An online survey about life insurance found that 33% of life insurance policy owners do not understand how their policy works. (1) I suspect that this number is probably low. Perhaps the other 67% think they know how it works, but I imagine they could get a refresher lesson. Even if a policy owner does understand how it works, do they understand how a decade of low-interest rates and equity market volatility affected their policy?
TOLI trustees should be contacting grantors to explain to them just how their policy works. Doing so will provide the grantor with greater clarity about their policy, and will provide the trustee with a chance to deepen the client relationship, bringing benefits to both grantor and trustee.
For the grantor who has been dutifully paying premiums (and trust fees) for years, the discussion will reinforce the reasons for taking the policy out. Even though the changes in the federal estate tax may have greatly reduced the number of people subject to the tax, life insurance is still a worthwhile financial investment and that point can be driven home by the discussion. Just because the proceeds will not be gobbled up by taxes does not mean the proceeds are no longer as valuable – in fact, they are now more valuable since, for many, one hundred percent of the benefit will go to the beneficiaries, a plus.
For some policies, the last ten years of low-interest rates have been a drag on performance and now is the time to review those policies with your clients – when interest rates are ticking up and fixed investments (which most life insurance policies are) have a rosier future. Perhaps the premiums will have to be increased to keep the policy on track but the policy, if managed correctly, is still a valuable asset.
Many of your grantors are reassessing their financial and estate planning future, given the changes and market volatility of the last ten years. Once they are comfortable their life insurance policy is secure and valuable, you can move on to other subjects that may provide additional revenue for your firm.
For many of your clients, retirement income is a major concern. Some may feel they do not have enough assets to support their lifestyle, some simply have not put a retirement funding plan in place. In either situation, financial planning services can lead to additional opportunities for your firm. For example, clients worried that they may “run out of money” can be introduced to annuities as a funding vehicle for a portion of their assets to ensure a basic lifetime income.
Higher net worth clients, with well-funded retirements, still need your services. Introduce your investment options as you develop a relationship with them. These clients also have issues other than money you can solve. Most wealthy individuals struggle with how much to pass on to their children and how to structure the inheritance. You can bring great relief to ILIT clients by introducing other trust and estate planning services that can solve their problems.
Use the discussions with the grantors to open a dialogue with the beneficiaries of the ILIT that you control. Most TOLI trustees we speak with rank retaining the asset – the death benefit after the death of the insured – as one reason for handling ILITs, yet few put in the time and effort to cultivate the next generation of wealth. Why can’t the beneficiaries be clients now so that retaining the TOLI benefit in the future will be cemented?
There are many reasons for contacting grantors to explain the policy. For clients of ITM TwentyFirst, you have one of the best tools in the industry available to do just that. Our annual policy reports provide all of the information needed to have a fruitful discussion with your client and for clients of our Managed Solution, a remediation specialist is available for any questions or policy modeling that might be needed.
Open the lines of communication with your grantors, you will be glad you did.
1. 54% of Americans Own a Life Insurance Policy, But One-Third Not Exactly Sure How It Works, Mike Brown, September 19, 2018 lenedu.com