InsuranceNewsNet Magazine - July 2012

Life

Annuities

Health

July 2012

ALSO INSIDE: Supercharge Your Life and Ignite High Performance PAGE 12 Special Report: Indexed Universal Life PAGE 34 Voluntary Benefits, the Way to Sell Disability PAGE 50

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Unless you are a captive or affiliated agent, chances are you aren’t getting REAL training from your IMO, BGA, or carriers. Most “so called” training for producers is about as interesting as watching paint dry and is rarely available on your schedule.

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Plus, see why buying term and investing the difference still makes sense in today’s tumultuous, low interest economy.

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JULY 2012 • VOLUME 5, NUMBER 7

Scan this QR code with any QR code reader on your smart phone

CONTENTS

View and share articles from this month’s issue

36 The Annuity MECca

By Jacob Stern The IUL Modified Endowment Contract provides greater options and flexibility in terms of cash surrender value, tax-deferred growth, and tax-free death benefit when compared to an indexed annuity.

40 Indexed UL ATM

By Bill Kanter For IRA clients under the age of 59 ½, using the IRS Rule 72(t), advisors can convert those funds into an IUL for penalty-free withdrawals.

22 INFRONT

40

22 W hy People Buy Annuities

8C lient-Centered Process Turns

Product Variety into Opportunity

By Linda Koco With today’s plethora of new life products and no real headliner, Valmark Securities’ president and CEO offered his insights at this year’s MDRT annual meeting on how advisors can not only evaluate product to meet client goals, but also help companies stand out from their competition.

12

By Steven A. Morelli The latest LIMRA study offers a fresh perspective of today’s annuity buyer: they’re younger, eager to access their own information from a variety of sources, and concerned about retirement funds lasting.

Special Report: Indexed Universal Life 34 W hy Indexed Life is on the Rise

By Sheryl Moore Indexed Universal Life is uniquely positioned to outperform other life products by combining principle protection, interest based on stock market performance and the potential to earn indexed gains as high as 17 percent.

ANNUITY 46 D efine, Lest You Be Defined

By Linda Koco The Internet is the go-to place for consumers with questions about annuities, but the World Wide Web is fraught with confusing and inaccurate information from non-annuity industry sources.

HEALTH 50 V oluntary Benefits: A Once-InA-Lifetime Opportunity

FEATURES 12 E ngage Hyperdrive An interview with Brendon Burchard New York Times-bestselling author Brendon Burchard discusses how to engage the 10 human drives that manifest fulfillment and happiness in our work and personal lives.

2

InsuranceNewsNet Magazine

July 2012

34

By Bob Klein As more private employers consider replacing paid benefits with voluntary, their employees are left to the unwelcome task of educating themselves as to their benefits plans, creating an opportunity for advisors to step in.

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CONTENTS JULY 2012 • VOLUME 5, NUMBER 7

FINANCIAL

52 T he Extraordinary Case of Glenn Neasham

By Richard Weber The insurance industry was rocked by a California agent’s conviction of felony theft for selling an annuity to an elderly client. What we’ve learned from this incongruous case should serve as a warning to agents and advisors in every insurance segment.

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BUSINESS 54 A ttitude In Check

By Dan Seidman A light-hearted illustration of how we influence ourselves, and a simple checklist to reinforce your attitude toward success.

INSIGHTS 56 M DRT: Persistent Prospecting Drives Successful Sales

By Brian Heckert Four proven principles to follow for growth and success for your business.

58 L IMRA: Social Media is Just the First Circle

By Stephen Selby Effective networking through social media all starts with “likeability.”

EVERY ISSUE 6 Editor’s Letter 20 NewsWires 32 LifeWires

44 AnnuityWires 48 HealthWires 59 Advertiser Index

60 Ask the Sales Doctor

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 Kathryn Rolston CHIEF OPERATIONS OFFICER Jim Barton CREATIVE DIRECTOR Jake Haas

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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.

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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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Insurance products offered bym Minnesota Life Insurance Company, m Minnesota Life is highly rated by the major independent rating agencies that analyze the financial soundness 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 and claims-paying ability of insurance companies. For more information about the rating agencies and to see where our rating ranks relative to other ratings, please see our website at minnesotalife.com/ratings. ©2012 Securian Financial Group, Inc. All rights reserved. minnesotalife.com minnesotalife.com ICC10-720 10-720 ICC09-700 06-700 ICC09-710 09-710

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1 nuityspecs.com as of 12/31/11, based on target premium Annuityspecs.com sales, Minnesota as of 12/31/11, based Life on target is premium the second sales, Minnesota highest Life is the second rated highest rated rier out of the top 15 indexed life sellers rated by all four carriermajor out of the top rating 15 indexed agencies. life sellers rated by all four major rating agencies.

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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 is accessible to the general public.

se Indexed Life is designed first and foremost to provide Eclipse Indexed life Life insurance is designed firstprotection. and foremost to provide While life insurance the protection. interest While the interest www.securian.com ting options are attractive for cash accumulation, the crediting product options areshould attractive foralways cash accumulation, be promoted the product should always to first be promoted meet to first meet death benefit needs of families and businesses with cash the death accumulation benefit needs of families and asbusinesses a secondary with cash accumulation benefit. as a secondary benefit.

Insurance products offered by Minnesota Life Insurance Company, esota Life is highly rated by the major independent rating Minnesota Life agencies is highly rated by that the major analyze independent the ratingfinancial agencies that analyze soundness the financial soundness 400 Robert Street North, St. Paul, MN 55101-2098 • 1-800-820-4205 claims-paying ability of insurance companies.

For more and claims-paying information ability of insurance about companies. the rating For more information agencies about the and ratingto agencies and to where our©2012 rating ranks relative other ratings, please see where see our our rating website ranks relative to at other minnesotalife.com/ratings. ratings, please see our website at minnesotalife.com/ratings.

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F73874-35 5-2012 DOFU 3-2012 A01142-0212

rs may beICC10-720 available for ICC09-700 an additional and09-710 may be Riders subject may be available to restrictions. for an additional cost and may be subject to restrictions.

10-720 06-700 cost ICC09-710

F73874-35 5-2012 DOFU 3-2012 financial professional use only. Not for use For with financial the professional public. use only.

This Not formaterial use with the public. may This material not may not A01142-0212 eproduced in any form where it is accessible be reproduced to the in any general form where public. it is accessible to the general public.

WELCOME | LETTER FROM THE EDITOR

INN with the New

BY STEVEN A. MORELLI, EDITOR-IN-CHIEF Lots of great things going on here at InsuranceNewsNet that I wanted to share.

The first one is for all you Apple people. This magazine is now the only business-to-business life insurance or annuity publication that has an app on Apple’s newsstand. We figured we saw so many of you whipping out your iPads at shows that you’d like to read your favorite insurance magazine on it also. It’s a spiffy app, too.

And it’s free! We considered charging for each magazine or for the app itself, as many other magazines do. But we want everybody to come to the party. Come as you are and enjoy.

This is going to be a big year for redesigns for us. We’ll be delivering a new look and functionality not only for this magazine, but also for our websites in the next several months. One of the first redesigns will be a magazine website. Look for that in the next month or so.

While we’re tooting horns, I’ll also mention that we are finalists for seven Awards for Excellence from the American Society of Business Publication Editors (known as the Azbees). We won a gold, silver or bronze in the categories and we’ll find out which by the end of the month.

Most of those awards are going to Jake Haas, our creative director, who has been the main designing force for the magazine since we started waaaaaay back in 2008.

We are happy he is getting his due, because we have always been amazed at the magic he weaves from the potentially deadly dry subject of life insurance. Don’t get me wrong – we love covering this market. It’s just that, well, it doesn’t always lend itself to exciting images.

Speaking of exciting images, below is a peek at our magazine in the iPad app.

FRE E APP !

Steven A. Morelli Editor-in-Chief

We’re on the Newsstand!

You can download InsuranceNewsNet Magazine for free on your iPad from the App Store Newsstand. Simply search for InsuranceNewsNet or visit bit.ly/innmagazine for a direct link to the app and you’ll be up and reading in minutes.

»

Mobile Magazine

Got an internet-enabled mobile device? Take INN Magazine with you on the go! Simply scan this QR code with any downloadable QR reader and view the mobile version of this month’s issue.

»

Follow Us Online

There are more ways than ever to stay connected with us: @insnewsnet

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InsuranceNewsNet

DiD you get your bonus check in the mail?

Yes, The Ohlson Group pays quarterly bonuses on eligible life and annuity premiums.

The great thing about this program is that it starts over each quarter. No waiting till the end of the year. No big production mountains to climb if you are new with The Ohlson Group.

With us it is simple, each quarter we tally up the production and cut you a check. Of course, you must be appointed directly to us at street. so, how does it work?

Give us a call and get the full scoop at 877.844.0900 or email info@ohlsongroup.com.

Raymond J. ohlson, ClU, CRC is President and CEO of The Ohlson Group, Inc. and President of Safe Money Places International, LLC. 877.844.0900 | www.ohlsongroup.com | info@ohlsongroup.com

... a different experience

in Front

Timely issues that matter to you.

BY

Linda Koco

Client-Centered Process Turns Product Variety into Opportunity

L

ife insurance product trends can be baffling sometimes. Like now.

New life products have been buffeting advisors like headwinds from the post-recession economy, and no one product line seems preeminent. The variety is great for advocates of choice.

After all, the more product types, the better the advisor’s ability to customize coverage to client need.

But variety can also make for confusion and more work, since advisors must now spend more time and effort on product evaluation, company selection, client education, etc.

Larry Rybka, president and CEO of ValMark Securities, Inc., an Akron, Ohio, broker-dealer, shared some thoughts on that during his presentation at this year’s Million Dollar Round Table annual meeting in Anaheim, Calif.

In the 1960s and ’70s, he pointed out, whole life was the dominant product. Then, in the 1980s, when interest rates were in the double digits (the prime rate peaked at 20 percent in the early 1980s), current assumption universal life was dominant. Another shift occurred in the 1990s, when equities markets were soaring; that’s when variable life moved to the fore. And in the first decade of the 21st century, universal life with secondary guarantees reigned supreme, as recession-embattled consumers scrambled to de-risk assets wherever they could.

No Dominant Product Now But today, in the second decade of the 21st century, there is no dominant product, Rybka said. Instead, there is variety.

To illustrate, Rybka pointed to a fascinating timeline. It showed not only the product eras listed above but also the current era starting in 2010. It depicts the current era as having six product 8

InsuranceNewsNet Magazine

July 2012

types, with none in the lead.

The 10X Business Model One of the six is whole life. This Rybka suggested that advisors commit to should probably come as no surprise. what he calls a 10X business model. He Whole life has been resurgent in recent described this as a process for building times and has had six consecutive years sustainable value, one that is 10 times of positive growth, according a 2011 better than before. sales report from LIMRA. When considering carriers, for examThe other life products that Rybka ple, a 10X model requires the advisor positioned in the second decade include: to do more than check out the current current assumption universal life, uni- financial ratings of the carriers. The versal life with secondary guarantees, advisor should also review such things indexed universal life, combo universal as alert reports on the carriers, share life with guarantees (i.e., universal life price trends and stock analyst reports (if with long term care a stock company), abilbenefits), and variity to raise new capi“Advisors will need able universal life with tal (or debt), and other to find effective ways publicly available data, guarantees. of sorting through Rybka didn’t menhe said. tion term life insurA s for pro duc t multiple designs and ance, but we will add recommendations, to identify which best it for discussion purRybka thinks advisuits the need.” poses here, since term sors should focus on is still in the mix. thoughtfully selecting (Term continues to represent 65 per- products that are customized for client cent of coverage and nearly 40 percent needs. In the process, avoid the comof all new individual life policies issued moditized, spreadsheet sales that were in the U.S., according to LIMRA’s 2011 part of the era when one product domisales report.). nated the marketplace. He equated the If interest rates spike later in the sec- older approach to “selling life insurance ond decade, as some experts predict they by the pound, with an emphasis just on will, new versions of interest-sensitive illustrations rather than custom fitting whole life might surface too, along with the products to what clients have told new versions of whole/term blends. us they want.”

In earlier decades, product variety did The starting point, in Rybka’s 10X exist, of course. But now there is more model, is to set realistic expectations variety – and, more importantly, no one with the client about how the products dominant product line that advisors are work and to provide more client educausing for the majority of cases. tion. In addition, Rybka suggested that Advisors will need to find effec- advisor establish a method for matchtive ways of sorting through multiple ing individual client goals to the type of designs, many having unique, differen- product that best meets those goals. tiating features, and to identify which The process his own firm recombest suits the need. Advisors are used mends is what Rybka calls the Life Insurto making evaluations, but probably not ance Policy Management Statement. at the level that today’s market requires.

Identifying what the client wants is So, what to do? central to this process.

CLIENT-CENTERED PROCESS | INFRONT

To do this, his firm uses a life insur- why a particular kind of life insurance ance design questionnaire that is struc- accomplishes their goals best,” Rybka tured to help match client goals to type noted. “They take the time to get to of product/s that best meets the goals. understand the client and demonstrate “This tells the clitheir expertise to ent what you heard help the client pick “Term continues to them say,” he said. what works best for That information them.” represent 65 becomes input for Client education percent of coverage should the life insurance be part of the design. The out- and nearly 40 percent underwriting stratput is the products of all new life policies egy too, he indicated. and strategies the Rybka’s suggestion is issued in the U.S. firm recommends for advisors to focus to meet the design according to LIMRA’s on demonstrating requirements. why the firm can 2011 Sales Report.”

T he St atement help the client get is product-neutral, the best rates and Rybka continued. “For the client who “why they should buy from you.” That both needs to save for retirement and includes explaining how a table ratprotect their family, the recommenda- ing can make a difference in the size of tion might be for a variable policy with a the premium rather than “showing low guaranteed death benefit. But for a client numbers you cannot get on a spreadwho wants to minimize premium outlay sheet,” he said. for estate taxes, it might be universal life After the policy is sold, there is one with secondary guarantees.” more thing Rybka recommends for a As noted, client education is integral 10X firm. That is to continually review to the process. “The best people in the existing insurance needs and policies. business are able to show the clients Twenty of the 110 firms that ValMark

In today’s market, there are lots of product choices that make sense based on the circumstances of the client, Rybka noted. His advice is not to spreadsheet the products and be done with the recommendation process. Instead, develop a process for fitting product to need.

His emphasis on process seems wise, and that will help streamline the workflow. The streamlining should help advisors get a handle on what to do with all the product options they now have. If the process also helps advisors avoid retreating to commoditized solutions, that will help advisors differentiate themselves from competitors – and help customers get what they really need.

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.

LIF OLE

AS T N E

2000s

S

TIO P M U

N

R RA N T E A U R G Y R U A D C ECON UL WITH S 2010 INDE XED UL COM BO UL W ITH G UA RA N TEE S WH

90s

60s & 70s 80s

A Streamlined Process

E

Customizing Product for Client Needs

serves even provide clients with a written service agreement, he said.

ES

ITH

GU

L

AR

E

S

NU

TEE

TIO

AN

MP

DU

LIF

SS U

E

TEE

LE

TA

LIF

AN

LW

AR

VU

GU

EN

IAB

RR

OLE

R VA

CU

WH

L

Source: ValMark Securities

July 2012

InsuranceNewsNet Magazine

9

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InsuranceNewsNet Magazine

July 2012

ENGAGE HYPERDRIVE | FEATURE

Many of us have everything we want and it’s not enough.

Brendon Burchard believes that’s because we don’t understand what really drives our happiness and true success. We are just sputtering along in a low gear because we think that’s what we’re expected to do and be happy with it.

WE WANT HYPERDRIVE. » July 2012

InsuranceNewsNet Magazine

13

FEATURE | ENGAGE HYPERDRIVE

It’s

not just to go fast and blast p a s t e v e r ybody else. But engaging all the important drives will help you transcend all the stuff that’s supposed to make you happy, and leave your caged life behind.

Burchard believes people live one of three lives: caged, comfortable or charged. Of course, comfort is its own cage. So, caged or free – those are the real choices. The first step is activating the 10 human drives that make you feel alive, the subtitle to Burchard’s newest New York Times bestseller, The Charge.

You might have read his previous No.1 bestseller, The Millionaire Messenger.

You might have also seen him on CNN, ABC World News, Wall Street Journal TV, PBS and Oprah and Friends, or read of him in Success magazine, Inc.com, Forbes.com, FastCompany.com and the Huffington Post.

Get your FREE copy of Brandon Burchard’s newest bestseller, The Charge.

Simply visit bit.ly/inncharge to get your free copy now.

He’s been on a mission to help people since he survived a serious car crash at 19. Now he claims to be not only one of the world’s most sought-after speakers, but also the highest paid marketing and motivation trainer. Despite all his success, Burchard still is approachable and grounded in helping individuals find happiness and business success.

In this interview with InsuranceNewsNet Publisher Paul Feldman, Burchard discusses how to not only live a fully charged life but how to help others, including clients, to do the same.

FELDMAN: Why did you write The Charge?

BURCHARD: I wrote the book specifically because I think the emotional energy of the world has flat-lined.

Right now, a lot of people are scared, confused or, even worse, they’re in a place where things are going well and

have everything they need to be happy but they’re really not. They feel this deep stirring that there is something more. So, what can they do with that? How can they transform that?

As soon as they understand their 10 human drives and what really motivates them, they live energized and charged lives.

FELDMAN: In your book you say people live in that world of fear and yet we have so much overabundance in this world. Has there been a fundamental change in the human condition and needs over time?

BURCHARD: Yes, everything has shifted about the human condition.

And a lot of biologists and old-school psychologists say you really can’t claim that our human needs have changed over time.

I argue that not only did those needs change, they changed dramatically in just the past decade. Where we work has changed from fields to factories to the on-the-go network work force. There are many other recent factors, including how we relate to each other through the Internet, which has also intertwined our work and social lives.

So, now we’ve learned that the old trappings of success, of status, money, power and wealth do not move the needle substantially in terms of people’s happiness.

The world’s largest global studies in happiness have proven over and over again that it’s not where you live or how much money you make. It’s more about your emotional state. It’s about your internal charge. The more that you feel fully charged and the more you have clarity and courage within you, the more likely you are to feel happy.

We have to learn how to make that happen not by accident as in one day we wake up and say, “Oh, I’m happy today.”

But rather we guide our lives to make them the most fulfilled and engaged.

FELDMAN: After years of studying neuroscience and psychology you have identified 3 types of lives. Can you tell us more about them?

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ENGAGE HYPERDRIVE | FEATURE

BURCHARD: We all live three basic types of life and at some point in our lives, we may live one type or another.

We either lived caged, we live comfortable or we live charged.

When we’re living caged, it means we’re bound by other people’s expectations, our past or our circumstances. We don’t feel like we’re living our real life. We might be living our parent’s life or the life that the past led us into but we don’t feel we have an ability to choose.

You’re caged because you stop taking as much action, you stop expecting greatness in life because you become resigned to what others believe about you – the cage they have surrounded you with. You become scared because the times when you have taken a step outside the cage you were judged or you fell on your face. So you decide to limit your movements, limit your progress in life and accept the status quo.

A comfortable life is obviously much better. You’re at a comfortable level knowing who you are; you are making

“The world’s largest global studies in happiness have proven over and over again that it’s not where you live or how much money you make. It’s more about your emotional state.

It’s about your internal charge.” choices in your life and have had success. Comfortable is a good thing and most people think that’s what they want.

Except that people who’ve had comfort for a very long time wake up one day, completely freak out and have what we call a midlife crisis or worse. They have an internal crisis that says there must be more to life than this.

FELDMAN: Is that when they turn into what you call “chargers.”

BURCHARD: Exactly – that’s where they have an internal crisis that ultimately leads them into becoming

chargers. They say I’ve got everything I’m supposed to need to be happy. I am comfortable but I’m not happy.

Why? They realize it’s because it’s not about the stuff. It’s not the car; it’s not the house; it’s not the picket fence; it’s not the nice, cushy job. They realize that those extrinsic things aren’t the same as the intrinsic rewards of living their passions full out, of doing things that truly engage and energize them.

The funny thing about the psychology of what makes people engaged, happy and fulfilled is that comfort does not lead to happiness. As a matter of fact, discomfort makes happiness. When

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July 2012

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FEATURE | ENGAGE HYPERDRIVE

we challenge ourselves and engage our brain to the best of our abilities toward an endeavor that we’re passionate about, we feel fully charged.

Even in our relationships, we don’t want comfort. The deepest, most authentic relationships are actually quite vulnerable, which people find discomforting. But that’s the very thing that makes the connection deeper.

FELDMAN: How can an insurance producer or financial advisor deeply engage with someone in a business situation?

BURCHARD: The way to get engaged is to decide that this person in front of you is carrying an important message from the world and it’s your job to hear it. While we are there for business this is not business as usual.

You say to yourself that there’s a fateful reason that we are here together – I’m going to honor that and I’m going to be fully present right now. My mind is not going to be on the five things out this door I have to do. My mind is not going to be on my to-do list or on my agenda or what’s happening with the kids or how business is doing.

My mind right now is fully engaged with this human being in front of me to whom I have to demonstrate that I’m present, that I care, that I understand and that I am here to serve.

If that comes across to the client or to the business person in that situation, then they resonate. Nothing connects us better than emotional presence. When people are in need, and in most business situations people are in need, and they sense that you are a fully present servant to care for them, to provide products, services, programs that can help them, they see it is a gift to them. And it’s unique because most people today are not present. They’re so checked out that if you check back in and you’re engaged, you’ll stand out in front of your competitors like you never imagined.

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FELDMAN: When you’re in a selling situation and people are totally disengaged, how do you bring them in? What’s a good a way of getting connected and engaged with them?

BURCHARD: Neuroscience has told us that four things most engage people’s minds and their bodies and their souls.

These four things are the themes that weave throughout the charge.

The first is novelty. One reason they’re not engaged is they have heard this pitch

“The deepest, most authentic relationships are actually quite vulnerable, which people find discomforting.

But that’s the very thing that makes the connection deeper.” before and yours is just another presentation. So you have to think of a different way to present your service or your product that captures people.

That novelty can’t be just one thing. For example, somebody trying to sell something might try to do one cute thing and then go back to their usual thing. You have to make the entire approach novel.

The second thing that engages the brain is challenge. When you challenge somebody in appropriate ways, they get engaged because they have to bring their mental resources to addressing it.

So, asking questions that get people to think outside their normal response is a great way to engage them.

Another way to engage is creative expression, which is where people share

their unique selves. Ask them what creative things they are doing in their lives and what their hobbies are. Asking them to talk about what engages them creatively gets their full attention. One of our human drives is the drive for creative human expression. As soon as you tap that, they start paying attention.

The fourth piece is connection – having a real connection with them. It’s really hard to look at someone who is fully present, fully energized and fully caring and not be in that with them. If that essence, that energy, is in the room for just several minutes, people will gravitate toward it, reply to it and give it attention.

FELDMAN: I am not sure that I have ever come across anyone as “charged” as you are. Your energy and passion radiates through your speaking, seminars, and training; it has led to an incredible amount of success for you personally.

What is your secret to performing and sustaining a high performance life?

BURCHARD: Well high performance all comes from this – the secret is knowing what it is and doggedly and consciously chasing after it every single day. It’s one of those things that people talk about high performance but if it’s a concept it does no good. But when it becomes something that is tactical and really because you can define it and chase it then it becomes attainable.

But when it becomes something that is tactical and really because you can define it and chase it then it becomes attainable.

High performance is heightened and sustained levels of clarity, energy, courage, productivity and influence.

I have found that many of the highest performers in the world from the top CEOs to the most famous celebrities to multimillionaires in industries and companies have those things in common. They’re incredibly clear about who they are, what they’re trying to achieve and what they’re trying to contribute to the world.

ENGAGE HYPERDRIVE | FEATURE

They have greater levels of energy than those around them. This gives them more stamina to produce and more ability to inf luence others. But it isn’t some hyper, caffeine-fueled energy. It’s a deep energy within their heart and soul because not only are they taking care of their body but they also have the energy that comes from following their passions. Then they’re more courageous and they take more bold action than anyone else around them.

One of the most powerful things in growing your business right now is to have more courage than anybody else.

Everybody in business is hiding out, holing up and hoping the economy turns.

You’ve got very little competition that is adding value out there, so if you put your best foot forward and do it with boldness and distinction, you’re going to widen the gap. People will never catch up again. But that requires courage.

The next is productivity. People are poorly focused on time management.

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“One of the most powerful things in growing your business right now is to have more courage than anybody else.”

They are managing so many little tasks each day that they’re not really producing anymore. They’re not focused on the needle in terms of growing their business or living a better life.

They get stuck in their inbox each day and their day’s over before they know it. Their inbox is nothing but a convenient organizing system for other people’s agendas. So they’re living their lives based on other people’s agendas instead of really being productive.

The final trait is they are very influential. They understand what drives human psychology and how to have a greater level of rapport to develop deeper

and more authentic relationships. They not only do incredible things with their marketing and grow their business through their message, but they also lead others. High performers in any genre are always the ones leading the pack.

And all of those things – clarity, energy, courage, productivity and influence – can be activated by understanding human drive.

FELDMAN: Many of our readers are small business owners and sometimes have to motivate unenergized employees. How can they help their employees get charged?

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July 2012

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FEATURE | ENGAGE HYPERDRIVE CONTROL The desire to regulate and influence our overall life experience. If I were to live at a higher level of character and maintain a more positive outlook, I would have to…

COMPETENCE The ability to understand, successfully perform in, and master our world. One of the ways I’m going to start celebrating my wins and integrating my successes into my identity is to…

CONGRUENCE The conscious creation of a self-image of who you are and who you want to be. The words I would love to define the way I think of myself in my personal life are…

CARING The ability to be emotionally open to the needs of others and of yourself. Three ways I’ll start demonstrating more care for the people in my life are to…

CONNECTION The desire to relate to and be accepted by others in an emotional and spiritual context. Five things I could do immediately to create happier and deeper relationships in my life would be…

BURCHARD: There are two types of human drives: baseline and forward. The baseline drive is the desire for self-knowledge and to connect with our community. This includes the drives for control, competence, congruence, caring and connection.

This means, for example, that they’re competent at what they do, so you help them develop knowledge, skill and ability so they can be successful. Once you’ve met the baseline drive, to engage people in terms of their real feelings and their behavior you have to tap into the forward drives. These are change, challenge, creative expression, contribution and consciousness. Every leader needs to focus on three of those consistently: challenge, creative expression and contribution.

Challenge is essential to high performance. There has to be something for your team to rally around on a consistent 18

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CHANGE Managing the balance of the desire to evolve and grow with the need for stability. A clear and bold new change I could make in my life would be to…

CHALLENGE Rising above one’s own concept of self, skills, beliefs, and mental and physical capabilities. The next big and bold challenge I’m going to take on in my life is to…

CREATIVE EXPRESSION The intelligent and creative manifestation of one’s own true self. To show more of me and express myself more creatively at home and at work, I will…

CONTRIBUTION The wholehearted giving of your unique voice, talents, influence, and perspective in all you do. I feel I contribute to the world around me by…

CONSCIOUSNESS Being at peace with and fully present with what is. The things that inspire my wonder about the world and my place in it include…

basis to progress toward, to accomplish, facing our greatest challenges as a counto celebrate. try, such as when we decided to go into I work with small business own- space to beat out the Russians, we have ers all the time and I ask what always had someone we are tryhas your team recently proing to outpace. And figur“Most gressed toward, accoming out who that is in your extraordinary plished and celebrated in genre and your business salespeople are so the past three months? is important. But more focused on their They will say that they important is issuing forward drive that they are always trying to hit individual and team forget most people their annual goals. But challenges that demand around them are just what about quarterly their greatest ability and trying to meet their goals? And what are the focus. That’s how you rebaseline drive.” overarching challenges energize a team. that we are always marchThey get fully activated ing toward? How do we celebrate when you add the component of that? Nothing will mobilize a team, creative expression by issuing a chalnothing, greater than challenge. lenge for each individual to bring their When Apple decided to take on best unique ideas to the table and give Microsoft and Dell, those were among them the autonomy, trust and decisionthe most bold and inspiring times of making authority to make those things that company’s history. When we are happen.

ENGAGE HYPERDRIVE | FEATURE

Then they need to see that contribution come into real life. There’s nothing worse than contributing something and having the idea die in a file cabinet somewhere. Or you contribute something and no one acknowledges it, appreciates it or celebrates it. That’s not a contribution.

That’s just work.

So those three things – challenge, creative expression, contribution – will light up any team in the world.

If you’ve got an entire team and all of their 10 human drives are activated consistently, I’ll guarantee your team will outperform the other guy’s team who doesn’t even know what the 10 drives are.

It’s one of the great distinctions. You can’t lead if you don’t understand human psychology.

A lot of extraordinary salespeople forget that the baseline drive is everything for their team. That’s because extraordinary salespeople usually have their own baseline drives covered – they understand challenge, contribution and connection. So, they’re so focused on their forward drive that they forget most people around them are just trying to meet their baseline drive.

They don’t give their team enough control or competence or even connection to feel empowered to rock ’n’ roll without the leaders. And nothing is worse than higher performers surrounded by an impotent team. Nothing. It will drive them crazy.

FELDMAN: What do salespeople need to know about human drives and how they influence sales?

future and help them focus on ambitions, they start to get bigger and better deals.

And, fortunately, with that comes even more competent staff.

FELDMAN: As one of the world’s highest paid speakers, what advice would you give to anyone fearful of public speaking or someone looking for more audience engagement?

BURCHARD: Most people think that the job of public speaking is to do something. In public speaking you have one job with the audience and that is to raise their ambition. Period. Great leaders know this.

When you have clarity on the ambition and structure your story around that goal of raising this audience’s ambition to accomplish something meaningful, then they are inspired and more likely to take the action you suggest.

Great public speaking today is really just about authentic sharing, connecting and raising ambition. That’s it.

Your job is to not go up there and be the wild, crazy entertainer. Your job is to talk to people like you talk to them at a barbeque. Now you’re just more caring and more compassionate about their journey and you’re more compassionate

about sharing real value to people.

When getting on stage is a mission of service and not a demonstration of self, then it starts to feel amazing. Like when I step onto the stage there’s nothing in my entire body that’s thinking about me. It’s about this audience. It’s about turning their eyes on. It’s about lighting their lights up. It’s about engaging them, moving them, raising their ambition and helping them become better human beings. And because I’m all about helping them, I don’t even focus on myself.

People who hate public speaking are only thinking of themselves. They would not admit it but that’s true. As soon as you stop thinking about selfdisplay and start thinking about social contribution, you can engage them and transform that fear into a true demand to serve this audience.

They’re nervous because they’re thinking of themselves. In all of sales, there’s only one real role. That’s to raise ambition.

To receive a free copy of The Charge plus training videos from Brendon Burchard, visit bit.ly/inncharge.

“The sale happens faster in forward drive than in baseline drive. But many of us have been taught to only meet the pains of our customers.”

BURCHARD: The sale happens faster in forward drive than in baseline drive.

But many of us have been taught to only meet the pains of our customers. And because we’re only trying to solve their problem, we forget that what is most compelling to everyone’s future is their ambition, not their pain.

So, most people are selling on the baseline drives and don’t understand why they can’t get bigger deals and bigger contracts. It’s because they’re only speaking half the language of the human experience. If they take customers into the July 2012

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[ NEWS WIRES]

Check out the latest NewsWires at bit.ly/innnewswires

Fiduciary Remains Undefined While Labor’s initial proposal to amend the definition of an ERISA fiduciary may help reduce confusion on the part of plan sponsors with respect to their providers that provide investment advice, it may not address any unclear roles related to a variety of other providers that have considerable influence over the plan sponsor.

— Charles Jeszeck in a GAO Report to Congress

The Government Accountability Office (GAO) has come out in support of proposals to more clearly define who is a fiduciary.

In a report GAO issued this spring, the federal investigative body of Congress recommended that the Department of Labor (DOL) continue its ongoing effort to amend the definition of an ERISA fiduciary and added, “Labor may need to conduct a separate evaluation of relationships between sponsors and providers, whose fiduciary status is unclear.” Many retirement plan experts have been expecting to see DOL’s final regulations before the elections, but that hasn’t happened. Some are wondering whether the additional recommendation for a separate evaluation may create more delay. DOL has indicated that it plans to craft regulation that “provides the strongest possible protections” to individuals and plan sponsors.

ADVICE MAKES A MATERIAL IMPACT

Putnam Investments found when it looked at the “lifetime income scores” of nearly 4,000 working Americans it surveyed in May that a clients’ use of a financial advisor has a material impact on retirement income.

The lifetime income survey looks at behavioral tendencies, mortality factors and current assets to estimate the level of income that U.S. households are on track to replace in retirement. It found that people who worked with a financial advisor had a median lifetime income score of 89 this year, up from 82 last year, while those who did not use advice services had a score of 58, down from 61. In addition, those who had a financial plan scored 117, while those who did not scored just 58.

Most advisors would probably say, “Could have told you that.” Still, it never hurts to have some numbers behind it.

GUARANTEED INCOME, PLEASE

Women (89 percent) have a greater preference for guaranteed retirement income than men (84 percent), according to a study of 2,500 Americans age 18 and older.

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In addition, The Hartford reported that the concept of guaranteed retirement income appeals most to those with a combined annual household income of $50,000-$74,000. For instance, the researchers found that 92 percent in that income demographic would like their employer to offer a guaranteed income option compared to 87 percent of those earning $30,000-$49,000, 86 percent earning less than $30,000, and 84 percent earning $75,000 or more. That’s food for thought and strategy.

CLIENTS ARE WILLING TO TAKE ON MORE RISK

Fully 80 percent of advisors say the majority of clients are torn between a desire to increase returns and the need to keep their investments safe.

Half (49 percent) of the 163 U.S.-based advisors told researchers for Natixis Global Asset Management that a majority of clients are increasingly willing to take on more risk in search of returns. And 58 percent said their clients are beginning to place a higher priority on asset growth over protecting principal. In addition, 33 percent said that a majority of clients are

eager to make up for past losses even if it means taking on more risk.

Question for insurance advisors: If clients want to step out from the safe waters of insurancedom, how to respond?

SUPERMARKET, SUPERSTORE AND NOW SUPERBANKED?

Yes, the term “superbanked” is entering the American lexicon.

That’s the term Scarborough Research is using to refer to U.S. adults who live in a household that has multiple asset accounts at financial institutions. The research firm says that the superbanked make up 5 percent of American households; those who have a checking, savings, money market account, certificates of deposit, and at least one of the following: stocks or stock options, bonds, mutual funds, money market funds, second home or real estate property and other securities or investments.

Scarborough doesn’t say anything about these folks having insurance products, though. No doubt, insurance is there, somewhere, perhaps in a variable insurance wrapper. But why was it not mentioned? Maybe there’s another category, for the “superinsuranced.”

SHORT ANSWERS NEED CLARIFICATION

Quick. What are three main strategies for protecting financial well-being? According to the Certified Financial Planner Board of Standards, the answer is: avoid risk, mitigate risk and purchase insurance.

Where insurance is concerned, the board recommends that consumers use five strategies to guide insurance decisions: insure only what you cannot afford

QUOTABLE From the moment you start working until the day you retire, your ability to earn an income is your most important financial asset.

— Sandy Botcher, vice president–disability income insurance, Northwestern Mutual

[ NEWS WIRES] to lose; use insurance for financial – not emotional – loss; focus on acquiring insurance that offers the best protection from loss rather than extraneous benefits; keep insurance costs down through other risk management strategies; and consider self-insurance in combination with commercial insurance.

A lot of consumers will likely need a clearer explanation before they can turn those points into action. Planners and advisors, that ball is in your court.

CONSUMERS NEED ADVICE

Consumers with $50,000 to $250,000 in total household investable assets have savings on their minds but a lot of work in their future.

Consider: Bank of America’s April 2012 Merrill Edge Report says that 68 percent of these mass affluent consumers plan to ramp up on saving for retirement over the next six months. That’s up from 49 percent in Merrill’s last study in November 2011. What’s more, 85 percent said they plan to focus on budgeting, 71 percent on balancing short- and long-term finances, and 67 percent on managing and paying down debt such as car loans, credit cards and mortgage. Those percentages are up from 67 percent, 55 percent and 47 percent, respectively, in November. All of that sounds like effective financial management, so why call in an advisor? Because at least a third (34 percent) said they still tap into their long-term savings to pay shortterm expenses. What’s more, 57 percent expect to retire later than planned, up from 47 percent in November. Might be that an advisor can help these consumers match their plans up with their reality.

INDEPENDENT ADVISORS BECOMING TOP PAID

Among financial service distribution channels, wirehouse brokers have traditionally topped the list of compensation earners by a wide margin. But that may be changing.

Sanctuary Wealth Advisors is projecting that median compensation for independent wealth management advisors will approach that of elite Wall Street brokers within the next three years. From 2000 to 2005, the median compensation for elite brokers

Practice Succession Shocker Advisors who think they have a good succession plan in place may OWNERS have another thing coming.

WITH (OR WITHOUT) Transition 10 years or less According to a study commisSUCCESSION sioned

by NFP Advisor Services PLANS Group of New York, nearly 70 perSOURCE: NFP ADVISOR SERVICES GROUP cent of practice owners believe a Transition Plan in Place successful transition will take five years or fewer to implement. But the recommended time to start preparing for the succession is as No Transition Plan in Place many as 10 years before it is to take place, the researchers say, explaining that the early start will help maximize practice value.

The shocker: Although a staggering 40 percent of practice owners anticipate a succession event within the next 10 years, only one-third of all practice owners have a succession plan in place. As for the two-thirds of owners who do not have a succession plan in place, 54 percent say they do not know the value of their practice. It doesn’t seem that practice succession is a top-ofmind issue for a lot of owners. If an advisor is mid-career, that’s understandable. But for those inching closer to transition time, it could be a bit risky for themselves, their heirs and their customers.

40%

33%

66%

was nearly $2 million (before recruiting bonuses.) But from 2005 to 2008, brokers’ comp fell to $1.6 million and to $1.1 million from 2009 and 2011. Going forward, brokers’ compensation will likely drop to $905,000 between 2012 and 2015, just north of the $875,000 that Sanctuary is projecting for independent wealth advisors.

The comparisons aren’t completely apples-to-apples, since the Wall Street brokers also receive amortized recruiting bonuses. Still, Sanctuary’s point is, where work product is concerned, the gap between elite brokers and independent wealth management advisors has been closing – and will continue to close.

DISABILITY MYTH-BUSTERS

The Consumer Federation of America (CFA) and Unum have teamed up to DID YOU

KNOW

?

try to bust some myths about disability insurance, and this unlikely duo has some numbers that are more than a little eye-catching.

In a survey of nearly 1,200 employees, this team found that nearly twice as many employees believe that injuries (66 percent), not illnesses (34 percent), keep employees out of work for at least three months, even though the large majority of all disability claims paid are for illnesses and health conditions.

In addition, the researchers found that employees believe that 25 percent of those who become disabled and unable to work for at least three months remain disabled for at least two years, while the research reveals that half of the disabled workers who are out of work for three months remain disabled for more than two years.

AMONG AMERICANS AGES 18 TO 34 SURVEYED IN MAY OF THIS YEAR, 29 percent said they plan to pull money out of the market in the next six months, as compared to only 11 percent of older Americans.

Source: Charles Schwab & Co.

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LIMRA annuity researcher says survey shows clients are anxious about income and need a financial plan before buying.

S

elling life insurance might seem to be more art than science. Sure, successful sales systems have their tested components derived from experimentation, but when it comes down to it, it’s the artful salesperson who usually closes the deal.

That’s the person who seems to know what the client is thinking and how to answer objections before they are even expressed. Of course, it takes years of experience to hone the intuition that turns a mere salesperson into a mindreading superproducer.

The latest study from LIMRA can take years off that process by giving producers a peek into the mind of the annuity buyer. The “Deferred Annuity Buyer 22

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Attitudes and Behaviors” study might sound like a snoozer but the answers it provides to producers’ key questions can be pretty exciting.

According to the key findings, annuity buyers: •K now they are on their own. Supplementing Social Security and pensions was the leading reason people bought traditional fixed, indexed and variable annuities. Accumulating assets for retirement was No.2 across the board. Retirement anxiety was clearly the driving force for buyers – far more than it was before the financial crash of 2008.

•B uild a financial plan before getting an annuity. Eight out of 10

buyers bought their annuities as part of a financial plan. It could be a written plan or one they carry around in their head. One in four annuity buyers had a formal plan and six in 10 had an informal plan. Bottom line: When clients develop financial plans, they are apt to buy annuities.

•D on’t need to be sold; they are looking to buy. More annuity buyers, particularly younger ones, are initiating sales. Nearly half, or 47 percent, of traditional fixed annuity buyers initiated the sale. The numbers were pretty high for the others, too – 45 percent of indexed and 39 percent of variable annuity buyers. So, they are out there looking for you.

WHY PEOPLE BUY ANNUITIES | FEATURE

Age at Purchase and Household Investable Assets Age at Purchase 3% 13%

27%

2% 16%

32%

* 11%

34%

Household Investable Assets 80 or older

70 – 79

60 – 69 27%

25%

33%

34%

17%

21%

Traditional Fixed

Indexed

Variable Annuities

60

61

59

50 – 59

Under 50

10%

15%

26%

22%

$500,000 – $999,999

20%

21%

$250,000 – $499,999

20%

19%

$100,000 – $249,999

22%

23%

Under $100,000

Indexed

Variable Annuities

19% 20%

22%

29%

Traditional Fixed

$1 million +

12%

Average Age at Purchase

* Less than 1/2 of 1 percent

•T he majority of deferred annuities were purchased by people in this study ages 50 to 69; 1 in 4 buyers purchased their traditional fixed annuities when they were under 50 years old.

•V ariable and indexed annuity buyers are fairly evenly distributed among the five household investable asset value categories, while half of the traditional fixed annuity buyers in the survey have household assets under $250,000.

Source: LIMRA U.S. Deferred Annuity Buyer Attitudes and Behaviors

But another number to keep in mind is the real doozy. That is how much business is at stake. If producers think of themselves as retirement advisors, an enormous galaxy of opportunity opens up. How large?

According to one of the study’s researchers, Joseph Montminy, boomers and older seniors are holding billions of dollars that they want to keep safe for retirement. Today, $400 billion is waiting to be rolled over from retirement funds. By 2015, that’s expected to grow by 50 percent to $600 billion.

A majority of those pension, IRA and 401(k) owners are not secure that their dollars will last their lifetime, Montminy said. That is why clients are eager

to plan their retirement and when they make plans, they are more likely to include more than just annuities.

“We did find that there wasn’t a high level of confidence – I mean very, very high level – that their assets would last a lifetime,” said Montminy, LIMRA assistant vice president, annuity research.

“But having a plan offers more security.

That plan can lead to additional purchases, whether it’s an annuity product or other types of product that they offer. It’s becoming a whole retirementincome marketplace.”

The study showed that after planning and buying annuities, buyers were more confident about their retirement.

And they are willing to come back for

more. Many households had more than one annuity.

“For variable annuities and fixed, six out of 10 households had more than one annuity,” Montminy said.

“On the traditional fixed, about half of them had more than one, which still is pretty high.”

Montminy said the fact that many buyers made multiple purchases meant two things for producers: They should make sure they are keeping in touch with clients and they should ask their satisfied buyers for referrals.

“As they go through some of these different life stages – whether it’s having a family, being married, changing jobs or the kids are out of college – that’s an July 2012

InsuranceNewsNet Magazine

23

FEATURE | WHY PEOPLE BUY ANNUITIES

Intended Uses for Variable Annuities Supplement Social Security or pension income

55%

Accumulate assets for retirement

32%

Receive guaranteed lifetime income

30%

Cover basic living expenses in retirement

25%

Cover discretionary expenses in retirement

21%

Leave as an inheritance

17% 8%

Take payments until it runs out Pay for emergencies only

5%

Pay for LTC premiums

4%

Provide temporary income until SS/retirement income begins

3%

Level of Importance When Deciding to Purchase a Variable Annuity 1% 1% Financial strength of company

71%

27% 2%

Interest rate or projected return

56%

Tax-deferred benefits

54%

Recommendation of fin’l professional

47%

Ability to receive guar. lifetime income

47%

Very important

36%

Somewhat important

33% 38% 36% Not very important

6% 8%

5%

11%

4%

13%

4%

Not at all important

Source: LIMRA U.S. Deferred Annuity Buyer Attitudes and Behaviors

opportunity to go back and reconnect with your customer to say ‘Have things changed? Do you have an additional need to maybe save more for income or save more for retirement?’ and utilize these products,” he said. “You have an opportunity for another sale and an opportunity for referral because that seems to be something that they’re willing to do.”

In fact, five out of six buyers said they would be willing to refer business.

Who is Buying?

Buyers average around 60 years old – 59 for VAs, 60 for traditional fixed and 61 for indexed. The age for VAs did not surprise researchers, but the average 24

InsuranceNewsNet Magazine

July 2012

for traditional fixed and indexed were younger than they expected, which would have been closer to 65.

That might have happened because of another surprise – about one out of four buyers were under 50 when they purchased their annuity.

Another interesting point is that VA and indexed buyers skew wealthier than traditional ones. With indexed, 38 percent of the buyer households had investable assets of $500,000 and more; VAs, 37 percent; and traditional, 29 percent. VA buyers had more very wealthy clients, $1 million or more, with 15 percent; indexed had 12 percent; and traditional had 10 percent.

In fact, the largest group of traditional fixed buyers was in the lowest household investable asset segment, under $100,000. Close to a third (29 percent) of the traditional buyers had under $100,000; 23 percent of VAs; and 22 percent of indexed.

Why Are They Buying?

Consumers in general are starting with an anxious mindset. That was partly a result of the 2008 crash, which still resonates.

In another LIMRA study, retirees were asked, “‘Are you as financially secure now as you thought you would be when you first retired?” The percentage who answered, “No, I feel less secure”

Do MEDICAL was 20 percent in 2008 before the crash.

That shot up to 49 percent in 2009. In 2011, the percentage settled down to 28 percent, but it suggests a bit of scar tissue from 2008.

Certainly, the crash taught consumers that their foundations are not as sturdy as they thought.

“As the market was going up and the value of your house was significant, the value of your retirement plans was much higher and you didn’t have all the volatility that we’ve seen over the past two or three years, you felt much more comfortable with where you are,” Montminy said, adding that is not the case now.

“They now realize they need to do a lot more to plan for themselves and they can’t just rely upon some other asset that they have,” he said. “They need to actually go out and look at retirementincome products that help them – give them some of that stability, or at least some minimum guaranteed income.”

In fact, the top three intended uses for the three annuity types involved retirement income. “Supplement Social Security or pension income” was a strong No.1 for all of them. “Accumulate assets for retirement” was No. 2; “receive guaranteed lifetime income” or “cover basic living expenses in retirement” was No. 3. (“Cover basic living expenses” was No. 3 for traditional fixed, which might reflect the lower wealth profile of those buyers.)

The age groups’ goals were predictable, with younger buyers more focused on asset accumulation and older ones wanting a dependable income stream in retirement.

But the overarching concern and the main takeaway was that buyers know they cannot depend on Social Security, savings, pension or other defined benefit plans to help them in retirement.

“People see that they have defined benefit, Social Security and then you’ve got your own,” Montminy said. “Well, with defined benefit going away and Social Security not being enough, if I were an advisor I would focus on those as reference points. Because people are not thinking of it as guaranteed lifetime

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FEATURE | WHY PEOPLE BUY ANNUITIES

Intended Uses for Indexed Annuities Supplement Social Security or pension income

46%

Accumulate assets for retirement

34%

Receive guaranteed lifetime income

27%

Leave as an inheritance

24%

Cover basic living expenses in retirement

23%

Cover discretionary expenses in retirement

19%

Take payments until it runs out

8%

Pay for emergencies only

8%

Pay for LTC premiums

7%

Take out lump sum and invest

6%

Provide temporary income until SS/retirement income begins

4%

Level of Importance When Deciding to Purchase an Indexed Annuity 1%

Financial strength of company

68%

Interest rate or projected return

66%

Fixed return rate/projection of return Tax-deferred benefits Recommendation of fin’l professional Very important

25%

1% 4% 1% 6%

29%

62%

31%

53%

29%

48% Somewhat important

6%

39% Not very important

14% 9%

4% 4%

Not at all important

Source: LIMRA U.S. Deferred Annuity Buyer Attitudes and Behaviors

income, even if that is what they are actually looking for.”

It appears that annuity buyers are trying to establish a personal pension that is truly theirs and that no one else can take away.

What Made Them Buy? It might surprise producers who have been taught lately to de-emphasize talking about the insurance carrier during the sales process, but the “financial strength of company” was the most important factor in buying a VA or indexed. For VAs, 71 percent said it was most important; 68 percent for indexed; and 68 percent for traditional fixed.

An interesting point here is that even though the same percentage of indexed 26

InsuranceNewsNet Magazine

July 2012

and traditional buyers felt the company’s financial strength was important, it was the No. 3 factor for traditional fixed buyers. For them, No. 1 was “fixed return rate/protection of return” at 72 percent and “interest rate or projected return” was No. 2 at 70 percent.

“You’ve got to remember those traditional fixed buyers tend to be a little bit more conservative and they’re buying a fixed interest rate because they want that principal protection and that guarantee,” Montminy said.

The survey also asked why people bought the annuity and allowed an openended answer, rather than a multiple choice. The most common answer was for retirement planning, which was expected.

But the next most frequent answer spoke to the particular product’s purpose.

“When you looked at the VA buyers the next most common theme was market growth potential,” Montminy said.

“And that’s exactly what the VA is really all about – it has that ability to have your account value grow. Whereas for indexed the next two were tied, and one was market growth potential and personal protection. And what’s really fascinating is that’s really what an indexed annuity does. It gives you the ability to have some growth on the upside but it protects your principal. And then for the traditional fixed buyers, their next most important theme was guaranteed income or guaranteed rates, which exactly falls in line with how that product works.”

The researchers interpret these answers to mean that clients have a

SagicorLifeUSA.com

FEATURE | WHY PEOPLE BUY ANNUITIES

Intended Uses for Traditional Fixed Annuities Supplement Social Security or pension income Accumulate assets for retirement Cover basic living expenses in retirement Receive guaranteed lifetime income Leave as an inheritance Cover discretionary expenses in retirement Pay for emergencies only Take payments until it runs out Tak out lump sum and invest Buy retirement house or independent/assisted living Pay for LTC premiums Provide temporary income until SS/retirement income begins

42% 29% 22% 20% 19% 13% 8% 7% 5% 4% 4% 4%

Level of Importance When Deciding to Purchase a Traditional Fixed Annuity 1%

Fixed return rate/projection of return

72%

Interest rate or projected return

70%

Financial strength of company

Very important

26%

68%

Tax-deferred benefits Ability to receive guar. lifetime income

24%

54%

Somewhat important

4% 1% 4% 2%

27% 35%

48%

34% Not very important

3%

9% 12%

6%

Not at all important

Source: LIMRA U.S. Deferred Annuity Buyer Attitudes and Behaviors

solid grasp of the products they are buying. Annuity companies and producers have long been accused of selling a complicated product to clients who vaguely understand them. The survey also asked people how well they understood the products before and after the sale. At least 96 percent said they had a mid- to high-level of understanding of the product after the sale, with about half in the high range. That was up from 82 percent before the sale, with about 20 percent in the high range. Montminy said the two questions confirm that producers are doing a good job of educating clients.

“They’re getting what the products are supposed to do and that’s why they’re buying them.”

28

InsuranceNewsNet Magazine

July 2012

So, What Now? Two takeaways from this study really excited researchers. The first was that younger consumers are buying annuities and they are doing it differently.

“We find that for those under age 60, roughly half of them were the ones initiating the discussion,” Montminy said.

Pair that with the discovery that about 25 percent of the annuity buyers were under 50 and that becomes an interesting dynamic, because that age group is more comfortable getting information on the Internet in multiple ways, including social media. So, with the demographic for advisors, finding the prospects is about as important as being found.

“The message is not so much to the advisors but to the firms and to the

companies to provide self-directed services that allow these consumers to have access to information,” Montminy said.

“And then direct them to an advisor in the area who can help them.”

The other point is about retirement income and planning. If producers aren’t advising on retirement, the greatest generational rollover will roll right by them.

It is clear from this survey and others that consumers are very concerned about running out of money.

“When we asked them, ‘What was one of the most important objectives that you have for your all your assets,’ the top one that they said was most important was having enough money to last their lifetime,” Montminy said.

Although that might be the concern,

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InsuranceNewsNet Magazine

29

FEATURE | WHY PEOPLE BUY ANNUITIES

Level of Understanding of Annuities Before and After Recent Purchase

Variable Annuity Buyers

Indexed Annuity Buyers

Traditional Annuity Buyers

68% 62%

61%

21%

18%

50%

48%

49%

48%

19%

49%

47%

20%

50%

13%

3%

Low

4%

2%

Medium

High

Low

Medium

Prior to purchase

High

Low

Medium

High

Currently

On this graph. level of understanding is grouped as the following: “Low” = 1, 2; “Mid” = 3-5; and “High” = 6, 7.

Source: LIMRA U.S. Deferred Annuity Buyer Attitudes and Behaviors

it is expressed in different ways. For example, along with “providing income that lasts your lifetime,” the phrase “supplementing Social Security and other retirement income” has significant power with consumers, according to the survey.

These findings also fit in well with a survey of advisors that LIMRA released earlier this year, “Advisor Perspectives on Retirement Planning.” In that, four in 10 advisors said retirement planning constitutes half or more of their business activities and they planned to add more. Also, it was the more seasoned advisor who tended to advise more clients on retirement planning.

That survey found a crying need for retirement advice. Matt Drinkwater, associate managing director, LIMRA Retirement Research, said, “LIMRA’s 30

InsuranceNewsNet Magazine

July 2012

research has found that only one-third of Americans feel they are saving enough for retirement and a majority of pre-retirees (people within five years of retirement) feel that they are not prepared for retirement. There is a great opportunity to help these consumers identify their financial needs in retirement and develop a sound plan to address them.”

And with the annuity buyer study, it is apparent that clients are more apt to buy annuities when they develop a financial plan. Also clear is that annuity buyers are generally happy with their purchase and willing to refer business.

“Linking back to that advisors survey, 81 percent of the advisors said that client referrals are one of three of the most efficient ways to actually capture IRA rollovers,” Montminy said. “And those

rollovers are actually one of the things that we think are going to help organically grow this marketplace.”

With 10,000 boomers turning 65 each day for the next 18 years, there will be an ever-growing cascade of rollovers – with a huge number of people unsure of what to do with them. They need a plan.

And they need an advisor.

“If advisors start doing retirement plans they are going to benefit the client and themselves,” Montminy said.

“It’s a win-win situation.”

Steven A. Morelli is editor-inchief for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers, magazines and insurance periodicals. He was also vice president of communications for an insurance agents’ association. Steve can be reached at smorelli@insurancenewsnet.com.

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Life/LTC Combos Show Third Year of Dramatic Growth

LIFE/ HEALTH COMBOS

UP 56%

Policies combining life with long-term care (LTC) insurance kept up their zooming trajectory in 2011, according to LIMRA. New premium last year was up 56 percent over 2010, making it the third consecutive year of double-digit growth for combo products.

Total new premium for combos reached $2.2 billion, for a market share of approximately 13 percent of total individual life new premium, LIMRA points out. Broken down by policies sold, combos numbered over 72,000, representing roughly 16 percent of all LTC policies and contracts sold in 2011.

By the way, it wasn’t just one type of combo policy that accounted for the eyepopping results. According to LIMRA, all life combination product lines experienced growth in 2011. Universal life with LTC took the lead, increasing 67 percent in premium compared to 2010. Whole life with LTC and variable life with LTC also grew premium but more modestly, at 16 percent and 17 percent, respectively, LIMRA says.

That’s not all. Measured by policy count, linked benefit products (mostly single premium and all-in-one packaged policies) grew 66 percent for a 29 percent market share, up from the 21 percent in 2010. Acceleration policies (often offered via riders that provide LTC benefits up to the life policy death benefit amount) grew by 29 percent, for a 71 percent market share (by policy count).

The growth has been so dramatic that LIMRA says it is adding a new track to its annual forum on LTC and disability income insurance. The track will focus solely on combination products, says Elaine Tumicki, corporate vice president and director of LIMRA product research. Sounds as if life insurance agents will have growing opportunities ahead in this product line.

BULKING UP ON LIFE INSURANCE It looks as if Jackson National Life is bulking up its existing life insurance book. Jackson, which has been a high profile player in the annuity business, has agreed to buy SRLC America Holding Corp. (SRLC) from Swiss Re. The $621 million cash deal is a “bolt-on acquisition” that will provide “a great opportunity to increase the scale of our life business,” predicts Mike Wells, Jackson’s president and CEO. Exactly what is Jackson bolting on? SRLC’s primary operating subsidiary, DID YOU

KNOW

?

32

Reassure America Life. The unit has approximately 1.5 million life policies (term, whole and basic universal) and related assets of approximately $10 billion. Whether Jackson, an indirect wholly owned subsidiary of the United Kingdom’s Prudential plc, will step up its life insurance marketing after swallowing this business remains to be seen.

VOLUNTARY LIFE SALES UP IN 2011 Voluntary life insurance sales rose to $1.3 billion in 2011, up by about 1.3 percent from 2010, according to Eastbridge Consulting Group.

33 PERCENT OF CONSUMERS WHO DO NOT HAVE LIFE INSURANCE say they don’t have coverage because no one had offered to sell them a policy.

Source: Deloitte Research, June/July 2011 survey

InsuranceNewsNet Magazine

July 2012

This was the third straight year of increase, with voluntary term life coming in “significantly higher” than universal life or whole life, Eastbridge adds. But that was just because term life started higher. It decreased 2 percent while the universal/whole life line was up by about 8 percent.

DEATH MASTER LIST SETTLEMENT UPDATE Twenty-two insurance departments have joined a $40 million settlement agreement with Metropolitan Life Insurance Company. The agreement follows a multistate investigation into the carrier’s use of the Social Security Administration’s Death Master List to investigate payment of life insurance benefits and reporting of unclaimed property, according to the National Association of Insurance Commissioners.

The New York insurer has agreed to make regular checks with the death master file or similar death records to determine if its life, annuity or retained-asset account holders have died and, if so, to try to locate beneficiaries and pay claims. If a beneficiary cannot be located within one year of date of the match, the carrier will report the funds as unclaimed property to the appropriate state entity.

THE TAX CLOCK IS TICKING In just six months, the federal estate tax will rise to 55 percent from today’s 35 percent, and the exemption (or exclusion amount) will drop to $1 million from today’s $5.12 million. This will happen unless Congress intervenes. Hearings are under way and proposals are being floated, but decision-making still seems elusive. What will Congress do?

More to the point, what will clients do?

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LIFE

IUL SPECIAL REPORT

Indexed Universal Life: A Special Report In a dismal life insurance market, indexed universal life (IUL) is one of the few sales stars. This month we are featuring a special section looking at why sales are booming and how producers can use IUL in their practice.

Today’s economy is challenging for insurance companies because interest rates are low and equities have been doing pretty well overall. But it is a good time for IUL because of the security of an insurance policy paired with the possibility of investment gain. P.34

An IUL can be positioned as a modified endowment contract for significant tax advantage. P.36

Use IRS section 72(t) in an IRA/ IUL strategy that will pay clients handsomely. P.40

Why Indexed Life is on the Rise » Unless you have been living in a box, you’ve probably noticed that indexed life is everywhere lately. By Sheryl Moore Finally, the once-niche product that I’ve been sermonizing about for over a decade is receiving some much-deserved attention.

In fact, IUL is the fastest-growing segment of the life insurance market. It now accounts for one out of every four universal life (UL) insurance sales. Not too shabby for a product that is only 15 years old.

So what, precisely, is driving all of this interest in indexed life? Is it the product’s unique combination of principal protection, guaranteed interest and the opportunity to experience gains that are based on the performance of a stock market index? Sure, that helps. However, several forces have recently combined to push this product into the sales spotlight.

Recent Decline in the Markets

As many of us remember all too well, the market took a turn for the worse in 2008.

Interestingly, when we see a decline in the market, we also see a decline in sales of equities products, such as variable 34

InsuranceNewsNet Magazine

July 2012

universal life (VUL). Although VUL provides unlimited potential for earnings (as a result of market performance), it also provides unlimited potential for losses. People don’t like losing money, and declines such as those in the years 2000 and 2008 provided a stark reminder of that fact.

This is a compelling motivator for policyholders to shift their money from “risk money” products like VUL, to “safe money” products that offer principal protection, such as UL. As a result, when we experience a decline in the markets, we typically see a corresponding increase in sales of fixed products, such as whole life and UL. As an aside, we also see sales of traditional UL decline when interest rates drop.

Low Interest-Rate Environment

After the S&P 500 hit a low-point in March of 2009, the financial services industry began facing a new challenge: historically low interest rates. All sorts of financial vehicles were affected by the drop in rates: mortgage loans, vehicle loans, certificates of deposit, annuities, and yes, even cash value life insurance. Universal life credited rates floated upward of 6 percent before 2010. Today,

a UL credited rate of 5 percent is nearly impossible to find.

Everybody’s Doin’ It

Because of today’s exceptional market environment, we are seeing new interest in IUL, and from companies you would never expect. Consider the circumstances: if you are a company that sells only UL and VUL, you are always going to lose in a period of market uncertainty and low rates. After all, when the market declines, these carriers’ VUL assets typically move over to the fixed side of the house via 1035 exchanges. On the other hand, when interest rates are low, these companies’ traditional UL assets move over to the variable side of the house in the same manner.

So, where do the assets go for companies that do not offer indexed universal life in this scenario? The assets fly out the door!

At one time, I couldn’t get insurance companies to give IUL the time of day.

Now, everybody wants a relationship with indexed life. In just a 60-day period between the third and fourth quarters of 2011, I had seven new insurance companies enter the indexed life market.

WHY INDEXED LIFE IS ON THE RISE I haven’t had that many insurance companies enter the indexed annuity market in the past five years combined. For a market that catered to only 12 insurance companies in 2004 and 33 insurance companies in 2009, IUL has seen outrageous growth. Today, 47 companies are underwriting indexed life insurance.

For most of the recent IUL entrants, the decision to offer indexed insurance has been a purely defensive move; a mentality of “better to offer it than to lose the sales to my competitors.” For the vast majority of the companies that will be entering before 2013’s close, the decision to offer indexed life feels like they are being force-fed the product.

Rapid Growth

When you consider a unique market environment where there has been both a recent decline in the market and historically-low interest rates, it translates to a Petri dish for growing sales of Indexed Universal Life (IUL) Sales of IUL were just barely hitting $100 million in 2002. Just 10 years later, target premium on the products

hit aggregate sales of nearly a billion.

It has not been unusual to see 25, 30, even 45 percent increases in the sales of this product. Plus, there is no reason to believe that the growth in this maturing product line will slow any time soon.

Catching the Salesman’s Eye

Insurance companies are merely responding to the simple concept of supply-and-demand. Indexed life is getting insurance agents’ attention. Combine principal protection and the ability to earn (limited) interest based on the stock market’s performance, and you’ll get a simpler sale. That, along with the fact that IUL has the potential to earn indexed gains as high as 17 percent, has insurance agents getting out of their typical product comfort zone.

Interested in selling no-lapse guarantees? IUL has that. How about premium-to-endow sales? Yep, IUL can offer that, too. Survivorship plans?

Check. Single premium products? Double check. What about cash accumulation? Oh, yeah, got that, too.

The potential for cash accumulation

LIFE

on indexed UL has people turning their heads. Contemplate if you will a cash value life insurance product that has the potential to outpace traditional UL rates, while still offering minimum guaranteed interest and providing a vehicle for tax-advantaged distributions. Yes, people are using IUL for education funding, supplemental retirement income, and all types of other advanced sales scenarios. Indexed life is uniquely positioned to outperform other products in this arena. You see, IUL not only earns indexed interest, but when the cash value of the policy is accessed via policy loans, the money that is loaned-against also continues to earn indexed interest.

Can your UL do that?

How does this translate to increased sales? It is pretty hard to ignore the possibility that you could earn interest as high as 17 percent on your life insurance policy, and turn around to lend it out at a rate of less than 5 percent. Now, is this a realistic expectation for indexed life policy performance? No. However, buying insurance that will provide a benefit that is passed to your heirs on a tax-free basis, while providing the ability to outpace traditional UL rates by 1 to 2 percent, well, that may get your clients’ eyebrows up.

If you haven’t considered selling indexed life to your clients, you should.

It is not right for everyone, and no one should put 100 percent of their resources toward funding IUL. However, the product appeals to those who are risk-averse.

It is also attractive to people who want to earn more interest than what fixed money products can offer today. And if you work for a company that isn’t underwriting indexed life, I’ll see you in my house soon.

Sheryl Moore is president and CEO of Moore Market Intelligence, an indexed product resource in Des Moines. She has more than a decade of experience working with indexed products and provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at Sheryl.Moore@ innfeedback.com.

Source: AnnuitySpecs.com’s Index Sales & Marketing Report

July 2012

InsuranceNewsNet Magazine

35

LIFE

IUL SPECIAL REPORT

THE ANNUITY MECCA

The Annuity MECca » The IUL has the protection, gain of an indexed annuity with the tax benefits of life insurance.

By Jacob Stern Today, many advisors and agents are facing challenges for accumulation and protection of their clients’ assets. For the “safe money” option, the current interest-rate environment is very challenging. Traditional bank products such as CDs and money market accounts are at rates well below the inflation rate (averaging 0.31 percent for a one-year CD rate, according to the FDIC).

On the fixed annuity side, rates are better than bank products, but they are barely keeping up with the inflation rate.

The current inflation rate for March was 2.7 percent according to the Bureau of Labor Statistics. The low interest-rate environment also affects the caps on indexed annuities. Because most insurers 36

InsuranceNewsNet Magazine

July 2012

purchase bonds with 85 percent of the indexed annuity premiums (and use the remaining funds for options), most annual point-to-point caps are in the 3 to 4.5 percent range. Many find these caps unattractive. Finally, other security instruments such as mutual funds and variable annuities are options. However, they carry significant volatility, as we have observed over the past decade.

Enter now the Annuity MEC. First, let’s describe the option being presented. If a client is risk adverse, but is still looking for some growth options, placing funds into an indexed universal life policy, lump sum, making the policy a MEC (modified endowment contract) is an ideal solution.

Many agents and advisors feel MECs cannot be used, but have forgotten the reason MECs were created in the late 80s. The IRS placed limitations on the amount of tax-free income that could be

taken from life policies; however, below are the many benefits a policy owner still receives with a MEC life insurance policy: [ 1] Tax-free death benefit. If the insured passes, the beneficiaries get the death benefit income tax-free. [ 2] Tax-deferred growth of funds. The cash value of the life insurance policy accumulates tax-deferred within the policy. [ 3] Withdrawals of the cash value. Most cash value life insurance policies have withdrawal features (not loans) that can be withdrawn, and taxed, in the same manner as a non-qualified annuity.

In fact, the MEC policy retains almost all features of a non-MEC life insurance policy, except any loans taken would be taxable. However, this concept is

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LIFE

targeting money that people were most likely going to place into an accumulation vehicle, so we are not as concerned with taxable distributions as we are with tax-deferred accumulation potential. Also, since the withdrawal taxation is the same as an annuity, there is no difference to the client.

The indexed universal life (IUL) policy is a great vehicle to use for an Annuity MEC option. Today, IUL policies have evolved to provide greater options and flexibility for the clients. In addition, as mentioned in the first paragraph of this article, it is very difficult to find accumulation vehicles that impress most clients. Today’s IUL policies often have double digit, annual point-to-point caps (some with caps above 17 percent), as well as other index options that provide built-in diversification of the portfolio. So, combining all of these factors with a death benefit, the IUL option becomes a very viable instrument in today’s environment.

The best way to illustrate this option is to walk through a simple example. We will use a 60-year-old female, at a standard rating, with $100,000 that she is looking to build some accumulation. She may or may not need income or withdrawals from this money, as she has other investments, social security, etc., for her living expenses.

First, let’s examine an indexed annuity.

There are several 10-year products that provide up-front bonuses on the money, but caps today are in the 3 to 4 percent range. If she puts her funds into a 10-year indexed annuity with an 8 percent bonus and a 4 percent cap (and let’s assume she hits the cap every year), she would have approximately $160,000 at the end of the 10 years. Then, let’s assume the annuity renews and the caps go up to 6 percent.

If the caps are hit each and every year, the value at year 15 would be $213,937.

Remember that during this period, her death benefit on the annuity is the same as her accumulation value. So, the highest it can be is $160,000 at the end of year 10 and $213,937 at the end of year 15.

If this money were placed into an IUL instead of the indexed annuity, what would the cash surrender value and 38

IUL SPECIAL REPORT

THE ANNUITY MECCA

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July 2012

death benefit look like at the end of year 10? Running one company’s illustration software, at an 8 percent rate of return (which is well below the historical 20 year average of this crediting method at the current cap), the following is what the illustration shows:

better in year 10. The client will have more death benefit and a much higher cash surrender value.

As with all investment options, IUL policies do have some drawbacks that should be considered:

[2 ] The death benefit is $269,764, more than $100,000 over the annuity and the income is tax-free (remember, the beneficiary of the annuity will have to pay tax on the gains in the policy at death of the owner).

[ 1] They are fully underwritten policies.

If the person does not qualify for standard or better, an annuity may be a better option. However, if the person does qualify for Preferred or better, more cash value is built in the policy. Also, many carriers have introduced survivorship indexed universal life policies, which will allow uninsurable clients to take advantage of this strategy by partnering with a healthier individual.

[3] At the end of year 15, the cash surrender value is $232,054 with the death benefit at $269,764; significantly higher values for both cash surrender value and death benefit than the annuity.

[ 2] IUL policies typically have a longer surrender period (typically between 15 and 20 years), compared to many shorter options on other investment vehicles.

[ 1] At the end of year 10, the cash surrender value is $156,671; only $3,500 less than the annuity.

[3] If there are a significant number of years of negative returns in the index (so, no gain in the policy), the cash surrender value of the IUL policy will be less than the original principal put into the policy.

The indexed universal life (IUL) policy is a great vehicle to use for an Annuity MEC option. Today, IUL policies have evolved to provide greater options and flexibility for the clients.

In the above annuity example, I assume the indexed annuity hit the caps each year, which is an amazing accomplishment, and the IUL policy is still very competitive in year 10. If the caps in the indexed annuity hit the cap rates only 70 percent of the time during those first 10 years, the IUL policy is even

Even with these drawbacks, the Annuity MEC strategy should be considered with many clients. Think about your own book and how many annuities and other investments were sold where the individual never withdrew money, or they withdrew small amounts from the policy and passed. Their beneficiaries most likely received less death benefit than the Annuity MEC and had to address tax consequences. Finally, given the current interest rates and market volatility, a single premium IUL policy can provide many great alternatives for clients.

Jacob Stern is chief executive officer of Imeriti, a national insurance marketing organization based in San Diego. Imeriti has been wholesaling investment-oriented life insurance to financial institutions, stockbrokers, financial planners and broker/dealers for more than 30 years.

He may be contacted at Jacob.Stern@ innfeedback.com.

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LIFE

IUL SPECIAL REPORT

Indexed UL ATM » 72(t) turns an IRA into a veritable indexed UL cash machine.

By Bill Kanter If you have clients under 59½ with IRAs, they can convert it to a veritable indexed universal life cash machine through the IRS section 72(t).

In the July 2011 issue of InsuranceNewsNet Magazine (www.insurancenewsnetmagazine.com/july11), I wrote about a strategy that I call IRA rescue. This is a way to convert, over a period of a few years, a taxable IRA to a tax-free IUL policy and then borrow from the cash value of the policy to pay the income tax that is created by the IRA withdrawals. The strategy is a great option 40

InsuranceNewsNet Magazine

July 2012

for those over 59½, however it is not as good for people who are younger due to the additional 10 percent penalty that is caused by withdrawals from the IRA. Although the strategy can work even with the 10 percent penalty, many have asked me if there is a better option. That is where the 72(t) steps in.

The Basic Strategy: IRA to IUL via 72(t)

This is how the plan works: [ Step 1] Use a 72(t) calculator to determine the 72(t) amount based on the value of the entire IRA and withdraw that amount. Note that you need to be sure that the IRA custodian codes

the 1099R with an exception (code 2) or you need to file a form 5329 with the tax return. [ Step 2] Fund the IUL with the amount that was withdrawn from the IRA. Determine if you will withhold some of the amount to pay the regular income tax that will be due or borrow it from the cash value as you would with a typical IRA rescue strategy or simply pay the tax from other funds. [ Step 3] When allowed (after age 59½ or five years) accelerate the IRA withdrawals so that the IUL can be funded faster and, if desired, borrow from the cash value to pay the tax.

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An Example

Sally is 51 with $200,000 in an IRA. She thinks taxes are going up, so she would like her retirement account to be taxfree. Also, she has lost money in the market and wants to protect the rest and she does not want to have to take Required Minimum Distributions at age 70½. And of course she would like an immediate tax-free death benefit for her family should she die young. All of these goals can be accomplished using tax-free, cash-value IUL. Based on her 72(t) calculation, she can take out $7,758 per year from her IRA with no penalty until age 59½ and then as much as she wants after that. The $7,758 that she will take out of the IRA will cause a small tax but will not put her into a higher tax bracket.

Sally has chosen not to borrow the tax amount from her IUL policy’s cash value but will rather pay it herself. She will put the $7,758 into a high cash value/ low (and increasing) death benefit IUL policy each year until age 59½.

INDEXED UL ATM

LIFE

Some Rules about 72(t) I RS section 72t allows for pre-591/2 penalty-free withdrawals from qualified plans as long as the withdrawals are taken out as a series of “Substantially Equal Periodic Payments” (SEPPs) based on life expectancy.

Be careful of the many 72(t) calculators available online, because many are using rates from years ago when rates were much higher. Using out-of-date rates will cause a higher penalty-free distribution amount and will not sit well with the IRS. In May, the 72(t) rate was 1.57 percent.

Also important for this strategy is the rule that the SEPP must last for five years or until 591/2, whichever is later. So a person who begins a 72(t) plan at 51 will need to keep the payments the same for eight years until 591/2, whereas someone who begins at 56 will only need to keep the payments level for five years or until age 61. After that, any amount of the IRA can be withdrawn with no penalty (of course the income tax on the withdrawals will always have to be paid). Also, once the 72(t) plan begins, no modification to the payments and no additional withdrawals are allowed for five years or until the age of 591/2.

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July 2012

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41

LIFE

Most insurance companies see policies.

INDEXED UL ATM

After that she will put the rest of the IRA into the policy over the next four years (until age 64) at approximately $30,000 each year. To pay the tax on that withdrawal ($7,500 if she is in a 25 percent tax bracket), she will borrow the money from the policy. The money in the policy will grow tax-free.

Some policies have caps as high as 14 percent with a guaranteed floor of 0 percent and have averaged more than 7 percent (before fees and cost of insurance) over the past 80 years based on historical returns. When Sally is 71 (her retirement age goal), she should be able to start taking out $25,000 per year via tax-free policy loans for life.

If she lives to age 90 she will have taken out over $700,000 tax-free from her $200,000 IRA. She also will have an immediate tax-free death benefit of $240,000 and at age 90 that death benefit will be close to $400,000 (remember with IUL we try to suppress or lower the death benefit to as low as possible so as to get more money into the tax-free cash value).

To see how this stacks up against an alternative investment I calculated $200,000 earning 5 percent in the market without a loss from age 51-71 (as if that would be possible) and then taking out $33,000 (the taxable equivalent of $25,000 at a 25 percent tax rate) and the money runs out at age 82. The alternative account would have to earn 8 percent without a loss each year from age 51 to have it last as long as it does with the IUL. Also, the alternative account would not have an immediate tax- free death benefit. In addition, the entire IUL account is creditor protected (in many states-check your states laws) and with some policies the death benefit can be used as long- term care insurance while she is living.

Using an Indexed Annuity

An even more efficient way to fund an IUL using 72(t) would be to first roll the IRA into a qualified Indexed annuity (perhaps with a premium bonus) and then take the 72(t) amount out each year using the annuity’s 10 percent penaltyfree withdrawal provision. This works very well because it can be set up to

IUL SPECIAL REPORT make the payments directly into the IUL policy and it makes certain that the IRA will not be subject to market loss or client’s spending. However care must be taken to make sure that the 72(t) withdrawals will not exceed the annuity 10 percent penalty and that the contract surrender period is short enough to allow for the large withdrawals after the 72(t) period has ended.

Although the strategy is a great option for those over 591/2, it’s not as good for people who are younger due to the additional 10 percent penalty that is caused

by IRA withdrawals.

Conclusion

The 72(t) strategy can be a great way for those younger than 59½ to convert a tax-deferred IRA which is also subject to market risk to a tax-free IUL with no risk of loss and an immediate death benefit.

However, care must be taken to do the 72(t) calculation correctly. It is necessary to consult with the client’s tax advisor before implementing this strategy. Also note that some 401(k) plans do not allow 72(t) distributions so a 401(k) account may have to first be rolled over to an IRA for this strategy to be used.

Bill Kanter J.D., MBA, has more than 20 years of experience in the field of estate planning, elder law and financial planning. He is a member of the National Academy of Elder Law Attorneys (NAELA). He can be reached at Bill.Kanter@innfeedback.com.

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Bright Spot Amid Annuity Sales Drop

Annuity companies met with some sobering indexed annuities news at the end of first quarter 2012. Total annuity sales fell by 8 percent, to $54.8 billion, UP IN A DOWN compared to the same quarter last year, accordCYCLE SOURCE: LIMRA ing to LIMRA. Even variable annuity sales, which have largely held up for the past eight quarters, fell by 7 percent in first quarter. That was despite the 13 percent equity market gains in first quarter, points out Joseph Montminy, assistant vice president-annuity research for LIMRA. Total fixed annuities were down, too, by 10 percent compared to the same period last year.

But the quarter was not without a shining light, which was indexed annuity production. These sales actually rose by 14 percent in first quarter over the same quarter last year, LIMRA says. That jump brought the products a first quarter fixed annuity market share of 45 percent. Not too shabby.

Another development of note: Guaranteed living benefit (GLB) features continued to be quite popular, despite the widely reported cuts in many of these features. For example, GLB election rates on variable annuities remained at 90 percent in first quarter 2012, matching the recent high of the previous quarter, LIMRA says. And in the indexed annuity arena, 66 percent of first quarter buyers elected guaranteed lifetime withdrawal benefit (GLWB) riders when available.

AnnuitySpecs.com reported that although the year-over-year indexed annuity comparison was strong, sales dropped by 3 percent compared to the previous quarter. But Sheryl J. Moore still views the first quarter results as positive. “No other lifetime income product is as strategically positioned to thrive in this low-interest rate environment,” says the president and CEO of Moore Market Intelligence, the firm that owns AnnuitySpecs. And the market leader for the quarter? Allianz Life, with a 17 percent market share.

VARIABLE ANNUITY CHANGES SLOWING DOWN

Variable annuity carriers filed for 59 annuity product changes in the first quarter of 2012, according to Morningstar.

That is slightly higher than the total of 49 recorded for the same period last year, but well below the 130 filings in fourth quarter of 2011, the Chicago firm says. By category, the changes include 20 product

QUOTABLE 44

InsuranceNewsNet Magazine

revisions (down slightly from 22 in fourth quarter 2011), 12 new variable annuity contracts (down from 24 in fourth quarter), 10 closed contracts (down from 30), and nine new variable annuity benefits (down from 15). Other changes include three closed variable annuity benefits (down from 11) and five changes in fees (down from 28).

Morningstar’s take on the quarter: “As

As the baby boomer generation ages and transitions into retirement, there is a growing need for protection against the costs of chronic care and confinement.

— Dana Pedersen, vice president and product officer for The Phoenix Companies

July 2012

low interest rates continued, so did the trends of benefits being scaled back and prices increasing for variable annuities.”

In advisor-speak, that means some stability in benefits and pricing may be on the way.

By the way, the numbers are somewhat different from first quarter last year: Back then, Morningstar reported only nine product revisions, only seven new variable annuities contracts and just one closed variable annuity contract. But where variable annuity benefits are concerned, the company reported 12 benefits closed and 11 new benefits. As for fees, it reported nine fee changes.

HARVARD PROFESSOR OK WITH ANNUITIES

A Harvard professor sees value to adults buying annuities in preparation of their later years.

People in their 80s and 90s who have cognitive impairment should not be making complicated financial decisions such as allocating assets and deciding on withdrawals, said David Laibson.

Instead, they need a check automatically deposited into their accounts each month. Annuities would reduce the investor’s need to manage a portfolio, which is difficult to do in old age, said Laibson, a professor of economics at Harvard and a research associate at the National Bureau of Economic Research.

Penton Media cited his remarks in a report of a panel on which Laibson served as a speaker.

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What is an annuity?

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By Linda Koco

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Define, Lest You Be Defined If you don’t define annuities for clients, they will find it in the consumer media

… much of the information [that consumers] get on the Net comes from non-annuity industry resources.”

What is an annuity? Advisors

run into that question a lot. Despite the fact that annuities have been around for years, many consumers just don’t get it.

That lack of understanding gets in the way of good retirement income planning. If people don’t know about, or understand annuities, why should they consider purchasing one to help finance their retirement years?

Fortunately, most annuity professionals have their definitions down pat, and they are proficient at simplifying the words and drawing analogies to help a client understand. In addition, they have company materials they can give to the client that provide more information.

The Internet problem Unfortunately, a lot of consumers do their research about insurance products on the Internet, and that bollixes things up. This is because much of the information they get on the Net comes from non-annuity industry resources.

Today, for instance, a search on “what is an annuity” turned up, on page one, 46

InsuranceNewsNet Magazine

July 2012

definitions from Wikipedia, the Merriam-Webster – The Free Dictionary, and even WiseGEEK. Five definitions did come from financial-related websites – Investopedia, BankRate, Personal Dividends, CNN and the Securities and Exchange Commission (SEC) – but again, these are not annuity industry sources.

Only two definitions were from insurance entities – the Insurance Information Institute and AXA Equitable.

The good news is that web surfers who happen to click on web pages two and up will find plenty of annuity industry definitions. But, if the appetite for information is already sated by reading the page-one definitions, a lot of people won’t even bother to click deeper into their search results. It is a known fact that page one of search results gets the most clicks.

Besides, most people don’t go around thinking, “I want to hear about what the annuity industry has to say about that.”

This means the annuity industry will not have much success with educating

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consumers on, in its own words, “what is an annuity” via Internet search.

Some definitions are flawed If the page-one definitions are accurate and clear, perhaps this is not a huge problem. But a quick scan through the definitions in the above search reveals that, although most are reasonably accurate, several have flaws.

For instance, some use terms and concepts in the definition that themselves need defining. For example, the WiseGEEK definition rightly points out that annuities involve distribution of money and are typically part of a retirement plan to ensure a fixed, stable income. But it says this income goes to an “annuitant, or recipient.” That reference to annuitant or recipient will cause a lot of consumer eyes to glaze over. “What is an annuitant?” they will wonder.

To its credit, the website does highlight the word annuitant, so the curious can click the link to find out. But what percentage of web visitors will click through to find out?

The website does anticipate the problem, and so adds the words “or recipient” right after the word annuitant.

It gets a star for doing that. However, the term recipient is still a few heartbeats away from where curious readers might want to be. It is dry and seems to be about someone else. The content that follows the definition does provide some amplification, but if the reader is already stumped or disengaged, it may be for naught.

By comparison, annuity professionals typically do not mention the word annuitant to a consumer until much later in the conversation. They have learned, from many years of experience, that this word is hard for most people to swallow. For them, the fewer the technical terms the better, especially early on.

Making it personal Many advisors will introduce the annuity payout idea by using simple terms and making it personal. For instance, they might say the annuity pays an income stream to you.

The SEC did get that part right. Its annuity definition says that an annuity is “a contract between you and an insurance company that is designed to meet retirement and other long-range goals, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.”

That’s not bad. In fact, it’s pretty good. However the references to making a “lump-sum payment or series of payments” and to the insurer making “periodic payments” sort of gums it up– because this does not say the payments are money. Naturally, most people know that “payments” entail money. But more people seem to lock onto to the word money than they do to the words making payments.

Also missing from the SEC definition is reference to the annuity’s ability to pay the consumer a regular income. It does talk about periodic “payments” but not income. The word choice is unfortunate. It is likely that more consumers can visualize what the product does upon learning that it pays out a regular income, such as monthly, quarterly, etc., as compared to learning that it will make periodic payments.

Some of the other definitions use lengthy sentences to express the issues when short ones would read more smoothly. A few have legalistic overtones (i.e., “when an insured party …”).

One even mentions the A-word, annuitization, right in the definition. Ugh. The point is, several of the annuity definitions don’t hit the consumers where they live, in language they might use in everyday life.

An insurance industry definition Now consider the following definition from the Insured Retirement Institute, an insurance trade group with deep knowledge of annuities and growing consumer outreach. This definition says an annuity is “an insurance agreement that comes in a number of different forms and can (1) help individuals accumulate money for retirement through tax-deferred savings, (2) provide them with monthly income that can be guaranteed to last for as long as they live, or (3) do both.”

This definition is absent the “you” terminology but it does talk in terms of money and guaranteed income. Unfortunately, this definition does not pop up on page one of the annuity definition results. That’s really too bad.

There was a time, in the 1990s, that some financial writers tried to define a particular type of annuity – the variable annuity – as a basket of mutual funds in a tax-deferred wrapper. That roiled a lot of industry experts since the definition made no mention of insurance, guarantees, or monthly income.

But it hung on for quite a while, because it was like a “handle” – short and sweet, easy to say and remember.

That nomenclature has now faded.

However, figuring out how to define the annuity accurately and clearly to consumers continues to be a problem. It’s great that industry insiders get it, but potential annuity buyers need to get it, too.

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at linda. koco@innfeedback.com.

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[ HEALTHWIRES]

Check out the latest life and health news at bit.ly/lifeandhealth

States Get More Health Insurance Exchange Money

$1

Billion

Illinois, Nevada, Oregon, South Dakota, Tennessee and Washington will receive more than $181 million in new “establishment” amount federal government has given grants to help implement state health insurstates to set up insurance exchanges ance exchanges, or marketplaces, according to the federal Department of Health and Human Services (HHS). That brings the total receiving such grants to 34 states and the District of Columbia.

Altogether, states have received a total of more than $1 billion in federal exchange-related grants over the last two years, HHS says. That number includes not only $856 million establishment grants, but also more than $54 million in planning grants to 49 states and the District of Columbia and more than $249 million in early innovator grants to seven states.

With so much money flowing into the states, it might seem that exchange setup will be a shoe-in. However, that isn’t always the case. Take Illinois, for instance. In mid-May, state leaders were still contemplating even the possibility that they could pass legislation to authorize an exchange, even though the state received $32.8 million in federal money to assist with establishing an exchange.

Even if and when all states have exchanges, there will be stumbling blocks.

For instance, in a study on managing health plans in the exchanges, Georgetown University and the National Academy of Social Insurance have cautioned that such management will require far greater collaboration across state agencies and with the federal government than is currently the case.

The Affordable Care Act (ACA) requires states to open their health insurance exchange doors in 2014. If a state does not develop one on its own, the federal government will do it for them. Of course, there is some guessing going on. People are wondering what will happen if the Supreme Court rules that part or all of the ACA is unconstitutional. The high court’s decision was not released as of our press time.

PEOPLE TURN TO INSURERS FOR HEALTH PRICE DATA

Who could have predicted this? Fortynine percent of Americans surveyed in April 2012 said they obtained pricing data on health care services from their insurance companies, according to a Thomson Reuters-NPR Health Poll.

That’s up from 26 percent two years ago and just one point less than the 50 DID YOU

KNOW

?

48

percent who said they received pricing information from their physicians.

By the way, the physician resource was down from 60 percent two years ago.

This suggests that health insurers are gaining some street cred in the health care pricing department – a long soughtafter goal of many carriers. Unfortunately, while 86 percent of Americans said that overall pricing information

MORE THAN 75 PERCENT OF BENEFIT MANAGERS from more than 300 organizations say that behavior-driven conditions are the greatest contributors to health plan costs. Source: Express Scripts, St. Louis

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they received was accurate, this is down from 98 percent two years ago. So it’s progress, not perfection.

THESE RX TIERS ARE MAKING SOME SHED TEARS

Health carriers have begun moving very expensive specialty drugs into a separate tier for coverage purposes. The drugs can include those used to treat conditions such as cancer, multiple sclerosis or pulmonary hypertension. Some are biomed drugs. Their common thread is that the drugs can cost $20,000 or more a year.

Insurers say these costs threaten to push up the overall cost of coverage, so they are shifting the drugs into a coverage category that requires insureds to pay more of the cost.

For example, a Los Angeles Times report says some insurers now use a four-tier plan in lieu of a three-tier plan. Tier one might cover generic drugs at a $10 copayment; tier two, preferred brand-name drugs at a $30 co-pay, tier three, non-preferred brand-name drugs at $50 co-pay, and tier four, the specialty drugs, at 10 to 30 percent coinsurance or at a $150 copay. This cost-shifting means some people now must pay $100 more per month for their prescriptions, according to examples cited by the Times. In California, proposed legislation would put a cap on annual out-of-pocket costs but carriers are fighting it for obvious reasons. The struggle promises to be painful, with plenty of tears to go around.

QUOTABLE While the link between health insurance coverage and employment has long been known, the data (from EBRI’s employmentbased coverage study) underscore the degree to which unemployment rates directly affect the levels of the uninsured in the United States.

— Paul Fronstin, Employee Benefit Research Institute

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Voluntary Benefits: A Once-In-A-Generation Opportunity

BY BOB KLEIN

Long-term disability insurance and the voluntary benefits marketplace recent LIMRA study found that one third of private employers are considering replacing their employerpaid benefits with voluntary benefits, giving workers the option to pay for group coverage at their own cost. The more informed workers are about the probability and financial risks of disability, the more effective choices they can make in this new workplace benefits environment. Just as workers need to learn the basics of retirement planning, they need to learn about benefits planning. It’s the broker who can provide the education that can protect millions of workers against the financial risks of longterm disability.

Workers especially need education about the risks and protection options for long-term disability. As comedian Rodney Dangerfield might have said, long-term

disability gets no respect. That’s because the risk of suffering a long-term disability falls near the bottom of workers’ insurance priorities, and for many, disability protection isn’t a priority at all, according to a new survey by Sun Life Financial of more than 2,000 U.S. workers.

Nearly 40 percent of full-time workers surveyed by Sun Life say they would forego long-term disability coverage if they had to pay for it, even if their employer offered the most competitive rate. And when workers were asked to choose between paying to own either dental or long term disability insurance, more than half of respondents (57 percent) favored dental coverage, according to Sun Life Financial’s survey. This is striking, since the financial loss from a one-year disability – one year’s salary – far exceeds that of a dental care need, which typically averages $600 annually.

Further, about 60 percent of surveyed

workers declined to buy group coverage when their employers offered them the option – despite the three in 10 risk that one member of a couple will suffer a disability lasting one year or more during their professional lifetime, according to Sun Life Financial estimates, and two in 10 for individuals.

It begs the question: If the risk is real, and the cost of group coverage is generally more competitive than what a worker could find through an individual carrier, and the underwriting guidelines are generally less stringent, why are so many workers declining to invest in voluntary coverage when it may be the most economical way to protect against financial loss in case of longterm disability?

Of those workers who declined to purchase group long-term disability insurance, over one-third (38 percent) fall into a mindset we call The Gamblers, people who think

40%

SURVEYED WORKERS would forego long-term disability insurance if they had to pay

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VOLUNTARY BENEFITS: A ONCE-IN-A-GENERATION OPPORTUNITY | HEALTH

2|10 their chance of suffering such a calamity doesn’t warrant paying for coverage. A similar proportion of workers, The Moles, refuse to buy group coverage because they remain blind to disability’s risks and solutions. Nearly one-fifth (19 percent), The Ostriches, decline to purchase coverage because they don’t like thinking about the possibility of experiencing a disability.

Complacency may also explain why many workers don’t invest in long-term disability insurance. More than half (53 percent) of surveyed workers believe that Social Security Disability Insurance (SSDI) will cover living expenses if their savings were to run out due to a disability. But according to the Social Security Administration, in 2011, the average wait time to obtain even a decision on a claims request lasted one year, and only 35 percent of claims received approval.

These f ind ings underscore the

INDIVIDUALS with disability lasting 1 year or longer

importance of worker education programs about long-term disability risks and protection options. Yet those programs must account for how and when workers want assistance. According to a 2011 Sun Life Financial survey, nearly 60 percent of workers spend less than 15 minutes reviewing long-term disability benefit information. Yet workers who spend at least 15 minutes reviewing their benefits information increase their benefits purchase rates by an average of 16 percent. And while benefits participation rises when workers receive live assistance to learn about benefits options, offering live assistance to enroll actually decreases participation, compared to online or hard copy enrollment systems.

According to the Bureau of Labor Statistics, 59 percent of full-time workers – 65 million people – lack access to longterm disability insurance through their

employers. This presents an extraordinary win-win-win opportunity. Workers with no coverage can gain access to costeffective group insurance options, employers can enhance recruitment and retention without increasing overhead costs, and brokers can provide a key protection to the majority of full-time workers.

Brokers have a chance to educate millions of workers and hundreds of thousands of businesses about the financial risks of disability and prudent protection measures. That kind of chance may only present itself once in a generation.

Bob Klein is vice president of voluntary benefits at Sun Life Financial US. He can be reached at Bob.Klein@innfeedback.com.

3|10 COUPLES with disability lasting 1 year or longer

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G

lenn Neasham now anxiously awaits the appeal on his conviction of felony theft associated with selling an annuity to an elderly client (visit www.insurancenewsnet/glennneasham for more details of this bizarre case). His jail sentence has been placed on hold pending the outcome of that appeal. In response to the extraordinary series of events underlying this case, the Society of Financial Service Professionals hosted a two-hour webinar for its members, featuring a panel of insurance and standards of care experts to assess the “Lessons Learned” and provide guidance to agents in their annuity sales activities.

Issues in Neasham Coalesce Around Considerations With what tools and other objective measurements should a licensed insurance agent determine the cognitive ability of an older client? The traditional definition of “senior” is age 65, but the California’s Elder Abuse statute provides significant sanctions for those found to be physically or financially “abusing” individuals as early as age 60. Further, common law in most jurisdictions will sanction financial abuse of other categories 52

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of disadvantaged citizens including those with physical or mental disabilities, some of which may not be apparent to the untrained eye.

The criminal charge on which Neasham was convicted was felony theft. The theft was defined as the inability for 83-year-old Fran Neasham to immediately access 100 percent of the premium paid to acquire the annuity. Thus, both directly and indirectly, this case uses the surrender charge of an annuity – almost universally applicable in such products – as the basis for the conviction of felony theft.

The “elephant in the room” is that there are no clear standards of suitability to tell us what types of product should – or shouldn’t – be sold to seniors.

California’s Department of Insurance approved the Allianz MasterDex 10 annuity for sale to consumers up through the age of 85. While ironically the criminal charges did not address whether “the state” believed the product to be unsuitable, clearly that conclusion is inherent in the decision to prosecute for felony theft.

The Society’s “Lessons Learned” program included the expert comments of three attorneys who specialize in insurance issues and standards of care, as

well as two practitioners who have longdeployed annuity products as part of their overall strategy in financial planning.

Their observations and recommendations will likely inspire much thought on senior suitability issues, as well as raising concerns that insurance regulators at the state and federal level are not providing producers with sufficient instruction and safe harbors to assure that the “Neasham effect” will not spread. Several of the experts also observed that if the conviction stands, this could well result in reduced annuity sales – hurting agents, carriers and the clients who can benefit from deferred as well as immediate annuities as part of their overall retirement income and estate planning strategies.

Suitability Almost half the states have passed some form of annuity suitability regulations in the past two years. While not in effect at the time of the annuity purchased by Neasham’s client, those standards were adopted (as stated in the NAIC’s informal Executive Summary of the “2010 Suitability in Annuity Transactions Model Regulation”) to “establish a regulatory framework that 1) holds insurers

THE EXTRAORDINARY CASE OF GLENN NEASHAM | FINANCIAL

responsible for ensuring that annuity transactions are suitable … 2) require that producers be trained on the provisions of annuities in general, and the specific products they are selling, and 3) where feasible and rational, to make these suitability standards consistent with the suitability standards imposed by the Financial Industry Regulatory Authority (FINRA).”

The insurance company issuing the annuity to Neasham’s client claimed that it had no obligation to determine the suitability of that policy on behalf of that client. It is ironic that under California’s subsequent implementation of the Model Act, insurance companies are responsible for supervising and training their agents, and that requirement cannot be delegated to an insurance marketing organization. Included in this obligation is to “maintain reasonable procedures to detect recommendations that are not suitable.”

The elements of suitability that are prescribed by the Model Act and which an agent should consider in product or plan recommendations include: • Age. • Annual income.

• Financial situation and needs, including the financial resources used for the funding of the annuity.

• Financial experience.

• Financial objectives.

• Intended use of the annuity.

• Financial time horizon.

• Existing assets, including investment and life insurance holdings.

• Liquidity needs.

• Liquid net worth.

• Risk tolerance.

• Tax status.

because contemporaneous documentation is an exception to the hearsay rule if it comes to an agent defending him/ herself in arbitration or trial.

and the resulting surrender charge may be an acceptable aspect of that annuity. As always, it is a matter of facts and circumstances that will suggest the appropriate range of products for a given Cognitive Impairment client – and this is the whole idea of creatMost troubling in the Neasham case is ing a consistent set of suitability elements that there are no standards – and no that will better assure the congruency of safe harbors – by which an insurance recommendations with circumstances. agent can ascertain the cognitive ability If the prosecutor’s aversion to annuiof the client. Another recommendation ties for seniors (as previously reported of the panel of experts was for produc- by InsuranceNewsNet) is based on the ers to develop a series of questions that temporary inaccessibility of a portion would help ascertain of the paid premium, such ability, but again, this suggests a con“The ‘elephant in the room’ it is an unreasonable cern for the suitabilis that there are no clear expectation that agents ity of the product for standards of suitability to should have to develop Neasham’s client. And tell us what types of prodsuch questions, or to since this case is not uct should – or shouldn’t – be able to judge the the result of a client or be sold to seniors.” circumstances under family member comwhich responses are plaint, it boils down rendered, without substantial and author- to a concern that the client was cogniitative guidance. The more practical tively impaired at the time of the purapproach suggested by the experts was chase. And if that were the case, presumthat family members should be present ably the contract could simply have been when a “senior” makes implementation declared null and void (the purchaser was decisions (which may or not be practical incapable of forming a contract) and her or desired by the client), or to at least ask premium would be returned in full. the client to re-state their understandSo, the unreasonableness and convoing of the product or plan they’re about luted logic under which Glenn Neasham to implement along with a recitation of was prosecuted is a loud shot across the the expected benefits. It is another ques- bow: agents beware! Agents and their tion as to whether even a competent cli- broker-dealers, BGAs, and producer assoent can fully reiterate the provisions of ciations would be well advised to insist today’s complex annuity products! that regulators develop much more speWhile either approach can be help- cific guidelines around cognitive impairful in defending against a charge of an ment issues for seniors, and to provide inappropriate sale or plan, it is still much safe harbors for those agents and carriers too subjective to assure a “Get Out of Jail who follow those safe harbors.

Free” card in the face of aggressive crimiRichard M. Weber, MBA, CLU, nal prosecution.

The most important aspect of suitability, however, is not addressed in regulation. If responding to a complaint, by a client or by a local prosecuting attorney, producers must be able to demonstrate that they have followed a suitable process. In addition to written documentation, the “Lessons Learned” experts agreed that audio recording of all conversations with clients would be a critical step in that demonstration, especially

Surrender charges exist to protect the insurance company from early surrender – not just for the expense of sales commissions, but in order to make “long” investment commitments to support higher investment returns that can support higher annuity benefits to policy holders. Surrender charges are higher and often longer for so-called “bonus annuities,” but a client may declare that maximization of income is the dominant benefit,

Theft

AEP (Distinguished) is presidentelect of the Society of Financial Service Professionals. A 45-year veteran of the life insurance industry, he is a consultant to insurers and their agents on the topic of effective and ethical selling.

Society of FSP members can access the April 30 program archive as part of their membership benefits at www.FinancialPro.org; non-members can also download the file for a fee. Email Richard at Richard.

Weber@innfeedback.com for details.

@InsNewsNet July 2012

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ATTITUDE IN CHECK A simple test can show if you have the attitude for success

BY DA N SEIDM A N

ant to get a good laugh out of your kids?

Tell them you are going to win a staring contest – with one of their stuffed animals.

I lay in bed, eyes locked on the small, but fierce-looking pug. He was a Webkinz, meaning he also had the power of the Internet.

The world began spinning as I fought to keep my eyelids from flickering. The dryness was the worst part of the contest – as my eyes began to feel as if they’d been rubbed in the fur of the little beast.

Children cheered, but my concentration was so intense, I didn’t hear if it was for me, or him.

Then it was over, and my kids began to laugh at my loss. “Dad, you can never win against a stuffed animal. He has no eyelids.”

You can never win.

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That’s a nasty thought. Here’s a nastier one – what activities during your day are absolute losers? When you sell, which things do you engage in that have absolutely no chance of resulting in a win?

Are you chasing poor prospects? Perhaps you’re doing paperwork during time when you can be accessing potential clients? Or are you using old techniques that now rub buyers the wrong way?

Remove from your day the activities that result in a “You can never win.”

Do this, and in the blink of an eye, you become a better sales rep.

When I train sales professionals, I spend a great deal of time giving them inf luence skills that can be used to increase their ability to perform at a high level.

In this stuffed animal story, the lesson is about influencing yourself – something rarely addressed.

Influencing yourself well includes: Having a healthy perspective in dealing with resistance and its evil twin, rejection.

Using strong, truthful self-talk, when things are going well or going south.

An ability to prioritize activities, relationships and goals.

Adopting optimism that flows through your day, as well as the people around you.

Showing a great attitude.

Let’s look at that last one in detail.

You can actually alter and improve people’s attitudes. Try this exercise that I

ATTITUDE IN CHECK | BUSINESS

conducted recently at a local office of a major nonprofit, World Vision.

Because the local organization uses the phone to garnish donations, they often hire young people who aren’t paid a whole lot, but work hard to support the mission of this charity.

Every day, each person hears “no” dozens of times. This load of resistance and rejection even comes from people who are current or past supporters. How do you help callers to manage all that negativity?

Create a simple HEART & HEAD CHECK self-test, such as the one below.

Notice how healthy responses found light at the end of every tunnel. For example, the Fundraising industry response was about people being served, rather than the tight wallets of today’s donors.

Print out your responses, put them by

HEART & HEAD CHECK SELF-TEST Our attitude solution is anchored in this concept: Focus on gratitude to improve your attitude. On a piece of paper, create positive responses to your feelings about … (sample answers follow).

THE ECONOMY

Things are hard now, but people really do have more money than they need.

If someone gives up a case of soda a month, they can help.

FUNDRAISING INDUSTRY

Tough economy is hard on our industry.

But fundraisers do good work, helping people who have much less than us.

the desk on the walls and see how uplifting this is for anyone walking into the work area. You just branded healthy attitude inside the company.

Reps on the road? They can create and take their list with them. Peek at it as often as needed.

Of course, your checklist will be slightly different, with just three minor changes. It will refer specifically to your industry (such as financial services), your company (by name) and “buyers’” perception (rather than donors).

Here’s something else to try with this exercise. Email the blank document to each rep; have them re-write it for their marriage, for kids, for family, or anyone they connect with.

Remember, the best learners become teachers as soon as they come across new knowledge. Have them run this exercise

YOUR COMPANY WORLD VISION

I work for one of the most prestigious, respected and ethical organizations on the planet and am proud of it!

DONORS’ PERCEPTION ABOUT WORLD VISION

They trust that 10 cents of every dollar goes to running the organization while 90 cents helps the people they see at WorldVision.org and in TV commercials.

YOUR OFFICE

My work environment is bright and easy to work in, with fun employees, newer computers and phones.

at home, or teach other salespeople, entrepreneurs or association and networking colleagues.

So change attitude by focusing on gratitude. And change it forever by giving your team printed evidence of all the good they encounter and offer each day.

Who will you share this with? When?

Dan Seidman is a World Masters Athlete with three gold medals playing on the U.S. Basketball Team. He takes that winning attitude into the selling profession to turn salespeople into sales pros. The Ultimate Guide to Sales Training is a 600-page encyclopedia of tactical resources and his sixth book.

As a sales trainer, Dan travels globally, teaching the latest best-practices in influence. Reach Dan at Dan.Seidman@innfeedback.com.

YOUR BOSS

Larry is easy to work with and really cares about me personally as well as my work role.

YOUR JOB

I get to interact with interesting people from all over the country and from all walks of life. It’s a cool reflection of God’s diverse creation, all experienced on the phone.

YOUR SELF

I landed a job here! It’s a lot of work and fun, too. Every day I try to contribute a little more than the day before.

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MDRT INSIGHTS | BY BRIAN HECKERT

Persistent Prospecting Drives Successful Sales

T

here is one thing that truly separates successful agents from those who simply cannot seem to bring clients through the door – persistence. Between asking for referrals and simply planning to be on the phone for a couple hours each morning, the persistent and successful agent is always working to find new customers. Of course, being persistent doesn’t come easily to most people. Yet, you can train yourself to be more persistent by following these common principles that will undoubtedly spur growth in your business.

1. Engage with the Target Audience The first step in persistent selling is to target and engage the audience you are trying to reach. Once you have established a potential clientele, it is imperative to place yourself within that particular audience’s circles. Find a group where there are successful prospects.

For instance, if your business is looking to strictly work with manufacturing corporations, attend their annual meetings.

There is an association affiliated with nearly every profession. For the purpose of our example, the most successful manufacturing corporations will be extensively involved in their major industry trade associations. Figure out what these associations are, what they do and how you can establish an affiliation with them. Find ways to interact with these potential clients and show that you are dedicated to understanding and meeting their needs.

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2. Maintain Good Follow Through Once you have identified and narrowed your target audience and made your presence known, you can then implement a very effective marketing plan by simply sending out good old-fashioned, informative letters to potential clients and following up with a phone call. If you encounter rejection, don’t stop calling. Research shows it takes six contacts before people do not consider you a cold call.

Say you have 300 individuals you would like to contact. Take those 300 people and, over the course of 12 weeks, send out 25 letters per week. Continue this cycle, and after each mailing, follow up with a phone call. If the person you’re contacting expresses no interest, say you will contact them again after the next mailing. Ninety percent of people will not object to this phone call. After the sixth contact, I’ve found the conversion ratio increases dramatically – from about 1-3 percent up to 15-20 percent.

3. Never Stop Learning Mastering the art of selling insurance means never becoming stagnant. The insurance industry is constantly evolving, making it imperative to remain tuned in to the latest trends and products in the marketplace. Consider your brain to be a sponge and soak up as much information as you can. By subscribing to trade and financial media – like InsuranceNewsNet – you can easily receive constant updates about how other agents are seeing growth

in their practices and what tactics they are implementing.

Exploring associations where top professionals in the industry congregate is probably the best way to expand your education. Groups like the Million Dollar Round Table (MDRT) allow top financial professionals across the globe to get together and share business building strategies, sales ideas and much more. Associations allow you to learn and network at the same time.

Sharing the information that you’ve learned through this approach is yet another effective way to broaden your contacts. By visiting local universities or school systems and teaching young investors the value of insurance and financial planning, you can interact with future clients as well as those who aspire to one day be in your shoes.

4. Ask for Referrals – at the Right Time Referrals are a huge asset to any successful business, and the insurance industry is no exception. The timing of referrals is the one aspect any agent should master. Research indicates the most effective time to ask a current client for a referral is after a sale, when the client is both emotionally and financially invested in your practice. Purchasing insurance is an emotional decision, and when a client buys from you, they trust you.

Success in any industry comes from dedication and persistence. Even when receiving rejection from potential clients, stay in the back of their mind by following up and showing you have their best interests at heart. With tenacity and commitment, your practice will undoubtedly see success.

Brian Heckert, is founder and wealth manager of Financial Solutions Midwest, LLC in Nashville, Ill. Brian offers securities through NFP Securities, member FINRA/ SIPC. He can be reached at Brian.

Heckert@innfeedback.com.

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

DELIVER SOLUTIONS. CLOSE CASES.

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July 2012

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LIMRA INSIGHTS | BY STEPHEN SELBY

Social Media is Just the First Circle another virtually instantly through sharing tools that weave together one social media site into another. Intrinsic in the social media toolkit is the quality of “sharing.” Sharing leads to transparency because social media is effectively a public space wherein we expect either truth or consequences. The notion of sharing and transparency are important because they marry tools to content.

Social Business

The core to effective networking is “likeability.”

If your network is not sharing or redistributing your content, maybe your message is just not likeable.

S

ocial media must be viewed through three distinct lenses: social media, social business and social good.

First, there is “social media,” i.e. the notion of the sites themselves. “Social business” describes the use of social media sites and tools for business development through relationship building. Finally, “social good” is made up of the ideas that benefit society. Each of these three lenses must be understood, one in relationship to the other, if the insurance and financial services industry is to use social media effectively. In 58

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particular, the tie between social business and social good must be explored and developed.

Social Media The backbone of the new social media culture is the interrelated network of sites that comprise the social net. The network, of course, includes sites like Facebook, LinkedIn and Twitter. But when thinking of the social network, one must also understand that messages can jump from one social media site to

Social business is merely the use of social media sites and tools for business purposes. The zeitgeist of social media culture is that marketing is “out” and relationship building is “in.” Social media tools confuse us because we are used to telling our own stories. Telling our stories is “out;” sharing our stories and getting people to share theirs is “in.” Social media demands a shift from monologue to dialogue; and from dialogue to a multi-party conversation. The problem is that joining a multi-party conversation can be a trap.

Why? People will either like your message or not. Unlikeable messages will not generally be shared, but if they are shared, they will be accompanied by negative commentary. If your message is likeable, it may be shared by your network, potentially with positive commentary. The core to effective networking would then seem to be “likeability.”

When thinking about social media content, think about likeability. If your network is not sharing or redistributing your content, maybe your message is just not likeable, which brings us to the next question. Are you likeable?

Social Good Social media can be used to build awareness about causes and ideas. Awareness is not the same thing as actually getting something done. Genuine social good does not live within social media. If you would like to see social good in action, go

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

ADVERTISER INDEX to a Little League game. Look at the fence in the outfield or at the Little League players’ shirts. Chances are that you will see a sign or logo for a local insurance agent or financial planner. Is Little League sponsorship advertising, community involvement or both? Is it likeable?

Is it more likeable to actually coach the Little League team? Sponsorship and coaching can be social – if, with permission from parents, pictures of the coach and the team are posted to a local business’ Facebook page. Of course options are not limited to posting pictures.

Social media provides many possibilities for sharing images, video, events and ideas. A word of caution, however, is in order. Our social networks know us well.

Any attempts to discuss the good that we do for our community must be genuine and grow out of our personal and corporate values.

Social Media, Social Business, Social Good Social media is the electronic environment in which we communicate with each other. We use social media to communicate about our business and the good that we do. It is the blend of our work and the good that we do that makes us interesting and that hopefully makes us “likeable.”

Because our work and the good that we engage in take up so much of our lives, we open the doors to many conversations with our business partners, community, prospects and clients. Conversations build relationships and hopefully, business.

The Third Annual LIMRA / LOMA Social Media Conference for Financial Services is designed around these three principles of social media, social business and social good. We hope that you will be able to join us and learn with us August 22-24 in Boston.

Stephen Selby, director of LIMRA’s regulatory services, joined LIMRA in 2008 and is responsible for audit and consulting services for both broker/ dealers and registered investment advisors. In addition, Selby has spearheaded LIMRA’s social media compliance program. He can be reached at Stephen.

Selby@innfeedback.com.

For more details on an advertiser, use the contact information below or visit www.InsuranceNewsNetMagazine.com/spotlight Advertiser

Website

Phone Page

3 Mark Financial

www.easypremiumfinancing.com

888-533-6275

15

American College

www.theamericancollege.edu/ricp

888-263-7265

29

American Equity

www.american-equity.com

888-647-1371

3

American National

img.anicoweb.com

888-501-4043 opt. 1

10-11

Aviva

www.avivausa.com/joinaviva

800-800-9882

42-43

Brokers Alliance

www.edutrainment.net

800-290-7226 ext. 147

1

Brookstone Capital Management

www.brookstonecm.com

866-425-3003

37

Eugene Cohen Insurance Agency, Inc.

www.cohenagency.com

800-333-4340

25

Executive Recruiters Online

www.careershopbenefits.com

888-843-4962

17

Fairlane Financial

www.888fairlane.com

800-327-1460

45

Financial Independence Group

www.figmarketing.com

800-527-1155

57

Foresters

www.foresters.com

866-466-7166 opt. 1

33

Gradient Financial Group

www.gradientib.com

800-407-4137

BC

Kansas City Life Insurance Company

www.kclife.com

800-258-4525 ext. 8120

31

Life Sales, LLC

www.lifesales.net

877-762-3824

IFC

M&O Marketing

www.annexustraining.com

800-228-5964

41

Minnesota Life

www.minnesotalife.com

888-413-7860, opt. 1

5

NAIFA

www.naifa.org/itpays

877-866-2432

IBC

NetQuote

www.netquote.com/jul15

877-415-5153

4

Ohlson Group

www.ohlsongroup.com

877-844-0900

7

Petersen International Underwriters

www.piu.org

800-345-8816

49

Sagicor Life Insurance Company

www.sagicorelifeusa.com/simplified

888-724-4267 opt. 2

27

Wealth Financial Group

www.wfgnetwork.com/inn

888-333-7771

39

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July 2012

InsuranceNewsNet Magazine

59

ASK THE

ADVANCED SALES DOCTOR Q:

I came across the word “positioning” in one of your articles. I am not familiar with the concept. Could you explain what it is and why it is important?

Rx:

It does not surprise me that you are unfamiliar with the concept of “positioning” because it is never talked about in the context of the traditional ways of selling.

When you approach someone as a salesperson it is implicit in the context that you are there to sell something. You are automatically positioned as a salesperson. That means that you present yourself as a salesman/woman, you wish to be perceived as such. The salesperson image defines you for who you are and influences how your prospect will respond to you.

The example of how our troops in Iraq were taught to position themselves might make the concept easier to grasp. They were taught to represent themselves as “liberators” rather than “conquerors.” This defined what they stood for in the mind of Iraqis. It is easy to see how these two different ways of perceiving our soldiers would lead to drastically different emotional reactions and elicit different responses.

How you position yourself sets the stage for your entire relationship with your prospect.

It will either establish you as someone with a legitimate agenda or it will create resistance.

It is important to keep in mind that whenever you approach prospects with an agenda that was not their initiative, they will want to know what motivates you to approach them.

It is also important to remember that you are selling to unmotivated prospects who, since they don’t perceive a current need for insurance, assume that you are acting on a selfserving motive: the desire to make a sale. Try to find a way to position yourself in a way that will legitimize your agenda in the eyes of your prospect. For example, position yourself as an advocate: someone who is there to speak on

behalf of dependents that are not in the position of speaking for themselves to ensure their future financial security.

Q:

My manager tells me I am spending too much time on processing. I cannot afford an assistant and there is just too much to do. How do others manage it?

Since you are in the marketing business, most of your time should go into doing just that. Managing the ancillary activities, such as case preparation, service work and all the other detail that support the primary activity of your operation (selling), is important but should be secondary to prospecting and selling. Otherwise, supporting activities take on a life of their own, leading to call reluctance. You may engage in those easy tasks in order to not have to face the ones that you find difficult or threatening. What you do get from spending a great deal of time on these ancillary jobs is a sense that you are working hard – and an excuse for failing. Refocus your activities on prospecting. Paradoxically, seeing a large number of new prospects will not increase your sense of pressure resulting from making more sales, but decrease it. Also, by earning more income you will be in the position to hire an assistant to leverage your efforts.

Rx:

Q:

Some suggest that before you answer an objection you should pause and look thoughtful because it communicates that you are seriously considering the question. I have also heard that you should reply immediately, almost dismissively, because it shows that it is a common problem and there is a ready answer for it. Which do you recommend?

Csaba Sziklai*, PhD, has trained thousands of agents to sell more insurance and love their work. In his career as a sales psychologist, Csaba discovered the secrets behind why some agents are much more successful than others. He used that insight to create his breakthrough “Advocacy System” used by carriers and agents on becoming client advocates to sell more insurance for all the right reasons. *(Pronounced Chubba Sik-lie) 60

InsuranceNewsNet Magazine

May 2012 July 2012

Rx:

Both of the methods have some merit, but you might consider this.

For the most part your prospects are not motivated buyers for insurance. Because they do not perceive a current need for what you are selling, they are biased to the belief that you are coming to them with a self-serving agenda. They are on the defensive.

Because their stereotype of you tells them that you are intent on reaching your objective of getting the sale, they expect that you will see their objection as a roadblock in your way to your goal. They expect you to betray some frustration when you receive an objection. Of course, objections can be frustrating because at times they serve no other purpose than to delay decision-making. Nonetheless, you need to think of objections as indications that your prospect has encountered a problem and needs your help rather than as a roadblock in your way. A momentary hesitation, a slight deflation in response to an objection is enough to reinforce the prospect’s stereotype that you are pursuing your self-serving agenda.

You might want to try this: Whenever you ask a question, relax, maybe lean back slightly as you await your prospects’ response.

As your prospects voice an objection, lean toward them as you listen to the objection, nodding or otherwise communicating that you understand what they are saying. Immediately affirm the objection, maybe even rephrasing the essence of their concern. As a rule, always ask your questions in a relaxed, slightly backward-leaning position because it allows you to move toward your prospect when they voice an opinion. This allows you to communicate intense concern and singleminded focus on them.

Need a prescription for success?

Send your sales psychology questions to:

SalesDoctor@innfeedback.com

or visit www.advocacyselfstudy.com

Every year, new tax proposals threaten your products and your business.

Only NAIFA protects both.

Find out more at www.NAIFA.org/ItPays

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