Over the last few years, I’ve absolutely loved watching Tony Romo as an analyst for NFL games. He has an uncanny ability to predict which play the offense will run — earning him the nickname “Romostradamus.”
Probably even more impressive than his ability to quickly break down a defense and predict the play the offense will shift into is his ability to clearly explain what he sees that causes the offense to run the play. He sees a level of detail that even a veteran viewer simply doesn’t, and by explaining things that others wouldn’t think of, the 14-year NFL veteran quickly became the highest paid broadcaster in TV history.
Advisors have the opportunity to be Romostradamus for their clients by clearly explaining two concepts in permanent life insurance policy design — funding level and growth potential. These two basic levers are easy for clients to understand and can readily help advisors explain why one policy type or structure would be a better fit for a client’s goals than another structure.
Let’s take a look at an example. A client has recently retired and is setting goals for their wealth over the rest of their life. For this client, a key goal is leaving a specific amount to their children, and they’re willing to have fluctuations in their own lifestyle in order to make sure that becomes a reality. Life insurance can be an ideal vehicle for this common situation.
Since the goal is the targeted legacy, the advisor can explain that the goal is to fund the policy with as little premium necessary to ensure that the client reaches their goal. This policy structure will provide the precise amount of premium needed to fund it in order to ensure that the death benefit will be there. The client doesn’t need the ability to take loans or make withdrawals later in life. The client can readily understand that they don’t want excess cash value because ultimately, the death benefit is the need, and the death benefit will remain the same regardless of the cash value.
When considering the growth potential in a guaranteed death benefit universal life policy, advisors don’t need to worry about the ability to have above-market returns by having an aggressive asset allocation. If the client has separate growth goals (and of course, most will), they can use other investments, because the advisor will have committed as little capital as possible to achieving this particular targeted legacy goal. The client doesn’t need or want the risk that comes with highly fluctuating rates of return, even if they could produce higher growth potential.
So, for a targeted legacy situation, we can explain that we are looking for a policy that will accommodate a relatively low funding level with predictable growth potential. A guaranteed UL might be a good choice. The client can easily tie back the funding level and growth potential concepts to the policy design.
The primary goal for a younger client is most likely the protection that life insurance provides, but they have so much time to recover from early losses. For clients who need permanent life insurance, the near-term driver is the death benefit, but the accumulation aspect can play an important role in their long-term planning. By continuing to fund the policy over time, the younger client has the ability to catch up later if they get an ugly turn of events early on.
In those situations, the advisor might look for a moderate funding level and a high growth potential, which would necessitate a totally different kind of life insurance — possibly a variable universal life policy. Again, the funding level and growth potential provide the anchors for the policy design.
A third example might be a retirement supplement. If you have a retired client who has accumulated funds in life insurance over the course of many years (and they know exactly what they’re going to use it for), you can use life insurance for supplemental income. You want to have the minimum death benefit possible to accept the projected premiums and 1035 exchange to create accumulating cash value. The high cash value relative to death benefit will keep insurance costs as low as possible.
The growth potential for a policy to be used as a retirement supplement is highly dependent on the time horizon. If the client doesn’t need to use those funds for 10 years, or the start date for the need is flexible, then there is some room for fluctuations. The advisor might consider a higher growth policy. If the time horizon is shorter, then consider something that’s more stable.
Though you know more about the bells and whistles than a consumer who will buy life insurance a few times in their life, it’s not the bells and whistles they are interested in. They’re interested in how your recommendation will meet their needs. Using funding level and growth potential as anchor points for why the specific policy you recommend meets their needs better than other policies gives them the ability to be a much better armchair quarterback and gives them confidence in you as their Romo.
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In 2016, Covisum introduced Tax Clarity, which helps financial advisors show their clients the hidden effective marginal income tax rates that can significantly affect cash flow in retirement. In early 2017, Covisum acquired SmartRisk, software that allows advisors to model “what-if” scenarios with account positions and align a client’s risk tolerance with their portfolio risk. In January 2019, Covisum launched Income InSight, an income planning tool.
Covisum powers some of the nation’s largest financial planning institutions and serves more than 20,000 financial advisors.