In the 1970s, 1980s, and 1990s, I chided the life insurance industry for being the only industry in America totally unimpeded by progress. I’ve had it in for life insurance companies ever since I got fired by Manufacturer’s Life in 1972. That is the year I got my securities license and became a registered principal with an independent “hat rack” broker-dealer in San Rafael, California. In those days, one of the best kept secrets was you could take a test and get a registered principal’s license without ever having been a registered representative.
When I disclosed to Manufacturer’s Life that I had obtained my securities license, they said it was a company rule that their agents had to place their licenses with their captive B-D. At the time, nobody at that B-D could spell financial planning let alone be aware of it. I told the general agent that the B-D was useless when it came to having product and service resources necessary to do this new thing called financial planning. They gave me a week to transfer my license and I refused to do it. I was fired! Almost overnight I lost my full-time secretary and company-paid private office.
From Life Insurance to Financial Planning
That event is what prompted me to start calling myself a financial planner. As Loren Dutton, the father of financial planning, told me a couple years later over lunch: “Vern, you did the right thing. Now you are putting people, problem solving, and planning before product selling, and that’s what it’s all about.”
I ended up with a huge distrust for life insurance companies and vowed to never be a captive agent again. I kept that vow, but still have maintained my life insurance license for 43 years. I must confess that I have given very little attention to the needs of clients for life insurance. If they said they had enough life insurance and were satisfied with their coverage, I would take their word for it. Sometimes I would tell a client to call USAA to get a little more coverage.
As you all know, one of the great things about FPA is the wonderful networking opportunities in our chapters. I had lunch one day with Mark Brownstein, the current president of FPA’s Greater Hudson Valley Chapter in New York. It turns out that Mark is a real insurance pro and is a regional field manager of CPS Elite Advisors Insurance Services LLC, the largest independent insurance brokerage firm in the country. Mark essentially told me my knowledge was fixated somewhere back in the dark ages and that I needed to close my knowledge gap because my clients might be missing out on some good benefits.
I said, “Mark, you’re sounding like a life insurance guy!”
“But Vern, listen to me,” he said. “Things have changed, there really are some things you need to be aware of, and as a financial planner you are supposed to cover all the bases, right?”
Warming to New Policies
Mark awakened in me the contending tides of biases that challenged my conscience and my ability to progress in understanding and serving clients. So I succumbed to learning current truths about an industry that 40-some years ago had virtually put me on the street, while being the catalyst that launched me in a new profession.
My purpose in this article is not to explain the nuances of new ideas emanating from the heretofore adversarial insurance industry. It is merely to name a couple of ideas with a thumbnail description of what they do.
The trend to modernization in the life insurance industry is reflected in new life insurance policies and annuities that have “hybrid” benefits. These benefits are also called “linked-benefit policies” or “combined benefits.” These innovative products allow tax breaks for consumers when they access funds from either a life insurance policy or annuity for long-term care expenses. This benefit is buried in the 2006 Pension Protection Act; as of January 1, 2010, section 844 of that act went into effect. This was easy to overlook because of the delayed trigger on the date. Of course, the insurance industry doesn’t overlook anything for a sales opportunity. Section 844 says that individuals are now allowed to withdraw annuity proceeds or access life insurance benefits income-tax free to pay for long-term care expenses. This section reflects the great concern on the part of legislators that at least half of people over age 65 will require long-term care. As I recently got off a plane in Ft. Myers, Florida, this statistic was easy to believe—my eyes widened over the sea of people in wheelchairs and walkers.
Existing life insurance policies and annuities can be converted into new hybrid products. In 1979, I wrote a book entitled Money, Use It or Lose It. A unique characteristic of the new hybrids is that you don’t “lose it.” You always get a benefit: a death benefit, an annuity payout, or a long-term care benefit. Currently, there are five insurance carriers with 15 different innovative, combined products. It seems the industry is no longer unimpeded by progress!
The Insurance Conversation
Insurance is a vital component of financial planning; however, it always implies some negative event has to take place to use it. Consequently, people don’t really want to talk about it. My approach now with a client is to use a three-step formula to properly cover it. The formula’s acronym, ICR, stands for Identify the issue, Confront it, Resolve it, and get on to more fun things.
There are six key points about insurance to keep in mind:
- Insurance is a very complicated subject; this article has not even scratched the surface.
- In many cases, a financial planner needs to rely on a trusted insurance pro, typically a Chartered Life Underwriter (CLU). The CLU becomes a valued specialist to your financial planning team.
- The pro needs thorough knowledge of products, strategies, and tactics to solve problems with those products.
- The pro must be objective and subordinate a desire for commissions to solutions with integrity.
- An assessment of real needs for insurance should be done for every client.
- A periodic review should be done, especially relating to changing needs and beneficiary designations.