3Rs
Marketing 3Rs from page 14
The best way to market our professional services within our communities is through the advocacy of our own clients .
Advisor Perspective
“ Most people when presented with the idea of buying insurance will likely opt for the least expensive method ,” explained Guy Baker , managing director for Wealth Teams Alliance , LLC , and former president of the MDRT .
“ They see the difference between a term insurance premium and what it takes to fund an indexed universal life ( IUL ) policy or whole life premium and they quickly decide that the lowest cost is the best choice ,” continued Baker .
Boxing it up
Bedoya
“ To help educate clients , tell them a short story about the mathematics of life insurance called the Box – Ask yourself , what is term insurance ? It is an insurance policy where the owner of the policy pays the raw cost of insurance out of pocket – called the mortality costs plus expenses . This is a geometric curve that becomes increasingly more expensive each year . Yes , level 10-year-term and 20-year-term can mitigate this problem , but does it really ? Remember , mortality is a mathematical science . Every carrier must maintain sound actuarial funding for their mortality obligations . Doesn ’ t it make sense that every life insurance policy must be funded at the same level of premium by life expectancy ? If a carrier is underfunded , it runs the risk of becoming insolvent .
“ That being the case ,” Baker said , “ regardless of the method chosen to fund the mortality costs to life expectancy and beyond , whether it is term , universal life , indexed universal life , or whole life , the total mortality costs must be the same . So what is the difference ?
“ The difference is who pays what . With term insurance , the owner of the policy must pay 100 % of the mortality costs — the curve — out of pocket with after-tax dollars . Think about how much that would be at life expectancy — 50 % of the insured group is dead and 50 % is alive . Do the math . The total mortality costs are 74 % of the face amount plus the tax gross up . Depending upon the tax bracket , the economic cost of the mortality premiums will most likely exceed 100 % of the face amount . What is the cost if the insured is in the 50 % group who exceed life expectancy ? The sum of the mortality costs at the first standard deviation of risk , say life expectancy plus 7 years , would be 119 %. At the second standard deviation it is 240 %. This is why so many term policies lapse and less than 2 % actually pay a death claim .
“ This is not true of permanent insurance ,” Baker continued . “ While the mortality costs are exactly the same — 74 %, 119 %, and 240 % — the economic cost to fund these same mortality costs is considerably less . Why ? They are less because of the miracle of tax-free compound interest . The cash values are like a big Box . You fill the Box with extra cash in the early years , and if funded properly – that is , the funding is actuarially sound — the Box will pay the curve over the insured ’ s whole life . Instead of being economically impossible to keep the life insurance policy to life expectancy and beyond , the economic cost will rarely exceed 20 % of the face amount if the policy is started before age 50 .
“ Every client has a choice ,” he said . “ They either can pay the curve — the mortality costs — out of pocket , or they can fill the Box . Which makes more sense ?”
When asked about his outlook for 2023 , Baker said , “ Periods like the economy is experiencing today come along every so many years . Its purpose is to purge the inefficient and reward the economically sound and strong . It is truly survival of the fittest .
Marketing 3Rs continued on page 18
Periods like the economy is experiencing today come along every so many years . Its purpose is to purge the inefficient and reward the economically sound and strong . It is truly survival of the fittest .
Baker
16 Perspectives Q4 2022