Many advisors resist selling life insurance, preferring to focus on securities instead. They resist for a variety of reasons: the paperwork, the underwriting, the murkiness of life insurance itself. If these issues give you pause but you want to serve affluent clients better, overcome struggles with client acquisition AND grow your business, it’s time to give life insurance another look.

Key takeaways:

  • Life insurance is much easier to manage than it used to be. 
  • We owe it to clients to be proactive about mitigating tax burdens.
  • IUL insurance offers advantages similar to Roth IRAs and 401ks, with added benefits.
  • We can’t predict future tax rates. Putting income in different buckets provides the flexibility clients need.
  • There’s a massive opportunity to cement relationships with Gen X via a tax-free retirement strategy.

Who do you call if you want to get top-notch insight on life insurance and how to integrate it into your practice? Patrick Kelly. He’s a life insurance guru and the guy who penned the 2007 best-seller, Tax-Free Retirement. A frequent collaborator of Simplicity InsurMark, Kelly was kind enough to join Virtual CMO Jack Martin on a recent episode of The Breakthrough Advisor podcast to discuss how life insurance has changed and why advisors should embrace it.

Life insurance is much easier to manage than it used to be.

If you’re like most advisors we work with at Simplicity InsurMark, you want to get more out of your business but spend less time working on it. We also know advisors resist selling life insurance because they believe the process is time consuming and life insurance products can be confusing and opaque.

While there’s no getting around underwriting, which makes the process longer, the process as a whole—from filling out forms to underwriting—has been streamlined a lot, thanks to technology. At the same time, life insurance products are more straightforward and easier to understand and explain to clients than in the past.

Says Kelly, “With the regulations that have come about in the last couple of years, everything is incredibly transparent. Now, most people aren’t going to read the illustration, but all the details are in there. All of the fees, expenses and charges are detailed and outlined for you. But the beautiful thing with this illustration is the numbers at the end of each year reflect those. Advisors should know that everything is built in there, which can alleviate that opacity because it’s all there in the numbers”

We owe it to clients to be proactive about mitigating tax burdens.

According to Kelly, “What you accumulate doesn’t matter. It’s what you can distribute that counts. When you’re able to access money without having to pay tax versus having to pay over 50% right now in California’s top tax bracket (37% plus 13.3%), we know the likelihood of where that’s going to go. With relatively low historical 100-year tax rates, you need to have half as much accumulated in that scenario as you do if you’re going to be taxed at that level.“ 

Kelly is a proponent of indexed universal life insurance (IUL) for affluent clients, because IUL policies may allow clients to leave more money to their heirs. With IUL policies, the cash value portion of the policy not only has the opportunity to grow tax-free, money is generally paid to beneficiaries immediately and tax-free, once the policy holder dies. 

He also believes many advisors don’t present life insurance as an option to clients because they don’t understand the power of the strategy. 

As Kelly explains, “If they’re not utilizing it, it’s because they don’t see how powerful it can be, not for their income, but for the client’s future retirement or future wealth. They have to convince themselves first. And the only way to convince themselves first is to really learn it and understand it, which doesn’t take a long time.”

Tune into this podcast episode around the 26:00-minute mark to learn how easy it really is …

IUL insurance offers similar advantages to Roth IRAs and 401ks, but with an instant estate and no market risk.

Kelly encourages advisors to present the option of life insurance to clients who are interested in the potential tax-lowering benefits of a Roth IRA or a Roth 401k. That’s because life insurance is very similar to Roth accounts but with added benefits. One advantage is that heirs get an instant estate if the account holder were to pass away early due to an accident or some unforeseen sickness—but that’s not all.

According to Kelly, “That Roth IRA or 401k only has in it what has been put in it, where the life insurance is kind of like a self-fulfilling estate. It might have a million dollars or a million and a half dollars that the family could receive right then, even if retirement hadn’t been achieved. And then the other thing, which I really think is one of the crown jewels of this strategy, is there’s no market risk.” 

We can’t predict future tax rates. Putting income in different buckets provides the flexibility clients need.

Clients are more likely to enjoy a lower tax or tax-free retirement when they have a mix of Roth products, insurance and other investments, like bonds. That way withdrawals can be taken from select accounts based on the existing tax environment.

“IULs aren’t the only way to get a tax-free retirement account or structure. Roth IRAs offer it, Roth 401Ks offer it, municipal bonds offer it. The problem with those is many people don’t have access to a Roth 401k. And if they do have access to a Roth IRA, number one, they can’t participate if their income is too high, and number two, they can’t really put that much money into it. For affluent clients, life insurance steps into that gap,” Kelly says.

While Kelly is a proponent of IULs, he doesn’t believe in an all or nothing strategy when it comes to saving for retirement and estate planning. “I’m not an all or nothing person. I think having money in all of the different buckets is really a good thing because we don’t know what tax rates are going to do.”

There’s a massive opportunity to cement relationships with the “next generation” via a tax-free retirement strategy.

Client acquisition is one of the top concerns for today’s advisors. If you’re an advisor who wants to attract new customers, building relationships with the children of your existing clients is a great strategy to consider. 

Says Kelly, “I think advisors in the annuity space as a whole are missing one key massive opportunity. And that is the next generation. If they’re working with parents and working primarily in annuities, they’re generally working in the 55, 58, 60 and up market. Well, that 60 and up market has kids that are 35 and up. And that is the sweet spot for the tax-free retirement strategy.”

One tactic Kelly has been recommending to advisors for years is to give a copy of his Tax-Free Retirement book to existing clients to give to their adult children. Doing so helps you reinforce your relationship with the parents, while delivering your message to prospective clients who can really benefit from Kelly’s tax-free retirement approach.

During the podcast Martin shared an important observation about Gen X (those born between 1965 and 1980). “Gen X is a great target audience and this fits right in with them, absolutely. In the not-too-distant future, Gen X is going to have a bigger pool of investable assets than the Boomers do. And it’s a little shocking to people but if you think about Gen X, they are on the outside of 50-ish closing in. They’re still insurable, so that’s a good thing.”

Don’t let the fear of the unknown prevent you from doubling your business

Kelly and Martin agree that fear of the unknown prevents many advisors from taking a new approach to business, like the tax-free retirement strategy. But as with anything new, once you try it a couple of times the process becomes easier and easier, eventually becoming second nature. And Kelly’s strategy can really reap big rewards. 

Says Kelly, “If you could double your business, double your revenue and not see any more people, but just work with the ones you have and expand your offering or work with the next generation down, is it worth having that take a little bit longer?” It’s definitely worth it in our opinion.

To learn more about Patrick Kelly, you can read his bio and check out his book offerings on his Amazon page. And if you want to learn more about Simplicity InsurMark and how we can help you build a robust 21st Century advisory practice, schedule a discovery call today.

As an ADO – Advisor Development Organization™, Simplicity InsurMark provides solutions to meet the ever-evolving needs of financial professionals with a mission to protect and enhance the financial security of every home in America.