Allianz Life Insurance Company of North America (Allianz) is helping producers position themselves as highly-experienced and knowledgeable in various industries. David R. Foster, JD, AEP, CLU, ChFC, CAP, FLMI, Advanced Markets attorney and Senior Director of Advanced Markets at Allianz, explains how.
INN: Dave, how can producers who work with small-to-midsize businesses differentiate themselves in the life insurance market?
DF: Many producers know the business market in general, but they don’t develop specific knowledge of the various types of businesses. For the business owners, their businesses are almost like a member of the family, like a child they’ve raised. They want to feel that their producers understand the unique nature of their business, are highly experienced, and have a high level of understanding about the challenges and issues they face. This will open conversations and create opportunities.
INN: What exactly is Allianz offering to help producers?
DF: We can help in many ways. For instance, we compile semiannual reports on industry-specific trends, legislation, changing tax laws, and anything else that’s impacting the sector.
These reports help producers not only stay informed but also be better prepared for meetings and better equipped to build valuable relationships that are productive and efficient. They give producers a leg up on the competition and maximize their opportunities.
INN: Are there specific concepts or issues producers should be familiar with?
DF: Their clients will need to work with qualified tax and legal advisors when considering various planning strategies, but producers certainly need to be familiar with the basics, such as the core estate planning strategies, key-employee compensation plans, and business succession strategies. But they also need to understand what keeps these business owners up at night.
For instance, if they’re working with manufacturing companies, they should be aware that these businesses are being hit hard by skilled labor shortages and recent supply chain interruptions.
These businesses may be looking to recruit key employees with experience in navigating supply chains, and they may be looking for human resources talent to help them address labor shortages. Understanding the current trends can help producers bring the best sales strategies to the table and generate opportunities.
INN: What are some other issues and solutions in other industries?
DF: A good example is agriculture, where succession planning is key. A lot of farms have remained in the same family for generations. The owners have a strong emotional attachment to their land. They also want to treat all of their children equally — and some in the next generation may have little interest in continuing the tradition. So a well-constructed succession plan for an agricultural business owner might pass the farming assets to those children who want to engage in farming and simultaneously purchase life insurance for financial protection. The death benefit is generally income-tax-free to the clients’ beneficiaries.
Another big issue for agricultural business owners is conservation easements. By donating certain property rights to a charitable land trust or government agency, the landowner can realize a considerable income tax deduction. This might be an appropriate strategy if the client is anticipating a sizable income tax event, but it also lowers the value of the land. So producers might recommend life insurance to help replace that lost value for the client’s beneficiaries.
INN: Interesting. What about issues facing the construction industry?
DF: The construction industry should benefit from increased government infrastructure spending, if and when the government passes an infrastructure spending bill. But in these businesses, surety bonds are essential. Business owners can’t do their job without them. Their contracts require them.
Surety bonds help provide assurances that construction projects will be completed. In order to obtain surety bonds, the business needs to be evaluated by the bond company’s underwriters. Producers can help business owners pass muster with the surety bond underwriters by reviewing the business’s succession plans and buy-sell agreements, perhaps recommending life insurance for key employees. Life insurance can also improve debt-to-asset ratios, since the cash-surrender values may count as working capital.
Interestingly, construction companies are having difficulties finding skilled labor at the moment as well. So they’re also going to need to hire human resources professionals to recruit and train more skilled labor. This, in turn, creates an opportunity to offer key-employee compensation plans such as nonqualified deferred compensation plans, bonus plans, split-dollar plans, phantom stock plans, and others specifically targeted to the HR talent they’ll be bringing on.
INN: I see. You mentioned the manufacturing industry. What else about manufacturing businesses should producers be aware of?
DF: A prevalent trend in manufacturing is the internet of things, which refers to linking together technologies to generate data that improves operational efficiency. Companies need to adapt to that. They need to develop tech-related skills and bring on executives who can manage tech teams. Consequently, they too are going to need key-employee compensation plans.
What’s more, business owners should consider the additional cash flow needs the next generation will have in order to keep up with ongoing technological advances. One potential solution is to create a trust that’s funded with life insurance. Upon the death of the owner, the trust receives the death benefit and the trustee may make distributions or low-interest loans to the business for keeping up with technology.
INN: Are there unique issues in the professional services space?
DF: It’s a diverse field made up of health care providers, attorneys, engineers, accountants, etc. Many of them are concerned about creditor protection. Generally speaking, they practice in areas that attract litigation. Also, most serve their clients personally, without using employees or subcontractors, which increases the potential for legal claims against them. So assets that have creditor protection — such as life insurance in many states — may be appealing.
In addition, these firms are often top-heavy; the owners earn much more than the staff. This makes it difficult to contribute to qualified retirement plans for higher paid employees, including the owner. Cash value life insurance may be the answer. It allows for tax-favorable withdrawals and loans from the available cash value1, as well as a generally income-tax-free death benefit.
INN: Lastly, what do professionals need to know about commercial real estate?
DF: Commercial real estate businesses regularly buy and sell property. As a result, capital gains taxes are a big concern. Producers should be familiar with capital gains tax deferment strategies — such as 1031 exchanges, which allow you to defer capital gains taxes when you sell an investment property and reinvest the proceeds in a similarly valued asset within a certain time period. Other options include Delaware statutory trusts or real estate investment trusts (REITs), which may appeal to clients who want to remain invested in the real estate market but don’t want to actively manage the properties anymore.
More aggressive strategies — such as deferred sales trusts — are often marketed as tax-deferment strategies, allowing property owners to sell assets to a third-party trust in exchange for a promissory note. Producers should proceed with caution, have the client work closely with their tax and legal professionals, and understand the IRS may challenge these arrangements. They also are not approved as a recommended strategy by Allianz.
INN: Thanks, Dave, for these fascinating and worthwhile insights.
It’s clear that getting to know each client’s specific business and market segment is vitally important for providing better service, generating ideas, and maximizing opportunities. Producers need to know not just the financial products available but the best applications of them. By understanding clients’ businesses from the inside out, they can pinpoint potential solutions for every need and situation and outshine their competitors.
For more information and insights, visit AllianzAdvancedMarkets.com or call the Advanced Sales and Practice Platform Team at 888.900.1530.
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.
Fixed index universal life insurance requires qualification through health and financial underwriting.
Producers should encourage their clients to work with qualified tax advisors or attorneys when considering the various planning strategies.
This content is for general educational purposes only. It is not intended to provide fiduciary, tax or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give fiduciary, tax or legal advice. Customers are encouraged to consult with their own legal, tax and financial professionals for specific advice or product recommendations.
Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.
Products are issued by Allianz Life Insurance Company of North America, PO Box 59060, Minneapolis, MN 55459-0060.