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by Victor Ngai and Bryan Davis on Feb 15, 2018 9:00:00 AM

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Dig Deep and Wide for Greater Business-Sales Success

During the discovery process with your clients and prospects, make an effort to dig more deeply and get more data. The information you get can be revealing directly and indirectly and is the cornerstone for addressing your clients’ concerns and issues. You will also find out that selling insurance is easier and more productive when you ask more questions.

 

Dig Deep and Wide for Greater Business-Sales Success By Victor Ngai and Bryan Davis

 

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By spending more time with your business clients and asking them more questions, you will be in a better position to address their financial issues and concerns—and eventually make more sales.

 

One of our roles as advanced markets consultants is to help our insurance producers—captive agents and independent brokers—analyze their prospects’ and clients’ situations. With the data the producers collect, we help them determine a course of action to address those situations.

 

These issues tend to be more complicated because the typical prospects and clients we see are business owners, high-income professionals and high-net-worth individuals and families who need help in sophisticated planning areas (e.g., estate, business and tax planning). In general, deeper fact finding is required when there is greater complexity. Yet, we often find that producers miss important information, don’t dig deeply enough or don’t explore widely enough during the discovery process with their clients and prospects. Not having the right data can prevent producers from providing comprehensive solutions to their clients and increasing their insurance sales. A couple of examples might best illustrate this.

 

Pay Attention To The Business' Entity And Tax Structure

We often hear the word "partner" with regard to co-owners of a business. Yet the word "partner" has a very specific meaning in business planning. A "partner" is an owner of a partnership. Similarly, "shareholders" are owners of corporations; and "members" are owners of limited liability companies. When we ask for the type of business entity, the answer we get is often: "I don’t know" or "I didn’t ask." Equally important is the tax structure of the business. A business could be a C corporation or one of the pass-through entities; i.e., an S corporation, a partnership or an LLC taxed as either a partnership or an S corporation.

The entity and the tax structure guide the appropriate design of a buy-sell arrangement, particularly if there are issues involving unequal ownership interests, age disparity, insurability and optimizing basis for remaining owners. They also impact planning for triggering events that the clients may be the most concerned about, such as death, disability, retirement or a third-party sale. Only after the buy-sell arrangement has been designed can we talk confidently about life and disability buyout insurance funding.

 

Explore the Many Benefits of Whole Life

Producers often sell term life insurance to fund a buy-sell agreement. However, issues learned about a business owner outside the business, such as a potential estate-tax exposure, continuing income obligations, minor children, special-needs situations, retirement-income needs or divorce obligations, may lead the product discussion down a different path. While term life insurance is usually the easier sale, permanent life insurance may be the better solution because the insurance can always be repurposed for other business purposes or for personal use if it is no longer required for buy-sell purposes. In addition, the policy’s cash-value buildup can be used to help fund buy-sells that are triggered by a lifetime event, such as a disability or retirement.

 

Whole life policies can also be repurposed for supplemental retirement savings or for college-education funding. The permanent life insurance policy may solve more issues, particularly if business dollars can be used for premium payments. The entity and tax structure may also impact the ability to transfer policies out of the business favorably.

 

Pivot Into the Executive Benefits Space

Knowing the business entity and tax structure also allows for an easier pivot into the executive-benefits space. Many nonqualified executive benefits are informally funded with permanent life insurance. However, whether the business entity is a C corporation or a pass-through entity may impact whether or not the strategy may be effectively used with a business owner who inevitably wants what she gives to her employees.

In estate-planning situations, fact-finding is critical as well. Too often, the focus is only on estate taxes, but with the federal estate-tax exemption currently at $5.49M per person, estate-tax liquidity insurance sales have been severely reduced. Once it is discovered that net worth isn’t likely to yield a federal estate-tax issue, producers rarely consider selling life insurance for estate planning.

 

But the following items should be noted:

  1. The high federal exemption is the result of Republican influence, but Democrats want a lower exemption and will eventually regain influence.
  2. Many states still have their own estate and/or inheritance taxes that require liquidity solutions.
  3. The potential repeal of estate taxes would probably still leave an income tax/capital gains liquidity dilemma based upon President Trump’s proposals.
  4. Life insurance is the "permission slip" that many clients require to enjoy their wealth while making sure that they can leave an inheritance to their children through the death benefit.
  5. Life insurance can be an estate equalizer if it is difficult to divide assets evenly.
  6. The most important reason is legacy. Producers worry about estate taxes but rarely talk to their prospects and clients about the legacy that they want to leave to their families and communities. What better way to leave a significant legacy than through life insurance death proceeds? It’s time to change the narrative from estate taxes to what clients may want to see for their families and communities when they’re gone.

 

During the discovery process with your clients and prospects, make an effort to dig more deeply and get more data. The information you get can be revealing directly and indirectly and is the cornerstone for addressing your clients’ concerns and issues. You will also find out that selling insurance is easier and more productive when you ask more questions. 

 

Victor Ngai is Assistant Vice President and Bryan Davis is Senior Consultant at The Guardian Life Insurance Company of America, New York.

 

This article appeared in Advisor Today.

 

Topics: Sales