Blog #149: New Technology That Creates Radical Opportunities

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(There are no InsMark presentations used in this blog.  It is a an informational blog only)

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Bob Ritter's blog 149 image 1 new technology that creates radical opportunities uber graphic

Companies like Uber have figured out that by using new technology, they can fundamentally improve the lives of their customers and generate incredible results.

The InsMark Estate Planning Center (“IEPC”) is new technology that can be very profitable to you because of how it changes the way that your clients set up their wills, trusts and advanced medical directives.  LegalZoom started this documents revolution a few years ago and they do offer online wills and trusts.  But, they are B2C.  In other words, they are selling direct to the consumer.  And, that means that they are only going to serve a very tiny portion of the market that has the knowledge and initiative to call LegalZoom and then ask for the legal documents they need.  Worse still, this process will involve a LegalZoom phone agent and possibly third party attorney (strangers that don’t know anything about the client or their financial circumstances much less the ability or expertise to introduce new financial products that can improve or enhance the client’s situation).

As an alternative, the InsMark Estate Planning Center’s business model is to include you as our partner in introducing, explaining, implementing and then enhancing that client’s current and future financial situation (for themselves and their families and the communities or charities close to them).  The result is that we (IEPC and you) can offer a better solution for the vast majority of people in terms of value.

And, this means that IEPC presents an incredible opportunity for you to grow your business because (a) you can sell more financial products to current clients and (b) you can substantially increase the average number of new client referrals per existing client.  On this second point about referrals, the fact is that most clients are not going to refer their friends, family members and business associates to you to talk about financial planning or to learn about a specific financial product such as an annuity.  However, those same reluctant clients will share information about the IEPC platform because IEPC is uniquely addressing a serious problem that impacts almost everyone in the middle to upper middle class.

To understand this more clearly, walk through a client scenario with me.  Tom Jackson is 65 years old.  His daughter Patti is 32 years old and has two small children (Chrissy and Bobby).  Patti is Tom’s sole heir.  Tom knows that his will is outdated.  He’s also heard that setting up a revocable living trust can be useful in protecting his daughter’s inheritance (keeping some assets in trust after his death for asset protection, maybe extending his 401k during her lifetime) but it’s a bit confusing to him.  Also, Patti’s marriage is a little rocky and she’s not the best at managing money so Tom is concerned that any money he does leave to Patti might evaporate pretty fast.  Tom also knows that 70% of Americans will need long term care at some point during their lives and that the government won’t pay this cost until and unless he drains all of his assets to virtually nothing (leaving Patti and her children with little or no inheritance).  All of this is scary and frustrating to Tom.  Even so, Tom’s busy, and he thinks that setting up these wills and trusts will be complicated, will cost thousands and thousands of dollars and then, 5 years from now, all of these documents will be an outdated mess all over again.

Welcome to the current thinking of the majority of middle and upper middle class American households.

Now, by using IEPC, Tom can eliminate these problems.  First, IEPC is easy to introduce.  You send an email to Tom where he can click on a link and go to your customized IEPC website.  Once there, he will watch a short video that explains the IEPC platform.  Tom then sets up a conference call with you and a member of our customer service team where we walk Tom through some questions and help him create his account and estate planning documents.  The net result for Tom is that IEPC is inexpensive.  It’s easy to set up.  The revocable living trust is easy to “fund” (meaning the process of making sure that the client’s assets are owned by the trust upon their death).  And, adding specialized documents such as irrevocable sub-trusts is also easy and inexpensive (i.e. protecting assets from future long term care costs, etc.).  Finally, updating any of this information (tomorrow or 10 years from now) is as easy as paying a bill online.

Once done, the simple question for Tom from the advisor is:

“Tom, we hope you’re happy with the IEPC platform.  You might consider explaining to those closest to you (family members, close friends and business partners) that you have set up your estate documents online.  Then, if something does happen to you, they will have an understanding of how you want things to proceed.  Finally, we’ve found that most people have the same concerns about their wills and trusts that you had but they just don’t talk about it.  So, when you explain what you’ve done, you may want to email a link to our IEPC website for anyone that wants to learn how this works and possibly set up their own account.  And, as I mentioned, we do still offer the Advanced Medical Directive documents for free for anyone that just wants to get those documents”.

The next day, Tom calls his daughter.

“Patti, I wanted you to know that I’ve updated my will and other estate documents and made some changes that I think will better protect you and the grandkids.  I will go over all of this with you when we’re together.  Also, I think you should consider setting up a will and advanced medical directives as well.  I know money is tight right now, but it’s not that expensive and I’m willing to pay for it so you don’t have to worry if something happens…..meaning how your assets get managed and directed for Chrissy and Bobby.  I will send you an email that has a link where you can go and watch a video about how this works”.

To learn more about the InsMark Estate Planning Center (IEPC) Platform, we have the following resources available to you:

Introduction of IEPC to the Financial Advisor (3 Minute Video)
http://introinsmark-anestateplanforyou.com/
A quick explanation on why you should consider introducing this platform to all of your personal and business clients.

Overview of the IEPC Process to the Financial Advisor (11 Minute Video)
http://introinsmark-anestateplanforyou.com/how-it-works-overview.html
A more detailed summary of the IEPC platform and client process.

Sample of the Customized Virtual Brochure Website (with Consumer Video)
http://iepcworks-anestateplanforyou.com/814715/
Here you will see a sample of the customized website we create for you that you can then provide to your customers (by sending them an email with a website link).  Once at this website, your customers simply watch a short video to understand why they should schedule a conference call with you and a member of our CMS Team.  (We also provide 12 email templates for each month of the year that you can use as a guide on how to explain IEPC to your customers.)

How to Profit Using the InsMark Estate Planning Center (IEPC) (1 Hour Webinar Recording)
https://attendee.gotowebinar.com/register/6263851052511702785
This is a recording of a webinar that we held on December 20, 2016.  If you scroll down to the section below with the title in red, you can read about all of the main topics covered during the webinar.  In addition, we explored some specific real life case examples of how financial advisors are using the IEPC platform that might be interesting to you.

Full Demonstration of the IEPC Online Platform (1 Hour Webinar Recording)
https://attendee.gotowebinar.com/recording/6800208218086142724
Here we show you the actual online platform and run through an example of how it works.  This way, you can see clearly what happens when you and your client are on the phone with a member of our CMS Team (the questions we ask, how the documents are created, etc.).

To learn more about IEPC and get your free registration and Virtual Brochure Website, contact:

Don Deasy, CLU, ChFC
Phone:  (888) 548-2887

“How To Profit Using The InsMark Estate Planning Center” Webinar
(This Webinar was held on December 20th, 2016 – see full details below)

Don Prehn and Steve Morris (CEO, Intervention Point) held a one hour webinar on December 20th, 2016.  As mentioned in the section above, you can listen to a recording of this webinar.  Simply click here to access this recording.  As you listen, you will see how easy it is to start offering this online service to your clients and prospects.  For those that get registered now, you will also have the right to offer our Advanced Medical Directive documents for FREE…..something that could be useful as a conversation starter with all of the employees of any of your business clients.

By listening to this webinar, you will discover:

  • A simple, less expensive way to have existing or new wills and trusts all online (accessible and updateable by clients and their advisors 24/7);
  • How to eliminate your client’s concerns and anxiety that their wills have not been updated or their trusts properly funded;
  • The best ways to optimize results in the client’s family and community with whatever assets they have available in their estates;
  • Free Advanced Medical Directives for ALL of your clients and prospects (great for promotions with employers/employees);
  • How to Earn (Process Related) Advisor Support Fees;
  • How IEPC presents the perfect opportunity for you to make new financial product sales as part of the document creation process;
  • Why IEPC can position you and your firm as the core advisor to help the client and family members with financial planning solutions and products now and through the generations;
  • Our simple and FREE registration process that includes a free, customized Virtual Brochure website for your agency making it very easy for you to introduce this platform to your clients (and easy for your clients to refer friends, family members and business associates to you);
  • THE COST FOR YOU TO REGISTER AND OFFER THE IEPC PLATFORM IS ZERO.

Don Prehn and Steve Morris were the presenters for the above referenced InsMark Estate Planning Center webinar.

More About Don Prehn

Don Prehn imageDon Prehn, CLU, ChFC is a past president, and current board member/senior adviser to InsMark, Inc.  As part of Don’s current advisory role with InsMark, Don heads up InsMark’s strategic partnerships where companies with financial strategies, solutions and products desire to position InsMark as a reseller of these products to InsMark’s 20,000 licensed software users (all of which are financial services advisors).  Don is also heavily involved with InsMark’s marketing communications with its licensed users.  Aside from InsMark, Don founded a finance company in 1996 which was then merged with AMRESCO (a public company based in Texas) and then ultimately sold to a Goldman Sachs led partnership in 2002.  Finally, Don is also the co-founder of Integrated Platforms (a small firm located in Boise focused on digital marketing).

More About Steve Morris

Steve Morris imageSteve Morris is CEO of Intervention Point, LLC which provides basic estate planning documents through an online "software as a service" platform that leverages new technology and regulatory changes.  Steve is also Managing Partner of mdCurrent with an International focus on healthcare and educational activities that are sustainable and measurable.  It is now India’s largest professional online channel customized to the practical clinical and business operations issues facing their doctors.  Prior to that he held senior positions at a number of International and regional media companies such as Advanstar Communications, Metro International Newspapers, Harte- Hanks, The L. A. Daily News and Denver Post.

Licensing InsMark Systems

To license any of the InsMark software products, visit our Product Center online or contact Julie Nayeri at Julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or (925) 543-0513.

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

We created the Referral Resources listed below to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice.  All are IMOs and InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software.  They will utilize your choice of insurance company, and they do not require a commission split.

Mention my name when you talk to our Referral Resources 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.

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Testimonials

“Thanks to InsMark, we recently set business goals in our firm that I basically thought were ridiculously unachievable — until now.”
Brian Langford, InsMark Platinum Power Producer®, Plano, TX

“The InsMark software is indispensable to my entire planning process because 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 is the Picasso of the financial services world — their marketing savvy never fails to amaze me.”
Doug Peete, Past President, Top of the Table, InsMark Silver Power Producer®, Overland Park, KS

“I really 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

 

Important Note:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured 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.

 

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More Recent Blogs:

Blog #148: More New Logic for Permanent vs. Term (Part 3 of 3)

Blog #147: New Logic for Permanent vs. Term (Part 2 of 3)

Blog #146: New Logic for Permanent vs. Term (Part 1 of 3)

Blog #145: The $23 Trillion Market

Blog #144: Don’t Burn the Nest Egg®

 

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive

 

Blog #148: More New Logic for Permanent vs. Term (Part 3 of 3)

(Click here for Blog Archive)
(Click here for Blog Index)

(Presentations in this blog were created using Wealthy and Wise ®.)

Getting Started with InsMark Training Video

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In Blog #146 and Blog #147, we examined several “Compared to What?” term vs. permanent illustrations for Tom Robinson, age 35, involving $601,839 of Indexed Universal Life (IUL).  The policy was illustrated at 7.00% with scheduled premiums of $20,000 a year through age 65 with significant cash developing thereafter.  It was compared to $600,000 of 30-year level term costing $525 with the difference in premiums invested in either an indexed annuity or an equity account.

“Men often oppose a thing, merely because they have had no agency in planning it, or because it may have been planned by those whom they dislike.  But if they have been consulted, and have happened to disapprove, opposition then becomes, in their estimation, an indispensable duty of self-love.” – Alexander Hamilton, Federalist No. 70

If you missed reading these two Blogs, I strongly recommend you and/or your staff review each one if competition with term insurance is something you or your associates face with clients and/or their advisers.

This Blog takes a different tack in that I included the “term vs. perm” comparison within an overall retirement analysis using our Wealthy and Wise® System (although the logic should work with most comprehensive retirement plans).

Case Study

Tom Robinson and his wife, Jodie (also age 35), are both CPAs employed by the same large accounting firm.  They have a good start toward their retirement with significant values in their 401(k)s earning 7.00%. They both plan to contribute the maximum amount of $18,000 (the 2017 maximum), and their employer matches 20%.  They have agreed we should take inflation into account when calculating future contributions, and we did so assuming 3.00% inflation.

See Blog #98 for a discussion of including monitoring fees in a retirement analysis.

Note: While 3.00% is an artificial number for the future, whatever actual inflation occurs should be reflected in your annual reviews as their plan is brought up to date.
Recommendation: Charge the Robinsons a monitoring fee for their annual review.

Tom and Jodie also plan to include the IUL noted above with its $20,000 annual premium to age 65 in the overall analysis.  In the alternative term analysis, this same $20,000 will be invested in an equity account with a growth assumption of 7.00% plus a 2.00% dividend.  I assumed the annual $20,000 is new money contributed toward their retirement.

Tom and Jodie’s current combined after tax income is $250,000 and their goal is to provide this after tax amount at retirement plus the 3.00% inflation adjustment while maintaining a reasonable level of net worth.

It is important whether the inflation goal for retirement cash flow is calculated in today’s dollars or beginning with their retirement goal of $250,000.  If today’s dollars is the benchmark for the 3.00% inflation, by the time they retire in 30 years, their first year’s after tax cash flow requirement will be $606,816 increasing yearly thereafter by 3.00%.  While they may want to work toward this goal in future years, for this analysis, we based the beginning of the inflation assumption on the $250,000 starting at age 65.  Otherwise, they would need a massive commitment of personal income to their retirement plan.  They already have committed a significant amount: a deductible $36,000 a year to their two 401(k)s and $20,000 to either the IUL or the term plus equities package.

I also kept the asset base limited to their defined contribution 401(k)s and an equity account in order to make this evaluation a little less complex for you.

Below is a summary of the results of the comparative analysis:

Summary of the Retirement Analysis
Tom and Jodie Robinson (both currently age 35)

blog 148 image 1 summary of the retirement analysis tom and jodie robinson

*Joint life expectancy plus five years.
(Joint life expectancy is the point at which at least one of the clients is alive.)

Click here for a discussion of joint life expectancy by Mike Kitces.

Click here for comments on Yield, Sequence of Returns, and Monte Carlo Simulations.

As do so many people their age, Tom and Jodie have no expectancy of ever collecting retirement benefits from Social Security, so we have ignored any entries for that category.  We have also kept the data to a minimum to make this an easier analysis to evaluate.

Below is graphical comparison of the Robinsons’ Net Worth:

Retirement Planning
Strategy 1: Term Insurance and an Equity Account
vs.
Strategy 2: Indexed Universal Life
Image 1 (Net Worth and Cash Flow Comparison)

blog 148 image 2 retirement planning term insurance and an equity account indexed universal life net worth comparison

Both Strategies produce the same desired spendable cash flow, but buying the term is a $10 million dollar (and growing) long-range mistake.  The additional net worth produced by Strategy 2 means that Tom and Jodie could realize millions more in after tax retirement cash flow by utilizing IUL.  Note that Strategy 1, the term/equity combination, is in a death spiral.

Retirement Planning
Strategy 1: Term Insurance and an Equity Account
vs.
Strategy 2: Indexed Universal Life
Image 2 (Wealth to Heirs and Cash Flow Comparison)

blog 148 image 3 retirement planning term insurance and an equity account indexed universal life wealth to heirs comparison

Heirs are better off long-range with Strategy 2 by over $9 million.

Click here to review a selection of reports from this Wealthy and Wise evaluation.  There are 4 Comparison reports, 14 reports involving the term and an equity account, and another 14 dealing with the winning permanent solution.  With any Wealthy and Wise presentation, I recommend that you have all the reports for a given analysis with you when you are visiting with a client or client’s attorney or CPA.  The system backs up every number shown, and you never know which report you’ll need to have handy to answer the inevitable question, “Where did this number come from?”  That’s why I provided all of them to you in this Blog.

Most Wealthy and Wise users select a few key illustrations for the main report and put the balance in supplemental sections or an Appendix.  More elaborate report organization can be accomplished (Table of Contents and Section pages) through use of the following prompt -- which I used for this Blog -- located on the bottom right of the Main Workbook Window:

blog 148 image 4 preview or print client presentation

Conclusion

Buy term and invest the difference?  Phooey!  In view of the “perm vs. term” evaluations in Blog #146, Blog #147, and Blog #148, you should be well-armed to eliminate the “buy term and invest the difference” argument whenever it surfaces.

“I can only wonder if another asset with the same qualities would be implemented more frequently if it wasn’t called life insurance.”1

1From an article by Bill Boersma in the December 2014 issue of Trusts & Estates entitled “Life Insurance as an Asset Class”.

 

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

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Digital Workbook Files For This Blog

Blog148.zip

Download all workbook files for all blogs

Experienced Zip File Downloaders Download the zip file, open it, and double click the Workbook file name to open it in your InsMark System.

If you obtain the digital workbook for Blog #148, click here for a guide to its content.

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Licensing InsMark Systems

To license any of the InsMark software products, visit our Product Center online or contact Julie Nayeri at Julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or (925) 543-0513.

For help on how to use InsMark software, go to The Quickest Way To Learn InsMark.

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

We created the Referral Resources listed below to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice.  All are IMOs and InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software.  They will utilize your choice of insurance company, and they do not require a commission split.

Mention my name when you talk to our Referral Resources 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!

Testimonials

“InsMark has created without question the best suite of software for our industry that has ever existed. I personally have been using their software for almost 30 years, and it changed my career. This unique and user friendly software will add many thousands to your income for as long as you’re in business. InsMark makes me look good, and it will you as well.”
Simon Singer, CFP®, CAP®, RFC®, Past President International Forum, InsMark Platinum Power Producer®, Encino, CA

“If you don’t get the client to distinguish cash flow from net worth, you won’t make the case sale.  In my experience, Wealthy and Wise is the only system that recognizes this important estate planning component.”
Stephen Rothschild, CLU, ChFC, CRC, RFC, International Forum Member, Saint Louis, MO

“InsMark helps us help our clients understand their money and their choices.  I always learn something new that changes what we do and how we can do it more efficiently.  That translates to a better bottom line for us and for our clients.  It’s making more money for everyone -- just by pushing InsMark buttons on the computer.”
Kay Corbin, CLU, ChFC, InsMark Platinum Power Producer®, Phoenix, AZ

“Major cases we are developing have all moved along successfully because of the sublime simplicity and communication capability of Wealthy and Wise.  I guarantee that the proper use of this tool will dramatically raise the professional and personal self-image of any associate who dares to take the time to understand it . . .”
Phillip Barnhill, CLU, InsMark Gold Power Producer®, Minneapolis, MN

 

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

Important Note #2:  Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner.  Click here to read Blog #51: Avoiding the Tax Bomb in Life Insurance.

Important Note #3:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured 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.

“InsMark” and “Wealthy and Wise” are registered trademarks of InsMark, Inc.

 

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More Recent Blogs:

Blog #147: New Logic for Permanent vs. Term (Part 2 of 3)

Blog #146: New Logic for Permanent vs. Term (Part 1 of 3)

Blog #145: The $23 Trillion Market

Blog #144: Don’t Burn the Nest Egg®

Blog #143: Premium Financing Opportunities In The Small Case Market

 

3 Reasons Why It’s Profitable For You To Share These
Blog Posts With Your Business Associates and
Professional Study Groups (i.e. “LinkedIn”)

 

Robert B. Ritter, Jr. Blog Archive

 

Blog #147: New Logic for Permanent vs. Term (Part 2 of 3)

(Click here for Blog Archive)
(Click here for Blog Index)

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

Getting Started with InsMark Training Video

Bob Ritter's blog #146 image-1 new logic for permanent vs term part 1 of 3

Lion all mine image
Zero-Split-Case-Premium-Financing-click-here-to-receive-more-information
spacer image

In Blog #146, we examined a “Compared to What?” illustration for Tom Robinson, age 35, involving $601,839 of Indexed Universal Life (IUL) at 7.00% with scheduled premiums of $20,000 a year through age 65.

The comparison involved $600,000 of level 30-year term with a premium of $525 coupled with a tax deferred account (think indexed annuity) at the same 7.00% as the IUL.  Premiums for the indexed annuity were $19,475 which, when added to the $525 for the term, totaled the same $20,000 as the premiums for the IUL.  Tom is in a 35% federal and state, marginal, income tax bracket.

At retirement age 65 (as the 30-year term insurance expires), Tom is scheduled to make a participating loan of $1,483,951 on the IUL which, when matched with a withdrawal from the indexed annuity, causes the complete termination of the annuity.  The IUL is left with sufficient cash value to generate $2,900,000 in further retirement cash flow plus remaining cash value of $1,336,676 at the end of the analysis.  The IUL is the clear “winner” – it’s not even close.

When “buy term and invest the difference” is examined mathematically rather than conversationally, it typically is revealed as a delusion.  To quote G.K. Chesterton who some believe to be the greatest thinker and writer of the 20th century, “Fallacies do not cease to be fallacies because they become fashions.”

Case Study (Equity Account)

Let’s examine what would happen if we used an equity account instead of an indexed annuity as the alternative.  The goal is to produce the identical amount of free cash from the IUL at age 65 that would exist if the equity account is surrendered.  The amount of free cash from either financial instrument is identical – with continuing cash value remaining in the IUL.

The equity account assumptions are:

  7.00% Growth
  2.00% Dividend1
25.00% Cap Gains tax rate
65.00% Long-term portion of Cap Gains
25.00% Dividend tax rate
35.00% Income tax rate
  1.00% Management fee
15.00% Portfolio turnover2

When you measure the items that retard the growth of an equity account compared to IUL, the equity account typically does not stand a chance of competing.

1The indexes available for IUL generally don’t credit a dividend.  The current S&P 500 dividend yield is about 2.00%.  So to be fair, I included a 2.00% dividend for a gross yield of 9.00%, 200 basis points greater than the IUL interest rate assumption of 7.00%.

2index fund assumed.

As with the indexed annuity, annual deposits to the equity account are $19,475 which, when added to the $525 for the term insurance, total the same $20,000 as the premium for the IUL.  I scheduled a participating loan of $1,643,952 on the IUL to match the value of the equity account if cashed out.

The IUL is left with sufficient cash value to generate $83,605 in participating loans for 29 years which by Tom’s age 95 would total $2,424,545 in after tax retirement cash flow plus remaining cash value of $1,661,963 at the end of the analysis.  Again, the IUL is the clear “winner” by a huge margin.

Cash Flow Summary

  • The equity account produces $1,643,952 in after tax funds at age 65.
  • The IUL produces the same $1,643,952 in after tax funds at age 65 plus $2,424,545 in subsequent cash flow plus residual cash values of $1,661,963 at age 95.

Below is a graphic of the comparison:

Term Insurance and an Equity Account
vs.
Indexed Universal Life
Image 1

blog 147 image 1 term insurance and an equity account vs indexed universal life

Click here to review this comparative illustration from the InsMark Illustration System produced by the Permanent vs. Term module on the Personal Insurance tab.

The key illustration numbers are on Pages 2 and 3 of 12.  Equally important are the four pages that follow which detail the equity account’s values.  Bear down on these four pages to be sure you follow the tax implications of the equity account.

As you can see on Page 8 of 12, the equity account would need a growth rate of 10.05% – plus the 2.00% dividend – for a total yield of 12.05% to match the results of the IUL (505 basis points more as than the IUL at 7.00%).

The graphics starting on Page 9 of 12 are particularly informative.

An Alternative

If Tom were to retain the $1,643,952 in the IUL at age 65 rather than distribute it by loan to match the cash out value of the equity account, his annual after tax retirement cash flow could increase to $204,044 through his age 95 (and continue thereafter should he live longer), a rather amazing result.  This would, of course, mean the equity account would survive at age 65 to match the after tax cash flow of $204,044 from the IUL, but it could do so for only 10 years, followed by $122,656 for one year, at which point it would be depleted.

Cash Flow Summary

  • The equity account produces $2,163,096 in after tax cash flow from age 65 to 75.
  • The IUL produces the same $6,121,320 in after tax cash flow from age 65 to 95 plus residual cash values of $991,541 at age 95.

Below is a graphic of this comparison:

Term Insurance and an Equity Account
vs.
Indexed Universal Life
Image 2

blog 147 image 2 term insurance and an equity account vs indexed universal life

Click here to review this comparative illustration from the InsMark Illustration System produced by the Permanent vs. Term module on the Personal Insurance tab.

Note:  Many financial experts believe that income tax rates will have to at least double to deal with the consequences of out-of-control entitlements and the lurking menace of major increases in interest rates on federal debt.  Although the election of Donald Trump likely delays this from happening in the short term, it appears to be ultimately inevitable.  Tom’s IUL would be unaffected by increases in federal taxes while the equity account would be further diminished.

A Final Thought from Dave Ramsey and Suze Orman

There is one remaining criticism from these two that bears review: “The surrender charges are horrendous with IUL.”

While not particularly critical to a serious buyer since it is the accumulation value that gets the credited index rate, this objection should scare off the non-serious buyer.  On the other hand, there is an alternative.  Most issuers of IUL have an option that waives most of the early surrender charges.

For example, in the illustration just above, if I select that option, the resulting first year cash value increases from $4,897 to $17,360 (86.80% of the $20,000 premium) – but by year 30, it slips from $2,047,278 to $1,933,422, a drop of $113,850.  As a result the policy can support only $198,632 of continuing after tax cash flow instead of $204,044.  So there is a small, long-range price to pay of $162,360 in reduced after tax cash flow by selecting the high early cash value option.  To some it may be worthwhile; to others, an unnecessary reduction.

Click here to review the results of this high early cash value option.  As you can see on Page 8 of 12, the equity account would need a growth rate of 9.52% – plus the 2.00% dividend – for a total yield of 11.52% to match the results of the IUL (452 basis points more than the IUL at 7.00%).

Conclusion

The next time you run into a prospect or an adviser that raises the “invest the difference” argument, ask this question: “If something you believe to be true turns out to be wrong, when would you want to know about it?”

This almost always generates this response, “What do you mean?”

Respond with, “I need fifteen minutes to show you.  When can we do that?”

Sales suggestion:  Always bring a comparison to term and invest the difference with you to any interview – even if you think you won’t need it.  You may not need it, but is it ever valuable if you do.  You never know when this issue will surface.  Imagine an interview where your prospect (or his attorney or CPA who happens to be present) brings this up just as you are ready to close the sale.  The comparative analysis requires a demonstration of the math involved, and it is difficult to do it without the proof of the numbers.  So have several of them with you.

Click here for some information about preparing this illustration that will be helpful if you want to duplicate it.  (Downloading the digital workbook file for Blog #147 below will also be useful as you can see the precise keystrokes I used in the InsMark Illustration System to prepare the illustration.)

More on the Subject

In Blog #148: New Logic for Permanent vs. Term (Part 3), I’ll examine permanent vs. term in the context of a comprehensive Wealthy and Wise® evaluation comparing retirement cash flow, net worth, and wealth to heirs.

 

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

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Digital Workbook Files For This Blog

Blog147.zip

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Experienced Zip File Downloaders Download the zip file, open it, and double click the Workbook file name to open it in your InsMark System.

If you obtain the digital workbook for Blog #147, click here for a Guide to each of the illustrations.

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Licensing InsMark Systems

To license any of the InsMark software products, visit our Product Center online or contact Julie Nayeri at Julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or (925) 543-0513.

For help on how to use InsMark software, go to The Quickest Way To Learn InsMark.

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

We created the Referral Resources listed below to deliver a “do-it-for-me” illustration service in a way that makes sense for your practice.  All are IMOs and InsMark Agency Platinum Power Producers®, and they are highly skilled at running InsMark software.  They will utilize your choice of insurance company, and they do not require a commission split.

Mention my name when you talk to our Referral Resources 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.

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Testimonials

“The InsMark software is indispensable to my entire planning process because 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

“The reason I use InsMark products is because 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

“InsMark’s Checkmate® Selling strategy is still one of the most compelling tools to bring a client to a definitive decision, based on their best case alternatives!!!  Solid mathematical comparisons that prove the validity of our insurance solution!!!”
Frank Dunaway, III, CLU, Legacy Advisory Services, Carthage, MO

 

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

Important Note #2:  Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner.  Click here to read Blog #51: Avoiding the Tax Bomb in Life Insurance.

Important Note #3:  The information in this Blog is for educational purposes only.  In all cases, the approval of a client’s legal and tax advisers must be secured 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.

“InsMark” and “Wealthy and Wise” are registered trademarks of InsMark, Inc.

 

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More Recent Blogs:

Blog #146: New Logic for Permanent vs. Term (Part 1 of 3)

Blog #145: The $23 Trillion Market

Blog #144: Don’t Burn the Nest Egg®

Blog #143: Premium Financing Opportunities In The Small Case Market

Blog #142: Increased Taxes Are Coming

 

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Robert B. Ritter, Jr. Blog Archive