Blog #216: Cost of Waiting
(Delay is the Deadliest Form of Denial)

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(Presentations in this blog were created using the InsMark® Illustration System)

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Bob Ritter's Blog #216: Cost of Waiting (Delay is the Deadliest Form of Denial) image

Reasons to Act Now

You should acquire your life insurance as soon as you determine its usefulness.  That’s when your health may be the best it will ever be, and the benefits are more favorable the sooner you act.

This study proves the efficiency of buying now — regardless of the strategy utilized:

  • Personal or business policy;
  • Executive benefit like split-dollar or bonus plan;
  • Retirement or estate planning.

Case Design

You will usually want to compare the identical level premium pattern.  This is simple to do with a universal life-type of policy.  If you are comparing participating whole life policies, reduce the face amount of the older age policy.

Case Study

Harvey Pierce, MD, is an internal medicine physician, age 45.

He is willing to commit to premiums of $50,000 a year for fifteen years for a personal Indexed Universal Life (IUL) policy illustrated at 6.15%.

He believes the participating policy loan features of IUL will provide him with a superb retirement supplement.

He likes the idea of having additional death benefit coverage, but it is not the dominant reason he is interested.

Consequently, he’s in no rush to buy.  “Does it make much difference if I wait?”  he asks.

Let’s measure buying now vs. waiting five years.

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Bob Ritter's Blog #216 let's measure buying now vs. waiting five years - cost of waiting delay is the deadliest form of denial image

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Bob Ritter's Blog #216 plan A buy now plan B wait five years to buy - cost of waiting delay is the deadliest form of denial image

Click here for the full illustration.  Included are calculations of the 11.01% interest rate required to match the gain in values of Plan A over Plan B based on the differences in premiums, after-tax policy loans, cash value, and death benefit.

Conclusion

Life insurance is often considered a postponable purchase.  This presentation can help you add an element of urgency to the deliberation.

Your Comments

What are your thoughts, conclusions, or questions after reviewing this material?  Please add your comments to this Blog.  (Your email will be kept confidential.)

Licensing

To license the InsMark Illustration System, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  If you are currently licensed for DOD, go to www.insmark.com and select “My InsMark” from the home page for access to the full version of DOD.

Please direct Institutional inquiries to David Grant, Senior Vice President – Sales, at dag@insmark.com or (925) 543-0513.

Creating Similar Presentations

If you would like highly qualified design assistance with no commission split required, contact LifePro Financial, InsMark’s Referral Resource discussed below.

The video below can also acquaint you with the general subject of downloading and using InsMark’s Digital Workbook Files.

Digital Workbook File for Blog #216

InsMark Illustration System

Assuming you have or acquire our InsMark Illustration System, you can download the same Digital Workbook File below that I used to prepare the Case Study for this Blog.

Digital Workbook File For This Blog

Blog216.zip

Before downloading and reviewing any files, be sure to install the most current updates to your InsMark Systems.  Do this using InsMark Live Update available under Help on the main menu bar of the System or this icon on the main menu bar:

LIVE UPDATE BUTTON

Note:  If you see this message on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark Systems.  Please forward the Workbook file to your PC where your InsMark System(s) reside.

The Guide to Digital Workbook File for Blog #216.pdf will be invaluable to you for designing similar illustrations.

InsMark’s Referral Resources
(Put our Illustration Experts to Work for Your Practice)

We created Referral Resources to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice. You can utilize your choice of insurance company, there is no commission split, and you don’t have to change any current relationships. They are very familiar with running InsMark software.

Please mention my name when you talk to a Referral Resource as they have promised to take special care of my readers. My only request is this: if a Referral Resource helps you get the sale, place at least that case through them; otherwise, you will be taking unfair advantage of their generous offer to InsMark licensees.

Save time and get results with any InsMark illustration.  Contact:

Testimonials

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Simon Singer, CFP®, CAP®, RFC®, Past President International Forum, InsMark Platinum Power Producer®, Encino, CA

“The InsMark software is indispensable to my entire planning process.  It enables me to show my clients that inaction has a price tag.  I can’t afford to go without it!”
David McKnight, Author of The Power of Zero, InsMark Gold Power Producer®, Grafton, WI

“InsMark’s referral resource, Brian Manderscheid from LifePro, has been a gem to work with!  He helps us use InsMark with every one of our cases.  The genius factor is InsMark’s commitment to ‘Compared to What’.”
Glenn Main, InsMark Platinum Power Producer®, McMurray, PA

“The reason I use InsMark products is that they are so good at explaining financial concepts to all three parties: 1) the producer trying to explain the idea; 2) the computer technician trying to illustrate it; 3) the customer trying to understand it.”
Rich Linsday, CLU, AEP, ChFC, InsMark Power Producer®, Top of the Table, International Forum, Pasadena, CA

“I thought I knew all the sales techniques that affect my business, but I do now, thanks to InsMark.”
Sam Keck, MBA, CLU, CFP, LUTCF, InsMark Platinum Power Producer®, Financial Planner, Denver, CO

“InsMark is the Picasso of the financial services world — their marketing savvy never fails to amaze me.”
Doug Peete, Past President, Top of the Table, and InsMark Power Producer, Overland Park, KS

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Important Note #1:  The hypothetical values associated with this Blog assume the non-guaranteed values shown continue in all years.  This result is not likely, and actual results may be more or less favorable.  Life insurance illustrations are not valid unless accompanied by a basic illustration from the issuing life insurance company.

Important Note #2:  The information in this Blog is for educational purposes only.  In all cases, you must secure the approval of a client’s legal and tax advisers regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

Important Note #3:  Many of you are rightly concerned about the potential tax bomb in life insurance that a careless policyowner can accidentally trigger.  This issue is a problem when policy loans are present and net cash values are so low that the income tax on the gain* on surrender is more than the net cash surrender value.

*gross cash values less basis

This lurking tax bomb can be present in all forms of whole life and universal life with policy loans of any type.  You, the producer, are crucial to making sure your clients know how to sidestep it.

A tax bomb is avoidable if the policy is neither surrendered nor allowed to lapse since the policy death benefit wipes away any income tax liability.  The basis of this particular treatment is IRC Section 101.  This statute provides that life insurance proceeds maturing as a death claim are exempt from federal income tax.  This treatment applies to the full death benefit, including any cash value component, whether loans exist or not.

Note: It is best to design the policy with no premiums planned after retirement if you anticipate loans in retirement years.  This suggestion may require higher premiums during pre-retirement years, but a policy with no premiums scheduled is much more tolerable at advanced ages than one requiring them.

Can your clients remember these facts years into the future? If they are incapacitated, will family members understand the issues?  It is probably best to file a short note with the policy – something like this (although your compliance officer will likely have preferred language):

If/when you take policy loans, be sure to talk to your financial adviser before surrendering or lapsing the policy so you can avoid unexpected tax consequences.

Does this note make it harder or easier to deliver the policy?  It’s more challenging if you haven’t discussed it with your client, easier if you have.  And that’s the point – you should discuss it.

Some life insurance companies have concierge units that monitor loan status at the point of lapse or surrender.  You would be well-advised to select an insurance company with this capacity.  To be effective regarding the tax bomb, all companies need to be proactive in their client relationships, not merely reactive to client inquiries.  Ultimately, I hope that the policyholder service division of all life insurance companies will bring this potential liability to the attention of those surrendering or lapsing policies, particularly those with 50% or more of the gross cash value subject to outstanding loans.

 

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