A How-to Guide for Registered Reps
It is common knowledge that successful financial strategies include a mix of various assets and financial vehicles, like company-sponsored qualified plans, savings accounts and securities. Core planning topics such as tax strategy, retirement, estate planning, and employee benefits and/or business planning are also important to consider. However, financial advisors often omit life insurance as a critical component of their clients’ strategies. Life insurance — specifically fixed index universal life (FIUL) — is not only a powerful financial engine but is also critical to helping protect one’s entire financial portfolio.
Critical Foundation of Every Financial Strategy
Life insurance should be treated with the same relevance as other financial vehicles; in fact, it should be the foundation of every financial strategy. Think of a financial strategy as having a pyramid shape, and FIUL being the base of that pyramid. If your client dies too soon, the loss of income will cut off funding for financial vehicles beneficiaries are relying on for future income (and often present income as well). Related to this, of course, is life insurance’s primary purpose: providing a death benefit for beneficiaries. The generally income-tax-free death benefit of FIUL is essential to protecting families’ finances, including supplementing their other investments.
Logical Fit in a Diversified Portfolio
This logical fit of FIUL into existing financial strategies goes beyond just protection, however. FIUL products can help supplement existing retirement income through their cash value accumulation potential. Policy owners can access any available cash value through income-tax-free policy loans and withdrawals (as long as they don’t exceed premiums paid).1,2
Another way FIUL can fit quite well within existing financial strategies is by enabling tax diversification. Tax diversification supports the key benefits of life insurance as a financial vehicle: protection and accumulation potential. When your clients place their assets in a variety of financial vehicles that have different taxation structures, potential impacts of rising taxes can be tempered. As all their assets may be affected differently, the likelihood of a negative tax effect across the board can be diminished.
Benefits That Resonate With Clients
Focusing on the many benefits of FIUL is helpful when positioning this important financial vehicle to your clients and prospects. Tax diversification is one of these appealing benefits, as is overall diversification of one’s financial vehicles. FIUL allows a great amount of flexibility and control, with a diverse range of product, rider, premium, loan and withdrawal options.
The accumulation potential of FIUL makes these life insurance products familiar territory for registered representatives and financial advisors. Another advantage of FIUL is that it has a level of protection from negative index performance. It is also helpful to point out to clients that these products are not subject to the same restrictions as are other financial vehicles
- There are no penalties for accessing cash value prior to age 59½, assuming the policy is not a modified endowment contract.1
- Accessing any available cash value through policy loans and withdrawals1 currently does not have an effect on one’s available Social Security income.
- There is no required minimum distribution at age 70½.3
Demystifying the Sales Process
When offering FIUL to your prospects or existing book of business, spotlight the key benefits: death benefit protection, tax advantages, opportunity for supplemental retirement income and diversification. Remember the pyramid and FIUL’s role as the solid base.
Life insurance underwriting was a source of difficulty and frustration in the past, but it’s not what it used to be. For example, eApplications are in use now by many carriers, allowing you to reduce the clutter and tedium of paper applications. New, accelerated underwriting programs make the underwriting process quicker and easier and are becoming more prevalent with life insurance carriers.
Even better news is that your best prospects for fixed index universal life are in your existing book of business. Two common client profiles to look for are:
- H.E.N.R.Y. (high earners, not rich yet) clients: This group includes young and affluent clients who have already maxed out qualified plan contributions or who are disqualified from contributing to a Roth IRA.
- Transition BoomersSM: These clients are five to 10 years away from retirement and have idle assets earning minimal interest that can be used to purchase life insurance.
(To view all seven client profiles who may be good candidates for FIUL, visit www.allianzlifeFIUL.com.)
FIUL is a powerful asset that should be considered as part of your clients’ diversified financial strategies. There are a multitude of benefits and options for your clients to get excited about, and the sales process itself isn’t as cumbersome as it once was. Make sure your clients’ financial strategy is complete and includes protection — with FIUL.
Start today! To request your “Life Insurance as a Financial Engine” marketing kit, which includes tips on selling to your existing book of business, call 800.950.7372 or visit www.allianzlifeFIUL.com.
1 Policy loans and withdrawals will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Withdrawals in excess of premiums paid will be subject to ordinary income tax. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. If a policy is a modified endowment contract (MEC), policy loans and withdrawals will be taxable as ordinary income to the extent there are earnings in the policy. If any of these features are exercised prior to age 59½ on a MEC, a 10% federal additional tax may be imposed. Tax laws are subject to change and you should consult a tax professional.
2 Loans may be subject to interest charges.
3 Life insurance does not provide a stream of income in retirement. Any potential supplemental income is available through policy loans and withdrawals.
Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.
Product and feature availability will vary by carrier and state.
Products are issued by Allianz Life Insurance Company of North America, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. www.allianzlife.com.