A lot of water has gone under the bridge since then. Times have changed and with that many have left the industry, incapable of making a sustainable income like they used to. Not being skilled in cross-selling or lacking an understanding of “ancillary” products, they failed to take advantage of new trends emerging in the marketplace.

What are these trends? As you will see in this article, many Producers are once again making a 6-figure income selling Health Insurance, but Major Med has switched roles with Critical Illness and Accident Insurance. Major Med is the new ancillary sale and CI and Accident are the “Major Med.” Let me explain and give you the wherewithal you need to succeed:

As an ancillary product specialist for over 15 years I spent most of my time training agents on the importance of cross selling a high deductible major medical plan along with an accident plan and a critical illness plan. Up until 2008 this was always an uphill battle with many factors working against me. These same factors are often still lingering today:

1. Major Medical Compensation not delivering what the agent needed without adding on more products.
2. A push back from health insurance agents that thought health insurance was the only product to offer.
3. The difficulty training a health insurance agent to sell life insurance and vice versa.
4. A major lack of understanding of critical illness insurance.
5. The agent’s insistence to bring up the health sale first and leave critical illness and accident on the back burner.

Let’s take a brief look at each of the points above:

1) Major Medical Compensation delivering what the agent needed without adding on more products.

If you haven’t heard, health insurance compensation has sunk to all time lows. And to add more salt to the wound you should know that even if PPACA does not go through, long gone are the days of 20-28% commissions on health insurance. Back in 1999 we used to tell agents to sell health insurance to pay their major bills and sell critical illness insurance to pay for gas, utilities, etc. Today it is the other way around. With gas hovering around $4 a gallon agents need to sell health insurance to pay their gas bills and sell critical illness & accident to pay their mortgage, rent, etc. The agent is not unlike the insured in the ci sale. The agent is selling ci to make their livelihood and the client is buying ci to protect their livelihood!

2) A push back from health insurance agents that thought health insurance was the only product to offer.

Now on to #2, Health insurance agents used to have similar views to the client with regard to major medical insurance. they all thought that if you had major medical coverage you were well protected. We now know better. We have seen countless studies, Harvard University publications, news stories and more that show us that many times major medical coverage leaves our clients too vulnerable. Whether it is losing their home, getting put into collection for outstanding bills, not being able to keep their children in school, the list goes on and on. Major medical covers the major expenses related to the hospital stay but who covers:

• House payment
• Car payment
• Utilities
• Groceries
• Child Care expenses
• Co-pays & deductibles
• THE COST OF LIVING

Money will not buy you happiness but it will buy you peace of mind. When a client suffers a critical illness or accident they get the financial protection they need to make it through those difficult times. That is why the client needs to be sold ci, accident and major medical on every sale. It makes financial sense to the client and now more than ever it makes financial sense to the agent.

3) The difficulty training a health insurance agent to sell life insurance and vice versa.

4) A major lack of understanding of critical illness insurance.

I am going to combine 3 & 4 and try to cover as much ground without you getting too bored with me.J My father started in the debit world 30 years ago collecting nickels, dimes & quarters. He worked for Southern Life & Health, several marketing firms and prior to critical illness coverage he had 2,000 captive agents that were submitting over $330 million dollars per year of health insurance premium. He always used to tell me that it was impossible to train a health agent to sell life insurance and a life insurance agent to sell health insurance. With critical illness protection we have finally been able to break down those barriers! In my opinion a quality critical illness plan is built on a life chassis. It looks like health insurance, acts like health insurance, shoot it even smells like health insurance! But it is life insurance. We show the health agent how to raise the major medical deductible to lower the premium and add in accident and ci coverage. We show the life insurance salesperson how great it is to have a living benefits life plan to add into their package. Let’s say a client wants $300,000 worth of UL and $250,000 worth of term. Sell them the $300k of permanent and $150,000 of term. Then add in $100,000 of term life ci so that in the event of a critical illness they not only have the funds they need to maintain their lifestyle but the funds they need to pay the premiums on the other plans you sold them!!! It is a win, win, win!

Accident coverage is perfect for both life and health agents as well! A quality plan includes accident, AD&D, emergency air ambulance, CallMD and a ton of other benefits. Just showing this plan to a client will get them interested and since you are the professional, the authority, you should have no problem with this sale.

5) The agent’s insistence to bring up the health sale first and leave critical illness and accident on the back burner

#5 is going to cover two separate disciplines of cross selling the right way or what I like to call Reform Ready™ sales. You must first remember that CI and Accident have to be brought up BEFORE the health insurance explanation. Use these 8 simple questions for this approach:

“Hello Mr. & Mrs. Smith. I understand you are interested in health insurance at this time. In order to provide you with the best plan possible I would like to ask you eight simple questions:

1.              DO YOU KNOW SOMEONE WHO HAS SUFFERED A HEART ATTACK, STROKE OR CANCER?

2.              WAS THEIR QUALITY OF LIFE AFFECTED IN A NEGATIVE MANNER?

3.              IF I HAD A PRODUCT THAT COULD COVER YOU FOR $10,000, $25,000, UP TO $250,000 IF YOU SUFFERED A COVERED CRITICAL ILLNESS WOULD YOU WANT THAT MONEY?

4.              IF YOU CALLED ME IN SIX MONTHS AFTER HAVING A HEART ATTACK, STROKE OR CANCER, WOULD YOU WANT A GET WELL CARD OR A CHECK FOR $25,000? YOU WOULD WANT $25,000 RIGHT?

5.              HAS ANYONE IN YOUR FAMILY EVER HAD AN ACCIDENT?

6.              DID YOU HAVE TO GO TO A MEDICALLY QUALIFIED PHYSICIAN BECAUSE OF THAT ACCIDENT?

7.              DID YOU INCUR OUT OF POCKET EXPENSES BECAUSE OF THAT ACCIDENT?

8.              IF I HAD A PLAN THAT COVERED YOU AND YOUR WHOLE FAMILY FOR $5,000 OF ACCIDENT PROTECTION WITH ONLY A $100 DEDUCTIBLE WOULD YOU BE INTERESTED?

Because you answered those questions the way you did it would be wise to place you in a high deductible health plan. I can still provide Dr. Visits and RX Co-pays but the plan will be a lot less expensive and it will give us the ability to cover your family for:

Critical Illness Coverage

Activities of Daily Living Coverage

Life Insurance

Accident Insurance

AD&D

Emergency Air Ambulance

Call MD

Discounts on RX, Vision, Hearing and Dental

Dividend Club

You’re Health Insurance

And so much more!

There is no such thing as bumper to bumper coverage in the insurance world but the plan I am putting together for you is very comprehensive and you will be saving a great deal of month every year!”

Who doesn’t want to save money and have more protection than ever before? Did I mention that you will be making more commissions than you did prior to healthcare reform? Let me close with how to do that.

DO NOT CHECK THAT BOX!!! For those of you that follow my articles in www.producersesource.com you have seen this article before. For those of you that haven’t please read, Critical Illness and Accident Riders: Beware of the Checkbox!!!. Here you will get a simple explanation of why checking the box on any health insurance application is the worst thing you can do for your client’s protection, your commission and your persistency.

“The path of least resistance in the insurance world is the path of less coverage for your client’s and less commissions for you”

As you know a health insurance company strives to issue between 60%-80% of their business. For easy math we will say that the insurance company in question issued 70% of the business that came in the door and the remaining 30% was flat out declines or client rejections due to rate ups and riders. Having them both on the same application was an absolute nightmare. Look at the numbers.

If 30% were declined the health coverage you also just lost the critical illness coverage commission and your client isn’t protected!

If the client was rated up or ridered they didn’t want the CI coverage because of cost or anger. When your clients get denied by a carrier they often take it personally and never wish to do business with them again. There goes additional coverage in place!

All of the above stays true for accident coverage. After this experience, almost two decades ago, we realized that health insurance should be sold through a health insurance company, accident insurance should be sold through an accident provider and critical illness should be sold through a critical illness company. This is definitely a situation where “one plan does not fit all”. We discovered that the only way an agent could maximize income, maximize client coverage, and save clients’ money was through product and company diversification.

Present your clients the benefits of the three plans separately and then tie them all together to give them the coverage they deserve and the income you have worked so hard for.

Short cuts like Check boxes for critical illness and accident might make your job easier but please remember that those very shortcuts will make you question your due diligence as an insurance professional. Is it right to offer 3 products through one carrier because it is the easy way? Personally I think offering the best of each product through the best carrier is a win-win-win. The client has more coverage than they have ever had before, they are saving more money than ever and you have diversified your income streams to protect yourself from life’s ups and downs. Critical illness and accident insurance doesn’t just maintain your client’s quality of life; it maintains yours as well.

Please remember I work for you and I am always available to answer your questions.

Finding a way to cover obligations at a lower cost has never been a more pressing priority.

Public agencies that used to fund retiree health benefits on a pay-as-you-go basis now find that new accounting regulations are forcing them to reflect future costs in current budgets.  This is creating a painfully obvious schism between what is owed and the available resources, and endangering the credit ratings of many.

The timing is right for agents who can offer their public customers a solution that will reduce costs both now and in the future, maintain control over benefits, and limit exposure to risk. When it comes to retiree drug benefits, that solution is EGWP+Wrap.

Whipping Up Coverage

Employer Group Waiver Plans (EGWPs, usually pronounced Egg Whips) have been around for some time, but have remained in the shadow of the more well known Retiree Drug Subsidy (RDS) program. RDS was created by the federal government to stop companies from dropping their retiree drug benefits and enrolling their retirees in Medicare Part D base plan.

However, with the coming changes created by the Patient Protection and Affordable Care Act (PPACA), RDS is beginning to take a back seat and EGWPs are emerging as their most viable replacement. When a “wrap” plan that addresses the infamous doughnut hole of drug coverage is added, EGWP+Wrap becomes an attractive solution for public agencies.

The shift makes particular sense for public agencies. RDS was never as attractive to them as it was for for-profit businesses, which could reap the substantial tax benefits attributed to RDS. At one point, RDS was estimated to be worth about $500 per beneficiary to companies, a good bargain for the federal government because of the estimated Medicare Part D cost of about $1,000 per beneficiary.

Now, however, some provisions of PPACA are making EGWP+Wrap a valuable tool for public agencies who are seeking more savings than what the RDS program offers.

The Benefits of EGWP+Wrap

Although complex, many elements of EGWP+Wrap should feel familiar to public agencies. It is a self-insured product, a strategy that most public agencies are already using. It has two integrated parts – the Employer Group Waiver Plan and a wrap-around secondary plan – that can be designed to mimic current retiree drug benefits, or even enhance those benefits. This is particularly important for employers who are bound by collective bargaining agreements as to what their benefits must cover.

In addition, EGWP+Wrap can be handled by third-party administrators who can bring expertise and economies of scale to the process while eliminating the public agency’s administrative burden.

The major benefit, however, come from aspects that reduce current costs. These include:

• Higher federal subsidy. The EGWP+Wrap plan leads to lower costs because of the higher per-retiree federal subsidy, low-income subsidies, and the elimination of exposure to large risks because of the catastrophic coverage.
• The 50% Drug Discount Program. This program was created as part of the Patient Protection and Affordable Care Act to help Medicare Part D beneficiaries who have high enough pharmaceutical costs that they fall into the doughnut hole – the point at which they must pay for all prescriptions on their own until they reach a higher threshold of expenses when complete coverage kicks in. Normally under the new discount program, the patient receives a 50 percent discount. However, under the Wrap part of EGWP+Wrap, coverage can be provided that reduces the employer’s costs instead.
• Catastrophic care reinsurance. The EGWP+Wrap can easily be designed to make the employer eligible for the federal government’s catastrophic reinsurance program, an economical way to shift risk for high medical care costs to the government. With the amounts paid under the 50 percent discount program counting toward the doughnut hole thresholds, more retirees are likely to qualify for this catastrophic coverage, making it even more valuable for employers.
• Removing future drug benefit costs from current balance sheets. By turning future obligations into a fully insured benefit, public agencies can reduce the amount reflected in their current budgets for retiree health benefits. Some experts have estimated EGWPs reduce these liabilities by about 20 percent.
• Elimination of RDS auditing. The costly process of attesting to the expenses and benefits under RDS no longer applies.

By working closely with third-party benefit partners who understand EGWP+Wrap, agents can bring this solution to their public agency customers. It is a ripe opportunity because of federal programs, and one that is increasingly attractive to struggling local governments. Whipping up this business can be a win-win for both employers and their retirees.

Let’s begin with a crash course in inflation.  Way back in 1953, a gallon of gas cost 20-cents, a new car $1,650, and a new home $9,550.  If you were a teacher, you’d pay for it all on your modest salary of $4,200/year.  59-years later, you don’t need me to research today’s prices: as a shopper and checkbook-balancer you know exactly what everything costs, right down to a $4.00 gallon of gas, and which station in your neighborhood is the cheapest.

Just like that $10,000 home which today costs $273,000, the services which your LTC policy covers are no different.  They rise over time.  The hard part is making an educated guess how much.

Since your policy covers not only Nursing and Assisted-Living Facilities, but also Home Care and Independent Providers, the cost of labor can drive up underlying claim costs, as can the price of real estate, taxes, debt service, hiring and training, regulation compliance, and old-fashioned supply & demand.  An LTC insurance policy whose benefits do not keep pace over time comes dangerously close to being worthless.  A $100/day plan which at one time seemed ample could in the future cover only a small fraction of $800/day future care costs.

WHICH INFLATION RIDER IS BEST?

That’s easy.  The best inflation protection would be one in which you don’t overpay for an excessively-high rate you don’t need, nor underpay for a low rate which doesn’t keep up over time.  It would move flexibly with the cost of care itself.

Failing this, we can rely on a general rule of thumb: the younger you are as a purchaser, the greater your need for compounding, and the higher the rate of compounding you’ll need.  Applicants who are older will tend to receive less benefit from the exponential growth of compounding (and needn’t overpay).  Such buyers may find straight-line simple inflation growth sufficient, or even the Guaranteed Purchase Option strategy I will outline below.

A word of caution: producers of old knew that most claims began in the early 80’s, and figured as much when choosing an inflation option.  Today’s buyer may well live into her 90’s with ease, or even 100’s, so inflation protection needs to account for an additional 10 to 20 years or more of growth.

THE MOVING TARGET

The inflation protection option which moves in tandem with the actual cost of goods and services is called “CPI-Compound“, owing to the fact that your benefits are pegged to changes in the “Consumer Price Index“, and “Compound” because each year’s increase is compounded on Last Year’s Benefit.  (By contrast, when you purchase any “Simple” inflation option, each increase is based on your First Year Benefit.)  The CPI is considered such a benchmark of the growth of US goods and services that Social Security checks and many US Pension Funds are also pegged to it.  In terms of hard numbers, its historic 50-year average is roughly 4.1% at the time of this writing.

One of the unheralded advantages of CPI-based inflation protection is that the carrier’s profit margin is assured.  This is a good thing!  The policyholder can relax knowing her premium rates will remain more stable in the future, and even if inflation rises to double-digits her benefits will easily grow in tandem.

CARRIERS FEEL THE SQUEEZE

While the CPI is a floating rate, consider the fate of “fixed” inflation rates in an age where the Federal Reserve has just made the unprecedented announcement that it will keep Interest Rates near 0% for the next 2 years.  For carriers who are obligated to grow policy benefits at 5% Compounded while earning next-to-nothing on their Investment Portfolios, the results have been catastrophic, resulting in rate increases to make-up the difference, or carriers abandoning the industry entirely.

THE 5% STANDARD

If 5% Compound is so damaging, how did it become the standard?  Of those policyholders who elected an inflation option in 2010, over 45% chose 5% Compound.  (In decreasing popularity were 3% Compound, then 5% Simple, with other choices barely registering.)

We can point to several factors which might explain the dominance of 5% Compound.  First is the requirement since 1997 (due to tthe Health Insurance Portability & Accountability Act, or HIPAA) that every carrier offer it at the point-of-sale, with a concurrent requirement from consumers that they affirmatively “opt-out”.  Second is the advent of so-called “Partnership Policies” (launched nationwide beginning in 2005) which by definition require that a buyer aged 60 or younger purchase Compound inflation (whether 5%, 3% or some other minimum up to each State to decide).[i]

Just as Alexander Fleming is credited with accidentally discovering penicillin, it would appear that 5% Compound owes its discovery to no more illustrious an occasion than chance.

“It just sounded right,” was the description of one gentleman who claimed to personally know the actuary who developed it.  “It was arbitrarily picked,” said another industry insider, when recounting what he heard from his colleagues at the NAIC.  A brand-new benefit in the 1980′s, 5% Compound was soon seized upon by consumer groups insisting it become standardized and mandated.  During the ensuing negotiations, both 7% Compound was raised and rejected, as was a CPI-based rider which would’ve increased both benefits and premiums; in the end, the “mandated offer” of 5% Compound was settled upon which survives to this day.

WHAT’S THE REAL RATE OF INFLATION?

You’ve read the argument above for a floating rate linked to the Consumer Price Index.  Another approach consists in looking at each year’s Cost of Care Surveys put out by third-parties and evaluating the real rise in the underlying cost of healthcare.  Results from 3 such sources follow, showing compounded annual growth rates:

• Yr-over-Yr, ALF (One-Bed, Single Occ.) 1.19%
• Yr-over-Yr, NH (Semi-Private Room) 3.63%…….
• 5-yr, Licensed Home Health Aides 1.09%
• 5-yr, Licensed Homemaker Services 1.15%
• 9-yr, NH and ALF 3.50%
• 9-yr, Home Health Aides 1.30%
• 14-yr, Home Health Care 1.86%
• 16-yr, NH 4.05%

For the reasons above, 5% Compound has fallen out of favor, replaced by the more-affordable 3% Compound.  The observant producer will note, too, how nursing facility rates have tracked considerably higher than home care services over both the short-term and long-term.  But before making your recommendation, ask yourself, “Where will my clients be receiving care in the future?”  Industry stats show that ½ to ¾ of newly-opened claims are for Home Care: make sure your recommendations align with the services your clients expect to use.

WHAT DO THE RIDERS COST?

Using identical ages and benefits, I generated the following annual premiums for each of the following popular inflation protection riders below.  Keep in mind that even this list is not exhaustive: there are inflation options that cease once your benefit has doubled, tripled, or you’ve attained a given age (such as 85).  There’s even a CPI-compound option that grows only until you’ve reached age 75.  The next time someone tells you LTCi is unaffordable, remember: there are options for every budget!

• 2% compound: $1,983
• 3% compound: $2,394
• 5% simple: $2,638
• 4% compound / CPI: $3,073
• 5% compound: $3,993
• GPO: $8,330[ii]

To help you get a sense of what your $200/day benefit will look like in 30-yrs, I’ve embedded this chart to illustrate the comparison for you.

WHY IS THAT GPO NUMBER SO EXPENSIVE?

It stands for “Guaranteed Purchase Option” and is also sometimes seen as “Future Purchase Option” (FPO).  Guaranteed Purchase is like inflation protection in that—for a fee—you buy the right to exercise future increases to your policy benefit without having to provide evidence of insurability.  Unfortunately, because such increases are bought at “attained age”, the cost of exercising each option can become prohibitively expensive.

The result is that GPO is paradoxically either the least expensive—or the most expensive—inflation option available.  If you never exercise any of your future purchases, your benefit will be stagnant, and you’ll have paid only slightly more than someone with no inflation protection at all.  If you were to exercise all of your future purchases—each one successively more expensive than the last as you age—your benefit will grow, and your premium will rise in tandem with each purchase.  (This is seen as a distinct disadvantage compared to the other inflation options, where your premium is designed to remain level throughout your lifetime.)

Now you understand why my GPO quote above appears so pricey: I’ve shown the impact of accepting all the offers over a 30-yr illustration window, then done the math to produce one “average annual premium”.

But here’s the catch.  I wouldn’t encourage any of my clients to actually exercise all of their offers.

To understand how to sell—and buy—GPO, I’ve embedded a second Inflation Graph here, which answers the question, “If I only had $2,000 to spend, how much could I purchase using different Inflation Riders?”  Incredibly, for the same price if you compare 4% and 5% Compound, you could start at $130/day instead of $100/day and enjoy the use of a higher daily benefit for nearly 30-years.  That’s powerful.

Which brings us back to GPO.  We know going in that the rates at the oldest ages will be extreme: it’s not our intention to exercise them.  Since affordability is still the biggest barrier to entry for any Non-Buyer, the single most important action anyone can take is to get their foot in the door of “some coverage“.  Therefore, we can take as much of our savings from purchasing inexpensive GPO and plug it into a higher initial Daily (or Monthly) Benefit.  Having done so, we can enjoy the use of that higher coverage for the next 25-yrs. (As an example, the savings from buying GPO compared to 3% Compound should allow you to purchase twice as much Benefit up-front.)

SUMMARY

I hope this article has helped to shed light on the variety of inflation riders available today, while providing some guidance towards which is best for your situation.  Ultimately, the best inflation protection is the one you buy and keep.  In the 1990′s, only 44% of policies sold included inflation protection, and it’s to our industry’s credit that today’s rate has grown to a solid 77%.  But that still leaves nearly 1/4th of policyholders whose benefits are stagnant and not increasing over time.  Imagine if your salary was stuck in 1953 and you still made $4,200 today.  It wouldn’t take you very far, would it?  Don’t condemn your policyholders to an LTCi plan frozen-in-time, when so many inflation options await.  As we always say when it comes to LTC Insurance, something is better than nothing.

On February 3, 2012 IRS released proposed regulations regarding the establishment of “qualified longevity annuity contracts” (QLACs). The new QLAC rules will allow retirement account owners to purchase certain annuity contracts with a portion of their retirement assets that will be able to be excluded from their required minimum distribution (RMD) calculations. Annuity payments, the ONLY distribution option available from QLACs (no lump-sum distribution options allowed) will be required to begin by the owner’s 85^th birthday. A host of other provisions, including restrictions on the type of annuity that can be offered, the amount of money that can be invested and permissible death benefit options will also apply. The primary purpose behind the creation of QLACs is to help taxpayers in hedging their longevity risk by making it easier for them to purchase certain annuities with their retirement accounts.

Warning – QLACs Do Not Exist Yet

It’s important to remember that the proposed regulations issued by IRS regarding the creation of QLACs are just that…proposed. They are not final regulations and furthermore, they are not even temporary regulations. As such, QLACs do not currently exist and the rules and guidelines discussed in this article are subject to change in the final version of the regulations.

Longevity Annuities and RMDs…What’s the Problem?

Perhaps the biggest obstacle to owning so called longevity annuities (annuities that begin making payments at an advanced age, such as 80 or 85) within IRAs and other retirement accounts has been the required minimum distribution rules. The rules currently require that unless an annuity held within an IRA (or other retirement account) has already been annuitized, its fair market value must be included in the prior year’s December 31^st value when calculating RMDs. This has the potential to create planning problems because although the annuity may have a value, it may not be as readily accessible (liquid) as, say, IRA assets held in a brokerage account. As a result, if a client chooses to take what would be the annuity RMD from other IRA assets (in order to leave the annuity alone), it could lead to liquidity issues down the road. On the other hand, the earlier a client is forced to start taking distributions from an annuity because they need the extra money or have to satisfy RMDs, the less annual income the annuity will generally produce.

 New Proposed Regulations Can Help Solve IRA Annuity RMD Issues

Under the QLAC proposed regulations, RMD issues will no longer be a concern for certain annuity contracts. Clients purchasing longevity annuities that meet the requirements of a QLAC after the final regulations are issued will be able to completely exclude the value of the annuity from their RMD calculations. If the final regulations are issued soon enough, that could impact a client’s RMD calculations as early as next year (2013). The new QLAC exclusion rules will prevent clients from ever having to tap their qualifying annuities as a way to satisfy RMD payments, and thus, the annuity start date can be “pushed out” to a more advanced age. 

Age 85 – The Latest Annuity Start Date

Under the proposed regulations, annuity distributions from QLACs may be deferred, but only until the first day of the month following the person’s 85^th birthday. The age-85 requirement is a maximum age for beginning to receive payments, but the regulations do not contain any restrictions preventing QLACs from offering owners the option of starting distributions at an earlier age. However, as the preamble to the proposed regulations explains, offering contract owners the ability to receive distributions at an earlier age would likely increase the cost of those contracts.

Limits on QLAC Purchases

The new proposed regulations do not allow clients to invest an unlimited portion of their retirement savings in QLACs. In fact, the amount of retirement assets an individual can invest in QLACs will be limited by both a dollar amount and a percentage. The total amount of retirement assets that a person can invest in a QLAC will be limited to the lesser of $100,000 or 25% of retirement account assets.

The $100,000 dollar-limitation is a cumulative limit for all QLACs purchased in all retirement accounts. In other words, no matter how many IRAs, 401(k)s and other retirement accounts a client has, they cannot have more than $100,000 invested in QLACs.

The $100,000 limit will be indexed by inflation, but only in increments of $25,000.  Therefore, this too is unlikely to change for the foreseeable future.

The amount of retirement assets clients can invest in QLACs is also reduced to a maximum of 25% of their applicable retirement account assets. Unlike the dollar limitation, which as described above is applied cumulatively to all a client’s retirement accounts, the 25% percentage-limitation will generally apply separately to each of a client’s accounts.

There are, however, two key differences between how the 25% limit will apply to plans and to IRAs. First, for plans, the 25% limit applies separately to each of a person’s plans.

For IRAs, the 25% limit will be applied to the total value of all of a client’s IRAs (not including Roth IRAs). The second major difference is that for plans, the balance used to determine the 25% limit is the actual balance on the date the client makes a QLAC purchase. For IRAs, on the other hand, the balance used to determine the 25% limit will be the prior year-end balance.

Disadvantages of QLACs

The ability to exclude the value of a QLAC from RMD calculations will obviously be a huge benefit for some clients, but they will not come without their share of drawbacks. One disadvantage for some retirement account owners is that QLACs will be restricted from being variable annuity or equity-indexed annuity contracts. In the Service’s opinion, since these investments rely, at least in part, on market returns, they would not be consistent with the safety and predictability of retirement income they intend to encourage through the new QLAC regulations.

Another key drawback of QLACs will be their somewhat irrevocable nature. In order to meet the requirements of a QLAC, a contract will not be able to offer “any commutation benefit, cash surrender value, or other similar feature.” In other words, as the kids might say, “No Backsies!” Once a client has purchased a QLAC, it’s theirs for life and the only way they may be able to access funds sooner than the contractual annuity start date is if, and only if¸ the contract allows the owner to voluntarily choose an earlier annuity start date. Even in such cases, the benefit received could not be a lump-sum, but simply the beginning of annuity payments for life.

Death Benefit Options for QLACs

Another big disadvantage of QLACs for some clients will be the lack of death benefit options. In order for an annuity contract to be considered a qualified longevity annuity contract, the only permissible death benefit option will be a life annuity, the same option available to the client during his lifetime, payable to the beneficiary. No additional options, such as a return of premium benefit, a lump-sum benefit or a period certain annuity payout may be offered. The life annuity requirement applies to all QLACs, whether the beneficiary of such a policy is a spouse or a non-spouse designated beneficiary.

Although some rules, such as the restriction to only life annuities, will apply to QLAC death benefits regardless of who the beneficiary is, there are a number of differences between the rules for a spouse who is the sole beneficiary of a contract and other designated beneficiaries of a QLAC, such as the amount of the life annuity as well as the time that the annuity must begin payments.

Remember, QLACs do not currently exist. However, the overwhelming likelihood is that IRS will release final regulations before the end of 2012, adding another valuable planning tool to the retirement planner’s arsenal.

The definition of success varies for each of us and comes from both business and personal activities and accomplishments. Everyone has the opportunity to reach their full potential in every area, but few feel they actually made it.

During my 34-year membership of the Million Dollar Round Table (MDRT), with two Court of the

Table and 16 Top of the Table qualifications, it is now clear the biggest challenge wasn’t reaching the Top of the Table, but rather staying there. Whether you’re a seasoned advisor or a new agent, you may benefit from these seven success strategies to stay ahead and remain on top of your game.

1. Stay Trustworthy

It’s important to not only build trust with your clients, but with everyone they know. Clients are looking for assurance their life insurance and investments are being monitored by a committed advisor. If clients’ receive exceptional service, in return they will tell their business associates, family and friends how good the relationship with you and your firm has been. This is an effective way to generate prospects and establish credibility.

2. Stay Consistent

It’s key to deliver what you say you’re going to deliver. There has to be serious congruency. When you give clients a specific deadline to deliver a project, time for an appointment or promise to recommend a great pizza place, you must follow through and do what you say you will do.

3. Stay Active

If you are aspiring to reach top producer level, you need to stay active in a financial organization. MDRT is the biggest and most efficient “study group” in the world. It is a place to get to know other financial professionals who have experienced all of the hurdles you could possibly stumble upon and offer guidance. If you take advantage of MDRT’s networking opportunities, you can stay on top of the industry to get ahead of the curve.

4. Stay Balanced

In today’s world of information overload, the use of new technology can be key to help you increase productivity. Many people thought technology would replace face-to-face meetings, and for simpler decisions, email and webinars have been effective. However, when clients are making critical decisions regarding their business and family, nothing takes the place of an in-person meeting with an advisor. You need to strike a balance of using new forms of technology in tandem with traditional communication skills.

5. Stay Prepared

It is always best to plan ahead for the possibility of a client missing an appointment. You can prepare by scheduling appointments similar in time and proximity. In your efforts to stay productive, it’s important to remember to dedicate enough time to give each client the personal attention they deserve.

6. Stay Visible

It is important to volunteer with trade associations, so if you’re focusing on estate planning get involved with your local estate planning council. It’s beneficial to not only become a member, but to sit on the board and work your way through the chairs. You’ll get exposure, build your reputation and develop relationships with people whom you are going to be doing business with throughout the rest of your career.

7. Stay Targeted

You may find speaking at public seminars helpful, but what has worked for me is targeting an industry specific group. Find a local group of CPAs who already have a monthly meeting.  Professional trade groups are always looking for educational speakers with interesting topics.  It’s an effective way to give substantive information, as long as it doesn’t sound like advertising.  These meetings often serve as a great referral source because you will be remembered as the expert on annuities, 401k plans, etc.

We are all capable of being successful – however we define it. The question is – once we reach it, how will we stay on top? This is the true test of what will set you apart from other financial advisors. Perhaps it’s just as simple as doing the things that helped you achieve high performance. However, this information alone won’t sustain success. It’s how you implement and maintain it in your daily and work life. So give it a try and at the next MDRT or TOT meeting, please let me know how it goes.

As this client’s insurance broker, what do you do?

1. Nothing – it’s his business and his problem.
2. Ask for key dates so you can make insurance and COBRA decisions.
3. Tell the COBRA administrator to send out COBRA offer letters ASAP so the company complies with its 60-day notice period.

If you answered “B,” you are correct. However, those of you who answered “C” might be intrigued to know why your answer was wrong. But before I answer that question, let me ask you something else.

Will the employees of this company be eligible for federal COBRA?

1. Yes. Their jobs will be terminated, which is a qualifying event, so they are eligible for 18 months of COBRA.
2. No. If a company closes its doors, the health plan ceases to exist. If the health plan ceases to exist, no COBRA is available to the laid off workers.
3. Yes, but COBRA is only available through the date that the health plan is paid. The time period might be much shorter than 18 months.

In this case, there are two correct answers: “B” and “C.” Are you shocked? Many people are. We all assume that dislocated workers will have COBRA. Not true. COBRA only exists if the health plan exists. So, the length of COBRA availability depends entirely upon the business’ timeline and approach to ceasing operations.

If a company is restructuring or filing bankruptcy, the health plan may stay intact for some time, and COBRA may be available for that period. However, if the business is really closing its doors with no wind-down process, the health plan often ends immediately. COBRA is only available through the date the health plan premium is paid. If the company failed to pay its carrier bill in the months leading to the shutdown, the COBRA date dies along with the plan retroactively.

So, back to the first question … In this scenario, why shouldn’t the COBRA administrator send out COBRA offer notices immediately?

For two reasons:

1. COBRA may not be available at all.
2. If COBRA is available, you need to know how long the plan will continue before sending an offer letter so the newly unemployed understand exactly what their continuation rights are (or are not).

In fact, instead of just an offer letter, it may be more appropriate to send a COBRA election notice indicating the time involved with the end of the plan and a notice of unavailability, letting laid-off workers know that they will not have access to COBRA when the plan ends.

So, if a client ever tells you that he or she is planning a huge layoff, bankruptcy, or restructure, or just closing the doors forever, here’s your “stop, drop, and roll” formula for COBRA:

1. Let the employer know that closing decisions and timelines will have a huge impact on the dislocated employees’ access to COBRA.
2. Don’t mail anything until you have a clear picture of the situation.
3. Ask for detailed information about the company closure. The employer may try to be vague but do your best to get all the facts.
   1. Will everyone be laid off at once or will it be a gradual process?
   2. For how long will the health plan be maintained?
   3. Is it a restructure or a bankruptcy?
4. Call the carrier to confirm the health plan’s paid through date.
5. Arrange a meeting or conference call between the employer, any legal counsel, the COBRA administrator, and the carrier to reach agreement about the proper notification process. If the closure involves a bankruptcy or formal restructure, and depending on the company’s size, there could be special notice requirements and a bankruptcy judge involved. The company’s legal counsel should advise on this matter.
6. When the facts are clear, the COBRA administrator should promptly send impacted workers and COBRA participants the appropriate notices. These could include:

• A standard offer letter, notifying them of the appropriate COBRA timeline associated with their COBRA eligibility.
• An amended offer letter, notifying them of a shortened COBRA period of eligibility.
• A notice of unavailability letter, notifying them that they have no access to COBRA either due to the end of the plan now or at a future date.

Keep in mind that workers are continuously making health care decisions and sometimes even scheduling surgical procedures well into the future, based on the current information they have. Prompt, clear communication minimizes the likelihood of confusing disputes later on.

As an insurance advisor, you hope to rarely encounter this situation. But when you do, you’ll stand out as a true professional if you can provide invaluable advice to clients during one of their most stressful times. Moreover, giving sound advice is the right thing to do, and it could make a huge difference in the lives of all the people about to be impacted.

• Just over 1 in 4 of today’s 20 year-olds will become disabled before they retire. More than 30 million Americans between the ages of 21 and 64 are disabled.

• Back injuries and major illnesses cause the majority of long-term absences, with lifestyle choices and personal behavior that lead to obesity becoming major contributing factors.

• The average long-term disability claim lasts 31.2 months.  The odds for a worker entering the workforce today of being disabled three months or more are about 30%, with less than 5% of disabling accidents and illnesses work related.

• Although 90% of wage earners rated their “ability to earn an income” as “valuable” or “very valuable” in helping them achieve long-term financial security, 67% of workers in the private sector have no long-term disability insurance.

Health insurance. Life insurance. Property and vehicle insurance. Chances are, it probably wasn’t difficult to convince your clients of the value of these types of coverage. But when it comes to disability insurance, it may be more of an uphill battle. Small business owners may feel it’s a luxury they can’t afford while those on a company payroll might think that Worker’s Compensation is all they need.

Unfortunately, neither supposition is completely accurate. There is no denying that, like all insurances, disability coverage can be yet another line item on an already tight budget. But the price of not having it can be disastrous—for the self-employed who provide part if not all of a family’s income and for the estimated 95% of workers whose injuries are not job-related.

Disability Insurance Awareness Month is the ideal time to reach out to all your clients — both employed and self-employed — using the following tools and strategies to educate them about the role disability insurance plays in life planning.  The LIFE Foundation producer tool kit can be found at www.lifehappens.org/diamkit.

Social Media

Twitter, Facebook, YouTube, blogging and email are efficient and effective ways to reach your market. For example, post disability-related statistics or incorporate LIFE’s Facts of Life disability-oriented information into email signatures to make your target audience aware of the vulnerability they face when uninsured.

realLIFEstories

While facts and figures are important, sometimes it’s the anecdotal story that generates a greater impact. LIFE Foundation’s realLIFEstories bring the message home in a powerful way, as illustrated by the experiences of people like Ashley Tew and Peter Zatir. The Frank Szatkowski story will resonate with self-employed, since the disability policies he had in place not only provided for his family after his illness forced him to stop working, but also allowed his partners to continue the business.

Informational Handouts

LIFE’s range of informational materials range from one-pagers (Things To Consider and Disability Insurance Coverage Options) to more in-depth pieces such as Guide to Disability Income Insurance and for business owners, An Employer’s Guide to Disability Income Insurance. By providing your clients with the facts about disability insurance in advance of your meeting, the conversation becomes less about the reason why they need it and more about the amount that best fits their needs and budget.

Policy Review

While many producers schedule policy reviews in January, May is an equally appropriate time, especially for those families whose children are shifting from student to full-time employee. Many will be facing insurance questions for the first time as they complete employment paperwork, and will find background information beneficial when it comes to choosing the appropriate coverage.

With many families suffering the fallout from the recession in the form of job loss, self-employment has become a way to replace the company paycheck. It’s essential that these entrepreneurs understand the role disability insurance plays in protecting their livelihood and the family’s future.

In the end, whether the product is life, long-term care or disability insurance, the first role of a producer is to increase awareness and understanding about the need for the coverage, and the role these products play in safeguarding the financial security of individuals, families and business.

For more information about the LIFE Foundation, contact Jaimee C. Niles, V.P., Communications at jniles@lifehappens.org, 703-888-4450 or visit www.lifehappens.org.

About LIFE

The Life and Health Insurance Foundation for Education (LIFE) was founded in 1994 in response to the public’s growing need for information and education on life, health, disability and long-term care insurance. LIFE also seeks to remind people of the important role insurance professionals perform in helping families, businesses and individuals find the insurance products that best fit their needs. To learn more about these topics, please visit www.lifehappens.org.

Social Security Tax Rate

Married couples that make between $32,000 and $44,000, for example, will have to pay taxes on up to 50% of their So­cial Security. Furthermore, couples making over $44,000 will probably pay taxes on as much as 85% of their benefits. This does not mean the federal government will take away 50% or 85% of your Social Security. The percentage only indicates the portion of your benefits that will be subject to taxation. And under federal law, the government can never tax more than 85% of your Social Security income – regardless of how much money you make.

One interesting wrinkle that can trip you up when calcu­lating the income thresholds above is that nontaxable interest actually counts towards the total. For example, if you and your spouse have $42,000 in taxable income plus $3,000 in interest from tax-free municipal bonds, you would prob­ably assume that only 50% of your Social Security benefit is subject to tax. However, you would be wrong! The federal government counts the tax-free interest, so your combined income would be $45,000 for purposes of calculating the So­cial Security benefits tax. Instead of 50%, you would have to pay tax on 85% of your Social Security. This policy has the effect of turning what should be tax-free income into taxable income.

Annuities & Social Security Taxes

Annuities can help to alleviate this problem, since no taxes are paid on deferred annuities until a withdrawal is made and payments from annuities include a return of prin­cipal that is not counted as income. So many seniors are not aware that their tax-free bond interest counts towards the taxation of their Social Security benefits. When I was a finan­cial advisor, I was able to help many seniors reduce or com­pletely eliminate the taxation on their Social Security benefits – simply by moving tax-free bonds or CDs just sitting in the bank into deferred or income annuities. If you have a large pension or other income from an asset that cannot be moved into an annuity, you will likely be paying taxes on 85% of your Social Security benefits.

Once you retire and begin taking Social Security, you will receive a Social Security Benefit Statement in the mail each January for the rest of your life. If you have questions about whether you owe taxes on your Social Security, this form should be able to answer them. If it turns out that you do have to pay taxes, you have two options. Your first option is to make quarterly tax payments to the IRS each year based on your adjusted gross income. But the second option is simpler. Instead of receiving the money and then having to pay it right back to the government, you can sim­ply opt to have the tax money withheld from your monthly Social Security checks, much like when you were working. This way, it will at least seem like that lost money never existed in the first place.

We have all encountered prospects who expressed interest in our product, service or offering. But after that initial conversation that person has gone AWOL. We leave a few voice mail messages and send a couple of emails but get no response.

We don’t want to be perceived as a pest so we give up and move on to other opportunities.

First, let’s examine why people don’t return your calls and emails.

They are simply too busy.

That’s right.

Here are five strategies you can use to improve your follow up process and increase the likelihood of reconnecting with your prospect.

1. Deal with the right person

First and foremost, you must deal with the right person. That means talking to the key person(s) who are responsible for making that buying decision. If you are discussing the purchase with anyone other than the person who controls the budget or who owns that buying decision you are probably wasting your time.

2. Pre-arrange the follow-up

One powerful strategy is to pre-arrange the follow-up during every conversation.

During an initial call you need to establish a day and time for a subsequent conversation. You can do this simply by saying, “It seems like we need to talk again. Does next Tuesday morning at 9:15 work for you?” Pinpointing a specific day and time is critical but most sales people say something like, “I’ll call you next Tuesday.”

This approach leaves the door open and forces the other person to actually look at their calendar and consider your request.

Once you nail down a day and time, tell them that you will send them an Outlook invite and then send it…immediately after your call.

When you call at the determined time you may get their voice mail so hang up and call back in 2-3 minutes. If you still get voice mail leave a message, “Mr. Jones, Kelley Robertson calling as promised. I suspect you got called away so I’ll give you a shout at 11:45.” In many cases, the other person will either return your call shortly or they will be at their desk the second time you call.

3. Develop a plan

You can’t simply keep calling a prospect and say, “Hi, it’s Kelley following up to see if you have made a decision yet.” That approach will get you nowhere…FAST!

The key is to find ways to keep your name on your prospect’s radar. Here’s why…

Many buying decisions go into a holding pattern while your contact deals with internal politics, approval processes, and other projects on their plates. Although the buying decision may be a priority today, it can be pushed the bottom of the list tomorrow when your contact has a more pressing issue to deal with.

That means you need a well-thought-out plan of attack. Invest time to create a “keep-in-touch” campaign. Use a range of approaches and methods and you will increase the opportunity of connecting with your prospect.

4. Use a variety of methods

You can’t rely only on email or telephone to connect with busy prospects. You need to use a variety of tactics and methods including texting and sending direct messages from social media platforms such as LinkedIn, Twitter and even Facebook.

Snail mail and courier are two methods that are underused in today’s technology-driven world and you can often connect with high-value prospects at industry conferences or networking events.

5. Become a resource for that person.

For example, if you know that your prospect struggles with employee turnover, look for information that addresses this issue. You don’t have to be the expert; in fact, you will earn even more credibility if you aren’t because this demonstrates that you are in touch with their business challenges.

If you’re going to call, make sure that each message adds some type of value…avoid the approach I mentioned a few paragraphs ago.

How much is too much?

One of the most frequently asked questions I get when discussing follow-up strategies with clients and sales people is, “How much is too much?” or “How many calls should I make?”

There is no clear or definitive answer; however, here is my guiding rule:

The larger the sales opportunity, the more follow up calls or contact points you need to make and you have to determine what a high-value sales opportunity is for your particular business.

In my own sales training business, I will seldom try to reconnect with a prospect more than once or twice if the value of the sale is less than $500. However, I will make several attempts for sales that are worth several thousand dollars and I will be relentless in my follow up for a sales opportunity that has the potential to generate a five figure result.

Great follow up requires thought, effort and energy. However, the more consistent and effective you are at executing this, the more you will increase your sales.

When marketing or “posting”, those fans become your guaranteed distribution or virtual reach. With a solid posting strategy you have the ability to actually increase your distribution by touching your fan’s friends through interaction occurring. At the end of the day this won’t lead to instant online sales while you sleep. However it will lead to “planting the seeds” of your agency in people’s minds. As we know with insurance, it’s not until something happens in our life that we decide we need it. When that life event occurs in your follower you have a much more likely chance that seed will sprout into a referral phone call from a friend of a fan!

The Three P’s of Your Facebook Marketing Strategy

So what does your insurance agency really need to do to be successful with Facebook? In my opinion you need the three “P’s”.

Page Purpose,

Promotion,

Posting Strategy.

If you can implement all three on a consistent basis you will be above and beyond most insurance agencies. The problem is most agencies have fallen into a bad trap with social media. They heard so many times that they needed it and had to have it that they rushed to create a presence. There was never any thought process on its purpose and game plan. Now these agencies are left with a lot of wasted time and having a social media presence just to have one. What good is that?

Page Purpose

The first key to success is defining what your Facebook agency page actually offers people. What does it actually provide its fans consistently? If you want to seriously increase your “Fans” and distribution you can’t just tell people “Like my page, become a fan”. Let’s say you have lunch with your top client and you say, “Hey Bob, we now have a Facebook insurance agency page, we would love if you went home and clicked “like” and became a fan.” Well what would you say to Bob if he said “Why? What does it offer me?”. My point is, almost everyone has a Facebook page now for their insurance agency. The ones that are going to rise to the top have an actual purpose for the page, it offers something for free. That purpose might be promoting one of their client’s businesses each week or offering a silly golf joke every Friday but it’s still more then you may have now! Once you define your page purpose it will make getting fans and posting much easier.

Promotion

Once you have a page purpose, it makes it much easier to promote the page and get fans. Instead of telling everyone to “Like” your page, you can say, “123 Insurance is proud to announce our new free value added service. Visit facebook.com/123Insurance and become a fan today to receive weekly silly golf jokes and special advertising discounts from our clients, which is only available to our fans!  Just visit the page and click the “LIKE” button at the top middle of the screen.”

Promoting should be done consistently through many traditional and nontraditional means. Featuring it in your client newsletter, website, email signature, send it to your Facebook friends, LinkedIn connections and any other means that people are likely to pay attention to.

Posting Strategy

Now that your page purpose is in place, you have a road map of what you have to post. If you have promised your fans silly golf tips every Friday, then you must come through and post them.  Of course you still want to offer a balance of three kinds of posts.

(1) Projecting yourself as an expert in the products you sell.

(2) Agency promotion – Making sure people know the products you offer.

(3) Interactive Posts – Posting things that people will “Like” and “Comment on” giving you the ability to increase your distribution.

Facebook is a very powerful tool for anyone looking to influence potential consumers. The problem is its getting more and more complicated to get results. To get to the next level you need to have a game plan that you can consistently execute and modify. If you don’t have that plan then you’re just hoping for results and in business none of us ever want to rely on guessing!