Blog #127: Leveraged Executive Bonus Plan with
Bank-Funding of the Income Tax (Part 1 of 3)

(Updated March 7, 2016)

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

(Presentations in this blog were created using the Premium Financing System and Wealthy and Wise®.)

Getting Started with InsMark Training Video

spacer image

blog-127-img-a-Leveraged-Executive-Bonus-Plan-with-Bank-Funding-of-the-Income-Tax

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

Alex and Ana Demas are both age 40.  He is the executive vice president of Hawthorne Construction, Inc., a family-based company.  Alex is not currently a shareholder in the firm.  Ana is a CPA.

Hawthorne Construction has decided that part of his new benefit plan will include a leveraged executive bonus plan funded with $2,875,000 of indexed universal life (IUL).  The policy is max-funded with five level premiums of $100,000 funded with deductible bonuses by the company paid to Alex.  Alex will offset the resulting income tax liability on each bonus by way of a bank loan secured against the IUL.

There is more than sufficient cash value in the early years of the IUL to allow Alex to accrue the loan interest with the bank rather than pay it out-of-pocket.  Including accrued loan interest, the cumulative loan never exceeds 50% of the policy’s illustrated cash surrender value during the first 10 policy years making it a relatively easy bank loan to negotiate.  Alex intends to use a participating policy loan at the beginning of year 11 to repay the bank loan.

Click here for a discussion of fixed vs. participating loans.

Using the bank loan to fund the income tax eliminates the need for a more expensive variation of an executive bonus plan in which the company “grosses up” the annual bonus to provide the funds for the premiums and the income tax on the bonus.

The goal of the compensation package is to induce Alex to remain with the company for at least 10 years — and, optimistically, until retirement.

Below is a graphic of the results:

Image 1
Costs and Benefits of
Income Tax Financing of the
Leveraged Executive Bonus Plan

blog-127-img-1-Costs-and-Benefits-of-Income-Tax-Financing-of-the-Leveraged-Executive-Bonus-Plan

1For retirement cash flow.

2The cumulative loan due the bank is repaid in year 11 by way of a policy loan.

This is an impressive executive benefit!  No out-of-pocket cost for Alex coupled with $4.8 million in after tax retirement cash flow, and all provided by Hawthorne Construction for an after tax cost of $65,000 a year for five years.

Click here to review this leveraged executive bonus plan from the InsMark Premium Financing System.  (Pages 8 and 9 show the Summary numbers.)

Alex and Ana’s Retirement Plan

The leveraged executive bonus plan provides a significant benefit for Alex and his family; however, its value can be most appreciated if it is integrated into their overall retirement plan.

Starting at age 65, Alex and Ana’s current retirement goal is to provide $200,000 a year in after tax, spendable cash flow with a 3.00% inflation adjustment.

Below is a summary of their current net worth:

Net Worth
Alex and Ana Demas

blog-127-img-table-1-Net-Worth-Alex-and-Ana-Demas

Click here for comments on Monte Carlo simulations.

Let’s first compare their current retirement plan (Strategy 1) with Strategy 2, a variation that includes values from Alex’s leveraged executive bonus plan described above.

Image 2
Net Worth Comparison
(Strategy 1 vs. Strategy 2)

blog-127-img-2-Net-Worth-Comparison-Strategy-1-vs-Strategy-2

The bonus plan increases their long-range net worth by almost 250% while maintaining their desired retirement cash flow.  There are no additional out-of-pocket costs required from Alex and Ana.

Click here for instructions on importing data from our Premium Financing System into Wealthy and Wise.

Let’s next add a Roth conversion (Strategy 3) into the mix producing the following result:

Image 3
Net Worth Comparison
(Strategy 1 vs. Strategy 3)

blog-127-img-3-Net-Worth-Comparison-Strategy-1-vs-Strategy-3

The long-range net worth has increased over Strategy 1 by slightly over 500%.

We converted the Roth in $50,000 annual increments and withdrew the resulting income tax from their asset base (which is reflected in their net worth) — so again there are no additional out-of-pocket costs required from Alex and Ana.

Below is the comparison of all three Strategies:

Image 4
Net Worth Comparison
(Strategy 1 vs. Strategy 2 vs. Strategy 3)

blog-127-img-4-Net-Worth-Comparison-Strategy-1-vs-Strategy-2-vs-Strategy-3

Wealth to heirs is also significantly impacted by Strategies 2 and 3.

Image 5
Wealth to Heirs Comparison
(Strategy 1 vs. Strategy 2 vs. Strategy 3

blog-127-img-5-Wealth-to-Heirs-Comparison-Strategy-1-vs-Strategy-2-vs-Strategy-3

Note:  Another reason to convert to a Roth is the impact of inherited Roth values for heirs.  In the forthcoming Blog #129 (Part 3 of this series), I’ll discuss how this will impact Alex and Ana’s daughter, Lexie.

The large increase in Alex and Ana’s net worth raises an inevitable question:  How about less net worth and more tax free, retirement cash flow?  Below are the results of Strategy 4 if we increase Alex and Ana’s retirement cash flow by 50% (up by $100,000 a year also indexed by 3.00%).

Image 6
Net Worth Comparison
(Strategy 2 vs. Strategy 3 vs. Strategy 4)

blog-127-img-6-Net-Worth-Comparison-Strategy-2-vs-Strategy-3-vs-Strategy-4

Note:  We deliberately dropped Strategy 1 (Current Plan) as it is the least efficient plan.  To review its results, see Images 4 and 5.

Below is the wealth to heirs analysis:

Image 7
Wealth to Heirs Comparison
(Strategy 2 vs. Strategy 3 vs. Strategy 4)

blog-127-img-7-Wealth-to-Heirs-Comparison-Strategy-2-vs-Strategy-3-vs-Strategy-4

Click here to review the 125 pages of reports from Wealthy and Wise that make up the numbers in Image 6 and Image 7.  This is a large number of reports; however, with a Wealthy and Wise evaluation, I recommend that you have all the reports for a given case with you when you are visiting with a client or client’s attorney or CPA.  Wealthy and Wise backs up every number shown, and you never know which report you’ll need to answer the inevitable question, “Where did this number come from?”  That’s why I provided all of them to you in this Blog.  Tip:  The name of each strategy appears at the bottom right of each detailed report.

Most Wealthy and Wise users select a few key illustrations for the main report and put the balance in an Appendix.  More elaborate report organization can be accomplished (Table of Contents and Section pages) through use of this prompt which I used that is available at the bottom right of the Main Workbook Window.

blog-127-img-8-Preview-or-Print-Client-Presentation

Summary of the Four Strategies

blog-127-img-table-2-Summary-of-the-Four-Strategies

Conclusion

By integrating the leveraged executive bonus plan within the retirement plan, Alex and Ana’s appreciation of the executive benefit should increase exponentially.  Hawthorne Contracting should get considerable additional credit (and loyalty) for being the sponsor of the plan that adds so much to their overall wealth.

Indexed universal life insurance is one of the stars of this Blog.  This reminds me once again of Bill Boersma’s comment in his article in the December 2014 issue of Trusts & Estates in which he discusses life insurance as an asset class: “I can only wonder if another asset with the same qualities would be implemented more frequently if it wasn’t called life insurance.”

Prospecting

Candidates for a leveraged executive bonus plan are simple to identify if you pose the following questions to the head of a business (C corporation, S corporation, LLC, Partnership — even a tax exempt organization):

“Do you have any non-owner executives or minority shareholders who are so valuable to your business that you will do whatever is economically reasonable to induce them to stay with you?”

“I’d like to show you a related concept — deductible to the firm — that easily outperforms any qualified retirement plan.  It can be used just for you — or by others you designate.  Would you like to see how it works?”

The impact of integrating executive benefits into an overall Wealthy and Wise analysis should be of great interest to companies that offer such benefits as the perception of the value is increased exponentially.

Documentation

Special documents are needed to support a Leveraged Executive Bonus Plan.  They typically consist of a standard executive bonus arrangement supplemented by an Endorsement of Policy Ownership Rights which precluding the executive from accessing any of the policy values for a predetermined number of years (or until a certain event occurs such as retirement).

The Endorsement is registered with the issuing insurance company and, as a result, the executive is unable to take any action on the policy other than that allowed by the Endorsement.  One of life’s frustrating experiences for an employer involves an executive who starts a competing business using funds from an employer’s benefit plan that were designed to provide retirement cash flow.  The Endorsement can eliminate this occurrence.

Comprehensive specimen documents for all aspects of an Executive Bonus Plan are available in Version 21.0 (and higher) of InsMark’s Cloud-Based Documents On A Disk™ in the Key Employee Benefit Plans section.  These documents, coupled with the bank financing documents, are what make up a Leveraged Executive Bonus Plan.

Note:  InsMark’s Leveraged Deferred Compensation System has a module that creates a different source of leverage whereby the employer makes the loan for the income tax liability on the bonus.  This variation is often applicable for smaller cases where bank financing is unavailable.  In general, I believe the bank-financed arrangement produces superior results.

Licensing InsMark Systems

To license the Premium Financing System or Wealthy and Wise or Cloud-Based Documents On A Disk, visit us 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 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.

New Zip File Downloaders
Watch the video.

Digital Workbook Files For This Blog

Blog127.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.

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.

 

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

“Standard bank financing illustrations produce much in the way of great data, but it takes the InsMark Premium Financing System to really present compelling numbers; however, the integration of that data into InsMark’s comparative modules like Various Financial Alternatives and Wealthy and Wise is really what makes premium financing sizzle.”
Chris Jacob, CFP, SFI-Cadeau, St. Louis, MO, InsMark Platinum Power Producer®

“As with all of the InsMark software, InsMark’s Premium Financing System has proven to be an indispensable addition to my ability to show my clients the advantages in using bank loans to solve their financial needs.  Because of this, I was able to close three large financed cases easier and faster than ever before.  As always, InsMark has delivered again.  I encourage all who use bank financing as a solution to their clients’ needs to purchase this system.  The cost of the system is not an expense, but rather an investment in your business.”
William Moates, Jr., Trilennium Financial Alliance LLC, Fort Smith, AR, InsMark Platinum Power Producer®

“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®, International Forum Member, InsMark Platinum Power Producer®, Encino, CA

 

Important Note #1:  The hypothetical life insurance illustrations 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.

seperator bar

More Recent Blogs:

Blog #126: The Leverage of Bank-Funded Estate Liquidity

Blog #125: Web Supported Resources for You

Blog #124: More on the Siren Song of “Buy Term and Invest the Difference”

Blog #123: The Siren Song of “Buy Term and Invest the Difference”

Blog #122: Term Insurance for $1.00

 

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 #126: The Leverage of Bank-Funded Estate Liquidity

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

(Presentations in this blog were created using the Premium Financing System and Wealthy and Wise®.)

Getting Started with InsMark Training Video

spacer image

Bob Ritter's blog #126 img-1 Premium-Financing-Wealthy-and-Wise

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

Editor’s Note:  Clients with significant illiquid assets will appreciate the use of premium financing featured in this Blog.

Lee and Denise Hamilton are ages 55 and 47 respectively.  They are real estate developers with a current emphasis on apartment complexes, and their inventory has a current value of $9 million.  By their joint life expectancy of 40 years, they project their commercial real estate values to be worth almost $135 million assuming annual growth averaging 7.00%.  They have indicated that the cash flow from their properties is sufficient for them to maintain their desired lifestyle.

Problem:  If they sell the properties prior to death, the capital gains will be severe.  In addition, the net proceeds from the sale will still result in significant death taxes.  If they don’t sell the properties prior to death, capital gains taxes are avoided, but the death taxes will still be severe.  This is further compounded by a severe lack of liquidity for such tax bills.

Let’s look at two liquidity evaluations for the Hamiltons from InsMark’s Wealthy and Wise®, both of which include a provision for federal and state death taxes.  The first one assumes the Hamiltons’ status quo, i.e., no additional planning.

Image 1

Blog-126-img-2-Liquidity-of-Current-Plan-image

The second liquidity graphic below shows the effect of $58 million of indexed survivor universal life (“ISUL”) covering the Hamiltons owned by an irrevocable, grantor, life insurance trust.  We used a level death benefit policy because the plan needed the TEFRA pushup of death benefit in the later years.

Image 2

Blog-126-img-3-Liquidity-of-Current-Plan-with-Trust-Owned-Life-Insurance-Added-image-2

With the Hamiltons’ liquidity currently limited to $4 million in a tax exempt account, premium financing is a very efficient way to fund the life insurance.  Premiums are $1,937,112 annually for five years funded with bank loans.  The alternative of cramming five premiums of $1,937,112 each through to the trust by way of gifts would use up a huge percentage of the Hamiltons’ combined estate tax exemption, not a good strategy if it can be avoided.

Below is a graphic from our Premium Financing System showing the cumulative gifts to the trust and the trust’s policy values net of the bank loan:

Image 3

Blog-126-img-4-Premium-Financing-Policy-image-3

Click here to view the complete premium financing illustration.  Loan interest is illustrated as 4.00% gradually increasing to 5.00% over the 10 years of the bank loan — reflecting potential interest rate hikes.  The bank loan is repaid at the beginning of year 11 using a policy loan.

Impact of Premium Financing on Overall Wealth
Wealthy and Wise Analysis

The value of any financial transaction can best be measured by comparing it to the status quo, i.e., do-it vs. don’t-do-it.  This is particularly true for those considering premium financing.  The numbers almost always look impressive — but compared to what?  Clients always make their best decisions in a comparative environment.

Below are the results of the comparison for both net worth and wealth to heirs.  Strategy 1 is their current plan.  Strategy 2 includes the imported premium financing numbers.  The loan interest for the premium financing is funded with withdrawals from their $4 million tax exempt account

Click here to learn how to import our Premium Financing data into Wealthy and Wise.

spacer image

Image 4

Blog-126-img-5-Net-Worth-image-4

Image 5

Blog-126-img-6-Wealth-to-Heirs-image-5

The “Forgotten Money”

Have we overlooked anything?  What about the cash value of the policy in the trust (net of the outstanding bank loan which is repaid at the beginning of year 11)?  So far, the cash value of the trust-owned policy has not appeared as a component of net worth, and it is clearly part of their family’s wealth prior to the deaths of Lee and Denise.

Copy of Image 3

Blog-126-img-7-Premium-Financing-Policy-Forgotten-Money-copy-of-image-3

Once the loan has been repaid to the bank at the beginning of year 11 (in this case), the trust’s policy cash values can fund distributions to beneficiaries, and many commentators believe the trust can loan money to the Hamiltons using what is known as a Wrap Trust, a term that has been copyrighted by James G. Blase, JD, LLM, of St. Louis, Missouri, as the Wealth, Retirement, and Asset Protection (WRAP) Trust.

Click here to read a report on the subject of Wrap Trusts that also includes an unusual use of limited powerholders to provide grantor access to funds in the trust.

Below is a reflection of the Hamiltons’ net worth in which the cash value of the trust’s policy is included in a category called “Family Net Worth”.  This is not double counting of cash values since only the policy death benefit appears in the reports and graphics for wealth to heirs.  Adding these values to Family Net Worth has no bearing on the wealth to heirs since, on the death of the second-to-die insured, this aspect of Family Net Worth disappears and is replaced by the tax free life insurance death benefit.

Click here to learn how to enter data for the trust’s cash value for the Family Net Worth Strategy.

spacer image

Image 6

Blog-126-img-8-Family-Net-Worth-image-6

Click here to review the Wealthy and Wise reports backing up the numbers in this graphic along with those of all the Strategies covered in this Blog.

Note:  Wealthy and Wise calculations typically include a provision for the Hamiltons’ desired cash flow throughout the analysis; however, as noted at the beginning of this Blog, they have indicated that the cash flow from their properties is sufficient for them to maintain their desired lifestyle.  As a result, this Wealthy and Wise analysis ignores this Desired Cash Flow category as well as offsetting Expected Cash Flow entries.

Underwriting a $58 Million Life Insurance Policy

A $58 million policy is not easily issued for clients with a current net worth of $13.6 million.  To do so, a careful review of the need for this level of coverage must be submitted with the application.  For the Hamiltons, the critical component would be a comprehensive analysis of the potential long-range death tax liability they are likely to experience as shown in this Wealthy and Wise evaluation — emphasized by Images #1 and #2 which are shown again below.  These images need to be backed up by the detailed reports in the entire Wealthy and Wise analysis.

Copy of Image 1

Blog-126-img-9-Liquidity-of-Current-Plan-copy-of-image-1

Copy of Image 2

Blog-126-img-10-Liquidity-of-Current-Plan-with-Trust-Owned-Life-Insurance-Added-copy-of-image-2

Conclusion

Premium financing can be an irresistible way for wealthy clients to increase wealth to heirs as well as provide tax free liquidity for death taxes at precisely the point when the need for liquidity occurs.

State Death Taxes

We recently included an enhancement to Wealthy and Wise to help you estimate state death taxes.  You can review the state death tax prompts in Wealthy and Wise when you edit or create a new scenario.  The prompts are located at the bottom of the Estate and Gift Transfer Taxes, State Death Taxes located on the Illustration Details tab.  If you don’t find them there, you need to update your Wealthy and Wise.  Click on InsMark Live Update near the bottom of the drop down menu under Help on the main toolbar.  When the Live Update menu appears, select Wealthy and Wise and click Update.

This tax is a deduction against the taxable estate (not a credit), and its results are included on the Wealth Transfer Summary and Transfer Tax Detail reports.  If you include state death taxes, a footnote with details of the tax assumptions you used appears on the bottom of the Transfer Tax Detail report.

Any state estate tax and/or state inheritance (collectively “death tax”) that appears on the Wealth Transfer Summary and Transfer Tax Details report in Wealthy and Wise is an estimate by the user and is not specifically based on the precise tax rates and/or exemptions of a particular state.  These rates change with some frequency, so be certain your clients consult with their legal and tax advisers for precise state death tax calculations.

Click here for a state-by-state analysis of the state death tax rates from Forbes magazine.

Accrued Loan Interest

On trust-owned premium financing plans, our system can illustrate loan interest gifted to the trust or accrued by the trust (or some of each).  It can also illustrate gifts for a portion of the early policy premiums thus reducing the bank loan when providing collateral outside the policy is problematic.

Retirement Cash Flow

To review how our Premium Financing System can be used to illustrate a personally-owned policy designed to enhance retirement cash flow, see Blog #96.

Licensing InsMark Systems

To license the Premium Financing System or Wealthy and Wise or Cloud-Based Documents On A Disk, visit us 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 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.

New Zip File Downloaders
Watch the video.

Digital Workbook Files For This Blog

Blog126.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.

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.

 

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

“Standard premium financing illustrations produce much in the way of great data, but it takes the InsMark Premium Financing System to really present compelling numbers; however, the integration of that data into InsMark’s comparative modules like Various Financial Alternatives and Wealthy and Wise is really what makes premium financing sizzle.”
Chris Jacob, CFP, SFI-Cadeau, St. Louis, MO, InsMark Platinum Power Producer®

“As with all of the InsMark software, InsMark’s Premium Financing System has proven to be an indispensable addition to my ability to show my clients the advantages in using a “Financed Premium” concept to solve their financial needs.  Because of this, I was able to close three large financed premium cases easier and faster than ever before.  As always, InsMark has delivered again.  I encourage all who use Premium Finance as a solution to their clients’ needs to purchase this system. The cost of the system is not an expense, but rather an investment in your business.”
William Moates, Jr., Trilennium Financial Alliance LLC, Fort Smith, AR, InsMark Platinum Power Producer®

“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®, International Forum Member, InsMark Platinum Power Producer®, Encino, CA

 

Important Note #1:  The hypothetical life insurance illustrations 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.

seperator bar

More Recent Blogs:

Blog #125: Web Supported Resources for You

Blog #124: More on the Siren Song of “Buy Term and Invest the Difference”

Blog #123: The Siren Song of “Buy Term and Invest the Difference”

Blog #122: Term Insurance for $1.00

Blog #121: We Don’t Need the RMDs

 

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 #120: How We Open and Close 30 to 35 Premium Finance Cases Per Year

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

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

Getting Started with InsMark Training Video

Guest Blog by Ken Buckley

Blog-120-collaboration-teamwork-management-performance-innovation-value-partnership image

Note from Bob Ritter:  Recognized as one of the top producers in the premium financing business, Ken Buckley’s insurance agency (The Buckley Group) is unique in that all they do is premium financing.  That said, The Buckley Group is not a premium financing company or lender or wholesaler.  Instead, like you, they are in the business of working directly with high net worth clients to help them determine if premium financing is a suitable option in the context of the client’s overall financial and estate plan.

I am really pleased to have Ken share with you his knowledge in this exciting and resurgent premium financing market.

If you are selling premium financing on a part-time basis, we have observed that it’s pretty difficult to get good consistent results.  In our discussions with dozens of life insurance producers, we have found the most common complaints are that these cases take a really long time to process, they take a large investment of time and capital, and they rarely close (often with clients getting “cold feet” at the 11th hour).  All of these characterizations about the premium finance market are dead-on accurate . . . unless you have the experience, protocols, dedication of time and historical client base necessary to engage this market in a more efficient and profitable way.

What follows below are some of the things that we do at The Buckley Group that have helped us become one of the highest grossing agencies in the premium finance market.

  • checkmarkFirst, not all high net worth clients are good candidates for premium financing.  The biggest mistake that we see being made in the marketplace is the failure of producers to efficiently pre-qualify the prospect.  We work with some of the largest life insurance producers in the U.S. (along with advisors in other disciplines) and the first thing that we do with a new prospect is have them fill out our customized financial and medical profiles.  From these questionnaires we can glean whether the client is a potential prospect from a purely numbers perspective.
  • Next, we have to determine if they’re a prospect in terms of risk tolerance profile and estate goals.  In order to do that, we set up a GoToMeeting where we map out all of the reasons anyone might not be comfortable with the premium finance concept.  Typically, during that first meeting, we can assess whether it is a case that will close, or if premium financing is not suited to that client.
  • checkmarkSecond, liquidity is just as important as total net worth.  One of the biggest factors in determining suitability for premium financing is the client’s liquidity.  Since we know that it’s possible that the plan could underperform our initial projections (if, for example, the Index yield is lower than projected), we make the client fully aware of the potential increase to the client’s interest costs and collateral requirements in the future.  We spend a substantial amount of time in the early stages of discussions with a new client to ensure that he or she has the financial liquidity and emotional mindset to absorb those increased liabilities should they come to pass.
  • checkmarkThird, the “advisor profile” is just as important as the client profile.  The advisor profile is our assessment of each client’s various advisors and how they are likely to influence the client as they explore our premium financing program.  Getting all of a client’s trusted advisors onboard, from CPAs to attorneys, is vital in closing a premium financing case.  It is important to identify a client’s advisors at the beginning of the process and loop them into the discussion.  If they are not included in the discussion until the program is further along, many advisors will feel threatened by the unknown.  Over time we have found that advisors who challenge our concepts the most aggressively, are often the best allies and future referral sources.  By having answers to their toughest questions, and constructing solutions genuinely designed to protect the client, we turn potential adversaries into colleagues.
  • checkmarkFourth, high net worth clients (and their advisors) want open and honest referrals.  In the 20 years that we have focused exclusively on premium financing, we have compiled a large list of enthusiastic and supportive customers.  Because their premium financing program has been an effective solution, many of these clients are willing to share their experiences with my new prospects.  Being able to have an open conversation with current clients helps to assuage any concerns about our overall credibility or competence.  We also have a number of well-respected CPA firms and law firms that are available to our client’s advisors (as we find that about 25% of the time, third party professional firm references are requested).
  • checkmarkFifth, case design, bank options and annual reviews are complex moving parts that require detailed customization.  Seamlessly integrating a client’s premium financing program into their estate plan, and making sure each part of it works to achieve their ultimate legacy goals, is a complex process that is only perfected through experience.  We frequently get opportunities to work with other producers that have clients who purchased premium financed policies that were designed incorrectly, or as a result of poor annual reviews and follow up, have fallen away from their original goals.  Often, we can drastically reduce the client’s current and future liability and get an estate plan back on track.

If you have never done premium financing, or tried it unsuccessfully, or are experienced with it, we have some valuable information for you.

Scheduled Webinar

Blog 120 target with arrow imageBob Ritter has asked me to elaborate on some of the cases we’ve worked on over the last three years during a LIVE one-hour training webinar that he and InsMark are co-hosting on Thursday, November 19th at 11 AM (Eastern).  This Webinar is entitled “The Most Lucrative Life Insurance Market Is Just Getting Started – Learn About The Incredible and Growing Premium Finance Market from Kim Coulter of Northstar and Their #1 Premium Finance Producer, The Buckley Group”, and it’s FREE.  Simply click here to register.  You’ll receive all the following details:

  • How some producers are making over $1 million per year on premium financing cases (with almost no time, effort or capital invested);
  • Why the death benefit amount proposed is often way too low (and how to prove the need is two to three times greater than initially contemplated);
  • How to stop wasting time and money chasing the wrong premium finance deals;
  • Learn the biggest case design mistakes made by producers in the premium financing market;
  • Why larger deals are actually easier to sell;
  • Real life case studies on premium financing sales that we’ve made over the past 36 months including some with target premiums over $3 million.

Today, there are approximately 900,000 Americans with a net worth of more than $3 million and only a tiny fraction have used premium financing as part of their overall financial and estate plan.  So, while there is no shortage of prospects for this incredible market, the premium financing solution is complicated and requires a special team to succeed.

I look forward to your attending our Webinar and learning more about what we’ve been doing and how we might work together.

Ken Buckley Signature

More About Ken Buckley

Ken Buckley imageKen started The Buckley Group 34 years ago when he realized that being an independent insurance broker was the only way to effectively service his clients and be sure that he was providing them with the best of all options.  Since then Ken has diligently researched an array of financial products partnering with respected CPAs and attorneys.  A member of MDRT’s Top of the Table, Ken has access to the most exclusive products available and the leverage to work with insurance companies to offer customized programs.

 

InsMark Systems

For information about any of InsMark’s Systems, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275) or go to insmark.com.  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.

Save time and get results with any InsMark illustration!

Testimonials

“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

“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

“InsMark is an absolutely mind blowing experience.”
Larry Gustafson, InsMark Platinum Power Producer®, Denver, CO

seperator bar

More Recent Blogs:

Blog #119: Which is the Best Policy for My Clients? (Part 3)

Blog #118: Which is the Best Policy for My Clients? (Part 2)

Blog #117: Which is the Best Policy for My Clients? (Part 1)

Blog #116: Advisor Marketing Break Through: How To Have Qualified Prospects Contact You

Blog #115: Part 2 of Leveraged Deferred Compensation (Is Arthur Better Off With Term Insurance?)

 

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