The Next Step: Successfully Graduating to Life Insurance Advanced Markets

By Shuntich

Finally, a single, easily readable source from soup to nuts telling you why and how to get into advanced markets. Learn in one reading what it would take you years to figure out on your own.There is definitely an absolute limit on the number of policy applications that can be taken in a given period of time. Once that limit is reached, the only way to increase your income is to sell larger policies...this is, go into advanced markets.This book offers a step-by-step approach to graduating to advanced markets.Gain an understanding of the three principal areas of advanced marketing Estate Conservation, Business Exit Strategies, and Executive Compensation and the marketing opportunities they present.Review a series of short capsule case studies ranging from the simpler to the more complex, enabling you to recognize the specific fact patterns in which these sales opportunities arise.Learn how to prospect, prepare, and present proposals in advanced markets.Study a broad-based case study, showing you how to pull various advanced marketing concepts and sales opportunities together to deal with your prospects situations in a comprehensive manner.Also included are a chapter on how to network and deal with successfully with accountants and lawyers and a chapter on risk awareness to help you understand the problems that can occur to those who are careless or overly aggressive in the marketing efforts.

• Language: English
• Publisher: The National Underwriter Company
• Release date: Dec 19, 2012
• ISBN: 9781938130373

Book preview

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. – From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.

Circular 230 Notice – The content in this publication is not intended or written to be used, and it cannot be used, for the purposes of avoiding U.S. tax penalties.

ISBN 978-1-938130-37-3

1st Edition

Copyright © 2008

The National Underwriter Company

P.O. Box 14367, Cincinnati, Ohio 45250-0367

All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the publisher.

Printed in U. S. A.

Dedication

This book is dedicated to my mother-in-law, Nancy Y. Schmoe, and my late father-in-law, Charles W. Schmoe.

About the Author

Louis S. Shuntich is an author and consultant who served in the Law Department of a major life insurance company for 26 years, where he specialized in business insurance, estate planning, and compensation planning. He received his B.S. cum laude from Rider University, his J.D. from The College of William and Mary, and his LL.M. (in Taxation) from New York University. He is an Associate Editor of the Journal of Financial Service Professionals, was a member of the Association for Advanced Life Underwriting Business Insurance and Estate Planning Committee, was Chairman of the American Council of Life Insurance Split Dollar Task Force, and served on the Life Underwriter Training Council’s Content and Techniques Committee. He is a member of the Speakers Bureau of the Society of Financial Service Professionals and the Speakers Bureau of the National Association of Estate Planners and Councils. He has also appeared on the CNBC Power Lunch and Health and Lifestyles programs answering questions about retirement and estate planning. He is a Certified Retirement Counselor. He has been licensed for life, health, variable annuities, and Series 6 and 63.

Acknowledgment

I thank my friend and colleague, Dennis M. Axman, CFP, CLU, ChFC, AEP, for sharing with me his insights and wealth of experience in the advanced markets from 36 years in the business as a personal producer, trainer, and agency manager.

Table of Contents

Dedication

About the Author

Acknowledgment

Foreword

Chapter 1: What Is Advanced Marketing? Why and How Should You Get Involved?

The Target Market

Advanced Marketing Is a Relative Term

Why Be Interested in Advanced Marketing?

Major Current Trends

Candidates for Advanced Marketing

How to Prepare for the Advanced Markets

The Ethics of Commission Sharing

Chapter 2: Non-Tax Personal Planning

General

Heads Up! – Putting Things in Perspective

Other Resources

Chapter 3: Estate Conservation From A Tax Perspective

Tax Considerations

The Five Levels of Estate Conservation

Level 1 NonGift Strategies

Level 2 Estate Tax Saving Through Gifts

Level 3 Gifts at a Discount

Level 4 Estate Liquidity Through Life Insurance

Level 5 Premium Finance

Dealing with the Uncertainty of Transfer Tax Reform

Servicing an Irrevocable Life Insurance Trust (ILIT)

Other Resources

Chapter 4: Creditor Protection

Role in Estate Conservation

Basic Nontrust Creditor Protection Techniques

Creditor Protection for Inheritances Using Trusts

Creditor Protection for Life Insurance and Annuities

Planning for Children with Special Needs

Other Resources

Chapter 5: Estate Conservation Strategies For Resident and Nonresident Aliens

The Determination of Domicile

Transfer Taxation of Resident Aliens

Transfer Taxation of Nonresident Aliens

Qualified Domestic Trust (QDOT)

Life Insurance Planning

Other Resources

Chapter 6: Charitable Giving

Marketing Opportunities

Income Tax Deductions for Charitable Gifts

Charitable Giving Techniques

Other Resources

Chapter 7: Estate Conservation Capsule Case Studies

Case Study #7-1 Non-Tax Personal Planning

Case Study #7-2 Estate Conservation without Gifts

Case Study #7-3 Estate Conservation without Gifts

Case Study #7-4 Estate Conservation with Gifts

Case Study #7-5 Estate Conservation with Gifts

Case Study #7-6 Estate Conservation with Gifts

Case Study #7-7 Tax Planning with a Credit Shelter Trust

Case Study #7-8 Estate Conservation with a Stand-By Trust

Case Study #7-9 Estate Conservation with a Dynasty Trust

Chapter 8: Business Exit Strategies

Types of Business Forms

The Consequences of Failing to Have a Business Exit Strategy

Creating an Exit Planning Team

Identifying Stakeholders

Possible Exit Options

The Role of Life Insurance

Other Resources

Chapter 9: Business Buy and Sell Agreements

Introduction

Contractual Terms

Desired Objectives

Establishing the Estate Tax Value of a Business Interest

Selecting Insurance

Disability Buyouts

Sole Proprietorship

Partnership

C Corporation

S Corporation

Limited Liability Company (LLC)

Other Resources

Chapter 10: Business Exit Strategies Capsule Case Studies

Transferring the Family Business at Death Through a Will

Case Study #10-1

Transferring the Family Business at Death Through a Buy and Sell Agreement

Case Study #10-2 Sole Proprietor

Case Study #10-3 Partnership

Case Study #10-4 C Corporation

Case Study #10-5 S Corporation

Case Study #10-6 IRC Section 303 Redemption

Transferring a Family Business During Life

Case Study #10-7 Direct Gifts

Case Study #10-8 Gifts in Trust - GRAT and GRUT

Case Study #10-9 Installment Sale

Case Study #10-10 SCIN

Case Study #10-11 Sale to an Intentionally Defective Grantor Trust

Chapter 11: Executive Compensation

Executive Bonus

Restricted Bonus Plans

Group Term Carve-out

Split Dollar Life Insurance

Nonqualified Deferred Compensation for Private Sector Employers

Government and Nonprofit IRC Section 457 Plans

Other Resources

Chapter 12: Executive Compensation Capsule Case Studies

Case Study #12-1 Executive Bonus 162 Plans

Case Study #12-2 Restricted Executive Bonus Plan

Case Study #12-3 Private Sector Nonqualified Deferred Compensation Plans

Case Study #12-4 Split Dollar Life Insurance

Case Study #12-5 IRC Section 457(f) Nonqualified Deferred Compensation

Case Study #12-6 Split Dollar/Deferred Compensation

Case Study #12-7 Group Term Carve-Out

Chapter 13: Advanced Marketing Proposal

How to Prepare an Advanced Marketing Proposal

What are the Elements of the Process for Developing Advanced Marketing Proposals?

Presenting a Proposal to the Prospect

Other Resources

Chapter 14: Comprehensive Case Study

Factual Situation

Step 1 Fact Gathering

Step 2 Identify and Prioritize Objectives

Step 3 Consider Influential Factors

Step 4 Matching the Appropriate Estate Conservation Solutions to the Client’s Problems

Chapter 15: Possible Penalties and Liabilities Applying to Purchasers of Life Insurance and Their Insurance Advisors

Introduction

Legal Opinions and State Law

Other Resources

Chapter 16: Prospecting The Advanced Markets

Prospecting

Developing Relationships With Lawyers

Developing Relationships with CPAs

Appendix A: Gift and Estate Tax Tables

Glossary

Foreword

The first question you should be asking is: Why you should read this book on advanced marketing that is written by a lawyer? The reason is simple. I was the lawyer for literally thousands of agents who sold successfully in the advanced markets. Consequently, this book is a reflection of what I learned during that exposure about the subject matter of advanced marketing and the style and methodology of the top-producing agents who operate successfully in those markets. Further, years of speaking and writing about advanced marketing subjects, along with leadership roles in national industry associations, has placed me in a position to be an advisor to those seeking to enter this market. Moreover, I have become licensed as an agent and have the experience of working directly with other agents and their clients on a consulting basis on advanced marketing cases.

The second question is: Why this book? The answer is that for over 30 years I have seen marketing and training materials as bits and pieces of the puzzle we call advanced marketing. Yet, in all of those years, I have never seen anyone pull it altogether in a single easily readable source that from soup to nuts tells you why and how to get into the advanced markets. That is what this book does.

Essentially, you will learn in one reading what it would take you years to figure out on your own in terms of how to prospect, prepare, and make sales presentations to clients and their other professional advisors. This includes learning how to develop and convey your own sense of professionalism to clients and their professional advisors. This is essential to your being perceived as a credible resource for products and advice in the more sophisticated markets for life insurance.

In closing, you should know that at the end of World War II our government did a study of the most successful generals on both sides of the conflict with a view to identifying the prototype military leader. What they learned for all their efforts was that there is no such person. Rather, those who were studied revealed that they had diverse personalities, but certain common traits and skills that made for success. Accordingly, besides presenting a great deal of conceptual knowledge about the subject matter of advanced marketing, I have sought to identify and convey an understanding of the traits and skills of those who are most successful in this business. My suggestion is that you take this information and adapt it to your own style and personality as a path to success.

Chapter 1: What Is Advanced Marketing? Why and How Should You Get Involved?

The Target Market

This book is directed to those life insurance producers that have proven themselves to be survivors in the business and who are ready to take the next step to advance their careers by engaging in advanced marketing. Generally, that includes producers who have been in the business for a few years or more and who are making a regular income, but not seeing significant growth in their earnings potential. In effect, it covers those who are working hard and making a living, but hitting a wall in terms of getting ahead.

Consequently, the purpose of this book is to show how to get over that wall to the better income and quality of life that is available through advanced marketing. That will be done by covering advanced marketing concepts in the areas of Estate Conservation, Business Exit Strategies, and Executive Compensation with an explanation of how to prospect, prepare, and present proposals in those markets. In addition, you will learn how to network and deal with other professionals, while understanding the risks associated with being careless or too aggressive in this market.

Advanced Marketing Is a Relative Term

You should begin this endeavor by understanding that advanced marketing is not restricted to high tax bracket individuals and large businesses that may be beyond your reach, at this point of your career. That is because advanced marketing is a relative term and covers a broad spectrum of socio-economic prospects.

For example, whether a buy and sell agreement is for a $50,000 Mom and Pop grocery or a $5,000,000 closely held corporation, you are dealing with the same conceptual problem – a need to plan for changes in ownership upon the retirement, death, or disability of the principals. This means that you can begin modestly in applying the concepts and, in time, work your way up to a more sophisticated and increasingly profitable customer base without getting overwhelmed from the start.

In addition, the subject matter is manageable in that there are only three primary areas of concentration to the advanced markets. They are estate conservation, business exit strategies, and executive compensation. You do not have to master all of these subjects, since no one does, but the variety of opportunities gives you the choice of finding the areas that suit your background, interests, and talents.

Why Be Interested in Advanced Marketing?

In regard to the question of why you should be interested in pursuing a career in the advanced markets, the first reason is that you can achieve a higher level of income. On this point, keep in mind that there is an absolute limit on the number of policy applications that an agent can take in a given period of time. Once that limit is reached, the only way to increase your income is to sell larger policies, and that means going into the advanced markets.

This enlightenment came to an agent I know as he stood outside of a car wash waiting for his car to be finished. He knew that he was working as hard as he could and making a living, but not getting ahead. Suddenly, he realized that if he could not sell more policies, then he would have to sell larger policies to get where he wanted to be. Not only that, but as he watched car after car come out of the car wash at $15 to 20 a piece, he knew that the owner of the car wash had money and was the kind of prospect, along with other business owners up and down the street, that he needed to pursue to meet his goals – and he did.

Another extremely important reason for entering the advanced markets is to improve the quality of your life. In that respect, you can choose to spend your career sitting around your customers’ kitchen tables at 8:00 o’clock at night and on weekends selling small policies. If that is what you want, it’s fine to do so, since people do need that kind of service and you can make a living.

But if you would rather work the daylight hours from Monday through Friday and see constant career growth, with a greater sense of personal satisfaction and professional accomplishment, you need to pursue the advanced markets. Further, the advanced markets provide not only larger policies, but also better retention rates. This is because the focus is on needs based selling, as opposed to product or pitch selling, and better-educated customers, who understand the need that a policy addresses, are more likely to keep it.

An excellent example of this comes from an agent I know who asks his customers to tell him why they are buying policies before he will deliver them. If a customer cannot clearly explain why they bought the policy, he will not give it to them and he is not kidding. His reasoning is simply that if they do not know why they bought the policy, they will not keep paying the premiums.

Major Current Trends

It is well known that a dramatic increase is developing in the number of senior citizens in our population and the advanced markets typically involve these older customers. They require more service, but as previously mentioned, generate renewal commissions that are much higher than what you will receive on comparable policies sold to younger prospects. Further, the greatest transfer of wealth in the history of our nation is taking place between the baby boomers and their parents, as the older generation dies off. Since this will require a tremendous need for financial products and professional services to deal with estate taxes and other problems, you need to be in the advanced markets to take advantage of the opportunities.

In that regard, lawyers have historically acted as the central figure in planning and executing clients’ business and personal planning. The current trend, however, is for individuals from the financial services industry to act as coordinators with other professionals such as the lawyer, accountant, banker, and securities broker in creating and effectuating such plans. Besides contributing to design elements of the plans from the insurance and financial side, they help coordinate the activities of the other professionals and seek to maintain the momentum of the planning process toward completion. The bottom line is that this means the life insurance agent may have more influence over the situation with a greater certainty that it will come to fruition.

Another feature of the advanced markets is that it involves the seeming endless process of tax reform. To your customers it may be frustrating, but I know from long experience that those who take advantage of tax saving opportunities while they are available come out better than those who do not. From your perspective, while it is a challenge to keep up with the changes, change is your best friend because it constantly creates potential new prospects and keeps giving you reasons to revisit your existing clients for new sales opportunities.

Candidates for Advanced Marketing

Even new agents should seek from the very beginning to acquire advanced marketing skills. That is because what you become is very much affected by what you see yourself as being. If you think of yourself as a professional who will grow and develop during your career, you will be more likely to do so. Further, the higher you aim, the higher you are probably going to hit. An ambitious attitude will help to avoid developing a sense of complacency that can retard career growth.

In any case, intermediate agents are the ones who possess the greatest potential for moving into the advanced markets and dramatically improving their performance. This is because they are in a position to capitalize on what they have already built to move up. In doing this, however, they need to keep up their regular efforts to make a living while they work their way into the advanced markets. This is because it is a process that, as will be explained, takes time and one cannot drop his or her regular efforts to go elephant hunting and expect to survive.

How to Prepare for the Advanced Markets

The most successful approach to the advanced markets requires