Five Must-Have Client Conversations on the Missing Link 

Ways to connect with your clients on adding some “life” to their portfolio

by Andy Bucklee

Approximately 37.5 million U.S. households currently have no life insurance coverage, and nearly half of all households are underinsured, putting them at risk of not being able replace their income and missing out on an extremely powerful asset that should be part of a well-rounded financial portfolio.¹ Yet, it’s often the missing link that can make other planning strategies possible.

Life insurance can help families build, manage, protect and pass on their wealth. In addition to helping clients provide for their family and covering final expenses, many types of coverage also offer ‘living benefits’ that can be used for needs such as supplementing retirement income, protecting a business or addressing long-term care expenses.

Here are five conversations starters to help advisors aid in uncovering the missing link with their clients today:


Conversation 1: Cost effective IUL policy design

Indexed Universal Life (IUL) insurance policies continue to gain popularity among clients. According to LIMRA, IUL sales have experienced eleven consecutive quarters of new premium growth. IUL sales represented nearly a quarter of all individual life insurance premium in the second quarter of 2019.

The appeal of IUL is its combination of market growth potential and market loss protection. Today’s IUL policies also offer greater financial planning flexibility for clients, with a range of indexed earning options that can be tailored to risk-tolerance levels, from conservative accounts to accounts that offer higher return potential.

In the past, it was common to take a blanket approach to allocation, directing all premiums to a single account, and ‘setting it and forgetting it.’ However, many carriers now offer IUL policies that allow premiums to be allocated across multiple indexed accounts, with the ability to make changes over time in response to different market conditions or changing client needs and objectives.

As advisors sit down with their clients to discuss an optimal design for their new IUL policy, they should begin by reviewing the client’s priorities and asking a few basic questions, including:

• What is more important to you, growth or protection?
• Are you interested in receiving the highest possible returns for an extra charge?
• Would you like to earn guaranteed positive crediting every year—even in a down market?
• Do you think the market will produce positive returns year after year?

The answers to these questions can help determine a more strategic allocation approach that aligns with the client’s cost expectations and without having to sacrifice upside potential.

Conversation 2: Make “doing good” do good

Since the 2017 Tax Cuts and Jobs Act was signed into law, charities have been bracing themselves for a reduction in donations because the Act increased the standard deduction, hence reducing the number of taxpayers who itemize charitable deductions.

Thankfully, many affluent clients continue to donate because they’re passionate about a cause, wish to give back to their communities or schools, and they want to make a difference in the world. Advisors have a great opportunity to support their clients’ philanthropy by helping them maximize their gifting potential with a tax-efficient strategy featuring life insurance. In particular, policies that offer strong cash value accumulation potential, such as variable universal life (VUL).

As a hypothetical example, a philanthropist who has made regular substantial donations to his/her favorite charity but wants to do more, can purchase an $80,000 single premium VUL policy, designating the charity as the owner and beneficiary of the policy. The charity can then take annual distributions from the cash value to meet their needs, potentially doubling the initial $80,000 gift. Since the charity is tax-exempt, they don’t need to worry about potential tax implications due to loans. The charity can also receive an additional gift through the policy’s death benefit, increasing the potential total gift amount to more than 7x the original $80,000 investment.

In this scenario, the philanthropist can itemize this current contribution on his/her tax return and take advantage of the charitable deduction. To get the conversation started on how life insurance can be used to meet a client’s charitable objectives, begin with the following questions:

• Would you like to be able to support an organization that you’re passionate about?
• Would you like to give to your favorite charity and gain tax advantages?
• Do you want to be able to create a larger gift with a smaller financial contribution?

Conversation 3: Life Insurance as an asset class

When we think about integrating life insurance into a client’s financial plan we often start with its traditional value proposition, the death benefit. However, life insurance can also be an effective diversification tool that offers advantages in meeting goals at every stage of a client’s life, including potentially:

• strengthening retirement income;
• creating additional cash flow while reducing tax exposure;
• alleviating some of the cost of a child’s school tuition; and
• protecting against long-term care expenses.

Life insurance can also be a valuable complementary tool to other investments. When a portfolio is highly concentrated in one area, diversifying to include life insurance in a portfolio can offer a different type of leverage. Instead of a stock, for instance, which fluctuates in value based on returns in the market, life insurance can offer a non-correlated return based on life expectancy. By reducing the exposure on a highly concentrated stock position, a portfolio inclusive of life insurance has increased predictability of what will be available to the next generation.

This concentrated stock planning strategy can be particularly attractive to foreign national clients. Depending on their status, foreign nationals may have additional tax advantages when liquidating a concentrated stock position.

Advisors have an opportunity to broaden their counsel and help consumers recognize the value of life insurance as a separate and distinct asset class within their financial portfolio that can help grow assets, protect wealth from the effect of taxes, market volatility and longevity, and transfer wealth.

Conversation 4: Creating a tax-efficient estate plan: Wills vs. trust (and probates)

Many Americans focus on their current financial circumstances and don’t think about the future until it’s too late.  This is an opportunity for advisors to help clients navigate the often-complex estate planning process, involving tax laws, trust management, and more.

Estate planning is an essential part of protecting wealth, and done right with the help of life insurance, it can help clients:

• Grow and protect their legacy;
• Reduce expenses, taxes and probate costs;
• Control the distribution of assets; and
• Increase confidence that the plan they have in place directs what they intended.

Clients may already have a written will to designate who inherits their property and how it’s distributed upon their death, but how can they protect that money once they’re gone? Wills are subject to probate, or the court-supervised collection and distribution of assets.

A life insurance trust on the other hand lets the client control how funds are distributed after death, and can help reduce or avoid estate taxes.

For large estates, an irrevocable life insurance trust can limit the tax burden for heirs giving a client control over how the proceeds of their policy are spent and who will inherit them.

A life insurance trust lets your client transfer ownership of a life insurance policy so they no longer own it directly. That way the proceeds will not be included in their estate, lessening the estate tax burden for heirs.

An irrevocable trust names someone else as the trustee. This gives up control over the policy, but not before deciding a few key things, such as who the beneficiary will be, how premiums will be paid and how benefits will ultimately be paid out.

Life insurance trusts are also helpful in giving heirs access to money right away because benefits are typically paid out within a month, whereas it may take a year or longer to unload non-liquid assets in an estate, such as real estate.  By using a life insurance trust, heirs have access to cash to pay for final expenses, taxes and any debts while they’re waiting for the estate to settle.

Conversation 5: Life changes, a policy might also need too

As a final point, life insurance should never be put into a filing cabinet and forgotten. Clients marry, purchase homes, have children, retire and downsize. As their lives evolve, so do their responsibilities. When clients experience significant life changes, it’s smart to review their coverage to make sure their current policies are still right for them.

For advisors, the acronym FAR – Find their current need, Analyze and Recommend – may come in handy.  A policy review every 2-3 years is ideal to ensure clients have the life insurance coverage they need.

Lincoln Financial Distributors, Inc., a broker-dealer, is the wholesale distribution organization of Lincoln Financial Group. Lincoln Financial Group is the marketing name for Lincoln National Corporation and its affiliates.

[1] LIMRA, Life Insurance Ownership in Focus, U.S. Household Trends – 2016, September 2016