moves people to action. The art of the elevator pitch doesn’t just happen. You must practice your pitch in order to make it perfect. For this month’s interview, we asked Terri, an acclaimed speaker and consultant, to share the art (and formula) to creating a perfect elevator pitch. Terri describes these methods in her newest book, Small Message, Big Impact, which shows how to take big ideas, communicate them quickly and make them hyper-effective. Terri is familiar to many insurance agents and financial advisors for her work with groups such as the Association for Advanced Life Underwriting (AALU) and insurance companies. In addition to working with the industry, she has worked with an impressive list of clients, including many Fortune 500 companies and even the U.S. House of Representatives. In 2012, Terri was inducted into the National Speakers Association’s Hall of Fame. In this interview with InsuranceNewsNet Publisher Paul Feldman, Terri tells how to build an irresistible sales presentation, whether it’s taking place in an elevator or in a stadium. September 2013 » InsuranceNewsNet Magazine

FEATURE

HOW TO CREATE THE PERFECT ELEVATOR PITCH

FELDMAN: Why is an elevator pitch important and why should someone spend a lot of time on it? SJODIN: When you’re selling yourself, you have this burden to communicate ideas in a shorter period of time. No matter who you are or how great your message is, people don’t want to give you an hour and a half in which to communicate it. So your burden is to create clear, concise, compelling messaging that works in a variety of scenarios. It’s not like the old-school methodology of an “elevator speech” where you come up with one pithy thing that would be a one-size-fits-all message to say off the cuff at a cocktail party. Now, it’s more of a strategy to communicate multiple talking points in a shorter period of time. Imagine if you had at your disposal anywhere from 10 to 20 “mini-talks” where your talking points are well thought out in a way that you can pick and choose the ones that are most relevant for that listener at any given time. That way, you’re nimble, fresh and conversational. Yet, you are still communicating your message in a way that is clear, concise and compelling and you get your message across in a shorter period of time. FELDMAN: How long should an elevator pitch be? SJODIN: I define an elevator speech as a brief presentation that introduces a product, a service, a philosophy or an idea. The main thing is that it’s introducing something. The name “elevator pitch” really is a metaphor. It’s not exclusive to elevators. The name suggests this notion that the message should be delivered in the time span of an elevator ride, which can be up to about three minutes. An old-school elevator speech was this idea that you’re going to sell the whole dog and pony show in three minutes or less. Instead, we now know that the real burden of an elevator speech is to intrigue your listeners enough that they want to ask the questions that only you can answer. FELDMAN: How do you structure the message? SJODIN: After intriguing listeners, give 14

Use the ‘elevator speech’ strategy to share your message more effectively Here are some of Terri Sjodin’s tips to help you better prepare for your next networking opportunity:

1. Define your intention. What do you want to happen as a result of your three-minute elevator speech?

2. Examine your scenario. Is this talk for a

planned situation or for a spontaneous occasion? Preparing accordingly can help you earn the right to be heard.

3. Draft your core outline. Think about your

message, your goals, your creative ideas and your persuasive arguments. Structure must be paired with progression. Your listeners want to know that you’re heading somewhere as you build up to your conclusion and close.

4. Build your case. Explain to listeners why they need you, your product or service; why they need to join your effort, and why now. Provide valid reasons and proof so your arguments pass the “So what?” test. 5. Don’t forget to close. Present your prospect

with a clear directive and a respectful call to action. Ask for that next appointment, follow-up call or meeting. Make it easy and painless for the listener to take the next step with you.

them three solid nuggets that they can do something with. The burden of a great message, regardless of length, is to meet three benchmarks. The first benchmark is your case, your second benchmark is your creativity and the third benchmark is your delivery. We strive to be good at all three benchmarks. But most people are really strong at one of them. They then have a secondary strength in another benchmark and they really need help with that remaining benchmark. The goal with Small Message, Big Impact is to help people become “three for three.” We lay out all messaging like a mathematical equation. There are six pieces of the structure: the introduction, the three body points, a conclusion and a close. You divide that into three minutes. There are 180 seconds in three minutes. Six into 180 gives you 30 seconds for each component. So, now you know you have approximately 30 seconds for your opener, 30 seconds for each of your talking points and then 30 seconds for your conclusion and close. Again, it’s done with the intention to get the listener to ask for more time.

InsuranceNewsNet Magazine » September 2013

6. Get creative. Do your homework on your

audience or prospects, crafting an approach that speaks directly to their needs. Ramp up your creative nature and customize your talk to dazzle your prospects. Give them a reason to want to meet with you again.

7. Speak in your own voice. Try a conversational approach that allows you to be comfortable and true to yourself and your personality. Communicate your experience, vision and excitement directly — in a way that only you can.

8. Write it out. Write out the long version and

recite it. Then transfer your core outline, key points and phrases to an index card.

9. Practice, practice, practice. Review your elevator speech again and again until it feels like a natural part of your everyday communication.

10. Use it! Any elevator speech is only effective if you use it! Terri Sjodin, Small Message, Big Impact, Portfolio/Penguin, 2012.

Your introduction has a couple of burdens, which include grabbing the listener’s attention and telling them where we’re going. The body of the talk has three talking points. Maybe you’re telling the listener: why you are a good choice to do business with, why they need to choose your company instead of another one, and why they need to take action now. So you must have an argument and a proof or an illustration for each argument. Then you want to answer the “sowhat” questions for the audience. The difference between a talk that’s informative and a talk that’s persuasive is your ability to answer the question of why they need you. The biggest mistake most people make is that most people have become far more informative than persuasive. The main reason is that there’s no risk in being informative. We don’t hear the word “no” when we’re being informative. So instead, you might give great information but the listener has to sift through all this data before they can decide whether they want to partner with you. They have to decide but you’re not giving them decision questions or decision issues. It’s just a data dump.

SPEAK TO WIN RETHINKING - WITH LES BIGBROWN CASES

FEATURE

September 2013 » InsuranceNewsNet Magazine

FEATURE

HOW TO CREATE THE PERFECT ELEVATOR PITCH

Even seasoned professionals must learn to self-edit because they do these data dumps. The structure I previously described makes you get to the point. You answer these questions: Why do your listeners need you? How are you going to satisfy that burden? What does it mean to your audience? Move onto the next two talking points. Then go to your conclusion and close, where you tell your listener what you want to happen next. FELDMAN: So beyond an elevator speech, this structure can work with any presentation? SJODIN: Absolutely. You might want to call it a general introductory speech. Let’s say you’re a top-producing, independent insurance representative. You have the opportunity to speak at your local business council meeting. At this meeting, you will meet other businesspeople who would be prime, beautiful, wonderful prospects for you. You get five minutes at the meeting in which to

say who you are and what your company does. Most people just kind of wing it and say, “Hi, my name is Terry. I work for ABC Insurance. I’m an independent insurance agent. As a broker, I can share with you all kinds of different products and services that will meet your specific needs, so come see me after the meeting.” Then they sit down. While that might sound very normal, it is hardly creative and it definitely wasn’t compelling. But that’s what most people do. FELDMAN: How would you make that compelling? SJODIN: There are three steps: Identify the goal or intention of the presentation, determine who the audience is, and establish the best way to close. Then ask, why do they need me? What do they need the most? Do they need to save time? Do they need to save money? Do they need to save sanity? Do they need to have security? If you want them to listen, they must feel as if they need you.

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InsuranceNewsNet Magazine » September 2013

FELDMAN: Would you say that attitude has a lot to do with it? SJODIN: Yes. In my book, I have a chapter called “Earning the Right to be Heard.” In that chapter, I say you have to get a little bit scrappy because that’s what we entrepreneurial salespeople have to do. Being scrappy is a commitment, to stand up for yourself and speak up about your vision despite the inherent risks of embarrassment, rejection, or even failure. To earn the right to be heard, you often need to do a little extra homework and customize your approach in a way that is unrivaled. Is it possible to do some “intel” before you approach that person? This requires natural curiosity and active listening. Don’t go for the typical kids-and-sports questions. That doesn’t impress or dazzle to win. Instead, ask your prospect about his or her favorite authors, bands, hobbies, and movies. Can’t talk directly to a prospect? Get the information from their friend, colleague, or administrative assistant. I’m talking about really rolling up your shirtsleeves and getting a little scrappy.

HOW TO CREATE THE PERFECT ELEVATOR PITCH FELDMAN: That’s a great chapter and subject. So how do you earn the right to be heard?

and waits in the office, he gets his three minutes. So he goes in, he gets his threeto five-minute elevator speech opportunity and what does he do? He does the same old, same old as everybody else. Basically does a data dump, gets cut off by Gordon Gecko and he says, “That’s it, kid? That’s all you got? What have you got for me besides connections at the airport to get Cuban cigars?” And he just gets burned. And that’s when the movie turns. Now certainly we’re not going to suggest that the audience does what Bud Fox does next but in that moment, he knows that he’s crashing and burning. He was creative to get in the door but then he didn’t have a strong elevator speech to deliver once he got in there. So what does he do? He scrambles and that’s when he says “Bluestar” because he knows insider information about Bluestar Airline, which is totally illegal. He drops the nugget about it and then that’s how he gets Gordon Gecko’s attention back. The Bud Fox predicament shows that sometimes you have to get scrappy and

SJODIN: Most of our time is spent meeting with and trying to gain access to people who didn’t want us there initially. Our job is to turn them around and to make them extremely pleased that they shared their time with us. You remember the movie Wall Street, where Charlie Sheen plays Bud Fox, the young man who is trying to access Gordon Gecko. He’s trying to bag an elephant, that’s what he calls him in the movie. In our own ways, we are all little Bud Foxes trying to land our own Gordon Geckos. So Bud has done the cold calling, sent the materials and the follow-up but he can’t get through. So he starts getting to know the assistant to Gordon Gecko. He finds out when Gordon Gecko’s birthday is. Then he shows up with a box of Gordon Gecko’s favorite Cuban cigars on the day of his birthday. Because he was scrappy and creative

FEATURE

creative to get in the door and that gets you access. But then you better be prepared to give a great talk once you get in. So that’s the pairing of the two. FELDMAN: How many talking points should you have ready? SJODIN: It depends. When I was on my high school debate team, we would go into a debate round with something called an ox box with probably 200 talking points in it. But I think you could do pretty well with 10. In my book, I talk about Ronald Reagan and that specific issue. Reagan was considered “The Great Communicator.” When he would travel to make speeches, he had multiple talking points that he would have to address. He learned to have a talking point card, a 4-inch by 6-inch card, on everything from Social Security to the Cold War to education, you name it. So let’s say he had a talk in the morning, a talk in the afternoon and a talk in the evening. He would flip through

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I. INTRODUCTION • Grab the listener’s attention. ............................................................ • Tell them where you are going ............................................................... II. BODY • Talking point #1 .................................................................................. • Talking point #2 ................................................................................ • Talking point #3 .................................................................................

III. CONCLUSION • Wrap up. (Allude to a couple of strong points you wish to discuss in detail if given additional time.) ...... .................................................................................................... IV. CLOSE: CALL TO ACTION • Ask for an appointment time to give them a longer, more in-depth presentation. ..... .....................................................................................................

this deck of 4X6 cards and see which three cards were most relevant for this group. Then he’d pull those out and put them on the podium for the talking points for the speech. And then he would go to the next group and he’d pull out the three talking points that were most relevant for that group and do the same thing. And then he’d just hold them together with a rubber band. It was pretty simple. Reagan didn’t have only one speech to give. He was always nimble. He morphed his speech to meet the needs of that group. He was conversational. Every audience would say, “Oh my gosh, he talked about exactly what we wanted him to talk about.” Don’t you see the similarities between what he did and what your readers have to do?

BLANK ELEVATOR SPEECH SHORT OUTLINE FORM (4X6 CARD)

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FEATURE

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Small Message Big Impact

term. While I’m not going to give you the FELDMAN: How much should somebig sales pitch this evening, I am going to one prepare? ask you for the opportunity to meet with you for a one-on-one presentation, so I SJODIN: For some people, it takes longer can learn more about what your needs are than others. The answer is: however long Available for download at www.smallmessagebigimpact.com and how I can be of service.” Boom! You’re it takes. It takes at least 10 times, once done. Ask for the meeting. I get it down on paper, for me to get a speech to a place where I’m really comFELDMAN: Many people complicate fortable with it. Sometimes it will look it and they don’t ask for the simple really good on paper but then it doesn’t things. come across my lips the same way. ™

FELDMAN: Absolutely. In both situawww.smallmessagebigimpact.com tions, you are making connections by captivating people. Which is a critical first step in any sales process. SJODIN: Right. And here’s another twist on that. Sometimes an insurance agent will say to me, “I have all these people here to do an educational seminar, I can’t be selling the whole time.” OK, do 55 minutes of content. Then, in the last five minutes, tell your audience that you really want to earn their business. Use the last five minutes of your seminar to give your elevator pitch, to get the next appointment, to talk to them about going to the next level. Have it structured so that three-minute elevator speech is the only selling you’re going to do. Your only sales job is to get an appointment. The whole point is to earn the right to be heard and to convert. How do you convert those audience members into clients? Disseminating information at a seminar alone is not going to do it. You have to ask. People get in their own way. They don’t ask. FELDMAN: How do you ask without it coming across as a hard sell? SJODIN: Professional transparency. “Hi, I’m Terry. I’m with ABC Insurance. The reason I did this event tonight is because I want to earn your business for the long 18

SJODIN: Exactly. Do you think that anybody says, “Oh my gosh, can you believe it? That financial services guy did an hour-long seminar and at the end of it he asked me to work with him? I was so offended.” No. They get it. FELDMAN: Do you find that people in the insurance business are so focused on the facts and the mechanics of the business that they have trouble engaging their listeners? SJODIN: I don’t find that so much in the insurance world because in most cases, if someone is drawn to the insurance industry, they’re probably more of a people person. They are pretty confident, but it doesn’t mean that they’re trained speakers. You can take someone who has untrained enthusiasm and really good instincts. Then you give them the right training and now they become unstoppable. FELDMAN: What’s a common mistake in making presentations? SJODIN: Most of the time, the speakers don’t prepare. They wing it.

InsuranceNewsNet Magazine » September 2013

FELDMAN: What else do you need to keep in mind as you prepare? SJODIN: If you really want to take your skill set to an entirely different level, it’s not how much more information about the industry can we cram in your head. It’s how can we get that information out of your head, across your lips and into the mind of someone else so that they can use that content productively. It is in the presentations that we deliver, all the different types of verbal communication, where human beings come together and talk about the significance of insurance, the value and peace of mind it gives them, and how an insurance advisor can help them save time, money and sanity while giving them security. That is what we communicate. It is an art form. So, when people focus on their public speaking and their presentation skills, they shouldn’t think that it’s always about speaking to a large group. We’re speaking over the phone but the magic still has to come through, even over the phone. Presentation skills are the art form of the insurance world. For more information on Terri, visit www.sjodincommunications.com

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FEATURE

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[NEWSWIRES]

Independents And Boutique Advisors Make Gains bitly.com/qrboutique

Long-Term Care Costs Keep Going Up It seems there is no way around it; costs for longterm care keep rising, no matter which type of care is involved. Over the last five years, the cost of a semi-private room in a nursing home rose by an average 3.6 percent per year, according to John Hancock

Life. Those rooms now go for a pricey $227 a day, or $82,855 a year. Your client wants a private room, instead? It will cost more – $258 a day or $94,170 a year right now, and that’s up by average 3.6 percent too. What about assisted living facilities? Their costs rose by an average of 2 percent a year over the past five years, to $3,427 a month today or $41,124 annually, John Hancock said. Adult day care is up, as well, rising by an average of 1.6 percent a year in the last five, to $71 a day or $18,460 annually. Same with home health aides; their hourly rate of $19 today (or $29,640 annually) rose by an average of 1.3 percent a year; that’s less than the other increases, but it’s still up. Just think, these increases occurred during an era when overall inflation was low. What increases might be in store for long-term care recipients if inflation heats up? This makes the case for long-term care insurance, no?

LIFE SETTLEMENT DEALS DROPPED NEARLY 12 PERCENT IN 2012

The year 2012 wasn’t the happiest one for the life settlement industry. The number of settlement 2012 transactions fell by 11.8 percent to 1,187 in 2012 compared to 1,346 the year 2011 before, according to a study of state regulatory data by The Deal, a business unit of TheStreet. The to-

Number of settlement transactions

1,187 1,346

tal face value of policies sold declined too – to $2.12 billion from $5.06 billion.

The continuing legal and regulatory hurdles facing large, premium-financed policies is to blame, the researchers said. Even so, providers are upbeat about market prospects. That’s because money has begun returning to the market and multiple bids are now being made on fewer policies, with the result that policy values are going up, the firm said. DID YOU

KNOW

Which firms were the biggest settlement players last year? Coventry First, Magna Life Settlements, Legacy Benefits, Settlement Group and Life Equity, according to the study.

CDAs HAVE NOT GONE AWAY

Contingent deferred annuities – those insurance contracts that provide an income guarantee with a managed portfolio of investments such as mutual funds – may have seemed to have gone down under, but they haven’t. By the time you read this, the Life Insurance and Annuities (A) Committee of National Association of Insurance Commissioners (NAIC) will have pre-

sented a series of recommendations for regulating contingent deferred annuities (CDAs) at NAIC’s summer

meeting in Indianapolis. From the looks of things now, other NAIC committees might end up being tasked with

IT TAKES CLIENTS AN AVERAGE OF 4.8 YEARS to feel comfortable enough to recommend their financial advisor to someone else, and that’s more than twice as long as the 2.1 years that advisors tend to think. Source: Prudential Financial

InsuranceNewsNet Magazine » September 2013

reviewing and developing regulatory approaches that state regulators can use when reviewing CDA filings. And filings do come in. To date, the handful of CDAs that exist are filed as securities products. They don’t just sit there. Distributors are giving them some attention, too. Not long ago, for instance, Aria Retirement Solutions said it had begun offering the RetireOne Transamerica II, a CDA issued by Transamerica Advisors Life. The firm specializes in providing guaranteed retirement income solutions to clients of independent registered investment advisors (RIAs) that operate fee-only practices. Aria says it has also partnered up with the well-known asset manager, sabotage PIMCO, which will now start “unbundling and wrapping” a lifetime income guarantee on some of its most popular funds outside of the traditional variable annuity structure.

THE SIFI VERSUS GSII BATTLEGROUND

This summer, financial people started tussling with two more terms that were the brainchildren of the Dodd Frank financial reform act. They are SIFI and GSII, and they are different but have similar goals. SIFI stands for systemically important financial institution. The new Fi-

nancial Stability Oversight Council (FSOC) is charged with identifying such institutions, which then become subject to additional oversight, higher capital requirements, and other federal scrutiny. According to FSOC Chair and U.S. Treasury Secretary Jacob Lew, the purpose is to “help protect the financial system and broader economy from the type of risks that contributed to the financial crisis.” As for GSII, it stands for global systemically important insurer (GSII). The

Financial Stability Board (FSB) is charged with identifying such firms with the assistance of the International Association of Insurance Supervisors (IAIS). Insurers so-identified are considered to present systemic threats to the global financial system and so will be required to hold higher reserves and draw up recovery and resolution plans to limit economic problems if they fail, IAIS said. So far this summer, FSOC designated

[NEWSWIRES]

Don’t miss our Whole Life vs. Universal Life feature PAGE 22

American International Group (AIG) and General Electric Co. unit GE Capital Corp. as nonbank SIFIs. Prudential Financial might be so designated too, but the company is fighting it. Another possibility is MetLife, which has said it has been notified that it has reached “Stage 3” in the SIFI determination process. Meanwhile, FSB designated nine institutions as GSIIs, and some of them – including Allianz, AIG, AXA, MetLife and Prudential – are big names doing insurance in the United States. We won’t bore you with the details. But here is a thought: Might advisors who represent “designated” companies start using the designations as a value-added come-hither – for instance, by telling clients that they’ll want to give serious consideration to their company because it is subject to the stiffest oversight?” And might advisors who represent non-designated companies start dissing the designated carriers for having become subject to such a designation? This bears watching.

QUOTABLE We’ve shifted the retirement savings burden to individual investors and in doing so have tasked them with the impossible – how does someone know exactly how much to save when they don’t know how long they are going to live? — Chip Castille, managing director and head of BlackRock’s US & Canada Defined Contribution Group

UNIFORM FIDUCIARY STANDARD WILL COME AT A COST

Nearly half (46 percent) of registered representatives and dual-registered reps say they would most likely shift their customer mix to higher-income clients if the Securities and Exchange Commission (SEC) were to implement a uniform fiduciary standard (do what is best for the customer). In addition, 39 percent would increase prices, 35 percent would offer a more limited range of

This is Sabotage

401(k)

People sabotage their own retirement savings when they take out loans from their 401(k) retirement savings plan. Those strong words come from New York Life Retirement Plan Services, which is backing the idea of limiting the number and size of loans available to participants. Eliminating loans entirely from 401(k) plans may not be practical, New York Life said, but Rachel Rice, managing director of marketing and product development, said the industry needs to do something to “reverse the ATM mentality that has developed around 401(k) savings.” In New York Life’s own defined contribution platform, the average contribution rate of those taking out loans is 5.3 percent – noticeably less than the 7.23 percent rate for plan participants without loans. And more than two thirds who have an outstanding loan balance when they leave the employer will take a cash distribution rather than pay back the loan, the company said. There was a time when the 401(k) buzz was about increasing liquidity so that plan participants could have access to the money in an emergency. Did the pendulum swing too far? products and 84 percent believe their costs of doing business will increase.

Those findings come from a survey of advisors by National Association of Insurance and Financial Advisors (NAIFA) and The American College of Financial Services. Worth noting: Ninety-one percent of the registered reps say their investment clients have an average household income of less than $250,000, and 47 percent put the figure at less than $100,000. That’s the mass-affluent zone, and not all of it at the high end. Earth to SEC: Is this what you want to have happen in this marketplace? Really?

HEY BIG AD-SPENDERS, WHERE’D YOU GO?

Producers generally like it when their carriers advertise, because that supports brand awareness and awareness helps producers get in front of customers. But 2012 turned out to be a year where life and annuity companies generally did not push the ad envelope. DID YOU

KNOW

According to SNL Financial, advertising spending for the industry remained flat for the year. At the top

10 carriers, for instance, ad spending dropped by 0.1 percent compared to 2011. That’s meaningful, because the

top 10 account for 57 percent of the industry’s ad spending, according to the research. As for the life industry overall, ad spend did increase but only by a hair (0.9 percent). Of course, some carriers did bump up their ad spend in 2012. For instance, the lead company in SNL’s top 10, New York Life, spent $148.4 million on advertising, up 6.4 percent from 2011. And the ninthand 10-place spenders – Nationwide and AEGON – increased their ad spending by 46.9 percent and 98.3 percent, respectively, compared to 2011. Even with those increases, the industry’s advertising profile remained flat. Perhaps that’s not so surprising. Carriers overall reined in on sales during the slow economic recovery. Well, maybe next year will be different.

IN MID-2013, JUST 56 PERCENT OF GEN Y ENTREPRENEURS (ages 24 to 35) said they like taking risk; that’s down from 72 percent in 2007 and it puts them on par with boomer entrepreneurs (ages 48-70), 54-53 percent of whom said the same in 2013 and 2007. Source: American Express September 2013 » InsuranceNewsNet Magazine

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FEATURE

OTH WHOLE LIFE AND UNIVERSAL LIFE have had their fans and detractors ever since universal life (UL) was spun off as a more flexible and interesting (pun intended) option to what some were calling “stodgy, boring” whole life (WL) in the late ’70s and early ’80s. Of course, that is a simplistic description of the two products, but arguments about the two seem to fall into these tracks. UL offers the prospect of cash value with flexibility in premiums and terms while offering more transparency. WL guarantees to provide what the owner signed up for without unpleasant surprises down the road. One person’s stodgy and boring is another’s peace of mind. We are delving into this face-off in honor of Life Insurance Awareness Month. The two product lines have been doing well, in their own ways, since the 2008 financial crash. WL has been on a steady ascent since the past recession started. It has showed 15 consecutive quarters of premium growth as of the first quarter of this year, leading WL to a 33 percent market share, according to LIMRA. UL has a bigger chunk of the market at 40 percent, although it has had more of a ragged history of premium and policy growth since ’08. But the glow has come back to UL, primarily because of indexed UL (IUL), which is a small but booming line of products. UL showed 8 percent premium growth in the first quarter, but that was fueled by a 23 percent increase in IUL. To examine the dynamics of these two schools of products, we turned to the Society of Financial Service Professionals (FSP) to help us locate two esteemed experts in the field. These experts, in turn, faced off as one provided a lively case for WL and the other presented a passionate argument on behalf of UL. In the UL corner is Guy Baker, who will be familiar to many readers for his service at FSP, for his tenure as past president of the Million Dollar Round Table and as a popular speaker on the subject of clarity in the sales process. Needless to say, both of these gentlemen have the chops to go into the ring on this. OK, even though we have put this in a face-off context, it is all in good fun and in the spirit of competition. Representing WL is Anthony Domino Jr., who also will be recognized by many for his service as FSP past president, as well as his role as president-elect of the Association for Advanced Life Underwriting. All the products in the UL and WL spheres are excellent choices for clients’ individual needs and risk tolerances. They each serve some purpose and they give agents and advisors more choices to meet the needs of their clients. But there are clear distinctions and considerations that professionals need to be aware of as they present these products. With that in mind – let the battle begin!

INSIDE THIS SECTION P24 UL Evolves into Robust WealthGenerator and Legacy Protector by Guy Baker P28 Whole Life Changes with the Times and is Perfect for These Times by Anthony Domino Jr.

September 2013 » InsuranceNewsNet Magazine

FEATURE

UL EVOLVES INTO ROBUST WEALTH-GENERATOR AND LEGACY-PROTECTOR

UL Evolves into Legacy-Protector and Robust Wealth-Generator F lexibility is UL’s most attractive feature, but advisors must educate the policyowner as to UL’s merits and potential downsides. By Guy Baker

hen I first came into the insurance profession in the early ’70s, the staple product was whole life. I loved whole life. What was there not to love? Whole life offered guaranteed premiums, guaranteed cash value and a long history of dividend payments that eventually could make the premiums disappear (based on dividend performance). Whole life had a guaranteed loan rate. NonPar whole life was a form of the word. It catered to the buy-term-and-invest-the-difference discussion. It was a way to have the guarantees, but at a lower premium.

Historical Perspective

Inflation raged and interest rates shot up significantly. Interest rates spiked, the policy loan rate was set at 5 percent and certificates of deposit rates rose to 18 percent. All this caused panic in the halls of many insurance companies. Called “disintermediation,” the company response was to instill variable rates and thus, risk was introduced into the hallowed institution of whole life. E.F. Hutton, a little-known life carrier, introduced a revolutionary new product called universal life (UL), which was de-

signed to provide the ultimate in flexibility. UL allowed the insured to design their own premium and cash values. Dial it up and dial it down. Many of the old-line agents who mainly had sold whole life for their entire careers found they were competing with the low-cost UL products. The pressure to provide a competitive product increased. Some companies decided to convert their policyholders to UL. Most of the old-line companies stayed the course, but developed a more flexible form of whole life. Early on, I was fortunate to build a friendship with Lynn Miller, one of the key actuaries who designed the Hutton UL. He has long since retired. We sat down and had a very detailed discussion about the reality of UL. I walked away from that discussion convinced that the only difference between UL and WL was the assumptions. Whole life bases the premiums on the guaranteed interest in the product. UL bases the premium on the assumed interest rate in the product. Otherwise, the mortality costs were the same and the expense loads were, in some cases, less. So in the final analysis, and I think this is true today, the difference was never in the math. The difference is in the guarantees. With whole life, the insurance company accepts most, if not all, of the risk. It is heavy in guarantees. The policyowner’s only obligation is to pay the premium each year. Any improvement in mortality is reflected in the non-guaranteed div-

“I walked away from that discussion convinced that the only difference between UL and WL was the assumptions.” 24

InsuranceNewsNet Magazine » September 2013

idends. This is also true of expenses. Improvements are reflected in the dividends. So while the initial, guaranteed premium is based on guaranteed mortality and guaranteed expenses, the dividend performance is fundamental to policy performance over time. Even though whole life is a bundled product (the policy expenses, interest earnings and mortality costs are not readily transparent to the agent or the client), it has been the historical dividend scale that provided the competitive edge.

Shifting Risk

With UL, however, virtually all of the risk is shifted to the policyholder. There are underlying guarantees: the mortality costs, expense loads and minimum interest rate. But the illustration is based on current assumptions for these three factors. Everything is unbundled and transparent. The “black box” of whole life was opened for all to see. With a high interest rate assumption, a UL illustration shows significantly lower premiums for the same face amount compared to WL. (With a low interest rate, not so much.) The premium differential between WL and UL could be 50 percent or more. With these types of “savings,” consumers were only too willing to trade in their “high cost” WL for a “low cost” UL with twice the coverage or more. When interest rates hit 18 percent, I saw several illustrations for 40 years based on this as the annual rate. Who wouldn’t buy that?

Impact of UL on the Marketplace

To protect the carrier’s book of business, some companies developed variable whole life. This combined the math of WL with the opportunity to participate in a more aggressive portfolio than the general account of the carrier. The ability to illustrate a “historic” 12 percent return gave WL agents a product to counter the aggressive illustrations used for UL. In some respects, this became a Pandora’s box. Existing WL policies became prey

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September 2013 » InsuranceNewsNet Magazine

FEATURE

UL EVOLVES INTO ROBUST WEALTH-GENERATOR AND LEGACY-PROTECTOR

to the aggressive UL illustrations. The unintended consequence was 20, 30 and 40 years of WL renewals that were lost overnight as policyholders flocked to UL to reduce their insurance costs. To the unsuspecting and uninformed, this shift of risk was neither understood nor appreciated. It was not until interest rates dropped below 5 percent that the reality of UL became apparent. There really was no economic difference between WL and UL, except for the assumptions. An unintended consequence occurred from this. In order to add more return to the policies, these same creative agents and actuaries combined to engineer variable universal life (VUL). So both sides of the aisle had the same ability to offer eye-popping performance. And again, the net result was that agents further cannibalized the book of whole life policies that had offered proven stability for decades. Agents traded the future value of their renewals for the present value of a large first-year commission. The income security that was such an incentive for many agents virtually disappeared in a flurry of replacement activity.

in the 2000-2010 decade. But set those returns to 0 percent, using call options purchased with the interest on the underlying general account portfolio in the policy, and the returns jump significantly.

The Future of Life Insurance

No one has a crystal ball that can foresee the future, but we all have heard the past is prologue. Is it true of the stock market and its impact on IUL? Are there systemic factors caused by programmed trading, exchange traded funds, credit derivatives and an unsettled world that will circumvent the creative minds trying to drive higher returns? Can IUL answer the call 20 years from now? The real downside for any insurance policy is the yin and the yang. The positive with IUL is its flexibility. WL is not flexible. If you don’t pay the premium on a WL policy, the premium will be paid from the existing cash values. As long as there are cash values, the WL policy will continue with a death benefit adjusted by the outstanding loan balance. Cancel the policy and the owner may have a tax surprise. The same could be true of an IUL, but it is less likely to happen. The flexibility is the yin and the yang. The yin is the ability of the policyowner to stop and start premiums without incurring loans or interest charges. But the yang is the impact this flexibility has on

Is IUL the panacea the insurance industry is desperately seeking?

Indexed Universal Life

Enter IUL – indexed universal life. Variable universal life had its heyday during the go-go ’90s, but when the tech bubble and credit bubble clobbered the market, variable life suffered significant losses. Indexed annuities and IUL became the logical middle ground between a general account product struggling with low interest rates and a variable product with wide swings. Having the ability to offer guarantees on the downside with unlimited upside potential (even if it was capped) became an acceptable risk for agents and insurance buyers still trying to recover from the market aftershocks. So is IUL the panacea the insurance industry is desperately seeking? It is hard for me to argue against market performance over the past 85 years. The U.S. stock market’s total return for more than eight decades is 9.8 percent. That includes the six “black swan” events. We had two of them 26

the policy’s long-term viability. The real power of life insurance is the longterm compound interest effect on the cash value. Underfund the policy and you have a really expensive term policy that will fall apart when the insurance is needed most. The word of caution is to make sure the policyowner understands the lack of guarantees and the impact this will have when they reach 65 or older. I remember an elderly client and his penetrating gaze when he asked me, “Will this policy be here when I die?” He bought the insurance to benefit his family. He wanted to be certain that it would pay the death claim. Policyowners buy insurance for a variety of reasons. IUL is a very cost-efficient way to fund life insurance premiums until death, even if the policyholder lives longer than the actuaries predict they will. But if the policyowner does not pay the scheduled premium and expects the policy to deliver on the promised illustrated value, there is going to be a major disconnect. As agents, it is our responsibility to educate the policyowner as to the merits of the policy and its potential downsides. Guy Baker, MBA, MSFS, MSM, CFP, CLU, is a 44-year member of Million Dollar Round Table and 36-year member of the Top of the Table. He served as MDRT president in 2010 and developed The Box, a simple explanation of the mathematics of life insurance (www.aboutthebox.com). He is managing director of Wealth Teams Solutions, a family office offering wealth counseling and risk management for high-net-worth families and business owners. Guy can be reached at Guy.Baker@innfeedback.com.

InsuranceNewsNet Magazine presents

in partnership with the Society of Financial Service Professionals

whole life VS. universal life

InsuranceNewsNet Magazine » September 2013

THE FINAL ROUND WED. SEPT 25TH

Join the live webinar and see who prevails. Seating is very limited, register today:

www.WLvsUL.com

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September 2013 Âť InsuranceNewsNet Magazine

FEATURE

WHOLE LIFE CHANGES WITH THE TIMES AND IS PERFECT FOR THESE TIMES

Whole Life Changes with the Times and is Perfect for These Times N o longer “boring old vanilla,” whole life has added flexibility with riders and living benefits, making it worth considering in today’s interest rate environment. By Anthony Domino Jr.

hole life insurance – classic, traditional, boring, old-fashioned whole life insurance – is perhaps the most misunderstood and under-appreciated financial product in the advisor’s arsenal. That is until recently, when persistent low interest rates and the maturity of competitive enhancements combined to create the perfect storm. Many advisors, and the clients they serve, are taking a second look at the powerful role that whole life can play within the modern asset allocation grid and risk protection profile.

Inflexible No More

Whole life has not simply become the best-looking horse in the glue factory. True, much of the recent resurgence in whole life’s popularity has come as other products, such as universal life, have suffered from crediting rates at or near stated guarantees and price increases resulting from stiffened insurance department reserving requirements. Riders such as one-year term, enhanced paid-up additions and critical care all have helped to brighten up what many see as yesterday’s news. But the backbone, and therefore the underpinning upon which whole life has been built, remains the same – steady predictable returns with base guarantees. (Of course, guarantees are based on the claims-paying ability of the carrier.) Whole life is typically a product issued by mutual carriers. So, profits are returned in the form of dividends, which are not guaranteed. I will present more information on dividends later in this article, but dividends remain tax-deferred when left in the policy 28

to buy paid-up additions. This is a provision that adds an element of inflation protection to the product.

The Ultimate Utility Tool

Whole life insurance is the Swiss Army knife of the advisor’s tool kit. Insurance is a contingency asset. It protects you “in case:” in case of death or disability or in the event one needs access to safe, conservative savings. Insurance company actuaries are smart people operating in a complex world, but they do favor a certain type of simplicity. Whole life is intended to be an asset that you use and maintain for your whole life. To quote the tag line of a popular carrier, it is intended for the “if” in life. Whole life features what one would expect from a life insurance policy, solid death benefit protection. Thanks to extended life expectancy tables, the modern policy is now designed to provide base coverage to age 120. Enhanced loan features (variable loan rates or decreased loan interest rates in lower policy years) all allow the policy owner to “unlock” the death benefit prior to the insured’s death. Features such as living benefits and accelerated death benefits riders have provided even greater access to the cash value. Even properly structured life settlements provide for favorable access to policy values before contract maturation. Disability waiver of premium, which is a relatively low-cost rider, remains a distinguishing facet of a well-constructed whole life plan. Savings alternatives such as 401(k) plans, individual retirement accounts and 529 plans do not provide a method for the funding to be completed by a third party. Of course, policy cash values still accumulate (yes, on a tax-deferred basis) and

InsuranceNewsNet Magazine » September 2013

are accessible in the traditional manner (surrender or loan). Policy benefits would be reduced by any outstanding loan, loan interest or withdrawals. Dividends also are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any loans considered as gain in the policy may be subject to ordinary income taxes. But, unlike other permanent products such as secondary guarantee universal life, accessing the cash value will not necessarily reduce the underlying policy provisions and erode the death benefit any more than by the amount of cash removed. Any advisor with more than a decade in the business undoubtedly has experienced how cash values have helped to keep a business afloat, pay medical bills or purchase a vacation property. Volatile market performance, along with the high fees associated with 529 plans, have encouraged many to favor using a well-funded whole life policy as a way to fund education. In the current low-interest rate environment, the stability of guarantees has buffed the luster of a product that is getting a second look from many potential buyers. Describe a financial vehicle with underlying guarantees that provides support in the event of disability, at retirement or upon death, and the uninitiated (including many legislators) will assume you are describing Social Security. Add the financial stability of a well-regulated and properly funded system of reserving – and you are describing whole life. Imagine that! Finally, it is important for an advisor to recognize why cash value is important to a life policy. Mortality is graded on a curve. The older one gets, the more likely one

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September 2013 » InsuranceNewsNet Magazine

FEATURE

WHOLE LIFE CHANGES WITH THE TIMES AND IS PERFECT FOR THESE TIMES

is to die. This is a primary reason why so few term policies result in a claim. The cost of transferring the risk of death becomes too great when it becomes more likely. Consider two policies with $1 million of death benefit. The universal life or term policy with no cash value represents a full $1 million of risk to the carrier. The whole life policy with $350,000 of cash value represents $650,000 of risk. Carrier costs are lower at that point, and so are policyholder costs.

Bells and Whistles

So what has changed with whole life? There have been some improvements and modernization, mainly in riders that have helped to enhance the product’s flexibility and make it more like the “pay what you want” universal life alternative. The most significant of these is the one-year term rider. So called “blends” of whole life and term insurance create the ability to increase policy death benefits while not necessarily growing cash values. Add in the paid-up additions (PUA) rider and you have virtually the same “pay what you want” flexibility as universal life. (One caveat: the net effect of paying less premium – a lower death benefit – may be more rapidly evident in a whole life blend. Maybe that’s not a bad thing.) With the advent of the computer, policy illustrations now can accommodate term riders that increase, decrease, keep the overall death benefit level, etc. Only denizens of the nostalgic days of projections based upon rate book calculations can truly appreciate just how valuable a time-saving tool computer-enhanced ledgers are. The flexibility that this brings is quite significant. It has also provided a “testing laboratory” to model the effect that skipping premiums, adding in PUAs or making withdrawals will have on a policy’s longterm performance. So, in a certain sense, although riders have opened up the world of whole life to enhanced performance and greater policy owner control, it is the modern computer program that truly unlocks these features. Now we simply need to have an environment where the product can clear itself from the clutter that so often permeates the world of financial instruments. And so that environment has appeared in a long period of low interest rates and an unusually volatile long-term investment market. 30

Portfolio Rate Crediting

Predictable returns and relatively blended performance associated with the portfolio-crediting rates make up the dividends declared by whole life carriers. Start with the concept of averaging. The dividends paid by the whole life carrier are essentially an allocation of the profits generated by the issuing carrier. Those profits are the result of three factors: investment earnings, expense savings and mortality gains. The investment earnings piece is where the blending comes in. Insurance companies invest primarily in bonds and fixed rate instruments. Clearly, these are often longer-term investment contracts, particularly in periods of relatively higher returns. When the company determines what their investment yield is in any given year, it is typically combined throughout the entire company. This is called a portfolio rate, because the entire portfolio is considered for purposes of the calculation. So, a threeyear policyholder is placed into the same bucket of assets as a 10-year policyholder. Conversely, most universal life policies simply provide a new money-crediting rate, often in parity with more stable instruments such as Treasury rates. Obviously, in times of low nominal rates, this blending of returns tends to average to a higher return than a new money rate. Should interest rates increase gradually, both products will experience similar growth patterns, whereas should rates spike sharply higher, a new money rate will outpace a portfolio rate.

The expense savings element of the dividend is reasonably self-evident. Carriers routinely evaluate various cost savings methods and service enhancements that will reduce the countless layers of costs that the modern carrier undoubtedly is presented with. Mortality gains pose an interesting aspect of whole life. When pricing the product, actuaries assume that a certain number of insureds will die, becoming claims paid. When fewer people than projected die – based upon actual underwriting standards, naturally improving mortality and initially conservative assumptions – the result is fewer claims and that leads to excess reserves on hand. These mortality gains become a part of the dividend. This can be a significant component, but more importantly, it is non-correlated to any other asset available in the marketplace. In summary, what we now have is a financial product that has gained flexibility, is operating within a sweet spot based upon competitive market pressures and is truly a non-correlated asset. And you thought it was boring old vanilla whole life. Anthony Domino Jr., CLU, ChFC, MSFS, is a 27-year member of the Society of Financial Service Professionals and was president during the 2004-2005 fiscal year. He is the president-elect of the Association for Advanced Life Underwriting. He is also managing member of Associated Benefit Consultants in Rye Brook, N.Y. Anthony can be reached at Anthony.Domino@ innfeedback.com.

InsuranceNewsNet Magazine presents

in partnership with the Society of Financial Service Professionals

whole life VS. universal life

InsuranceNewsNet Magazine » September 2013

THE FINAL ROUND WED. SEPT 25TH

Join the live webinar and see who prevails. Seating is very limited, register today:

www.WLvsUL.com

PAST & FUTURE

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September 2013 Âť InsuranceNewsNet Magazine

[LIFEWIRES]

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Life Applications Take a Dive in June

2.2

Applications for individual life insurance have dropped 2.2 percent in the first six months of 2013 compared to the first half of 2012, according to the MIB Life Index, which measures applications submitted to insurers on a national basis every month. June’s decline set a new all-time monthly low with a drop of 3.7 percent compared to one year ago. Those are “unfavorable trends” for the industry as it headed into what MIB says is “the typically slow summer season.” The news may take some people by surprise, since just one month ago, another researcher – LIMRA – reported that total estimated individual life new annualized premium grew by 7 percent in first quarter 2013 year over year. This is the most recent sales data LIMRA has available. Every major product line experienced positive premium growth in first quarter, LIMRA said in announcing its first quarter individual life sales estimates. But the LIMRA figures track sales, not new applications submitted for life insurance coverage. In fact, another number from LIMRA’s first quarter report align with the MIB findings. This is the total individual policy count related to new sales.

1H 2013

LIFE INSURANCE – THERE’S AN APP FOR THAT

Your smartphone can do everything from hailing a cab to ordering a pizza to playing Words with Friends. And now life insurers are easing into producing mobile apps for their agents. Where only a handful of the top-100 life insurers offered agent- or producer-focused mobile apps two years ago, 27 insurers now have such apps available. That is still a small percentage, but that number is expected to increase, according to a new report by Celent, “Mobile Insurance Technology for the Life Insurance Producer.” The report is the latest in a series of studies on mobile device adoption by the financial service industry. Apps offered by the top insurers can be broken down into marketing, information and transactional apps, the report said. As more consumers expect their financial advisors to adopt mobile technologies, agents and brokers expect insurance carriers DID YOU

KNOW

to step up their development of mobile apps. Studies conducted by other consulting firms as well as Celent have shown that advisors prefer doing business with insurance companies that have robust mobile capabilities.

RIDERS LET POLICYHOLDERS COLLECT FOR ILLNESS

A recent survey showed that Americans fear the costs of paying for a serious illness more than they fear dying from that illness. Those folks might be interested in the optional riders that carriers have been rolling out that let consumers use the death benefit to cover costs associated with a chronic or terminal illness. Prudential is offering such a rider on its PruLife Universal Protector policy and a similar rider was first introduced by The Hartford’s individual life insurance business, which was acquired by Prudential early this year. Here is how it works: Once the claim criteria is satisfied, a policyholder can advance the death benefit and use the money for ex-

ONLY 11 PERCENT OF ADVISORS have completed a succession plan for their practice. Source: Signator Investors Survey

InsuranceNewsNet Magazine » September 2013

penses such as reimbursing family members for care, paying someone to help at home, in a facility or elsewhere. Those qualifying under the terms of the rider can access the death benefit if the policyholder becomes chronically or terminally ill. For a chronic illness, a licensed health care practitioner would need to certify that the insured is unable to perform at least two activities of daily living for a period of at least 90 days or if supervision is required to protect them from threats to their health and safety due to severe cognitive impairment. The physician must also certify that the insured is unlikely to recover from the illness, which is often the case for those who have suffered a heart attack or stroke or have been diagnosed with Alzheimer’s. For a terminal illness, a licensed health care practitioner would need to certify that the insured has a medical condition that is reasonably expected to result in death in six months or less.

STATES TO INSURERS: HAND OVER THE BENEFITS

Since Jan. 1, legislators in seven states have introduced bills or enacted laws addressing unclaimed Fla. Gov. Rick Scott life insurance benefits and the procedures to be implemented by life insurers in order to locate beneficiaries of deceased insureds. The legislation generally follows the National Conference of Insurance Legislators Unclaimed Life Insurance Benefits Model Act from last year. So far in 2013, laws in Montana, Nevada, New Mexico, North Dakota and Vermont have been enacted and bills were introduced in Massachusetts and Rhode Island. Alabama, Kentucky and Maryland passed laws based on the NCOIL model in 2012. Florida became the latest state to press some of the nation’s biggest life insurance companies to hand over benefits, as the state pushed insurers to pay out benefits from almost 96,000 unclaimed policies worth more than $75 million. But those beneficiaries expecting a windfall might be disappointed. The vast majority of those unclaimed death benefits are worth less than $1,000 each, according to a state Department of Financial Services database. That’s because most were sold as low-value industrial policies decades ago.

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For financial professional use only. Not for use with the public. This material may not be reproduced in any form where it would be accessible to the general public. September 2013 » InsuranceNewsNet Magazine 33

What would YOU do if you found a million-dollar bill? Spend it at Walmart, of course! bitly.com/innm0913-millbill

LIFE

well have been impacted by the new legislation in terms of higher taxation. Adding it all up, the time is right to take a serious survey of the adequacy of existing coverage for survivor income purposes.

Low Inflation and Low Interest Rates Compound the Issue

Is a Million Dollars Enough Today? W hy clients may need twice as much life insurance to fund survivor income. By Mark Peterson

ver the years, many clients may have obtained million-dollar life insurance policies to help address survivor needs. Although a million-dollar policy might have sufficed to provide that needed survivor benefit 10 years ago, or even eight years ago, some of today’s clients may need policies with face values that are twice that amount. Why the difference, when many aspects of our economy seem to be improving? And what’s a good entry point for the conversation with clients? Let’s start with the evolvement in taxes, which is a great reason to conduct a beneficiary review. When Congress changes tax laws, the American people take no34

tice. The federal changes wrought by the American Taxpayer Relief Act (ATRA) earlier this year are a compelling reason to talk with clients, many of whom may need to add coverage, as mentioned previously. In some cases, the common threshold of $1 million of life insurance may need to be doubled, or nearly so, if clients are to attain their financial goals. Survivor income is a universal issue for clients. ATRA has removed the “furlough” from the two percentage point reduction in payroll taxes that had been in effect during 2011 and 2012. In addition, some clients are affected by the higher income surtax in the Patient Protection and Affordable Care Act, as well as by the increased personal income tax rates. Keep in mind, survivor income takes into account what would have been earned by way of dividends and sale of capital assets after the capital gains tax; both of these may

InsuranceNewsNet Magazine » September 2013

Another consideration for survivor income is the prospect of higher inflation rates in the future. Did you know that the average 2012 inflation rate of 2.1 percent is lower than the inflation rate that we experienced in 60 of the previous 98 years? The inflation rate in the first quarter of 2013 was lower than it was in 2012. Does this mean that future inflation rates will be higher? Nothing is certain, but history would point us in that direction. For a more current perspective, 22 of the past 50 years have seen an average inflation rate of 3.5 percent or greater. How many of us are using a 3 percent inflation rate to determine income needs? Is it conservative enough when planning for a survivor who doesn’t want to run out of money? Last, but not least, the historically low interest rate environment in which we live provides an unprecedented lack of return on savings, and less that can be counted on by way of self-insurance when calculating the need for survivor income. To show the universal nature of this opportunity, let’s set aside income taxes for a moment and simply look at the impact that the current low interest rate and inflation rate environment can have on the survivor income needs analysis.

Client Scenario: Mike and Becky

Let’s look at a scenario to examine this opportunity surrounding the current rates and their impact on survivor needs coverage. Meet a couple named Mike and Becky. Mike is the primary wage earner and the spouse whose passing would engender the most financial risk without appropriate life insurance. In 2007, with the help of their insurance advisor, Mike and Becky purchased a $1 million policy to cover Becky’s survivor income need of $50,000 per year, inflating each year for 45 years, until Becky reaches age 90. Two key factors determining the amount of the insurance policy were the return that they would expect to earn on the $1 million in order to provide the income and the inflation rate by which

IS A MILLION DOLLARS ENOUGH TODAY? to increase Becky’s survivor income each year. In 2007, they believed that a 7 percent return was a conservative, long-term investment rate while a 3 percent inflation assumption would be adequate. Now it is six years later. Mike and Becky are meeting with their advisor again and they have a much different view of the economy – as do most Americans. They no longer feel that 7 percent is an achievable, long-term, conservative investment rate. Additionally, they fully expect that inflation will return in rates higher than their original 3 percent assumption. They opt for a 5 percent investment rate and a 4 percent inflation rate. Adjusting Becky’s survivor income goal for inflation from 2007, we check the adequacy of the $1 million at 5 percent to provide $56,000 per year, considering a 4 percent inflation rate. The result? The money runs out in half the time: 20 years. At this point, Becky’s age would be 71, not the age 90 goal originally desired. The revised goal will require a total of $1.8 million, almost double the original coverage. With their agent’s help,

Mike and Becky purchase an additional $800,000 of life insurance. In years past, as with Mike and Becky, consumers often believed a $1 million policy would cover their needs, including survivorship. Now, however, they may need a face value of twice that amount to provide sufficient survivor protection and income generation. Given the continued low interest rate, higher taxes and capital gains rates, and rising cost of living overall, it’s critical to sit down with clients and take another look at that million-dollar policy to ensure they will meet their lifetime income, planning and survivor goals.

A “Best-Case” Scenario

We have addressed this issue so far from the due diligence perspective of the worstcase scenario: in this example, the family losing Mike relatively early in life. What if Mike and his family enjoy a very long life together? We know from research, as well as anecdotally, that many Americans are concerned they will outlive their savings. While leading clients through the important process of survivorship planning,

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including dual survivorship, let’s remember to review products specifically structured for survivor protection and income generation. Universal life (UL) products often feature a guaranteed death benefit, guaranteed access and guaranteed cash value. UL can be coupled with a newer type of lifetime income rider featuring guaranteed monthly withdrawal benefits after as few as 15 years, regardless of the surrender value within the policy. Savvy producers can recommend riders that handle the best-case contingency, while helping clients plan for the unknown. Diversification and flexibility are key in responding to the factors that have affected the value of the traditional $1 million policy. Your clients need you now more than ever to provide guidance and counseling so that they make the best decisions for their future. Mark Peterson is senior vice president and head of brokerage life distribution for American General Life Companies. He can be reached at Mark.Peterson@ innfeedback.com.

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September 2013 » InsuranceNewsNet Magazine

LIFE

Forget the Wife, Lose the Sale Y our married clients are two separate people who require different approaches to gain their trust – and their business. By Liz Michel and Cathy Neifeld

irst, in the spirit of full disclosure, we will point out that we are both women. One of us has been married. We have many friends who are married as well. So, we have anecdotal evidence to corroborate the research we have done on the subject of “Selling to the Wife.” Second, we know this isn’t rocket science! Some of our ideas may seem simplistic, but we hope that some of our insights and tips will help you better serve your married clients. Let’s start with a few statistics about women and their influence over household spending. Women control or influence 67 percent of household investment decisions and make 83 percent of overall family purchasing decisions, according to a study by SSgA Global Marketing Group. More specifically, women control 36

80 percent of health care spending decisions, 68 percent of all car purchases, 92 percent of vacation spending decisions, 94 percent of spending on home furnishings and 89 percent of banking decisions. These spending decisions are worth an estimated $5 trillion a year. And there is more! Businesses owned by women account for 40 percent of all privately held firms in the U.S. These businesses generated $1.9 trillion in sales in 2008. Finally, baby boomer women comprise the wealthiest demographic segment that is most in need of retirement planning assistance. These women expect to inherit assets from their parents. They also will outlive their husbands by an average of 15 years, according to SSgA. These statistics underscore our point that improving how you work with women – and particularly wives – can improve your bottom line dramatically. Here is a somewhat surprising statistic from the SSgA research: 70 percent of widows leave their current advisor within

InsuranceNewsNet Magazine » September 2013

a year after their husband’s death. Why? Because they believe that their advisor (actually read: “the husband’s advisor”) is not responsive to their needs and doesn’t “hear” them. We can speak from experience on this statistic. One of us was divorced recently. After her divorce, the very first thing she did was fire her investment advisor. This was because the advisor had never forged a relationship with her while she was married and she didn’t trust him in the wake of her divorce. In addition, she told all of her friends about her experience. As a result, her sister and friends who were this advisor’s clients fired him as well. We are sure he has learned a very painful lesson from that experience. Two thirds of women don’t trust financial service professionals, according to a 2008 State Farm survey. The Boston Consulting Group surveyed 12,000 women from 21 countries, and discovered that financial services is the industry that generates more dissatisfaction from women than any other industry, on both a service level and a product

FORGET THE WIFE, LOSE THE SALE

LIFE

BEHAVIORAL/VALUE TENDENCIES BY GENDER FEMALE

Inclusive

Collaborative

Groups/ Discussions

Connection

Security

KEY AREA

Communication

Interpersonal

Learning

Neuroscience

Wealth

MALE

Hierarchical

Competitive

Independent/ By Doing

Individualization

Success

Source: Kathleen Kingsbury, How to Give Financial Advice to Women: Attracting and Retaining High Net Worth Clients, 2013

level. Why? As Billy Joel so eloquently put it: “It’s a matter of trust.” Women, contrary to some advisors’ beliefs, do not want spa days or wine and cheese gatherings from their advisors. They want an advisor who they can trust and who understands their tendency to tie wealth to specific family goals. Women are emotional buyers, and that should never be construed as a “bad” thing. Women factor more than just rates of return into the mix of money management. As you can see from the illustration above, women (especially those who are wives and mothers) value security when it comes to money/wealth management, while men value success. To engage the wife successfully in the family dynamic, you must do more than meet the husband’s need for success (read: great returns). You also must address the wife’s need for security, which is not a numbers game but a values game. Here are four guiding principles we hope will help you: [1] Engage the wife. If you don’t engage the wife, you run the risk of losing the account, maybe not now but certainly in the event of a divorce or the husband’s death. Whenever possible, meetings and conference calls should include both spouses. Emails and correspondence always should be addressed to both spouses. When meeting or speaking with a married couple, leave twice as much time as you usually

do for questions, and repeat the question asked so that the wife knows you really are listening. [2] Maintain a relationship with the wife. This relationship should be separate in some ways from the relationship you have with the husband. If you are focusing only on investment returns and playing golf with the husband, you are missing the boat. Maintaining a relationship with the wife can be as simple and painless as sending articles that may be of interest to her but not her husband. (When you do this, remember the first principle and still copy the husband.) This is really rule No.1 in any sales relationship: know your client. Remember that, with a married couple, you have two clients, not one.

Finally, connect without being condescending. We know you would never say, “Don’t worry your pretty little head about it.” But saying “Don’t worry about it – your husband understands what we are doing” is just as bad. Saying “We can work through this together” and asking “What can I provide you to help you make a decision for your family?” will go a long way toward instilling trust in the wife. It bears repeating that with 50 percent or more of marriages ending in divorce, and with wives being more likely to outlive their husbands, the failure to engage the wife in money management decisions can cost you one, if not two, clients. Alternatively, engage the wife and you can end up with not only her next husband as a client but her relatives and friends as clients, too. Women love to give referrals!

[3] Keep everything value-based. Focus not only on returns (the husband’s hot button) but also focus on achieving goals: education, caring for elderly parents, a child’s wedding, the birth of a grandchild, retirement, etc. Some advisors have found it helpful to have the wife and the husband each list their goals separately.

Liz Michel, JD, has built a reputation creating successful marketing programs for life insurance transactions. She has held senior positions with large, national brokerages including Crump and National Financial Partners. Liz is also a member of AALU. You may contact her at Liz.Michel@innfeedback.com

[4] Create a shared sense of belonging. Women are collaborative. They are naturally inquisitive and they really like to be educated. They want to feel that, not only do they have a “seat at the table,” but that they are active participants in the conversation around the table. Storytelling is particularly useful as a way of making a point or illustrating a concept.

Cathy Neifeld, JD, General Counsel and Chief Development Officer for AgencyONE, is a specialist in the arena of premium financing and complex insurance transactions. She is also a member of Forum 400, and AALU. Contact Cathy at Cathy.Neifeld@innfeedback.com.

September 2013 » InsuranceNewsNet Magazine

[ANNUITYWIRES]

BABY BOOMERS: 2 MODELS IN 1

Annuity Ownership Shuffle Continues Two more insurers are exiting the U.S. annuity business.

Allstate is bowing out of writing life insurance and annuities in the independent agency distribution channel.

In addition, Allstate will discontinue issuing fixed annuities at the end of 2013. Allstate agencies and exclusive financial specialists will sell annuities available through third party annuity companies. Allstate announced plans to sell its Lincoln Benefit Life Co. to Resolution Life Holdings for $600 million. Resolution Life is a Delaware corporation established by The Resolution Group, a London-based financial services investor. The deal is part of Allstate’s plan to reduce its exposure to spread-based business, and part of Resolution Life’s plan to expand into the United States. The Lincoln Benefit deal is one of a number of U.S. life insurance businesses that Resolution Life plans to acquire as it expands its footprint on this side of the pond. Allstate has owned Lincoln Benefit since 1984. Meanwhile, Sun Life completed the sale of its U.S. annuity business to Delaware Life Holdings after final regulatory approvals were given. About 500 former Sun Life employees will transition to the new company, which will maintain facilities in Wellesley, Mass., as well as Waterford, Ireland, and Lethbridge, Alberta, Canada. The sale included 100 percent of the shares of Sun Life Assurance Company of Canada (U.S.), which includes Sun Life Financial’s domestic U.S. variable annuity, fixed annuity and fixed index annuity products, and variable life insurance products, including corporate and bank-owned variable life.

NEW PRODUCTS KEEP ROLLING IN

North American Company for Life and Health Insurance has introduced a flexible annuity solution featuring an enhanced death benefit. The NAC SecureChoice is an indexed annuity that offers a built-in enhanced death benefit equipped with a stacking roll-up feature to help grow the death benefit value for heirs. Along with the growth potential for stock-market linked index accounts, this new fixed indexed annuity has a builtin Guaranteed Minimum Death Benefit (GMDB) which provides multiple growth opportunities through a combination of bonuses and a GMDB stacking roll-up credit, plus interest credits. This combination is 38

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designed to grow the GMDB amount over the years to maximize the death benefit available to beneficiaries. The annuity product also provides clients the opportunity to add an optional lifetime income rider for a cost with stacking roll-up potential as well, which gives clients more flexibility. Northwestern Mutual has introduced the Select Portfolio Immediate Income Annuity, designed to create a base of lifetime income – much like a traditional pension – but with the potential for that income to grow through dividends. Dividend payouts have the potential to enhance the benefits for clients who can receive payments either as cash during retirement, keep dividends in the contract to increase their income stream, or select a combination of the two options.

InsuranceNewsNet Magazine » September 2013

They refused to conform when they were younger and they still refuse to conform as they approach retirement. The baby boom generation comprises two different retirement planning models, depending on which end of the “boom” they were born. Many older boomers (those

having reached age 65 in 2011) expect to have guaranteed income for the rest of

their post-employment lives, based on defined benefit (DB) retirement plans, mainly public or corporate pensions. Younger boomers face a different retirement scenario, with most of that genera-

tional subset expecting to live off defined contribution plans such as 401(k)s. What do these two very different retirement approaches mean, if anything, for those who sell annuities? Do they need to apply the approach they honed with older boomers to younger boomers? Is it enough to take an annuity product for an older boomer and tweak it for a younger buyer? This tectonic shift in the way retirement assets are accumulated and managed is detailed in a report titled “The Great Divide: Financial Comparison of Early and Late Boomers’ Retirement Preparedness,” published by the Insured Retirement Institute (IRI). Cathy Weatherford, IRI president, said advisors need to stay away from all generalizations. Instead, advisors should approach each client individually. Seems as if this is a great opportunity for advisors to present some newer and hybrid annuity products to their clients.

Go to AnnuityNews.com for exclusive sales ideas and more!

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September 2013 » InsuranceNewsNet Magazine

Don’t miss our Whole Life vs. Universal Life feature PAGE 22

ANNUITY

Fixed Annuity Interest Rates Ticking Up

T he rise might return the long-lost “annuity advantage” over CDs.

1/1/2013 7/16/2013 Diff

Average Top 5 $506.80 $544.80 $38.00

By Linda Koco

re fixed annuity rates heading up along with the uptick in interest rates on five- and 10-year Treasury bonds? Why, yes they are. At least a bit at some carriers. This could start giving certain annuities a boost in competitive attractiveness, bringing a little steam into the sales environment for annuity agents, distributors and carriers. That hasn’t happened yet, but the ducks are lining up.

Average Top 10 $497.10 $533.50 $36.40

Average All

$488.50 $521.86 $33.36

Highest

$512.00 $550.00 $38.00

Lowest

$454.00 $480.00 $26.00

Consider the Rates

Interest rates for five-year CD-type deferred annuities in the AnnuityNexus database at Beacon Research averaged 1.36 percent in the month of December, according to Judith Alexander, director of sales and marketing at Beacon. By June, the average for the same products had crept up to 1.49 percent – 10 percent higher than in December. And on July 15, the daily average for the five-year products was 1.74 percent. Beacon uses the five-year CD-type annuities for benchmarking purposes when evaluating rate trends in fixed deferred annuities, because these are popular products in this market. The averages shown take into account not only the base credited interest rates being offered but also any bonuses, Alexander said. An upward-bound trend is evident in the income annuity world, too, although the measurement is in payouts offered by the products instead of interest rates credited. Take a look at the payouts for a $100,000 single premium immediate annuity (SPIA) written on a 65-year-old man purchasing a single-life lifetime annuity with a 10-year certain period. That is a typical sale in today’s market, 40

Source: CANNEX USA. The monthly payouts shown are for a $100,000 single premium immediate annuity (SPIA) written on a 65-year-old man purchasing a single-life lifetime annuity with a 10-year certain period.

said Gary Baker, president of CANNEX (U.S. Division). The company’s U.S. Income Annuity Exchange database shows products from at least 15 top income annuity carriers. Over the first six and one-half months of this year, the average payout offered on such a SPIA increased by nearly 7.5 percent for the top 10 players, Baker said. If that man had bought his $100,000 SPIA on Jan. 1, he would have started receiving a monthly income of about $506. But if he waited until July 16 to make his purchase, his monthly payout would be $544, or $38 more. There are outliers in the numbers because a few carriers have moved their payouts noticeably higher than most and a few have made relatively little change. Still, when looking at, say, the top five carriers, the payouts are decidedly up. Baker attributed much of the upward trend to the general interest rate environment.

InsuranceNewsNet Magazine » September 2013

Getting Attention

To people who are hungry for rate, these trends may seem like much ado about nothing. After all, the crediting rates in deferred annuities are still minuscule compared to bygone years when rates were in the 5-6 percent range (and even into the double-digits decades ago). Likewise, some may downplay the monthly payout increases in income annuities as not creating a “meaningful” bump-up in terms of pure dollars. But when compared to the downward slide of the past few years and the long low interest rate plateau of much of 2012, the up arrows are getting attention. For instance, in mid-July, “there were three five-year CD-type annuities in the AnnuityNexus database that were crediting over 3 percent,” Alexander said. “In addition, nine products in the 10-year CD-type annuity category were also crediting over 3 percent.” (Tenyear CD-type fixed deferred annuities

ANNUITY

FIXED ANNUITY INTEREST RATES TICKING UP are not a hot-ticket item today, but some carriers do offer them.) At least one carrier is offering a rate as high as 3.6 percent right now, Alexander said. As indicated previously, the averages for the five-year CD-type annuity that Beacon tracks are below 3 percent. However, the fact that some products are offering more than 3 percent suggests that some carriers want to attract sales in today’s market, she indicated.

Average Monthly Five-Year CD-Type Annuity Rate January 2011 – July 2013

The Comeback of the ‘Annuity Advantage’

In the fixed deferred annuity market, this rising rate environment could stimulate the return of the “annuity advantage,” Alexander said. Annuity advantage is an industry term. It means that annuity rates have reached the level where they are nicely above what bank certificates of deposit and Treasury bills are paying, making the annuity purchase comparatively advantageous for the customer. One common benchmark for that sweet spot is when there is a 200 basis point spread between fixed annuity rates and CD rates (or Treasuries). The 200-point spread was a rule of thumb that agents and advisors used when talking with customers during the mid-2000s (and many other eras). It went south during and after the recession of 2008-2009 when crediting rates dropped to the product floors. When interest rates are at 2.5 percent or higher, however, the annuity advantage starts to become a real possibility again, Alexander said. Right now, a 200-point spread would probably be too high to expect, she said. But there is more advantage now than there was at the beginning of the year.

The Income Annuity Advantage

In the income annuity market, agents and advisors tend to talk with clients in terms of how the annuity payouts compare to the amount that a systematic withdrawal program from a bond, bank or brokerage account might generate, Baker pointed out. When that is the case, the income annuity has its own advantage. That’s because the payouts track not only with changes in the interest rate environ-

Source: Beacon Research

ment but also with the “mortality pool” managed by the issuing carriers, he said. The combination is what creates the advantage. Take the case of the 65-year-old man cited earlier in this article. The agent likely will take the monthly payout, annualize the amount and compare that to, say, a systematic withdrawal from an investment portfolio. In today’s market, the cash flow from an SPIA will tend to average close to 6.5 percent a year, or even higher at the older issue ages, Baker said. To make the point, the agent then can determine the risk the client would experience by withdrawing assets at the same rate from an investment portfolio that has no lifetime guarantee. Client needs and other factors will influence the client’s decision, but the income comparison will play its part. It’s worth noting that even carriers that are paying the lowest monthly income right now are still paying more, on average, than they did six months ago. For instance, if the man cited in this article had purchased his SPIA on Jan. 1, he would have received, from the carriers offering the lowest payouts, somewhere about $454 a month (or a cash flow of 5.4 percent). But if he made his purchase on July 17, he might have received about 5.7 percent more, or $480 a month, according to averages from CANNEX.

If factoring in all SPIAs in the CANNEX USA database, including the outliers (the highest and lowest payers), the average payout for that man would have increased by 6.8 percent if he purchased on July 17 versus Jan. 1. He would have received $521.86 a month instead of $488.50 a month.

The Trend in Treasuries

As a point of comparison for interest rate buffs, the five-year Treasury yield – often considered an indicator for fixed deferred annuity trends – was, on July 17, in the neighborhood of 1.3 percent. Twelve months earlier, the five-year yield closed at a hair over 0.6 percent. This means that the yield on five-year Treasuries increased by an eye-popping 122 percent over the 12-month period. The 10-year Treasury yields on July 17 were close to 2.5 percent. Twelve months earlier, they were 1.47 percent. So, for the 12-month period, 10-year Treasuries increased by nearly 69 percent. The 30-year Treasury yield – often considered an indicator for SPIA payout trends – was nearly 3.6 percent on July 16. That’s up by more than 38 percent from the 12 months earlier, when the 30-year closed at nearly 2.6 percent. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@ innfeedback.com.

September 2013 » InsuranceNewsNet Magazine

ANNUITY

More Indexed Annuities Feature ‘Enhanced’ Death Benefits R iders offer a bump up in the death benefit for an extra value to offset lower rates. By Linda Koco

Indexed Annuities

nhanced death benefit features, once only in the domain of variable annuities, are spreading into the indexed annuity market. Twenty-one percent of indexed annuities now sport the features, said Sheryl Moore, president of Moore Market Intelligence, an indexed annuity resource. Moore said that at least 60 policies out of the 282 indexed annuities that her firm tracks have some sort of enhanced death benefit. A good many of the features debuted in the past nine months or so. That’s even though the first indexed annuity death benefit came out in 2006 and even though some carriers began introducing their own versions after the 2008-2009 recession.

What and Why

What are these features, and why are more of them coming out? Typically offered as riders, these features essentially bump up the death benefit beyond the policy account value in certain ways and subject to certain conditions. Moore said they come in three basic varieties, although under different names and with different terminology. The most popular version, she said, links the death benefit with the benefits base in a guaranteed lifetime withdrawal benefit (GLWB) that the customer has purchased with the indexed annuity. The “benefit base,” which is separate from account value, typically grows by a certain percentage of premium (the rollup percentage); it is used to determine the amount of income the owner can receive from the policy. If the GLWB rider also includes an enhanced death benefit provision, the benefit base amount also will be the death benefit, subject to certain conditions. 42

21%

Indexed Annuities With Death Benefit

Although companies have been adding death benefits to indexed annuities since 2006, many of the features have been added this year. Another version is similar to the guaranteed minimum death benefit (GMDB) in variable annuities, Moore said. Here, the death benefit will equal premium paid in, plus a certain percentage of premium for a specified period (say, up to 10 or 15 years) and/or subject to a specified maximum amount (say, 200 percent or 250 percent of premium paid). The least frequently used version is a feature that will, upon death, pay a certain percentage of gain to offset any tax burden the beneficiary may experience upon death. There is usually a cost for the enhanced feature, Moore pointed out. Regardless of the form they take, the enhanced death benefit features in indexed annuities share the attribute of paying beneficiaries something more than principal and gain, which is the typical death benefit in indexed annuities. Carriers are offering them so they can keep something new and different in front of independent agents, who are the primary sellers of indexed annuities, Moore said. Due to economic issues in the slowly recovering economy, the carriers have had to lower the caps on indexed annuity

InsuranceNewsNet Magazine » September 2013

interest crediting, she explained. In addition, they have had to cut back on the rollup percentages they offer with their GMWB riders. So, the enhanced death benefit features provide producers with something new to talk about. There is another reason too: The death benefit provides annuity producers with some options for clients who ask, “What happens to the money in my annuity when I die?” The indexed annuity producer is probably not going to turn around and start selling life insurance at that moment. But the producer who has access to indexed annuities with an enhanced death benefit option just might point out that the customer can choose between buying an indexed annuity that pays a basic death benefit (principal plus gain) or one that pays an enhanced death benefit (principal plus gain plus the enhancement). This could be appealing to some independent agents, many of whom only sell annuities in a transaction-based environment, Moore noted. Producers who specialize in annuities tend to stay away from selling life insurance, she added. That can be for various reasons – the focus in life insurance on protection rather than accumulation and income, the longer sales cycle (due to life underwriting), the different sales approach, etc. These products do not require the producer to engage in that kind of sale, she said. Enhanced death benefits don’t drive sales in indexed annuities any more than they do in variable annuities, Moore said. “The focus is still on the income rollups and bonuses. Those are indexed annuity features that independent marketing organizations point out when they are out recruiting for new producers.” But the enhanced features do provide producers with a policy option to consider for certain clients in certain situations.

The industry has borrowed some ideas from variable annuity contracts, which have had enhanced death benefit features for a number of years. Recent Examples

Recent examples of indexed annuity enhanced death benefits include the new enhanced death benefit features in indexed annuities from Midland National Life and North American Company for Life and Health. Both carriers are affiliates of Sammons Financial Group. The products from the two affiliates – North American’s NAC SecureChoice and Midland’s MNL SecureVantage – include a built-in GMDB for no extra charge, and offer what the companies call a “stacking roll-up credit.” This is essentially the enhanced death benefit. The goal is to maximize the death benefit via a combination of bonuses and the stacking roll-up credit plus interest credits, according to both carriers In addition, the policy offers the option to add an optional lifetime income rider, for a cost, with “stacking roll-up potential” as well. Great American Life Insurance has an enhanced death benefit rider for its indexed annuity portfolio called Inheritance Enhancer. This is an optional rider that is available for a charge. It allows policyowners to receive a 7 percent roll-up of the “death benefit base” for 15 years (or death, if sooner). The rider also allows owners to receive a refund of rider fees in some cases, and it lets the beneficiaries choose whether to receive a lump sum payout or to annuitize the death benefit base amount. The Phoenix Companies has something like an enhanced death benefit in its Phoenix Next Generation indexed annuity which it is distributed through an exclusive network (via AltiSure Group). The company does not use the “enhanced death benefit” terminology but the feature has a similar effect. The policy is available in “bonus” and “non-bonus” versions, and customers can also purchase a “protected inheritance

benefit” for an additional charge. This benefit combines a GLWB and a return-of-premium death benefit. Here is where the enhanced-like feature comes in: If the customer elects the bonus version, the policy’s account value and its return-of-premium death benefit will both increase by between 6 percent and 10 percent of premium (depending on the state). That bumpup in the death benefit can be viewed as an enhancement. By contrast, if the owner takes the non-bonus version with the protected benefit, the return-of-premium death benefit will still pay out the percent of premium the owner had elected at issue (100, 75 or 50 percent) but the death benefit amount will not be increased (or “enhanced,” for purposes of discussion here).

Different Approaches

It is apparent that indexed annuity providers are taking different approaches with their death benefit designs. This squares with what now appears to be a tradition for this industry: The indexed annuity carriers go their own way in policy design. This has been the case with index calculations, caps, living benefits features and other policy elements. The industry has borrowed some ideas from variable annuity contracts, which have had enhanced death benefit features for a number of years. For indexed producers who also have variable annuity experience, that yoking of concepts may help them get up to speed on the indexed annuity enhanced death benefits. But since the indexed versions differ from variable versions as well as from each other, they’ll still need to study each feature carefully. Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at Linda.Koco@ innfeedback.com.

[HEALTHWIRES]

Aflac plans to sell cancer policies at 20,000 post offices in Japan bitly.com/qrjapan

QUOTABLE

3 Out of 5 Doctors Blame Insurers For High Costs When asked who’s to blame for skyrocketing health care costs, physicians point their fingers at trial lawyers, insurance companies and hospital systems. Nearly three out of five doctors surveyed (59 percent of respondents) said they held insurance companies responsible for the cost of health care. In addition, doctors are pessimistic that some of the payment reforms that have been put forward by policy experts to help contain health care costs actually will work. Those are some of the findings from a survey conducted by Mayo Clinic researchers and published in the Journal of the American Medical Association. Doctors believe they must help address health care costs, said Dr. Jon Tilburt, the Mayo Clinic physician who led the research survey. But physicians worry about what payment reforms such as those promoted by the Affordable Care Act might mean for patients and themselves. “Physicians feel stuck in a difficult position,” Tilburt said in a news release. “Despite their sense of responsibility to address health care READ THE LATEST NEWS ON H EALT costs, physicians consistently express a commitment to the best interEXCHANGES H ests of patients even when it is expensive.” page 48

80% FAIL HEALTH INSURANCE TEST

If health insurance were a subject in school, eight in 10 Americans would be afraid to bring their report cards home. When LIMRA asked more than 2,000 people a series of 10 true/false questions to gauge their basic knowledge of health insurance, nearly eight in 10 failed the test and only one in 10 answered at least seven questions correctly. LIMRA found consumers with low levels of health insurance knowledge more likely to be younger, less affluent, less educated, more likely to be a student, unemployed or uninsured. The survey results also revealed that while consumers are more knowledgeable about what health insurance is and how to access care, many showed a tremendous lack of knowledge about plan features, the costs involved, and how various types of plans work. The study found that few consumers (14 percent) understand how the public health exchanges, established by the Affordable Care Act, will work. For uninsured consumers – who are most likely to use these DID YOU

KNOW

exchanges – fewer than one in 10 know what types of plans will be available. LIMRA also asked consumers to identify the deciding factor that would influence how they chose a health insurance plan. While cost is the number one criterion for both insured (36 percent) and uninsured consumers (60 percent) deciding on a plan, LIMRA found insured consumers are nearly as likely to consider how comprehensive the plan is as they are to consider its cost. Sounds as if most of us need to stay after school for some tutoring.

BENEFITS BROKERS FAILING EMPLOYERS

It’s the age-old question: What do they want from me? When it comes to what employers want from benefits brokers, the answer is: more than what brokers are offering. A new survey reveals a disconnect between what employers expect from their brokers and what brokers are delivering. And that’s leaving huge opportunities for those willing to seize this information and provide the proactive services their clients are demanding, industry insiders say.

OUT-OF-POCKET MEDICAL COSTS FOR CRITICAL ILLNESS weigh so heavily on workers that they fear the financial impact of an illness even more than dying from one. Source: Sun Life Financial

44 InsuranceNewsNet Magazine » September 2013

Every insurer and Blue Cross plan in the country is taking a close look at what’s happening in Pittsburgh. — Ted Schwab, Oliver Wyman consultant, on insurer Highmark’s purchase of seven western Pennsylvania medical centers

Zywave’s 2013 Broker Services Survey found that broker services are more in demand than ever, especially as the health care landscape shifts. And employers are demanding more “extra” services – such as help with workplace wellness programs, telehealth and legislative compliance – from their insurance broker than in previous years. If benefits brokers had been feeling a bit beaten up after this news, the latest Aflac worksite survey should really make them feel kicked to the ground. Aflac found that nearly half of brokers aren’t confident in their future in the industry and are considering quitting, just as employers and employees say they need brokers most. That report found that almost one third of brokers said they’re concerned about remaining relevant.

BRAND NAME NOT NECESSARILY BETTER

When it comes to Medicare Advantage plans, nonprofit health plans seem to have an edge, according to a HealthPocket analysis. HealthPocket looked at the Medicare quality star rating system as it applied to the leading Medicare Advantage plans and found that the highest performing plans were nonprofits Kaiser, Gunderson Lutheran Health System, Baystate Health and HealthPartners. For-profit plans with high ratings included Humana and Aetna. One of the most popular Medicare Advantage brands, AARP and its endorsed carrier United Health, did not show up among the top rankings. The Medicare plan quality star rating system is one key factor in helping enrollees differentiate plans, and reflects scores for treatment, preventive care and customer satisfaction.

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Don’t miss our Whole Life vs. Universal Life feature PAGE 22

HEALTH

Health Insurance Exchanges Open Oct. 1, Ready or Not O nly a few weeks remain in which to tie up the loose ends and get the health insurance exchanges open for business.

States Health Insurance Marketplace Decisions

By Susan Rupe

he health insurance exchanges are heading down the home stretch toward their Oct. 1 debut. While some advisors wonder whether this foreshadows the end of their practice, others see opportunity. Beginning Oct. 1, millions of Americans will be able to sit in front of a computer, pick up the telephone or sit down face-to-face with an assistant, and sign up for health insurance under the Affordable Care Act (ACA). That day will be the culmination of years of political name-calling, Tea Party protests, court challenges and the threat of a government shutdown. The Congressional Budget Office estimates that 9 million Americans will enroll during the first year in which the insurance marketplaces, also known as exchanges, are in business. Jan. 1, 2014, is the earliest date in which that coverage will take effect, and open enrollment will close in March 2014. Health insurance advisors aren’t going away any time soon, said a leader of the National Association of Health Underwriters (NAHU). “Most health insurance agents can be trained in the regulations so that they can access the exchange information and get people enrolled in coverage,” said Russ Childers, CLU, of Americus, Ga., who is chairman of NAHU’s Exchange Committee. “In fact, I plan to advertise in my community and tell people that they can come to our office and we will help them get coverage.” Even though people can go online to the exchanges or access a call center and see what health plans are available, they are still more comfortable talking with an agent, Childers said. “In fact, I believe that agents will still be selling insurance

State-based Marketplace (16 states and DC) Partnership Marketplace (7 states) Federally-facilitated Marketplace (27 states) Source: Kaiser Family Foundation

and they will be selling it to people who couldn’t afford it in the past. I believe our market will increase as a result.” As for how agents will get paid for enrolling people in health coverage through an exchange, guidance issued by the Department of Health and Human Services (HHS) in May states that health insurance agents may continue to earn a commission for policies they sell inside the federally-operated exchange. This is in contrast to “navigators” and “assisters” who will receive funding through HHS to present information and answer questions about coverage options. These navigators and assisters may not receive a commission from an insurer and are not permitted to recommend a particular plan to a consumer. The difference between receiving information from an “assister” and obtaining advice from an advisor is what will

46 InsuranceNewsNet Magazine » September 2013

As of May 10

provide an advantage to the advisor, Childers said. “Even with the training that the navigators and assisters receive, they still will have minimal knowledge of the details of how health coverage works,” he said. “That is more reason for people to meet with a licensed agent who can help them select an insurance plan.” One of the biggest tasks remaining to be done before Oct. 1 will be training the navigators and assisters, those who will present information and answer questions about coverage options. This army of helpers will be needed to help consumers sift through all the available information and decide on the right health care plan. The Affordable Care Act requires marketplaces to establish a navigator program to help consumers understand their options and help them find the coverage that best suits their needs. Each marketplace will have at least two types

of entities serving as navigators, and at least one type of entity will be a community and consumer-focused nonprofit organization. The Centers for Medicare & Medicaid Service (CMS) will fund $54 million in grants to navigators in states with federally facilitated or state partnership marketplaces. CMS is expected to announce in mid-August who will receive the grants. Following that announcement, the in-person assisters will be hired and trained, and the goal is to have them in place and ready to help consumers on Oct. 1. This leaves only about six weeks in which to have everyone trained and ready to go. More than a dozen states have added their own rules for navigators beyond what’s already required by the federal government. Those rules include additional training, background checks and licensing. Meanwhile, the time to put the finishing touches on the system is running out. So, a big question in all of this is will the exchanges be ready for business when we flip the calendar page from September to October? Federal and state officials overseeing the exchanges replied with a confident “Yes.” “We have already met key milestones and are on track for open enrollment to begin on Oct. 1,” said Alicia Hartinger of the U.S. Department of Health and Human Services (HHS). “It won’t be a smooth roll-out, nothing of this magnitude ever is, but we are doing our best to be ready for Oct. 1,” said Cindy Crone, deputy commissioner of the Arkansas’ Health Connector Division. But other government officials say, “Not so fast.” In early August, the Office of Inspector General warned that the federal health exchange was in danger of missing its Oct. 1 target date because the contractor responsible for developing a system to protect applicants’ privacy had not met the deadlines for putting the system into place. Those who visit the health exchange website will be required to provide Social Security numbers and income information in order to determine whether they qualify for a subsidy toward buying coverage. Privacy advocates have voiced their fears that applicants could risk identity theft and breaches of privacy if safeguards are not put into place.

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Working in the Federally Facilitated Exchange (FFE): requirements and Tools As a supplement to the core course, this module delves deeper into the requirements of the federal health insurance Exchange. For more information, visit www.AHIPExchangeTraining.com or e-mail us at Support@ AHIPInsuranceEducation.org. * Please note that state certifications are not transferable to other states. ** You may only register for this course if you are currently registered for, or have passed, the core course.

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September 2013 » InsuranceNewsNet Magazine

DID YOU

HEALTH

HEALTH INSURANCE EXCHANGES OPEN OCT. 1, READY OR NOT

How will the exchange work? Consumer Creates an Account The consumer will go to www.healthcare.gov to start the process and answer basic questions, including: age, gender, current coverage, number of household members seeking coverage, preexisting conditions and state of residence.

Consumer Applies for Coverage Information required includes: Social Security numbers and employer and income information of household members seeking coverage.

Data is Sent to Federal Data Services Hub Details are verifed through the Social Security Administration, Homeland Security and the IRS.

IRS

Health Insurance Subsidy is Set Up as a Tax Credit

The IRS calculates the maximum subsidy to which the consumer is entitled.

Consumer Selects a Plan After the subsidy amount is finalized, the consumer is offered plans and programs eligible for enrollment.

U.S. Treasury Pays the Bill (at least part of it) The U.S. Treasury Department pays the insurer on the consumer’s behalf. The consumer is responsible for paying any difference.

Also, in mid-July, the Government Accountability Office (GAO) expressed concern that certain aspects of the exchange implementation were running behind schedule. In a report, GAO said that 17 states and the District of Columbia – all of which are operating their own exchanges outside the federal exchange – were behind schedule in implementing their exchanges. The GAO cited delays in awarding funding for navigators, which in turn delayed their training, and further concluded that whether the exchanges would be up and running in time for October “cannot yet be determined.” In early August, the chief executive of Access Health CT, the Connecticut health insurance exchange, said that he expected “low satisfaction” among consumers at the start of the exchange and that it could be up to three years before that turns around. Another issue is the debate over whether premiums for plans offered on the exchange will be a bargain for consumers or not. Much depends on the state in which someone lives. New York made news in July when its insurance officials announced that individual plans available on the exchange would be 50 percent less than similar policies currently available on the open market. But Ohio reported that premiums for individual policies on its exchange would increase by an average of 41 percent. The other major tasks in getting the exchanges ready will be: making sure the website for online enrollment is tested and ready to go, approving the qualified health plans (QHPs) that will be available on the exchanges, and educating the public about how to sign up for coverage. Having the technology ready for opening day will be crucial. The website www.healthcare.gov has been established as the main web-based information source for all consumers seeking to apply for coverage, examine options and enroll in a health care plan. Those who live in states that are operating their own exchanges will be directed to the exchange website in their particular state. Consumers already can go to this website to set up a user name and password and establish an account in advance of the Oct. 1 exchange launch. “Because the plans won’t be available to view until Oct. 1, we are expecting that

InsuranceNewsNet Magazine » September 2013

KNOW

Promoting ACA will cost $684 million a year.

first day to be more of a shopping experience than a buying experience,” Crone said of the Arkansas exchange. “A few people may be ready to decide on their plan right away, but most people will be looking for information first, then coming back to make a decision.” As a preliminary to having the website up and running, HHS and the state-run exchanges already have staffed call centers to answer questions from consumers before Oct. 1. The federal call center operated by HHS will be able to assist callers in 150 languages, Hartinger said. For those without computer access, or who would be more comfortable speaking face-to-face with someone, hundreds of walk-in centers will be open for business. The U.S. Health Resources and Services Administration (HRSA) awarded $150 million to 1,159 health centers across the nation to serve as outreach and enrollment assistance centers. CMS has branched out to form a partnership with the Institute of Library and Museum Services, helping the nation’s librarians to assist the public with accessing information on the health care exchanges. The most visible part of the ACA implementation will be promoting the program to the general public. The price tag for this outreach is expected to be as much as $684 million, according to an Associated Press report. Outreach will include everything from traditional mass media advertising, to social media, to grass roots outreach in churches, barber shops, community centers and doorto-door. HHS Secretary Kathleen Sebelius recently addressed a convention of female bloggers, inviting them to help spread the word about health coverage to their audiences. “We are anticipating that a lot of people will go online Oct. 1, then we expect to see another upswing after Jan 1,” said Crone of the Arkansas exchange. “But we expect that a lot of people will wait until the very last day they can sign up.” Susan Rupe is assistant editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents’ association and was an award-winning newspaper reporter and editor. Susan may be reached at srupe@ insurancenewsnet.com.

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September 2013 » InsuranceNewsNet Magazine

[FINANCIALWIRES]

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QUOTABLE

SEC Tightens B/D Reporting Regs In the aftermath of the Securities and Exchange Commission’s colossal failure to catch Bernie Madoff as he stole the still-staggering amount of $60 billion, the SEC is now reacting by imposing more rules on broker/dealers. Brokers will have to file quarterly reports, in addition to the current annual report, on how they are controlling clients’ money. Brokers will

Congratulations to @Priceline on their stock price. Wish I hadn’t sold my stock all those years ago. Troy Paredes

Mary Jo White

be required to allow the SEC or the Financial Industry Regulatory Authority (FINRA) to review its financial statements, which must be audited by an independent

public accountant. The SEC passed the regulations in a 3-2 vote, with SEC Commissioners Daniel Gallagher and Troy Paredes opposing because the rules give the agency too much power in obtaining audit documents. In a joint statement, the two commissioners said the regs could compromise the privilege between brokers and auditors and attorneys. It’s not the first time that Paredes protested what he saw as the SEC’s overreach. In 2008, his was the lone dissenting vote against the agency’s Rule 151A, which gave the SEC authority over indexed annuities. That rule was later reversed by a court decision and an act of congress. It will be Paredes’ last dissenting vote because he resigned, effective Aug. 3. “Investors need to feel confident that their money is safe when it’s being held by their broker-dealers,” SEC Chairman Mary Jo White said in a statement. See, everything’s all better now!

THAT’S HOW IT ROLLS

Let’s face it, financial news is boring for the general investing public. But the Dow Jones and Standard & Poor 500 indexes are exciting! Who’s up? Who’s down? Will they crash? This month’s installment finds the indexes in a little bit of a slump. In fact, the week of Aug. 12 was among the worst of the year for the S&P 500, just as pundits were salivating

over hitting the record 1,800 mark. Pick your reasons: Egypt’s crackdown, housing starts not as awesome as expected, the rain (an actual theory) or a junk rally. Apparently, that last one is connected to the idea that every market collapse is preceded by a junk stock rally, which we’ve DID YOU

KNOW

been lately enjoying or suffering, depending on your perspective. The majority of responsible punditry seems to be betting that this is a blip in a bull market. But, wait! This could be the month that the doomsayers’ dreams come true! Stay tuned!

WOMEN LAG IN RETIREMENT SAVINGS

Women save less for retirement and are more likely to default on loans taken out on retirement savings. These findings from an Aon Hewitt study are all the more distressing because women tend to live longer, increasing concerns about retirement well-being. The analysis of more than 140 defined contribution plans representing 3.5 million

APPLE HOLDS THE RECORD FOR THE HIGHEST MARKET VALUATION valuation in history and is expected to pay out more than $11 billion in dividends over the next four quarters.

InsuranceNewsNet Magazine » September 2013

— William Shatner, in a tweet about the likelihood of Priceline being the first $1,000 stock in the S&P 500

eligible employees shows that although women are participating in their employers’ defined contribution plans at the same rates as men, they save an average of 6.9 percent of pay, compared to 7.6 percent for men. Also, nearly a third (31 percent) of women contribute below the company match threshold, compared to just a quarter of men. As a result, women have

average plan balances that are significantly less than men, consistently across all salary ranges. Overall, the average plan balance for women is $59,300, compared to $100,000 for men.

CFOs NEARLY HAPPY

The usually dour chief financial officer community is dang near giddy these days. That translates to “slightly more optimistic” for the rest of us. Despite concerns about the risks and costs associated with health care reform, CFOs maintain a more positive perspective as they enter the second half of 2013, especially towards hiring and employment opportunities, according to the most recent survey by Financial Executives International (FEI) and Baruch College. The quarterly optimism index for CFOs toward their own businesses increased three points to 70.7 from 67.1 last quarter. Confidence toward the U.S. economy

among respondents improved, rising to 61.2 from 58.5 in the first quarter, with nearly half of all respondents (49 percent) indicating they believe the U.S. economy to already be in the midst of a recovery. In the next 12 months, CFOs anticipate an 11 percent increase in net earnings and an 8 percent increase in revenue. CFOs plan to increase technology spending by 7 percent.

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FINANCIAL

Variable Annuity Changes Rattle Advisors, Clients A s carriers pull back on variable annuity rates and options, advisors are pitching the advantages of stability, diversification and investment hedges aimed at absorbing volatility inherent in market spikes. By Cyril Tuohy

isconsin financial advisor Juli McNeely is of two minds when it comes to the current state of the variable annuity (VA) market. Insurance carriers often drive her batty because the latest tweaks and adjustments to their VA product lines make it seem as if VAs are a “moving target,” she said. Yet when underwriters spend time tinkering with their VA products, it’s a sign carriers are adjusting their portfolios to make sure VAs remain profitable while still meeting demand. “I want those products to be sustain52

able,” said McNeely, secretary of the National Association of Insurance and Financial Advisors. “I want to make sure companies will deliver on the promises that they’ve made.” Who wouldn’t? Investors who sank part of their life savings in an annuity want to know that the annual 7 percent guarantee they signed up for on a $500,000 VA is going to turn up in the form of periodic payments, just as the contract promised. For years, those contracts promised generous withdrawal living benefits. But those promises ultimately proved to be more than some carriers could profitably deliver as record low interest rates dragged on and markets swooned. As a result, some companies dropped out of the VA market, others blocked investors from making any new contributions and still others throttled back – hard. Carriers have intentionally dampened sales or scrapped living benefits riders, or

InsuranceNewsNet Magazine » September 2013

secondary guarantees, in favor of adding some higher risk and alternative risk investments in the “VA chassis,” said Brock Jolly, a financial advisor with Capitol Financial Partners in McLean, Va. While some annuity companies are changing the guarantees on existing contracts – never a pleasant experience for customers – it’s more common to see companies introduce new VA products, he said. Jolly said he sees a “back to basics” approach on the part of the VA industry, one that offers investors tax efficiency, the opportunity to build a diversified portfolio and access to sophisticated managers, he added. “I recommend that you put a nice chunk [of an investment portfolio] in a variable annuity to cover the essentials,” McNeely said. “So maybe you can’t take that cruise, but at least you know you can pay your utilities.”

VARIABLE ANNUITY CHANGES RATTLE ADVISORS, CLIENTS

“I want those products to be sustainable. I want to make sure companies will deliver on the promises that they’ve made.” – Juli McNeely, Secretary, National Association of Insurance and Financial Advisors

A Look at the Changes

Few companies have filed new contracts and only a handful have filed new benefits as of the first quarter of this year, the latest for which statistics are available, said Frank O’Connor, product manager for annuity data with Morningstar.

VA issuers filed changes to 97 annuity products in the first quarter, an increase of more than 64 percent from the changes filed in connection with 59 annuity products in the first quarter of 2012. “In general, the changes were to reduce living benefit guarantees and constrain risk,” he said. Fees, the lifeblood of annuities and the reliable contributors to carriers’ bottom lines, have gone up. Additions to AXA’s Accumulator and Retirement Cornerstone VA hike the guaranteed minimum income benefits (GMIB). Fees for its GMIB I rose to 1.15 percent from 1.1 percent, and the fees of the new version of the GMIB II climbed to 1.3 percent from 1.25 percent, according to O’Connor. Nationwide Financial also hiked the withdrawal percentage of its lifetime GMIB, boosting fees to 1.5 percent from 1.2 percent, and Ohio National trimmed step-ups and withdrawal percentages of the joint version of its Guaranteed Living Withdrawal Benefit (GLWB) Plus VA, O’Connor said. Principal Financial lowered the issue ages for its lifetime guaranteed minimum withdrawal benefit to 55 years old, and created a new withdrawal age band on the GLWB for people ages 55 to 59, O’Connor also said.

“It’s an interesting dynamic,” O’Connor said. “How much can you write these before the demand slackens?” “I don’t think we’re at a point where consumers think VAs aren’t a good fit for them, but we’ll just have to see,” Dennis R. Glass, Lincoln Financial Group chief executive officer, said in a conference call with analysts earlier this year. Glass said that despite cutting back on features and increasing fees, demand for VAs still remains strong. Carriers are tweaking the income side of their annuities by adjusting guaranteed income riders, McNeely said, and many companies are guaranteeing new VA contracts “in the 5 percent range.”

Stabilizing Volatility

While there’s still demand for VAs, carriers are looking to grow in other areas and advisors are pitching the advantages of stability, diversification and investment hedges aimed at absorbing volatility inherent in market spikes.

“They are trying different things and trying to put more of the risk back on the balance sheet of the investor as opposed to their own,” O’Connor said. “They are throttling back on the exposure and the withdrawal benefits.” Nationwide Financial has added four new “managed volatility” fund options for its core VA lineup, the company said. Securian Financial Group, for example, earlier this year announced that it, too, has added a set of “managed volatility portfolios” as investment options in some of its MultiOption VA issued by its Minnesota Life subsidiary. “Those funds are an effort to bring more stable options to their VA customer,” said McNeely. “Managed volatility is something more stable so that there’s more [options] on the stable side.” Carriers are offering VAs greater leeway in hedging as a bulwark against volatility, and alternative investments like real estate and commodities are turning up within the VA chassis. Midland National Life’s LiveWell VA offers 20 alternative options, and as many as 40 carriers are offering up to 1,538 alternative subaccounts in their VA products subaccounts, according to O’Connor. Forethought Financial Group’s ForeRetirement VA, launched in March, includes a daily lock income benefit guarantee as

FINANCIAL

“I don’t think we’re at a point where consumers think VAs aren’t a good fit for them, but we’ll just have to see.” – Dennis R. Glass, Chief Executive Officer, Lincoln Financial Group

well as a 6 percent credit deferral bonus. For advisors, the challenge is how to sell the nonguaranteed offerings, O’Connor said. Nor can advisors sell VAs purely on tax deferral advantages because so much of the sales have taken place in qualified annuities, he said. In the meantime, though, advisors are selling guarantees while they will have guarantees to sell and as people move from the accumulation to the de-accumulation phase of life. “Demographics are still there for them,” he said. Insurers ratcheted up the “arms race” of secondary guarantees in the lead up to the Great Recession, promising benefits of as high as 7 percent. But those same insurers took a hit when stocks tanked, and interest rates plunged and remained low. VA sales, which peaked in 2007 at $179.5 billion, plunged two years later to 124 billion before recovering in 2010 to $153.6 billion, according to Morningstar Inc. This time, though, carriers are approaching the market more shrewdly as they trim back on guarantees and hike prices. They want to make sure they can pay for their VA promises out of fees and investment returns while still making a profit. Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@ innfeedback.com.

September 2013 » InsuranceNewsNet Magazine

Read Part 1 from our August 2013 issue: Why Your Sales Training Needs a CAT Scan bitly.com/qrsalescatscan

BUSINESS

Why Your Sales Training Needs an Architect The second part to get right in your sales training is the delivery architecture. By Dan Seidman

n last month’s article about the CAT Scan for your sales training, we looked at the C, which stands for content. However, the greatest content in the world will have little impact without the right structure in which to deliver it. That is why the second part of the “CAT Scan” – the A – stands for architecture. My recent experience with a financial firm was an example of why this is crucial. I was asked to redesign a sales training program for the firm’s 350 representatives. The company trainer was the senior executive who championed this project. He was very excited about 54

this and wanted to present the new training himself. Most of my work was to build interactive components into the training. On the day of the training session, I approached the senior executive during the lunch break and said, “Uh, you’ve skipped every exercise and lectured for three hours.” “Yes, Dan, I’m worried that if I stop and do the exercises, we won’t have time to cover all the content,” he replied. It was not pretty. The man spoke for two days straight – and that was the company’s complete training experience! Now this example is a bit extreme; most of us see the value of adding some exercises and interactivity to our training. But after keynoting and training at dozens of firms in this industry, here’s

InsuranceNewsNet Magazine » September 2013

PART 2 of a 3-Part Series

what I’ve observed about what most (OK, almost all) companies consider to be training: We’ll put one of our top performers in front and have him or her share what they do to achieve their success. But that does not mean people will absorb what the trainers have to say and put the lessons into action. The architecture or design of your training experience must incorporate adult learning principles in order to transfer learning into new actions, new routines and new rituals. Why is this rarely done? Because our frame of reference for learning is often what we grew up with, which is teaching and preaching.

WHY YOUR SALES TRAINING NEEDS AN ARCHITECT Have you noticed a distinct, disturbing lack of results with this type of “training?” Having a methodology for structuring content is both a relief and a blessing to training and sales departments that are dissatisfied with their instruction’s outcome. An interesting result of the poor two-day training program I described was that the client/trainer was inundated daily by reps calling from all over the country to ask additional questions. Others began to fly in, to shadow him and watch him sell. This represented tons of extra hours of workload, simply because the training experience did not work. When you choose to train, you are in the “before and after” business. If your trainees don’t experience distinct changes in behavior after the training, everyone loses. One way to ensure change is to implement a quick and simple six-step design process based on a highly successful model used by Wendy Seidman, former executive director of content development/training for the Willow Creek Association (WCA). Her training products have generated more than $50 million in sales.

Designing Your Training Session

Designing your training session is similar to creating a road map. First, you need to know where you’re going – the goal. Next, you need to know who you’re starting with – the target audience. And finally, you need to give them the directions or steps to reach that goal. In sales training, it makes the most sense to create the steps to match the selling process through which your learners will move to complete a sale: finding, conversing with and closing a buyer. Create your own six-step chart and fill it in with this content. [1] Identifying the desired response/ goal: What should participants be able to do when they get back to their role? For example, how will sales reps be able to handle the top six objections they encounter from prospects? [2] Determine the target audience: Who are they? What is their level of experience with your subject?

BUSINESS

HOW TO DEVELOP TRAINING PROGRAMS THAT WORK How Most of Us Approach Training

How We Should Approach Training

What am I going to say?

What are the participants going to do?

How can I make it interesting?

Which activities will have the most impact?

Will I have enough material to fill the time? Or do I have too much material?

Will they accomplish the goal in the time allowed?

Instructor-oriented

Participant-oriented

Knowledge-based

Action-based

[3] List the steps: How do you get to the desired response/goal? What’s the process or road map? List the steps sequentially. They need to be in order. [4] Identify the activities: For each step you identified, what do you want the participants to do during the training session to ensure that learning occurs and new behaviors are practiced? [5] Develop the content: What information does the participant need to know, feel and experience before they do each activity? [6] Select the delivery method: Decide which training method to use for each step, and write each method in the chart above. In addition, your architectural design should include post-training elements to deepen the learning transfer. This might mean using forms of accountability and ways to revisit the concepts and behaviors that were taught. There’s your architecture. You now have a proven, highly successful model

for creating or re-creating your training experience. Here’s a gift for you: You’ll want more detail about delivery methods and post-training elements. For a tips document on these, send an email to me at the address below.

Coming in Part 3

The final part of the CAT Scan for your sales training is T, which stands for training. We will focus on how the person you’re trusting to improve the performance of your sales professionals can adopt some new behaviors. This will include a nice blend of platform skills from outstanding actors, speakers, musicians, even comedians. Dan Seidman is the 2013 International Sales Training Leader of the Year (Stevie® Awards) and designer of the global sales training program for the American Society for Training & Development (ASTD). He is the author of The Ultimate Guide to Sales Training. Contact Dan, write to dan.seidman@ innfeedback.com.

September 2013 » InsuranceNewsNet Magazine

MDRT INSIGHTS

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

Success Is a Marathon, Not a Sprint

Involvement in industry associations will help you to stay connected and give back. By H. Larry Fortenberry

y career in this business certainly has evolved over the past 38 years. I’ve made mistakes, but I’ve also learned some important lessons. As I look back, I realize what has contributed to my success. To make it in the financial services industry, you simply can’t give up! You must stay in it long enough to build up a book of clients who will refer you to other clients. In addition, you must be able to pick yourself up when you fall and you must know the value of working with others. I am an accountant by education, but after about six years of practicing I made the switch to a career in life insurance. I entered the agency of my mentor, an attorney who did estate planning in addition to selling small group health insurance and employee benefits. At the time, I built my practice much like his. Now, I have a multi-faceted practice specializing in group health, ancillary products, disability insurance, life insurance and financial analysis. Because of my start and subsequent success, I am a big believer in having mentors and doing joint work. In fact, my partner is 23 years younger than I am, and I have benefitted as much from working with him as he 56

has from working with me. Perhaps the best advice I can give agents, those who are new to the business along with those with more experience, is to be involved in industry associations. Being a part of the Million Dollar Round Table (MDRT), among other industry associations, keeps me fresh. My association involvement is the primary way I stay on top of what’s changing in our industry. Associations also can help agents feel connected to others who are doing precisely what they do for a living. We also have an obligation to give back to our trade. The exchange of ideas with fellow members is a great way to learn what works and what doesn’t. This saves you time and brings you to success more quickly! Younger agents need to know they can’t quit early. Every producer out there begins a new year wondering how it will turn out. Make sure you have a good steady source of prospects to keep you from worrying about sales. After all, prospecting is the lifeblood of this business. If I was ever in a career slump, it usually was because I stopped prospecting. In addition to learning how to seek out potential clients, young agents need to know how to manage their time. Because you are self-employed in this business, the 9-to-5 mentality just won’t work. When you’re starting out, you will find you have a lot of time on your hands, and you must know how to use it wisely.

InsuranceNewsNet Magazine » September 2013

Making goals will surely help. For me, I wanted to qualify for MDRT each year and reach a certain amount of income in commissions. For a new agent, a good goal might be to have a certain number of appointments set up each week. This is a great aid in managing time. Being in this industry is a marathon, not a sprint. There simply are no shortcuts. Build relationships, find a niche market and stay true to what you do. Every year, determine if there’s something different you can do to increase sales from the prior year. After 38 years in the business, I still begin each year by evaluating how I can keep my edge and add revenue without disrupting anything. You certainly don’t want to throw away a process that is working for you. In addition, the opportunity to do joint work will contribute tremendously to your success. There is a great deal to learn from a senior agent, and you will find most of them are more than willing to be a resource for you. H. Larry Fortenberry, CLU, ChFC, is a 37-year MDRT member with nine Court of the Table and 14 Top of the Table honors. He is president of Executive Planning Group, an insurance and employee benefits firm in Jackson, Miss. Contact him at Larry. Fortenberry@innfeedback.com.

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September 2013 » InsuranceNewsNet Magazine

NAIFA 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.

Managing Time Is an Art Form C onquer your time-control issues by following the steps outlined in this article. By Robert A. Arzt

he way our minds are hard-wired prevents us from following through on our goals and on the promises we make to ourselves. Basic human nature causes us to move in the direction of what gives us pleasure and to move away from what might cause pain or discomfort. Overcoming this natural tendency of doing what feels good and not doing what doesn’t feel good is a real challenge. To conquer your time and organization-management problems, you must do things differently – and that means change. For most of us, it’s natural to resist change. Here are some reasons why: ear of unknown results and/or conseF quences. Fear of making the wrong decision. Lack of belief. To conquer the fear of change, keep in mind these simple steps: Expect change. Focus on the outcome you desire. Take one step at a time. Reward yourself for getting started and staying on track. These strategies will help you follow through and can be applied to any goal you set for yourself: Create bold, compelling reasons why you need to achieve your goal of getting more organized. Make it more painful to not move forward with your organization plan than to do so. One way to accomplish this is to consider how great you will feel if you are organized. Write down all of the benefits and rewards you’ll receive by getting organized and managing your time. 58

Strike while the iron is hot. Don’t delay in getting started. Tough it out. Do whatever it takes to stay on track for the first few weeks. Don’t go it alone. Ask associates to partner with you. Keep each other on track and accountable to your goals.

Believe to achieve

Perhaps the most important aspect of changing your behavior to accomplish something new is this: You become what you believe you can become and/or accomplish. Belief in the attainment of any goal is a critical requirement for the achievement of that goal. You must deploy every strategy and tactic you have in order to build belief. Do whatever works best for you – from writing down affirmations to visualization to giving yourself rewards for incremental progress. If you’re not sure what tactic works best for you, try them all.

Problem-solving strategies

Now that we’ve handled the psychological issues related to following through on any goal, let’s look at some actions to take in order to conquer your organization and time-control issues. Identify time-wasters. Discover your time-wasting activities and what gets in the way of your being organized. For each time-waster, create an action plan to either eliminate it or reduce its impact. Define your workflow. Determine all of your necessary activities each week

InsuranceNewsNet Magazine » September 2013

and allocate the ideal amount of time it takes to accomplish each one. Create the perfect week. Create an ideal workweek. Physically block off time in your calendar each week to accomplish each activity you identified above, along with the amount of time necessary to accomplish it. Build reserves. Build some fail-safe time into your schedule. For example, block off every Friday afternoon as reserve time. You can use this time to catch up on unfinished work or uncompleted tasks. Or if you’re totally caught up, head home early or reward yourself with something that gives you pleasure. Do laser planning. Set aside time every day to review today and plan for tomorrow. As William James once said, “Nothing is as fatiguing as the continued hanging on of an uncompleted task.” Now is the time to get organized. Begin by scheduling an appointment with yourself to write out the steps you will take to conquer your organization and time-control issues. Good luck on your journey to success. Robert A. Arzt, CLU, ChFC, LLIF, is founder and president of Polaris One and InsuranceCoachU.com. He is a NAIFA member, and the author of the book, “What Every Great Salesperson Knows, A No Nonsense Guide to Sales Success,” and the soon to be released course, “Time Management Boot Camp.” Contact him at Robert.Arzt@innfeedback.com.

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LIMRA INSIGHTS

Retirement Planning Begins with Income Protection A dvisors need to make the public aware of how life insurance can help them to have a secure retirement. By Robert A. Kerzner

ith all of the news coverage about retirement – how much people are saving for it, how much they will need for it and the odds they will run out of money in it – it is not surprising that LIMRA research shows Americans’ top financial concern is having enough money for a comfortable retirement. Setting a plan to save for retirement income is an important goal for everyone. But what happens when something happens that upsets that plan? What if the family breadwinner becomes disabled and is unable to work? What are the immediate and long-term consequences to the family if the primary wage earner dies unexpectedly? As we all know, life insurance ownership has been trending downward for many years. These historic lows are disturbing, especially at a time when people say they seek financial security. With disposable income at a 30-year low, American families must make difficult decisions in order to determine their financial priorities. Unfortunately, in this environment, protecting the family income often gets put on hold. LIMRA research tells us that 70 percent of families could not last a month without the breadwinner’s salary. If a primary wage earner died suddenly, those families would face financial jeopardy within a few months. And yet, a full third of consumers believe they do not have enough life insurance. Only 7 percent of consumers say they are very likely or extremely likely to purchase life insurance in the next year. Life insurance is the one product that can help families keep a roof over their heads and provide for basic living expenses, while allowing time for the fam60

We need to show people how life insurance can help them have a secure retirement.

ilies to recover and heal from the loss of their loved one. LIMRA’s research shows that people do not fully understand the risks they take by not having life insurance. Many Americans worry about saving enough money for retirement. We need to help people see how life insurance can help them have a secure retirement. September is Life Insurance Awareness Month (LIAM). This year marks the 10th anniversary of LIAM, which is an effort to raise awareness among consumers and producers about the need for life insurance. LIAM is sponsored by the nonprofit LIFE Foundation and more than 100 of the nation’s leading insurance companies and industry groups, including LIMRA. During this month, we target our efforts on making sure Americans understand the vital importance of life insurance as part of their financial plans. Sales representatives and advisors can take advantage of this awareness

InsuranceNewsNet Magazine » September 2013

campaign to reach out to customers and their families to make sure they are protected against the risk of dying too young, living too long or becoming disabled. Our research has shown that families who work with advisors consistently report they are more confident about the future than those who don’t work with advisors. Consumers are rightly concerned about what their retirement will look like. The advisor’s role is to help them see the whole picture. Robert A. Kerzner, CLU, ChFC, is president and chief executive officer of LIMRA, LOMA and their parent organization, LL Global. He leads the world’s largest association of life insurance and financial services companies, providing their members with research, training and development, consulting, assessment, compliance, and other benefits and services. Contact him at Robert.Kerzner@innfeedback.com.

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September 2013 » InsuranceNewsNet Magazine

NAILBA INSIGHTS

The National Association of Independent Life Brokerage Agencies (NAILBA) is a nonprofit trade association with over 350 member agencies in the U.S. and Canada.

Some Clients Need Flexibility to Plan Long-Term Care Funding L ife policy riders with an accelerated death benefit for clients who are chronically ill are one way to address concerns about funding future long-term care needs. By Raymond S. Phillips Jr.

he past few years have seen a challenging long-term care insurance (LTCi) environment, thanks to a very persistent block of business and depressed interest rates, among other factors. It’s a market that has been chock full of in-force rate hikes, increased new business premiums, carrier departures, and limitation of benefits and features. This all is taking place while, one could argue, the need and concern for long-term care funding continues to increase. Now more than ever, addressing the long-term care funding problem involves more “planning” than “selling.” While the purchase of a traditional longterm care insurance plan will remain the foundation of long-term care funding needs, there is an option that might allow additional flexibility in some clients’ overall strategy. The trend in the life insurance industry has been to offer policies with riders that allow for an acceleration of the death benefit for those in a chronically ill situation. For all intents and purposes, the triggering definitions are very similar to those of a long-term care insurance policy. The purchase of such a life insurance plan, and earmarking the death benefit for use as a “long-term care pool of money” instead of purchasing a stand-alone long-term care insurance product, might be worth consideration. Perhaps your client may want to consider a strategy to purchase an LTCi policy in combination with life insurance with an accelerated death benefit (ADB) rider, or a life policy with ADB rider might be used to offset a shortfall of benefits on an in-force LTCi plan. A positive feature of most life policies 62

with ADB rider is that the entire benefit but policy language should be reviewed will be paid out to someone – either to to ensure that is the case. There may be the insured through the chronically ill restrictions as to when and how a client death benefit acceleration or to the ben- can access the accelerated death benefits. eficiary via the income-tax-free death The structure of payments varies from benefit. company to company. Some allow for the A difficulty in long-term care planning plan to mimic the payout pattern of a trais and has always been that there are no ditional LTCi plan. Others allow only for crystal balls. Advisors simply do not annual or some other periodic withdrawknow when, how or even if a client will als. The prudent planner will scrutinize use their long-term care inthese definitions and payout “It’s important structures to help better surance policy. Inherently, to consider therefore, a ubiquitous obidentify a fit for their client’s optional jection out there is: “What particular situation. happens if I don’t use my A life insurance plan with strategies for long term care coverage?” an ADB rider for chronicala client as When the client purchases ly ill situations can provide the market a life insurance policy with a client with stable premichanges...” the accelerated death beneums and the assurance that fit rider, that objection is moot. If a client the full amount of the benefit is paid out. has a chronically ill claim for less than In many situations, this plan will appeal the full amount of the death benefit, to a client as an alternative or an addition the bulk of the unused death benefit is to a long-term care insurance plan payable to the named beneficiary. With As with any planning process, it’s immany of the plan designs, even if all of portant to consider optional strategies for the death benefit has been “used up,” a a client as the market changes and new alresidual death benefit is payable to bring ternatives come available. Another tool to the plan to closure. address the conundrum of long-term care Don’t get me wrong – the pros and funding is purchasing a life insurance cons of this approach must be explored contract with an accelerated death benefit in relationship to a client’s particular rider for chronically ill situations. When situation and weighed compared to a all is said and done, it might end up propurchase of a “regular” long-term care viding the flexibility that a client needs in insurance plan. Often the life insurance order to implement something to address plan with an ADB rider has a higher cost long-term care funding concerns instead than a similar initial long-term care pool of doing nothing at all. of money. Is it worth it to the client to Raymond S. Phillips Jr., assure all benefits are paid out? LTCP is the president The ADB riders do not allow for any CLU, of Pittsburgh-based The inflation protection. A client who ends Brokers Source and the 2013 up with a long-term care claim after pay- NAILBA Chairman of the ing premiums for many years might end Board. The National Association of Independent Life up woefully short of “full blown” long- Brokerage Agencies (NAILterm care protection. BA) is the premiere insurance Be wary of the definitions that trig- industry organization promoting financial and consumer choice through the ger the chronically ill ADB rider. Those security use of independent brokerage distribution. definitions can vary from contract to NAILBA serves as the national association contract. Most often, they tend to follow of life, health and annuity insurance distribthe definitions of “chronically ill” we’ve utors. Contact Ray at Raymond.Phillips@ innfeedback.com. come to accept as appropriate triggers,

InsuranceNewsNet Magazine » September 2013

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September 2013 » InsuranceNewsNet Magazine

THE LAST WORD

WITH LARRY BARTON

Don’t miss our Whole Life vs. Universal Life feature PAGE 22

Simple, Innovative Ways to Invigorate Here are some inventive ways to give your practice an added boost through the final months of the year. By Larry Barton

efore we know it, the ball will drop from Times Square and we’ll ring in 2014 with Ryan Seacrest. In the midst of the New Year’s Eve revelry, some advisors will look back and ask themselves: “How did I miss my targets for last year?” By the time we get to Dec. 31, it’s too late for you, your family and, most important, your clients. Yet today, right now, your clients need you more than ever. The economy is gaining some stability after a horrible four years but, across the nation, life insurance sales are anemic at best. The sale of stable retirement products, even with meager guarantees, continues to skyrocket as investors seek any assurance that they can live with dignity in their post-employment years. Meanwhile, the business press has pretty much declared 529 education plans to be out of favor. And boomer-aged business owners – the largest number in history – are contemplating when and how to transfer their assets to family members or others. With insecurity – but also opportunity – all around you and a few months to kick it out of the stadium, what’s stopping you?

Three years ago, most insurance compliance leaders offered stern, sobering lectures. They proclaimed that social networking is filled with risk, while executives and board members nodded in agreement. Progressive companies employed a Bobby Kennedy type of positive skepticism and asked, “Why not?” They acted with a sense of: “Our competitors are old school and obsolete – there’s a new world out there and we have a year to get this right.” Subsequently, they crushed their competitors so quickly with web sales and social networking that the mighty were caught off guard. If you have an active social networking presence in which you are messaging and leveraging connections, you’re my hero. 64

But if these words are just words to you and you don’t understand how to harness the opportunities from Square and other tools, your competitors may be delighted. And if someone says, “Well, I’m on Facebook,“ you can reply, “That’s great for pictures of your trip to Bermuda.” Get LinkedIn or get locked out, seriously.

The Starbucks Maverick

We’ve all heard of creative ways to reach new clients. I’m particularly proud of one of The American College’s most accomplished graduates, Jerry Borrowman, CLU, ChFC, from Utah. Last year he held a “59 l/2” birthday party for himself at a local restaurant and invited his clients. He was astounded to see a swarm of attendees, most of them curious about what age 59 l/2 means to Jerry. What an innovative way to engage your clients, talk about retirement strategies and network with established clients who still have to enjoy lunch. The main difference is that now, they are hostage with you, possibly for the first time in years. But Jerry, there’s someone on your tail. A Scottsdale, Ariz., advisor – we’ll call him Jake – has a concept that landed him three new, strong clients in one hour. According to the receipt he showed me, that concept cost him $257.80. He told me, “Dr. Barton, I hang at the same Starbucks every morning. I told the manager that everyone in the place on Tuesday morning at 7 a.m. – I’m always there from 7 to 7:30 – would receive free coffee or whatever drink they wanted for the next half hour. All I wanted was for the cashier to say, ‘This is a gift from a friend.’ If the customer asked who the friend was, they could take the card left at the register and the cashier would say, ‘The financial advisor over in the corner with his laptop is here every day. He’s a regular.’” So, Jake, can you give me a dollar value on this very “un-corporate-like” way to secure three new clients? He did, and I was floored. He is now doing this once a month, on different days. The store manager is thrilled, the advisor is thrilled, and Jake has gained friends, credibility and engagement. It’s not high tech. It’s high touch. Is it unconventional? Yes. Would

InsuranceNewsNet Magazine » September 2013

your territory sales leader approve? It all depends on your culture, your appetite for coffee and your willingness to embrace the new. But for anyone who says, “Oh, this brings life insurance and investment sales to a new low,” try thinking back four decades and going door-to-door and running your debit. I’ll take this method over direct mail and cold calling any day.

What! Me? Volunteer?

As a financial advisor, you already are likely to be committed to one or more charitable causes in your community – that’s the good nature of the men and women who make up this industry. Consider donating a few days a year to offer complimentary financial counsel to persons of need in your community. Will this boost your income so that 2013 is a colossal hit? Likely not. In fact, it will cost you money if you’re away from the desk, so to speak. That is likely to be what you will hear from the territory leaders. But – sssshhh! – I have a secret to share with you, and with them. Remarkably, many people who are needy work with, are supported by, and later become, people of means. They need your help now, and you have an opportunity to help them. And later, if they recommend you to friends, colleagues and contemporaries, it is the yield that no advertisement or seminar can produce. Think about the benefit that your philanthropy of time and talent can generate. If you believe in “do unto others” as a credo of life, you also may benefit from the credo of “the good you generate will be rewarded.” The year 2013 will be a fair year for some and a spectacular year for others. You still have weeks to make a difference. I’d suggest you think of innovative ways to jump start that engine now. No driver at NASCAR ever won a race by remaining in idle. Larry Barton, Ph.D., CAP, is president, CEO of The American College and holder of the O. Alfred Granum Chair in Management at The American College, based in Bryn Mawr, PA. Contact Larry Barton at Larry.Barton@innfeedback.com.

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Confinement 150% income multiplier with only Lifetime Illness * Income two of six ADLs (available after the

Death Benefit

fifth contract year) SINGLE BENEFIT BASE

» FIND OUT MORE!

our clients can use one benefit—or all five. The entire benefit base will be paid.†

earn more, call 1.855.4.ATHENE (428.4363) and press option 1.

Five benefits in one rider – all funded from a single benefit base* • Guaranteed Lifetime Annual 7.5% roll up rate IncomeforBenefit the first 10 years**

6% premium bonus** Enhanced Guaranteed Lifetime * Income BenefitEarly income bonus • Confinement Benefit • Terminal Illness Benefit* • Death Benefit

Download our free Combo Toolkit Guarantees associated with Benefit packed with product Base account: growth guarantees information and specs. and payout guarantees What does the future hold for your clients? Get them now at Watch this short video discussing how you can help clients plan for Expand yourproduct client base with their future “what ifs”—and get access to a helpful comparison www.MVP-Combo.com worksheet. To view, go to:

bit.ly/ridercomparison

younger clients with a possible 55-year roll up

*Rates as of July 30, 2013. ATHENE Enhanced Choice 8 and ATHENE Benefit 10 are issued by Athene Annuity & Life Assurance Company, Wilmington, DE, and contain exclusions, limitations and charges. Please see product literature for details. exas, the Enhanced Benefit Rider is known as the Guaranteed Living Benefit with Enhanced Benefits Rider. Products/features not available in all states.

rrent as of May 4, 2013.

† In Texas, the Enhanced Benefit Rider is known as the Guaranteed Living Benefit with

e benefit base is paid when death benefit is paid over a five-year period. Enhanced Benefits Rider.

contract isFOR issued by Athene & Life contains PRODUCER USEAnnuity ONLY. NOT FORAssurance USE WITHCompany THE OFFERand OR SALE OF ANNUITIES. usions, limitations and charges. Please see product literature for details. ATHENE Benefit AN1395 (8-13) issued by Athene Annuity & Life Assurance Company, Wilmington, DE. Products/ res not available in all states.

INSURING TOMORROW TODAY SM

AtheneAnnuity.com

S I N K YO U R T E E T H I N

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Most companies are all bark but no bite. KonnexME has the bark to attract leads and the bite to turn them into sales. To succeed in this business, you need to be heard, but you also need market intelligence in which you can sink your teeth. Why be all bark, or all bite, when you can be both?

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It’s not just about sales ideas. It’s not just about seminars. It’s about vision and leadership. It’s the Gradient industry insight coupled with the technology of KonnexME to provide the business solutions your practice will require tomorrow … available TODAY. Web Logos:

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