Insurance as income replacement? and funding???

James and Maxreferrals.

Thanks.

I suppose you are right, term is very affordable. It just seems that with permanent insurance one gets so much more in benefits, flexibility, attributes, but the premium does not go up proportionately. So let's say permanent costs 2.5 times as much, but offers 4 times the benefits - - far more bang for the buck.

There just seems to be so much more value for each dollar spent on premium when spent on permanent insurance when compared to term.

But I suppose that is the reality of life. One cannot afford everything they want or need, one must compromise.

Thanks.
 
James,

I chanced on this article and really thought it was great. Reminded me of you and your style and prose.

Building a Compelling Case for Permanent Insurance

Consider these strategies for presenting the myriad benefits of life insurance—some of which you may not have considered.

By Dave Willis

“Bring ’em on.” That’s how Phil Bodine views prospects and clients who want to buy term insurance. He loves working with these individuals, but not because he loves to sell term. Permanent life insurance provides the owner with a “freedom to live.”


“I’ve been doing this for more than 17 years, and when I meet a prospect or client who is averse to permanent life insurance, I know that’s probably going to be one of my best permanent insurance sales,” says Bodine, financial advisor and partner in Danusis-Bodine & Associates, in Fort Wayne, Ind. “They’re just telling me they don’t know how the product works,” he explains. “I truly believe if people understood, they’d buy as much of it as they possibly could.”

And the masses are not the only ones who don’t get it. He had an agent in his office recently—a fellow who represented a huge national carrier for more than four decades. The agent said he was amazed at all the benefits of permanent insurance Bodine shared with him.

HeÂ’s probably not alone. There are perhaps thousands of advisors who donÂ’t fully understand and appreciate the value of permanent insurance. Fortunately, many do. And they know how to make a compelling case for its use as they meet with their prospects and clients.

The power to use leverage
One of these advisors is Ian Meierdiercks, a financial advisor and Ohio National agent based in Jeffersonville, Penn. “I’m a big believer in leverage,” says Meierdiercks, co-owner of Wesselt Capital Group and a Philadelphia AIFA member. “I teach clients how to use leverage on the way up to accumulate wealth. And I teach them how to spend their wealth in a leveraged fashion as well.” Permanent insurance is the linchpin of that strategy.

It’s a strategy that’s largely lost on middle- and upper-middle-class Americans. The wealthy understand it and use it to their advantage. “If you look at anyone who’s become wealthy in America, they’ve generally done it in one of three ways,” Meierdiercks explains. “They’ve saved some money, they’ve been frugal in their spending relative to their income or they have used leverage.” Often, it’s a combination.

Meierdiercks shows his clients how life insurance can free them up to take advantage of leverage. To understand how, step into the shoes of one of his clients—a family man who owns a real-estate office in the Philadelphia area. As the office broker of record, he oversees and makes money off other real-estate agents. And he does some personal real-estate investing, owning five investment properties. “In his mind, he was maxed out on the investment real estate he could buy,” Meierdiercks says.

He bought into what Meierdiercks says middle-America’s been taught: Pay off debt, sock money away in a 401(k) and all will be well. “His $800,000 house was paid off,” Meierdiercks says, “which gave him a safe, secure feeling. If anything went awry, he could always sell the other properties.” But unless something changed with regard to his income, he was stuck where he was financially.

“I showed him how, using a permanent insurance death benefit, to leverage his house, buy more properties and address other needs,” Meierdiercks says. The client took his advice and got a home-equity loan, using some of the cash to buy more real estate—something he thought he couldn’t do—and some to put into municipal bonds.

The interest alone from the bonds pays the premium on his insurance policy, which is growing in value. If the house value deteriorates, heÂ’s OK because heÂ’s locked into a mortgage. His credit score is not an issue anymore. And he has maxed out his tax deductions.

According to Meierdiercks, the client had done some financial planning, much of it focused on his special-needs child. But it wasnÂ’t enough. Today, if something happens to the client, heÂ’ll leave behind leveraged dollars to make sure his wife and children can live comfortably. And in the three years since Meierdiercks has shown him how to use permanent insurance to create leverage, his real-estate investment portfolio is up a cool quarter of a million dollars.

When, not if
For Clark McCleary, CLU, ChFC, AEP, owner of Houston-based McCleary and Associates and a Houston AIFA member, it’s all in the numbers. “If you look at statistics for the alternative to permanent insurance, which is term, very few death claims are paid,” he notes. “That’s because the policy usually expires before the insured does.”

He cites mortality data to drive his point home further. “The last time I checked, mortality tables were still one-to-one,” McCleary says. “If an individual wants a death benefit to be in place when he dies, not if he dies, permanent insurance is the only solution.” McCleary doesn’t have to go much further than that to make his case. The only objection he sometimes gets after that is that the need is only temporary.

That argument sometimes holds water—but not very often. “What I’ve found in 40 years in this business is the need really doesn’t go away,” he says. “More often, the nature of the need just changes.”

Case in point: McCleary was working with a client who, several years ago, asked for a $2 million, five-year term policy. McCleary questioned the man. The client, a 30-something fellow who had just taken over his dadÂ’s heavy-equipment manufacturing business, said his company was getting a $2 million line of credit, and the bank needed a policy for collateral.

McCleary challenged the length of time, and the client explained that the credit line was for five years, and the policy would be unnecessary after that. In five years, he added, the business would grow to where it would be self-sufficient. McCleary convinced the
client how permanent insurance could cover all of his life—and
do so using double- or triple-
duty dollars.


Sure enough, five years passed and the client asked to extend the term policy for another 10 years. The line of credit was still active, and the bank still needed the protection. McCleary recommended converting to permanent insurance. But again, he was rebuffed. Because the credit line was upped to $5 million, McCleary wrote a $5 million, 10-year term policy.

About three years later, the client finally realized the need would never go away. McCleary showed him how, when the bank no longer needed collateral, the policy could be used for other purposes—to pay estate taxes on the then-successful business, to provide keyperson protection to keep it viable, as a supplemental-retirement benefit if the owner decides to slow down or to sustain his family if he dies while still at the helm. McCleary convinced the client how permanent insurance could cover all—not just part—of his life and could do so using “double- or triple-duty dollars,” as he calls them.

Buying vs. renting
William Buehler, LUTCF, senior financial advisor for Richmond-based Virginia Asset Management LLC, gets prospects and clients to think of insurance in noninsurance ways, especially when they say they want to buy term and invest the difference.

The Richmond AIFA member looks them in the eye and says: “Well, you could probably rent an apartment for about half what your house payment is. And you could invest the difference there. Why don’t you do that?”

Generally, following a sheepish pause, they’ll respond, “Well, I have control over my payment. I’m building equity. It’s an investment. Oh, and I get some really good tax benefits.” OK, they don’t necessarily answer just like that. But that’s the gist.

Now Buehler could easily fire back, “Those are all good reasons to buy permanent insurance. But what about the home-versus-apartment scenario?” He doesn’t, however; he’s too nice. Instead, he delves into the many benefits he sees in permanent insurance. “All the reasons why people own a home are the exact same reasons why they should own permanent life insurance,” he says.

Buehler is working with a dentist right now who talked about buying term and investing the difference. The newly married, early 50-something guy with grown kids on both sides—his and his new wife’s—has an income that dwarfs his wife’s. And he plans to work until he’s 70 and then retire.

“His focus in the past had been, ‘Let me buy some term insurance and I can throw the rest in my SIMPLE plan or the market, where I’ll do much better than I would with an insurance contract,’” Buehler says. Buehler used the mortgage-vs.-rent analogy and then took it a step further, giving the dentist a quick shot of reality. “The first thing I did was address his assumption that his needs will be fewer than they are today,” Buehler explains. It worked. The dentist soon realized he’d need life insurance beyond his retirement date.

“Nearly everyone, especially professionals, believes they’ll build this pot of money and they won’t need life insurance because of the money they’ve saved,” Buehler says. “But what if he dies while he’s building it?” Well, he’s got term insurance. But term doesn’t incline with inflation. And it doesn’t offer a lot of other benefits.

Buehler convinced the dentist to go with the permanent insurance. The cash-value accumulation was a consideration, just like when buying a home. So was the tax-beneficial treatment of the cash account and the cash distribution.

The multitasking factor
Timothy Radden, CLU, ChFC, owner of The Radden Company in Phoenix, describes permanent insurance as “a remarkable tool” for a couple of purposes. Specifically, he believes that properly designed financial plans that are built around permanent insurance can help individuals reduce taxes and provide continuity for survivors.

He’s demonstrated that belief to a client he’s working with right now. The individual owns a very successful business that makes a lot of money. “It’s making so much that if my client dies, the estate-tax valuation would probably be $20 million,” says Radden, a Northwestern Mutual financial representative. “But the funny thing is that he’s so important to the business that without him, it probably would be worth nothing. It’s a crazy situation.”

On paper, the business is worth millions. And the client would be taxed on that. But his wife and kids would get nothing because they couldnÂ’t sell it. A piece of paper called a death certificate would trump the paper that shows a multimillion-dollar valuation. The client didnÂ’t have anything that was certain. That is, until permanent insurance.


The client runs a dairy equipment manufacturing business, exporting products to foreign countries. But like so many entrepreneurs, he excels at one thing. “They’re very good in their own businesses, but outside them, they’re not very comfortable at all,” Radden says. “So when I met with this man, he asked me, ‘What am I to do?’”

Radden had the answer. And it was built around permanent insurance. “We did a couple of things,” he says. “First, we worked to reduce income taxes and estate taxes.” In the midst of this, Radden devised a way to keep the business alive so it could be sold when the owner retires or dies.

“We designed the program in such a way that if anything were to happen, the company could keep key employees on,” Radden explains. “Or it could even hire a replacement president to run it for many, many years to keep it afloat so it could be sold for a proper price, and the client’s wife and kids would get the benefit of it.” This was something the client had simply never seen before.

The tax-free rate of return allowed for internal growth inside the permanent insurance policy that was comparable to what a CD pays, but without the risk, Radden says. And risk was an issue. “The client told me, ‘I’ve got all this risk over here in my IRA, in my business, in my 401(k) and in my brokerage account,’” Radden recalls. He didn’t have anything that was certain. That is, until permanent insurance.

HereÂ’s to life
Bodine, the advisor who loves to work with “buy term and invest the difference” clients, says he doesn’t encourage people to buy permanent life insurance because they’re going to die. “I give them all the reasons why it makes sense to purchase it because they’re going to live,” says the Fort Wayne AIFA member. For many clients, that takes a healthy dose of education.

“I explain the benefits of a permanent life insurance policy,” he says. “And among the core benefits are the guarantees of the policy itself. It’s the perfect fortress or foundation to build everything else on.”

He describes permanent insurance as a great savings vehicle for people to build a foundation for their financial superstructure. “I see too many people, especially younger people, who are trying to start their financial structure with the roof shingles, windows or siding—everything but the foundation,” he explains.

Bodine goes on to describe the benefits of the waiver-of-premium rider—something, he says, is an industry-exclusive feature. “You can’t get that in any other financial investment that I’m aware of,” he says. “I know if I become disabled today, my contribution will continue to go into my permanent life insurance portfolio to age 65. That’s a great benefit.”

He also explains that the money’s going to grow tax-free. And because it’s a contract—a contract between the insurance company and the client—he believes the tax-beneficial treatment will remain.

Protection on many fronts
For many clients, including doctors and other professionals, the product has another feature that helps them breathe more easily. “The life insurance is protected from creditors and lawsuits,” he says. “If I’m sued, they can’t touch my life insurance protection or the equity inside my permanent policy.” When life brings terminal illness, many permanent insurance products can make life easier by speeding up payment. “If someone is diagnosed with a terminal illness, some insurance carriers, including the ones we use, offer riders that will pay out half of the death benefit prior to death.” And that’s tax-free, he adds. Such a benefit allows clients to enjoy their wealth even in the midst of other less enjoyable circumstances.

Permanent insurance also carries a special benefit for individuals collecting Social Security benefits, he says. “I had a 70-year-old in my conference room today, and he didn’t know this, but the values or dividends of his life policy don’t offset Social Security payments,” Bodine explains. “Even municipal-bond income offsets Social Security income.”

Also, he says, permanent life insurance provides the owner with a “freedom to live.” For instance, a client with a million dollars in cash and other investments and a million-dollar death benefit has an effective net worth of $2 million, he says. “The million-dollar death benefit is a permission slip that lets you spend the other million—principal and interest,” Bodine explains. “Whatever you spend or give away will be replaced by the death benefit.”

Liquidity is another permanent insurance benefit Bodine promotes. “You have access to your cash values for any reason” he says. And that offers leverage, perhaps for other outside investments or collateral for a loan.

Bodine says he probably has enough compelling arguments for the value of permanent insurance to fill a book. As clients and prospects understand all of these benefits, Bodine reaps the reward of increased sales.

And as other advisors better understand the benefits, they, too, will reap these rewards. And they, too, will be able to say, with confidence, “Bring ’em on.”

Dave Willis is a New Hampshire-based freelance writer and regular contributor to Advisor Today.

http://www.advisortoday.com/200701/buildingacase.html
 
Here is an excerpt of a question from a producer to a client which in my mind really cristalizes the the need and value of permanent insurance:

I usually ask my clients these questions:

If you had a money machine that printed $100,000 a year in cash, what would you insure it for?

Full article at: http://www.advisortoday.com/200609/rightpolicy.html
 
Good points, problem here is that certain people keep arguing the same points over and over and the conversation simply can't move above certain preconcieved notions.
 
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