Kestler Financial Blog

How to Help Your Clients Understand Tax Equivalent Returns

Adam Cavalier — Tue, 21 May 2013 00:00:00 GMT

Maybe Phil Mickelson had it right.

The more I think about his comments I wrote about earlier this year, the more I think he has a point. In fact, in California, the tax situation may be the worst in the country (Hawaii currently holds that claim with a higher top rate and lower annual income than any other state).

the real dollars

What I think gets lost in translation, however, is just how much money we're talking about when it comes to taxes. Most of us understand the percentages, but what about the real dollars?

What if we think about this way: How much more money California resident has to earn to have an income equivalent to a state without income tax (Florida, Texas or Nevada)?

That is a much more important question, with a more painful answer. Consider a California resident earns $250,000, with an effective tax rate of 9.21%:

How much more would this taxpayer need to make to have an income equivalent to their neighbor in Nevada, who keeps all of the $250,000 in this example?

The answer is $275K - an increase of over 10%.

That's the tough thing about percentages: The percentage increase you need to see to make up a shortfall is always greater than the percentage decrease.

It's the same with market losses, and the vast majority of our clients simply do not understand the math. They just understand the pain of the loss or writing the check for the tax bill.

tax diversification in retirement

In the discussion of Phil's situation, I focused most of the attention on current taxation, with only a small reference to the need for tax diversification in retirement.

In retirement, this idea of having to take an additional 10% in income to achieve the same purchasing power is enormously important. Frankly, it can be the difference between outliving your assets and being comfortable in retirement.

Of course, not everyone dreams of relocating to a more tax friendly state in retirement, and that means finding another way to address the problem.

tax-free income

One way is to create sources of tax-free income, and avoid not only the state level taxes, but the federal as well.

In this analysis, we'll once again focus our attention on the real dollars. This time, however, the focus is on how much less income is required when that income is not subject to income tax.

So, if I have a retirement income goal of $250K per year, and none of it is subject to tax, I need to take $250K for the year.

Using the same state tax rates as the example above (9.21%) plus the corresponding federal rate of 23.76% (yielding a combined rate of 32.97% in this example), the taxable equivalent of a tax-free $250K income is $375K!

An increase of 50%!

While this is admittedly a simplified calculation versus the actual taxes due, the real increase will be a big number, and certainly more meaningful than a percentage.

To most clients, percentages are vague, theoretical measures. But, dollars are tangible.

They interact with them every day, and probably even have some in their wallet. They represent our client's reality, and our clients' reality is hugely suggestive of using life insurance to create a tax-free source of income in retirement.

tying it all together

Which brings me to the real point of today's discussion: Breaking down the technical topics we discuss every day into terms, analogies, and even stories for our clients will always result in greater levels of understanding.

Greater understanding means more engaged clients.

These engaged clients have higher levels of trust, will give you more of their business and refer more of their friends and colleagues. That leads to a happy producer with a profitable practice.

Kestler Connection 5-21-13

Kestler Financial Group — Tue, 21 May 2013 00:00:00 GMT

• Aviva Webcasts for May

• Aviva News:
» New Target Benefit and Target Horizon State Approvals
» Summer Hours
» Sales and Distribution to be closed for Annual Meeting
» NAIC National Rollout Reminder

• Athene News:
» Illustrate RMDs for Your Athene Benefit 10 Clients
» New ATHENE Benefit 10 iPad® App

• American National News:
» Mid-Month Update
» Term - Und Express, ABR's & More
» Don't Delay - New Index Annuity Required Training

• American General News:
» Income Annuity Rates Will Increase Wednesday, May 15

• Great American Life News:
» Good News - Revised Fixed-Indexed Annuity Rates Effective May 21

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

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Kestler Connection 5-14-13

Kestler Financial Group — Tue, 14 May 2013 00:00:00 GMT

• Aviva Webcasts for May

• Aviva News:
» Field Update: BAA® 10 commission bonus payout
» Upcoming Nationwide NAIC Training Deadline
» Reminder on Replacement Guidelines and Aviva USA Research

• Athene News:
» Rollup Rate Change On the Way - Act Now to Lock In Today's Great Rates!

• American National News:
» New Annuity: It's a Game Changer
» Required Training for New Product
» S.I.M.P.L.E. vs 401(k)

• Great American Life News:
» New Rider Now Available in 42 States; Rate Decrease Reminder; And More

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The Retirement Gap

Adam Cavalier — Tue, 07 May 2013 00:00:00 GMT

As much time as we focus on product in this forum, it seems appropriate to turn our attention to other variables in the calculus that is working with insurance clients. This year, case sizes are smaller, along with the premiums and, unfortunately, most producers’ incomes. Clients are facing a similar struggle, in that their incomes are smaller, and they have to make their dollars go farther.

The cause? Certainly, there are more than one. Today, however, we focus on one: the fact that the public is starting to understand just how challenging retirement is going to be, and their subsequent struggle solving that particular riddle. What riddle? If a picture is worth a thousand words, perhaps a good infographic like this one from Lincoln Financial is worth a million? Not enough information for you? How about this piece from ING? They both tell an important story.

The message is clear: our clients are not saving enough, and they are starting to believe that the safety nets that have been in place, such as pensions, employer sponsored plans and social security, are not going to fill the gap. Layer on top the increased tax rates and the possibility of higher rates in the future, and the stage is set for the one industry that can really step in and help them bridge the gap: the insurance industry.

The challenge is how to help clients understand the problem in the most real terms: their own. Specifically, just how big a gap are they facing? Make it personal, and it becomes all the more real. Maybe real enough to motivate them to take action. Taking it from the theoretical and fact based argument represented by the materials from Lincoln and ING above and placing it squarely in your client’s living room is the next step.

How, exactly, to go about that? There are a number of ways, and they range from the most simple cocktail napkin calculation to a full fledged financial plan. The best way? The one that actually gets the client off their backside and inspires them to take action. Here’s an example: the Retirement Path Roadmap from Aviva. Or perhaps the Retirement Extra from ING? The methodology is startlingly simple: quantify the problem with a simple presentation, and suggest a solution for solving the problem. A portion of that solution, for a host of reasons, could, or maybe even should, be a life insurance policy.

Why? Simple, really. Control. Tax deferral. Tax free income. Lifetime income. Self completion via death benefits. Clients need the protection aspect more than ever because of the very gap we are talking about, and they demand that their dollars work harder than ever. No longer is it enough to fund something that only solves one aspect of the problem. Our industry and products offer the exact things that are being taken away from our clients in other parts of their financial lives.

What it takes is a new vocabulary, or for some, simply dusting off one that they have not used in quite some time. The bottom line is that making that transition back to selling cash value products is challenging, and it takes some re-training. If your goal is to have your insurance practice return to the levels of success you have enjoyed over the last decade selling based on low guaranteed prices, it is probably time for us to have a conversation. Give us a call...

Kestler Connection 5-7-13

Kestler Financial Group — Tue, 07 May 2013 00:00:00 GMT

• Aviva Webcasts for May

• Aviva News:
» Exciting News! We are extending the commission bonus for all BAA®
» Annuity Sales Idea: TargetReserve(SM) and RMD
» Target Series Commission Bonus
» Field Update: Letter to Agents - Athene Announces buyer for Aviva USA life business

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Kestler Connection 5-1-13

Kestler Financial Group — Wed, 01 May 2013 00:00:00 GMT

Feature: Deja Vu All Over Again?

• Aviva News:
» BAA 12 commission bonus program ending 5/3/2013 payout details

• Athene News:
» Athene Annuity Announces May Interest Rates
» Register for Today's Webinar Now!
» ACTION REQUIRED: New Business Process Change Now in Effect

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» Financial Strength Rating Upgrade, Inheritance Enhancer Now Available in 40 States and More

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The Lump Sum Capacity Problem

Adam Cavalier — Tue, 23 Apr 2013 00:00:00 GMT

The recent announcement by Northwestern Mutual of a limitation on first year premiums is but the latest chapter in the saga of the current economic environment and its impact on the life insurance industry. The extended period of low interest rates combined with the anticipated continuation of low rates for the foreseeable future is pushing carrier after carrier to make some tough decisions. The conclusion more and more of them are coming to is that they need to limit the amount of large single premiums they accept, simply because there are so few current investment options that offer acceptable rates of return.

That leaves our clients with a much narrower set of options when it comes to carrier selection, and funding patterns. We are limited to the few carriers who will still accept large single pays, or to stretching that premium over multiple years. The irony is that in some cases, stretching the premium is actually a superior design than the single pay. Prior to simply limiting the amount they would accept, many carriers used pricing to discourage single pay designs. Of course, when we are talking about 1035 exchanges, stretching that premium across multiple years becomes a problem.

So where does that leave us? In some cases, it leaves us with limited choices, particularly when we factor in product type. The No Lapse Guaranteed UL selection is very limited and unless you have a career affiliation with a carrier that is still accepting single pays, finding a Whole Life contract that can get the job done is like looking for a needle in a haystack. The good news is that our haystack is pretty small, and we know exactly where the needles are.

So just where do we go for product in this situation? A couple places, and the carriers may surprise you.

There is, however, more to the story than simply finding a carrier with a product and capacity. The rest of the story is about cash value preservation. Very few clients who have accumulated enough cash value to face the issue of limited options in the current market via 1035 exchange are willing to see that cash value vanish in a traditional NLG policy. That client is concerned about much more than the price. For them it is the need for reasonably priced coverage with effective death benefit guarantees and the flexibility of having exit strategies should circumstances change.

As mentioned above, one potential solution is participating Whole Life, and MetLife is leading the charge. Their two current WL contracts are still accepting large single pays, and are strong performers for cash accumulation. Further, MetLife is introducing three additional offerings in the Whole Life market at the end of April. In addition to participating WL, we can look to No Lapse Guarantee UL with liquidity features. At least one carrier we work with will still accept large single premiums into this policy type, and there are guaranteed return of premium features available that offer the flexibility mentioned above. If we are even a little more creative, we can find UL products with actual guaranteed cash values. While not as strong, particularly in the later policy years, as a WL contract, the price point can be a bit better here, offering superior guaranteed IRR’s on the death benefit than a WL contract.

This entire exercise points out one additional factor that is becoming part of the new case design and product selection reality: spreadsheeting is a losing strategy, and looking at the entire feature set of a product is the new norm. We are already seeing clients elect to pay more, and receive much more value in return, rather than save a few dollars on their premium. It is a refreshing change, and an opportunity to add real value to a client’s planning.

Kestler Connection 4-23-13

Kestler Financial Group — Tue, 23 Apr 2013 00:00:00 GMT

• Aviva Webcasts for April

• NAFA Updates:
» NAFA Annuity Watch: Idaho Enacts NAIC Suitability in Annuity Transactions Model and Full Adoption Recap

• Aviva News:
» Annuity Sales Idea: TargetReserve(SM)
» Field Update - Target Series New Approval States

• National Western News:
» New Suitability and Training Requirements in MS

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» Additional Availability For The Lifetime Income Benefit Rider
» New Lifetime Income Riders Now Available

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Kestler Connection 4-16-13

Kestler Financial Group — Tue, 16 Apr 2013 00:00:00 GMT

• Aviva Webcasts for April

• Aviva News:
» Field Update: IRA Contribution Deadline is April 15
» Field Update: Updated annuity forms

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» Annuity Suitability Questionnaire Changes

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» Important Memo - Premium Limits

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What You Don’t Know about NLG Contracts Can Hurt You

Adam Cavalier — Tue, 09 Apr 2013 00:00:00 GMT

There has been a good deal of discussion about the increased pricing in the NLG (No Lapse Guarantee) market over the last six months. While that topic is important, and continues to impact our professional lives, there is another aspect of these contracts that may turn out to be much more of an issue over the long haul than the current pricing.

There is the perception, among producers and clients alike, that these products are “risk-less” and that you can “set it and forget it” like one of those horrible infomercial products from RonCo. The truth is that there are risks in these contracts, and when combined with the fact that they are largely hidden, they become significant, and warrant discussion.

I was fortunate enough to hear Bobby Samuelson mention NLG contracts and a study recently completed by a major insurance company in an attempt to quantify the magnitude of the problem. What, specifically, were they looking for? In force NLG contracts that are no longer tracking with the original policy issue illustration. The results will surprise you. Not because of the high percentage that are indeed off track, but the reason why they ended up that way.

First, the reasons: almost exclusively the timing of premium payments, but that is not the surprise. The surprise is that for a wide selection of carriers, paying the premium early can be as big an issue as paying it late. Bobby has made his article on this available to the public, and I highly recommend reading it by following this link. While you are there, spending some time exploring the rest of his content would be a worthwhile investment of your time.

The real question in all of this is what do we do about it?

Being aware of the problem is truly the consolation prize, and our clients are going to come looking to us for answers. The first step is to understand why early premiums are an issue, and Bobby’s article covers that in detail. The second, and perhaps more important step, is to identify the carriers with products that are susceptible to this problem. Then it is time to take action.

By action, I mean requesting in force ledgers and premium histories on all of your in force NLG business. That’s right, every one of them. As solid as Bobby’s research is, he makes the point that these are complex instruments, and that while he exercised due care in researching his posting, a carrier’s absence from the list is no guarantee there is not a potential problem there.

The majority of these contracts may turn out to be just fine. For those that are not, we are really in the old an ounce of prevention is worth a pound of cure situation, in that making an adjustment now to get back on track will be far less painful than waiting until the lapse notice goes out from the carrier. Of course, it does not stop there. Policy owners being, human, are going to continue to make mistakes managing their insurance. Premiums will be paid early or late if not skipped altogether.

It’s our job to monitor these contracts and keep them on the straight and narrow. We can help you obtain the appropriate ledgers to start the process.

Kestler Connection 4-9-13

Kestler Financial Group — Tue, 09 Apr 2013 00:00:00 GMT

• Aviva Webcasts for April

• Aviva News:
» NAIC Suitability Training Launched

• Great American News:
» New rider sneak preview; Updated replacement forms; Win a major league experience

• American Equity News:
» New Lifetime Income Riders Now Available
» Ridin' the American Dream!

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Kestler Connection 4-2-13

Kestler Financial Group — Tue, 02 Apr 2013 00:00:00 GMT

• Aviva Webcasts for April

• Aviva News:
» Lifetime Pay Plus/Income Edge Plus Rider Charge Increase

• Athene Annuity News:
» All product, all state PST requirement takes effect April 1

• American Equity News:
» New Income Riders Available APRIL 1st!
» Become A 2013 Gold Eagle Member
» Reminder: New application required in FL

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The Treasury Index UL

Adam Cavalier — Wed, 27 Mar 2013 00:00:00 GMT

Necessity is the mother of invention. At least that is how the saying goes; and in the case of a recently released product from Lincoln Financial Group, I think it holds true. The product in question? The Treasury Index UL launched on February 25th. Before we get into the specifics of the product, a summary of the market conditions that lead to this product launch is probably a worthwhile investment of time.

What factors landed us here? AG 38, for one. The regulatory environment for the dominant product of the last decade is tougher than ever. The economy, particularly the interest rate environment has also had a big impact, and both of these factors are not only in play here, but have been well chronicled in various publications . The real problem is that carriers are forced by regulations like AG 38 to reserve as if the current economy will last the entire life of a UL policy. While most reasonable people would agree that this is not only unlikely, but virtually impossible, it is the environment that carriers are currently operating in, and has forced them to go back to the lab and come up with new products.

Now that the stage is set, how, exactly, does this product work? Quite simply, Lincoln decided to take a very predictable index, the US Treasury rate, and use it as the basis for this new product, While they were at it, they decided to fix every other product variable including the Cap Rate and Participation Rate. That's right, unlike all the other indexed products out there this one is limited to one moving part: the performance of the actual index. Of course, that is a bit of an over-simplification, as we all know that indexed products are not actually invested in the underlying index, but why let a little fact like that get in the way of a very good product story?

The result of all of this is quite simple: the client can manage their funding based on their opinion of future Treasury rates. As these tend to move slowly, and within a relatively narrow band, the variance in premium created by movement in the index is also quite narrow. At the end of the day, this creates a product that is somewhere between an NLG and a current assumption product, and at a price that is extremely attractive in today's market. The ownership experience will likely be quite a bit more comfortable, as the one variable is not in the control of the insurance company (let's face it, sometimes when the carrier is in control it ends badly for the policy owner) and the client does not need to stress about the timing of premium payments like they do with an NLG product.

Given all of this, the one question that needs to be answered is that of performance. Just how does this product stack up against the currently available products in the market? Early indications show savings of 5% or more depending on age, face amount and underwriting class. Of course, what really matters is how it prices for your case, and the good news is that an illustration is only a phone call or email away.

Kestler Connection 3-26-13

Kestler Financial Group — Tue, 26 Mar 2013 00:00:00 GMT

• Aviva Webcasts for March

• Aviva News:
» Target Series 3/25/2013 State Approvals
» Rider charge increases 20 bps on April 1
» Updated life and annuity forms now available

• Athene Annuity News:
» ATHENE Benefit 10 Now Available in Pennsylvania

• Great American Life News:
» Rate Increases for All Products - up to 4.75%!

• National Western News:
» Product & Commission Changes

• American Equity News:
» Could you use a Free Customized "Real Benefits" Banner?

• American National News:
» Improved IUL - 14% & 3%

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

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Kestler Connection 3-19-13

Kestler Financial Group — Tue, 19 Mar 2013 00:00:00 GMT

• Aviva Webcasts for March

• Aviva News:
» New deferred annuity applications now available
» REMINDER: Anti-Money Laundering Refresher Course
» Aviva USA to conduct survey of policyholders

• Athene Annuity News:
» ATHENE Benefit 10 is HOT. And about to get HOTTER. WHO WANTS AN EXTRA $1000?
» Very Important! New Business Process Change Effective April 1, 2013

• American Equity News:
» New Application and Suitability Form Required
» New Application and Suitability Form Required in Connecticut
» New Application Required in Florida

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• Weekly Economic Updates

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The Huge Hole in Chronic and Critical Care Riders

Adam Cavalier — Tue, 12 Mar 2013 00:00:00 GMT

Contracts are a funny thing. The presence of one word can completely change the meaning of a section, or even the contract in its entirety. Given that insurance policies are, at their core, simply contracts between the insurance company and the policy owner, the presence of one word can have a dramatic impact on the provided coverage. Case in point: Chronic and Critical Care riders. They are quite different from a true long-term-care product like MoneyGuard, and that difference can be devastating for the insured.

Last week I talked about the Pitta case, and made reference to a potential hole in these contracts. Quite simply, we can now remove the word "potential", as the hole is quite real. Further, that hole is based on the presence of one word in the rider language. The word is "permanently", and the unfortunate truth is that most policy owners (and agents!) have no idea how exposed they truly are by this one word. If you recall the facts of the Pitta case, the long-term-care event was finite in nature. The individual in question was injured in a car accident, and the need for care was based on her recovery from her injuries. By its very nature, this was a temporary situation.

By now, most of you see the problem. If Mr. Pitta's mother was an insured expecting coverage for this event under the chronic and critical illness accelerated death benefit provisions of most policies she was in for a rude awakening. Based on the temporary nature of the need for care, most chronic and critical care riders would pay exactly zero dollars. Further, even if we throw that aside and assume she would be eligible for coverage, there is the issue of how much she would have been able to accelerate. A cursory read of the glossy propaganda that accompanies most sales would talk about a percentage of the face amount. Some are as high as 25%.

The reality, however, is much different. It turns out that the majority of these riders have a mortality component associated with the benefit calculation. While the mechanism varies, the bottom line is that the max percentage is only part of the equation, and a discount factor based on mortality is also applied. The result is that the actual percentage of the face amount an insured can access via a claim can be reduced by as much as 50%. This means the maximum a policy owner can access may be as low as 12.5%. While this is still better than nothing, it is a far cry from the expectation. If this is not discovered until claim time, make sure your E&O is paid up and your lawyer is on speed dial.

So how to deal with all of this? Is my point that all of the Chronic and Critical Care riders should be avoided? Absolutely not. They serve a purpose in a sound risk management strategy. However, they are far from a complete solution, and the purchaser needs to understand both that there are events that will be excluded, and there is significant variability in the calculation of benefits. If the prospective buyer is uncomfortable with the large gaps in coverage, it's time to think about a more robust solution. Something like MoneyGuard perhaps?

It would have actually paid a claim on this one.

Kestler Connection 3-12-13

Kestler Financial Group — Tue, 12 Mar 2013 00:00:00 GMT

• REMINDER: KFG IS MOVING!!!

• Aviva Webcasts for March

• Aviva News:
» Introducing Aviva's TargetHorizon® & TargetBenefit® Annuities
» Available March 11! Be the first to check out our NEW Annuity Illustration Center
» Aviva USA delivers a year of solid financial performance
» Reminder of New Business Illustration Requirements
» Aviva announces NEW commission bonuses!

• Athene Annuity News:
» Get "The Bottom Line" Webinars

• American General News:
» Income Annuity Rates Will Decrease Wednesday, March 6.

• National Western News:
» Important NWL® IRA Cut-off Dates for 2012 Contributions

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Kestler Connection 3-5-13

Kestler Financial Group — Tue, 05 Mar 2013 00:00:00 GMT

• KFG IS MOVING!!!

• Aviva Webcasts for March

• Aviva News:
» Aviva Announces SGO Max!
» A Statement of Benefits Your Clients Can Understand!

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Kestler Connection 2-26-13

Kestler Financial Group — Tue, 26 Feb 2013 00:00:00 GMT

• Aviva Webcasts for February

• Aviva News:
» February 2013 NAIC Suitability Training update
» New Divorce Guidelines now available for clients
» Washington approves Income Edge Plus & LifetimePay Plus income riders!

• Athene Annuity News:
» Make Sure to Review This Training Checklist Before You Submit Your Next App!

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Filial Responsibility. Who’s Left Holding the Bag?

Adam Cavalier — Tue, 19 Feb 2013 00:00:00 GMT

There has been quite a bit of press lately around this issue of filial responsibility, including a real-life cautionary tale of an actual court case. In the case, a son was forced to pay his mother's $93K bill for a stay at a nursing facility as she recovered from injuries sustained in a car accident. The mother was unable to pay and subsequently relocated to Greece, leaving the facility searching for alternative sources of payment. Being a bit of a skeptic, I initially dismissed the entire thing as an isolated incident. While this does appear to be somewhat isolated, there is a mounting set of circumstances that may render this the leading age of a wave of similar stories.

The origins of this are found back in 2005's Deficit Reduction Act. You can read more about it here, but the bottom line is that it became harder to qualify for Medicaid. Perhaps an unintended consequence of this was making it more challenging for nursing facilities to collect their fees and ultimately led to the application of filial responsibility laws that date from the 1600's. The logical conclusion of that entire chain of events is the recent lawsuits and early case law they represent.

Of course, I am not an attorney, so that is about as far as I want to go into the legal side of this. I would rather turn my attention to the prevention of the circumstances that created the unfunded liability in the first place: lack of long-term-care planning. While I could argue that the mother's plan above worked fairly well from her perspective, the son is surely less than thrilled with the outcome. Given that one of the provisions of these filial responsibility laws is the child's ability to pay, perhaps he would have preferred paying with discounted dollars via a long-term-care insurance policy if he knew that he would one day be left holding the bag. Easy to say in hindsight; perhaps a bit of a challenge in reality.

There are, however, more options for LTC funding today than ever before. I'm a big believer in the asset based solutions like Lincoln National's MoneyGuard, which would have allowed the son in the case above to own and fund a contract to cover the bill. By now, you all probably know that he would ultimately collect a death benefit that could offset some or all of the premiums paid depending on the policy funding and claims experience. There are quite a few other solutions out there currently, with traditional life insurance contracts now offering everything from simple death benefit acceleration to robust long-term-care coverage. Even some term insurance policies now offer this type of feature, making it much more accessible than ever before.

Of course, not all of these solutions are created equal. In fact, I think some of them may even create a false sense of security for this type of claim. I'll revisit this topic again in a week or two with an analysis of the options listed above, and if they would adequately insure against a risk similar to the one described in this case: a finite stay in a facility, followed by a full recovery and limited to no impact on mortality.

Until then...

Links:

» 2005 Deficit Reduction Act

» PA Court Case

Kestler Connection 2-19-13

Kestler Financial Group — Tue, 19 Feb 2013 00:00:00 GMT

• Aviva Webcasts for February

• Aviva News:
» Anti-Money Laundering Refresher Course

• American National News:
» Agent Alert: Important March 1 Changes

• American Equity Update:
» State and Federal Training Requirements

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Kestler Connection 2-12-13

Kestler Financial Group — Tue, 12 Feb 2013 00:00:00 GMT

• Aviva Webcasts for February

• Aviva News:
» Anti-Money Laundering Refresher Course
» Who We Are
» New annuity applications for Maryland

• American General News:
» Income Annuity Rates Will Increase Wednesday, February 6

• American Equity News:
» American Equity's Compliance Zone - 3rd Edition

• Great American Life News:
» Rate Increases!

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

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The Term Insurance Low Cost Leader Is...

Adam Cavalier — Tue, 05 Feb 2013 00:00:00 GMT

...American General. As a result of the recent price reduction, they are now the low cost leader in a significant number of cells, leaving some of the carriers who have built their reputation on low term prices behind. The competitive intelligence regarding their pricing is great, and you can see some comparatives here, but what I find more interesting is how this can change the term insurance market on its head. The aforementioned carriers who have made price and/or compensation their only value proposition may just be in trouble.

How so? Quite simply, if they are no longer the low cost leader, and a carrier like American General has risen to the top, why would anyone continue to do business with these other carriers? The compensation at American General is outstanding, their underwriting is certainly easier to deal with, and they have a full suite of products for conversions available in the first five policy years, with a strong IUL available in years 6 and beyond.

If that isn’t enough, then consider this: American General is even more competitive on the mildly rated case. For years, American General has used a special rate class as the table rating base rate. This special rate class is considerably cheaper than their already competitive standard rates. The result is that the incremental increase between a standard policy and one rated two to four tables is significantly less than the competition’s. The result is a fantastic price for mildly rated clients.

When you combine all of these factors, American General may be the best place to take your next term case, preferred, standard or otherwise. Solid underwriting, top compensation and industry leading pricing all combine to make it easier and more profitable to consolidate your term business with a carrier that offers the broadest value proposition in the market.

A word of caution: This does not mean to flood American General with every piece of business you write. Nothing replaces solid field underwriting to drive that case to the best carrier the first time. Barring a known issue where another carrier is known to be superior from an underwriting perspective, however, I think it is time to work smarter with American General.

Kestler Connection 2-5-13

Kestler Financial Group — Tue, 05 Feb 2013 00:00:00 GMT

Feature: Is Manhattan Still Only Worth $24?

• Aviva Webcasts for February

• Aviva News:
» Electronic MDRT Certification Letter is now available!
» Updated reinstatement form now available
» New annuity applications for Maryland
» Compliance Update: Non-Resident Sales of Life Insurance and Annuities

• Athene Annuity Update:
» NJ Suitability Requirements

• American Equity News:
» GREAT NEWS! A.M. Best Affirms American Equity's Excellent Financial Strength!!
» Guarantee Series Calculator Changes

• National Western Update:
» Compliance Bulletin for All Agents in Kansas

• American General Update:
» Annuity Rate Updates

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

View the full email here.

Is Manhattan Still Only Worth $24?

Kestler Financial Group — Mon, 04 Feb 2013 00:00:00 GMT

Enjoy a great piece from our guest blogger, Rex Voegtlin...

In 1626, Dutch West Indian Company official Pieter Schagen wrote a letter to his directors that Governor Peter Minuit purchased Manhattan Island from the Indians for "goods worth sixty Dutch guilders." Historians have concluded that the "sixty Dutch gilders" was worth approximately $24.

Many well-intentioned cynics have used this transaction as evidence of how the unscrupulous white man took advantage of the uninformed red man. However, I am not convinced that this business deal was not a fair arm’s length transaction. Let’s do the math, howbeit with some unsubstantiated assumptions.

The purchase of Manhattan Island took place in 1626, 379 years ago. Assuming a 3 percent inflation factor, $24 inflated at 3 percent per year equals a current value of $1,760,027. Manhattan consists of 14,478 acres. Through division we discover that the current value of the original per acre purchase price is $122.

I’ve been to Manhattan. Trust me; in my opinion, it’s not worth $122 an acre. However, what is important to note from our history lesson is that an assumed 3 percent inflation factor grew $24 into more than $1.7 million.

If anything, history has taught us that we must take inflation into account in our retirement planning. The following bread example may be more relevant to us than the purchase of Manhattan for $24. In 1970 $1 bought 3 loaves of bread. Today the same $1 buys about a half loaf. In other words, someone retiring in 1970 on an adequate fixed income is now struggling to survive on 17 percent of her original purchasing power.

Many retirees purchase certificates of deposit from banks, "because CDs are a safe investment." Let’s take a closer look. Assuming a $10,000 CD is paying 4 percent interest, this would presumably mean that after one year the value of our CD would be $10,400. Wrong.

Assuming a combined state and federal tax bracket of 33 percent, we would need to deduct $132 for taxes. We also need to think about purchasing power, that is, how much bread can we buy?

Our current inflation rate is 3 percent. We now need to reduce our CD by not only taxes, but by inflation as well. One year’s inflation reduction on $10,400 is $312. Therefore, our $10,000 CD grew

to $10,400, but after subtracting $132 for taxes and $312 for inflation, we are left with $9,956. A loss.

As one man recently put it, "investing in CDs simply means that you are safely going broke." As we invest through our retirement years, we need to remember that a loss is not a safe investment. We must take into account inflation and taxation, as well as safety, when evaluating where we invest our retirement monies.

Securities and Advisory Services offered through SII Investments Inc.®, Member FINRA, SIPC and a Registered Investment Advisor. SII does not provide tax or legal advice.

Rex Voegtlin, MS, CFP, CASL, CAP has over 25 years of experience in the financial services industry, providing nationally sponsored continuing education for over 6,500 CPAs, Attorneys, and Financial Planners in advanced estate and retirement planning techniques. In addition he works directly with wealthy clientele, developing and implementing sophisticated estate and retirement strategies.

Increased Taxes Driving Wealthy Out of California

Adam Cavalier — Tue, 29 Jan 2013 00:00:00 GMT

Phil Mickelson has threatened to leave the state based on his total tax rate of over 60%. Can others be far behind? Maybe, and if you work in the ultra-affluent market then you may have some clients on the move. For those simply dealing with high income earners who are feeling the tax bite a bit more acutely than they want, there are other, less drastic measures that can be taken.

As an example, let's take a closer look at Phil. You can read the details here , but it comes down to this: his combined tax rate jumped 9.6%, pushing him over the 60% mark. Clearly, this has his attention, and his strategy is to think about moving out of California. For the rest of us, and maybe even Phil, there is a way to deal with this without having to leave behind friends and family, and that is to defer more of our income.

I did some quick calculations using the following assumptions:

» Total tax rate in 2012 - 50%

» Total tax rate in 2013 - 59.6%

» Income - $1MM

» Salary Deferral of 10%

You can see from this chart , that by deferring 10% of a $1MM salary that someone in Phil's position could actually see more of their money stay out of the tax man's pocket ($463K 2013 "retained income" vs. $404K 2013 retained income with a 10% deferral). Sure, the net income drops (far right column of the table), but the goal is to actually hang on to your money, not spend it all. Further, the reduction in net income is just over 4%, far less than the 9.6% reduction with no deferral.

The other aspect of this discussion is the future income side of the equation, and the obvious solution is the use of life insurance to create a non-taxable income stream through the use of life insurance. This is not a new strategy by any means, but it just became a lot more attractive based on increased tax rates. Changing the way a client allocates their investment capital to include a life contract may make sense simply from a tax diversification perspective. While some may use this as a rallying cry for the use of Indexed UL, I think it demands a more sophisticated approach considering the various accumulation focused life products available: Whole Life, Variable, Current Assumption and Indexed.

In fact, having a subject matter expert on life insurance and deferral programs to work with is critical. There are any numbers of ways to structure these plans, as well as a myriad of regulations that may or may not apply to an individual case. Between our carriers and connections with prominent independent experts, we can help you put your team together and launch this important part of your 2013 strategy. I'm ready when you are. Give me a call or send an email to get started.

Kestler Connection 1-29-13

Kestler Financial Group — Tue, 29 Jan 2013 00:00:00 GMT

Feature: Chicken Little Strikes Again & The Kestler 2013 Key Numbers Report

Annexus Delivers a Great Sales Piece on Inflation

• Aviva Webcasts for January

• Aviva News:
» Compliance Update: Non-Resident Sales of Life Insurance and Annuities

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» Get "The Bottom Line" Webinars

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Variable Life, Secondary Guarantees and AG 37

Adam Cavalier — Tue, 22 Jan 2013 00:00:00 GMT

As we all come to grips with new, increased NLG rates from most carriers, I have been keeping my eye on a nuance in the regulations that offers a significant opportunity in 2013. The nuance in question is the existence of products offering secondary guarantees that fall under a different set of rules than the NLG Universal Life products we have all been selling for the last ten years: Variable Life products.

At first I was rather skeptical. The last thing I want to recommend is “exploiting” a loophole in the regulations. Once I popped the hood and began to understand why Variable Life is treated differently than Universal Life from a reserving standpoint, I realized that there is a real opportunity with Variable in 2013. The crux of the matter is the presence of cash value and the fact they offset reserves, making reserving for these products an entirely different process than traditional NLG. As a result of these differences, Variable products are governed by an entirely different set of regulations: Actuarial Guideline 37. The bottom line is these products are significantly cheaper to reserve for at the carrier level, and the result is that they have become more competitive as a result of increases in NLG UL products.

A second market force is at work here as well. There is a renewed emphasis on products that offer a broader feature set and increased overall policy holder value positions products that do more than simply provide a death benefit in the current market. Even funded at the guaranteed minimum premium, these Variable contracts have the ability to accumulate significant cash values. Unlike older products, the death benefit in currently available products is protected from potential market downturns by the secondary guarantee. In some cases there is the opportunity to stop paying premiums early while locking in the guarantees if market performance allows it.

So what Variable product are we talking about? Which carrier offers it? How do they work? There are a number of them on the market from big name carriers like MetLife, Lincoln National and John Hancock, and they all have their own strengths and weaknesses. Short pays are particularly competitive, and using life expectancy guarantees with current side performance beyond LE is a very compelling design. The moral of the story is that the perceived challenge of increased NLG UL prices also creates a significant opportunity for our clients. All we need to do is show it to them, and I can help you do just that on your next case.

One last note: Did I mention this could also result in a raise? Targets are significantly higher on these products. Sure, these cases have to go through the grid at your Broker Dealer, but the increased target often results in equivalent or increased compensation for the producer.

Kestler Connection 1-22-13

Kestler Financial Group — Tue, 22 Jan 2013 00:00:00 GMT

• Aviva Webcasts for January

• Aviva News:
» Ease of Business - Simplifying the process
» Updated forms now available

• American Equity News:
» Client Appreciation Events From The Top
» Clarification of Requirements for CA Ins. 789-10
» Romantic Stock Options
» NAIC Suitability in Annuity Transactions model - MICHIGAN

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

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American Taxpayer Relief Act of 2012 Summary

Kestler Financial Group — Thu, 17 Jan 2013 00:00:00 GMT

In order to avert (or delay) the "Fiscal Cliff," Congress passed the American Taxpayer Relief Act (ARTA) of 2012. The new law extends a majority of the Bush-era tax cuts in the same form as they have existed since 2001 or 2003 when initially enacted.

Major exceptions include a rise in income rates, including rates on capital gains and qualifying dividends, on higher-income individuals and a slight increase in the estate tax rate. In addition to a general extension of the tax rates, many other tax provisions were affected by this legislation.

American Taxpayer Relief Act (ATRA) of 2012 Summary

Individual Tax Rates
Taxpayers with taxable income above $400,000 ($450,000 for married taxpayers) will be taxed at 39.6% (Up from 35%).

All other taxpayers with taxable income below $400,000 will be taxed at the same marginal rates as during the Bush Era Tax Cut (0 to 33%).

Capital Gains/ Dividends

The top rate for capital gains and dividends increased to 20% from the Bush-era maximum rate of 15%. The 20% rate will apply to the extent that the taxpayer's income exceeds the thresholds set for the 39.6% rate.

All other taxpayers with income below the 39.6% threshold will continue to have their capital gains and dividends taxed at 15%.

Alternative Minimum Tax

The act also permanently "patches" the alternative minimum tax (AMT) for 2012 and subsequent years by increasing the exemption amounts with an annual inflation adjustment.

The AMT exemption for 2013 increases to $51,900 for individuals ($80,750 for married filing jointly).

"Pease" Limitation on itemized deductions

It revives the limitation on itemized deductions but with slightly higher thresholds than before.

$300,000 for married filing jointly

$250,000 for unmarried taxpayers

Certain items such as medical expenses and investment interest are excluded from the limitation.

Personal Exemption Phase-out

It revives the exemption phase-out rules but with slightly higher thresholds than before.

$300,000 for married filing jointly

$250,000 for unmarried taxpayers

Federal Estate & Gift

The act provides for a maximum estate tax of 40 percent with a $5 million exclusion (adjusted annually for inflation) for estates of decedents dying after December 31, 2012.

It also permits "portability" between spouses.

The act provides a 40 percent tax rate and a unified estate and gift tax exemption of $5 million, adjusted annually, for gifts made after 2012.

Tax Credit Extenders

The act extends the Child Tax credit, Earned-Income credit, Child and Dependent care credit, and other child and education type tax credits.

The Research Tax Credit and Work Opportunity Tax Credit were also extended through 2013.

Section 179 & Bonus Depreciation

The Section 179 dollar limitation for the 2013 tax year is $500,000 with a $2 million investment limit.

The act also extended the 50 percent bonus depreciation through 2013.

A reminder of other changes to the tax law that have become effective for 2013 and were left untouched by the ATRA of 2013:

Expiration of the 2% payroll tax holiday

The payroll tax holiday was not extended into 2013.

The social security portion of your payroll tax will rise from 4.2% to 6.2%.

3.8% tax on Net Investment Income

This new tax was enacted as part of the Healthcare Reform

Kestler Connection 1-15-13

Kestler Financial Group — Tue, 15 Jan 2013 00:00:00 GMT

• Aviva Webcasts for January

• Aviva News:
» The American Taxpayer Relief Act of 2012 (ATRA) Avoids the Fiscal Cliff and Provides Life Insurance and Annuity Opportunities
» Accessing Aviva Connect
» Youmanity: Insuring a Future - See What's New
» BAA® system changes
» Aviva announces quick start commission bonus for South Carolina and Texas!
» Aviva announces quick start commission bonus for Florida and Ohio!

• American Equity News:
» Lifetime Income Benefit Rider Clarification

• American General Update:
» New Rates

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

View the full email here.

The Term Insurance Product You Should Be Selling

Adam Cavalier — Tue, 08 Jan 2013 00:00:00 GMT

Term insurance is term insurance, right? While I can make an argument that there has been very little historically that has made a meaningful difference to the typical term buyer, I think there is a new product out there that changes the game.

How so? It’s all in the client’s ability to manage their coverage over the long haul. Rather than simply focus on the product’s conversion language, we need to turn our attention to how a client may actually use their coverage. We all know that precious little term insurance is actually converted. The real question is why? The obvious answer is price. The last thing most consumers want to do is increase their insurance premiums as they age. In fact, there may be a smaller perceived need for insurance just at the time we come knocking on their door with the option of conversion, pay the renewal premium, or let the coverage lapse. None of these choices are typically met with much enthusiasm.

What if, however, we could come to them with a fourth option? What if that fourth option was to continue coverage at the same premium, but with a reduced face amount? Sure, they would rather continue the coverage at the same premium and face amount, but that ship sailed back when they bought term insurance. One carrier feels so strongly that they built this option into their term contracts, maintaining the level premium beyond the initial guarantee period by using a schedule of face amount reductions as the client ages. They didn’t stop there. Rather than tie the conversion rights to the level period, they built the product with a conversion period of 20 years or age 70, whichever comes earlier. This conversion right is there even if the level premium period has expired.

Of course, the newly converted policy will be at the reduced face amount that is in force at the time of the conversion, but the alternative of letting the coverage simply lapse at the end of the level period pales in comparison. The icing on the cake for this product is that it is very competitively priced, and available from a carrier that most of us already do business with: Protective Life. If you are curious about the details, you can access the product guide here, or reach out to me for a quote. The real advantage of this product won’t show on a spreadsheet of term costs, making a full illustration a critical part of the sale.

This new product is part of an emerging trend in 2013. We all know what happened with NLG pricing in the fourth quarter. One of the byproducts is a movement away from spreadsheet selling and back to actually making recommendations based on the entire feature set a product can deliver. Look for this to come up again and again as we explore the 2013 product landscape in more detail in the coming weeks.

Kestler Connection 1-8-13

Kestler Financial Group — Tue, 08 Jan 2013 00:00:00 GMT

Happy New Year!

• Aviva Webcasts for January

• Aviva News:
» Announcement regarding Employer Sponsored Qualified Plans

• Pass It On! - These are great articles to share with clients or fellow colleagues

View the full email here.

Kestler Connection 1-1-13

Kestler Financial Group — Tue, 01 Jan 2013 00:00:00 GMT

Happy New Year!

• Aviva Webcasts for January

• Aviva News:
» Make sure your production counts for 2012
» Aviva plc announces buyer for US operation
» Upcoming Annexus® BalancedAllocation Annuity® changes
» BAA 10STM offered in Alaska, South Carolina, Texas and Utah
» Annuity changes recap

• Athene Annuity Update:
» Fixed Annuity Interest Rate Update

• Pass It On! - These are great articles to share with clients or fellow colleagues

View the full email here.

The Total Value of Life Insurance II

Adam Cavalier — Tue, 18 Dec 2012 00:00:00 GMT

Recently I started an analysis of possible methods to measure the "Total Value" of a life insurance contract. To refresh your memory, we discovered in the first part of the discussion (link to the previous email here) that while there is a general linear relationship between risk and reward within the spectrum of life insurance products, the premium costs associated with each of the types are all over the map. The result is that there is no clear relationship between the level of reward and the premium the client pays, leaving me looking for more data to arrive at a meaningful conclusion.

The next logical step in the process is to look at costs. Even that proved to be an incomplete analysis, as not all product types use an "unbundled" architecture. Whole Life (WL) products, for instance, do not provide the supplemental policy charges report that Universal Life (UL), Indexed Universal Life (IUL) and Variable Universal Life (VUL) products do, leaving us no choice but to use the annual premium amount as the "cost" for that type of product. When I added the cost data to the chart we introduced in the first part of this discussion, we see the following:

Again, there is no apparent relationship between the policy charges and the "reward" the policy can deliver to the insured's beneficiaries. In fact, based only on this chart, it appears that Current Assumption UL (CUL) may be the best "deal" out there. Institutional buyers, such as the money sources behind life settlements would certainly agree that CUL is the most efficient type of contract. Those of us who have been around for a while, however, know that the typical insurance buyer would probably not have agreed with us over the last decade or so as No Lapse Guaranteed UL (NLG) dominated the market.

So where does that leave us?

Costs and premiums are all over the map. Reward metrics are often based on assumptions and are an incomplete measure as a result. NLG no longer enjoys a significant price advantage. The only conclusion I can come to is that the best consumer value is the product that the client understands, can afford to pay for, provides value beyond simply the death benefit and provides the peace of mind the client really wants when making a life insurance purchase. That leaves the insurance professional with a rather large challenge: becoming, once again, a student of product. Not only the various types that are out there, such as the difference between VUL and IUL and why a client would select one over another, but also the more subtle differences within each product type. The notion that there is one "best" product is simply flawed. As I prepare to close the year and look towards 2013, my thoughts turn towards how I can provide producers with the tools needed to rebuild the product knowledge base that has been sitting on the shelf while NLG has dominated, and position us all for success. There are significant plans in the works, and I look forward to the challenge of transitioning to the next product era.

Kestler Connection 12-18-12

Kestler Financial Group — Tue, 18 Dec 2012 00:00:00 GMT

Happy Holidays from the KFG Family!

• Aviva Webcasts for December

• Aviva News:
» Moody's adjusts Aviva USA's rating
» Field Updates: Important Agent Reminders

• American Equity Update:
» Reminder: CA Ins. 789.10 Life Insurance And Annuity Solicitation To Seniors Ages 65 & Older

• Pass It On! - These are great articles to share with clients or fellow colleagues

View the full email here.

The Total Value of Life Insurance

Adam Cavalier — Tue, 11 Dec 2012 00:00:00 GMT

One of the fundamental debates we are starting to see as a result of AG 38 is which of the myriad permanent life products available in the market is the best consumer value? Long time readers will more than likely anticipate my opinion: it depends on the client. What is perhaps a more useful discussion, however, is the notion of how to go about quantifying the "total value" of a life insurance product.

Which variables should be considered? How should they be weighted? How to integrate the needs and attitudes of the client into the discussion? I'm confident that the ultimate calculation is beyond the scope of this column, but given the transition the life insurance industry is in the midst of, identifying the variables is certainly worthwhile.

First, the obvious:

- Premium, measured by the net present value

- Face amount, measured by the internal rate of return

- Cash value, measured by the internal rate of return

These are all rather straight forward. Unfortunately, the including the balance of the variables injects ever increasing levels of complexity into the equation:

- Guarantees of various types

- Carrier strength

- Time horizon

- Policy expenses

- Available riders

- The list goes on and on...

One of our carriers, MetLife, has developed an interesting approach to the total value conversation. The MetLife Life Insurance Selector Tool guides clients through any number of decisions around their insurance purchase: Term versus Permanent, blending term and permanent as well as the various types of permanent insurance. The interview process described by MetLife is intended to point the client to the policy type that is most appropriate for their needs. One could argue that this is the product that represents the best "total value" for the client, but it is a far cry from a definitive analysis of the feature set of each product type and the corresponding cost. While the tools from MetLife are great, they are limited to their products only and really only address the client focused variables, so let's expand their discussion to include the total product spectrum and begin to understand the total value equation in more detail:

In general, there is a trend of higher levels of risk and correspondingly higher potential rewards as we move from left to right. No surprises there. Unfortunately, that is not nearly enough to understand the relative value of these products. As more data is added to the chart, however, a story begins to unfold. By overlaying premium* on this spectrum, for instance, we can see that the relationship between premium and potential reward is anything but linear.

* Male, age 55, Preferred Nonsmoker, $1,000,000 face, guaranteed to maturity or to endow

Clearly, focusing on price as an indicator of value is not enough, nor is a simple risk/reward discussion. We need more data. The next step, which I will cover next week, is to consider the actual policy charges. One last thing: Despite all the analysis, the ultimate value of a life insurance contract is what it does for the loved ones left behind. Let's not lose sight of that in the midst of this discussion.

Kestler Connection 12-11-12

Kestler Financial Group — Tue, 11 Dec 2012 00:00:00 GMT

Feature: Find out why everyone's talking about Athene Benefit 10!

• Aviva Webcasts for December

• Aviva News:
» GREAT NEWS! Aviva will accept non-cash applications for the FER changes
» New Process in Agency Services Starting Jan. 1st 2013

• American General Life News:
» Important New Business & Compliance Updates

• American Equity Update:
» American Equity Gold Eagle Incentives

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

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Preferred Best with a History of Sleep Apnea?

Adam Cavalier — Tue, 04 Dec 2012 00:00:00 GMT

Actually, yes, in some cases. We have pinpointed a carrier that can offer up to Preferred Best on permanent products for clients with a history of sleep apnea. Obviously, not all cases will qualify, so what makes the difference between a Preferred Best sleep apnea case and one that may end up Standard or worse? Two words: compliance and control.

Like most impairments, the carrier's willingness and ability to make a great offer on a sleep apnea case will depend largely on the proposed insured's compliance with their physician's prescribed course of treatment, as well as the treatment's actual effectiveness. What could that look like? Consider the following:

» 50-year-old male who qualifies for Preferred Best rates with the exception of an abnormal sleep study two years ago.
» A diagnosis of moderate obstructive sleep apnea was made at the time, and a CPAP was prescribed.
» Two subsequent studies (one six months post diagnosis, a second six months prior to the application) were normal.
» The documented compliance and control enabled the carrier to offer Preferred Best.

Before we all dust off old sleep apnea cases and get them ready to submit, there are some additional factors to consider:

» The initial diagnosis was obstructive sleep apnea (OSA), rather than central, or mixed apnea .
» OSA was categorized as no worse than "moderate".
» The prescribed treatment demonstrated resolution of the symptoms.
» The proposed insured was a nonsmoker.

Having underwritten an OSA case or two over the years, the big challenge here is the subsequent sleep studies. In the vast majority of cases, the proposed insured fails to return for the recommended follow ups that were the lynchpin of the case described above. The real issue is the documentation of compliance and control. It may not be enough that the proposed insured "uses their CPAP". Without the subsequent sleep studies to create the paper trail, the underwriter is left with very little choice but to assume that there is still a potential issue, resulting in Standard or worse.

All of that said, I still think dusting off those old cases is a great idea. They may be a follow-up sleep study away from a really great offer on a new permanent life insurance contract.

Kestler Connection 12-4-12

Kestler Financial Group — Tue, 04 Dec 2012 00:00:00 GMT

Did you miss our webinar? IRA Inc's™ - Implementing Big Ticket IRA Rollovers

• Aviva Webcasts for December

• Aviva News:
» Updates to your commission checks
» MultiChoice Freedon & Spirit Product Changes

• Athene Updates:
» Roll-up Rate Change on the Way

• American General Life News:
» Introducing AG News!

• American Equity Update:
» Temporary Extension of New Jersey License Expiration Dates
» Rate Change Effective Dec 5th
» Product Changes in TX

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

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Impact of the 2012 Election on the Insurance Industry

Adam Cavalier — Tue, 27 Nov 2012 00:00:00 GMT

Regardless of your political affiliation, there is one undeniable fact about the results of the recent election: they will impact our business. Tax law changes affecting estate planning are really just the beginning. Income tax rates and the potential for taxation of inside buildup of cash value in insurance products are also in play.

This presents two questions as I see it:

What can we still accomplish from a planning perspective before the sun sets on the current estate tax laws?

What are the longer term impacts of the election around estate planning, life insurance taxation and financial services legislation?

We have all heard about the opportunity the current gifting limits afford high net worth clients. What we have not seen is the flood of sales that could have accompanied such a finite opportunity. American General has identified three strategies that allow clients to still take action THIS YEAR yet have the ability to "unwind" these transactions and recover the assets should they change their mind. Now that the election is over, those clients who may have been waiting to see who won can use these to execute on gifting strategies before the opportunity rides off into the sunset. Click below for:

End-of-Year Wealth Transfer Strategies

Preparing for the sunset of the 2012 lifetime gift tax exemption

As we all begin to turn our attention to next year, the second bullet point above becomes more and more important. The long term impacts of the election are far more important to the future of our business than anything that may happen over the next six weeks. Even though the ballots are barely done being counted, John Hancock has provided some early analysis based on the winners and losers from earlier this month. Please listen in to the post-election edition of JHAM Radio hosted by Randy Zipse, Senior Counsel and VP of JH Advanced Markets Group, and featuring Chris Morton, VP, Legislative Affairs with AALU as they discuss the election's impact on key.

Click here to listen to the broadcast

Kestler Connection 11-27-12

Kestler Financial Group — Tue, 27 Nov 2012 00:00:00 GMT

Don't forget to register! IRA Inc's™ - Implementing Big Ticket IRA Rollovers

• Aviva Webcasts for November

• Aviva News:
» Reminder: Take Anti-Money Laundering Refresher Course
» Changes to Aviva's Lifetime Solutions Annuity in South Dakota

• Presidential Life Updates:
» SD & NV Replacement Announcement Effective Immediately

• American General Life News:
» AG Annuity Rates changing

• Great American Update:
» Complete your AML training to avoid commission delays

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

View the full email here.

What Are You Thankful For?

Adam Cavalier — Tue, 20 Nov 2012 00:00:00 GMT

We all find ourselves asking that very question this time of year, and while my list is filled with family, friends and colleagues, I find myself thinking of one more item on my list this year: my profession. Like most of you, the creative, rewarding nature of our work is a big part of the reason I continue to be so passionate about what I do. Currently, however, I am more than a bit concerned about our business.

The current economy and state of our federal budget are creating a climate that has the potential to harm our business in very significant ways. The "threat level" posed by potential changes to taxation of insurance products is at an all-time high, and the resulting damage will impact our practices, our incomes, and our client’s financial security. This is more than likely not news to any of you.

What may be news, however, is the higher level of organization and collaboration that this has created among the various industry groups we all belong to. ACLI, AALU, NAIFA, NAILBA, GAMA and IRI have all combined their efforts, along with a number of our carriers, to create a web site – www.securefamily.org - dedicated to informing producers and the public alike about the threat to financial security that some of the possible budget changes represent.

This is important in any number of ways, but the most critical is the platform the site creates to have a unified voice on these issues. Frankly, even as strong as the groups mentioned above are individually, the collective influence we wield when working together has the potential to dwarf the individual efforts of any one organization.

As we all reflect on and acknowledge the positive impact our profession has had on our lives and those of our clients, I encourage you to take the time to click through to www.securefamily.org to see just how important our industry is to the national and state economies as well as personal financial security. While you are on the site, perhaps take the time to sign the petition declaring your support for the industry that has given us all so very much.

Enjoy the holiday with your loved ones!

Kestler Connection 11-20-12

Kestler Financial Group — Tue, 20 Nov 2012 00:00:00 GMT

Happy Thanksgiving!!!

• Aviva Webcasts for November

• Aviva News:
» Letter to Producers from Mike Miller: S&P, Moody's offer rating updates due to ongoing sale talks

• Athene Updates:
» Helpful Presentation on ATHENE Benefit 10
» Fixed Annuity Product Alert: ATHENE Benefit 10sm with Enhanced Benefit Rider!
» Get "The Bottom Line" Webinars

• American Equity Memo:
» Replacement Form Change

• National Western Bulletin:
» Annuity Holiday Schedule

• Pass It On! - These are great articles to share with clients or fellow colleagues

• Weekly Economic Updates

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Guaranteed UL Prices to Drop 25%

Adam Cavalier — Tue, 13 Nov 2012 00:00:00 GMT

Do you think a headline like that would motivate producers and their clients to consider purchasing a new life policy? Absolutely it would. While prices may not be dropping, the fact that they entire industry has to deal with AG 38 means prices are increasing by as much as 25%. The result is clients who take action now will effectively receive a 25% discount versus waiting until next year. That's right, as much as 25% less premium if they take action now. Pricing is changing so quickly that three more carriers announced increases just this week. Waiting another day can literally mean paying 25% more for coverage.

There are some additional, more subtle, but equally important results of these changes. Some carriers, ING for instance, are getting out of the Guaranteed UL space entirely by suspending sales. While they may re-enter the market at some future date, the fact that more price increases are expected industry wide next year and the United States is the only country in the entire world that offers this type of product makes me question if they will. In fact, other carriers may follow their lead right out of this market altogether.

Further, we have talked before about needing to understand the fine print around conversions. One of the points that is frequently lost in the decision making process when purchasing term insurance based on the laser focus on price is the conversion option. Many carriers already restrict conversion to products other than the currently available Guaranteed UL. It is not a big leap to think that this trend will continue. Combine that with the fact that some carriers may elect to exit the space all together and you have some rather significant motivation to convert your term insurance now while a guaranteed product is still available.

Producers who understand that this is essentially a fire sale on Guaranteed UL are having a huge fourth quarter. They are systematically reviewing their client's term insurance for possible conversion and re-visiting clients who wanted to "wait and see" on new purchases with excellent results. The trick is knowing all of the transition rules and deadlines that accompany all of the price changes. That is where I can help. Give me a call so I can help you review your book and navigate the transition rules on the way to a huge fourth quarter.

Kestler Connection 11-13-12

Kestler Financial Group — Tue, 13 Nov 2012 00:00:00 GMT

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A Different Kind of Equity Indexed UL Sale

Adam Cavalier — Tue, 06 Nov 2012 00:00:00 GMT

Traditionally, if there is such a thing in the Equity Indexed UL (EIUL) space, sales of EIUL products have been based on one common purpose - accumulating cash while providing a death benefit. Virtually every sales idea out there has this at its core. College funding, premium finance, life insurance as a retirement supplement and all the rest are built on the same foundation.

Early in my work with these products, however, I used a design with one of my producers that was 180 degrees in the other direction. The design? Using EIUL to minimize the cost of life insurance coverage. This producer had written a significant amount of variable life insurance over the years and as we were reviewing the contracts a couple trends emerged. The first was regarding premiums. The economic climate had made it very challenging for people to keep up their premium payments. Minimizing out of pocket costs was the order of the day, and the variable contracts they owned were simply not well suited to that approach because of the higher costs associated with the product.

The second was that there was a subset of the EIUL world that was really well suited to a minimum funding design, and they were not the carriers with the highest caps or illustrative rates. Instead, the carriers that had the lowest cost structures rose to the top. Think about it. It is similar to comparing gross and net rates of return. Even if the gross rate is the same, the individual with the lowest tax bracket is going to see the best net rate of return. In the case of a life product, it is the expenses that fill the role of the tax rate and the products with the lowest expenses resulted in the lowest premium costs. Over funding a product with a high illustrative rate can overcome higher cost structures on paper, but when we squeeze funding levels down to a minimum, these expensive contracts are exposed. The same can be said if we experience a market that does not approach the cap rate in a higher cap rate product. It simply never has the chance to perform as it was designed.

So why bring this up? A couple reasons. Primary among them is the fact that we are already seeing the GUL price increases we expected based on the ratification of AG 38 back in September with another round of increases expected in 2013. With these price increases comes the need to explore lower cost, alternative designs that perform well in our current economy and are likely to continue to perform well in the future. The second is that there is some evidence that EIUL product design is trending in this direction.

What this does not mean, however, is that a high cost, high cap product has no place in the market. It certainly does, particularly in many of the sales scenarios described above. In a market that repeatedly reaches or exceeds cap rates they will likely perform quite well. It all comes down to the purpose of the sale, and making sure that the product you are recommending is built to accomplish that goal. The idea that there is one best product for all sales is simply not the case.

Kestler Connection 11-6-12

Kestler Financial Group — Tue, 06 Nov 2012 00:00:00 GMT

November may be Election Month, but here at Kestler, it's Advisor Appreciation Month!

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Pay Less, Get More

Adam Cavalier — Wed, 31 Oct 2012 00:00:00 GMT

A great strategy when you can pull it off. Unfortunately, there are few opportunities in life to truly get more while paying less. Here are two situations where you can:

Term insurance: There are big discounts (as much as 23%) available when a client elects to "pre-pay" their insurance with a one-time payment. Why shell out the single pay instead of paying as you go? Economically, it makes no sense, as the discounted premium produces a lower rate of return based on it being paid all in the first year. When there are other complicating factors, like a messy, or even not so messy, divorce, using a "one and done" approach begins to have some appeal. Instead of having that premium payment remind the client of the not-so-good times each year, they can put it squarely in their rear view mirror where it belongs, while still meeting their obligation under the divorce decree.

Permanent Insurance: One of our carriers allows for a portion of the death benefit to be paid as an income stream rather than a lump sum. There are pros and cons to this of course, control being primary among the cons. However, like the example above, when we focus our attention on the "why", some significant uses for the discount present themselves. Turns out this product also has a chronic illness rider that can be added to the policy. As an optional rider providing access to 100% of the policy face amount via a monthly benefit, there is a cost associated with it. Using the income stream option for just enough of the life coverage and the corresponding discount to offset the LTC costs results in.....you guessed it, getting more for the same premium.

In either case, remember that in some cases, the "more" is peace of mind. Tough to put a price tag on that.

Kestler Connection 10-31-12

Kestler Financial Group — Wed, 31 Oct 2012 00:00:00 GMT

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It's Déjà Vu All Over Again

Jeff Reed — Tue, 23 Oct 2012 00:00:00 GMT

Aside from being able to quote one of the most quotable individuals in history, why would I feel compelled to make such a comment? It feels just like 2010, that's why. Rather than get into all the similarities (which are staggering in number), today's focus is on one of the budget proposals on the table for 2013 that includes language that could very easily cause the inclusion of ILIT held assets in a decedent's taxable estate.

That's right. Included, not excluded. Sound like a problem? You bet.

Of course, while this is theoretically possible, it is rather unlikely to come to pass. The thinking is that there was a lack of, well, thinking, around the rather far reaching results of a very broadly written section of the budget. In fact, two experts, Randy Zipse, VP of Advanced Markets at John Hancock and Ronald Aucutt, Partner with McGuireWoods LLP, discussed this very topic in a recent podcast from John Hancock Advanced Markets Radio . Why do they reach this conclusion? The revenue associated with this section of the budget is $910 MM, far short of what the presenters would expect if the intent of this budget provision includes all grantor trusts. I'll leave further analysis to them, but one of their points, that this budget isn't necessarily tied to one candidate or party, makes this worth watching both now and in 2013.

The balance of the discussion reviews additional aspects of the budget proposal, as well as the political climate around estate taxes through the end of this year and in to 2013. As expected, the safe bet is on no action being taken until after not only the election, but the inauguration. Further, the expected action based on the presenter's commentary is likely to be an extension of the current limits. The rationale for this opinion is that while the two candidates have widely differing views on this issue (Romney in favor of complete repeal, Obama in favor of a return to lower limits and higher rates) neither will be willing to expend the political capital necessary to push what they really want through Congress should they win the election. The current levels are thought to represent a compromise both sides could live with, at least for now.

Another aspect of their conversation led me to the McGuireWoods web site, and a resource that I think I will find myself coming back to in the future. Mr. Aucutt maintains a document called Estate Tax Changes Past, Present and Future on the site, and not only is it a great resource for what is going on right now, it is a very thorough study of the history of the estate tax. While I have seen timelines and the like in the past, most of them focused on the various tax rates and the on again off again nature of the tax over the years. Mr. Aucutt goes quite a bit deeper, and anyone who needs to strengthen their knowledge of current law would also be well served by gaining the perspective his history provides. Rather than simply letting this resource stagnate, the author updates it roughly twice a month, rendering it a useful tool not only for today's information, but also staying informed going forward.

Needless to say, the next few months will tell the tale about many things. While much of it is unknown at this point, what is clear is that the only thing we can really count is more changes.

Kestler Connection 10-23-12

Kestler Financial Group — Tue, 23 Oct 2012 00:00:00 GMT

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Another Threat to Whole Life Contracts

Jeff Reed — Tue, 16 Oct 2012 00:00:00 GMT

We all know there is a large amount of Whole Life business on the books that has been significantly impacted but the recent economic environment. We have all talked about decreased dividend scales and their impact, but there is another danger lurking for some of these contracts: clients who have not been able to make their premium payments.

Many WL contacts include an Automatic Premium Loan (APL) provision that steps in and "pays the premium" via a loan. Sounds great, but the long term impact of multiple premiums being paid in this manner can be significant, leading to policy under performance and possible future premium increases. John Hancock can step in and stop the bleeding on these in force WL contracts using Premier Life and the 10% Premium Credit that is part of their 150th Anniversary celebration.

Example cases include:

Male age 36

$1.6 MM blended WL/Term contact $54K CSV $14K annual premium John Hancock was able to offer $1.7 MM of coverage, $17K per month of LTC coverage and deferred any out of pocket premium until policy year 2, all for the same premium of $14K.

Male age 66

$500K WL contract $30K annual premium John Hancock was able to offer a $500K Premier Life policy for just over $21K per year, a savings of close to 30%.

Male age 45

$2.5 MM WL contract $27.6K annual premium Client desired a flexible premium product without giving up the death benefit or cash valued guarantees John Hancock was able to offer flexible premiums, guaranteed cash value and death benefit, and a 1% LTC rider all for the same premium with Premier Life.

For those unfamiliar with Premier Life and its place in the competitive landscape, it is a Guaranteed UL Contract offering guaranteed death benefit and cash values. Because it is a UL contract, if the client needs to skip a premium there is no loan, simply a deduction of charges as there would be on any UL contract. The additional flexibility is very appealing in the current environment, and the client does not have to give up their guarantees to achieve it. Click here for more information on the Premier Life from John Hancock, or send me an email for help illustrating Premier Life on your next case.

Kestler Connection 10-16-12

Kestler Financial Group — Tue, 16 Oct 2012 00:00:00 GMT

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TIA History May Still Qualify for Preferred Rates

Jeff Reed — Tue, 09 Oct 2012 00:00:00 GMT

Conventional wisdom from the underwriting community will usually limit a proposed insured with a history of Transient Ischemic Attack (TIA) to no better than a Standard Nonsmoker offer. There is at least one carrier out there, however, who has a more progressive approach to this history. If enough time has gone by since the incident, and the balance of the client's medical history is favorable, there may be a Preferred offer out there, just waiting for you to apply.

So what makes the difference between a Standard and a Preferred risk with this history? Here are the basics:

» Proposed insured is age 40 or older at the time of the attack

» Minimum of ten years since the TIA

» Single event

» No significant carotid stenosis found

» No surgical intervention

» No tobacco use

» Regular, normal neurological follow up

» No other ratable impairments

» Otherwise meets all Preferred guidelines

» Permanent products only, minimum face amount of $250,000

Of course, not all Preferred classes are created equal, right? So is this called Preferred but is really the fifth class down the ladder? No, this is the second best class from a carrier with competitively priced permanent products and a $20MM capacity through age 80. Plain and simple, this could make a huge difference on your next case with a TIA history.

Kestler Connection 10-9-12

Kestler Financial Group — Tue, 09 Oct 2012 00:00:00 GMT

Don't Miss our AMAZING Webinar this Thursday! Are you savvy?

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Solutions for S-Corps Owners

Jeff Reed — Tue, 02 Oct 2012 00:00:00 GMT

We spend a lot of time in our business talking about all the creative solutions that are out there for business owners and executives. The unfortunate truth is the majority of our clients will never be able to use them. Why is that? How many of your small business owner clients are C-Corps? Go ahead and count. I'll wait.

Is the number fairly modest? I'll bet it is, and that means that non-qualified deferred compensation and a myriad of other concepts based on a separate tax paying entity are out the window as well. In addition, many of these are truly small businesses, and the expense of administration and compliance with the associated regulations can be a bit of a barrier to entry for this kind of work as well.

Of course, in our business there is no lack of creativity, and there are some solutions for owners of pass-through tax entities. In fact, the rise of the Indexed UL product has unlocked many of these through a diverse selection of product features. Combine these features with the ever-growing body of information around controlling your own destiny and future tax rates by funding Indexed UL contracts and we start to see a path through the maze these business owners face.

The issue, however, is tax. If we are focusing on pass-through entities, how can we find some tax relief for the business owner? I'm not sure we can without involving his employees and all of the complicating factors that come along with that. But what if there was another way to approach the tax issue? What if, instead of avoidance or deferral, we just make it easier to pay, and perhaps even put these dollars to work for us even while we are writing the check to Uncle Sam? Now we're cooking with gas, as they say, right?

How do we execute on this? Simple. Take the money the business owner is already taking out of the business. Buy an Indexed UL. Over fund it to the hilt. Use the maximum non-mec premium, increasing face amount during the premium payment period and then level it out once we are done paying premiums. Stay with me if you think you have heard this before, because this is where it gets interesting. Take a loan. That's right. Take a loan in the first year. In fact, take one in every year the business owner makes a contribution. Make sure it is a participating loan.

Now that I have your attention, let's talk a bit more about the loan. Specifically, how much do we take out and why? Ask the accountant what the tax bill is on the money taken from the corporation to pay the annual premium. There's your amount, and you probably already know the answer to the "Why:" to pay the income taxes on the withdrawal from the corporation. If you are still a bit fuzzy on how this benefits the client, it is all in the type of loan. Participating loans remain in the indexed accounts. Over the long haul, there could be a positive spread between the loan interest and the indexed interest. Sure, the client is still paying the tax, but they are using leveraged dollars from their life insurance policy to do it, and their cash value should continue to grow, creating a nice source of future income. Add to the equation a reasonable fixed, simple interest rate charged on the loan versus the compounding effect associated with the 100% of the cash value growth and this strategy sounds even better. This is not tax avoidance; it is tax planning.

Make sense? Have a list of prospects yet? Good. Click through here to check out more details from one carrier that you could use for this type of structure.

Kestler Connection 10-2-12

Kestler Financial Group — Tue, 02 Oct 2012 00:00:00 GMT

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Is the Sun Setting on the No Lapse Guarantee Era?

Jeff Reed — Tue, 25 Sep 2012 00:00:00 GMT

With the ratification of Actuarial Guideline 38 last week, I think we have reached the tipping point; the end of 2012 is going to see another round of price changes on Guaranteed Universal Life products, and the increases will be dramatic. How dramatic? A recent analysis of one carrier's increase showed a range of 10% to 27% depending on the premium structure, with shorter premium payment periods shouldering the largest increases.

Now, I have been talking about this eventuality for the past 18 months at least, and anyone who has been following along will not be surprised by this coming to pass. The most important aspect of the entire discussion, however, is not that we saw this coming; it is what is still ahead of us. Specifically, if the last decade or so was the "No Lapse Guaranteed" era, what product is going to rise from the ashes to prominence? Further, is it in our best interest for what amounted to a monoculture over the last decade to repeat itself, albeit with a new product leading the charge?

I'll go out on a limb and say that a new era dominated by one particular product is the absolute last thing we need. Unfortunately, history tells us that is exactly what is going to happen. A few weeks back, I talked about the need for product innovation, and that is certainly part of the discussion. The more fundamental issue is that the collective product knowledge and sales skills that our industry possessed prior to the last decade has atrophied.

The result is that a subset of today's life insurance agents doesn't have the skill set to articulate the relative strengths and weaknesses of the life insurance products available today. More importantly, this group is also ill prepared to guide clients through the process of matching client needs to the appropriate life product. The one mechanism that has historically filled that void, the career agency system, has contracted to the point that it can't fill this training void.

So what is the solution? I'm not sure anyone knows (in fact, I am sure that no one knows!). We will investigate that very question over the coming months. There are enough smart people in this business that it will not take long for us to sharpen our collective pencil, and adapt to this new era. Frankly, periods of change, such as the one we are about to experience, often result in an even greater opportunity for the well prepared. The trick is making sure you are paying enough attention to be ready.

Kestler Connection 9-25-12

Kestler Financial Group — Tue, 25 Sep 2012 00:00:00 GMT

LAST CHANCE TO REGISTER! - IRA Inc.'s™ - Understanding Pension Offers: The Best Sales Solutions for Big Company Pension Rollovers

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It's Time to Meet Adam....Officially.

Kestler Financial Group — Tue, 18 Sep 2012 00:00:00 GMT

We want to introduce you to our new family member, Adam Cavalier...

I began my career as a brokerage employee of Cavalier Associates in 1993. Working in the agency as a new business cordinator, I learned all aspects of the agency and I quickly advanced to a Marketing Representative position in 2000. In that position, I learned how to wholesale products and how to underwrite policies. I believe the most important skill I learned was providing excellent service. For the next 10 years, I was responsible for all the recruiting and marketing functions, as well as managing difficult to place and impaired risk cases.

In the summer of 2012, I joined the Kestler Financial family as the Director of Life Insurance Sales. In this role, I focus on finding the unique life insurance opportunities that experienced and high-level securities producers encounter in the course of their interaction with their clients.

I have been married to my lovely wife, Denise, since 2000. We have three children that keep us very busy: Isabella, age 10, Nick, age 9, and Evan, age 8. When I take breaks from working, I enjoy restoring classic cars and spending time with my family.

So, nice to meet you! How can I help?

Email: acavalier @kestlerfinancial.com
Phone: 800.699.0299 ext. 7008

Kestler Connection 9-18-12

Kestler Financial Group — Tue, 18 Sep 2012 00:00:00 GMT

Annexus Training Experience is filling up! Have you registered?

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Is Regime Change in Washington a Threat to our Business?

Jeff Reed — Tue, 11 Sep 2012 00:00:00 GMT

Definitely maybe. Any time a discussion of balancing budgets and deficit reduction breaks-out, there is commentary around the possibility of changes to the tax treatment of insurance products. This election year is no exception, and we all need to stay informed about the various budget proposals and how they will impact our clients and our business.

The challenge, however, is separating fact from fiction. At any given time, we can find an "expert" who will tell us what we want to hear. In this case, the spectrum covers everything from "insurance products are a sacred cow" to "the sky is falling" and inside build up is going to be taxed in the very near future. I am not sure that there is a way to cut through all the noise to the truth at this point, particularly given that the election is far from decided.

A recent article in the Wall Street Journal provides an excellent example of the issue. The article includes a discussion of some of the provisions of Mitt Romney's tax plan, a rebuttal from President Obama, and a reminder that Mitt Romney and his advisors have not previously indicated that taxation of insurance products and muni bonds are off the table. In fact, the article points out that taxing these assets would go a long way to funding the across-the-board 20% income tax cut Mr. Romney has proposed.

Confused yet? Wondering whose numbers to believe? You, and the rest of the nation, I think.

Rather than jump in to a political debate; what about the impact of this on our business? The assumption has always been that the tax treatment of inside build-up in life insurance and annuities is a critical component of their appeal, and that any change would negatively impact sales. While I am not going to stand here and say there will not be any impact, I am not sure that it would be quite as significant as some would have us believe. The feature set of current annuity products is strong enough to stand on its own merits, and life insurance is still sold for the death benefit in most scenarios. That, however, is a discussion for another time.

If this debate accomplishes anything, it drives home the fact that we need to stay informed and involved in our industry and the political process. Regardless of your stance on any of the above, it is the only way our voices can be heard. Have a good week.

Kestler Connection 9-11-12

Kestler Financial Group — Tue, 11 Sep 2012 00:00:00 GMT

• Aviva Webcasts for September

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Living Benefits on Term Insurance

Jeff Reed — Tue, 04 Sep 2012 00:00:00 GMT

For at least a couple of decades now, term insurance contracts have included Accelerated Benefit Riders for Terminal Illness . We all know how they work, and all you need is a doctor to tell you that you only have 12 months to live and you can access an advance on your death benefit to do whatever your little heart desires: pay for treatment, take a vacation, or anything else you can dream up. The problem from the insured's perspective is that this usually ends up with them dying. While we all have to go sometime, this is not exactly a feature that most agents talk up, probably for that very reason.

Fast forward to today, however, and perhaps things change a little, if not a lot. With the proliferation of additional Accelerated Benefit Provisions for Long Term Care, Chronic Illness and Critical Illnesses there are more reasons to talk about, and make the recommendation to purchase, a product with these features. While these new Accelerated Benefit features were introduced almost exclusively on permanent products in the early stages, they are now available on term contracts - and that just expanded the market for them dramatically.

All those clients who were unwilling to pay for Long Term Care? They are now prospects . Did they readily admit the need and simply could not afford it? Again, they are now back in the market, so to speak. Of course, these chronic illness riders are not true LTC policies, and we need to be a bit thoughtful in how we talk about them as a result. However, the triggers (being unable to perform 2 of the 6 ADL's or requiring substantial supervision to protect himself or herself from threats to health and safety due to severe cognitive impairment) are virtually identical. A major difference is how benefits are paid; annual payments on an indemnity basis. That's right. Get all your money in one lump sum once per year until the benefits are exhausted.

Exhausted benefits are also an item that needs to be covered in depth with the client. While there will be a small residual death benefit paid to the beneficiary when the insured does pass, it is entirely possible, or even likely based on the typical duration of care, that virtually all of the death benefit can be accelerated away. This is completely OK as long as everyone goes in to the transaction understanding this is a possibility. Exhausting the death benefit becomes increasingly important when we are working in the other market for this product: the younger prospect with a laundry list of risk management needs and a limited budget.

The younger client can use this recently introduced product to cover not only mortality, chronic illness and critical illness, but disability as well. There is a limited amount of disability income coverage available as a separate rider. The addition of this rider essentially makes this a risk management Swiss Army Knife for the younger client. Sure, as their income increases the plan is to beef up their coverage with stand-alone policies, but until then, this coverage is far better than no coverage.

You can check out the Product Guide here, or give us a call to request a quote.

Kestler Connection 9-4-12

Kestler Financial Group — Tue, 04 Sep 2012 00:00:00 GMT

• IRA Inc.'s™ - Understanding Pension Offers: The Best Sales Solutions for Big Company Pension Rollovers

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» Life product changes, effective October 1, 2012
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Insurance as Flexible as an Olympic Gymnast

Kestler Financial Group — Tue, 28 Aug 2012 00:00:00 GMT

I work with quite a few financial planners. Their approach to life insurance is very analytical, and the result is often a set of applications. All on the same insured, layering insurance types, amounts and durations to match what they perceive to be the need of the client. They do a ton of paperwork. It is a necessary evil to do what they feel is best for the client. I have other agents who approach it a bit differently. They sell fewer polices with a larger face amount and a longer duration, and ask about possible future reductions in face amount. They do less paperwork. I'm not sure the end result is that different.

One of our carriers has introduced a completely different way to attack this. Rather than stacking polices and policy fees or selling polices with larger premiums than they might be otherwise, Lincoln Benefit has introduced an updated term insurance product that offers every level period imaginable. You want 17 year term? Done. 13 year? No problem. But that is just the beginning of the story. They have also introduced a new rider that allows us to stack additional coverage of an equally flexible duration on top of the base coverage -all in one policy.

The end result is a policy that may have $500K of base coverage guaranteed for 20 years and an additional $250K for the first ten years until little Johnny or Jane is out of college. This not only eliminates the additional policy fees that go with each additional policy, but as each block of insurance expires, the premium drops.

Where might we use this other than the "getting the kids through college" example? How about the old pension maximization sale? Sure, we need a base of permanent coverage to make that work, but we all know that the income replacement need drops with each passing year that the insured wakes up on the right side of the dirt. Combine the base of permanent coverage with a term policy that matches the declining need for coverage? The reduced cost just may unlock some of those sales, helping you maximize a client's retirement income.

Curious? You can find out more about the new product and check out the marketing materials here.

Kestler Connection 8-28-12

Kestler Financial Group — Tue, 28 Aug 2012 00:00:00 GMT

• Submit your business by Sept. 7th for DOUBLE-CREDIT!

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Life Product Evolution

Kestler Financial Group — Tue, 21 Aug 2012 00:00:00 GMT

Thank you to our guest blogger this week, ADAM CAVALIER

A few weeks back we talked about product innovation and the need to look at ideas beyond variations on the current products. One could view that as looking for the current products to evolve into a new "species" of product. While I continue to think that is something we all need to pay attention to, I also believe that we need to pay attention to product diversity.

Over the last 30 years there have been distinct eras dominated by one particular product type: Universal Life in the 1980's, Variable in the 1990's and then Guaranteed UL in the 2000's. Sure, there were a couple blips on the radar during those periods where other product types spiked, but by and large there was one dominant product during each of those decades. As the sun set on each of those eras, there was a painful transition period as the market adjusted to the new hot product, a wave a replacement sales were executed, and agents all made piles of cash. Clients by and large did not benefit from these transitions, much like investors who are constantly chasing returns, end up underperforming versus the market. I may be over-simplifying a bit, but not by much.

Today we find ourselves in yet another transition period, and while most are looking towards Indexed Universal Life as the next dominant product, I think there may be a more effective path to follow. Simply put, a product spectrum that is made up of strong candidates from each of the product types is going to be the best for all of us, agents and clients alike. Of course, as I say this I realize that has more or less been the case during each of these eras! So why has one product so thoroughly dominated? Take a peak in the mirror ladies and gentlemen. To use a tired cliché from our business, life insurance is sold, not bought, which means we, as the agent, are the primary drivers of this phenomenon. Sure, there are market conditions we need to take into consideration, but if there is one thing the last thirty years demonstrate it is that these are all cyclical.

So if the agents (and I include myself in that group!) are the primary driver, what is the reason behind the virtual "monoculture" of these eras? I think there are a few, including:

• Training and education: As more and more licensed agents are outside of the traditional career agency system that has historically been the primary provider of training and education, it is more and more challenging for an agent to stay up to speed on all the intricacies of the products we offer. The result is we sell what we know. We need to do a much better job collectively educating ourselves.
• The media: I include the authors of the many books on "selling systems" involving various types of life insurance in this group. The public places far too much weight on the generalities that dominate the internet and books available today. The one thing that they simply can't do is take the details that make all clients unique into account when they are making their recommendations. The resulting generic recommendations are based primarily on market conditions and the flavor of the month product.

These are just two of the many forces at work in our business that shape the way we make recommendations to our clients. As we navigate the waters of this transition period perhaps keeping an eye on the long term rather than the current cycle will generate sales that make more sense in the long run, and clients will enjoy performance that more closely resembles what the insurance market has done over the long haul: provide the protection our clients need while delivering additional benefits based on realistic rates of return regardless of the product type.

Kestler Connection 8-21-12

Kestler Financial Group — Tue, 21 Aug 2012 00:00:00 GMT

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But It's Guaranteed...

Jeff Reed — Tue, 14 Aug 2012 00:00:00 GMT

Sure, it's guaranteed. But what about the rest of the product? What product? Indexed Universal Life. One of the rather common features of these, as well as current assumption Universal Life products, is an interest rate "persistency" bonus that kicks in at some point in the policy, usually around the tenth policy year. Nothing new here, as this has been common practice for quite some time. The issue, however, is when we don't pay enough attention to what it does to our illustrative rates and what it may mean for the rest of the policy metrics like cap rates or participation rates.

Illustrative rates are certainly a hot topic currently. Everyone is trying to land the plane on the "right" illustrative rate. As I always say, "Maybe we should focus on being effective rather than being right?" Being "right" implies that everyone else is "wrong," and if there is one thing I know, it is that virtually every illustration we run that involves any kind of current assumption is going to be wrong. Rather than chase the impossible goal of being right, we need to turn our attention to effective illustrations. That means really understanding them.

Simply put, many of these products will end up with an illustrative rate of 9% or more on an S&P based, annual point-to-point product using carrier guidelines. Sure, the initial rate may be 7.5%, but by the time you reach year 15 in one product I know of, the rate would balloon to 8.75% based on these bonuses. Which brings me to the title of today's piece; But it's Guaranteed. What is guaranteed? The bonus. What is not guaranteed? The cap or participation rate. All the bonus does is place downward pressure on the other elements of the policy. And if you think the insurance carrier will operate that product at a loss because the bonus is guaranteed, then I have a bridge to sell you. This only gets worse if the basis for the sale is the massive income stream based on the bonus and the resulting huge spread in a participating loan.

So how do we deal with this in a responsible manner? We need to evaluate the product on its merits excluding the bonus. Adjust the illustrative rate on a year by year basis if necessary. Ask to see the expense report that most carrier software allows you to produce (and if their software "can't", that tells you something, I think!). If it still hunts, then by all means, sell it. If the bonus comes through without a corresponding reduction in cap or participation rate, the client will be thrilled. If it does not come through, at least your sale was based on an effective illustration. In addition, client expectations have not been violated and the strategy has a shot at success.

Kestler Connection 8-14-12

Kestler Financial Group — Tue, 14 Aug 2012 00:00:00 GMT

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Estate Tax Repeal?

Jeff Reed — Tue, 07 Aug 2012 00:00:00 GMT

It could happen. At least, if the Republicans have their way. In a rather surprising move in an election year, the Republicans released a study arguing that the Estate Tax actually generates less revenue than would be generated by the repeal of estate taxes and application of capital gains treatment of inherited assets via carryover of the deceased owner's cost basis.

Counter intuitive? Maybe. You can read the report here.

Rather than argue politics, let's think this through a bit. If we go ahead and play along with the Republicans, what would the impact be on our clients and our businesses? If we look at the issue from the client's perspective, there are some downsides. All clients' beneficiaries would now face a tax on inherited assets to the extent there was gain. How do we establish gain? It all starts with establishing basis, and that requires documentation. The burden of proof is on the client. No proof? No basis. No basis? It's all taxable. "Tough luck, Beneficiary! Mom and Dad should have kept better records."

Even if the tax is deferred until the asset is actually sold, the end result is the intent of the decedent has been ripped to shreds, and the assets they wanted to go to their loved ones now sit in the government coffers. Sounds like "Estate Planning: 101" to me; create liquidity when it is needed most using leveraged dollars. Frankly, the pool of potential estate planning clients who could really stand to own a bit more life insurance grows dramatically in this scenario. If you manage client assets in any way, you already know how difficult it can be to find the records necessary to establish cost basis.

What if we go up market to the high net worth space? Again, they are all going to need to deal with a tax. The magnitude of the tax in real dollars may be less for some of the very wealthy if they can provide the basis documentation. The pool of potential estate planning clients continues to grow in this segment as well for all the reasons outlined above. We may have to see more clients and motivate them to take action on an insurance purchase to generate the same revenue. That, of course, is where the problem lies, and we need look no further than late in the last decade to see it plain as day.

What did all of our clients hear about 2010? No estate taxes! What was the reality? There was still a transfer tax in the form of capital gains, and it had all the problems (and then some) outlined above. The step up in basis at death of these assets under the "normal" estate tax regime was essentially a "Get Out of Jail Free" card. If you had an asset with a low basis and high market value you simply had to hang on to it until death and then the tax issue was solved. Try convincing a client that there is still a tax when all they hear on the news is that it has been repealed? Tough sell, to say the least.

So what is the answer?

I'm not sure we need one, as the estate tax issue is far from settled. Rather, I think we stick to the basics, knowing that there are very, very few beneficiaries who complain about having too much life insurance when their loved ones pass away. The truth is that there is going to be a transfer tax. It is simply a matter of when and how it is paid.

Kestler Connection 8-7-12

Kestler Financial Group — Tue, 07 Aug 2012 00:00:00 GMT

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Kestler Connection 7-31-12

Kestler Financial Group — Tue, 31 Jul 2012 00:00:00 GMT

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Another Trip to the Urologist

Jeff Reed — Tue, 24 Jul 2012 00:00:00 GMT

We discussed the impact of the recent news on the effectiveness of PSA testing a few weeks ago. The primary take away from that discussion was that despite the talking heads on the news trumpeting the news for all to hear, it really was not going to have an impact on our business any time soon, if ever.

That, of course, was bad news for those of us looking to move on cases that involve a history of PSA elevations or even prostate cancers. So rather than wait for the medical community to make up their minds about PSA testing and hope that it benefits underwriting someday, how about we talk about what we can do? Sounds good, but is there really anything we can do once the cancer is diagnosed?

The answer, like so many things in our business, is "it depends." What does it depend on?

Four things:

Age of the client. The older the better. The idea is to identify the risks that are likely to die with the cancer rather than from it.

The nature of the cancer. Specifically, a recent diagnosis with a Gleason Score of 6 or less, and a PSA of less than 10. The balance of the pathology details need to be favorable as well.

Well followed. Regular visits to the doctor, with a recommended treatment protocol that is followed to the letter. Even watchful waiting is in play here in the right circumstances.

Manual shopping. As in "Underwriting Manual." Some carriers use one, others two, and a very few use three. That gives the underwriter who truly knows his or her craft to use the one that will give the client the most favorable result.

How much more favorable? How about a risk similar to the one described above receiving offers of Decline, Postpone one year or a Table B depending on the manual used? In the case described above they did, in fact, offer Table B. On a 61 year old. Here's the kicker: only one carrier in the industry uses that third manual. Do you know who they are? You probably should. Have a great week!

Kestler Connection 7-24-12

Kestler Financial Group — Tue, 24 Jul 2012 00:00:00 GMT

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Kestler Connection 7-17-12

Kestler Financial Group — Tue, 17 Jul 2012 00:00:00 GMT

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A Reprieve from the Governor

Jeff Reed — Tue, 17 Jul 2012 00:00:00 GMT

And so the battle of the Bush era tax cuts begins in earnest. We have all been waiting for the first salvo, and the statements by President Obama regarding a short term extension of the Bush era tax cuts are undoubtedly only the beginning. The question, just like in 2010, is when we will actually see some clarity around the issue.

Unfortunately for those of us who work in the estate planning field, most of the focus is on income taxes. That leaves us where we have been for the past two years - waiting for the other shoe to drop. While I don't claim to have any brilliant insight, I am watching one aspect of the debate very carefully; the line in the sand being drawn at the $250,000 of income level. I have long been of the opinion that trying to pass any extensions of tax breaks for the wealthiest of Americans would be problematic for anyone seeking reelection, and one could easily interpret this income limit as the first evidence of that trend.

So, just how significant are the changes we have in store without any new legislation? I had the occasion recently to discuss a case with a producer and a number of attorneys regarding a closely held business with a great problem; excess retained earnings. While most of us would welcome the issue, or certainly prefer it versus the opposite, it does pose an interesting question. Perhaps even multiple questions, starting with what impact the expiration of the Bush era cuts could have on the decision making process about a seven figure retained earnings problem? How about the tax bill nearly tripling on the distribution? A significant problem, to say the least, and devastating if it catches the client by surprise.

How do we get to that more than double increase? Here's the math:

- Current dividend tax rate - 15%

- Dividend tax rate if/when the tax cuts expire - 39.6%

- Additional Medicare tax on investment income for top earners beginning in 2013 - 3.8%

- Total tax - 43.4%!

Obviously it is critical in this case, as well as others I am sure, to make some smart decisions before the end of the year. What if, however, even the 15% is more than we want to pay? Are there any other options? Once again, the current environment provides us with some opportunities not only in 2012, but also if the Bush era tax cuts expire, assuming that interest rates stay low in 2013. A loan from the company to the owner with rates locked in at historically low AFR rates could allow the owner to have use of the funds without the corresponding tax bill. Further, depending on the age of the client, a split dollar arrangement could also work. Either one of these approaches would also have a significant benefit for us in the life insurance profession: a ready supply of premium dollars to use for any number of planning strategies.

So, as our clients facing a potentially monstrous increase in their tax bill at the end of the year, it makes sense for us to consider strategies that will work even if that phone call from the Governor's office in the form of an extension of the cuts never comes. As always, if you want to explore these last two items, feel free to give me a call.

Kestler Connection 7-10-12

Kestler Financial Group — Tue, 10 Jul 2012 00:00:00 GMT

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New PSA Underwriting Guidelines

Jeff Reed — Tue, 10 Jul 2012 00:00:00 GMT

Unless you have been asleep at the wheel, you certainly heard at least passing mention of recently announced guidelines from the U.S. Preventive Services Task Force regarding the use of Prostate Specific Antigen (PSA) testing as a screening for prostate cancer. You can read all about it here if you missed it or need a refresher. Further, if you have been in the life insurance business for any period of time, you have had a case come through your office with an elevated PSA history that was nothing but an exercise in frustration. I know I have seen my share of them, and there is perhaps no better issue to demonstrate the difference between clinical medicine and medical underwriting.

All of that said, what, if anything, does this recent announcement mean? Is it a game changer? Will it provide any relief to the frustration this type of history can cause both the insured and underwriter alike? Rather than speculate, I went to the rolodex and called Will Walker, director of Member Services Underwriting at the Advantage Insurance Network. Together we posed the following questions to Dr. Jim Topic, Head Medical Director at Protective Life:

WW: As a physician, what is your reaction to the recent announcement regarding PSA testing?

JT: I was expecting the move toward this response. I wish more emphasis had been placed on risk selection and proper follow of high PSA. The main reason for the lack of clear benefit of screening is twofold in my opinion: High levels of crossover of screened vs. non-screened populations and the high adverse effect of PSA follow up.

WW: Will this study change the role of PSA testing as part of normal age and amount requirements?

JT: I do not believe it will.

WW: Will there be any impact on the underwriting of elevated PSA levels and prostate cancer based on this new information?

JT: Unlikely.

WW: If clinicians are no longer performing PSA testing, how would an elevated PSA discovered on the medical exam be handled?

JT: First, it is unlikely physicians will change quickly. Second, PSA is still a valid marker of cancer and risk needs to be assessed.

WW: What testing would you expect the clinician to perform to reach a level of comfort with an elevated PSA risk? Repeat PSA/Free PSA testing? PCA3 urinalysis? Biopsy?

JT: All of the above, and I would expect more use of active surveillance post biopsy.

WW: Currently insurance companies run Free PSA's as a reflex test if the PSA is elevated on the exam. If clinical medicine no longer utilizes routine PSA testing, will you put more credence on the Free PSA results from the insurance exam?

JT: Free PSA falls rapidly if the sample is not frozen. We do not advise use of free PSA on insurance labs unless proper handling is guaranteed. We currently use medical records, Free PSA, PCA3,PSA velocity, and will continue to do so.

WW: What do you perceive the insurance community will ultimately do if the PSA test is no longer used at the clinical level?

JT: PSA will continue to be used by insurance companies. As therapy changes or becomes more specific we will see more surveillance - likely rated as if partial therapy accomplished (if done at a documented center under a solid protocol). Better late chemotherapeutic approaches may allow lower Flat Extra/Table Ratings in future years. Most manuals have incorporated current advances as they can be documented. Due to the disease behavior, though, it takes years to document long term effects.

WW: Although we chose to incorporate the Q&A with Dr. Topic, similar answers were given from other Tier-1 Insurance Companies Medical Director's. Their feelings could be summarized by this statement:

"We are not reacting to recommendation by the U.S. Preventive Services Task Force. There's inconsistency regarding PSA screening in the clinical community between U.S. Preventive Services Task Force, American Urological Association & American Cancer Society. Prostate cancer is still the second leading cause of cancer deaths among men after lung cancer. We continue to review PSA and Prostate cancer assessments on an annual basis."

Clearly, this is far from a game changer. In fact, it may increase the frustration when dealing with this history because there seems to be a body of opinion that discounts the relevancy of PSA testing. That leaves us in the field with a bit more work to do when working on a case with this history. Educating the client becomes paramount, and involves two aspects as I see it: The first is the difference between clinical medicine and medical underwriting. Simply put, the clinician has the luxury of time. He or she can afford to use a wait and see approach. The underwriter, however, needs to make a one time decision and then live with it for the life of the client. The second aspect is referenced in the last answer from Dr. Topic: it takes time for any new medical information to result in usable data for the underwriting community.

Of course, this is no guarantee the client will agree with you, but we have to play the hand we are dealt on this one. Have a good week.

Special thanks to Dr. Topic and Will Walker for their contributions.

Kestler Connection 7-3-12

Kestler Financial Group — Tue, 03 Jul 2012 00:00:00 GMT

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Kestler Connection 6-26-12

Kestler Financial Group — Tue, 26 Jun 2012 00:00:00 GMT

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Take Another Look at Whole Life

Jeff Reed — Tue, 19 Jun 2012 00:00:00 GMT

Last week I talked about possible underperformance of Whole Life contracts. The one aspect of that discussion that was not really addressed was the role of guarantees, and how Whole Life can stack up against some of the more heavily promoted products such as Indexed Universal Life. Let's face it; if an IUL contract performs at the guaranteed minimum, the cash growth will be quite anemic and, depending on funding levels, can even lose money. That's right; lose money even with a guaranteed performance floor. It’s those pesky mortality and expense charges that crash the party.

Of course, when we start talking about Whole Life and guarantees, we have a lot of the same issues: funding levels, projected performance, mortality and expense charges. The one thing we can count on, however, is the guaranteed performance in the form of both death benefit and cash value. Rather than there simply being a floor each year, the actual cash value is guaranteed to go up each year. The assumption by the field is this product is too expensive and lags behind IUL from a cash accumulation standpoint.

The truth may be a bit more complex than that.

One of the fundamental questions we need to ask ourselves and our clients is what role they want their life insurance to play in their overall plan? Is it one of their aggressive positions or their "safe money"? In most cases, anyone who is contemplating allocating a significant premium to a life insurance contract has other investment positions. They may not need to hit the grand slam that some of the IUL's promise, and something that they can count on like guaranteed cash value growth may be just the thing to balance out their more aggressive positions.

So how would we execute on this? Let's take this scenario:

» Male age 46

» Preferred Nonsmoker

» $50K annual premium paid via Section 162 Bonus from their employer

» Double bonus structure pays for the taxes due on the total bonus

What does the performance look like at age 65? How about $1,140,577 in cash and $2,726,368 death benefit on a guaranteed basis? Projected levels? $1,403,117 in cash and $3,225,267 in death benefit! Great! We like the idea so far, but how does it compare to the IUL market? Even if we consider this an "apples to oranges" comparison because of the fundamental difference between the products, let's take a peek at the IUL performance and the assumptions we would need to make in order to hit the same projected cash value number at age 65. I'll take it easy on the IUL guys and use current mortality and expense charges.

» Carrier 1 - Approximately 3% to match the guaranteed CSV, 5% for projected CSV at age 65

» Carrier 2 - Approximately 4% to match the guaranteed CSV, 6% for projected CSV at age 65

» Carrier 3 - Approximately 4% to match the guaranteed CSV, 6% for projected CSV at age 65

I think we will all admit that these are attainable in an IUL contract (and perhaps we would all be better served using these rates all the time, but that is a topic for another day). However, if we apply a couple more factors to this decision making process that may change. The first is that we used current M&E. Most of the carriers we use do not fiddle with M&E on in force contracts. Ever. But in an IUL they can, and we have to consider it. The second is that with IUL it is an "either or" conversation - you receive the guaranteed performance or the current performance, whichever is higher. With WL, you get BOTH. Every year. Consider the question about the role of life insurance in their overall plan and we start to see this transaction in a different light.

There are a number of other factors that enter into this equation that are best served by evaluating on a case by case basis, but I would be ready to address the following on my next case:

The relative premium flexibility, particularly if this is not a Section 162 that the employer has committed to. For a personally funded case the flexibility of the IUL has to be considered. If it is too large a factor, however, then perhaps life insurance is not the best fit for that client in the first place. Loan mechanics: Direct recognition, participating loans and interest rate assumptions will all have huge impacts on the income distribution phase, and we have not addressed those at all here. The actual income the contract can generate!

As always, what starts with a rather simple premise - "How does WL stack up against IUL?" - evolves in to a much more complex discussion. The recurring theme, however, is that we need to question the conventional wisdom and apply some critical thinking to do the best work we can for our clients.

Kestler Connection 6-19-12

Kestler Financial Group — Tue, 19 Jun 2012 00:00:00 GMT

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Disappointing Dividends

Jeff Reed — Tue, 12 Jun 2012 00:00:00 GMT

One of our carriers released a document recently that summarized the dividend scale actions taken by nine major insurance companies on their participating whole life contracts over the last 31 years. While there was not one carrier that stood out above the rest and warrants specific mention, the overall trend in the data was very compelling. There are six total categories, but really only three that matter: scale increases, decreases and no change. Out of a total of 258 data points (279 less the 21 expected data points that were unavailable) we see the following:

Scale Increases - 48 (18.60%)
No change - 102 (39.53%)
Scale Decreases - 108 (41.86%)

I think the message in this depends on if you are a "glass half-full" or "glass half-empty" person. The carrier maintained or increased their dividend almost 60% of the time, while decreasing roughly 40% of the time. Regardless of your outlook on life, there is a clear message; decreasing 40% of the time means these policies, unless the unwitting beneficiary of excellent timing, are going to underperform versus expectations. This is probably not news to most of us.

Another item that is not going to surprise any of us is the recent market volatility. We are all keenly aware of the ups and downs, and the Dow shedding some 8% in the last month has us all concerned. How is this related? Underperformance versus expectations. While the last 30 days is not something that would send me to the exits and out of the market, for a Variable Life contract it may be the last nail in the coffin. Hopefully not, because if we get there before it is too late, we can actually take action before the policy is dead and buried.

While this strategy of moving out of underperforming Whole and Variable Life contracts is not new, the landscape of available products for us to work with has changed dramatically. One of the big objections we hear when proposing a possible replacement is the rapid cash value depletion that is inherent in most of the Guaranteed Universal Life contracts out there. Even with the underperformance of their existing contract, the fact that there is some cash there brings the client some measure of comfort, and they would almost rather simply walk with the cash than see it turn to dust when it hits the proposed new policy.

In a recent case, we had a trust owned policy and no further premiums expected, so the "walk with the cash" option was not really going to work. The policy in question, on a male age 60, was due to lapse at age 93 even using a rather aggressive growth assumption. New underwriting took the client from a Standard to Preferred, or even Super Preferred, for new coverage. The kicker was that the cash value was preserved (and even continued to grow) in the new policy. Looking beyond the guaranteed forever products opened up a solution that gave guarantees to the mid-eighties along with a projected surrender value of $1.6MM.

The client was thrilled with the outcome. Their insurance would not require new premiums, the possibility of a lapse prior to death was greatly reduced and the cash value continued to grow. Of course, the agent was rather pleased with the compensation on a target premium of $85,000 and excess compensation close to $1.1MM.

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Kestler Connection 6-12-12

Kestler Financial Group — Tue, 12 Jun 2012 00:00:00 GMT

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Insuring the Uninsurable Risk

Jeff Reed — Tue, 05 Jun 2012 00:00:00 GMT

There are few things worse in our business than a willing premium payer who cannot obtain coverage based on their health history. In fact, I think it may actually be the worst. In one case, however, it was the catalyst for a huge case and a truly exceptional estate plan for the client and their family, all the way to the grandchildren.

So how did this all come about? The genesis is in the scenario described above - a family worth $70MM planning for the seemingly unavoidable estate tax bill looming in the near future. Gifting, even under today's $5.12MM exemption environment, was not going to be enough. Life insurance was out, as both the Patriarch and Matriarch (G1) are currently uninsurable and the current in force coverage is not adequate. That left other planning techniques as the only potential solution and would normally spell the end of involvement for the life agent as the other advisors stepped in to do what they could. Fortunately for all involved, this life agent was a bit more tenacious.

How tenacious? After exhausting all insurance options, we suggested he consider meeting with a team of advisors that have assembled a planning structure that just might work for this family. The agent met with and engaged the team of outside advisors and introduced them to the family and their CPA. Eventually, a relationship and estate planning structure evolved that resulted in the following:

● A series of enhancements to the current G1 estate plan
● Significantly increased asset protection
● Freezing the value of G1's estate and pushing the appreciation of the assets to G2
● G1 maintains control throughout their lifetime
● Maximum gift tax efficiency
● Ensures the transfer of G1's assets to Generation 2 (G2) and subsequently to Generation 3 (G3)
● Positions the estate for significant potential valuation discounts - Possibly as deep as 80%
● Generated a life sale with a target premium of over $810,000

G1's two sons each have a current net worth of approximately $1MM. Despite this relatively low net worth, the team of advisors was able to communicate the high level of control in the resulting estate plan and the valuation of G2's beneficial interest in G1's estate to the carrier. This intimate knowledge of not only the family's net worth but also their plan allowed the carrier to approve a total of $40MM of survivorship coverage on G2, projected to grow to over $52MM over the next 30 years. When combined with a premium finance structure to minimize both the cash outlay and gift taxes, the result is a comprehensive and efficient estate plan that pushes much of the potential estate tax down to G2, who are not only much younger, but are insurable!

As great a story as this is, it is only useful to the reader if you are able to apply it to your practice. With that in mind, please see the client profile to learn more about the type client who can benefit from planning of this nature. Remember, this works despite G1 being uninsurable, not because of it. Of course, there is much more to the story than these bullet points and supporting documentation. If you are serious about working in the high net worth market, you can learn from the experts who put this all together by attending the first in series of web events hosted by Kestler Financial scheduled for June 14th at 10:00 AM Pacific. Click here to email me and reserve your spot. There are a limited number of spots available. Claim yours today!

Kestler Connection 6-5-12

Kestler Financial Group — Tue, 05 Jun 2012 00:00:00 GMT

• From the Desk of Larry Stich

• NEW Income Inc. Webinar - Inflation: The Silent Retirement Dream Killer

• Aviva Webcasts for June

• Aviva Advanced Markets

• Aviva Updates:

» New business crediting rates will remain unchanged for June
» Producers in South Dakota must take continuing ed training
» Wellness for Life received approval in North Carolina and Oregon
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Case Design From the Ground Up

Jeff Reed — Tue, 29 May 2012 00:00:00 GMT

I was working on a case this week that involved a rather challenging set of circumstances:

* Healthy Clients (Preferred Nonsmoker), Male age 68, Female age 66
* $3.5 million Current Assumption Survivorship UL
* Current Premium of $18,250
* Current CSV of $285,000
* Duration of Guaranteed coverage - 11 years from today
* Duration of Projected coverage - 33 years from today

Doesn't sound too bad, right? One problem: they don't want to continue paying premiums. What does that do to the policy? Nine years of guaranteed coverage and 18 years of projected coverage. Not nearly enough.

The policy was issued 15 years ago and they are still healthy, so we should be able to re-write this and extend the coverage, right? Not so fast. Let's take another look at this in force ledger. The current interest rate is at 4.10%, a mere 10 basis points above the guarantee. The chances that MetLife , the carrier on the in force coverage, is going to increase M&E is pretty low, so we are really looking at 18 years as our measuring stick. A quick survey of the current market comes back with only marginal improvement - 21 years of guaranteed coverage. Perhaps not enough to motivate the client to take action.

The solution on this one is still to be determined, but it is going to take a compromise on a couple fronts: Duration of coverage (probably age 90) and the need to continue to pay premiums, although at a reduced rate versus the current $18,250 (perhaps as low as $5000).

The real issue that is lurking behind the scenes on this case is that the producer wants to get into underwriting right away. While I would normally be right there with him, without landing the plane on premium structure we are really at a loss regarding who to apply with? Why is that? Take a look at this Concept Ledger. It shows the relative position of 13 carriers we reviewed for the case in three different scenarios:

* Solve for the premium to guarantee coverage to age 100
* Continue to pay the $18,250 and let it ride
* Pay no further premium and let it ride

The problem should be readily apparent - there is really no clear winner in all three scenarios. In fact, the winner in two of them is dead last in the third. Conversely, the last place carrier in the age to 100 solve is the second best performer when we execute on the exchange only with no further premium payments. Why is this? Carriers have had to pay careful attention to the creative premium payment structures that we in the field employ. Product design now attempts to exclude the designs the carrier is not comfortable with or are unprofitable, as well as highlight the structures they want to be competitive in.

So what is the lesson in all of this? In my mind there are two, starting with the conversations we collectively have with our clients. For some time now I have referred to what I call the "planning environment" that we are operating in for a given case. The discussion above is a clear example of that. If all we did was run the lowest carrier based on a solve to age 100 and defer the decision about how to fund the contract, we would almost certainly over pay. The other is really for the design experts like myself. It is a clear reminder that we need to approach each case as a blank slate. Believing that the product that had the best age 100 guarantee premium is the carrier of choice for this case could not only result in the client over paying, but could jeopardize the producer's competitive position. Fortunately in this case, the producer and I are on the same page and he agrees that we need to define the premium structure before we move forward in underwriting.

Kestler Connection 5-29-12

Kestler Financial Group — Tue, 29 May 2012 00:00:00 GMT

• Another Reason to Choose Wellness for Life®

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» May 2012 NAIC Suitability Training Deadline Update
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The Only Constant is Change

Jeff Reed — Tue, 22 May 2012 00:00:00 GMT

What's changing? It's called Solvency II, and when it eventually makes its way over to American shores, it is going to have a very, very large impact. Solvency II, which goes into effect in Europe in 2013, is roughly equivalent to the stress testing process that US banks have recently endured, applied to insurers. It represents a major departure from current reserving requirements in the US and Europe: the underlying rate of return assumptions a carrier can use when pricing product under Solvency II is a 1% rate versus 4% or higher on current US and European product. If you are asking yourself why this matters now if it does not go into effect in Europe until next year and its arrival in the US is purely speculation, just keep reading.

Reserving in Europe is not nearly the issue that it is here in the states. Quite simply, based on fundamental differences between European and US insurance products, there is not as much net amount at risk tied to long term guarantees there versus here in the US. Things become complicated, however, for European companies subject to Solvency II that also own US subsidiaries. Those US subs do have significant net amount at risk tied to long term guarantees in both the life and annuity markets. Those same US subs are subject to Solvency II based on their relationship to the European parent. Combine these facts with a finite amount of capital and a mandate to maximize profits, and the European parent faces a tough decision: allocate a significant amount of additional capital to a part of their business that is already underperforming or contemplate divesting themselves of what could become an anchor around their necks from a profitability standpoint as a result of the new reserving requirements.

This is an important distinction: it is less about solvency than it is about profitability. What may be a relatively unattractive asset to an entity operating under one set of rules in Europe may be very attractive elsewhere. Of course, there must be other remedies than selling the operation, correct? Absolutely. The US insurance carriers are deploying some of them currently based on the pressure on their bottom line from the current economy. Increased prices, limitations on first year premium and the like are some ways we see this play out. The problem with Solvency II is that unlike the current economy, which primarily impacts currently available product, Solvency II also applies to in force business. Any price increases on current product that would be large enough to address the reserving for in force business would be so massive that the carrier would never be able to sell enough product to put a dent in it. All of the sudden, the possibility of selling off the US operation makes more and more sense to the European parent.

Now that we understand the forces in play, we can understand the possible sale of any number of US insurance operations that are owned by European parents (I can think of at least a half a dozen). With that behind us, it is time to tackle the issue of how to deal with this as producers and consumers. I think the first issue is what could happen to in force business when, and if, a carrier is sold? In some ways that is easy; any current assumption product or indexed product will be subject to possible rate reductions. Guaranteed product appears simpler on the surface. It is guaranteed after all, right? Sort of. While there is no direct precedent for guaranteed death benefits and their corresponding premiums being subject to change in the aftermath of the sale of a company, there is precedent when it comes to guaranteed interest rates. Essentially, the carrier that bought the business went to court for relief on the guaranteed rates and was able to reduce them. While I have not reviewed the actual case, this is from a source I trust at one of our carriers. The bottom line is that even with guaranteed product, we need to be paying attention.

If we all agree that we need to pay attention, the next logical question is what to pay attention to? There are a number of strategies to consider, starting with staying informed. If any number of the players in our business are potentially going to change hands over the next 12 to 24 months, separating rumor from fact is going to be critical going forward. Further, I would consider the use of products with flexible exit strategies and shorter surrender schedules to provide the client greater flexibility. Another tactic we see playing out in the LIMRA statistics is taking a second look at Whole Life, and by extension, considering the truly top-rated carriers in our business. While their products may be a bit more expensive currently, the fact that they are more likely to be a buyer than a seller at the carrier level is something to think about.

The balance of the strategies that may help us all deal with this are truly fundamental and are already being employed by some carriers and practitioners. The movement away from the singular focus on price to "total policy holder value" will only become more important when the prices associated with guarantees rise dramatically. An increased level of scrutiny of in force contracts as well as formal annual reviews, including not only policy performance but also carrier level considerations, is essential. This is particularly true in our overly litigious environment. Perhaps the most effective strategy, however, is to fall back on one very fundamental premise: life insurance continues to be unique in its ability to provide timely liquidity as well as very attractive tax equivalent returns without market risk. A price increase that primarily impacts one segment (albeit the largest one currently) of our business does not mean we are out of business. Rather, it simply means we need to adapt, as we always have, and continue to serve our clients

Kestler Connection 5-22-12

Kestler Financial Group — Tue, 22 May 2012 00:00:00 GMT

• A "Must-Not-Miss" Webinar! Dominating the Reitrement Market Through Little Known Social Security Strategies & Techniques

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What Will Our Legacy Be?

Jeff Reed — Tue, 15 May 2012 00:00:00 GMT

This week I am happy to introduce you to one of my colleagues as a guest columnist: Justin W. Smith. He has just returned from the annual AALU meeting, with the following perspective on our business...

Last week I took time out from the daily activities in the field to attend the 55th annual meeting of the American Association of Life Underwriters (AALU) in Washington D.C. The meeting reinforced the fact that we hold the keys in determining what legacy we will leave for the next generation of life insurance professionals.

Let's face it; most prospects and their advisors are unfamiliar with the products we sell, how they work, when and how benefits are paid and the tax-treatment of life insurance and annuities. Many are actually misinformed, or have allowed perceptions and assumptions about the products govern their mindset. Why should we believe that our representatives and their staffers in Washington D.C. are any better versed about our industry and products? The reality is that their understanding and knowledge of the industry is not too different than most prospects; they are in need of education.

Nearly 80% of Americans disapprove of the job our Congress is doing. It appears that the anti-incumbent mood is likely to continue through the next election and that many new faces may be headed to Washington D.C. in January. Additionally, the likelihood that any real legislation affecting tax reform gets enacted during this election year is almost zero. The representatives seated in the 113th United States Congress will undoubtedly be debating and implementing some level of tax reform. In an environment when the United States Government debt is at an all-time high, and Congress is running annual budget deficits, be assured that they will be seeking revenue from all sources, including the tax-treatment of "inside build-up" in life insurance and annuities. The fiscal mess our country is in is unprecedented, and it is not unreasonable to believe that tax reform potentially enacted by the 113th Congress could be unprecedented as well. The impact on our industry and individual businesses could be profound.

We all have a part to play in shaping the conversation around tax reform. Our part goes beyond educating clients and their advisors, to actively participating in the education of our representatives. Leadership has to come from within our industry on this incredibly important front. There is no better voice than ours to articulate the positive impacts that the current tax treatment of life insurance affords consumers, our society and the US economy.

As you contemplate our industry's role in our society and economy, consider these facts:

~ The life insurance industry is one of the largest sources of investment capital in the nation with $4.5 trillion invested in the U.S. economy.

~ At year-end 2009, life Insurance companies purchased more than 23% of Build America Bonds, issued by state and municipal governments as part of the American Recovery and Reinvestment Act, and increased overall bond holdings by 34%.

~ In 2009 and 2010, life insurers' investments helped finance the construction of 131 new schools and 6,600 new classrooms in one major metropolitan area alone.

~ Life insurers are the largest single source of bond financing for American business, holding 16% of all U.S. corporate bonds.

~ The life insurance industry generates approximately 2.5 million jobs in the U.S.

~ Life insurance provides financial security to 75 million American families.

~ The life insurance industry pays $1.5 billion per day to American families and business, compared to $1.9 billion per day by Social Security.

~ Life insurance policies provide $18 trillion of death benefit protection.

~ Life insurance products provide for 20% of Americans' long-term savings.

Clearly, our industry is an essential component in the fabric of the growth of our economy, making long-term investments to match our long-term promises. In a time when seemingly every institutional investor is chasing returns, the life insurance industry is serving as a bedrock for long-term economic and job growth in the U.S. Investments made by the insured result in repaired and new infrastructure, new schools and classrooms, and countless other local projects throughout the United States.

Our products are savings vehicles for millions of Americans and provide financial stability for families when they need it most. Now, imagine your business under a tax regime that taxes your clients annually on the gain of cash value inside a life insurance policy. How much less insurance would be sold? What would the impact on an insurer's ability to invest in our economy be? The indirect effects of such tax policy could yield catastrophic results for consumers, the industry and our economy. Is that the legacy we are prepared to leave to the next generation? We have a lot to be proud of as life insurance professionals. Our efforts make a significant positive difference in the lives of our clients and their families each and every day in addition to the indirect impact on the foundation of the American economy. We should not take the tax treatment of life insurance for granted, particularly in these unprecedented times.

We have the obligation and opportunity to participate in educating our elected members of Congress on the merits of our products and industry and the far reaching consequences that an historic change of posture towards life insurance and annuities would yield. It should not be assumed that these facts about our industry are widely known or that the story will be told by someone else. Whether AALU, NAIFA, NAILBA, ACLI, or any other advocacy group, there is a conduit available to participate in, get up to speed on the current debates, and to get involved. These organizations are comprised of us; the responsibility is collectively ours.

Let's take action with the same energy and passion with which we educate our clients and advisors and bring that education to our candidates for and members of the 113th Congress. When the dust finally settles and tax reform is ultimately debated, voted on and implemented, our legacy relative to the tax treatment of life insurance will have been determined.

~ Justin W. Smith

Justin is an Agent in the Orange County, CA area. You can connect with him here.

Kestler Connection 5-15-12

Kestler Financial Group — Tue, 15 May 2012 00:00:00 GMT

• FEATURE: Everything You Ever Wanted to Know about Social Security but Didn't Know "You Shoulda Asked...." With Rex Voegtlin

• Annexus IRA Inc Webinar: Protecting Your Clients' Retirement from Financial Elder Abuse

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• Aviva Updates:

» How Wellness for Life® can lead to more sales
» Doing business with Aviva just got easier

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» Revised Gramm-Leach-Bliley Act Privacy Notices
» Compliance Update

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Kestler Connection 5-8-12

Kestler Financial Group — Tue, 08 May 2012 00:00:00 GMT

• Most Popular Aviva USA Brochures Now Updated

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• Aviva Updates:

» Attention Nevada annuity producers
» BALIR™ is approved in California, Hawaii and Wyoming!
» The Electronic Funds Transfer (EFT) form has been updated
» Assignment of Commissions rules to be updated
» Annuity product changes effective May 11, 2012
» No Annexus new business rate changes for the month of May
» Delaware and Minnesota approve annuity product changes

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» New Annuity offering in Florida & Arizona

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The Difference Between "And" & "Or"

Jeff Reed — Tue, 08 May 2012 00:00:00 GMT

One of the products gaining a significant amount of attention right now is "linked benefit" or "hybrid" products. These are some variations on the theme of providing death benefit as well as accelerated benefit provisions for chronic and critical illness, with some also including disability coverage as part of the mix. The hook is that these products provide coverage for any number of the "what ifs" in life in one easy to understand package.

The question in my mind is, "Are these really as easily understood by the public as we all think?"

Why concern ourselves with this? Very simply, I think these products may create a false sense of security. To understand why we need to put ourselves in the client's position and look at financial products through their eyes. Specifically, I think back to when ROP term hit the market and all the advertising I heard on the radio and saw in print. The public perception was that these products delivered both very competitive premiums and the client would get all their premium dollars back at the end of the level period. The truth, as we all know, is that it is really a matter of competitive premiums or receive your premiums back.

That critical difference between "and" and "or" has proven to be the difference in the product being widely accepted and sold versus the niche product it is today. Market share does not lie, and as a percentage of the total insurance market, ROP term is a bit player. Fast forward to today, and we have linked benefit products being marketed aggressively, and yet another public perception problem. I think the public views these products as providing death benefit and living benefits, when in reality, it is almost always a matter of death benefits or living benefits.

When the mechanism for providing living benefits is an acceleration of the death benefit, it has to be an "or" rather than an "and." Sure, there may be a small residual death benefit after acceleration occurs, but that will be small comfort when an insured passes after accelerating virtually all of their death benefit to cover chronic or critical illness needs during their lifetime. Don't get me wrong, I think this type of coverage is actually a great risk management tool, particularly in the context of spiraling LTC costs. It is not, however, the "Swiss army knife" that it is being touted as.

So if we all see the gaping hole that this approach can leave in a risk management plan, what is the solution? At the very least, stack some term insurance on top of this type of contract. Properly structured, a term insurance contract of the appropriate duration can provide the additional liquidity that will likely be needed at the end of an extended illness that has drained the linked benefit product. It also provides the flexibility to convert some, or all, of the term if there is a recovery after a critical illness acceleration has occurred, essentially replacing the permanent coverage that has been lost to the acceleration. A second alternative is to "gross up" the face amount to provide a cushion of permanent coverage that the client intends to leave intact in the event of a critical or chronic illness claim.

The bottom line is that simply because there was an actual need and subsequent claim for the critical or chronic illness coverage the need for the death benefit has not magically disappeared. It is still very real, and perhaps more needed than ever after an extended illness. The good news is that by doing the right thing by the client and covering both needs via either of the above strategies, you also give yourself a raise.

Ignorance is No Excuse

Jeff Reed — Tue, 01 May 2012 00:00:00 GMT

We all know this. Despite that fact, some still try to bury their heads in the sand about some of the planning pitfalls we face. Case in point - foreign nationals. It would seem on the surface that foreign nationals holding US assets would be subject to US estate taxes on the assets held in the US, right? Well, sort of. While they are subject to US tax laws regarding transfer taxes, the actual laws are very different from those for a US resident.

How different? An estate tax exclusion amount of $60,000 versus $5 million.

That's not a typo. That is a problem waiting to happen. Admittedly, this is a rather unique niche, but if the recent statistic quoted by Lincoln Benefit is any indication, there is $82 billion of real estate in the US held by international buyers. The need for US insurance in rather significant amounts is very real, and has the distinct advantage of very clear laws rather than some sunset provision and potential reform clouding the issue. In other words, the "wait and see" approach that your US clients are using as an excuse to do nothing does not apply here.

Need more ammunition? Try this one: The taxes may be due at both the first and the second death! No unlimited marital deduction for these folks (You can check out more details on the laws here ). With $82 billion held by international buyers, the need for insurance is staggering ($28 billion?!) and, my guess would be, largely unfunded. Admittedly, as great as all of this sounds from a "need" perspective, this type of business presents unique challenges. At a minimum, competent tax and legal advisors well versed in these issues need to be involved. Our concern in the life business, however, is more about how to close the sale once we have identified that need.

The hurdles presented by underwriting foreign nationals who do not reside in the US are many, but there are pockets we have identified with relatively clear paths to follow. Obviously, these cases are all very unique and the country of origin and travel details are critical variables. There is the possibility, however, of being able to complete the cases with carriers you already work with and, in some instances, even complete the medical requirements in the home country.

The exam is really just the tip of the iceberg, and if the client owns property here, having the exam done in the US is really not that large an issue. The rest of the case, however, can be a bear. Medical records retrieval and translation, financial documentation, and inspection reports are all far more complicated than in a "domestic" case. You'll need a competent guide through this process and that is where we can help. If a client has come to mind while you read this, it's time for us to get on the phone. After all, simply because the client did not know about the tax does not mean they don't have to pay it. Ignorance is no excuse!

Kestler Connection 5-1-12

Kestler Financial Group — Tue, 01 May 2012 00:00:00 GMT

• From the Desk of Larry Stich

• Aviva Wellness for Life Materials

• Aviva Updates:

» BALIR™ is approved in California, Hawaii and Wyoming!
» Field Update for Oregon Producers
» BAA 8 and BAA 10 available in Nevada!
» BAA at a Glance

• Athene Annuity Memos:

» Athene Annuity Announces May Interest Rates

• Pass It On! - These are great articles to share with clients or fellow colleagues

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You Can Do That?

Jeff Reed — Tue, 24 Apr 2012 00:00:00 GMT

You can do that?...

Sure, we do it all the time. So what is the "it" in question? 1035 exchange a policy with a loan balance. While it is commonplace for us, it was news to the producer I was speaking with, and it is an area that can trip you up in a very, very big way. How big? How about creating a taxable event for your client despite a 1035 exchange being executed? Did I mention that there are no actual dollars in your client's pocket as a result and they still may have to pay some tax? Do I have your attention? I think I should.

So just how does this happen? It all comes down to the concept of "boot" and the creation of a situation where the exchange is no longer considered like to like. Of course, this assumes that there is gain in the contract, and that we elect to pay off the loan rather than move it over to the new policy. To make matters even more complicated, this same issue can rear its ugly head when we are doing something as simple as pulling money out of a contract prior to the exchange, even if there is no loan.

The technical details of all of this are beyond the scope of this forum, but can be found in these two publications:

Policy Loans

1035 Exchanges

So if we are not going to dive in to the technical details, why bring up this topic today? One reason: there are a bunch of life policies out there with loans on them. These policies are frequently in danger of lapsing, and the likelihood of finding yourself with a client facing a very unwelcome surprise at tax time as a result of a poorly executed exchange is alarmingly high. You know as well as I do if they are facing an unwelcome and unexpected tax bill, it is a pretty short trip to the phone to call the agent that handled the transaction to demand answers.

Now that we all understand the problem, what is the solution? Step one is being aware of the trap, so we have that handled. Step two, however, is a bit more complicated. When we start talking tax code, 1035 exchanges and boot, we find ourselves squarely in the grey area of our business where the lines between being a life insurance professional and providing tax advice begin to blur. This is not something that we can afford to have happen. The downside is simply too enormous. We need a better strategy.

Unlike a few weeks ago when I suggested that we change the way we do business (evolve even?) if we want to remain effective, this time we should do just the opposite and get back to one of the pillars of our past success: tap our professional network. We all need CPA's and attorneys we can trust. We really need some who flat out know life insurance taxation. If you have been in the business for long you probably already know them.

It's time to dust off those relationships, and start using them to set yourself apart from the rest of the pack. Your clients may never thank you for helping them avoid a problem the never knew they had, but the revenue from being able to rescue that old, over-loaned life contract can sure help you keep your practice "in the black" where it belongs. Knowing you did it right will help you sleep at night.

Kestler Connection 4-24-12

Kestler Financial Group — Tue, 24 Apr 2012 00:00:00 GMT

• NEW!! Aviva iPad App!

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» BALIR® approved in DE, IL and MN!

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An Ounce of Prevention

Jeff Reed — Tue, 17 Apr 2012 00:00:00 GMT

In the last few weeks I have had at least two proposed insureds decline to provide any financial information on their life application. Their rationale? "Well, it's none of the carrier's business what my net worth is or how much money I make."

Really?

I am 100% positive that none of these clients would enter into a financial transaction where they were "on the hook" for hundreds of thousands or even millions of dollars without some information regarding the other party's financial condition. Never mind that there are insurable interest laws that need to be followed. Of course, facts and logic are often lost in these discussions, so we are left to deal with a client who, as one did, "respectfully declined" to answer the financial questions. My cynical side immediately wanted to respond that the insurance company would respectfully decline to offer coverage as a result. Luckily, I was able to contain myself and come up with a more appropriate response.

Why bring this up? One of our carriers has just instituted a new form requirement for any insured over age 26. The 4506T-EZ . Never heard of it? You will, because this carrier is certainly not going to stand alone as the only one requiring it. What does this form do? It allows the carrier to go directly to the IRS for information about the client's tax filings. Needless to say, the initial reaction from some in the field has been less than positive.

Before we grab our torches and pitchforks and join the angry mob over this, let's take a look at why this is being implemented and how we can deal with it. First, the "why ." In a word; fraud. Every one of our carriers is spending more time than ever investigating fraudulent activity in life insurance transactions. Most of this fraud has centered on income and net worth documentation. In that light, I see their point clearly, and agree that this ounce of prevention (additional disclosure) is worth a pound of cure (fraud investigations after the fact). I do think, however, they have applied this requirement too broadly.

One of the other "selling points" the carrier is touting is that it will speed up underwriting. They do not intend to pull tax returns on every case. If there are questions they need clarified, they can now go straight to the IRS rather than have to wait for the client or CPA to provide the information. It may also actually be a bit more private, as this information bypasses the agent and general agency completely (I'm not sure this is a good thing!). Also, this form is routinely required for other financial transactions such as a home or auto loan. All of that aside, how do we deal with this new reality?

One strategy initially is to avoid that carrier. However, I do not anticipate them being the only carrier to go down this path, so we will need a better answer than that sooner or later. That answer comes down to our presentation of the document. Most clients have no idea what the actual insurance application process entails. If we position this as a normal part of the process, most will simply sign and move on. However, if we pay an undue amount of attention to this new and onerous requirement so will the client.

I would compare this to a change in a product like a bonus on an annuity. Many producers will throw up their hands when there is a reduction, thinking that there is no way they can sell the product with the reduced bonus. The truth of the matter is that your prospect probably has no idea that there was a 10% bonus last month. He's just excited about the 5% he can get today. If the producer manages to keep what is in the past in the past where it belongs, the client will never feel as if they are missing out on something. Present this new form as if it has always been part of the process and it becomes a non-factor for most clients.

Kestler Connection 4-17-12

Kestler Financial Group — Tue, 17 Apr 2012 00:00:00 GMT

Inside this Issue:

Annexus Spring Webinar Series: IRA Inc TOMORROW!

Aviva Webcasts
Aviva Updates:
» Producers in Utah must take continuing education training
» Wellness for Life® Campaign is underway!
American Equity Memos » New Annuity Offering from American Equity in D.C., SD, ND and AR
» All NMO's & Washington Agents - Bonus 5 will be suspended
Pass It On! - These are great articles to share with clients or fellow colleagues -

""Is Aviva USA for Sale?" & "Ways to Put a Refund to Work"

Weekly Economic Updates

View the full email here.

There is More to the Estate Tax than the Feds

Jeff Reed — Tue, 10 Apr 2012 00:00:00 GMT

Specifically, 22 states plus the District of Columbia impose transfer taxes of some variety. The type and magnitude of these taxes, as well as the exemptions, are all over the map. At least one expert in this article from Forbes.com considers these transfer taxes an issue for states looking to compete with one another.

While I have not spent much time considering factors like transfer tax when thinking about where I live (there are an awful lot of distractions in Southern California after all!), the issue of domicile comes up in financial planning rather frequently. Alaska trusts, Nevada corporations and even states without an income tax have their own unique appeal and place in the process. Based on this article, transfer tax may be right there as well. After highlighting the changes recently enacted in Indiana, the author continues to break down any number of states where there is an active debate about transfer taxes. The article also provides a rather useful resource for any of us in the planning arena - an interactive map showing which states have a transfer tax.

Why bring this up? It is yet another example of the complexity we all face and a reason why so many of our clients continue to take a "wait-and-see" approach. The phrase "clear as mud" definitely applies to the future of the estate tax, federal and state alike. While a potential estate tax is a good problem to have, it is a problem nonetheless, and needs to be dealt with. Here are a couple ideas to help get your clients off their backsides and ready to take action on some planning in this unprecedented environment:

• Paying Premiums with Arbitrage
• Spousal Access Trusts

You will note the absence of one very large topic in these ideas - lifetime gifts. Sure, there is a huge opportunity to transfer assets between now and the end of the year. The fact remains that many, many clients (and even advisors) are not acting on the opportunity. There are a host of reasons, and I am willing to wager that for a significant percentage of advisors and clients alike, it stems from a lack of confidence in how to move forward. Certainly, solutions like the ones above that are based not on the ability to gift but rather the favorable conditions the current economy provides are a good start.

Perhaps a better start, however, is to really understand both aspects we face currently - economic factors and the unprecedented opportunity the current estate tax legislation provides. Put those together, and a good planning idea can easily become a great planning idea. While the details of integrating these strategies is beyond the scope of this forum, stay tuned in the very near future for some exciting announcements from on these very topics.

Until then, best of luck getting through tax time!

Kestler Connection 4-10-12

Kestler Financial Group — Tue, 10 Apr 2012 00:00:00 GMT

Inside this Issue:

NEW! From the Desk of Larry Stich
BIG NEWS! New Business and Service annuity forms now available on Laser App and iPipeline
Aviva Webcasts
Aviva Updates:
» Aviva to conduct telephone survey of policyholders, Aviva Survivorship Builder, Alaska, Massachusetts, Minnesota and Utah approve annuity & more...
Annexus Marketing Boot Camp Part III
Pass It On! - These are great articles to share with clients or fellow colleagues -

"The Real Story Behind Landing The Big Case," "Market Uncertainty Increases Demand for VAs" & "United States of Annuities."

Weekly Economic Updates

View the full email here.

Who's on the Hook?

Jeff Reed — Tue, 03 Apr 2012 00:00:00 GMT

While this isn't "State of the Union, Part 3," it is related to one of the many discussions that went on at our annual conference, along with an issue I know a producer is in the midst of currently.

The discussion was focused on the breakdown of the traditional training model that has coincided with the shift away from traditional, career agency production to independent distribution. More and more, insurance licensed individuals are "in the business" but do not have the foundational training that many of us acquired early in our careers. While this is a big enough issue on its own, it does have some potentially larger ramifications...and this is where the issue the above mentioned producer is dealing with comes in to play.

What really started me thinking about all of this was his comment that "he really felt isolated" by what he perceived to be a lack of guidance from the carrier regarding notice and consent requirements as well as the IRS filing requirements for employer owned insurance contracts. As I helped him dig in to the relevant code sections from the Department of Labor and the IRS, it became apparent that his isolation was probably not unique. In fact, I am willing to wager that there are more than a few producers reading this who have the same issue he is facing lurking in their book of business.

So let's talk specifics: When an employer owns a life insurance contract on an employee, the employee needs to provide written consent to be insured. This consent is between the company and the employee and must meet very specific requirements. Some carriers include a consent form in their application package in these situations, while others have a brief disclaimer pointing the insured and policy owner back to their own advisors for guidance on the issue. As good a start as the consent form being included is, it does not give any help regarding the IRS filing, which needs to be done by the employer annually at tax time.

The downside of not meeting these two requirements is the possibility of a taxable death benefit. Not good for anyone.

So we are now trying to correct the case in question (and the specifics are not really relevant to the rest of the discussion) which centers on today's title - Who's on the Hook? By "on the hook," my producer certainly is focused on who the responsibility for compliance with these rules ultimately lies with. While that is important, I think the larger issue is how we, as an industry, manage issues like this in the light of my opening comments. Who is willing and able to take on the training of the next generation of agents? Or current ones for that matter! It's a big question; and one that is obviously not going to be answered in this forum.

What we can do here is commit to providing more actionable intelligence. What do I mean? While commentary like today's is intended to be thought provoking, how about I provide some links to the applicable code sections? You got it. Here is a link to form 8925 that needs to filed with the IRS each year, along with a link to the most recent IRS notice on the topic from back in 2009.

Now go audit those files to make sure you and your clients are in compliance.

Kestler Connection 4-3-12

Kestler Financial Group — Tue, 03 Apr 2012 00:00:00 GMT

Inside this Issue:

Aviva Webcasts
Aviva Updates:
» NAIC Training for Producers in WA

» Kansas Compliance Update
Athene Annuity: Strength & Stability
American Equity Memos:

» Celebrating Another Great Year!

» SPDA-MYGA Changes
Pass It On! - These are great articles to share with clients or fellow colleagues -

"Prosecutor Admits Not Proving Agent Knew Client Had Dementia," "Annuities Cure Asset Loss From Health Expenses" & "Can't pay your tax bill? You have options."

Weekly Economic Updates

View the full email here.

State of the Union, Part II

Jeff Reed — Tue, 27 Mar 2012 00:00:00 GMT

Last week I discussed some of the changes that our industry is experiencing; a reduction in the number of agents, a shift away from the traditional life agent to financial advisors and changes in underwriting. Staying aware of trends like these that affect all of us is critical, but we need to go one step further and consider what we should be doing to position ourselves for continued success should these changes come to pass.

One of my readers commented that the direct-to-consumer distribution (via the internet, etc.) will never be as effective because the computer simply can't deal with the emotional aspects of the life insurance sale as well as a live person. While I agree with him in theory, perception is reality, and I think the change in perception in the public has already limited our ability to add value. Insurance has become a commodity to most of the public in the transactional space, and the financial advisor is a much more trusted advisor in their eyes, generally, than the life agent.

So if perception is reality, how do we position ourselves going forward? For the agent who is near the end of their career, I'm not sure I would do anything other than exit gracefully. That has been the plan for most agents historically. For those of us who still have a long career in front of us, that is obviously not an option. Here are some strategies to consider if we want to remain relevant:

• Rather than resist the shift to the financial advisor, embrace it.

This can look any number of ways, and two that occur to me are obtaining the CFP designation, or aligning with CFP's as centers of influence much in the way we have viewed CPA's historically. The public really has no idea what a "Chartered Life Underwriter" is, nor do they care to learn. We have been out-marketed by the CFP organization, and it's time to accept it. Maybe joining the local CFP chapter is a good first step.

• Focus on double or triple duty dollars.

Much of the current product development is trending this way, and the public appears to be reacting positively to using life insurance to cover multiple needs such as critical illness or long term care.

• Become easier to do business with.

I mentioned increased face amounts available without an exam based on alternative underwriting methodologies currently being studied last week. I would be ready to offer a choice between convenience and price, as well as identifying products that offer the convenience without having to pay more such as the MetLife Rapide Underwriting Program.

• Improve your marketing.

I talk to a lot of producers. While some continue to have success doing it "the old fashioned way" via referral marketing, there are others who struggle to see enough people each and every week. The seminars that used to be packed are lightly attended and unprofitable. Referrals are few and far between. Stay "front of mind" with your existing clients or target new prospects with a direct mail campaign. One of our carriers has made it easy. You can check out the details here.

Will any of these things be a silver bullet that solves all of our problems? Of course not. If we continue to do the same thing over and over, however, what can we expect but more of the same results? If your current results are what you want them to be, then congratulations! If not, let's talk about "Plan B", and get to work.

Kestler Connection 3-27-12

Kestler Financial Group — Tue, 27 Mar 2012 00:00:00 GMT

Inside this Issue:

Aviva Webcasts
Aviva Updates:
» Update on BalancedAllocation Annuity® products in Massachusetts

» BALIR™ is approved in MA, MD, MO, and NH!

» BalancedAllocation Annuity® Series At A Glance

» BalancedAllocation Annuity® Series in FL

» Updated Certificates of Disclosure forms for the LifetimePay Flex Rider now available

» REMINDER: Updated Forms
Pass It On! - These are great articles to share with clients or fellow colleagues - "Why Many Americans Don't Save for Retirement" & "HOW MUCH RETIREMENT INCOME WILL YOU REALLY NEED?"
Weekly Economic Update

View the full email here.

State of the Union

Jeff Reed — Tue, 20 Mar 2012 00:00:00 GMT

The first half of my week last week was dominated by our annual meeting with our carriers. With over 250 people representing more than sixty agencies and in excess of fifteen carriers and other industry experts in one place, there was more than enough information to keep me busy writing each Friday for weeks. While we will drill down in to some of the specific topics in the coming weeks, there were two major topics discussed that impact all of us.

The first and perhaps most compelling was the panel discussion on the future of distribution. The question seems so simple - how do you see life insurance and other related financial products being distributed in the future? The answers were anything but simple. The complication comes from all of the related topics: Product design, which markets are we talking about and how will it be underwritten are all part of the answer to this question. Before we get to those, we need to talk about the second topic - who will be the next generation of life agents?

One of the statistics tossed around during the discussion was the 4% reduction in the field force over the last few years. The consensus was that this number was not indicative of reality. For most life agents, retirement is really not in the cards. They stay in the business forever. They generally love their clients, and enjoy their work so much that they slow down a bit, take some more days off and maybe take on a junior partner. If we talked about fully employed agents who consider life insurance their primary business, I think there would be about 4 agents left in the entire country!

An obvious overstatement, but you get the point. The life specialist is a dying breed. We're being replaced by the various flavors of "financial advisors" who address any number of aspects of financial planning, asset management or risk management. This is where the growth in the "agent base" is coming from, and they approach insurance products differently. They are generally less comfortable with the underwriting process as a result of their relative lack of experience. Frequently, that translates into a less than ideal underwriting result and a good deal of frustration for all involved.

When you combine this trend with the carrier's understandable desire to sell more product, a few things become clear:

» A significant increase in the face amount that a client can purchase on a "jet issue" basis is coming. We're talking up to $1 mil for the younger healthy client.

» Direct-to-consumer distribution is also going to expand. Transactions that do not represent an opportunity for the agent to add value will no longer require one. The fee-based financial advisor may simply point their client in the right direction and get out of the way.

» Less insurance will be sold

Why do I say this if it is going to be easier to transact? Simple. While technology has revolutionized other areas where the client is comfortable making buying decisions on their own (Like the travel industry. When was the last time you used a travel agent?), the overall amount of life insurance being sold continues to decline despite the fact that the "self-serve" approach via the internet continues to represent a larger and larger segment of the market. Our product is sold, not bought. And while the internet is great for research, most of the public still wants to deal with an actual person when purchasing.

So if all of this is the proverbial train bearing down on us in the tunnel, what should we be doing about it? We will get to that next week. Talk to you then.

Kestler Connection 3-20-12

Kestler Financial Group — Tue, 20 Mar 2012 00:00:00 GMT

Inside this Issue:

NOTE: Our Kestler Wholesaler Team will be out of the office on Friday, March 23rd. They will be in training all day to become even better at helping you reach your goals! And don't worry...the rest of us will be here to take your calls if you need us. Thanks for your understanding!

Webinars!
BALIR™ Launch & Training
Aviva Webcasts
Aviva Updates
American Equity Memos
Pass It On! - These are great articles to share with clients or fellow colleagues

Weekly Economic Update

View the full email here.

You Know Everything

Jeff Reed — Tue, 13 Mar 2012 00:00:00 GMT

"You know everything…"
One of my producers accused me of that this week. He was mostly joking, but his point was clear – we talk about some interesting topics in this forum, and they usually make him think a bit. I hope that this week makes all of us think about how we illustrate IUL contracts, because someone went and crunched the numbers on an issue that I have been talking with my producers about for months regarding the illustration of income coming out of IUL contracts.

What’s the issue? Participating variable rate loans. When these first hit the street, I was amazed at the income potential. It sounds fantastic! The loan balance can actually earn indexed interest, and with rates where they are, we could end up with a 2% or higher positive arbitrage based on current loan rates and the illustrative rate in an IUL contract. Conceptually, I am not going to argue with this. The problem comes with the execution. How on earth can we illustrate policies this way when the market does not behave this way? Simple; we can’t.

Why not? Consider the historical performance of the S&P over the last 20 years. How many down years were there? Quite a few. What happens in those down years? If you look at a life illustration (a forward projection with a level rate of return and loan interest rate), nothing happens. You still earn the spread between the illustrative rate and the loan rate. It looks great on paper, and with some of the illustrative rates I see used, the positive arbitrage is as high as 3%. But if the market does not behave this way, what happens if we managed to put together an illustration that combined the highly variable returns with a variable rate participating loan?

Based on the analysis this individual completed, policy lapse is what happens. Reality can be a nasty business.

To take it a step further, he determined the loan interest rate based on its underlying index to create a "loan adjusted net rate of return" each year. My concern is that no one has done any kind of exhaustive study (that I know of anyway) regarding the impact of these loans and non-linear rates of return on actual policy performance. Clearly, drawing conclusions based on a very limited data set is a bad idea, but I think it is safe to say that these policies will underperform versus the sales illustration. Even worse is when simplifying assumptions (like a linear rate of return for instance) creates a model that does not represent the real world. "Garbage in, garbage out," as they say.

So what are we to make of all of this? I wish there was an easy answer. I think moving away from showing income on sales illustrations is something to consider, but difficult, if not impossible, in practice. Perhaps the best practice is to use the old withdrawal to basis, then wash loans approach on illustrations? (Even that is a problem, but a topic for another time.) When it comes time to actually take the income, the agent and client can talk about the best way to do it based on their current personal economic condition as well as the current economic climate.

At that point, I would want a contract that would let me choose how to take the income, rather than having to make a decision today about an event some 15 or more years in the future. I also want to review this annually to make sure actual performance will still support the income I want to take from the policy each year. Wouldn’t we monitor this annually if we were taking income from a more traditional investment portfolio? Damn right we would! Seems like common sense, right?

Kestler Connection for 3/13/12

Kestler Financial Group — Tue, 13 Mar 2012 00:00:00 GMT

Inside this Issue:

Are you BALIR™ Certified?
BalancedAllocation Lifetime Income Rider™ flyer - Unexpected Expenses and Changing Plans
Aviva Updates: Informal/Trial Submissions on your Permanent Products & Reminder of Anti-Money Laundering Program
American Equity Memo: Agents in California
Pass It On! - These are great articles to share with clients or fellow colleagues
Weekly Economic Update

View the full email here.

A Kick in the Butt

Jeff Reed — Tue, 06 Mar 2012 00:00:00 GMT

Or a slap in the face? Maybe both in this case. Despite the fact that I devote most of my attention in these weekly postings to "advanced markets" topics, the truth of the matter is that I also work on a lot of "bread and butter" transactions. You know, the ones that keep the doors open and pay the bills so that we have the ability to work on some of the more challenging cases that provide the larger pay days. Today's post is about one of those smaller sales and the opportunity to stand out from the crowd.

Before we get there, let's talk about the "kick in the butt!"... as in, a little incentive for your clients to take action. If you have sold any term insurance with West Coast Life or Protective Life in the last few years, you have an opportunity to convert some of those contracts to permanent coverage. Why is that news? Because of the product you can convert to!

Protective, like many other carriers these days, normally limits conversions to one of their currently available permanent products. Why? Profitability, of course. Allowing a term policy holder to convert to the lowest margin products is not nearly as good for the bottom line as requiring them to use one that makes the carrier a bit more cash. In this case, the normal conversion product is actually still quite good, so I don't have any issues with the carrier.

Right now, however, if your client's Protective policy is dated January 1, 2008 or later, you can convert to an expanded list of permanent options from Protective. Clients who take advantage of this opportunity will be able to lock in some great pricing, and the producer will be able to earn a nice pay day at the same time. You can read the pertinent details here .

So if that is the "kick in the butt," what is the "slap in the face?" Easy. Imagine discovering that you only have one product to convert to, and that product is an absolute dog! If you take a look at the actual contract language in a term policy, conversion rights are limited to "a currently available permanent product." It says nothing about the type or quality of the product. Learning this the hard way can be, well, a bit like a slap in the face.

How can you avoid this? Know your carriers. Know their policies. While there is no guarantee that the carrier will not change their rules between policy issue and that eventual conversion, if the carrier already restricts the client's options, perhaps it is time to pay a few dollars more per month and give our clients a fighting chance at more options in the future. As with many of the topics discussed here, it's just good planning, and it avoids the "pick the cheapest carrier on the spreadsheet" trap.

Kestler Connection 3/6/12

Kestler Financial Group — Tue, 06 Mar 2012 00:00:00 GMT

Inside this Issue:

Lead the Revolution: with Annexus' patented BALIR™
Aviva Updates: New Annuity Products Available in Florida
PLUS...Current rates for March
Athene Annuity: New MYGA Interest Rates Effective March 8th!
American Equity Memos: NEW PRODUCT! Traditions Gold and Traditions Gold Plus
Aviva Webcasts
NWL 2013 Sales Conference & Champions Club with National Western Life
Weekly Economic Update

View the full email here.

Lions & Tigers & Bears...

Jeff Reed — Tue, 28 Feb 2012 00:00:00 GMT

While there may not be wild animals stalking us in this business, there are a number of niches that we need to keep an eye on to do the best for our clients. Sometimes the complexity of those niches makes us say, "oh my!"... or perhaps something a bit stronger. The business market is, or can be, one of those niches. Staying on top of the various types of business entities, the planning opportunities they represent and which may be the right fit is a daunting task if you try and go it alone.

As I alluded to in last week's Rant, there are some unique opportunities in the business market where we can actually pay for personal life insurance coverage as a deductible business expense and address retirement planning concerns at the same time. So this year, when your business owner clients are griping about taxes and are close to maxing out their qualified plan contributions by June, toss them this idea:

- A current tax deduction
- Tax deferred growth
- Tax-free income on distributions

Sounds an awful lot like a combination of a Traditional IRA and a Roth IRA? How about a "supercharged Roth IRA?" Too good to be true? It may seem so, but it is an insurance plan that has been around for years - Section 79. Why aren't you hearing more about it? Because only a couple carriers actually offer product in this market. Ready for more good news? How about an easy set-up (as short as two weeks from start to finish!) and an average target premium of almost $100K. The other critical aspect of these plans is the planning opportunity they represent. The current tax benefits and retirement income are great, but what else can we do with these? How about Estate Planning? Death benefits can be structured so that they are outside the taxable estate while the client maintains access to the cash values for retirement income. If you are asking yourself, "What about taxation at the personal level? Won't my client have to pay taxes on the premiums being paid by the business?" You are not alone.

The answer is "yes" and "no." The real advantage of the Section 79 Plan regarding personal taxation is the discount that the employee/owner receives on their personal taxes. For instance, rather than paying on the full amount as they would with a Section 162 Bonus Plan, they are only taxed on a percentage of the premium. The result is significant savings. Curious? Take a look at this piece from the TPA we use for these plans. It will arm you with enough information to be dangerous. Filling in the gaps may take a more direct approach, which simply involves picking up the phone or sending me an email to discuss this further. Read Section 79 Life Insurance

Kestler Connection for 2/28/12

Kestler Financial Group — Tue, 28 Feb 2012 00:00:00 GMT

Inside this Issue:

Feature: The most Innovative income rider in the industry just got Better.
BalancedAllocationAnnuity®- customizable flyer now available
Don't Miss our Webinar on February 29th for the new BAA Rider!
President Obama's Proposed 2013 Budget - Who will it hurt/help most?
American Equity Memo: Retirement Gold Sales suspended in Oregon
Pass It On! - These are great articles to share with clients - "Seniors Speak Out on Their Greatest Fear" & "Stretch IRA Provision Removed from Highway Bill"
Weekly Economic Update

View the full email here.

Top Ten Lists

Jeff Reed — Tue, 21 Feb 2012 00:00:00 GMT

"Top Ten Lists," or in this case, top five. I came across a list of the "Five Biggest Estate Planning Mistakes" written by a CPA out of Florida. He makes some excellent points about the types of issues we face with our clients every day. You can read the article here.

Why bring this up? Simply put, I share his opinion. Left to their own devices, our clients will procrastinate and take short cuts in their planning, even during the best of times. The larger issue, in my mind, is the fact that the problems created by procrastination this year will be magnified many times over if our clients allow the current favorable planning environment to slip through their fingers. The author focuses on some specific issues to illustrate his points, but I think they basically fall into one category – Failing to plan. Three examples of this from the article: 1) Succession Planning – A plan that administers the orderly transfer of business interests at the time of retirement, disability or death, 2) Asset Transfer Planning – A plan for maximizing the amount of wealth transferred to the next generation from Qualified Plans and Annuities held by generation one, and 3) Estate Planning – A plan for the administration of the estate, as well as estate liquidity planning/estate tax mitigation. The good news is that readers of The Rant can offer their clients some perspective as well as some concrete action items their clients can take to avoid these mistakes. Go figure! They all involve getting off their backsides and taking action!

Here’s how we are going to make it happen:

Succession Planning – We should all know the basics of Buy/Sell Agreements and the lie at this point, but the place where we can really add value beyond providing simple term insurance to fund these agreements is to arm ourselves with the knowledge to use some of the more creative and effective permanent product solutions. These create "double duty" dollars that provide maximum value even if the insured business owner has the audacity to live to retirement...that is the plan most of the time, isn’t it? I have yet to encounter a client that plans on passing away early! (Stay tuned in the coming weeks for more on this topic in The Rant as well as some skill building opportunities I will make available to you.)

Asset Transfer – Again, we all know the tax issues that qualified plan and annuity assets face when they pass to the next generation. We have ways of handling this as well, and this spring may be time for a refresher course. More to come on this...

Estate Planning – I have discussed the opportunity that 2012 presents in this arena previously, and now it’s time to take the next step by providing some real "how-to" materials for those of you who are serious about motivating your clients to take action this year. We will do just that later in the first quarter to early second quarter, with white papers, fact finders, calculators, etc. to support this effort. All in all, 2012 is going to be an exciting year, with plenty of opportunity for our clients to improve their planning and for our individual businesses to flourish.

Kestler Connection for 2/21/12

Kestler Financial Group — Tue, 21 Feb 2012 00:00:00 GMT

Inside this Issue:

New Business and Service life & annuity forms now available on Laser App
Pass It On! - These are great articles to share with clients - "The Pros & Cons of Hiring a Tax Pro" By Eva Rosenberg (MarketWatch)
Weekly Economic Update

View the full email here.

Conventional Wisdom

Jeff Reed — Tue, 14 Feb 2012 00:00:00 GMT

We are all creatures of habit to some degree, and as positive as some habits can be (going to the gym regularly, for instance), using the same old strategy for every life insurance case may not be the best way to serve our clients. Though it may be the path of least resistance, that's usually where the problem starts.

What problem? Call it "group think", auto pilot, or any other phrase that sticks in your mind. They all point to the same root problem - the belief that the way we currently design life insurance policies is the way we should continue to in the future. Increasingly, the more sophisticated agency is finding ways to fund polices that result in superior returns at mortality. What are they doing that is so different? I think the most important difference is the focus on the performance of the policy in the same terms you would use in considering any other financial instrument or investment opportunity - what is the rate of return I can expect from my investment or, in this case, insurance premium?

There is a second component to this; being very down to earth around mortality, particularly, the time horizon. How does this slightly different focus change the way we design policies? Consider the following:

Female age 55

Preferred Health

$2 mil face amount

Over the last ten years, this type of case more than likely landed on a carrier using a guaranteed to age 100 or 120 design with extended maturity. When we take a look at the Internal Rate of Return (IRR) at age 85 to 90 (expected mortality, more or less) we end up somewhere between 4.5% and 6% tax free. Not a bad deal by any means, particularly when you consider that this is a guaranteed return, rather than something that is subject to market risk (yes, I know there is a type of longevity risk that continues to drive down the IRR. Hang on for a minute...). This sale is almost always focused on who has the lowest premium, and I think that is the absolute worst way to evaluate an insurance policy.

So what could we change? What would make a difference here in terms of IRR? How about structuring the death benefit differently? Maybe use a little Return of Premium Rider? Now we may be on to something! Keep the premium the same, add the ROP Rider, solve for the face.....Hey, the IRR is about 40 basis points higher at life expectancy! One problem - the initial death benefit is only $1.44 mil, and I need the full $2 million right now. What do we do? If we hold the face amount constant at $2 mil, we can achieve the same IRR, but have to pay quite a bit more per year. The actual performance is still 40 basis points higher at mortality, but I am on a budget here.

So what do we do now? I still want to play with the ROP rider because I like the increased returns, but I need to keep my premium down. In this case, we moved to a product that guarantees to age 85, projected performance to age 120, and an IRR at mortality that comes in at some 130 to 160 basis points higher than the "vanilla" guaranteed design. Problem solved. I'll trade the shorter guarantee period for increased performance. The added benefit? The face amount at age 85 has increased to $2.68 mil thanks to the ROP rider.

The reality is that not every client is going to be open to this, but some will be. In addition, when we start to use life insurance as a part of an overall asset management strategy or estate planning strategy, the focus on the IRR at expected mortality begins to make much more sense than a "vanilla" design. Effective use of ROP riders is just one way we pull better performance out of the same product you may already be selling. Let's give your next case a fresh perspective.

Kestler Connection for 2/14/12

Kestler Financial Group — Tue, 14 Feb 2012 00:00:00 GMT

Inside this Issue:

Breaking News: Liberty Life is Now Athene Annuity
South Carolina and Texas approve annuity changes
NAIC Training Deadlines Approaching Annuity Producers
American Equity Update to Agents in IL & MD
Pass It On! - These are great articles to share with clients
Weekly Economic Update

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The Hidden Cost

Jeff Reed — Tue, 07 Feb 2012 00:00:00 GMT

Yet another cryptic title today as we talk about one of the rather significant impacts of the unprecedented price change activity we are experiencing in the first quarter of 2012. So what is this mysterious cost buried beneath all of the other communication about price changes? The answer is the cost of waiting to convert a term contract. We all know that insurance increases in cost as we age, so what's the big deal? The big deal is the magnitude of the price increase. Simply put, if any of your clients have been considering converting term insurance as part of their risk management strategy, they really need to consider doing it now, before they are faced with prices that may be ten to fifteen percent higher as soon as next year.

How did I arrive at ten to fifteen percent? Pretty easy math, actually. Start with a price increase of ten percent (or more) in some cells, and then sprinkle the fact that the client is now one year older on top of that to arrive at the total cost increase. At this point, you may be wondering where the keen insight is that you have come to expect? This is a really simple bit of math, after all. Frankly, the insight comes not from understanding the numbers, but from understanding what to do about them. Let's start with one simple fact:; our clients do not sit around watching insurance prices. That is what we are here for. Now that we are faced with a known increase of such a significant magnitude, it is time to communicate not only the facts, but our recommended course of action to our clients. As with most things in our business, there are two ways to look at this; glass half full or glass half empty. The "glass half empty" approach focuses on the fact that prices are increasing. You know how popular price increases are with the public. Even if they understood why prices are going up, they still would not care, and may even use that as a reason not to buy! I can hear it now: "Damn insurance companies.....conspiracy.....out to get the little guy".

This may be a little extreme, but I think we can all agree that there is at least a part of most clients who are going to react this way if we approach them in this manner. The "glass half full" producer focuses on the opportunity. By taking action today, the savvy client can save thousands upon thousands of dollars on their insurance over their lifetime. Viewed through this lens, our clients have an entirely different experience. Rather than being the harbinger of doom, we are now providing solid advice on how to manage their life insurance based on what we see the market doing over the next few years. Just what kind of difference can this make? Let's follow this idea of providing advice. If we were talking about investment recommendations, and we could increase a client’s actual rate of return by 1%, don't you think that would make a significant difference over the long haul? Absolutely it would! Clearly, it is time to get out there and show the value of working with a life insurance professional.

Kestler Connection - 2/7/2012

Kestler Financial Group — Tue, 07 Feb 2012 00:00:00 GMT

Inside this Issue:

Agent 1099Misc and W2 Frequently Asked Questions
New rules to bring annuities to 401(k)s, IRAs
MultiChoiceSM Lifetime Solutions Annuity Now Available in
Florida & Pennsylvania!
February Annuity Rate Update
Weekly Economic Update

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Kestler Connection - 1/31/2012

Kestler Financial Group — Tue, 31 Jan 2012 00:00:00 GMT

Inside this Issue:

Electronic MDRT Certification Letter will be available soon!
Are People Really Retiring Later?
Buying Behavior: How 2011 Will Affect Annuity Sales in 2012
Weekly Economic Update

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No Man is an Island

Jeff Reed — Tue, 31 Jan 2012 00:00:00 GMT

There was even mention of very high pay outs based on his direct relationship with the carriers. When I caught him on the phone, we delved in to a number of issues including the case, but the most important thing we spoke about was how he interacts with his carriers.

It came up when I asked him if he had a full medical file on the applicant who was declined. His answer was that he had a copy of the application he could send to me. While a good start, it really is not enough to determine why the client, a diabetic, was declined. More importantly, even if we go ahead and assume that it is related to her diabetes (not a big stretch really), it is not enough for us to formulate a strategy to move the case forward either in the near term, or after sending her back to her doctor to address the issue. The reason he only has the app copy and nothing more? He relies on his carriers to order his underwriting requirements, including the exam and the medical records. He never sees them.

Based on all of the producers I speak to each week, this has become more and more common over the last few years. The reason? Probably the biggest driving force is the retraction of our industry as a whole since the end of 2008. Offices that once employed any number of people are now staffed by a skeleton crew. While this has kept expenses down, it has also had a dramatic impact on how much business can actually get done each week. As these same offices now focus their attention on trying to re-attain the production levels they saw prior to the end of 2008, the one thing they are extremely hesitant to do is invest in infrastructure and take on the overhead that comes with it.

So why I am spending my time talking to this producer about how he runs his practice? Simple. There may be a better way to tackle the challenge of growing production, and the only way I can even begin to have that conversation is to understand how he works. The alternative strategy to growing his business? Outsourcing. Rather than hire someone to run illustrations, outsource it. Rather than relying on the carrier to order the requirements and lose the ability to truly control the case, utilize a third party that will step in and handle that aspect of the transaction for you. Simply put, there are ways to leverage his time without taking on the staff and overheads directly.

The result for this producer is significant: when he comes up against a case like this declined diabetic again, he will be able to quickly determine if there is a strategy to move it into the win column by working with this trusted third party. Just who is this benevolent third party? In this case, it’s me and the rest of the staff at Cavalier Associates. Rather than having to spend his time moving from carrier to carrier like a nomad wandering the desert, he can stay focused on revenue generating activities. By the end of the conversation he had admitted that placing more business, even at a reduced compensation level, was better than having higher compensation and placing fewer cases. He saw the value of the relationship in more actual dollars in his bank account. After all, it is not the percentage that matters nearly as much as the actual compensation.

If you are looking to grow and need to expand your team, we should talk. It’s time to work smarter, and we can help. Handling the medical records and illustrations are just the beginning.

Is 105 the New 120?

Jeff Reed — Tue, 24 Jan 2012 00:00:00 GMT

The carrier community continues to struggle with the economic environment, and keeping up with all of the price changes, restrictions on lump sums and the like is almost a full time job. There are, however, some patterns emerging.

The first pattern is one we see every year – a first quarter dominated by price increases. What makes this year unique versus past years is the magnitude of some of the changes – take a look at the pricing at John Hancock as an example – as well as the fact that some of these very same carriers had a price increase as recently as six months ago. We all know the reason for this – reserving is more expensive as a result of the current economic environment.

A related pattern is the restriction on first year lump sum or 1035 exchange premiums. There are any number of ways the carrier accomplishes this – re-pricing the product completely with uncompetitive product performance, putting a multiple of target premium ceiling on first year premiums, or even dropping interest rates - and they are all based on one fundamental issue: it makes no sense to a carrier to take on a large amount of premium, and then credit more to the policy than they can hope to earn in an investment position with the proper risk profile. Until this changes, we will continue to see carriers adjust these and any other policy feature they can to manage this upside down position. This is also contributing to the flurry of price change activity.

A third trend we are seeing is indicated by the title of today’s email. The days of carriers focusing their product pricing on “lifetime guarantees” may be coming to an end. There have been attempts at this before, but they focused on guarantees to life expectancy (LE) rather than to a point of hyper longevity. It appears now that there might be some economy from a reserving standpoint at age 105, and I think we can all agree that just about everyone is going to be on the “wrong side of the dirt” by that point.

I think that the issue with the LE approach is that while an institution may be OK with guarantees to that point on a group large enough to have a normal curve, individual families simply bear too much longevity risk as a result of only having one or two lives to consider in the equation. That potential premium payment at age 86 to extend coverage that would otherwise lapse can be enormous, but if funding to age 105, I think that risk is appropriately minimized. While I could set out to prove this statistically, I think I’ll pass on putting you all to sleep and trust our collective intuition on this one!

One last note: there is one additional area we all need to keep an eye on, and that is compensation. Given that some carriers are using this as a way to shore up profitability of certain products or designs, it makes sense to me, all client-centered metrics being equal, to send the case to the carrier that still pays full compensation. We do enough pro-bono work already!

Kestler Connection - 1/17/2012

Kestler Financial Group — Tue, 17 Jan 2012 00:00:00 GMT

Inside this Issue:

Important appointment renewal changes for FL producers
New Annuity Forms Now Available for Illinois
2012 Tax Summary information updated
Helping you process your applications quicker

View the full email here.

Nothing Left To Give

Jeff Reed — Tue, 17 Jan 2012 00:00:00 GMT

Late last year we talked about a design using a single payment into a Survivorship Guaranteed UL that allowed the premium payer to leave the money to season and then take it all back, resulting in a paid-up contract with a reduced face amount. That little conversation opened up a small flood of discussion and planning ideas using a loan to an ILIT as the mechanism for moving money into the trust.

One of the more unique cases that have opened up involves a family that owns an astounding amount of S-Corp stock. When I say astounding, I’m not talking about the number of shares, but the value. Each member of the family owns millions upon millions of dollars’ worth of stock, and despite aggressive gifting strategies using both lifetime and annual exclusion gifts, there is a tax bill looming.

The real challenge is that the family is virtually unwilling to entertain any diversification strategies, and without any gifting capacity left, their planning had stalled. The potential estate tax bill was climbing ever higher. So how does this relate to the original idea? Well, if we wanted the reduced paid-up policy to be outside the estate, we could not exactly gift the money to the ILIT and then take it back, could we? Of course not, so the original case called for us to loan a lump sum to the trust, use it to fund the life contract, and then pay off the loan in year ten.

The advisor in question quickly grasped the concept and saw how he could use it to solve the problem that his other clients faced – how to fund ILIT’s when they no longer had any gifting capacity. To make it even sweeter, the recent guidance from the IRS regarding the ability of the grantor to switch out the assets that had been gifted to a trust may have even opened the door to the grantor being able to preserve the stock position even while it resided in the trust. While I am not sure as of this writing if this substitution provision applies to loaned assets, you can bet we are going to explore it straight away.

The bottom line from combining all of these strategies? Well, for the client we are actively working on in this family, it allows them to loan some assets to the trust (the S-Corp stock), let the income from the shares fund a life contract, then use the shares of stock to pay off the loan. Clearly, there are still a few details to work out, but the first test case is underway. The icing on this cake is that a huge number of family members use the same CPA and advisory firm. By the time this works its way up and down the generations of this family, we are going to have a significant amount of target premium written, and have solved a major hurdle in their efforts to pass wealth down to the next generations.

None of this happens without the advisor putting two and two together, and then reaching out to chat about it. If you have seen an idea in The Rant that piqued your interest, what are you waiting for? Give me a call!

Dirty Little Secret

Jeff Reed — Tue, 10 Jan 2012 00:00:00 GMT

We all have them, right? That one thing we do that we don’t want anyone else to know about, especially our significant other, or maybe even an insurance underwriter. What kind of thing am I talking about? Smoking of course! Cigars and cigarettes have come up as an unwanted issue in many a case, and while the cigars can be easy to deal with, cigarettes almost always result in a smoker rate, killing many cases when the urine sample comes up positive for nicotine.

Wait….did I say almost always? Yep, I sure did.

That’s right; there is a carrier that will offer nonsmoker rates to cigarette users. There has to be a catch, right? No carrier is going to go ahead and give smokers nonsmoker rates and stay in business. At least one I know of tried it, and they have been closed for years at this point. So how does this carrier do it? Well, it’s like this:

The urine sample has to be clean. No ifs, ands or buts.
No more than 24 “uses” per year for Preferred rates (a use would be smoking a cigarette).
No more than 12 “uses” per year for Select rates (That’s right, they go to best class for this. Crazy, right?).

The usage MUST be disclosed on the application! No trying to explain things away after the fact.

So which carrier is this? Is it some tiny, fly by night, company that will be out of the life business five years from now? Surprisingly, no. They have excellent ratings (Comdex of 94, A.M. Best rating is A+) and have been around since 1888. Want to know who it is? I’ll bet. That tidbit of information is a little too juicy to just hand out to everyone. Time to pick up the phone or send me an email if you want the details.

A word of caution on this: They can tell if you are lying! How? A couple ways. The first is the urine sample. The other is the APS. Those darn doctors take good notes, and any recent notation of smoking habits might just cause a problem if it does not match what is disclosed on the application. So let’s start the year off with a clean slate, so to speak, and go deliver some good news to our clients who like to have a cigarette or two, but are not “smokers”.

Kestler Connection - 1/10/2012

Kestler Financial Group — Tue, 10 Jan 2012 00:00:00 GMT

Inside this Issue:

Year-end information from Agency Services
Aviva's Chris Littlefield featured in Broker World
Field Update: BAA 8S now available in South Carolina!
Aviva Connect - coming soon

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That's A Wrap

Jeff Reed — Tue, 03 Jan 2012 00:00:00 GMT

Like everyone else, this time of year I find myself looking back at 2011 and forward to 2012. As excited as I am about what 2012 holds, 2011 was a great year. Plenty of new relationships, new cases, challenges and successes. As the year ends, I wanted to share some of our more interesting highlights:

Placing a $92K target case with Lincoln Financial on a client who travels to Haiti on a regular basis. Even with Haiti being a “D” state the Florida “Freedom to Travel Act” opens the door to move forward on the case.
Placing a $214K target case with John Hancock based on their huge retention and excellent current assumption UL product.
Placing a $680K target case with Transamerica in a 72 hour period from app to in force! Sure, there was an informal offer that was rock solid, but come on, 72 hours to process an app start to finish? On an 80 year old!
Placing a $375K target case with Lincoln Financial at Table 4 when the rest of the carrier community was stuck at Table 5 to decline.

These are just some examples of the successes we enjoyed this year, and I know that 2012 holds even more stories like these. This kind of success, however, only comes with a great team, from the agent all the way through to the carrier. Thanks to all of our current producers for their partnership this past year. For those of you we have not yet had the pleasure to work with, let’s get to work on a case that we can look back on this time next year and consider one of our “Success Stories”.

Happy New Year to all of you. Let’s go make 2012 a great year.

Kestler Connection - 1/3/2012

Kestler Financial Group — Tue, 03 Jan 2012 00:00:00 GMT

Inside this Issue:

Update on annuity products in Nevada
Aviva January Webcast Schedule
Guarantee UL Solution III now available in Hawaii

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An Extreme Announcement?

Jeff Reed — Tue, 27 Dec 2011 00:00:00 GMT

There was a significant announcement from one of our carriers this month. In one of many decisions at the carrier level based on current economic environment, Lincoln Financial Group announced that they are reducing all current interest rates to guaranteed minimums effective January 1, 2012. You can read about it here. So what are we to make of this? Well, it is a pretty clear indicator of how challenging manufacturing any fixed product is in this environment, but that certainly isn’t news to any of us at this point. The impact on sales at Lincoln and the impact on policy holders are probably more significant topics. Let’s tackle the Lincoln focused questions first.

The announcement sounds rather severe, and if only given a cursory read, may lead a producer or client to look to another carrier. As with most things we talk about here, I suggest we pause for a minute and think about that reaction, and if it is the right one? Why is Lincoln doing this? Simple, they need to stay profitable, and paying out more than they are earning is not exactly a winning strategy. I think this may be the equivalent of tearing the Band-Aid off in one clean jerk rather than easing it off and extending the pain. There is something to be said for the strategy, as it does allow for clear expectations out of these products. Specifically, the only way to go is up!

Of course, there is still another element to the product – mortality and expense charges – that can affect pricing. However, let’s take a look at when and if a carrier starts to raise M&E charges. Usually only as a last resort of a failing carrier, which Lincoln is far, far from being. So if we do not expect Lincoln to start increasing M&E charges, I think it is time to start looking at our second question – what about the client? How are they impacted?

There are two UL contracts that are impacted by this, and one of them just happens to be the product of choice for one of my current cases. The product is the Life Guarantee Plus, and it is a Guaranteed Universal Life contract with modest cash accumulation. I use it with younger insureds who may actually want to be able to take advantage of future 1035 exchange opportunities and the like. So how did this impact pricing? Not at all! Guaranteed product means the premiums are not interest rate dependent. Sure, there are now lower projected cash values, but only about 10%, or an 80 basis point reduction in IRR at year 20.

The second product is the Life Current UL, and it’s tough to say exactly what the impact will be on this without being able to run the old rates (never should have updated that software), so let’s just pull another random carrier and see what a 100 basis point drop in crediting rate does to their contract. Solving for $1000 at age 100 (Male age 55, Standard Nonsmoker, $1mil face), we see an increased premium of 10.4%. What if we don’t want to increase premiums? Rather than having projected death benefit through age 100, the policy now lasts through age 89. Given that this is still past mortality, I think a prudent course may be watchful waiting with this type of policy. As interest rates increase in the future Lincoln will either have to increase their crediting rates to compete, or face the possibility of adverse selection as the healthy clients jump ship to take advantage of more favorable conditions at other carriers.

In addition to these two products, this rate reduction will, of course, impact other products in the Lincoln portfolio to a lesser degree. I encourage you to read the announcement for the details. At the end of the day, all this means is Lincoln will be missing out on sales they would rather not have. Our clients who own Lincoln products will be well served by taking a wait and see approach, rather than over reacting to what may prove to be a small bump in the long road of permanent life insurance ownership.

Kestler Connection - 12/27/2011

Kestler Financial Group — Tue, 27 Dec 2011 00:00:00 GMT

Inside this Issue:

A reminder regarding employer-owned life insurance tax
Revised Suitability and Product Comparison Worksheets
American General Rate Change

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Kestler Connection - 12/20/2011

Kestler Financial Group — Tue, 20 Dec 2011 00:00:00 GMT

Inside this Issue:

Aviva: Taking Action to Retain Our Customers
AM Best Affirms Aviva Ratings
Survivor UL is not just for estate taxes anymore
New forms available for Alaska
Aviva: January Annuity Product Changes

View the full email here.

No Take-Backs

Jeff Reed — Tue, 20 Dec 2011 00:00:00 GMT

Remember all the silly rules we lived by as kids? Most of them are all lost in the fog that is my memory of those years, but the "No Take-Backs" is pretty fresh in my mind. Why? All of the gifting we execute as part of financial or estate plans. A rather common concern is the loss of control that comes with gifting away an asset, and I am sure that more than one person has wished that they could take it back. Don’t get too excited, irrevocable still means irrevocable. Some recent legislation, however, leaves a backdoor open for someone who has gifted away an asset that they want back in their control.

Why is this more important now than ever before? The possibility of large lifetime gifts created by the increased lifetime gift limits that we have under current law. No longer are irrevocable trusts funded solely with annual exclusion gifts to pay annual insurance premiums. Revenue Ruling 2011-28 outlines exactly how to manage this type of situation, and it all starts with smart trust design. What do I mean about smart ILIT design? Begin with the end in mind. Establish the trust with the maximum flexibility for the grantor, including language that allows substitution.

Aside from the design of the trust, Revenue Ruling 2011-28 outlines all of the important considerations when substituting trust assets. That’s right, the grantor has the ability to swap out the previously gifted asset for one of equal value, all while keeping the trust and its assets safely outside his or her estate. While that is about as far as I want to dip my toes into trust design (note that the initials JD are absent from my signature line), I think it does make sense to investigate why this might be attractive: market cycles and the nature of the assets in question.

Consider the strategy that is more than likely the foundation of one of these lifetime gifts – let’s take an asset that is likely to grow rapidly and place it outside the estate so that all of the future growth is not subject to estate tax. Sounds simple, right? Well, what if that growth does not happen, and all of the sudden this OTHER asset that is still in the estate takes off? Maybe we want to trade them out? While the answer to that question is certainly going to be case specific, having designed the trust so that the possibility of a substitution exists increases the planning options for the grantor and the rest of his or her family exponentially.

One note of caution – the Revenue Ruling above is obviously not the only piece of the tax code that governs these trusts, so selecting a bona fide Estate Planning Attorney is critical. This also requires a true estate plan that addresses topics far beyond the simple estate tax mitigation that passes for estate planning in many cases. There is much more to the story than taxes!

Kestler Connection - 12/13/2011

Kestler Financial Group — Tue, 13 Dec 2011 00:00:00 GMT

Inside this Issue:

Training Deadlines Approaching for Producers
The Latest Innovation From Aviva
S&P Credit Watch
2012 Kickoff Campaign - Your Competitive Advantage!

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Magic 8-Ball

Jeff Reed — Tue, 13 Dec 2011 00:00:00 GMT

While my crystal ball is usually as helpful as a Magic 8 Ball, lately it has been very reliable, and has shown me exactly what 2012 holds for all of us in the insurance world. Well, maybe not. But by having an ear to the ground, so to speak, I can tell you some of what will happen in early 2012, and maybe make a few predictions about the year as a whole:

Insurance prices will not be lower than they are right now. At least two carriers have let it slip that they are planning or contemplating price increases in the first quarter. I am sure they are not alone.

During much of the 2000’s interest rates were reasonable, and supported a reasonable cost of reserving as well as respectable portfolio rates at the carrier level. I think we all understand the impact that an extended period of astoundingly low interest rates has on pricing. While this environment can’t and won’t last forever, there is always a lag time before insurance product crediting rates follow interest rates up. Considering that the GUL contracts still dominate the market, I am not sure that increased crediting rates will really get us where we need to go. Increased sales in current assumption products will more than likely cannibalize guaranteed product sales with no real reduction in actual premium costs for policy owners, and no real increase in overall premium volume.

Cap Rates on indexed products continue to fall, with at least two announcements in recent weeks of reduced cap rates and corresponding illustrative rate reductions. During the first decade of the year and even as recently as early this year the high caps and illustrative rates drove a significant volume of premium, with EIUL being one of the few growing segments in our business. While an increasingly important segment, I think there are enough concerns about long term performance in these contracts that the growth rate of this market will certainly slow. Stay tuned to The Rant in 2012 for more on this.

Most carriers are still behind the unprecedented premium volume levels achieved in 2006, 2007 and 2008. While things are certainly better than they were in 2009 and 2010, we are unlikely to hit those lofty highs again barring an unforeseen market force. How does a high level of new premium written contribute to low prices? Cash flow from new business is a huge part of the overall profitability of a carrier. Of course, in recent times, more than one carrier has decided that selling less will make them more profitable because of the poor economic environment. Selling less of higher margin products may be the dominant strategy for the foreseeable future, and that means higher prices for our clients.

So what does it all mean for us next year?

Uncertainty remains a major market force. The lack of clarity on what happens roughly a year from now when current estate tax legislation sunsets will keep many on the sidelines. The recent speculation regarding near term changes to the estate tax law certainly do not help (One note of irony – if this legislation is rolled back to 2001 levels plus a little inflation indexing and a higher top rate prior to January 2013, it just may spark a rather significant bump in premium volume with all the newly taxable estates).

Monitoring the health of in force contracts may be more important than ever. Virtually every type of policy has had significant pressure applied to it as a result of the last three years. Lower dividend rates, crediting rates and market returns have changed the future performance of every in force contract that has non-guaranteed elements. These changes do not favor the client in most instances.

I think the bottom line is that the pendulum continues to swing away from “programmed sales” and back toward actual insurance planning. While it may take a bit of pain to re-tool the shop, so to speak, getting back to the more traditional sale of insurance will not only improve your 2012 bottom line, but can also provide a bit of insulation from the vagaries of the market that programmed sales depend on.

The Perfect Product

Jeff Reed — Tue, 06 Dec 2011 00:00:00 GMT

Today let's head to the lab and experiment a bit with product. Let's build one from scratch, and combine some of the best features of all the products on the market. Ready? Here's my list of features:

Guaranteed premium and death benefit. They may be rising in price, but the public clearly loves guarantees. Of course, the premium will be top 3 in most cells for you spread-sheeters out there.
Upside potential. There has to be some cash in this product if the client over-funds, because as much as the public likes guarantees, they love cash. Don't forget the downside protection as well! No putting their principal at risk!
Preferred loans. Need an income more than the guaranteed death benefit? OK. Use the preferred loans to turn on an income. Heck, let's even give the client the option to use variables loans, and change their mind back to fixed!
Ready for the icing on the cake? How about a premium that drops over time? Why not put the trigger for that in the client's control? Maybe even reward them for doing something they do anyway, like going to the doctor? Why not let the premium stop all together?

Sounds too good to be true right? There is no way a product can do all of that is there? Turns out there is, and the product has been right under your nose the entire time. No, I am not talking about a type of product (although Equity Indexed UL is really the only type that can offer all of these features). I am talking about one very specific product, and it may be the best total policy holder value out there. It is the only one that has the reduced future premiums from the last bullet point.

Curious? I'll bet! I'll give you just enough detail to make you click for more:

Male age 50, Preferred Nonsmoker.
$1mil face amount
$9053 guaranteed premium
Premium begins to drop in year 4, with the following results:
Year 10 net premium = $8932
Year 20 net premium = $8304
Year 30 net premium = $6472
Net premium falls to $0 at age 93!

The total savings at age 93? Try over $70K! All of this on a product with one of the lowest guaranteed premiums out there to begin with!

Interested? I would be. Click here for a sample illustration. Pay particular attention to the supplemental illustration starting on page 16!

Want to run this for your next case? You know where to find me!

Kestler Connection - 12/6/2011

Kestler Financial Group — Tue, 06 Dec 2011 00:00:00 GMT

Inside this Issue:

Aviva December Annuity Rates
Changes to AE Lifetime Income Benefit Riders
New Nevada Regulations impact Annuities
Aviva - Changes to Life Products
Understanding the impact of IUL policy charges

View the full email here.

Kestler Connection - 11/29/2011

Kestler Financial Group — Tue, 29 Nov 2011 00:00:00 GMT

Inside this Issue:

Aviva Top Producer Contract - HUGE NEWS!
Inner Circle - Annexus Style
Gary Woodland, Annexus sponsored golf pro, in the news
Delays with CA Licensing

View the full email here.

A Safe Money Alternative

Jeff Reed — Tue, 29 Nov 2011 00:00:00 GMT

What do I mean? There are some products out there that have some unique characteristics. They allow for large single premiums, a period of time for the policy to season, and then the ability to accomplish the following:

A withdrawal of every nickel the client has paid in premium
A reduction in face value
A reduced, fully guaranteed death benefit for life
All for the cost of time value of money (and maybe a little bit of tax)!

So who’s doing this? Good question. CD owners, that’s who. Why? Rates are terrible. Their other positions have been hammered (thus the desire for the CD the own, right?), and they are tired of the abuse the market has heaped on them. This strategy allows them to deploy their capital somewhere other than the market, and generate a great IRR on a guaranteed basis, all for the cost of the lost “opportunity” of owning a CD for ten years.

How’s it work? Here’s the scenario:

Husband and wife
Both age 60, both standard or better
$200K in CD assets
Single pay in to an SGUL (Survivorship Guaranteed UL) with a $500K face amount
Wait ten years
Withdraw $200K (Did I mention that there was this plus more in GUARANTEED cash value at year 10?)
Reduce the face amount by the amount of the withdrawal

The result of this is a fully guaranteed policy in the amount of $300K with no further premiums due. At the ten year mark, you can then re-deploy that original $200K back in to a CD, under the mattress, into the market, you name it, it’s yours. There is minimal tax due based on the fact that the contract was a MEC and therefore has LIFO tax treatment. Consider that your cost, along with the opportunity cost referenced above, of owning a guaranteed $300K life insurance policy.

So what is the IRR on the death benefit? Try this on for size – just under 5% at year 30!

Now there is something to be thankful for! I hope you and your family enjoyed a wonderful Thanksgiving. Let’s go close the year strong!

Pay It Forward Revisited

Jeff Reed — Tue, 22 Nov 2011 00:00:00 GMT

A few months back I hosted a webinar about a number of strategies we are using to maximize the amount our clients pass to the next generation. It turns out I left one great idea out. If you recall, the foundation of the discussion was identifying clients with “excess capital”. This means that they have more than enough assets to cover their support and maintenance for life. Many of these clients will have already identified an asset or assets that they want to pass on to their children or grandchildren.

In that webinar we identified some inefficiency with the assets in question, and subsequently recommended repositioning some or all of that asset into a life insurance policy. Today, however, we look at a different take on that same strategy – excess income rather than excess capital. Is the client receiving income that they would rather defer? Are they just stuffing it in the bank because they are unsure what to do with it?

This can come from two places – Required Minimum Distributions, and Social Security income. The concept is more or less the same – a high net worth client is now forced to take income despite the fact that they are receiving more than enough to live on from their other holdings. Let’s take that income, less the taxes due, and reposition it in to a life insurance contract. From there it is virtually identical to the prior discussion. Consider the following analysis:

Husband age 69 and female age 65, both Preferred Nonsmokers
$24,000 of Social Security Income each year
40% combined income tax bracket
Projected tax = $9,600
After tax income = $14,400

Great, now what? Use the after tax amount to buy an SGUL (Survivorship Guaranteed UL) contract. How much does it buy? Right around $1mil. How long would it take to accumulate that large a pool of assets at $14,400 per year? If we use a 5% net rate of return (and that may be a bit high!) it would take 31 years! Factor that in along with the fact that the life insurance is guaranteed and I think we have a winner. I’ll trade an uncertain outcome for a certain one any day!

That’s it for this week. Enjoy your time with family and friends at Thanksgiving!

Kestler Connection - 11/22/2011

Kestler Financial Group — Tue, 22 Nov 2011 00:00:00 GMT

Inside this Issue:

Advantage Builder IV Now Available in NM & VA
Unlocking IRAs & Annuities from Early Withdrawal Tax Penalties

View the full email here.

Tic Toc

Jeff Reed — Tue, 15 Nov 2011 00:00:00 GMT

Contrary to what you may expect, this is not a plea for more year end business (although we do still have time to get that last case through if you have one on your desk). Rather, today is a reminder of that Estate Planning clock that we all know is winding down, but precious few have done anything about.

The latest rumor is that there was a meeting of the budget super committee and that the $5mil exemption was squarely in their sites (The actual rumor? A reduction in the gift tax exemption to $1mil effective this year. Yikes!). Of course, I subsequently heard that this was not the case, which proves my point for the day – time is flying by, uncertainty rules the day and this opportunity may slip through our client’s fingers like so much sand if we don’t take action now.

Why now? Simple. This type of planning is not something that you can just turn on overnight. Lawyers are involved. They get busy. Imagine the frenzy that will ensue if we find ourselves at this time next year, trying to cram through a ton of trusts and other planning work. I do not think it takes much imagination to picture the fallout from missing the deadline by a few days because a document was not filed in time, or a transfer did not take place. That is a bad place to be.

Making this even more complicated is the fact that we are heading straight for a repeat of 2010, including legislation written in the rear view mirror. What do I mean? Consider this: It’s an election year. Very few people are talking about estate tax legislation (when was the last time you thought about it?) and it does not seem to be a priority for anyone. A little more than thirteen months from now the legislation will sunset, and chaos will ensue. Eventually, Congress will have to do something. The question is what the new laws will look like, and if they are enacted after 12/31/2012, will the new laws be retroactive to 01/01/2013?

We really dodged a bullet last time, as the extension to the end of 2012 was effectively a do-over. In fact, the reunification of the gift and estate tax laws along with the increased exemption created one of the best planning opportunities I have seen. It was truly a gift. I am of the opinion that history will not repeat itself.

The good news is that unlike 2010, we are not going to face that rather macabre conflict of hoping that some rich guy “dies at the right time” to take advantage of the legislation. This time all it takes is smart planning and an advisor to lead the charge. It’s time to get out there and motivate our clients to take action rather than watch this opportunity pass them by. If you need help with an idea or two to get started, give me a ring.

Kestler Connection - 11/15/2011

Kestler Financial Group — Tue, 15 Nov 2011 00:00:00 GMT

Inside this Issue:

California Producers Must Take Additional Training
New Client Welcome Kit Interviews
Aviva Announces Third-Quarter Financial Results
AK, KY, CT, and IL Adopt Model Rule

View the full email here.

Trying to Sell Papers

Jeff Reed — Tue, 08 Nov 2011 00:00:00 GMT

There was quite a bit of discussion in the media, among agents and at the carrier level about the news report last week regarding the possibility of improper reserving at some carriers. The knee jerk reaction, as is typical in the media, is that where there is smoke there is fire. Three carriers are named specifically, and there are thinly veiled references to additional carriers being involved. In another typical move, the news reports are very, very scarce on details.

The truth of that matter is yet to be exposed, but here is what I do know –

None of your client’s policies are in trouble.
None of these insurance companies are in trouble
Even if there is something to this, the carriers in question have a simple remedy – change the way they are reserving.

If the carrier does need to address this in some way, they will almost certainly pass the cost along to the consumer in the form of increased premiums on new sales. Some initial conversations have indicated that the price increase would be in the neighborhood of 1% at one carrier. Of course, this assumes that the carrier ends up needing to change their reserving practices at all. All we have at this point is a preliminary finding, and the discovery that the carriers are meeting the reserve requirements in a way that was not anticipated by the regulators.

That version of the story is a far cry from the headlines. If, however, you read the article, the fact that this is a preliminary finding that the regulators are still evaluating is clear. If you click through to the article from the Wall Street Journal, pay particular attention to the quotes from Therese Vaughn. In essence she indicates that some regulators feel that the more stringent reserve approach could result I excess reserves! Sounds to me like the actuaries don’t even agree on this issue.

Which brings me back to the title of today’s email. We need to keep in mind what the Wall Street Journal’s primary business is – selling papers. You sell more when you have headlines that imply some sort of violation of regulations. The fact that nothing of the sort has been proven and that there is a “month’s long deliberative process” that still needs to be completed is buried in the article.

So what the heck do we do in the field? Take a note from many of our medical professionals, and take the “watchful waiting” approach they frequently employ (much to underwriter’s dismay in some instances!).

One last little comment: There has long been a “difference of opinion” regarding reserves between carriers selling Guaranteed UL products and those whose primary product is Participating Whole Life. Most of those carriers are based in NY, and there is a comment in the first article indicating that The New York DOI may have been one of the first to question these practices. Makes you wonder what is really going on here, doesn’t it?

You can read the article here:
Insurers' Reserves Examined

And this one is an interesting read as well:
Lincoln National's universal life reserves are 'more than adequate': CEO

Kestler Connection - 11/8/2011

Kestler Financial Group — Tue, 08 Nov 2011 00:00:00 GMT

Inside this Issue:

November Annuity Rates
Aviva Announces Holiday and Year-End Processing Schedule
Aviva offers the strongest IUL guarantees in the industry
Aviva Monthly Webcast Schedule

View the full email here.

Time for a Stress Test

Jeff Reed — Tue, 01 Nov 2011 00:00:00 GMT

No, I am not sending you to the doctor today. I am, however, recommending that we put our designs under stress before we present them to the client. Why? Simple – things change. Take the recent 2012 dividend announcement from Northwestern Mutual as an example. It was reduced from 6.00% to 5.85%. This reduction, right around 2.5%, does not seem newsworthy at first glance. Looking a little deeper may tell a different story.

Depending on when a Northwestern policy was issued, this may not be the first reduction the policy will have to absorb. Unlike the general public, who may think that whole life is a conservative play, we know that it can rely heavily on dividend performance in certain designs. The question then becomes how much of a dividend reduction can a particular policy handle before the future viability of that policy is in jeopardy? Very, very few agents know the answer to that question, and that is a problem.

Northwestern is certainly not alone in this. Any policy that is reliant upon non-guaranteed elements is subject to reduced dividend, interest rate or market performance. Based upon the history of our industry, a reduction from current projections is not only possible, but likely. The question becomes how do we guide our clients through the selection and management of their policy over time? Time to put that policy on the treadmill, attach a bunch of leads, and make it run for its life!

So how do we do that? Try to “break” the design. Identifying the failure point in a given design is the goal. What do I mean by failure point? Essentially, it is when the policy can no longer accomplish the goals we identified at the time of the sale. Examples:

Premature policy lapse
Extension of the original premium payment period
Significantly reduced accumulation or income potential
Under performance versus currently available products

The good news is that there are some products that are immune to this – GUL funded to guarantee to maturity, or Whole Life designs that are fully guaranteed for instance – but the list of contracts that are subject to failure contains virtually every other permanent product.

So how do we break the design? The easiest way is to reduce the appropriate metric to the point the design no longer makes sense. If we look at the first three items on the list above, we can reduce the assumed rate to the point that any of those three scenarios result. Note that rate in the file. If the margin for error is too small at policy inception, it is probably time to change the design. Once a policy is in force, if future reductions or actual experience approach that rate, it may be time to go shopping for a new policy. Of course, the timing of these reductions plays a large part as well, which leads us to the dead horse that is the annual review. Reviews are the annual check-up that go along with the stress test analogy.

If we are all on the same page at this point, the question in my mind is how does it impact our work with clients? I see a few impacts:

Better informed clients, who may have a better handle on what they are actually buying.
A reinforcement of why this is an asset that needs to managed like any other.
Exposure of designs that should never see the light of day, because the margin for error is so slim.
More realistic client expectations.
Separation of the agent from policy performance
More satisfied policy owners

Sure, you may have some clients elect to go in a different direction once they have this level of understanding. From my perspective, those very same clients would end up the unhappy ones if they had moved forward without this understanding. Go ahead and give me a call if you need some help stress testing your next case.

Kestler Connection - 11/1/2011

Kestler Financial Group — Tue, 01 Nov 2011 00:00:00 GMT

Inside this Issue:

Making the Financial Underwriting Process Seamless
Aviva IUL vs. John Hancock
Prime Policies Now Illustrating in LPSS
Some Income Preferred Series policies to be issued on OPAS
Training deadlines approaching in several states & DC

View the full email here.

An Untapped Market?

Jeff Reed — Tue, 25 Oct 2011 00:00:00 GMT

I read an article last week that discussed an underserved market in the life insurance industry - the under age 45 demographic. They provided some statistics and attempted to quantify the opportunity that exists in pursuing these younger clients, and it made me think: If this is such an underserved market, there has to be a reason (You can read the article here.). The next question, of course, was what is that reason?

I think it really comes down to money, or more specifically, profitability. If an agent is going to spend the time and energy that it takes to create and execute on a marketing plan, there needs to be sufficient reward at the end to make it worth their time. Have you seen insurance premiums lately on the under age 45 crowd? They are astoundingly low when you think about the check the insurance company could end up writing (Average Preferred Nonsmoker premium when I run a quick term quote? $600 for $500K averaging 10, 15, 20 and 30 year term). As are the commissions an agent can expect to receive for their trouble.

OK, that is a bit of a challenge, but what if I sell permanent products? The commissions will be higher and the business will profitable. Nice in theory, difficult to execute in practice. Why? A couple reasons:

Conditioning - There is an absolute avalanche of material on line and in the media telling these prospects to buy term. The only voice they may hear talking about permanent insurance is yours.

The Internet - This demographic shops on line. A lot. Which means that even if there is not another agent involved, you are still in competition. The only problem is that you don't really know who you are competing with!

The Economy – While this may be a temporary phenomenon, limited funds to allocate to life insurance premiums is a fact of life for many in this group.

Which brings us back to profitability. Most agents are not excited about working for a small commission, and having to deal with questions about some rate that the prospect found on line. So rather than focus on a demographic that is a pain in the neck and has questionable profitability, many agents simply don't market to this group. As much as it may upset some people in our business, I think the agent that reaches this conclusion is absolutely right.

Even when I take a more altruistic view and think about the value a good agent does bring to the table (helping navigate underwriting, thinking about conversion language, avoiding B rated carrier), what is the marginal value of that agent? In actual premium dollars, it is usually not that significant an amount. Death benefits are paid on in force contracts even if the carrier in question is not the strongest financially. In fact, I have heard it said that carrier insolvency has never resulted in a death claim not being paid (something to investigate in the future?).

The bottom line for me on this is that there are some markets in our business that amount to pro bono work, and no producer can afford to do too much of it before they find themselves out of business. Of course, it is not simply a matter of not doing too much of this type of business, you need to put something in its place, and it better be more profitable if you want to keep your doors open.

Kestler Connection - 10/25/2011

Kestler Financial Group — Tue, 25 Oct 2011 00:00:00 GMT

Inside this Issue:

Set Yourself Apart with Wellness For Life
Updated CODs for Aviva Annuities

View the full email here.

Oh No, It's a MEC!

Jeff Reed — Tue, 18 Oct 2011 00:00:00 GMT

Last week's missive started a discussion about single pay designs and the fact that they can create a MEC (and last week's design was, in fact, a MEC). For most of us, a MEC is something we have been conditioned to avoid at all costs. However, as last week points out, sometimes a MEC can be not just OK, but the most appropriate design.

So let's clear up some confusion about what does and does not happen when a contract becomes a MEC:

All cash value coming out of the contract will receive LIFO tax treatment
All distributions will be taxable to the extent the exceed cost basis, even if taken out as a loan
Any taxable distribution made prior to age 59 and a half will be subject to a 10% penalty

Sounds like we have given away all the tax advantages of life insurance by doing this, right? Technically that may be true when you consider just the cash value (we will deal with the death benefit in a minute), but there are a couple things to keep in mind:

The only taxes due will be on the gain in the contract. No gain, no tax!
The taxes are only paid when the money is taken out of the policy. Leave it in, never pay tax.
The 10% penalty only applies to the taxable portion of distributions. No gain, no penalty!

So if we are buying the insurance for the death benefit (as we were in last week's discussion), the MEC issue is really a non-issue. Unless, of course, it impacts the death benefit. In last week's design the only role that cash value played was as an exit strategy. For those of you who asked for the illustrations, you already know that the cash value growth was minimal to non-existent. It was more about cash preservation than growth. No growth = no gain = no tax or penalties.

So now the last question for today: what about the death benefit? No impact whatsoever. It still passes tax free to the beneficiary. This makes sense if we examine the reason these rules exist. Prior to 1988 policy holders could stuff extremely large amounts of cash relative to the face amount into a life insurance policy. The tax deferral on inside build up made it an attractive option for high net worth individuals. The IRS, however, wanted their cut, and legislation enacted in 1988 put the current limits in place.

Of course, there have been many additions to the limitations on premium funding over the years, and they all have acronyms just like this one. While many of them are hard limits, the MEC rules are simply something we need to account for in policy design. If the tax changes do not negatively impact the client based on their stated objective, then single pay away!

Kestler Connection - 10/18/2011

Kestler Financial Group — Tue, 18 Oct 2011 00:00:00 GMT

Inside this Issue:

Aviva's Brand Campaign Update

View the full email here.

Just What the Doctor Ordered

Jeff Reed — Tue, 11 Oct 2011 00:00:00 GMT

About a year ago, in anticipation of potentially increased tax rates in 2011 for most of our clients, I talked about tax equivalent yields using life insurance as an investment vehicle. You know the story, the deferred taxation on inside build up in life contracts and the ability to take income as a loan make life insurance a potential solution to the tax bite that comes with investment success.

Fast forward to today, and its time to take another look at this topic, but perhaps through a different lens. Why another lens? Time to look a little further into the past for that one. Remember 2008? I’m sure you do. Individual net worth took a huge hit as the markets tumbled. One of the remedies we talked about at the time was to look to life insurance to replace some of that lost wealth. There were even leveraged strategies using borrowed funds to do it. Whole Life came back in to the conversation as producers and clients alike looked for safe havens.

Looking at the recent economy, it occurs to me that now is a very appropriate time to revisit some of these strategies, as the evidence we might be in for a bit of a wild economic ride begins to mount. Rather than react, perhaps it is time to diversify away from equities into a more predictable vehicle before the wheels come completely off the economy? The shift, or new lens, from one year ago when we focused on inside build up is to look to the death benefit that is the foundation of life insurance.

Keeping things simple, I looked at some single pay designs using $100K dropped in to a Guaranteed UL contract. Assuming Preferred rates, we have some compelling results:

Male age 45 - IRR on Death Benefit at age 85 = 4.63%
Male age 55 - IRR on Death Benefit at age 85 = 4.85%
Male age 65 - IRR on Death Benefit at age 95 = 5.15%

So now let’s put this in perspective. This return is guaranteed. There is minimal risk to principle, as this contract also has excellent projected cash values (just in case the client changes their mind at some point!) and these returns are tax free.

So where could we apply this strategy? We have talked about using life insurance for asset transfer to the next generation quite a bit lately and this certainly supports that strategy, but what about the current generation? Does this make sense for them economically? Maybe. If there is a significant age difference between husband and wife a life insurance strategy may be a great strategy to shore up her financial well-being later in life.

The bottom line is that our clients are tired of seeing their net worth shrink. Coming in with a recommendation other than “stay the course” may be just what the doctor ordered. Taking some chips off the table and placing them in a life contract may be the perfect prescription.

PS – Want to see the illustrations from the above? Send me an email and I’ll send them right over.

Kestler Connection - 10/11/2011

Kestler Financial Group — Tue, 11 Oct 2011 00:00:00 GMT

Inside this Issue:

Aviva Ranked in Top 5 of Seven Categories by ASJ
American Equity Rate Changes
Aviva October Annuity Rates

View the full email here.

A Fresh Take On UL

Jeff Reed — Tue, 04 Oct 2011 00:00:00 GMT

Two weeks ago we talked about the potential impacts of the current economic environment on our business. One of the points was that Guaranteed UL (GUL) price increases were a probable outcome, as well as the potential for current rate reductions on current interest rate focused UL (CUL) contracts. Why bring it up again? Simple – being aware of something is great, but having a game plan for dealing with it is better!

So what’s the plan? A little education, and perhaps a different approach to designing cases. For the education, John Hancock has just introduced a new presentation that walks through the potential savings of selecting a CUL contract versus a GUL. They take it one step further and discuss the impact of future rate reductions on policy performance. Take a look at it here. The second part of the education piece is a design approach that I think is very well suited to today’s environment, and it builds on the material from Hancock above.

Consider the following:

Rather than purchase a GUL, purchase a CUL contract funded at the same premium.
Using John Hancock as an example, the guarantees are through age 90, longer than Life Expectancy.
Cash growth is positive in every year based on current rates.
Even if Hancock drops the current rate to the guaranteed minimum in year two of the contract, the projected performance is through age 94.
In this example (Male age 65, PNS, $1mil, just like in the Hancock piece from the link above) Hancock can drop the rate to 3.2% and the policy still carriers to age 120 on the current side.

OK, the outlay is identical, we have acceptable guarantees, solid projected death benefit duration and a bunch of cash. So what? A couple points:

Exit Strategies – You really don’t have one other than death or lapse without value in a GUL. Not a great outcome if the insured decides they can’t or don’t want to continue premium payments.

Potential premium savings – How about an annual review with an in force ledger that shows the client can REDUCE their premium outlay. If the carrier maintains a reasonable interest rate, this is a very likely outcome. A policy outperforming expectations? Nice to be on that side of the equation.

Greater premium flexibility! Need to skip a premium? No problem! Of course, an in force ledger to demonstrate impact on policy performance is a good idea BEFORE electing to skip a premium.

So how do we execute on this? Easy. Start showing this design every time you show a GUL contract. We’ll run it for you! Oh, there is one last benefit – if there is a future product pricing development that produces a more efficient contract, the cash in this design could make a 1035 exchange a possibility. With a GUL? No way. Good for the client of course, and good for you, as it generates another commission!

Kestler Connection - 10/4/2011

Kestler Financial Group — Tue, 04 Oct 2011 00:00:00 GMT

Inside this Issue:

Join Aviva for a Webcast in October
BAA12 Family Endowment Rider Increases to 5% in MA
Aviva APS Ordering Guidelines Explained

View the full email here.

The Second Submission

Jeff Reed — Tue, 27 Sep 2011 00:00:00 GMT

We have all been there. Excited about a case, anxious for an offer and optimistic about our chance of success. Then we receive the offer. It is not what we want. Worse than that, the carrier tells us that they have already seen this case, and the offer we received is identical to the response to the first submission. Where did this go wrong, and what do we do now?

Aside from the obvious client control issues (do they really expect us to do our jobs without all the data?) what can we do to move this case into the win column? The first thing we need to do is understand the carrier mind set. Virtually every reputable carrier has a policy of giving the second agent or agency to submit a case the exact same offer as the first one! Why? Well, think about it from the first agency’s perspective. If the next guy in submits the same file, but manages to obtain a better offer, what does that communicate to the first agency? It says “thanks for all the business, but we really like this other guy more than you”. Not exactly a warm fuzzy feeling to say the least. So does that mean that the second agent or agency should just walk away from the case? No way. This is where we separate the men from the boys, so to speak.

There is really only one key that unlocks this type of case, and ironically, it is the client who holds it. Our job is to show them the door to use it on. Here is what I mean:

The one strategy that allows a carrier to improve an offer is to submit new, favorable medical documentation they can use to upgrade the case. That would be the door. That kind of medical documentation is not usually just sitting there waiting for us to find it. It takes a team effort to create it. The key that unlocks the door is the client’s willingness to go to their doctor for that additional test or bit of information. Sure, there is no guarantee the client will receive the favorable result we need to upgrade the offer. At this point, however, there may be nothing to lose. The client will not accept the offer as it stands, and we are not going to see a commission check without a change in strategy.

Conceptually this is great, but how do we identify that one test, that one lynchpin of the case? Two steps here. The first is to have a clearly defined target. What do we need to place the case? What is the policy design? Which carrier do we want to use? The second step is to understand the reason for the offers we received from the carriers. Knowing it was the lab results or medical history is not enough. We need to know the specific lab value or aspect of their history. Then and only then can we design an action plan including the steps we need the client to take in order to move the case forward.

Sounds like a lot of work? It is, and it takes a strong team to make it work. A team that includes the carrier, agency, agent and client. Does this sound like a case you are working on? Perhaps one you worked on earlier this year? Let’s get to work and put a couple more cases in the win column before the calendar flips to 2012.

Kestler Connection - 9/27/2011

Kestler Financial Group — Tue, 27 Sep 2011 00:00:00 GMT

Inside this Issue:

LSA Now Available in MD, NV, TX, and VA
Aviva to survey agents about new product concepts
Continuing Education Required for IN, MD Producers
Beneficiary Audits: Your Gateway to Large Annuity Sales
BPASelect 10™ & BPASelect 12™ Product Update
Continuing Education Required for Hawaii Producers
New State-Specific Annuity Application Forms for CO
Aviva begins printing new Annual Statement version

View the full email here.

60 Year Low

Jeff Reed — Tue, 20 Sep 2011 00:00:00 GMT

Last week we talked about one carrier’s restrictions on first year premium as a result of the current interest rate and treasury yield environment. This week we take a step back from simply reporting on the impact, and start to project a bit into the future. Given that we are at a 60 year low for treasury yields and the low interest rate environment that has its roots back in 2008 continues, what can we expect to happen over the next 30 to 180 days in our business? Does the fact that we are entering the 4th Quarter impact this at all?

Normally, my crystal ball is filled with some sort of murky cloud, but this morning it is clear as can be, so I know exactly what the next 180 days holds for us all! Pricing increases are certainly in our future, and I did not need the crystal ball to tell me that. The evidence is all around us in the rate changes in the annuity markets and the recently announced MoneyGuard price change.

This first wave of price changes is instructive. Carriers feel they need to move quickly to protect their bottom line. Even if we don’t care about carrier profit margins (and if you are in this business for the long haul, you probably should care!) we need to understand the state of mind in the home offices of the carriers we represent. More importantly, we need to understand how that state of mind could impact our practices and ultimately, our clients. So how could this play out in other ways? What does the crystal ball tell me? Let’s be a student of history and look back at the events from 2008 to today regarding GUL products in particular, and we see that the following are all likely:

Carriers increasing rates on GUL contracts
Carriers pulling out of the GUL market place all together
Carriers increasing GUL pricing to the point that they may as well have pulled out of the market
Carriers reducing guaranteed rates on any type of UL contract
Carriers reducing current crediting rates on traditional UL contracts
Carriers reducing Cap Rates on EIUL contracts
Carriers preferring to write LESS business in the fourth quarter rather than writing more, unprofitable business

Obviously, this does not paint a pretty picture for us or for our clients. There will be fewer carriers to choose from, and the cost of coverage may rise in all product lines. The question becomes what to do about it? There are a few answers, but I think the most important one is to get your clients off the fence. These changes are coming, and they will probably have very short to non-existent transition periods. Any client currently contemplating an insurance purchase, particularly if there are underwriting challenges, should consider taking action now to avoid paying higher premiums. We have a proven 4th Quarter strategy that can help you navigate these waters as we close the year. Let’s roll up our sleeves and close the year strong.

Kestler Connection - 9/20/2011

Kestler Financial Group — Tue, 20 Sep 2011 00:00:00 GMT

Inside this Issue:

New State Approvals for Aviva's ABIV and GUSIII
Annuity Continuing Education Training in Texas Clarified

View the full email here.

Kestler Connection - 9/13/2011

Kestler Financial Group — Tue, 13 Sep 2011 00:00:00 GMT

Inside this Issue:

Important Information Regarding Upcoming Rate Changes
Updated Ad Guidelines Submission Requirements for Aviva
Lincoln MoneyGuard® Benefit Adjustments
Annuity Product and Rate Changes Effective September 16

View the full email here.

A Tale of Two Lincolns

Jeff Reed — Tue, 13 Sep 2011 00:00:00 GMT

In a move that can only be described as ironic, Lincoln National (or Lincoln Financial Group, if you prefer) recently announced they are limiting the amount of first year premium relative to target premium they will accept on their 2009 Universal Life product portfolio (the updated 2011 portfolio is unaffected, as the current economy was factored in to the product pricing.). Why the limitation, and why is it ironic? First, the limitation.

Why would an insurance company turn away business? Look no further than the economic environment we are in. Interest rates and Treasury yields are so low that they have decided it is better to turn away premium than have to deploy it in the current economy, particularly if they give a discount on their product in the process (as is the case with any design with heavy funding in the first year). In the process they have eliminated themselves from consideration for many 1035 exchange sales. Of course, they have done this knowingly, and realize that they will see less business as a result. They are OK with it.

Now for the irony. It turns out they are not the only carrier to think this way, and are not the first to announce this new policy of limited first year funding. The one carrier that comes to mind is the “other Lincoln” – Lincoln Benefit Life. The fact that they have similar names is only part of the irony. The kicker is that they recently announced they were removing their limitation on first year premium relative to target premium on their SGUL product. While I was not privy to the internal discussion about the reasons for ending this restriction, it does not take a rocket scientist to figure out at least part of the equation – The decline in sales that followed the implementation of this first year premium limitation was steeper than they expected it to be, and it was time to turn the premium spigot back on.

So where does that leave us, aside from enjoying yet another of the foibles of our business? What does it mean for you and your clients? The Lincoln National announcement impact is clear. If you are working on any 1035, single pay or heavily funded first year designs using the 2009 Lincoln National SGUL or GUL you better know your transition rules! Obviously, we can help with that. If you are not in that situation, you still need to pay attention. The Lincoln Benefit product that has had the restriction lifted is very, very well priced, and its return to the market is a very welcome occurrence for us, and by extension, should prove to be very good news to you and your clients.

How good? Try if you have written a survivorship policy in the last decade we should take a look at this product as a possible upgrade good. Seriously. Go look at your book. Find a case, run an in force ledger, pick up the phone and call me. Let’s find a case to make the fourth quarter a good one for you.

PS – Lincoln National is also making some changes to their MoneyGuard product. Click here for the details.

Stay Out of the Rough

Jeff Reed — Tue, 06 Sep 2011 00:00:00 GMT

I receive an absolute avalanche of material from our carriers every day. Most of it, sadly, is not that relevant (although necessary). One of the more useful pieces, the “Central Intelligence” from John Hancock hit my in box this week, and a couple of the articles caught my attention:

IRS Guidance on Electing Out of Estate Tax for 2010 Decedents

That’s right, some people are still having to clean up the mess that the feds created in 2010. Because of the way the legislation enacted at the end of 2010 dealt with those passing away in 2010, the heirs now have a choice to make: Remain under tax regime established by the new legislation, or opt out and use the complicated and unclear rules that were actually in place during 2010.

Why bring this up? It’s September 2011, meaning that there are about 16 months before the current legislation sunsets and we all face the same levels of uncertainty that made 2009 and 2010 so challenging. Time to start paying attention to this, as I think we will have a significant challenge moving any legislation through in an election year, particularly when there are so many issues facing our nation as a whole.

Injunction Sought Against 419A(f)(6) Plans Funded with Life Insurance

Think you have heard this story before? You probably have. Prior to the explosion of STOLI, this was probably one of the most controversial planning strategies used in our business. While there may not be a significant problem with the fundamental concept of these plans, there are always those who push the envelope. That certainly seems to be the case here. But rather than focus on the technical merits of this case, how about looking at the bigger picture. Could this be a simple case of pigs get fat, hogs get slaughtered?

Maybe. The issue in this arena has always been the aggressive plan designs rather than the concept itself. Again. It is part of a pattern that our business falls in to whenever there are too many zeros to the left of the decimal point in the commission check derived from a particular concept. Under the guise of trying to maximize benefits for the client, we end up with a mess like the one mentioned above ($300 mil of deductible contributions made after the IRS had already found the plans out of compliance with federal tax law? Really?). While the plan administrator is clearly in hot water, what about all of the plan participants who are going to have the deductions disallowed? That is a pretty hard hit to recover from.

So here’s to the agents, planners and registered reps who are out there keeping their clients on the fairway. Sure, a spectacular shot can get you out of the rough and on the green, but the wild, Maalox swilling ride that comes with some of the exotic, aggressive plans can also land you out of bounds, adding extra strokes to your score.

Have a good week, and all the best to everyone dealing with the aftermath of Irene.

Kestler Connection - 9/6/2011

Kestler Financial Group — Tue, 06 Sep 2011 00:00:00 GMT

Inside this Issue:

Aviva September Annuity Rates
Aviva - New & Updated Service Forms
Customer Connections: YOUmanity
Aviva Commission Bonus To Be Paid September 2

View the full email here.

Are You Gonna Finish That

Jeff Reed — Tue, 30 Aug 2011 00:00:00 GMT

We all know this guy (or girl). The one who can eat anything. Usually the skinny one. Everyone else has pushed back from the table, and this one person is going back for another helping.

How on earth does this relate to life insurance? We’re talking carriers and capacity this week, and while some of our carriers push away from the table early, there are some that we can count on to finish that last plateful almost every time. If you are writing a really big case, or seeking more coverage for that really high net worth client, being able to manage this process is going to make or break you.

A couple definitions before we get ahead of ourselves:

Retention – The amount of coverage the writing carrier actually keeps on their books

Autobind – An amount the writing carrier can commit their reinsurers to without having to ask permission

Jumbo Limit – A total line limit (all in force coverage) carriers have to stay under, along with the autobind limit, before they need to have the reinsurer review the file

Facultative Reinsurance – Having a reinsurer review a risk prior to making an underwriting decision. This happens when the case exceeds the Autobind or Jumbo Limits. This can also occur if there is a unique risk that makes the writing carrier a bit queasy.

Great, nice trivia. Thanks. What’s the point? Bottom line is that the higher up the ladder you go from retention all the way to facultative the more challenging your case can become to manage. Why? A few reasons. Less flexibility in underwriting is a big one. Another is that when a case goes facultative any offer the writing carrier may have made prior to heading to reinsurance is probably off the table (There are exceptions to this, and knowing how each carrier views this is critical in this space!).

Perhaps the most difficult issue is the informal underwriting process. If a large case is out to multiple carriers and they all start to ping their reinsurers for an opinion, the reinsurance market can start to feel like a very small place. Poorly managed, this can create a “false” limit on the amount of reinsurance available and ultimately limit the amount of coverage we can find for a client. On the other side of that coin, however, is when it is managed correctly, and the coverage just seems to slot into place.

Some of our carriers are truly expert in this arena. First, they can take down a huge chunk of the risk themselves via a high Retention and Autobind Limit. Then they jump in and really manage the reinsurance market with us, so that we can ultimately achieve the total line of coverage we need. One of our carriers is so good at this that they can construct “super pools” that can take down risks as large as $150 mil. Even for term insurance!

The moral of the story is that we know which carriers are the skinny guys that can help you clean the plate! If you need to find more coverage for an existing client, give me a call so we can show you how its done!

Kestler Connection - 8/30/2011

Kestler Financial Group — Tue, 30 Aug 2011 00:00:00 GMT

Inside this Issue:

Kestler 1,988th Fastest-Growing Private Company in U.S.
Presidential Deferred Annuity Rate Decrease
Aviva Monthly Webcast Schedule
Life Insurance Webinar Recording Now Available
Aviva to Conduct Telephone Survey of of Policyholders
Colorado and Wisconsin Training Deadline Reminder

View the full email here.

BREAKING NEWS!!! - Earthquake Rocks Kestler Financial Group

Kestler Financial Group — Tue, 23 Aug 2011 00:00:00 GMT

LEESBURG, VA - This afternoon there was a Magnitude 5.9 earthquake on the east coast. Contrary to news reports, the epicenter was in Leesburg, Virginia directly under the offices of Kestler Financial Group.

According to anonymous sources at the U. S. Geological Survey, the quake was triggered by the delivery of a UPS package filled with annuity applications. "Today was a one of the largest submitted premium days in recent history," said Nikki Toledo, Case Manager at KFG.

According to Jason Kestler, the recent tsunami of business is likely to continue. "We believe there are three things driving the current influx:

Market volatility is off the charts driving consumers to safe-money havens,
The recent increase (from 4% to 5%) on the guaranteed minimum death benefit (GMDB) rider, and
The prospect of lower rates in the near future as a result of continued low bond rates and high volatility."

If you would like to download an executable version of our new RMD Solution presentation-including the new 5% rider-click here. We also have an executable brochure that actually teaches you how to make the sale. (These are large files so please be patient while they download).

Good selling - And watch out for aftershocks!

Five for Five

Jeff Reed — Tue, 23 Aug 2011 00:00:00 GMT

How about some good news this week? I think it would be pretty welcome given the continuing economic turmoil. So here’s the deal – we found a way for your client to spend less in premium, have more coverage, and for the producer to be paid more. So where’s the catch? Aside from having to actually complete annual reviews to make sure the client executes as designed, there isn’t one. Interested? Read on!

We all know about future increase options on permanent insurance, and how they can be used to protect insurability for future purchases. One of our carriers has come up with a future purchase option that is really flexible. When combined with an ROP term product the win-win-win scenario described above becomes a reality.

Here are the broad strokes:

Rather than buy $10 million of GUL, buy $3.5 million with increases scheduled to reach $10 million by year 30.
Buy a 30 year ROP contract for the balance of the coverage, for a total of $10 million.
Use the ROP payment at the end of year 30 to drop into the UL contract at the end of the term.
Design the GUL so that it has a level premium aside from the lump sum.

OK, great, what the heck do we really accomplish? Great question, and here is how it breaks down for a 33 year old male:

Annual premium savings of $1,400 versus the full $10 million GUL for 30 years.
Annual savings of more than $13,000 per year in years 31 and beyond (that is not a typo!).
An increased IRR on death of anywhere from 11 basis points (year 40) to almost 700 basis points (year 10).
Increased coverage in years 6 through 30 thanks to the additional coverage obtained via the future purchase feature on the GUL.
More compensation as each of the increases is commissionable!
And the cherry on top……higher projected cash values in every year. As much as $400K more!

This is just one in a series of Internal Rate of Return focused designs that we are using to win cases for our producers every day. For the sophisticated client, these are extremely compelling, and should be in your arsenal.

Let’s work on your next case together.

Recommended Reading:
Step Off the Treadmill - Why Progress Matters

Kestler Connection - 8/23/2011

Kestler Financial Group — Tue, 23 Aug 2011 00:00:00 GMT

Inside this Issue:

Aviva USA is Prepared to Respond to Market Volatility
2011 Centaurus National Conference Pictures
Aviva - LSA Commission Bonus

View the full email here.

Cocktails & Annuity Training

Tom Kestler — Thu, 18 Aug 2011 00:00:00 GMT

If you want to be entertained for a while, buy me a drink and ask me my opinion on regulation within our industry. For some reason, regulators believe that the best way to ensure customers are protected is to create more paper. I believe you can't regulate ethics. You either have them or you don't. No amount of extra paper will change that.

Now that I've got that off my chest, I want to bring you up to speed on something that directly affects your livelihood. If you sell annuities, you've probably heard rumblings about NAIC and product training. Although I don't think it's remotely possible to make the subject clear, I'll try to at least give you a place to start.

First of all, this discussion just refers to insurance licensed annuity producers. If you are also securities licensed, the same rules apply but with overlying FINRA and broker/dealer requirements.

The National Association of Insurance Commissioners (NAIC) has adopted "model" regulations in many areas over the years - replacement, suitability, etc. The most recent model regulation regards annuity product training. Under this model, all carriers who do business in states who have adopted the model law will be required to provide and verify that an agent has completed this training prior to soliciting an application. Be aware that:

Not all states have adopted the model regulation. Those that have (referred to as NAIC states) each have their own guidelines and requirements for producers. To check the current status of your state, follow this link to a national map.
Be aware that continuing education and product training are two completely different issues. Also, if you are an Annexus producer, the webinar product training you completed as part of your contracting process does not waive your requirement for Aviva sponsored product training. To complete this, login to the Aviva agent web site and click on the link in the upper left corner:

You should find similar links on every carrier web site.
Product training must be completed for every annuity product you sell prior to making the sale. Carriers are required to return applications taken prior to completed training.
If a new product is released new training is required.
If you do business in multiple states, you will probably be required to repeat the process for each state in which you do business.
A good resource is the National Association for Fixed Annuities (NAFA) website - www.nafa.com.

Carriers are scrambling to comply with the moving target and as of now there are still a lot of questions. What should you do now?

Determine all the states in which you do business and which ones require product specific training.
Log in to each carrier web site and follow the directions to complete training. Some states require the training today - others have a grace period to complete the training.
Talk with your carriers. Be sure you know what is required.
Stay tuned. New states are coming on line regularly. Know your requirements or risk having business returned.

Chicken Little is Wrong

Jeff Reed — Tue, 16 Aug 2011 00:00:00 GMT

At least I think he is, and the sky is still firmly planted where it belongs last I checked. Don’t get me wrong, the events of the last few days are serious, and we all need to be paying attention to the market, but let’s also maintain a little perspective. What do I mean by that? Consider the following:

Insurance companies are being downgraded across the board. The reason for this is rather straightforward – many of their investment holdings have taken a dip in quality courtesy of our federal government. Sounds bad, right? Of course it sounds bad! The reality, however, is that nothing else about that company has changed. The management is still in place, they are still maintaining the reserves required by law, and they are still receiving premium dollars from both new sales and in force contracts. Sounds an awful lot like status quo to me.

The strength of Insurance Company A relative to its peers after the downgrades are complete is probably not all that different. The reality for the carriers at the top of the rankings is that they are probably going to be just fine. There may be decreased dividend performance and crediting rates or increased rates for new sales as a result of this, but the tax free rate of return on the death benefit is still going to be attractive. Death claims will still be paid, just as they always have been. I would certainly be paying close attention if I bought a policy from a less than top rated carrier. Why? Read on.

What about the consumer? What should they be doing? Maybe nothing. If a policy, even with non-guaranteed elements, was funded and managed correctly during its lifetime, it should be able to weather this storm just fine. Policy Owners need to keep an eye out for changes declared by their insurance company that impact their policy and react accordingly. They should already be doing this anyway. If, however, the policy has been mismanaged and underfunded, I submit it was already a problem and the policy owner simply did not know! I would be particularly vigilant if my carrier were not top tier.

Another thing the consumer should do is keep the issues of the parent separate from the insurance company. Much of the press about a company may be focused strictly on the publicly traded holding company rather than the actual insurance operation (this was very common back in 2008). Know the difference. What may make the holding company a bad investment choice in the eyes of the market may have little impact on policy performance. If that is the case, then should it be a major factor in the decision making process regarding a new or in force life insurance contract? Only you and your client can decide.

So who is left to talk about in this transaction? The agent. What do we need to do with all of this? Maybe nothing aside from reassuring your client that everything is going to be OK. If, however, your practice has been based on aggressive assumptions and minimum funding, you may have a bit of a problem on your hands. In addition, this is yet another example of when aspects of the sale other than price start to matter – when things do not go according to plan. The last thing a policy owner wants is to feel uncertain about their insurance. If your carrier drops from the first or second rating to the second or third you are probably still feeling pretty good. If, however, it is a drop from the fourth or fifth rating to the fifth or sixth, maybe you start to sweat a little bit.

Kestler Connection - 8/16/2011

Kestler Financial Group — Tue, 16 Aug 2011 00:00:00 GMT

Inside this Issue:

Aviva - New Beneficiary Forms
Unlocking the Power of Social Media
New State Approvals for Aviva's AB IV & GUS III
Aviva Paper People Campaign Update
Aviva to Survey Producers on Needs of Demographic Groups
New Client Welcome Kit Pilot

View the full email here.

Kestler Connection - 8/9/2011

Kestler Financial Group — Tue, 09 Aug 2011 00:00:00 GMT

Inside this Issue:

Annuity Requirements apply to ND and OR
Aviva - August Annuity Rates
Texas Adopts Continuing Education Requirements
BAA 10 & 12 Family Endowment Rider Increase to 5%
Beneficiary and Income Rider Forms Change
ANICO - August Annuity Rates
State-by-State Adoption of NAIC Model Regulation

View the full email here.

Total Cost of Ownership

Jeff Reed — Tue, 09 Aug 2011 00:00:00 GMT

We hear the major auto makers talk about this as one of the important factors in making a car buying decision. The concept is easy enough to grasp: factor in the actual purchase price, maintenance, fuel consumption and resale value of the car in question when it's time to buy that new car. This is easy enough to apply to the purchase of a life insurance contract, simply by considering the premiums as the purchase price and the cash surrender value and death benefit as the resale value.

But what about the maintenance?

Aside from paying the premiums, and perhaps rebalancing an allocation, there is not much to do in the years between the initial sale and the subsequent surrender or death claim. Or is there? What about premium offset designs? Let's use the dividends or the cash to reduce our premium outlay, right? That type of design will certainly need an annual review. There are certainly enough policies out there with a client no longer paying premiums (sometimes to their detriment, but that is another discussion), but today we drill down on a specific carrier and product feature that is rather unique.

It turns out there is a carrier that will reward you for maintaining your health while the policy is in force. Sounds wonderful, but what does the client need to do in order to document this continued good health, and what is the pay off? How much can it save them? Time to crunch some numbers!

Assumptions:

Male age 50
Preferred Nonsmoker
$1mil face amount
GUL product

Assuming that the client qualifies for all of the available discounts, the savings through year 40 (the client's age 90) is roughly $70,000! Sounds great, right? Sure does. A couple things to consider before we all jump on this as a great idea for our clients:

The IRR difference between the regular price and the max discount at year 40 is a mere 41 basis points, so from an investment performance perspective this is not that exciting. The really deep discounts start in year 35 or so, and the premium drops to $0 soon after year 40. That is a long, long time from now.

Qualifying for this discount is not as simple as showing up at the car dealership. The client has to have a physical, maintain their weight within a specified range, and send a form signed by their physician to the home office every two years in order to realize the discounts. I am not sure many clients will do that. In fact, I'm pretty sure most of them won't.

So what do I think about this feature in the real world? Nice in theory, perhaps a bit challenging in practice. The carrier sends policy owners a quarterly "Wellness Newsletter" from the Mayo Clinic on behalf of the agent as part of this rider. This automatic touch point four times a year is great from a client relations point of view, and perhaps interesting for the client. I do see a potential issue with all of the product performance discussion. This is essentially a "vanishing premium" design. Like all of its predecessors, it is not guaranteed (unless we are talking about a true paid-up Whole Life contract or Guaranteed Universal Life with a short pay, of course!). We all know how clients remember things like this: You said I could stop paying premiums by.......and I'm still paying. Where's my lawyer's card? What regulatory agency can I complain to? Why knowingly set up this scenario?

So how to use this feature? I would use it as a nice add on (it costs $100 one time in policy year one), but keep my big mouth shut about the discounts. At the end of policy year one I would encourage them to try and execute on the discount requirements. Curious about which carrier has this feature? That would be Aviva.

Give me a call to see this illustrated on your next case.

Kestler Connection - 8/2/2011

Kestler Financial Group — Tue, 02 Aug 2011 00:00:00 GMT

Inside this Issue:

American Equity - New Suitability Form Required
Aviva CARE Marketing Materials Available Online
LSA State Approvals and Bonus Announcements
Service Forms Updated with User-Friendly Format
Important Annuity Disclosure Requirements For TX
3 Universal Life Products Available in Maryland
Income Withdrawal Option Announcement
Aviva to Survey Customers to Recently Purchased IUL

View the full email here.

Narrow and Deep

Jeff Reed — Tue, 02 Aug 2011 00:00:00 GMT

As I talk to new producers week in and week out, the question of “which carriers do you have” comes up in about 100% of the conversations. Back when I first started as a life insurance wholesaler I thought that a large carrier roster was a critical part of the equation. Fast forward a decade and I now think nothing could be further from the truth. Why? Read on.

First, take a look at your production. How many carriers have you placed business with in the past five years? How many have been an active part of your practice for longer than five years? Short list, right? These would be your “core carriers”. You are comfortable with them, and they have become a reliable partner in your life insurance practice. Now, take a look at the carriers that you have only done a case or two with. Go ahead. I’ll wait. This is important.

Think about the experience of working with the second group of carriers versus the first. If you are wincing thinking about some of those cases you can stop reading. You already get my point. If not, consider the following:

Is that “one off” carrier making a positive contribution to your practice?
Why did you end up sending that case to them?
How much more of your time did you spend navigating the underwriting process?
Was the case even profitable as a result?

If you are like most agents, these are not the type of questions you spend much time thinking about. I think maybe you should. Of course, it is a balancing act, as our business has become hyper competitive, and every client thinks they can jump on the internet and do a better job of obtaining life insurance than you can. If you don’t have a large enough carrier roster they may be right!

Our challenge at Cavalier Associates as a Brokerage General Agency is much the same. Does a carrier add real value to the agent experience at our agency? Are they a reliable partner for us and, by extension, our agents? Do we already have a carrier or two that fills the same role? How many low cost term insurance providers do you really need anyway?! The fact that they happen to be at the top of the spreadsheets may not be enough. Frankly, I want a carrier that can help my agents take down larger cases, not save my client $1.25 per month on a $250,000 term contract.

So now when the conversation turns to our carrier roster, the answer is vastly different than it was a decade ago. I talk about the carriers that play a huge role for us year in and year out, and then about the rest of the carriers that we have “defensively” or because they fill an exceptionally unique niche. Who are these carriers who have earned inclusion in the first group? Give me a call on your next case and we’ll talk!

Kestler Connection - 7/26/2011

Kestler Financial Group — Tue, 26 Jul 2011 00:00:00 GMT

Inside this Issue:

Track Your Pending Business Online
Iowa Insurance Division Compliance Update
Income Preferred/MultiChoiceSM Series Approved in AK, MN
Minnesota DOI Begins to Restore Business
ACT NOW! Rates Changing On The Guarantee Series
Aviva Financial Stability Recognized
Vermont Insurance Bulletin 161

View the full email here.

Asset Transfer - A Simplified Solution

Jeff Reed — Tue, 26 Jul 2011 00:00:00 GMT

A few weeks ago we talked about asset transfer in our monthly webinar. We discussed clients who have “excess capital” that they will not require for their care and maintenance during their lifetime. These clients generally have one thing in mind with these assets – pass them to the next generation. Unfortunately, the type of assets they usually target as likely to pass to the kids are typically very inefficient for this purpose (accumulation focused products/accounts with little to no cost basis and no step up at death) and we introduced any number of methods for repositioning those assets into more efficient asset classes.

One of the key components of that discussion was the need for the client to be able to pass underwriting on a favorable basis. Another was that the client’s liquidity would likely be significantly reduced. Either one of these can be a major obstacle to overcome, and could easily stop the sale dead in its tracks. Based on the feedback from that presentation, we went back to the lab and found an old stand-by sitting on the shelf just waiting for us to dust it off and put it in the game to deal with these two objections. What am I talking about? Single Premium Life.

How does this type of product mitigate the objections outlined above (underwriting and reduced liquidity)? Simple. First and foremost, many of these products are available without an exam and have a pass/fail type of underwriting process for risks through Table 4 at Standard rates. Reduced liquidity? Well, it is still reduced, but in comparison to the virtually non-existent cash value in a typical UL contract in the early years the 85% or so of premium available as surrender value in year one is pretty attractive.

Sound good so far? I think so, but I also know that there is no free lunch, and that certainly applies here. So what does the client give up in exchange for these features? The first is leverage. No preferred rates, and the face amount to premium ratio is not nearly as favorable as a traditionally underwritten product. The other issue is taxes. The key words describing this product type are Single Premium. If you apply this to the types of assets we discussed in our asset transfer webinar, you already see this coming – the client has to take a large distribution to fund the policy, and there may be a hefty tax bill to be paid as a result.

That may be less of an issue than you think, and the only way to evaluate it is to run the numbers. So let’s take a female age 65 in the 35% tax bracket with heirs who are also in that same bracket. Say her life expectancy is 20 years, and we are dealing with a $100K present value. Check out the quick analysis here to see the increased net-to-heirs. Bottom line? Based on a 5% rate of return on the asset if the client retains it, we have an increased net-to-heirs through year 16. At 3% it is increased well past life expectancy.

Based on that, the decreased leverage and the tax on the lump sum distribution appear to be outweighed by the greater tax efficiency that is the foundation of the asset transfer sale. Good news all the way around, and perhaps the market for this type of sale just got a little bit larger?

Kestler Connection - 7/19/2011

Kestler Financial Group — Tue, 19 Jul 2011 00:00:00 GMT

Inside this Issue:

2011 Centaurus Wealth Management Event Calendar
10 Questions Every Successful IRA Specialist MUST Answer
Aviva NLG - New State Approvals

View the full email here.

A Life Lesson From Charlie Brown

Jeff Reed — Tue, 19 Jul 2011 00:00:00 GMT

I have been working with a new producer on a rather significant business case using one of the high early cash value products I talked about recently in my weekly email. Exciting case, significant premiums, and what looked to be a great start to a new business relationship. That was until the carrier we had quoted pulled a Lucy from the Peanuts Gang that left the case flying through the air like Charlie Brown after she pulled the football!

How did they do it? Well, they exited the independent distribution channel completely, terminating a rather large number of contracts in the process. They were not selective in this. Every Brokerage General Agency was notified of their termination this past week. As much of a disappointment as this may be, our roster of carriers allows us to keep on moving without much of a hitch in our stride. It does, however, bring up a huge point about the sales process, and how to position yourself such that unforeseen changes have a limited impact on your business and income.

Specifically, I have seen this problem come up time and time again when a producer leads with a product rather than a concept. They sell the client on the fact that this is THE BEST PRODUCT solution for their particular situation. Why is that a problem? Well, much of the time, the producer does not really know enough about the client to make that claim. Sure, they will end up being correct some of the time, but when something comes up during the implementation of the sale that makes that "best product" no longer the best, the client ends up feeling as if they are settling for a second rate solution. That alone is enough to open the door for another producer to come in and eat your lunch! Not good.

The savvy agent sells the concept - what problem are we addressing and how are we going to do it? Once this is identified and the client is nodding up and down that the proposed solution does the job, a carrier selection process ensues that leads to any number of acceptable solutions, all with performance that has become more and more homogeneous over time (life insurance becomes more and more commoditized with each passing day!). This assumes, of course, that there is actually a process in place to do the due diligence required to navigate the carrier selection process. Most solo practitioner producers simply do not have the resources to pull this off, or have a primary carrier affiliation that dominates their product selection.

Given the unique nature of insurance products (they combine two significant metrics - product features and the underlying costs based on underwriting) a credible partner who does have the processes and relationships to fill this role is critical. We will discuss this exact process on the 28th of this month in our webinar titled It's All In The Design. I guarantee you will come away with a clear understanding of the best practices we have established for product and carrier selection for the larger case, as well as how to deal with the transactional business that we all have to work on to keep the doors open.

Kestler Connection - 7/12/2011

Kestler Financial Group — Tue, 12 Jul 2011 00:00:00 GMT

Inside this Issue:

Minnesota's Government Shutdown Will Impact Agents
Upcoming Deadlines in August

View the full email here.

The Summer Slump

Jeff Reed — Tue, 12 Jul 2011 00:00:00 GMT

Now that the Fourth of July holiday is behind us, the balance of the summer is going to be rushing by at a furious pace, and the first day of school will be here before you know it. While we are all still enjoying the long days and warm weather, it is time to start thinking about the second half of the year, and how to position ourselves for a strong close to 2011.

Our clients find themselves in much the same position. Many of them will wake up when the kids return to school in the fall and realize that they have not accomplished some of the things they set out to do not only over the summer, but even from the start of the year. The resulting spike in business once September hits is part of an annual sales cycle driven by both consumer and agent behavior. This cycle has four distinct stages, and is so reliable that it has even become the basis for the timing of sales incentives at the carrier level.

So what are the stages in this cycle?

January through March
These months are like the honeymoon period. Everyone has their goals for the year fresh in their mind, they are more disciplined and there is a corresponding spike in activity and productivity.

March through May
Despite the distraction of tax time this is still a rather productive time. Business that was opened up in the early part of the year is wrapping up, and there may be some tax planning related business.

June through August
The doldrums hit during these months as described above. Not only are our clients distracted, but our personal lives are crowded with vacations and other summer activities. It even becomes more challenging to move cases through the home office for the very same reasons.

September through December
The sometimes desperate dash to the finish that leaves us all winded is again fueled by consumer, producer and home office behavior. Clients realize there are objectives they set for the year that are incomplete. Cases that may have been back-burnered in the spring are now front and center. Home offices are scrambling to meet year end goals.

So why bring this up today? Great question, and the answer is two-fold. First and foremost, now is the time to look back at the first half of the year to see if we are on track for our goals for the year. Second is to position ourselves for a strong second half. That positioning includes two things: rounding up the stragglers, and identifying your fourth quarter cases.

Rounding up the stragglers is easy. There are cases out there that never came to a conclusion. The client was indecisive, they had a vacation to go on, the dog ate their homework, and the list of reasons goes on and on. It's time to get them back with the rest of the herd and drive them home. The fourth quarter cases are a topic in and of themselves that we'll discuss in the coming weeks, but for now, start making a list of potential cases and checking it twice because your holiday gift budget may very well be determined by how well you close the year!

Maintaining Some Balance

Jeff Reed — Tue, 05 Jul 2011 00:00:00 GMT

Despite what you may think from the title, this is not a discussion about balancing work and your personal life or making sure to take time for you. No, today we are talking about your client's balance sheet, and a way to help them create an asset rather than a cost item when buying life insurance in the corporate setting.

The last time I checked, most of our business owner clients focus on paying as little as possible for any insurance policies they may need for key person or buy/sell agreement funding. As smart a strategy as this may be in some aspects of their business, if prompted, they will probably be able to think of an instance when paying the lowest price for something ended up costing them more in the long run. That may ultimately prove to be the case with their insurance purchase as well.

How? Consider a successful business, particularly a C corp, that has a reasonable amount of retained earnings. There are three key executives in the company, and they all have $1 million of key person coverage using term insurance. Each year they scratch out a premium check, and then the key person has the audacity to live! As good news as that is, the money spent on the insurance is gone, and the cycle repeats year after year.

Rather than continue to write that term insurance check every year, how about we take some of those retained earnings and move them from their current bank account into a life insurance policy? OK, great, but the surrender value is going to be far less than the premiums paid in the first year, right? Wrong! There are any number of permanent insurance products that have cash values as high as 95% of premiums paid in the first year. Did I mention that there are not only multiple products, but multiple product types (Whole Life, Equity Indexed UL, UL)? There are even opportunities for simplified underwriting if we have multiple lives to work with.

The fact that these products exist may not be a surprise to some of you, and there are probably a few who are saying that business owners will always go the term route. If you "already know" about these types of products or think you know how a particular client will respond to this, when was the last time you actually proposed one? Tough to make a sale without actually presenting the product and these products are being sold in very large numbers by your competition.

So what would this look like in real life? Well, if we use one of the key persons mentioned above, a 55-year old male, as an example and write a $1 million 10-year term contract, the total premium expense over ten years is $20,250 assuming he is a preferred risk. Using a high early cash value UL, we can drive the net cost at year ten down to $1,077. Sure it is going to take a large premium check each and every year, but the net cost in each year is lower and if that key person retired at age 65 there would be over $280K in the policy that would be available for other purposes.

The bottom line for the discussion today is this: it is impossible to sell a product if you don't present it. For the newer agent who has not been exposed to these products, let's talk. For the seasoned vets, you have so much of this product knowledge stored in your memory banks that it is tough to keep it all front and center. Hopefully this gentle reminder will help you do just that with this "balance sheet sale".

Kestler Connection - 7/5/2011

Kestler Financial Group — Tue, 05 Jul 2011 00:00:00 GMT

Inside this Issue:

Aviva's Guarantee UL Solution III Available in CA & PA

View the full email here.

Dear John Letters

Jeff Reed — Tue, 28 Jun 2011 00:00:00 GMT

We have all received these from an insurance company. Either via email or snail mail, the impact is the same – something has gone very wrong on your life insurance case. What separates the amateurs from pros is knowing how to avoid this in the first place, and then what to do about it when the inevitable happens and a “new finding” comes up during the underwriting process.

Underwriting by Discovery

This has to be the simplest mistake I see time and again. For any number of reasons, the initial interview of the client fails to uncover one or more facts about the insured that are rather pertinent to the underwriting process. I’m not sure if it is an issue of willing blindness, lack of experience, or something else entirely, but nothing sets an underwriter’s teeth on edge like the feeling that they are not being told “the truth, the whole truth, and nothing but the truth”.

What happens once that feeling sets in? The microscope comes out. Little items suddenly become serious issues. Doctors start popping up out of nowhere. Questionnaires need to be filled out. The emails fly fast and furious. MIB codes are pulled. And with every additional question and corresponding delay, everybody becomes more and more cranky. I mean everybody – the client, the agent, the case manager, the underwriter – the list goes on and on. As they become more and more cranky, the probability of a successful outcome drops precipitously.

So what is the solution? Rather than asking a few questions to make sure the client has a pulse and then firing in that application, take a few extra minutes to knock out a full health profile. We all know the questions (if you don’t, I am sure we can help you figure it out!), and we all know it will probably save time in the end. I call it slowing down to speed up, and it is always a winning strategy for writing a life case.

Of course, despite the fact that we have done everything right, there are still those surprises that come up on the labs or the phone interview. After we are done smacking our heads in frustration about the client changing their answers on us or the obscure test that came back abnormal, it is time to figure out what to do. This is another time when a proven process makes a big difference. From something as fundamental as making sure that we control all of the medical data (exam, APS) to something as complex as knowing which carrier uses which underwriting manual (or which can pick and choose depending on the risk!), we are uniquely positioned to guide you through the second underwriting.

The result is your case rising, Phoenix-like, from the ashes and becoming a beautiful deposit in your bank account. I get misty-eyed just thinking about it!

Kestler Connection - 6/28/2011

Kestler Financial Group — Tue, 28 Jun 2011 00:00:00 GMT

Inside this Issue:

ARE YOU ON THE KESTLER LEADERBOARD?
Aviva Annuities - July Rates
New Appointment Requirements for Solicitation of Business
Unlocking the Power of Social Media
2011 Centaurus Wealth Management Event Calendar
Idaho Insurance Bulletin 11-03 - Rebates/Inducements
Join Aviva for a Live Webcast in July & Win Prizes!
Lifetime Solutions Annuity Now Available in DE

View the full email here.

Kestler Connection - 6/21/2011

Kestler Financial Group — Tue, 21 Jun 2011 00:00:00 GMT

Inside this Issue:

Registration now open for August ATE!
2011 Centaurus Wealth Management Event Calendar
Aviva's Mart Heitz Makes Plans to Retire
Aviva's Lifetime Solutions Annuity Now Available in MN

View the full email here.

Asleep at the Wheel

Jeff Reed — Tue, 21 Jun 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

I am in the process of wrapping up a 1035 exchange case with one of my producers out of New Jersey this month. Given that it was a New York case and therefore subject to Reg 60, this has been in the works for a while. As pleased as I was with the outcome of this case, it serves as a bit of a cautionary tale in two very important ways.

The first is that despite the fact that the Trustee technically has a fiduciary duty to the beneficiaries, it is often the agent that either ends up being the hero or the villain in these stories. Strangely, in this particular case the agent ends up being both while the Trustee is reduced to more or less a bystander. How is it possible for the agent to be both hero and villain? Simple. Two agents.

The original writing agent on the ILIT owned policy may have done excellent work at the beginning for all I know. This was an old policy, and the breadth of product available today was certainly not available at the time it was issued. Where he fell down is the Achilles Heel of many advisors - the periodic review of the insurance. In fact, he may have taken this to new heights, as the policy was from an old mutual company that de-mutualized a number of years ago. The distribution of company stock to policy owners resulted in the trust sitting on a bunch of stock for years. This stock, along with about $20K in cash, had not been touched or even thought of since.

Along comes a new advisor, my producer, and all of the sudden some attention is being paid to the policy and the ILIT. The end result was the new insurance policy mentioned above and the 1035 exchange. That transaction increased the guaranteed death benefit from $800K to over $1.3 mil. Great work! But what about the rest of the trust assets? What if we liquidated that stock position and dropped the net proceeds and the cash into the new policy? That $1.3 grows to $2.3! Given that the combination of stock as cash was roughly $145K, I would say that is some pretty nice leverage!

The bottom line on this case is that there was approximately $1 mil that would have potentially been left on the table if the new agent, the hero in this story, had never arrived on the scene. Even more importantly, our design does not require any further premium payments. The original contract was not guaranteed and the client would have been required to resume premium payments to maintain the death benefit guarantees.

So how else is this story a cautionary tale? Very simply, the former trustee would almost certainly face some questions and perhaps even some liability for his lack of attention to the trust assets. This may not really have been the trustee's fault. Think about the trust owned insurance you have on the books. Now think of how the trustee selection process played out. Is there potential for similar issues? You bet! Most trustees think it is simply a matter writing the check to the insurance company on behalf of their friend or relative because that is all they are told. We all know there is much more to the story.

Improve Your Sales Vocabulary

Kestler Financial Group — Mon, 20 Jun 2011 00:00:00 GMT

According to Tom Hopkins, lecturer and sales trainer, in order to eliminate the fears of investors today, you must become a master questioner. He suggests three strategies to help you in this process:

The Tie-Down Questioning Strategy – A question at the end of a sentence that demands a “yes.”
- “John, you would like to be financially secure in your retirement, wouldn’t you?”
The Alternate Choice Questioning Strategy – A question with two answers. Either answer is a minor agreement leading towards the major decision.
- “Mary, I have Wednesday at 2 PM or Thursday at 10 AM available to meet with you. Which would be better for you?”
The Involvement Questioning Strategy – A question your clients must ask themselves, and answer, after they own your products.
- “John and Mary, what are some of the things you plan to enjoy during your retirement years?”

Tom also suggests replacing some of the words in your vocabulary:

Replace	With
Price	Total Investment
Buy	Own
Sell or Sold	Get Involved
Deal	Opportunity
Contract	Paperwork or Agreement
Sign	Approve or Authorize

Kestler Connection - 6/14/2011

Kestler Financial Group — Tue, 14 Jun 2011 00:00:00 GMT

Inside this Issue:

Be A Part of YOUmanity!
2011 Centaurus Wealth Management Event Calendar
Aviva Announces New Agent Locator Tool
Lifetime Solutions Annuity Now Available in SC
Aviva Adopts New Guidelines for Premium Finance and ECV
Aviva's Refreshed NLG Portfolio Now Available in TX

View the full email here.

Time to Clean Out the Garbage

Jeff Reed — Tue, 14 Jun 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

If you are like me, you are constantly barraged with an avalanche of marketing material from all of the carriers you work with. Sales ideas, underwriting programs and incentive trips abound. As these things pile up in the virtual garage that is our email inbox, we are presented with a two part challenge: how do I sort through it all, and then how do I keep it all organized?

The sorting part has only one hard rule - read everything we send you! (Seriously, it's good stuff!). After that, I would submit a couple of additional suggestions.

Focus on concepts. Product focused ideas are fine, but the rubber really meets the road when you can match the client to a concept that solves whatever is causing them pain. In addition, if for some reason that "best" product or carrier turns out to not be too enamored with the client for whatever reason, the client may feel like they are being relegated to a second tier choice. While that may not be the case, perception is everything in sales, and even arriving at the perfect solution in the wrong way can submarine a sale. Keep the focus on the concept and then go find the right carrier or product for that client.

So if we are focusing on concepts, how do we keep them all organized in our heads? Without a photographic memory, you are going to need some help. Rather than spending your time reading and organizing the mountain of material available to you, how about one bookmarked web site? Easy enough? No password either? No we're talking! Oh, and the material is actually solid, up to date and includes both client and producer approved versions. I think the phrase is "now we're cooking with gas"?

So does this sales concept nirvana exist? You bet it does. And it's free. Here's the secret: click here. What you will find is a collection of material just as I described from our friends at John Hancock. You can access it from anywhere and never have to worry about keeping it organized. I think they provide the right balance of technical detail in an easy to understand format. Here are the kind of topics you can expect to see when you click the link:

Estate Planning
Planning for Non- Citizens
What a Trustee Should Know
Private Financing
Buy-Sell Planning
Employer-Owned Life Insurance
Non-Qualified Benefit Plans
Charitable Planning
Land Conservation Planning
Case in Point - Case Studies!
Legislative Updates

By no means is it a library of every planning idea ever created, but it is a solid enough collection to be easy to use in day to day life. On top of all of that, if you follow my one hard rule - read everything we send you - you will find that many of the case studies that find their way to your inbox from us are based on the concepts listed above. Use these case studies and our webinars to learn how to apply these ideas in the field and close more sales.

In fact, join me next week for our webinar on asset transfer where we examine the best and worst assets out there for maximizing the amount passed to the next generation. Whether it's qualified plans, annuities, CD's or muni's we'll figure out if they match the client's objective and how to effectively reposition them if they don't.

Have Your Cake & Eat It Too

Jeff Reed — Tue, 07 Jun 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

One of the major objections to taking action on estate planning reared its ugly head again on one of my recent cases – the patriarch of the family did not want to give up control of his assets by gifting them away. In his case, at an advanced age and with insurability issues our answer was essentially “get over it”. It did bring to mind, however, a solution that is a great fit in other situations.

The real problem these days is making irrevocable gifts and the client subsequently wanting to change his or her mind if there is a change to the estate tax laws. While we have talked about ILIT (Irrevocable Life Insurance Trust) provisions that allow for early distributions and products that have return of premium features, today we go in a different direction and look at using a different type of trust altogether, and funding it with an accumulation focused life product.

The trust in question, a Spousal Access Trust, is still an ILIT, but rather than naming only the children as a beneficiary, one of the two parents (typically the younger, healthier one) is also named as a beneficiary. In addition, the trust language gives the trustee the power to make distributions during the grantor’s life time. This key difference is what unlocks access to trust assets and policy cash values and allows a measure of control for generation one. In order for this to still pass the sniff test with the IRS, this type of trust must be funded with separate property owned by the grantor. This creates some potential challenges in community property states that will need to be worked through with the client’s attorney prior to executing on this strategy.

Of course, having access to policy cash values and having the death benefit outside the estate sounds great, but there are some things we need to be aware of before we march off to recommend this to a client:

There needs to be cash in the policy! Without it, there is no reason to execute on this strategy.
Avoiding creating a MEC is critical.
Attention needs to be paid to the impact of loans and withdrawals on the ultimate death benefit. These will almost certainly reduce the net death benefit available to the ultimate trust beneficiaries.
Attention needs to be paid to trustee selection. A bad decision here can create an incident of ownership
The strategy can work with both single life and survivorship contracts.

So what do we accomplish by using this strategy? The obvious is that there is now a policy outside the client’s taxable estate to provide liquidity for estate tax mitigation. The ability of the non-grantor spouse to access income creates a world of opportunity. Addressing the objection of giving up control is certainly less of an issue. If there is a change to the estate tax laws or a change in the client’s net worth, they can now turn this trust into a source of income during the life of the non-grantor spouse. This arrangement can be particularly attractive if there is a large age difference between husband and wife. Using a single life contract on the older spouse (Sorry gents, that is usually us!) can be a fantastic way to provide both income protection and estate liquidity for the surviving spouse and the next generation.

The bottom line on this and many of the recent topics in the Rant is simple –

The bottom line on this and many of the recent topics in the Rant is simple – the most important role we may play with our clients in this type of environment is motivator. There is enough confusion around the estate tax to cause many clients to simply do nothing. None of us are served by the client burying their heads in the sand on this issue. Smart planning ideas can show them how to take action today that makes sense regardless of the future of the estate tax.

Kestler Connection - 6/7/2011

Kestler Financial Group — Tue, 07 Jun 2011 00:00:00 GMT

Inside this Issue:

Kestler Employee Featured on Local News
Aviva - June Annuity Rates
Aviva - NLG State Approvals
SC & WV Adopt Continuing Education Requirements
8% IAV Rate Back on American Equity's LIBR until 9/30
Aviva to Survey Producers on New Business Process
The Lifetime Solutions Annuity Calculator is Here!

View the full email here.

Contingency Planning

Jeff Reed — Tue, 31 May 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

The Estate Tax legislation at the end of 2010 provided our clients yet another reason to take a wait and see approach to estate tax planning. Once again we are caught knowing that the conservative approach is to take action now if an insurance purchase is part of the plan, yet facing a client that may believe that there will ultimately be no estate tax.

While I certainly do not have any incredible insight to what the future holds for the estate tax beyond 2012, I think we can all agree that there will be some type of transfer tax, and the discussion is focused around exemption amounts and rates. While our elected officials deal with that part of the equation, it is up to us to continue to make a living and provide our clients with solid advice. A recurring theme in this forum in 2011 has been the need for flexibility. Today we talk about another way to build that in to an estate tax plan and insurance solution that allows our client to take action today with an eye towards future updates to our tax laws.

Step one in this endeavor is to identify the range of possibilities. We have talked previously about the Estate Tax Calculator that Principal has made available, and it does a fine job of outlining three possible scenarios we need to be aware of. Assuming a female age 60 worth $10 million today and a 3% growth rate, we have three possible outcomes (see the report here):

$1 million exemption, 55% top rate

2021 projected tax = $6.8 million
2031 projected tax = $9.4 million

$3.5 million exemption, 45% top rate

2021 projected tax = $4.5 million
2031 projected tax = $6.5 million

$5 million exemption, 35% top rate

2021 projected tax = $2.9 million
2031 projected tax = $4.5 million

Great. Now what? Well, it’s time to do something I rarely do in the Rant – talk about a specific product. ING has a very flexible rider available on their single life GUL product that pairs very well with this kind of uncertainty. It allows us to recommend the purchase of a baseline amount of insurance, and build in additional amounts at pre-determined intervals. The result looks like this (see the illustration here):

Initial Face Amount = $4 mil
Option amount every third anniversary = $1mil (four total)
Total potential insurance @ age 73 and beyond = $8 mil

Of course, this does not cover 100% of the potential tax in all the scenarios outlined above, but it places the client squarely in the driver’s seat regarding future legislative changes. All that remains to determine when they execute on an increase is how to pay for it. Obviously, the increases cost money, and if you don’t exercise one of them, you lose the ability to execute additional future increases. In practice, however, it allows the client to defer the decision to purchase additional insurance while protecting both the ability to purchase and the pricing. For a client who wants to play the waiting game, planning for a wide range of contingencies may be just the right fit.

Kestler Connection - 5/31/2011

Kestler Financial Group — Tue, 31 May 2011 00:00:00 GMT

Inside this Issue:

ANICO June Interest Rates
2011 Centaurus Wealth Management Event Calendar

View the full email here.

Financial Plan Threat Assessment

Jeff Reed — Tue, 24 May 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

The life insurance products we spend so much time discussing each week make one rather significant assumption: we assume the client has the cash flow to continue to pay the premiums each year. What we may not have done is make sure that we protect the source of funds – the client’s income.

We already attempt to protect their assets against market losses with annuity products. For the older client, the next big threat is the cost of an extended need for care either in the client’s home or a nursing home (this should not come as a surprise to anyone!). We talked about one potential solution to this – MoneyGuard® from Lincoln National – a couple weeks ago (and we have our webinar – Live, Die or Quit coming up on Thursday this week!). Today we take this a step further by reminding you that we offer a full line up of Long Term Care Insurance products to help you address this need with your clients.

The truth of the matter is, however, that for most clients in their 60’s or older, LTC premiums are simply off the charts. Many are not in a position to afford the coverage, or are able to convince themselves that “it won’t happen to me”. In those situations, the MoneyGuard® solution is certainly an attractive one with its Return of Premium and Death Benefit features. The real problem is that we are insuring the golden egg instead of the goose when we wait until this late in life to address these issues.

What’s the solution? Discussing the need for this important coverage earlier in the client’s life. The premiums are more affordable and the client still has the good health to qualify for the coverage. It’s not the easy sale, and it may be the last thing on the client’s mind, but it is certainly something that needs to be done. This leads me to the next big threat we can help with – Disability Income – and you guessed it, we also have a full line of DI products.

For the younger client, disability is even more of a threat than a Long Term Care event, as without an income, every aspect of the client’s financial life is at risk. The same challenges we face with the LTC sale come up with DI: the premiums increase dramatically and the client’s health can become an issue the longer we wait to acquire coverage. So how can you motivate your client’s to take action on both DI and LTC earlier in life?

Talk to an expert! Our very own Erica Nelson.

Some of you have already had the pleasure of working with her on a case, but for those of you who have not, she is the LTC and DI expert at Kestler Financial. With over a decade of experience in the LTC and DI markets, Erica can help you navigate these waters with everything from technical product knowledge to underwriting and sales techniques.

You can reach Erica at:
800-699-0299
erica@kestlerfinancial.com

Kestler Connection - 5/24/2011

Kestler Financial Group — Tue, 24 May 2011 00:00:00 GMT

Inside this Issue:

Kestler Employee Honored as Foster Parent of the Year
Aviva's Lifetime Solutions Annuity - Available NOW!
Aviva Commission Bonus Payments Generated on May 18
Commission Bonus on Aviva's AIL Line of Annuities
Navigating KestlerFinancial.com's Producer-Only Tools
Target More Affluent Clients With These Simple Steps
Attend Aviva's Business Development Program
2011 Centaurus Wealth Management Event Calendar

View the full email here.

Letting the Fox in the Hen House

Jeff Reed — Tue, 17 May 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

I was perusing the list of available free Kindle Books on the Kindle store this week, and what should I find but a publication from the United States Senate Permanent Subcommittee on Investigations titled Wall Street and the Financial Crisis: Anatomy of a Financial Collapse. As is my habit, I loaded it on my iPad for future reading. While I have not read the entire report at this point, I have made it through the executive summary, and there is an entire section dedicated to the role of Moody’s and S&P in the recent recession.

Of course, if you read the email from a couple weeks back that touched on financial ratings agencies and the need to look beyond them to other measures of carrier financial strength you know that I am already a bit critical of these agencies. This report drives that point home further by identifying the following issues:

Inherent conflict of interest arising from the system used to pay for credit ratings
Ratings agencies weakened their standards as each competed to provide the most favorable rating to win business from the issuers of these securities
Ratings models fail to include relevant mortgage performance data
Unclear and subjective criteria used to produce ratings
Failure to apply updated ratings models to existing rated transactions
Inadequate staffing to perform rating and surveillance services

To be fair, the report did focus on these two as an example of the issues with ratings agencies in general. I am sure that many of the criticisms leveled in the report can be applied to the other agencies as well. However, we should all read the full report, which you can do here, to further our own understanding of the events leading up to the fall of 2008.

The bottom line in the report is that there was significant financial incentive for these agencies to provide the answer the issuer wanted, rather than an accurate rating, particularly in the short term. In addition, the unprecedented number and severity of downgrades of mortgage backed securities that were the eventual outcome of the inflated ratings, falling housing prices and defaults were identified as one of the key triggers to the plummeting value of these securities and the financial crisis as a whole.

So why talk about rating agencies again?

For one, I find the way I came upon this report interesting. The fact that this publication would be on the Kindle book store, let alone in the top 100 free eBook downloads is a clear indication of how important this distribution is becoming. That enough people downloaded the report to land it on the top 100 restores a bit of my faith in the public’s interest in these issues beyond the sound bites they see on TV or read on an internet news feed. Maybe that is a positive outcome of the recession: more people are paying attention.

The other is a rather scary remedy to all of this suggested in the report: “The SEC should use its regulatory authority to facilitate the ability of investors to hold credit rating agencies accountable in civil lawsuits for inflated credit ratings, when a credit rating agency knowingly or recklessly fails to conduct a reasonable investigation of the rated security.”

I am not sure that civil litigation after the fact is really a remedy in the first place (nor is this the only remedy suggested). Is the government really going to encourage us to litigate over investment losses? If someone is unsophisticated enough to base their investment decisions, or carrier selection for that matter, solely on the ratings of one of these agencies, they deserve to lose their shirt! Last time I checked you had to take some risk to make a profit in our country.

Kestler Connection - 5/17/2011

Kestler Financial Group — Tue, 17 May 2011 00:00:00 GMT

Inside this Issue:

The Reasons to Consider a Fixed Indexed Annuity, Part 1
New Fax Numbers for Presidential Life
Presidential Life Deferred Annuity Rates to Decrease 5/18/11
Aviva Offers Training for New Lifetime Solutions Annuity
Refreshed Aviva NLG Portfolio to Launch May 23
Aviva's CARE Program Extended to ALL Distributions
New SecurePlus Gold Commissions in Certain States
Join Aviva for a Live Webcast in June and Win Aviva Prizes!

View the full email here.

Planning With A Parachute

Jeff Reed — Tue, 10 May 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

One of my producers brought a case in last week that really made me think. For once, the clients are healthy, so what, you ask, is making me stop and think? Two things. First, the clients are looking to the producer to help them pass as much as they can to their kids. They do not anticipate needing the $600K-or-so they have managed to accumulate in qualified accounts, as they have both worked for a government agency for a long time and will receive a healthy retirement income.

Of course, that by itself is a pretty easy thing to get done. Maximizing qualified plans through the purchase of life insurance has been around longer than I have. What is there to think about? How about the fact that the qualified account is really their only liquid asset. What if we execute on an asset transfer strategy and something goes wrong? What if they want to unwind it and use some of the money to live on? That is a little bit more difficult, and why I had to stop to consider the right path.

Our ultimate recommendation to the client had three facets that were all included to build a number of “bail out” points into the plan. Here’s how we did it:

Rather than go straight into a SPIA, move their qualified account into a deferred annuity, capturing a 7% bonus.
Fund a Long Term Care policy on each of them (as this would be one of the major risks that could cause them to unwind this entire transaction) using MoneyGuard from Lincoln on a 10-pay basis. The new contract offers a full return of premium even on the ten pays now (this version not yet approved in all states).
Fund a carefully selected survivorship contract on a 10-pay basis.

The first year premium on this design comes from re-allocation of current 403(b) contributions and a small withdrawal from their qualified plan prior to purchasing the annuity. At the end of the first year, we can elect to either take a withdrawal from the annuity or annuitize over the next nine years. The plan is to annuitize, but if something has changed in the intervening twelve months, this would be the first “bailout”. The premium for the survivorship policy would be gone, but the client would receive 100% of the LTC premiums back, and still have the qualified account worth very close to the $600K it was to begin with.

Assuming we stay the course at the first anniversary and annuitize the account to pay the remaining nine premiums, we still have a choice to make each year – continue to fund the LTC, or punch out and keep the income that would have paid the premium. We’ll call these eight anniversaries bailout number two, collectively. This brings us to the third and most important bailout point: the tenth anniversary. What about all the money paid for the survivorship contract? Well, for that we used a contract with a liquidity rider that allows for 95% of premiums paid at surrender or exchange at the 10th policy anniversary.

The moral of the story? The $600K qualified account accomplishes the following:

$150 per day LTC benefits for 7 years with full return of premium on both husband and wife
$1.2 mil of survivorship coverage
An additional $324K in death benefit from the LTC policy if they don’t use the LTC benefits during their lifetime.

That is a total of over $1.5 million transferred tax free versus $600K taxable in year 1! How long would this account have to grow to reach that if it passed as a qualified account?!

If they get to the tenth year and the need assets to provide retirement income rather than passing it to the next generation they can pull $460K back from these three policies!

This was all funded with net after tax distributions, so their lifestyle isn’t impacted.

Bottom line, as much as some of these moderately well off Boomers may want to pass their assets on, the downside risks can be a little much to swallow. Smart planning can accomplish the asset transfer with a parachute.

Give me a call if your next client could use a creative solution to their planning challenges.

Kestler Connection - 5/10/2011

Kestler Financial Group — Tue, 10 May 2011 00:00:00 GMT

Inside this Issue:

Why People Buy Fixed Annuities
New Procedures for Accessing Aviva Client Site
Aviva Mass Termination Update
Five States Adopt Continuing Education Requirements
Continuing Education Training Required for all OK Producers

View the full email here.

Do Your Due Diligence

Jeff Reed — Tue, 03 May 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

One of the advisors I spoke with this week actually surprised me. Twice. The first time was admitting that he worked with Washington National. For those of you unfamiliar with this not quite household name, it is the company that has risen from the ashes of Conseco. As we continued to talk, he mentioned the second surprise: He is selling their equity indexed UL product, and, astoundingly, the issue of the company’s financials “never comes up”.

This guy must be one hell of a salesman.

On a separate but related topic, I was recently invited to beta-test the new upgrades that are coming to VitalSigns, the carrier financial ratings reporting service that most of us use for thumbnail sketches of a carrier’s current financial condition. The beta version is quite a bit more robust, and has greater ability to show trends over time that can help really understand what may be going on behind the scenes at a carrier.

Maybe I should take a look at the history of Washington National using the beta version? Great idea! The tale the reports tell is one of a carrier on the ropes (no surprise there). Falling ratings from almost all the major rating firms over the last five years, a Comdex of 52 (click here for an explanation of the Comdex ranking if you need one), double digit lapse ratios and a very modest amount of new premium written each year.

Of course, there is always more to the story.

As in a ratio that the NAIC uses to help evaluate a carrier’s ability to meet their obligations – Risk Based Capital. For a bit of background on RBC ratios, click here. As an example of why it may be important to look beyond the ratings to something like an RBC ratio is ING. Rated A by A.M. Best and with a Comdex of 79, they appear to be a less than attractive carrier to some. Their RBC ratio of 470% (September 2010), however, is off the charts compared to the guideline set by the NAIC (200%). The Washington National RBC ratio, by comparison, is 332%, also well above the minimum standard set by the NAIC.

In my mind, the question becomes one of how to place all of this information in context? The Comdex and other financial ratings agencies indicate that Washington National may be at risk, but their RBC ratio appears adequate? The background information on RBC ratios referenced above even discusses the issue of false positives and negatives. In the case of Washington National and the Conseco block of business, a look at recent policy holder experience shows policies being charged guaranteed maximum M&E and guaranteed minimum interest. Clearly not the behavior of a financially stable insurer from my perspective.

The moral of the story is clear – doing our own research is a critical skill if we want to keep our clients out of trouble. For now, feel free to use the VitalSigns service in the Utilities section of our web site, and keep a look out for the update coming soon! Send me an email if you need completing the registration necessary to gain access to that section of the site (here’s a hint: Use the link in the top right corner of the home page!).

Kestler Connection - 5/3/2011

Kestler Financial Group — Tue, 03 May 2011 00:00:00 GMT

Inside this Issue:

From the Desk of Tom Kestler - Why Fixed Indexed Annuities Have Caps
Aviva May Annuity Rates & Commission Bonuses
Training Required for all WI Insurance Producers
Agent Letters Regarding Terminations
Important Annuity Disclosure Requirements for IL
Aviva Brand Launch - News Release
Aviva's Branding Campaign - When To Watch
Join Aviva for a live webcast in May and win prizes!

View the full email here.

Kestler Connection - 4/26/2011

Kestler Financial Group — Tue, 26 Apr 2011 00:00:00 GMT

Inside this Issue:

From the Desk of Tom Kestler - Why Annuity Sales Are Booming During the Recession
Get Ready for Aviva's National Brand Campaign
Aviva Field Update: Transition Guidelines for Refreshed NLG
MD Senior Designation Memo

View the full email here.

Don't Forget the Second Sale

Jeff Reed — Tue, 26 Apr 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

Estate Planning is on everyone's mind in the high net worth space these days. As good as the reasons are for that focus, lost in the shuffle are the other opportunities that the transfer of assets can create.

Just what do I mean? A couple things. One is the issue of trust asset management now that these ILIT's may be funded with large lump sums rather than annual exclusion gifts. That scenario demands an entirely different skill set for the advisor as well as the trustee and creates a multitude of opportunities. Today, however, we look beyond the grantor and asset management issues to the trust beneficiaries.

Clearly, the next generation stands to inherit an enormous amount of money. If the family is in a position to make a large lifetime gift to take advantage of the current favorable tax environment, they are almost certainly in a place to take action on some planning for the next generation. If you and your client do decide to execute on some Generation Two planning, clarity and documentation around Generation One's estate plan are essential ingredients in successfully implementing a life insurance solution as part of that plan.

There is at least one carrier out there that has gone as far as publishing guidelines for us to follow. I also queried a few additional carriers and while they are open to the idea, they do not have any published guidelines and review these cases on their individual merits. Here are some examples of the criteria the one carrier is looking for:

Generation One needs to be fairly advanced in age, or have a very short life expectancy
Review of estate planning documents to verify the transfer to Generation Two
Third party verification of the net worth of Generation One

Obviously, these are all things that should already be known once the planning is complete for Generation One and I am sure that the carriers without published guidelines will also need to know these facts. If the Generation One plan has been funded by a lifetime gift, we can even use annual exclusion gifts to fund the planning for Generation Two, and I certainly do not need to tell you that the cost of any insurance solution will never be lower than it is right now when Generation Two is of a nice young age!

The bottom line is that the recent estate tax law changes have created opportunities that are still being realized. The irony is that the techniques being used are all tools that we have had at our disposal for years. The only thing that has changed is perhaps a renewed sense of urgency in the planning community, and ideally, our clients.

My Business Is Worth What?

Jeff Reed — Tue, 19 Apr 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

There are really two ways you can read today's title: shock at how high the number is, or a horrified gasp at how little you have to show for your hard work as a business owner. The reality is that most business owners have absolutely no idea how much their business is worth or how to go about making that determination. The trouble we run into as advisors as a result is twofold. How do we motivate the owner to take action securing his business through key person insurance and a properly structured buy/sell agreement? If we manage to navigate that process, how do we come to a solid recommendation on the proper amounts of insurance?

The Key Person issue is a bit more straight forward than the buy/sell in some regards. The essential people in any organization are fairly easy to identify. The problem lies in determining the correct amount of coverage. Most owners and advisors will make the mistake of tossing out a round number that has no relationship to the employee's quantifiable value to the organization. Once that application is taken based on that number it is a 50/50 proposition at best that there will be an approval for that amount.

Of course, there is a more effective way to underwrite these cases, and all it takes is some simple math. The lowest multiple I have heard from a carrier for a Key Person's value is five times salary. Start there. If that amount is not going to get the job done from either the owner's or your perspective get ready to write a cover letter outlining the unique and difficult to replace skill set that this employee possesses. Carrier selection can also make a big difference here as there are some that allow a higher multiple or provide a formula that is a bit more evolved than the simple multiple of salary rule.

Now that Key Person coverage is in place, it is time to take on the buy/sell agreement. These present two very real challenges as well. The first, how to structure the agreement, is an absolute minefield. Why? Practicing law without a license. Trying to give a business owner advice on this involves legal and tax issues that are simply not in our area of expertise. Add that to the downside risk if something goes wrong based on our guidance (lawsuit!) and you have enough to cause many advisors to head for the exits.

The second issue is how to go about valuing the business? The problems here include the formula used to arrive at the value as well as the very real possibility that the owner's estimate may have very little relationship to reality! The solutions to this and the question of the proper structure of the agreement both come down to two strategies: know the right questions to ask and provide some tools to help the owner arrive at their own answers.

The questions come down to good fact finding, and the resources here can be a good place to start. Of course, these don't really address some of the tougher issues regarding how to structure the buy/sell or the underlying taxation issues or how to determine the value of the key person beyond the five times multiple. Those require a bit of discussion, and we will be doing just that in our next webinar: Getting Down to Business on April 28th. Attendees will come away with the resources that allow you to guide the business owner to the best answers for their business.

Kestler Connection - 4/19/2011

Kestler Financial Group — Tue, 19 Apr 2011 00:00:00 GMT

Inside this Issue:

SPECIAL ANNOUNCEMENT FROM KESTLER FINANCIAL
Aviva Field Update: Two Important Deadlines on May 1
ANICO Financial Update
ANICO Worksite Simplified Issue Program
Aviva Annuity Product Changes Approved in IN, TX
Aviva to Conduct Brand Research
Reminder of New Independent Producer Contract
Reminder About Pretext Marketing and Sales Practices
Spring 2011 Version of AMO Suite Now Available
ANICO April Mid-Month Update

View the full email here.

What the Heck is an "Insurability Reserve?"

Jeff Reed — Tue, 12 Apr 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

The first quarter is in the books, and I am looking for ideas that will make the balance of the year even better. I'll bet you are as well. My recent experience on a few cases in the older ages could be a good place to look for more sales. The issue we ran into was we could not issue the face amount the client requested for income replacement purposes. The question is why did we run into this problem in the first place?

Most of us get it - your insurance capacity decreases as you age - but our clients are completely in the dark on this. So much so, in fact, that they are willing to bet they can self-insure by the time they retire, not understanding what it means if they do not quite hit the mark.

Consider a male age 45 making $150,000 per year as he ages. Insurance Capacity for income replacement at age:

45 = $2,700,000
55 = $1,950,000
65 = $1,200,000
75 = $0!!!!!

Of course, this is a bit of an over simplification, but the point is clear - if the client is still working late in life, buying enough insurance to replace that income is going to be a problem.

So what do we do as the client's adviser? Make sure they understand the future impact of today's decisions. A great way to do that is with ING's Insurance Capacity Calculator and the resulting Insurability Reserve presentation.

Click here for a sample of the report, or click here to run one yourself.

It introduces the client to the idea that both their insurance policies and their insurability are assets that should be managed just like any other. Frankly, it's just good planning. We should be talking to our clients about it before it is a problem, rather than explaining why they can't buy any more insurance. Trust me, that was not a happy call for me to make, and I am sure the agent and client were less than thrilled as well.

I'm willing to bet that this presentation will result in higher face amounts on initial sales as well as additional coverage purchased at annual reviews. It changes the game a bit when the client hears they can't buy more insurance later. Life insurance takes on a greater value in their eyes.

Oh, and one more thing - Try sending a presentation with each policy you deliver. You never know what will happen when a client sees they qualify for more insurance....they might just buy it!

Kestler Connection - 4/12/2011

Kestler Financial Group — Tue, 12 Apr 2011 00:00:00 GMT

Inside this Issue:

Kestler Financial has upgraded to a new phone system
Presidential Life Bulletin 430 - General Agent Production Report Mailing Discontinued
Presidential Life: Bulletin 431 - Deferred Annuity Rates Increase 4/6/11
ANICO's New Stretch IRA Concept

View the full email here.

The 80/20 Rule Proven

Jeff Reed — Mon, 04 Apr 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

I happened across the recent study on distribution of wealth by the Economic Policy Institute, The State of Working America's Wealth, last week, and finally had time to sit down and read it while I enjoyed a cup of coffee last weekend. While there were very, very few surprises in what is essentially a postmortem on what they call in the report “The Great Recession” there were some interesting stats from the report:

87.2% of the nation’s wealth is controlled by the wealthiest 20% of the nation’s families (Proving the 80/20 rule by a wide margin!).
25% of U.S. households had a zero or negative net worth in 2009.
Even at the peak that preceded the recession, 50% of all U.S. households owned no stocks at all – including indirect ownership via mutual funds or retirement plans.
Stock ownership has been the primary driver of net worth gains since the recovery began, and this has driven the gap between the wealthiest families and the poorest to an all-time high.

Although these facts are not surprising, I hope that by now you are anxiously awaiting some insightful commentary about what this means for us in the insurance industry. If so, read on for my thoughts. If not, at least read the study here, as I think it does drive home some very important points.

As far as our clients are concerned, it exposes the real problem with the real estate obsession over the ten year period prior to the recession – lack of diversification. By placing all their chips on black via their purchase of a home, the marginal home buyer ultimately did themselves more harm than good. Had they allocated those dollars to even the most simple of diversified portfolios they may have enjoyed some of the recovery that the wealthiest families in our country have experienced. It is the same phenomenon of putting all of your retirement funds in the stock of the company you work for. It’s great when it works, but the downside of a failed company – no job and no retirement funds – is simply too great a risk. The fact that the strongest recovery has been driven by stock ownership also makes an argument for the downside protected equity indexed products out there. Some of these products have produced fantastic results as the stock market has come back up, and also avoided the downside during the recession itself.

The last point for today is about our behavior as an industry. Many of us want to break in to the high net worth space. If we use this study as a guide, and define the high net worth space as the top 20%, it translates into about 20 million households (105 million households per 2000 census. I could not find 2009 within 30 seconds on Google and decided this was close enough.). There are surely enough of these families to go around, so why aren’t all of us happily working with more high net worth families than we know what to do with? As with anything, it is a matter of concentration (ironic that we face the same issue discussed in the report). Also, while not covered in the report, I am guessing that this top 20% is probably the oldest segment of our population. Why does this matter? Simple: the easiest path to penetrate this high net worth market is to go after the next generation. The top 20% will pass this wealth to the next generation and increase the number of households that hold this top 20% (assuming each household has an average of two children, the number of households that will ultimately control these assets should double). While this is assuredly a gross oversimplification, that is where many forward looking carriers are focused when it comes to product development and marketing, and it is where the professional agent who runs a business rather than simply selling insurance needs to be focused as well. Who knows, maybe the 80/40 rule will be the new 80/20 rule?!

Kestler Connection - 4/5/2011

Kestler Financial Group — Mon, 04 Apr 2011 00:00:00 GMT

Inside this Issue:

An Inherited IRA: Some Thing to Consider
April Interest Rates Dropping!
Aviva April Annuity Rates and S&D Meeting Notice
401(k) vs. Safe Harbor 401(k)
Colorado Adopts NAIC Model Suitability Rule
Annuity Requirements Apply to TX, RI, and WI
Join Aviva for a live webcast in April and win Aviva prizes!
Health Producers Turn to Pensions
American Equity Spring Sales Incentive
Aviva Offering Commission Bonus on Annuity Production
Presidential Immediate Annuity Rates have changed as of 3/31/2011
ANICO Independent Voice, Issue III

View the full email here.

An Inherited IRA: Some Things to Consider

Kestler Financial Group — Thu, 31 Mar 2011 00:00:00 GMT

Be sure you understand your options. When the owner of an IRA passes away, his or her heirs must be aware of the rules and regulations affecting the inherited IRA. Ignorance could lead you straight toward a tax disaster.

Please note that this is simply an overview. Rather than use this article as a guide, use it as a prelude before you talk to a financial services professional well-versed in IRA rules and regulations.

First, make sure you have actually inherited the IRA. Your spouse, parent or grandparent may have left their traditional or Roth IRA to you in a will, but that doesn’t mean you have inherited it. In all but rare cases, an IRA beneficiary designation form takes precedence over any bequest made in a will or living trust. (The same thing applies with annuities and life insurance policies.)¹

So your first financial task is to find that beneficiary form.

What if I can’t find the form? The financial firm serving as the custodian of the IRA assets will usually have a copy. (If the IRA was opened decades ago, it may not.)
What if there is no beneficiary designated on the form? Then the financial firm supervising the IRA will choose a beneficiary according to its rules and/or IRS guidelines. It may decide that the decedent’s estate will be the beneficiary of the IRA, which is often the poorest outcome in terms of taxation.¹
What if I’m not the beneficiary named on the form? The IRA assets are destined to go to whoever the named beneficiary is. If the named beneficiary is deceased, the IRA assets will be inherited by the contingent beneficiary (if one has been named).

Ideally, the original IRA owner has told you where (or left instructions where) to find the form.

Understand the rules for spousal and non-spousal heirs. If your husband or wife has passed and you are the named beneficiary of his or her Roth or traditional IRA, you have three options.

You can roll over the assets into a beneficiary IRA. This enables you to withdraw money from the IRA based upon your own life expectancy – and you can wait until the year in which the original IRA owner would have turned 70½ to start taking required withdrawals from the IRA.²
You can convert the inherited IRA into your own IRA. If you don’t have an IRA, you can create one for this purpose. This gives you the ability to name your own beneficiary, and it also allows you to keep contributing to the account and put off required minimum distributions (RMDs) until you turn 70½.²
You can “disclaim” all or some of the inherited IRA assets. If you don’t want or need the money from the inherited IRA, here is another option. By doing this, the income distribution off the IRA can go to the contingent (or successor) beneficiary. Spousal IRA heirs sometimes do this with the goal of reducing income and estate taxes.³
If the inherited IRA is a Roth IRA, the surviving spouse may not have to wait so long to get tax-free income distributions off the earnings. While the original contributions to a Roth IRA can always be withdrawn tax-free and penalty-free, a Roth IRA owner must wait 5 years to avoid income tax on any earnings withdrawn from the account. However, a surviving spouse who inherits a Roth IRA can receive “credit” toward this 5-year waiting period for the years that the deceased spouse owned the IRA. The waiting period ends either a) 5 years after the deceased spouse opened the account or b) 5 years after the surviving spouse has opened his or her own Roth IRA.⁴

Non-spousal heirs often get little or no guidance when it comes to inherited IRAs. Too often, the financial firm overseeing the IRA just asks, “What do you want to do?” Often the IRA heir doesn’t know what to do.

Ask the financial firm to help you retitle the inherited IRA. This will enable you to arrange a direct rollover of the inherited IRA assets from the original IRA owner’s financial custodian to the financial firm that serves as the custodian of your investments. This has to be done by September 30 of the year following the year in which the original IRA owner passed away. This is also a necessary move to “stretch” the IRA assets. Usually the new title for the IRA is something like “Mary Jones IRA/Deceased 4/8/2010/ FBO (for the benefit of) Thomas Jones as beneficiary.” This retitling signifies to the IRS that this is an inherited IRA.⁵
You should be made aware of the consequences if you don’t retitle the inherited IRA. Let’s say you don’t retitle the inherited IRA as above. Instead, you just withdraw the assets from the inherited IRA and deposit them an IRA you have held for some years now. If you do this, the entire inherited IRA balance will be treated as taxable income and your federal tax bill could be huge.⁵
You should be made aware that you can name a beneficiary. All IRA owners and IRA heirs have a right to do this. No named beneficiary, no stretch IRA.
If you weren’t married to the original IRA owner, you should be told some inherited IRA basics. Non-spousal heirs of IRAs can’t contribute to an inherited IRA and can’t put off required minimum withdrawals from an inherited IRA.⁵
You don’t necessarily have to take a lump sum when it comes to withdrawing the IRA assets. This is one way inherited IRAs are quickly depleted. A beneficiary can arrange to make smaller required minimum distributions (RMDs) from the inherited IRA according to his or her life expectancy. These withdrawals must start by the end of the year following the year in which the original IRA owner passed away. If you don’t start taking these required withdrawals by December 31 of the following year, you will pay a penalty. Taking smaller withdrawals allows some of the IRA assets to stay invested with tax deferral, and it spreads the income tax liability on the inherited IRA money over a multi-year period.^4,5
You may be eligible for a big tax deduction related to income distribution off the IRA. Income from an inherited IRA is what the IRS terms “income in respect of a decedent”. This means you can take an income tax deduction for the portion of the estate tax attributable to the inherited IRA (this is detailed in IRS Publication 590).⁶
If multiple beneficiaries are inheriting the IRA, you should be informed that you might be able to split the IRA up. When multiple beneficiaries inherited an IRA years ago, they had to share it and make joint investment and withdrawal decisions. Now it is possible to divide an inherited Roth or traditional IRA into multiple IRAs, one for each beneficiary. (Ask the IRA custodian if it will allow this.)4

So if you inherit an IRA, read up on the rules. Knowledge is truly an asset when you inherit sizable funds from any kind of retirement account. The more informed you are and the more guidance you have, the better the potential outcome.

Tom Kestler may be reached at 800-699-0299 or tkestler@cfiemail.com or www.kestlerfinancial.com

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice. The publisher is not engaged in rendering legal, accounting or other professional services. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. If assistance or further information is needed, the reader is advised to engage the services of a competent professional.

Citations.
1. investopedia.com/articles/pf/07/beneficiary_form.asp [3/23/11]
2. jhrollover.com/article_beneficiary_basics_final.shtml [3/23/11]
3. investopedia.com/articles/retirement/03/041603.asp [4/16/03]
4. online.wsj.com/article/SB125634328917505043.html [10/24/09]
5. online.wsj.com/article/SB125512471450876777.html [10/10/09]
6. irs.gov/publications/p590/ch01.html [2011]
7. montoyaregistry.com/Financial-Market.aspx?financial-market=an-introduction-to-the-stock-market&category=29 [3/27/11]

Annuities Appeal to the Middle Class

Kestler Financial Group — Thu, 24 Mar 2011 00:00:00 GMT

Financial Advisor Magazine describes its audience as financial planners, registered investment advisors, and independent broker/dealers serving affluent, high-net worth clients. As you would expect, this magazine typically focuses on the merits of very complex investment strategies designed to impress wealthy clients. Fixed annuities are rarely mentioned.

Thus, it was interesting to read an article in their October 2009 issue entitled “Annuities for the Middle Class?” The popularity of annuities with the middle class seemed to surprise the author of the article, Senior Editor Eric Rasmussen.

Here are some excerpts. The highlighting was added by us:

	Since the market collapse last year, more investors have been turning to annuities – the ultimate chastity belt at a time when wild volatility in the stock market has reined in more promiscuous behavior and risk. Given the widespread fear in the Great Recession, it’s no surprise annuity sales have skyrocketed over the last year. Amid the lofty new numbers, there is also new survey data from insurance companies that suggests the nonqualified annuity marketplace is not only booming but also has a remarkably pure ownership: middle-class retirees. A survey of 1,003 U.S. annuity owners recently conducted by the Gallup Organization for the Committee of Annuity Insurers, a coalition of life insurance companies, has revealed that eight in ten annuity owners have household incomes of less than $100,000. Meanwhile, only 4% earn more than $200,000. Go down further in the income band, and you find that 42% of these annuity owners have household incomes of less than $50,000, says Gallup. Most of those owners, 69% of them, are already retired. According to the Gallup survey, 35% of the annuity owners surveyed never had access to a qualified plan when they were working. “If you were in the distribution phase and 2008 scared you,” says financial planner Rick Fingerman, the president and CEO of Financial Planning Solutions in Newton, Mass., “and you were frightened out of the market, it might make sense for you to put that in an annuity. So you can at least say I’ve got $1,000 a month guaranteed for the rest of my life.”

Since the market collapse last year, more investors have been turning to annuities – the ultimate chastity belt at a time when wild volatility in the stock market has reined in more promiscuous behavior and risk. Given the widespread fear in the Great Recession, it’s no surprise annuity sales have skyrocketed over the last year.

Amid the lofty new numbers, there is also new survey data from insurance companies that suggests the nonqualified annuity marketplace is not only booming but also has a remarkably pure ownership: middle-class retirees. A survey of 1,003 U.S. annuity owners recently conducted by the Gallup Organization for the Committee of Annuity Insurers, a coalition of life insurance companies, has revealed that eight in ten annuity owners have household incomes of less than $100,000. Meanwhile, only 4% earn more than $200,000.

Go down further in the income band, and you find that 42% of these annuity owners have household incomes of less than $50,000, says Gallup. Most of those owners, 69% of them, are already retired.

According to the Gallup survey, 35% of the annuity owners surveyed never had access to a qualified plan when they were working.

“If you were in the distribution phase and 2008 scared you,” says financial planner Rick Fingerman, the president and CEO of Financial Planning Solutions in Newton, Mass., “and you were frightened out of the market, it might make sense for you to put that in an annuity. So you can at least say I’ve got $1,000 a month guaranteed for the rest of my life.”

As you can see, annuities are remarkably popular with the middle class, particularly in the absence of other products that offer their appealing combination of safety, tax deferral, and attractive interest rates.

What this magazine did not publish, but which nonetheless was found by the survey, was that over 90% of annuity owners believe they have done a very good job of saving for retirement, and they think their annuities contribute to a great extent to this preparedness. Also, 79% think that annuities are an important source of retirement security and make them feel more comfortable in times of financial uncertainty.

More on this and other topics at http://fixedannuityfacts.com/

Understanding Annuity Liquidity Features

Kestler Financial Group — Tue, 22 Mar 2011 00:00:00 GMT

Annuities typically have penalties associated with early withdrawal, called surrender charges. You may wonder why these charges are so prevalent on annuities. The reason is that carriers need them in order to provide you with the safety features and attractive interest rates of the annuity.

Consider your checking and savings accounts. Your money is safe and accessible in these accounts, but what interest rate are you receiving. Zero, or something extremely low, right? If you wanted to get a higher rate of interest on your money, what product would your bank offer to you? The answer is a certificate of deposit, which provides a higher interest rate, but it requires that you accept a penalty for early withdrawal.

Thus, you can see from your bank that if you want safety and an attractive interest rate, you need to sacrifice some access to your money, at least for a period of time. There is no financial product that will give you bulletproof safety, the potential for a high rate of interest, and full access to you money all the time – it can’t be done!

So, if safety and the potential to earn a high rate of interest are important to you, it makes sense for you to compromise a bit on liquidity for a portion of your retirement savings.

Now, let’s consider an annuity with a ten-year surrender charge period. Does that mean that you can’t touch any of your annuity money for ten years? Fortunately, almost all fixed annuities offer some access to your money, even during the surrender charge period. It is common for annuities to provide an annual penalty-free withdrawal amount equal to perhaps 10% of your contract value or your accumulated interest. There are also often provisions for the surrender charge to be waived in the event of certain hardships, such as nursing home confinement, diagnosis of terminal illness, or death.

Because of the surrender charge aspect, annuities are appropriate for a portion of your retirement savings, not typically for your entire retirement savings. Keep in mind that the existence of the surrender charge enables the carrier to give you want you want – safety and higher interest crediting potential – thus surrender charge ultimately benefits you.

More on this and other topics at http://fixedannuityfacts.com/

The Role of Annuities in Estate Planning

Kestler Financial Group — Thu, 17 Mar 2011 00:00:00 GMT

Annuities offer two key advantages that can come into play as you plan your estate: speed and privacy. Both of these derive from the fact that you can designate one or more beneficiaries for your annuity, rather than having your annuity made payable to your estate.

When you die, your annuity proceeds are quickly paid to your beneficiaries, usually without the delays and expenses associated with probate. Thus, if it is important to you to quickly pass money to your beneficiaries, an annuity can accomplish that for you.

Also, because the proceeds are passed to the beneficiaries, they bypass your will. If there are certain assets that you want to privately pass to certain beneficiaries rather than have them pass through the relatively public process of probating a will, an annuity can accomplish that for you, too.

So, you can see that naming beneficiaries is usually better than having an annuity payable to your estate and passing through your will.

There is an additional consideration if the annuity is an IRA. If it is payable to the estate, your heirs will be required to liquidate the annuity and pay the associated income taxes within five years of your death. If the annuity is instead payable to individual beneficiaries, those beneficiaries have the option to keep money in their inherited IRAs for many years, even up to their life expectancy, and thus delay the payment of taxes on the annuity.

If your beneficiaries are minor children, you may want to consider a trust to provide asset management until the children would be old enough to be financial responsible. Also, if one or more of your beneficiaries may lack the financial sophistication to preserve and manage a large windfall, many annuity carriers will allow your client to specify that one, some, or all of the beneficiaries must receive their share of the annuity proceeds in the form of a series of periodic payments over a specified period of time.

Last but not least, remember that annuities are subject to income taxes at death, and, if your assets are considerable, they may be subject to estate taxes as well. If you want to maximize what your beneficiaries will receive, consider using some of your annuity money to purchase life insurance. Life insurance can provide an immediate boost what the beneficiaries would receive, plus life insurance death benefits are paid free of income taxes. There are also ways, such as ownership by an Irrevocable Life Insurance Trust, to minimize or eliminate estate taxes on the life insurance death benefit.

More on this and other topics at http://fixedannuityfacts.com/

Life Insurance as an Asset Class

Jeff Reed — Tue, 15 Mar 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

What started out as a simple idea and sale has become a bit more challenging.

Hopefully you read last Tuesday's email covering the basics of the Uniform Prudent Investor Act. If not, click here for the archive . Today we delve into Modern Portfolio Theory (MPT). Why? MPT provides quite a bit of guidance for constructing trust portfolios. Many of the provisions found in the Uniform Prudent Investor Act (UPIA) we discussed last week are grounded in MPT, and as a result, give a clear indication of the role of life insurance as a trust asset.

Fortunately, any discussion of MPT is beyond the scope of this forum (Click here for a brief discussion on MPT and the Efficient Frontier. Reading this will make the rest of The Rant make a bit more sense!). There is, however, one aspect that warrants further investigation - How does life insurance integrate with MPT in a trust portfolio? The most important thing to understand is that life insurance has a unique risk/return profile. Specifically, it is a completely uncorrelated asset, and has a zero standard deviation (a statistical measure of risk. Zero means no risk). OK, great! What does that mean?

It means a couple things: Owning life insurance in a trust portfolio allows for investing in other asset classes with higher standard deviations without increasing the overall portfolio standard deviation. More importantly, the result of being able to invest in these other asset classes drives the potential return of the overall portfolio up at the same time. Read that again, higher potential return, the same standard deviation (level of risk). Who would not want that? This conversation is of particular importance right now, as the increase of the Unified Credit to $5 million for the next 21 months will result in many clients funding these trusts and creating the separate assets we are discussing.

Of course, there are some additional considerations. The first is obvious - you need to be dead to realize the investment return on life insurance. Remember, however, that the portfolio in question is separate from the client's core assets and is intended to pass to the next generation. Seems like this was built for life insurance!? The second is how to actually go about building a portfolio that includes life insurance? How much of the trust assets should be allocated to insurance? What impact will the ongoing premiums have on the growth of the portfolio? The third consideration is financial underwriting at the carrier level. With the increased ability to gift and the corresponding reduction of the projected estate tax, how will the carrier determine the amount of insurance that is justified in these situations?

Great questions, and they are the reason that we are going to explore this topic further in next week's email, as well as our webinar - Life Without an Estate Tax. Please use this link to register.

That's all for today, and next week we go back to kindergarten to learn how to play nice with others!

Kestler Connection - 3/15/2011

Kestler Financial Group — Tue, 15 Mar 2011 00:00:00 GMT

Inside this Issue:

New Aviva annuity approvals in CT
New Aviva annuity approvals in UT
April 2011 Annexus Agent Training Experience Registration OPEN!
Life Without An Estate Tax

View the full email here.

Why Fixed Indexed Annuities Have Caps

Kestler Financial Group — Tue, 15 Mar 2011 00:00:00 GMT

Fixed indexed annuities base their interest crediting upon the return of a stock market index. Many people wonder why, in a positive stock market year, fixed indexed annuities usually credit considerably less than the index return due to caps, participation rates, spreads, or some other element of the formula used to calculate the index credit. They wonder why the caps or other formula elements are necessary.

The answer is simple: In a negative stock market year, fixed indexed annuities eliminate the effect of the loss and provide immediate, total protection of your account value. That’s incredibly valuable protection, and that means it is expensive for the carrier to provide. It is the cost of the protection provided in a down year that prevents the carrier from being able to pass through all of the index increase in an up year.

The next question consumers often ask is, “Why does the carrier reserve the right to change the cap every year?” The answer comes down to how carriers invest the money that has been entrusted to them by their customers. Carriers invest the money in a combination of bonds and option contracts. These option contracts can only be affordably purchased for one-year durations, and their prices can change dramatically from year to year. So, carriers sometimes need to change the caps in future years as the prices of the options they purchase change.

Keep in mind that fixed indexed annuities are not designed nor are they intended to replicate stock market returns. They are more comparable to other safer vehicles, such as bonds, CDs, and money market instruments. They are designed to offer consumers guarantees of principal yet also the possibility of higher potential interest credits than these traditional fixed interest rate products. Compared to that group of products, fixed indexed annuities offer very attractive potential returns.

More on this and other topics at http://fixedannuityfacts.com/

Fact Sheet: Supporting Middle Class Families

Kestler Financial Group — Mon, 14 Mar 2011 00:00:00 GMT

As we make our way out of this deep recession, the most important thing we can do for the middle class is strengthen the economy and help the private sector create jobs as quickly as possible. We also must begin to reverse the declines middle-class families saw not just these past few years, but have seen for over a decade: working harder for less; college becoming more unaffordable, health care costs skyrocketing; home values plummeting; and retirement savings dwindling and becoming less secure. There are immediate steps we can take to reduce the strain on family budgets by helping middle class families manage their child and elder care responsibilities, save for retirement, and pay for college. A year ago, President Obama appointed a Task Force on the Middle Class, naming Vice President Joe Biden as its chair. After a year of meetings held all over the country, today we are previewing elements of the recommendations of the Middle Class Task Force (the full report will be released in February).

Help Families with Soaring Child Care Costs: The administration proposes to nearly double the Child Care Tax Credit for families making under $85,000 a year; with families earning up to $115,000 a year seeing at least some increase in their credit.
Helping Families Pay for Care for Elderly Relatives: At the same time, middle class families in the “sandwich generation” – struggling to care for both their children and their parents – will also benefit from new initiatives to support elder care for seniors, and respite for their caregivers.
Cap Payments on Student Loans: To avoid squeezing recent college graduates entering a tough job market, we will ensure that payments on federal student loans are never more than 10 percent of the borrower’s discretionary income.
Save for Retirement: The initiatives make it easier to save for retirement with voluntary Automatic IRAs for workers without access to existing retirement plans through their jobs, larger tax credits to match retirement savings for millions of additional workers, and new safeguards to protect retirement savings.

HELPING FAMILIES BALANCE WORK AND CAREGIVING OBLIGATIONS

Expanding the Child and Dependent Care Tax Credit for Middle Class Families: Two-thirds of families with children are headed by two working parents or a single working parent. But child care costs have grown twice as fast as the median income of families with children since 2000. Full-time care for an infant often costs more than $10,000, and monthly child care fees for two children at any age are higher than the median cost of rent. Meanwhile, the Child and Dependent Care Tax Credit has only increased once in 28 years and is not indexed for inflation.

The Obama-Biden Administration will nearly double the credit for middle-class families making under $85,000 a year by increasing their credit rate from 20 percent to 35 percent of child care expenses. Nearly all eligible families making under $115,000 a year would see a larger credit. Families could claim up to $3,000 in expenses for one child or $6,000 for two children. The maximum credit for a family with two children making $80,000 a year would increase by $900 from $1,200 to $2,100.

Expanding Child Care Funding for Working Parents: Child care costs are especially challenging for working families that struggle to make ends meet and lift their families into the middle class. Between 2001 and 2008, the number of children served by the Child Care Development Fund declined by about 200,000. The Obama-Biden Administration will provide an additional $1.6 billion in child care funding in 2011, the largest one-year increase in 20 years, to serve an additional 235,000 children. The Administration will also work with Congress to improve the quality of care for all children through changes in the CCDF program and a new Early Learning Challenge Fund.

Helping Middle Class Families Care for Aging Relatives. An estimated 38 million Americans provide unpaid care to an aging relative, including approximately 23 million caregivers with jobs and 12 million who are also caring for their own children. The $102.5 million Caregiver Initiative will ease the burden on families with elder care responsibilities and allow seniors to live in the community for as long as possible. The Initiative adds $52.5 million in funding to Department of Health and Human Services caregiver support programs that provide temporary respite care, counseling, training, and referrals to critical services. The extra funding will allow nearly 200,000 additional caregivers to be served and 3 million more hours of respite care to be provided. It also adds $50 million to programs that provide transportation help, adult day care, and in-home services, such as aides to help seniors bathe and cook, help which eases the burden for family members and helps seniors stay in their homes.

COLLEGE AFFORDABILITY

Limiting Student Loan Payments to 10 Percent of Discretionary Income. Over the past three decades, college tuition has grown ten times faster than real median incomes for families with children. About two-thirds of graduates took out loans to pay for college and their average student debt is over $23,000. Debt is particularly burdensome for workers in low-paying public service careers, as well as those who lose their jobs or who did not complete their degree.

The Obama-Biden Administration will expand make student loans more affordable by limiting a borrower’s payments to 10 percent of his or her income above a basic living allowance. It will also keep the total cost of loan repayment manageable by forgiving all remaining debt after 10 years of payments for those in public service work and 20 years for all others. The monthly payment for a single borrower earning $30,000 who owes $20,000 in loans would be $115 a month, compared to $228 a month under the standard 10-year repayment plan. These steps – which build on the Income-Based Repayment plan implemented last summer -- will help with the staggering burden of student loan debt and allow a generation of young adults to enter public service and other careers with historically low pay.

The additional flexibility in repaying student loans will complement the Administration’s ambitious agenda to make higher education more affordable, including increasing Pell grants, reforming the student loan program, makjng permanent the new $2,500 American Opportunity Tax Credit for college costs, expanding low-cost Perkins loans, strengthening community colleges and increasing graduation rates at both two- and four-year institutions.

RETIREMENT SECURITY

Establishing Automatic IRAs. Currently, 78 million working Americans—roughly half the workforce—lack employer-based retirement plans. Fewer than 60 percent of working heads of families were eligible to participate in any type of job-related pension or retirement plan in 2007. The Obama-Biden Administration will promote the establishment of a system of automatic IRAs in the workplace by requiring employers who do not currently offer a retirement plan to enroll their employees in a direct-deposit IRA unless the employee opts out. The contributions will be voluntary and matched by the Savers Tax Credit for eligible families. The Administration is also streamlining the process for employers to automatically enroll workers in 401(k) plans, which has been shown to boost participation, especially for low- and middle-income workers. New tax credits would help pay employer administrative costs and the smallest firms would be exempt.

Simplifying and Expanding the Saver’s Credit. The struggle to save enough to ensure a secure retirement became particularly pronounced in the wake of the recent financial crisis, which delivered a major hit to the savings on which workers rely for their retirement security. The Administration proposes to help working families save for retirement by expanding and simplifying the Saver’s Credit to match 50 percent of the first $1,000 of contributions by families earning up to $65,000 and providing a partial credit to families earning up to $85,000. The Administration will also make this tax credit refundable to ensure that millions of additional middle-income families can take advantage of it even though they have no income tax liability.

Updating 401(k) Regulations to Improve Transparency and Reliability. A majority of American workers rely on 401(k)-style plans to finance their retirements, making it critical that the 401(k) system be safe, transparent, and well-regulated. Even workers who save significant amounts may see their returns eaten away by fees and expenses. We need to do more to give families better choices to reach a secure retirement. The Administration is:

Improving the transparency of 401(k) fees to help workers and plan sponsors make sure they are getting investment, record-keeping, and other services at a fair price.
Encouraging plan sponsors to make unbiased investment advice available to workers, helping workers avoid common errors that undermine retirement security, while providing strong protections against conflicts of interest.
Promoting the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings or that their retirees’ living standards will be eroded by investment losses or inflation.
Reviewing and requiring clear disclosure regarding target-date funds, which automatically shift assets among a mix of stocks, bonds, and other investments over the course of an
individual's lifetime. Due to their rapidly growing popularity, these funds should be closely reviewed to help ensure that employers that offer them as part of 401(k) plans can better evaluate their suitability for their workforce and that workers have access to good choices in saving for retirement and receive clear disclosures about the risk of loss.

You can find more great resources like this at NAFA.com

Study Finds Fixed Indexed Annuity Returns Attractive and Consistent

Kestler Financial Group — Thu, 10 Mar 2011 00:00:00 GMT

A recent study released by the Wharton School of the University of Pennsylvania indicates that fixed indexed annuity returns are not only much more consistent than S&P 500 index returns, but are quite attractive as well.

The study examines five-year annualized returns from 1997 to 2009, calculating industry average annuity returns based on actual returns credited by insurance carriers that offer fixed indexed annuities.

S&P 500 index returns, including dividends, are regarded as the premier measure of U.S. stock market performance. All periods studied ran from September 30 of the beginning year to September 30 of the fifth year, except for the 1997-2002 period which used a January 2 date.

The industry average annuity return exceeded 4% in all eight of the five-year periods examined. In contrast, only three of the annualized S&P 500 returns exceeded 4%, while in four of the periods, the S&P 500 index had a negative return.

Perhaps not surprisingly, the study noted that sales of fixed indexed annuities have climbed steadily since their introduction in the mid-1990’s. Recent sales levels have consistently exceeded $25 billion per year annually.

Click here to access the study.

More on this and other topics at http://fixedannuityfacts.com/

Separate and Definitely Not Equal

Jeff Reed — Tue, 08 Mar 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

What do I mean by the title of today's discussion? Simply put, it is the idea that most client's net worth is made of assets that have different purposes and time horizons. Far too often, however, they are treated the same from a portfolio design standpoint, and that, in my opinion, is a mistake. Now that we have the ability to gift large amounts to the next generation as a result of recent estate tax law changes, this is even more of an issue. More trusts will be funded over the next 21 months prior to the sunset of the current law and the management of the trust assets is an essential part of successful execution of these gifting strategies. Today's email is the first of a three part series on Trusts, Life Insurance, Modern Portfolio Theory (MPT), and playing nice with other advisors. As usual, I will keep it as brief and to the point as possible.

First, let's deal with the trusts in question. These can be ILIT's, Credit Shelter Trusts, or really any other structure that creates a pool of assets separate from the "core" assets that make up a client's net worth. These assets will almost certainly be outside the client's taxable estate, and will also have a different risk tolerance as a result. So far, very simple, and you are all probably well versed in this fundamental aspect of Estate Planning. Things become a little more complicated, however, when we start to take a look at the trust assets, and how to manage them. The source of most of this complication? The Uniform Prudent Investor Act (UPIA).

The UPIA was drafted back in the 1990's and has begun to attract attention recently based on case law finally hitting the courts. The Cochran case out of Indiana has provided reams of analysis on the topic. The bottom line is that there is now case law for trustees to follow if they want to meet the definition of fiduciary duty to the trust beneficiaries. Of course, just how to execute on that duty is left up to the trustee, and this is where they can rapidly find themselves in trouble. Click here for more on the UPIA and the Cochran case.

My last thought for today is to re-visit a long standing sales idea - owning life insurance inside the B Trust to leverage the asset. This is something we have been doing for years, and is a great way to increase the amount passed to the beneficiaries. The question now is what impact, if any, does the UPIA and recent case law have on this idea? It becomes even more complex now that these trusts, as well as ILIT's, may be funded with much larger amounts based on the new gifting limits.

It's a great question, and one we will answer next week. Here's a hint - Modern Portfolio Theory will help guide us along the way.

Kestler Connection - 3/8/2011

Kestler Financial Group — Tue, 08 Mar 2011 00:00:00 GMT

Inside this Issue:

Increase in Aviva Rider Roll-Up Rates!
Kestler Financial Group Closing Early on Wednesday March 9, 2011
ANICO - The Independent Voice, Issue II
Aviva March Annuity Rates
Aviva launching new policyholder website
SIMPLE IRA vs. 401(k)
Aviva plc reports outstanding financial results for 2010!

View the full email here.

Understanding How Annuities are Treated Under the Tax Code

Kestler Financial Group — Tue, 08 Mar 2011 00:00:00 GMT

A nice tax advantage offered by annuities is the fact that you can earn interest and not have to pay taxes on that interest right away.

For tax purposes, your annuity can be treated one of three ways: as a traditional IRA, as a Roth IRA, or as a non-qualified annuity.

What makes an annuity a traditional IRA? Perhaps you have money in a corporate retirement plan like a 401(k), 403(b), or 457 plan, or in an existing IRA. That money can be transferred or rolled over from the existing account into an annuity. As long as the annuity is designated on the application as a traditional IRA, then the entire amount that goes into the annuity is a tax-free exchange. As interest is credited to the annuity, it can stay in the annuity, and no taxable income is reported to you. However, as with all traditional IRA’s – and as with all corporate retirement plans, for that matter – when you ultimately take withdrawals, the entire amount of each withdrawal is taxed as ordinary income. Keep in mind that the Internal Revenue Code provides tax deferral to IRA’s, so there is no additional tax benefit gained by funding an IRA with an annuity. Consider the other benefits provided by an annuity to determine if an annuity is the right choice for your IRA.

What kind of money is considered non-qualified? Your general savings or investments are considered non-qualified. It simply means money that never went into a tax-qualified corporate retirement plan or any type of IRA. You can put your general savings into an annuity, and it gets a tax advantage, too. The tax advantage is that as interest is credited to the annuity, it does not get taxed until it is withdrawn.

So whether the money that went into the annuity is traditional IRA, Roth IRA, or non-qualified money, you benefit from tax deferral. That means that as interest is credited to the annuity, it does not get taxed until it is withdrawn.

Now we all know that when Congress gives us preferential tax treatment, there are also rules around it. One of the most significant rules affecting annuities – whether the annuity is treated as a traditional IRA, a Roth IRA, or non-qualified – is if you take a taxable withdrawal prior to age 59½, that withdrawal will be subject to a 10% tax penalty. This penalty is not assessed by the annuity carrier – rather, it is an amount that is computed and paid on your federal income tax return. So, before putting money into an annuity, be sure you do not plan to take that money out prior to age 59½.

The rationale for this is that Congress gave annuities preferential tax treatment to encourage people to use them to save for retirement. So, Congress wants to make sure that’s how they are actually used.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

More on this and other topics at http://fixedannuityfacts.com/

How a Fixed Indexed Annuity Works and Why Your Money is Safe

Kestler Financial Group — Thu, 03 Mar 2011 00:00:00 GMT

A lot of people wonder if their money is really safe when they put that money in an annuity.

To ensure the safety of your money from market volatility, the first thing you have to do is look at the type of annuity you are considering purchasing. The type of annuity that we are discussing is a fixed indexed annuity, and money is protected from market losses in a fixed indexed annuity. The carrier that issues the annuity guarantees that your contract value never falls due to the associated index falling.

Contract Value

The money you put in the annuity becomes the initial contract value. The only way that the contract value can go down is if you withdraw money from the annuity, so let’s assume you make no withdrawals. Even if every financial market in the country plummets, your contract value stays exactly the same. It doesn’t decline.

Also, depending on the time commitment you are willing to make, some carriers offer products with a premium bonus that can be credited to your contract value as well. Currently, available premium bonuses can range from 5% to 11% of the amount that you put into your annuity.

Then, the annuity credits interest, typically annually on contract anniversaries. There is an index upon which interest crediting is based, and if that index goes up, interest is credited, and once it is credited, it becomes a protected part of the contract value as well.

So as anything is added to the contract value, whether it is the initial premium, any subsequent premiums, any premium bonus, or any subsequent interest credits, they are all contractually protected from loss due to fluctuations in the associated index by the issuing carrier. That’s what makes fixed indexed annuities so attractive and so safe.

Fixed Indexed Annuity versus Variable Annuity

Don’t confuse a fixed indexed annuity with another type of annuity called a variable annuity. If you know anyone who has lost money in an annuity, chances are it was in a variable annuity. Variable annuities are only sold by securities representatives, and unlike a fixed indexed annuity, a variable annuity is actually invested in the stock and bond markets where the principal is at risk to loss.

So picking the right kind of annuity is a key part of making sure your money is safe from market losses and productive without excessive fees.

Annuity Carrier

The other element of safety is the annuity carrier. You need to keep in mind that a promise of safety is only as strong as the carrier making the promise. Thus, you want to do some research to make sure that your annuity carrier is financially strong. Fortunately, there are independent companies, such as A.M. Best, Standards & Poor’s, Moody’s, and Fitch that analyze the strength of annuity carriers and publish their findings. Guaranteed provided by annuities are subject to the financial strength of the issuing insurance company. Annuities are not guaranteed by any bank or the FDIC.

With a fixed indexed annuity, you are getting contractual guarantees, and such guarantees from a strong annuity carrier mean that your money is safe in a fixed indexed annuity.

More on this and other topics at http://fixedannuityfacts.com/

Older Equity Indexed UL Contracts – A Cautionary Tale

Jeff Reed — Tue, 01 Mar 2011 00:00:00 GMT

Post by Jeff Reed, Kestler Financial Group Director of Life Insurance Sales

Who's Pulling the Levers?

I can assure you it is not the client.

A few weeks back I had the opportunity to give a talk on Equity Indexed UL (EIUL) products to a group of producers. We covered many of the things that we have discussed in past Rants: the need to set client expectations appropriately regarding rates of return, the need to question the sustainability of product designs and the emphasis on treating each case as its own unique entity rather than simply falling back on one favorite product.

A few days after that presentation, I was contacted by a producer wanting help evaluating some older EIUL contracts written about ten years ago. These were two policies taken out at the same time on a husband and wife. Things became a little confusing when one of the in force ledgers was run with an interest rate below 4% and the other over 6.5%. The products were identical in every way with this one exception. The question, of course, was why?

The answer was complicated. Turns out the ledger with the higher rate was just plain wrong! Now that the first question was out of the way, the next was why these EIUL contracts were being illustrated at such a low rate? If you remember the EIUL Rants you will recall that the carriers are the ones pulling the levers on these contracts through the management of one of the contract features.   These days it is usually the annually declared cap rate, but the participation rate is also used. These contracts were old, uncapped contracts that had been issued with a 90% participation rate. When I contacted the home office and asked about the history of the participation rate I came to find out that it had dipped from the high of 90% to a low of 30% over the years, and that this was the reason for the subpar performance historically as well as the current low crediting rate.

File this one under questioning the sustainability of the contract design.   The fact that this was an uncapped product made it fairly unprofitable for the carrier over time. The result, along with some bad years for the S&P, combined to make this product a really poor performer in the long run. Now, I have no idea what the initial assumption was at the time of sale, and the good news is that we uncovered all of this when we did, as we can reposition the client with barely a hiccup in their planned premium. However, the best time to discover all of this was really years ago, when the participation rate was yo-yoing up and down and the crediting rate was lagging far behind projections.

The moral of this story? A simple one: even in a product with all of the downside protection of an EIUL, the client is still exposed to some risk in the form of the policy under performing versus projections. The annual review process remains a critical component of successfully working with EIUL's as a result. Oh, and if the contract terms appear to be too good to be true at the time of sale, they probably are. This should not be news to any of us.

If you'd like me to help you evaluate an in-force contract, please send me an email or schedule a call.

Jeff Reed began his career as a Life Agent with MassMutual in San Diego in 1997. In addition to developing his own book of clients, he served as the Compliance Officer for the Agency from 1999 to 2000. In April 2000 he transitioned from personal production to the wholesaling and life brokerage world as the Brokerage Manager with CPS/Integrated Marketing and Insurance Services. For the next five years, he was responsible for all recruiting and marketing functions, as well as managing any difficult to place, impaired risk cases. After leaving CPS in 2004 Jeff joined Cavalier Associates Insurance Services as a Marketing Consultant. He began working with the Kestler Financial Group in the fall of 2010, helping their producers to increase life production and profitability. He is a former Board Member with the San Diego Chapter of both NAIFA and the FPA.

Kestler Connection - 3/1/2011

Kestler Financial Group — Tue, 01 Mar 2011 00:00:00 GMT

Inside this Issue:

Aviva Field Update: Clarification on Updated Certificates of Disclosure
Aviva Monthly Webcast Schedule
March Interest Rates Are Going Up!
New Independent Producer Contract with amendment language now available
Aviva Consumer Study Results

View the full email here.

Where Annuities Fit in Your Portfolio

Kestler Financial Group — Tue, 01 Mar 2011 00:00:00 GMT

Fixed and fixed indexed annuities have an appropriate and valuable place in your portfolio. Let’s compare them to two other popular products – mutual funds and bank certificates of deposit – to see where they fit.

One common way to compare investment alternatives is to look at a spectrum of risk and reward, that is, a spectrum of risk and expected return. Financial vehicles that provide substantial protections against risk are able to attract money at relatively low returns, whereas risky financial vehicles must provide much higher potential and expected returns in order to attract money from investors.

Now, let’s look at the financial vehicles we are considering. We’ll travel from safest to riskiest on the risk/return spectrum.

Bank certificates of deposit: These are clearly very safe, as the principal is guaranteed first by the issuing bank and second, up to a limit, by the FDIC. The interest rate you will earn is also guaranteed for the duration you select. If you choose to take your money out early, the penalty is typically very modest, equal to only a few months of interest. As a result of their safety and predictability, interest rates on bank certificates of deposit are usually fairly low.

Fixed annuities: These are also very safe, as the principal is guaranteed first by the issuing insurance company and second, up to a limit, by state insurance guaranty funds. Fixed annuities are available in a range of surrender charge durations, many with interest rates that are fully guaranteed for the duration selected. Surrender charges are higher and perhaps longer than on bank certificates of deposit, which allows issuing insurance carriers to typically provide higher interest rates than bank certificates of deposit.

Fixed indexed annuities: These are a type of fixed annuity, and thus they are very safe. The principal is guaranteed first by the issuing insurance company and second, up to a limit, by a state insurance guaranty fund. Where they differ from other fixed annuities is that the interest rate is not guaranteed at as high a level as most fixed annuities, but the interest rate fluctuates from year to year depending upon movement of the referenced market index and the formula applied to that movement. Fixed indexed annuities can provide even better rates of interest under certain conditions.

Mutual funds: These are securities, and that gives you a clue that we are now entering much riskier territory. The principal is not guaranteed by anyone. The return in any one given year can be sharply positive or negative. For example, a common proxy for stock fund returns is the S&P 500 index, which rose 26% in 2003 and dropped 38% in 2008. Thus, for mutual funds to attract money, they must offer the prospect of a higher likely return than indexed annuities. Over the last century, they have done so, although over the last decade, they have fallen woefully short.

Thus, the fundamental spectrum of risk and expected return is filled in the appropriate places by fixed and indexed annuities. They offer a higher likely return than bank CD’s, but a lower likely return than mutual funds, which are much more risky. As long as you properly understand where annuities fit and make decisions on that basis, you will find that annuities are valuable financial products, and retirement savers are better off that they exist.

This article is intended as general information only and should not be construed to be investment advice. For investment advice, please seek a qualified advisor.

More on this and other topics at http://fixedannuityfacts.com/

Why Annuity Sales are Booming During the Recession

Kestler Financial Group — Thu, 24 Feb 2011 00:00:00 GMT

Sales of traditional fixed and fixed indexed annuities have boomed during the recession, and the reasons have everything to do with how consumers are feeling and the choices they have to make with their money.

Keep in mind that annuities are merely a place where consumers can store their money and hopefully have it grow, so annuities compete against other places they can store their money, like in products from banks and mutual fund companies.

If you look at products that don’t contractually guarantee your principal, such as mutual funds that invest in the stock market, most consumers have taken a pretty big hit to their value over the past few years. That has caused a lot of consumers to pull their money out of those sorts of places, and those consumers have been looking for a safer place to put their retirement savings. The challenge, however, is that interest rates on traditional safe savings products are at historical lows.

What consumers want is a place where they know their money is safe – that is, protected by contractual guarantees – but they also want a place where they can receive a decent rate of interest over time. That’s exactly what they have been finding when they come to fixed and fixed indexed annuities, and so that’s why sales of these annuities have been booming since the recession began.

Annuities are one of the few places where you can find safety plus a decent rate of interest. Perhaps it is time for you to check them out.

More on this and other topics at http://fixedannuityfacts.com/

Kestler Connection - 2/22/2011

Kestler Financial Group — Tue, 22 Feb 2011 00:00:00 GMT

Inside this issue:

Annuity Product Comparison Worksheet Update
403(b) and 457(b) Certification Schools
Centaurus Financial Ranks among Top Independent Broker/Dealers

View the full email here.

The Increasing Popularity of Fixed Indexed Annuities

Kestler Financial Group — Tue, 22 Feb 2011 00:00:00 GMT

Fixed indexed annuities were first introduced by the insurance industry in the mid-1990’s, and sales of these products have increased steadily ever since as consumers have become more aware of the benefits of these products.


Source: “Real World Index Annuity Returns,” published by the Wharton Financial Institutions Center, available here.

Why have fixed indexed annuities become so popular? It has everything to do with how you, as a consumer, are feeling and the choices you have to make with your money.

A fixed indexed annuity is merely an insurance product where you can store your money and have it grow at a guaranteed, fixed interest rate or at a potentially higher rate based upon a portion of the performance of an outside index, such as the S&P 500âindex. So, annuities can be an additional option, a complement to the places where you store your money, just like products offered by banks, securities brokerages, and mutual fund companies.

However, annuities offer features and benefits that many other financial vehicles do not offer. In the past, if you have chosen products that don’t contractually guarantee the safety of your principal, chances are you may have taken a pretty big hit to your value in recent years. That has caused a lot of people to look for a safer place to put their money today as well as plan for and position themselves to be better prepared for the next market correction.

Unfortunately, if you look to traditional guaranteed interest rate products, you may find unattractively low interest rates.

So what you want is a place where you know your money is safe, and by safe, that means you want it protected by contractual guarantees from market losses, not just a hope and a prayer. But you also want a place where you can receive a decent rate of interest over time. In addition, if retirement income planning is one of your primary goals, you want to know in advance what your minimum predictable stream of income will be.

That’s exactly what you will find when you look at fixed indexed annuities. And that’s why sales of these annuities have been increasing year after year.

If you want to move your money to a place where there is safety from market losses, plus the prospect of decent growth potential, and the assurance of a guaranteed income stream, a fixed indexed annuity is where you will find that combination of features and benefits. In a fixed indexed annuity, you will not lose any principal when the next market correction occurs.

More on this and other topics at http://fixedannuityfacts.com/

The Reasons to Consider a Fixed Indexed Annuity

Kestler Financial Group — Thu, 17 Feb 2011 00:00:00 GMT

There are five very good reasons to consider a fixed indexed annuity as a component of your retirement income plan. An insurance carrier is able to provide each of these five advantages to you as long as you are able to make a time commitment to the carrier.

Possible reasons to consider a fixed indexed annuity

Safety from market losses
Growth potential
Tax advantages
Income guarantees
Beneficiary planning advantages

The foundation upon which these advantages are provided

A time commitment during which you will have limited liquidity

Possible Additional Benefits

Up-front premium bonus
Return of premium features
Bailout features

Safety from Market Losses

If you are like many people, your top priority when you are saving your money is safety. No one puts their money in a place where they expect to lose it. We put our money in a place where we expect to get it back one day, hopefully with some nice growth.

The great thing about fixed indexed annuities is that they offer multiple levels of protection, which makes them the gold standard of safety.

First, when you decide to place your money with an insurance company, they must set aside a percentage of that money in “reserves,” that is, in very safe assets.
Second, by contract, a fixed indexed annuity guarantees that your principal is protected and that you can get it back again. There can be a penalty for early withdrawals above a certain amount, but as the annuity owner, you can control your withdrawals. So, as long as you are not withdrawing more than the penalty-free withdrawal amounts allowed by the annuity you have chosen, you cannot lose any of your principal.
Third, if you have a problem with the carrier that issued your annuity and you want to get a regulator involved, no matter where that annuity carrier is located, the regulator of that carrier is located in your home state. Here, annuities even beat money in the bank. Since most banks are regulated at the federal level, your bank’s regulator may be in Washington, DC. Your annuity carrier’s regulator is much more local. You can learn more about the role your state regulator plays in ensuring that your carrier remains able to meet it obligations at the website of your state insurance department.

With these three levels of protection, there is excellent safety in a fixed indexed annuity.

Growth Potential

Once you are satisfied that your money is protected from market drops, your next objective may be to have your money grow. The annuity industry invented fixed index annuities precisely so that they could offer the potential for better growth potential by having the credited interest rate based on the movement of an outside market index.

Fixed indexed annuities do this:

In a year that the index increases in value, they credit an amount of interest that is based on the market index increase. Features such as caps, participation rates, and spreads dictate what portion of the market index increase will translate into credited interest. Thus, the interest credit is typically less than the amount of the index increase, but in general, the more the index goes up, the bigger the interest credit.
In a year that the index decreases in value, they hold their value. Neither your principal nor any of the previously credited interest is lost in a year that the index decreases.

This combination of upside potential and downside protection is very powerful.

The illustration below shows how this combination works on a typical fixed indexed annuity. Years that the index increases in value are shaded in green, and notice that in these years, the annuity credits interest based on the increase in the index. Years that the index decreases in value are shaded in yellow, and notice that in these years, the annuity does not lose any value.

Tax Advantages

You want your money to grow as fast as possible, and besides having high growth potential, some sort of tax advantage helps to accomplish that goal. It often makes little financial sense to pay income taxes on money that you are not using for current income. A tax advantage can be one of the easiest ways to make your money more productive without taking on risk.

Annuities have a tax advantage, and that advantage is tax deferral. As long as you don’t touch the money in your annuity, you pay no taxes on the interest as it is being credited to your annuity. The recognition of taxable income is delayed – that is, deferred – until you withdraw money from the annuity.

Also, you can use an annuity as the funding vehicle for IRA or Roth IRA money, although keep in mind that the Internal Revenue Code provides tax deferral to IRA’s, so there is no additional tax benefit gained by funding an IRA with an annuity. Consider the other benefits provided by an annuity to determine if an annuity is the right choice for your IRA.

Income Guarantees

A key retirement planning advantage with fixed indexed annuities is that the carrier provides a guaranteed minimum level of retirement income. Over time, as interest is credited to the annuity, and as long as you are not taking withdrawals from the annuity, the amount of that guaranteed income level can only grow, not shrink.

That guaranteed income can be provided in one of two ways.

The first, more traditional way is called “annuitization,” where you essentially trade the cash value of your annuity for a guaranteed stream of payments. Because annuitization is a trade, it provides you with a guaranteed stream of payments, but you lose access to and control over your cash value.
The other way, a recent innovation in the annuity industry, is through an optional feature called an income rider. With such a rider, the carrier provides you with a minimum guaranteed income that you cannot outlive. Every year that you wait to take the first guaranteed income payment, the amount of the guaranteed income grows by a growth percentage that varies by company and is usually in the range of 4% to 8%. (Keep in mind that this growth percentage only applies to the calculation of guaranteed income, not to the amount available as a lump sum withdrawal.) These riders sometimes have a cost associated with them, usually no more than 0.75% of your annuity’s value annually depending on the individual carrier and growth percentage selected. Even after you start taking the guaranteed income payments, you still have the ability to access to your remaining annuity value in the event that you may need it. But keep in mind that any withdrawal above the guaranteed amount will reduce the future guaranteed level of income that is being generated. For more details and disclosures, consult the product brochure of the specific income rider you are considering.

With either option, you have the peace of mind that comes from having an assured, guaranteed income for the period you have chosen. Notice that with an annuity, you can choose to have the carrier guarantee an income that continues for the rest of your life, or for both your and your spouse’s lives, giving you a potentially excellent level of financial security.

Beneficiary Planning Advantages

You may be at the point in your life where you are motivated to consider what will happen to your money after your death. Annuities have some advantages that could be very helpful to some people as they plan for how to pass their money to their beneficiaries at death.

One advantage is speed. With an annuity, as long as you have a properly designated beneficiary, you can normally avoid the sometimes lengthy and expensive probate process. So an annuity can be one of the quickest ways to get money to a beneficiary after your death.

Another advantage is privacy. With an annuity, you get to name a beneficiary and avoid passing assets through your will. This can allow you, for example, to direct money to a particular child who has been very helpful to you as you have aged, while still having your will provide for an equal division of your other assets between all your children.

The Foundation: A Time Commitment

Most people recognize that liquidity, safety, and growth do not co-exist very well. For example, with a checking account, you get excellent safety and total liquidity, but most checking accounts pay little or no interest. With stock market mutual funds, you get good liquidity and hopefully a good rate of growth over time, but you are sacrificing safety because there is no guarantee that you will even be able to get back what you invested when you actually need the money.

So, with financial products, there are trade-offs. You cannot get all of the most desirable features and benefits in one product. They all have a purpose and can complement each other in a well-designed and diversified plan. Since an annuity is going to give you safety of principal and growth potential, it is reasonable to assume that there has to be a trade-off somewhere, and it is with some sacrifice in liquidity.

Fixed indexed annuities require that you make a time commitment, and they enforce that time commitment by a surrender charge. When you consider buying a fixed indexed annuity, make sure you are comfortable with the length of the surrender charge, because your access to your principal is limited during the surrender charge period.

Your time commitment can typically range from 3 to 16 years, depending upon the features and benefits that appeal to you. The time commitment does not mean that you do not have any access to your funds. Many annuity products allow earned interest to be taken after 30 days and others allow up to 10% of your annuity’s value to be taken each year after the first year without penalty. Of course, if you do not need your funds, leave them in the annuity to accumulate on a tax-deferred basis until you decide to begin taking income payments.

This is contrary to bank certificates of deposit that typically only allow interest to be withdrawn and will impose an early withdrawal penalty for any principal withdrawn. So to be able to enjoy the unique benefits that annuities provide, you have to allow the insurance company to hold your funds just like you would allow a bank to hold your funds.

With annuities, just as it is with certificates of deposit, there is generally a correlation between the time commitment that we allow the institution to hold our money and the productivity of our funds. The longer we commit to letting the bank or insurance carrier hold our funds, the higher the rate of interest or upside potential we can enjoy. A 5-year certificate of deposit will usually pay us a higher rate of interest than a 1-year certificate of deposit. The same principle holds true with a fixed indexed annuity. A 10-year product, for example, will typically offer a higher fixed interest rate and higher indexed-based interest crediting than a 5-year product.

If you take out more than the penalty-free amount (which varies by carrier and product), there can be substantial surrender penalties imposed (perhaps as high as 20% of the annuity’s value for a premature withdrawal), so you want to use an annuity as a part of an overall plan where you also own other accounts that have no surrender penalties for your short-term liquidity needs. Use these other accounts for emergency funds and to pursue financial opportunities that arise. Remember, annuities are designed to provide safe growth prior to retirement and guaranteed income streams during retirement. They are not designed for short-term liquidity. You will want to have sufficient funds for that purpose in other accounts, such as checking, savings, and money market accounts.

Choose fixed indexed annuity products for a specific purpose, such as principal-protected growth and income generation, where 100% liquidity is not needed during the surrender charge period. Once the surrender charge period is over, you can withdraw any and all of your money from the annuity at any time without a surrender penalty. Keep in mind that withdrawing money from an annuity will usually result in reporting of taxable income and, if taken prior to age 59½, may result in a 10% penalty tax on earnings.

Possible Additional Benefits

The annuity marketplace is very competitive, and thus carriers often have attractive additional features designed to differentiate their products from the competition. Some fixed indexed annuities have features such as these noted below:

Up-front premium bonus: Some annuity products have a premium bonus that immediately bumps up your contract value. The percentages will vary by carrier. But for example, if you put $100,000 into an annuity that offers a 5% premium bonus, your contract value on day 1 will be $105,000. This premium bonus is available to earn interest right from the inception of the contract. You are not, however, allowed to withdraw the premium bonus right away. The premium bonus is often subject to recapture charges if you take withdrawals above the penalty-free withdrawal amount in the early years of the contract. (In other words, what we said earlier about the time commitment applies to the premium bonus, too.) Keep in mind that premium bonus annuities may include lower cap rates, higher spreads, or other limitations that are not found in annuities that don’t have a premium bonus feature.
Return of premium features: All fixed indexed annuity products have surrender charges, and so with most of them, you actually can lose money if you cancel the contract during the period where the surrender charge applies. (Again, if you abide by the time commitment, the surrender charge reduces over time and ultimately disappears, so you receive your principal plus all credited interest with no risk of loss.) But some carriers differentiate their products by providing that even if you choose to terminate your annuity contract early, you are guaranteed to receive back at least what you paid in.
Bailout features: Some carriers provide for the surrender charges to be waived in case of certain hardships, such as if you are diagnosed with a terminal illness, or become confined to a nursing home, or even if a renewal rate or “cap” rate falls below a certain level on your annuity.

In summary, you can see that annuities offer a lot of positive features – safety from market losses, growth potential, tax advantages, income guarantees, and beneficiary planning advantages – all built on the foundation of the time commitment that you make to the carrier.

More on this and other topics at http://fixedannuityfacts.com/

Kestler Connection - 2/15/2011

Kestler Financial Group — Tue, 15 Feb 2011 00:00:00 GMT

Inside this Issue:

2011 Key Numbers
New Estate Tax Laws Webinars
S&P upgrades outlook on Aviva
Annuity Cash Bonus
Partnering for Suitability - What Constitutes a Replacement
New Aviva certificate of disclosure forms now required in all states

View the full email here.

Why People Buy Immediate Annuities

Kestler Financial Group — Tue, 15 Feb 2011 00:00:00 GMT

An article in the Wall Street Journal in February 2000 said it best: “Retirement is the great financial riddle. Think of the uncertainties. You don’t know how long you will live. You don’t know what investment returns you will earn. You only have a limited sum of money. And there are no second chances. One possible solution: immediate fixed annuities.”

For retirees who are not receiving traditional pension benefits, immediate annuities provide peace of mind by providing steady checks They have been called “paycheck annuities” by prominent national commentators.

A purchase of an immediate annuity is essentially a trade: you give an insurance carrier a lump sum of money, and the carrier agrees to provide you with a guaranteed periodic stream of future payments. Once you purchase the annuity contract, the amount and duration of the payments are fully guaranteed by the issuing insurance carrier. As a result, immediate annuities are very easy to understand.

When you purchase the contract, you and the carrier will agree upon how payments will be made, such as:

Will they be made monthly, annually, or some other frequency?
Will they continue for a certain number of years?
Will they continue for as long as you live?
Will they continue for as long as either you or your spouse is still living?
Will they increase over time with an inflation adjustment?
Will there be a remaining value after your death for your beneficiaries?

Once the contract is made, it is generally irrevocable and binding on both parties. The strength of that for you, as the purchaser, is that you have transferred certain risks on the insurer. For example, no matter what rate of return the insurer achieves or fails to achieve, no matter how interest rates change over time, and no matter how long you live, the insurance carrier is contractually obligated to make the guaranteed payments to you. Thus, you have transferred investment, interest rate, and longevity risk to the insurer.

Because once you own an immediate annuity, you have no options (or very limited options) to cash it in or sell it, you should only allocate a portion of your retirement savings to the purchase of an immediate annuity. You may want to consider choosing a payment option that includes a cost of living inflation adjustment and that provides for your heirs.

While immediate annuities may be new to you, defined benefit pension plans have been using immediate annuities for years. An employer will steadily save money while a worker is working for the employer, and when the worker retires, the employer now owes the worker a monthly income for the rest of his or her life. Many employers will go to an insurance company and give them the sum of money that has been saved in exchange for the insurance company taking over the obligation to pay the worker for life.

Because of their simplicity, immediate annuities from various carriers are easily compared. Once you and your insurance agent decide upon the type of payout you desire and either the funds available to purchase it or the income desired, the decision of which carrier to choose typically rests upon which carrier offers the best price or payout and the financial strength of the carrier. Keep in mind that the payment guarantee is supplied by the issuing carrier, thus the financial strength of the issuing carrier is an important consideration in the purchase of an immediate annuity.

More on this and other topics at http://fixedannuityfacts.com/

2011 Key Numbers

Kestler Financial Group — Mon, 14 Feb 2011 00:00:00 GMT

2011 is poised to be a very interesting year. Keeping track of the many numbers that may apply to our clients’ finances is difficult at best.

Kestler Financial Group is pleased to again provide the Key Numbers Report for 2011. This valuable, 20-page tool contains just about every tax rate, income limit, and deduction you can imagine. And, just like everything else at KFG, it’s free. Just click on the link below to download your copy.

2011 Key Numbers

If you’d like to learn more about the marketing systems and tools available from KFG, just reply to this e-mail or call your marketing partner at 800-699-0299.

Retiring in the 21st Century: What It Takes

Kestler Financial Group — Wed, 09 Feb 2011 00:00:00 GMT

Retirement is changing in America.

A recent survey by the FINRA Investor Education Foundation found that these are the major sources of income of today’s retirees:

Notice that 63% of today’s retirees are counting on pension plan payments to cover their living expenses, but only 21% of today’s workers are covered by a traditional pension plan, and the percentage is dropping every year.

At the same time, Social Security is under tremendous financial pressure due to the impending retirement of the Baby Boom generation. Thanks to the recession, 2010 is the first year in history that Social Security will pay more in benefits than it collects in taxes, and the Social Security Trust Fund is forecasted to be exhausted in just over 25 years.

Thus, it is clear that to have a financially secure retirement, today’s workers are going to need to save more on their own for retirement than did today’s retirees. As they enter retirement, they are going to need to figure out the best way to turn that retirement savings into a reliable retirement income.

Fixed annuities are a wonderful product for people to consider using. They are the only products that allow individuals to accumulate retirement savings, protect those savings from market losses, and turn those savings into a guaranteed income for life.

More on this and other topics at http://fixedannuityfacts.com/

Apples and Annuities

Kestler Financial Group — Tue, 08 Feb 2011 00:00:00 GMT

Late last year we explained why index annuity carriers were making changes so rapidly. It all boiled down to interest rates (10-year treasury) and market (S & P 500) volatility.

Let’s equate it to the grocery store. Say you want to buy apples on a weekly basis. The number of apples you buy is a function of

your apple budget, and
the price of apples that week.

Index annuities are very similar. As interest rates on long term bonds rise (see below), the insurance company has more money to spend on the purchase of S & P options (apple budget).

Next, since the price of options varies based on the volatility of the underlying index, the lower the volatility, the “cheaper” the options (apples). As you can see from the two graphs, over the last several months, interest rates have been gradually rising and volatility has been gradually decreasing. This scenario bodes well for all indexed annuities.

The real story here is how these market changes affect the Annexus portfolio. Because of its daily pricing and multi-year index strategy, Annexus can purchase twice as much S & P exposure (apples) for the same cost as a traditional annual reset product (consider it a 2 for one sale on apples). This results in significantly more value for your client!

Consider the February Annexus Rate Sheet. As you can see, we now have a 41/59 allocation at a 0.00% fee. When we back test this design over the last 30 years and compare it to traditional index designs, the results are impressive. Where traditional designs back test with average 12-year returns between 2.99% and 3.87%, the BAA 12 back tests between 5.59% and 6.92%.

Ask yourself …If I can provide the same down-side guarantee but generate up to twice the return (apples), which basket should I choose?

If you would like a copy of the back-test, contact your marketing partner at 800-699-0299.

Field Underwriting and the Art of Carrier Selection

Jeff Reed — Tue, 08 Feb 2011 00:00:00 GMT

Work Smarter, not Harder!

Seems simple enough, but when it comes to actually working smarter, just how do you go about it? For a long time, I have subscribed to the "slow down to speed up" philosophy. Great, what the heck does that mean? In the life insurance space it means a couple things:

Every carrier has some niches that they are just more comfortable in than others
Every client presents a unique risk profile
All we need to do is match the right client with the right carrier the first time.

Way easier said than done, unless you work with us at the Kestler Financial Group. Why is that? The resources that we put in your hands for the lost art of Field Underwriting. Back in the day the life insurance agent was an extension of the home office underwriter, and they played a large part in underwriting the client. More recently, strict underwriting guidelines have ruled the market, and our ability to impact the underwriter's ultimate offer has become more limited. Rather than focus on what was, it's time to focus on how we can be the best advocate for our client, and the only way to do that is to fully understand their risk profile. This is why we all need to slow down, catch our breath, and spend some time asking the client about their history.

Exactly what questions do you need to ask? Great question, and this is where working with us really helps. Tucked away on our web site are a number of client questionnaires that will allow you to gather the information we need to really understand the case and make a solid carrier recommendation along with a realistic price. It may be a bit of a change to your usual process, and there is certainly the temptation to just throw an application into underwriting. Before you do that, I want you to think about that train wreck case. The one where you hoped everything would turn out rather than asking the tough questions. How much time did you spend trying to hammer that square peg into the round hole? Frustrating at best.

Normally these resources are tucked away in the password protected section of the Kestler Financial web site. If you want to learn about them and how to use them together to streamline your underwriting process and shorten your underwriting time, reserve a spot for our upcoming field underwriting webinar on February 24th.

If not, I guess you can look forward to spending a lot of time explaining to your client why the price has gone up versus the one you quoted at the time of the application, while the rest of us are on to our next case!

Kestler Connection - 2/8/2011

Kestler Financial Group — Tue, 08 Feb 2011 00:00:00 GMT

Inside this Issue:

Aviva has increased annuity cap rates and indexed allocations
Check out Aviva's industry-leading minimum guarantee rates
Introducing My Aviva - A new customer service portal
Tax-free charitable contributions from IRAs extended once again
February 2011 ANICO Snapshot
Centaurus - 2011 Wealth Management Calendar
Heat up your sales this winter with pensions
Facts about fixed annuities

View the full email here.

Centaurus - 2011 Wealth Management Calendar

Kestler Financial Group — Sun, 06 Feb 2011 00:00:00 GMT

In the ongoing effort to keep you updated on upcoming events, below please find a link to the 2011 Centaurus Wealth Management Calendar that highlights conference calls, webinars, etc., hosted by Centaurus Financial and various third party managers. Please note that Centaurus will be hosting their CLASSIC Plus webinars on these dates.

Centaurus - 2011 Wealth Management Calendar

February 2011 ANICO Snapshot

Jeff Reed — Sat, 05 Feb 2011 00:00:00 GMT

Inside this newsletter:

The ANICO Underwriting Process
Retirement...Insured and Guaranteed!
"Term-Universal Life Blend" on a No Lapse Guarantee UL = Flexibility
Revised Suitability in Annuity Transactions Model
...and more

Read the full newsletter

Heat up your sales this winter with pensions

Kestler Financial Group — Fri, 04 Feb 2011 00:00:00 GMT

412(e)(3) Defined Benefit retirement plans:

   1. What are they?
   2. What are the advantages of a 412(e) plan?
   3. How does life insurance increase the plan's deductible contribution?
   4. Who is a prospect for a 412(e) plan?

All this plus additional questions and answers. Don't miss out on this great opportunity to expand your market and increase your earnings in 2011!

To register for this informational webinar on February 8, 2011 at 11:00 AM EST, click here.

Tax-free charitable contributions from IRAs extended once again

Kestler Financial Group — Fri, 04 Feb 2011 00:00:00 GMT

The Pension Protection Act of 2006 first allowed taxpayers age 70½ or older to exclude from gross income otherwise taxable distributions ("qualified charitable distributions," or QCDs) from their IRA that were paid directly to a qualified charity. Taxpayers were able to exclude up to $100,000 in both 2006 and 2007. The law was extended through 2009 by the Emergency Economic Stabilization Act of 2008, and has just been extended again, through 2011, by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Tax Relief Act).

Read more...

Introducing My Aviva - A new customer service portal

Jeff Reed — Thu, 03 Feb 2011 00:00:00 GMT

As Aviva continues its brand building campaign, they are about to launch a major initiative to show their customers “We are building insurance around you.”

My Aviva, a personalized policyholder website, will provide customers the ability to access policy information and make simple change requests without calling the Home Office.

Giving customers self-service options should reduce the volume of calls into our Customer Service centers, allowing us to be more responsive to customer needs. It will also allow our valued producers more time to spend on relationships and prospecting.

Read the full Field Update

NAFA Response to Investment News Article by Jim Pavia

Kestler Financial Group — Thu, 03 Feb 2011 00:00:00 GMT

Kim O'Brien, Executive Director of the National Association for Fixed Annuities (NAFA) responds to an inaccurate and misleading article by Jim Pavia of Investment News. Read the original article on Investment News by Jim Pavia and the NAFA Response.

NAFA Response to Motley Fool Article by Dan Caplinger

Kestler Financial Group — Wed, 02 Feb 2011 00:00:00 GMT

Kim O'Brien, Executive Director of the National Association for Fixed Annuities (NAFA) responds to an inaccurate and misleading article posted by Dan Caplinger on the Motley Fool. Read the original article on Motley Fool by Dan Caplinger and the NAFA Response.

Kestler Connection - 2/1/2011

Kestler Financial Group — Tue, 01 Feb 2011 00:00:00 GMT

Inside this Issue:

Kestler Financial Group Life Insurance Processing Center
BAA 10 now available in Florida
Important update on American General annuities sold in New York
Mandatory Disclosure of Adverse Action
Annexus 5-Year Anniversary!
Aviva Monthly Webcast Schedule
See how Aviva's Wellness for Life program can reduce your clients' costs
Aviva to survey agents about their website needs
LSW increasing commissions on all indexed annuities

View the full email here.

Positive Annuity Article: Life Long and Don't Prosper

Kestler Financial Group — Thu, 27 Jan 2011 00:00:00 GMT

As the 79-million-strong Baby Boom generation starts hitting age 65, demographers and medical researchers are increasingly at odds over how long they'll live. It's a question with major implications on a national level, for how much Social Security and Medicare will cost future generations of Americans. On a personal level, life expectancy complicates plans for saving and spending: Live too long and risk running out of money; die young and you can't take it with you.

Read the full article by Ben Steverman of Bloomberg Businessweek here.

Kestler Connection - 1/25/2011

Kestler Financial Group — Tue, 25 Jan 2011 00:00:00 GMT

Inside this Issue:

Featured: Phase II of KestlerFinancial.com now LIVE!
Aviva offering commission bonus on annuity production!
Talking points in response to the MONEY magazine "The Safety Trap" article
Aviva Field Update: Income Preferred Bonus Pro & MultiChoice Xtra Pro available in FL
Aviva Field Update: Anti-Money Laundering Training
New e-Pocket Tax Tables Available
New rules offer easier cost basis reporting
Nine Mistakes That Can COST YOU and YOUR CLIENTS in the New Year

View the full email here.

Aviva offering commission bonus on annuity production!

Kestler Financial Group — Mon, 24 Jan 2011 00:00:00 GMT

To continue the momentum from 2010 into this year, Aviva is offering two rewards for annuity production. One is a Commission Bonus on annuity business issued between today and April 29. The second is a trip to the 2012 Annuity IMO Top Producer Conference in Cabo San Lucas for qualifying producers.

View the Field Updates for Annexus, American Investors, and Amerus.
View the Cabo flyer for more trip details and qualifications.

New rules offer easier cost basis reporting

Kestler Financial Group — Sat, 22 Jan 2011 00:00:00 GMT

If you're contemplating selling stock in 2011 and beyond, you should be aware of new federal regulations that give you more flexibility in managing the tax impact of your investment decisions. The new regulations, which went into effect January 1, 2011, require brokers to track your cost basis. Even better, they allow you to determine how your brokerage firm reports the cost basis of a sale. That can be helpful if you want to minimize the amount of gain on which you'll owe federal income tax or maximize a capital loss.

Your cost basis represents the original purchase price of a security plus any commissions or other fees; your adjusted cost basis is that cost basis adjusted for a variety of factors such as stock splits, corporate acquisitions or spinoffs, and reinvested dividends. Until now, reporting the gain or loss from your investments has been your responsibility, and could be very challenging for the average investor. The new regulations should make it easier to record your capital losses or gains accurately on your federal income tax form.

The Emergency Economic Stabilization Act of 2008 requires that, as of January 1, 2011, U.S. broker-dealers and other financial intermediaries must not only track the adjusted cost basis of their investors' accounts, but also report that basis to investor clients on their 1099 forms and to the Internal Revenue Service. The rules will be implemented over time. They'll apply to shares of individual stocks you buy after January 1, 2011, to investments in mutual funds and dividend reinvestment plans after January 1, 2012, and to bonds, options and other securities bought after January 1, 2013. Shares acquired before January 1, 2011 are exempt from the new rules, as are securities held in retirement accounts.

You can tailor your reporting method to suit your tax situation

The new regulations allow you to determine in advance what accounting method you wish to use for each sale of stock after January 1, 2011. Most broker-dealers will designate a default option to use if you do not specify a method. That default will typically be the so-called FIFO method (an acronym for "first in, first out"), which means that the first shares of a security purchased are considered the first shares sold. However, your broker might also allow you to specify LIFO ("last in, first out") or designate specific shares as the ones sold. In some cases, such as shares bought through a direct reinvestment program, using an average cost basis for all shares may be most convenient (most mutual fund companies already employ this method of calculating cost basis).

You may be able to put in a standing order specifying the method you want to use for all trades, or choose on a case-by-case basis; you may also authorize your financial professional to make that decision for you. The rules permit investors to change the designated method for a given trade until the settlement date (the date on which money actually changes hands, which for a typical stock sale is three days after execution of the trade). After the trade settles, you cannot change your mind about the method used. Brokers also will be required to report losses that are disallowed as a result of a wash sale (which occurs when shares are sold and then repurchased within 30 days).

Because the new regulations don't apply to investments purchased before January 1, 2011, you'll still need to do your own calculations on those transactions. The cost basis information will be included on the 1099 form you receive from your broker for tax year 2011.

New e-Pocket Tax Tables Available

Kestler Financial Group — Fri, 21 Jan 2011 00:00:00 GMT

Aviva’s Advanced Markets team is pleased to announce the addition of new e-Pocket Tax Tables for 2010-2011 to Aviva Live.

Now you can review and share tax information with producers, clients and advisors who need up-to-date tax information on the following:

2010/2011 Income Tax Rates
2010/2011Payroll Tax Rates
Corporate Tax Rates
Alternative Minimum Tax
Kiddie Tax
Capital Gains and Dividends
Personal Exemption
Standard Deduction
Itemized Deductions
Deductions for Contributions to Public Charities
Dollar Limits for Qualified Retirement Plans
Estate & Gift Tax Rates

We have made the e-Pocket Tax Table easily available for you here.

Talking points in response to the MONEY magazine "The Safety Trap" article

Kestler Financial Group — Thu, 20 Jan 2011 00:00:00 GMT

The January/February 2011 edition of MONEY magazine features a lengthy article by Lisa Gibbs, called “The Safety Trap.” The National Association for Fixed Annuities (NAFA) was pleased that the article does state some positive aspects of fixed indexed annuities. Unfortunately the article’s conclusion clearly advises consumers to not purchase fixed indexed annuities and makes many incorrect conclusions about the products.

You can read the original article here. Please also review the Executive Summary Response from NAFA and their recommended talking points that shed light on the many incorrect assertions in the article.

If you have questions or concerns regarding this article, please feel free to contact us for more information.

Aviva Field Update: Anti-Money Laundering Training

Kestler Financial Group — Thu, 20 Jan 2011 00:00:00 GMT

Aviva USA producers who are due to take an anti-money laundering (AML) refresher course this year will receive a letter reminding them of this requirement. Agents who have either completed AML training through LIMRA or have provided a Certificate of Completion form #16050 within the last two years will not receive the letter.

Federal regulations require all life insurance and annuity agents to complete ongoing anti-money laundering training. Aviva has contracted with LIMRA to provide the training at no cost to you. The training site is available 24 hours a day and can be completed in 25 to 35 minutes.

Read the full Field Update here.

Aviva Field Update: Income Preferred Bonus Pro & MultiChoice Xtra Pro available in FL

Kestler Financial Group — Thu, 20 Jan 2011 00:00:00 GMT

As one of the leading providers of fixed indexed annuities, Aviva is launching the Income Preferred Bonus Pro and the MultiChoiceSM Xtra Pro in Florida for customers 65 and older.

The Bonus Pro combines the features of the Income Preferred Bonus product with a reduced surrender charge schedule to comply with FL S 2176, which went into effect in the state on January 1, 2011.

The Xtra Pro combines the features of the MultiChoice Xtra product with a reduced surrender charge schedule to comply with FL S 2176, which went into effect in the state on January 1, 2011.

Equity Indexed UL vs. Variable UL

Jeff Reed — Tue, 18 Jan 2011 00:00:00 GMT

I made the point last week that the fundamental difference between EIUL and AUL was the carrier's investment strategy. What I did not mention is the basic trade off that results - increased volatility for a higher overall rate of return. Think about it, with the lower guaranteed rate and a cap of, say, 12%, an EIUL contract is going to credit somewhere between 2% and 12% annually, and average somewhere around 7% over the long haul. AUL ranges from 2% to 6% and averages around 5%. Seems reasonable enough, right? Let's take it a step further and examine the Global EIUL products that are out there. What's the big difference between them and a single index product aside from adding two international indexes?

Delayed gratification - a 5 year look back crediting strategy
Even greater short term volatility as a result of the global component (if we look at year by year results. This is why the five year look back. That and the honest admission that even the professionals don't have an effective crystal ball to time markets)
An expected rate of return that is 1% to 1.5% higher than a single index product
A total expected return of 8% to 8.5% as a result

Again, increased volatility to achieve a higher long term rate of return. Sounds an awful lot like regular old investment theory at this point, doesn't it? Well, in for a penny, in for a pound, so to speak. Let's take on VUL.

Here are some assumptions that I think we may be able to agree to:

There is a higher potential rate of return in VUL contracts because of the cap in an EIUL
VUL's are more expensive because of the sub-account level management fees
Most VUL contracts are not actively managed, and are frequently neglected until they are in trouble
Last, and perhaps most important, it's the money you keep that matters most

All of that said, I am going to give VUL some credit, and do a little comparison using basic math so that even I can keep track of the numbers. Here are my parameters:

$10K per year in "premium"
7% net rate for EIUL
8% net rate for VUL
20 payments
M&E, etc, are identical across both policies (I know this is unlikely, work with me!) so that the net "investment" in each contract is identical

And here are some results:

Account Value of EIUL @ year 20 = $409,955
Account Value of VUL @ year 20 = $457,620

VUL looks better, right? Maybe. What happens of the market drops 20% in the 21st year?

EIUL - Receives guaranteed minimum interest of 2%; Account value = $418,154
VUL - Drops 15% (Giving the subaccount managers the benefit of the doubt here), no minimum interest rate; Account value = $388,977

What was once an almost $50K bump in account value VUL vs. EIUL is now a $30K shortfall. And it happens when the client can afford it the least, late in the contract, when insurance costs are increasing rapidly. Imagine if the drop were even more significant?! Oh, wait, we just experienced that! It happens, and it hurts. Bottom line? If VUL is appropriate for the client and we want the upside, let's learn from the experience over the last 20 years and maybe consider that a product built to be on auto pilot might be a good choice. In fact, it could be a great choice (see note above about neglected VUL contracts). As a group, we need to start talking about it more, and not out of greed, but because it can offer cost effective death benefit, down side protected cash accumulation and all of the benefits that go along with these two items as we have discussed over the past few weeks.

Of course, if any of the above makes sense, we need to arm ourselves with a deeper understanding of these products. Join us for a webinar dedicated to that very topic on Thursday, January 27th.

If you are looking for a little example of the kind of mind set I think we need to avoid, check out the attached picture, which I snapped while putting gas in my car! I don't care what they do. The fact that they are simply advertising a rate of return is a problem. In fact, it's the same one we fall in to when we blindly follow the maximum allowable crediting rate set by an insurance carrier.

There is more to life, and selling insurance, than a high projected rate of return.

Kestler Connection - 1/18/2011

Kestler Financial Group — Tue, 18 Jan 2011 00:00:00 GMT

Inside this Issue:

ANICO - You Asked...We Delivered!
Aviva Investors Information Call
HOT January MYG Rates from ANICO
Additional Information Regarding IA Administrative Rule 191-15
Kansas Use of Senior-Specific Certifications and Designations
AE - Product Training and New Suitability Requirement
Compliance Reminder for California Annuity Producers

View the full email here.

Guaranteed UL vs. Accumulation UL vs. Equity Indexed UL

Jeff Reed — Tue, 11 Jan 2011 00:00:00 GMT

Warning, despite our best efforts, this one gets a little technical! And a bit long as well. Just read the statements in bold if you want the short version!

We talked in the fall of last year about Guaranteed UL (GUL) no longer being the clear winner versus Accumulation UL (AUL). Today we will go one step further by shifting our focus from AUL to Equity Indexed Universal Life (EIUL).

If you follow the logic from last fall, EIUL makes a ton of sense as it has even more upside than AUL. The issue becomes how to properly design the contract so that we can all sleep at night? If we leave this up to the carriers, I think we will live to regret it, as they continue down the path of trying to out illustrate each other with crediting methodologies that will not hold up over the long haul (remember, current cash flow from new premiums is VERY important to an insurance company, and high interest projections are a sure way to gain some premium dollars!). I think we can all look back at virtually every permanent product type sold in the life insurance industry and see how often products have lived up to the lofty expectations set by using the carrier's maximum allowable illustrative rates. Let's be a little smarter than that, and question the carrier's motives a bit. To do that, we need to understand what goes on behind the scenes in an EIUL contract.

The fundamental difference between AUL and EIUL is what the carrier does with the premium dollars above the monthly charges and guaranteed interest. The attached slide tells the story pretty well (AUL vs. EIUL), but basically it breaks down like this:

EIULs will have a lower guaranteed interest rate
There is a larger amount of money per premium dollar for the carrier to invest
The carrier buys options on the applicable index as the investment methodology (versus the more conservative strategy used for AUL contracts)
There is an increase to the net rate of return to the client based on the above

The question then becomes what can we realistically expect as a long range rate of return on these contracts? Consider the following:

Average rates on AUL contracts are roughly 5%
The expected increase in rate of return for the client based on the use of options in an annual point to point contract is roughly 40% (this was the consensus of the carriers when asked this question)
40% of 5% is 2%, for a total of 7%
The realistic long term rate of return a client can expect in an annual point to point S&P contract is approximately 7%

So if that is the answer, what do we think of the carriers with max illustrative rates that are over 8%? Well, I think the client is going to end up disappointed if that is their long term expectation. Let history be our guide on this one, okay? I also think unless the carrier is willing to work for free, they are going to make a change to the crediting method parameters at some point in the future on in force contracts. Lower participation rates or caps will almost certainly be in your client's futures if the economics outlined above are to be believed.

That does not mean that we need to completely avoid those contracts (one could make an argument to do just the opposite in fact), but rather to temper our client's expectations back to a reasonable level. If the product out-performs that expectation in the near term its gravy, rather than the client being disappointed five years from now when the rate of return comes back to earth as a result of lower caps or participation rate.

Stay tuned in the coming weeks as we delve in to exotic EIUL crediting methods that may actually work (and allow for an illustrative rate higher than 7%), and why EIUL may be a superior choice to VUL even with limited upside (Cap Rate).

Kestler Connection - 1/11/2011

Kestler Financial Group — Tue, 11 Jan 2011 00:00:00 GMT

Inside this Issue

Aviva - New Certificate of Disclosure forms required as of 1/1/11
Aviva Field Update - January Annuity Rates
Pensions: New Year, New Market for You!
ANICO January 2011 Newsletter
Presidential Life - Bulletin 416 - Annuity Product Training and Annuity CE Requirement
Aviva Compliance Bulletin - Veterans Administration Benefits Programs
Chris Littlefield, Aviva USA CEO, featured in Broker World

View the full email here.

Navigating Estate Taxes and the Bush-Era Tax Cut Extension

Jeff Reed — Tue, 04 Jan 2011 00:00:00 GMT

Now that the ink is starting to dry on the extension of the Bush Era tax cuts it is up to the rest of us to figure out what just happened, and what does it mean to our clients? The dust is still settling, but one thing is perfectly clear: our clients are still facing a great deal of uncertainty, and this extension is essentially meaningless to anyone trying to plan for the long term.

The challenge is how do we as advisors manage this situation and give our clients solid guidance on the topic?

Easy - Tell them to stop relying on the government to dictate their planning. Seriously, why would we let these people who can't seem to come to any kind of workable long term solution play such a large role in planning our financial future? It's just silly. Even with this new extension, there is no way we can tell a client with any certainty what the exemption will be when they pass away!

Despite all of the challenges (a moving target for the exemption amount, sunset of the legislation in two years, etc.) there are significant opportunities for the savvy advisor and their clients in this package. Consider the following:

Is there any benefit to individuals who don't happen to pass away in the next two years?
What is the significance of the re-unification of the Gift and Estate Tax Exemptions?
What happens to financial underwriting for estate planning at the carrier level?
What happens to financial underwriting for estate planning at the reinsurer level?
With the projected number of taxable estates now at approximately 3600, is estate planning essentially a dead end for the insurance professional?
What should clients be doing now to position themselves for a future repeal or reduction of the $5 mil exemption?

Big questions, and the answers just may surprise you as we tackle them in the coming weeks.

My last point for the day is this - If the current environment proves anything, it is that current law is just that - current law - and a client hoping that it will still be in place when they pass away is delusional. Having some tax-free, liquid cash will never, ever, be a negative. It's time to take the control of this issue away from our government and place it back where it belongs - with the client and their advisors.

For more information about The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, take a look at Tom Kestler's article from the December 28, 2010 edition of the Kestler Connection newsletter.

Stay tuned for specific ideas in the coming weeks!

Kestler Connection - 1/4/2011

Kestler Financial Group — Tue, 04 Jan 2011 00:00:00 GMT

Inside this Issue:

Featured: The new KestlerFinancial.com is now live!
Good News from National Life Group - Another Rate Increase!
January 2011 Aviva Webcast Schedule
Aviva Field Updates
January Advanced Planning Webinars from ANICO

View the full email here.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010

Kestler Financial Group — Thu, 30 Dec 2010 00:00:00 GMT

On December 17, 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law. In addition to providing a 13-month extension of benefits for the long-term unemployed, the legislation includes a long-anticipated extension of the "Bush tax cuts" that were scheduled to expire on January 1, 2011. Other significant provisions include a new alternative minimum tax (AMT) "patch," a major modification of the estate tax, and a new 1-year 2% employee Social Security payroll tax reduction.

Income tax rates

The Act extends existing federal income tax rates for 2 additional years. As in 2010, the federal tax bracket rates for 2011 and 2012 will be 10%, 15%, 25%, 28%, 33%, and 35%. (Without this legislation, federal income tax rates would have increased beginning in 2011--the current 10% federal income tax bracket would have disappeared, and the five remaining tax brackets would have been 15%, 28%, 31%, 36%, and 39.6%.)

Tax rates for long-term capital gain and qualifying dividends

Existing tax rates for long-term capital gains and qualifying dividends are also extended through 2012. As a result, long-term capital gain and qualifying dividends will continue to be taxed at a maximum rate of 15%. For individuals in the 10% or 15% marginal income tax bracket, a special 0% rate will generally continue to apply.

Alternative minimum tax (AMT)

The Act includes another temporary "patch" for the AMT--this one good for 2010 and 2011. AMT exemption amounts are slightly increased, and personal nonrefundable tax credits will be allowed to offset AMT liability through 2011.

AMT Exemption Amounts	2010	2011
Married filing jointly	$72,450	$74,450
Single or head of household	$47,450	$48,450
Married filing separately	$36,225	$37,225

Estate tax

The Act makes several major-- though temporary-- changes to the federal estate tax, including:

For 2011 and 2012, the estate tax exemption amount (the applicable exclusion amount) will be $5 million per person (the $5 million will be indexed for inflation in 2012); the top estate and gift tax rate for these years will be 35%
The $5 million exemption amount and 35% top estate tax rate will apply retroactively to 2010 as well, but for individuals who died in 2010, an election can be made to choose the estate tax provisions effective prior to this legislation (i.e., no estate tax, but modified carryover basis rules); an extended due date is provided for individuals who died on or after January 1, 2010, but before December 17, 2010.
Beginning in 2011, the gift tax (reunified with the estate tax) will have a $5 million dollar exemption amount; the generation-skipping transfer tax, with a $5 million exemption effective January 1, 2010, will have a 0% tax rate for 2010, and a 35% rate for 2011 and 2012
For 2011 and 2012, when one spouse dies, any unused portion of that spouse's estate tax exemption amount may be transferred to the surviving spouse

One-year reduction in employee payroll tax

For the 2011 year, the employee portion of the Social Security retirement component of FICA employment tax is reduced by 2%. Normally equal to 6.2% of covered wages up to the taxable wage base ($106,800 in 2011), for 2011 this rate will be reduced to 4.2%. Self-employed individuals, who normally pay 12.4% for the Social Security portion of their self-employment taxes, will also benefit from a 2% reduction, paying the tax at a rate of 10.4% for 2011.

"Bonus" depreciation

The Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 allowed an additional 50% depreciation deduction for qualifying property placed in service during 2008 and 2009. This additional depreciation deduction was allowed for purposes of the alternative minimum tax (AMT) calculation, as well as regular tax. The Small Business Jobs Act extended the 50% additional first-year depreciation deduction for one year to apply to qualified property acquired and placed in service during 2010.

This Act increases the bonus depreciation percentage to 100% for property acquired and placed in service after September 8, 2010 and before January 1, 2012. The Act extends bonus depreciation at the 50% level through 2012 (50% bonus depreciation will apply for property placed in service after December 31, 2011, and before January 1, 2013).

IRC Section 179 expense limits

Section 179 of the Internal Revenue Code allows businesses to elect to deduct the cost of depreciable tangible personal property acquired for use in the business in the year of purchase, rather than through depreciation deductions. Since 2003, several pieces of legislation have temporarily expanded the limits that apply to Section 179.

Most recently, the Economic Stimulus Act of 2008 and the American Recovery and Reinvestment Act of 2009 increased the maximum amount that can be expensed to $250,000 for tax years beginning in 2008 and 2009. This amount was reduced by the amount by which the cost of qualifying property placed in service during the year exceeded $800,000. For tax years 2010 and 2011, the Small Business Jobs Act increased the maximum amount that may be expensed under Section 179 to $500,000 and increased the phase-out threshold amount to $2 million.

For 2012, the dollar limit amount and phase-out threshold level were scheduled to drop to $25,000 and $200,000, respectively. This Act sets the IRC Section 179 expense limit for 2012 at its 2007 level--$125,000, with a phase-out threshold of $500,000--indexed for inflation.

Small business stock exclusion

Non-corporate investors may generally exclude 50% of any capital gain from the sale or exchange of qualified small business stock (generally, stock issued by domestic C corporations whose assets do not exceed $50 million) issued after August 10, 1993 (if a five-year holding period requirement and other requirements are met). The Small Business Jobs Act temporarily increased the exclusion percentage for qualified small business stock acquired during 2010 to 100%, and does not treat the excluded gain as an alternative minimum tax preference. Therefore, no regular tax or alternative minimum tax is imposed on the sale of qualified small business stock issued and acquired after September 27, 2010, and before January 1, 2011, and held at least five years.

This Act extends the 100% exclusion for one year--to qualifying stock acquired before January 1, 2012, and held for more than five years.

Education provisions

The Act extends the American Opportunity tax credit (known as the Hope tax credit before being significantly-- though temporarily--modified by the American Recovery and Reinvestment Act of 2009). The American Opportunity Tax Credit's higher maximum credit amount, increased income limits, expanded applicability to the first four years of college, and potential refundability, available in 2009 and 2010, are extended through 2012.
The current rules that apply to Coverdell Education Savings Accounts (e.g., $2,000 annual contribution limit, education expenses expanded to include elementary and secondary school expenses) are also extended through 2012. Without this change, the annual contribution limit would have dropped to $500 beginning January 1, 2011.
For the student loan interest deduction, increased income limits and the suspension of the 60-month rule, which would have expired at the end of 2010, are extended for 2 years (the deduction was, prior to 2001, limited to interest paid in the first 60 months of repayment).
The deduction for qualified higher education expenses, which expired at the end of 2009, is retroactively reinstated for 2010, and extended through 2011.

Other provisions--individuals

Provisions extended through 2012 include:

Itemized deductions and personal and dependency exemptions will not be reduced for higher-income individuals
"Marriage penalty" relief in the form of an expanded 15% tax bracket and an increased standard deduction amount for married individuals filing jointly
Exclusion of up to $5,250 in employer-provided education assistance for undergraduate and graduate education
Increased earned income tax credit (EITC) for families with 3 or more children, and increased EITC income limits for married couples filing jointly
Increased child tax credit amount with expanded refundability (15% of earnings above $3,000)
Expanded credit for child and dependent care expenses (increased limit on eligible expenses and maximum credit percentage)
An increased adoption tax credit and employer-paid adoption assistance exclusion amount; the credit also remains refundable

Provisions retroactively reinstated for 2010 and extended through 2011 include:

The deduction for state and local sales tax in lieu of state and local income tax on Schedule A
The $250 above-the-line deduction for elementary school and secondary schoolteacher classroom expenses
Increased contribution limits and carry forward period for contributions of capital gain property for conservation purposes
Tax-free distributions to charitable organizations from IRAs by individuals age 70 1/2 or older (up to $100,000 per year); a special provision in the Act allows qualifying individuals to treat a distribution made from an IRA to a charity in January, 2011, as if it were made in 2010

Provisions extended for one year (through 2011):

Increased monthly exclusion amount for employer-provided transit and vanpool benefits
Mortgage insurance premiums deductible as qualified residence interest, subject to an adjusted gross income (AGI) limitation

The Act also reinstates the tax credit for energy-efficient improvements to existing homes for 2011, but as it applied prior to the American Recovery and Reinvestment Act of 2009 (e.g., a 10% credit rate generally applies).

Other provisions--businesses

Provisions extended through 2011 include:

Research and development credit
Indian employment credit
New Markets tax credit
Employer wage credit for activated military reservists
Enhanced charitable deductions for contributions of food inventory, book inventories, and computer equipment
Work opportunity tax credit

Rolling in Rollovers - The Exclusive Marketing System Available Only to KFG Producers

Kestler Financial Group — Mon, 29 Nov 2010 00:00:00 GMT

Leads – People fail in our business without them.
Leads – People change allegiances because of them.
Leads – They can make or break your professional career.

What is your definition of a lead? Is it a name in a phone book? Or, is it someone sitting across from you with an open checkbook? The most successful producers have multiple, consistent programs to generate a constant flow of leads. But, unlike the old paradigm of a “funnel” into which “suspects” enter the top and eventually become “prospects,” successful producers see their lead program as a “pipeline.” They maintain multiple pipelines that contain prospects from various markets and in various stages of development. The difference between a funnel and a pipeline is that every prospect in a pipeline has been specifically identified as “qualified” for a specific sales process – college planning, buy-sell, retirement planning, etc.

A key concept in economical lead generation is to know precisely what it costs to get face-to-face with each client. Let’s assume you chose to use seminars. You send out 5,000 invitations at a cost of $3,500. Follow up calls and confirmations cost you $200. Meals and room rental cost you another $1,300 for a total cost of $5,000. Assuming you confirm 100 attendees and schedule appointments with half of them, your cost per appointment is $100 ($5,000/50).

Let’s take another example. Assume you choose to market using direct mail only. You send out a 5,000 piece mailing at a cost of $3,500. If you get a 1% response (50) and you schedule appointments with half of them (25), your cost per appointment is $200 ($5,000/25). Although the expense was less, the “cost” was twice as much.

There is an important point to acknowledge here. If, after investing this money, you are not capable of actually closing a sale, all is wasted. Good leads can never overcome poor technique or lack of knowledge.

As you can see, the objective is to acquire the most qualified prospects at the least possible cost. Allow me to introduce you to what may be the largest untapped lead source in the history of our business. The first wave of baby boomers has begun to enter retirement. And, over the next 18 years, 76 million baby boomers will reach retirement age. This is the first generation in history to have had access to a 401k throughout their entire working career. With over a trillion dollars invested in retirement plans, these retiring boomers are ideal prospects.

The problem is, how do you economically find them? In Loudoun County, Virginia, alone (where our office is located), there are over 400 defined contribution plans (401k) with over $800 million in assets! That’s a big number. But, unless you are a pension expert, your chances of getting at these dollars are slim. However, those same 400 plans made payments to participants in excess of $74 million! This money goes to retirees, terminated employees and beneficiaries. And, almost all of it goes into an IRA (or new employer’s 401k) somewhere. Are you getting your fair share of the rollovers in your area? The vast majority of 401k rollovers captured by insurance agents are accidental: the person attended a seminar at the right time, they saw an advertisement in the paper, or they cruised the yellow pages.

Accidental prospecting! When asked why he robbed banks, Willie Sutton replied, “because that’s where the money is!” If you knew how much money each 401k in your area was “hemorrhaging” each year, wouldn’t it make sense to begin a “pipeline” to capture these distributions before they hit the street? We have built a database that can identify which companies are sending out the largest amount of distributions annually. In addition, we’ve developed a turn-key process to help serious producers build a pipeline of 401k rollovers.
Kestler Financial Group has developed a program for qualified producers
that provides:

A list of all active 401k plans in your zip code
A letter, ready to merge with this list, directed to the Human Resources (HR) specialist who works with each plan on a day-to-day basis
A series of professionally developed articles and newsletters that can be personalized and sent to this specialist on a regular basis
And finally, when rollover appointments occur, access to some of the most knowledgeable experts in the industry to help you with case design.

What’s the down side? You have to be willing to work the system. This is a pipeline – not magic. The upside, however, is that - over time - you become known as the rollover and retirement income expert in your area – not only with the general public but with those who will be a direct influence to rollover prospects – at the most important time.

Positioning yourself as the rollover expert in your community is not only important for the obvious reasons but there is also a more subtle benefit that is often overlooked. We and our peers have positioned ourselves well over the years as asset gatherers and asset accumulators. Very few advisors are recognized – or for that matter qualified as – distribution experts.

Now, let’s analyze the cost. Let’s assume you identify 100 employers in your area who have a regular history of distributions (Cost $0). You then begin a systematic “drip” program to educate and inform the HR specialist (Article cost $0, mailing cost $.50 each). If you only receive one referral a month, your cost per very qualified lead is $50.

Think about it. For the last 30 years, the focus of the baby boomers has been accumulation. The financial services industry has built a myriad of tools to accomplish this goal. Now, as the boomers enter their retirement years, the tools, techniques and product focus will change. And, those who have identified themselves as experts in the distribution arena are ideally
positioned to profit from this shift. It’s all about positioning. Many people have made a good living by servicing the current needs of the baby boomers. Few have become extremely wealthy by identifying the future needs of this group and being prepared to service those needs when they arise.

The successful producers of the future will not only be positioned to take advantage of the future needs of the baby boomers but they will also have several, concurrent pipelines delivering qualified prospects to their business.

Targeting Generation X - Part I

Kestler Financial Group — Mon, 29 Nov 2010 00:00:00 GMT

Insurance agencies are sales organizations. Their primary function is to form relationships with consumers, and by adequately providing for their risk management and insurance needs, turn those consumers into clients. What agency would claim their key purpose is to avoid good prospects, alienate, or ignore millions of people in the hope that the agency will never have to deal with anyone other than their current client base? Yet in their everyday operations, including sales and hiring, many agencies are sending exactly that message today. To paraphrase the old no-win want ad, whether we are talking prospective clients or employees, the sign these agencies hang in the window reads, "Only those like us need apply."

Potential clients and employees excluded by such practices can be categorized by culture, location or even gender. All are worthy topics that need addressing if the agency system is to successfully transition into the new marketplace. But to attempt to cover all the issues affecting all such groups is beyond the scope of this paper. For our purposes, we are going to narrow the focus to just one such group description - age.

There are opportunities lying in wait for agency principals who are willing to take a step back and see the upcoming generation of potential future staff and prospects as the true goldmine it represents. Whether viewed from the standpoint of future sales, finding new top producers, solving those problems in IT, or developing a long-term perpetuation plan, the place to run for relief is not your college buddy, or your partner who is two years older than you, but to people who may well be the same age as your kids.

Perhaps therein lies the problem. It can sometimes be difficult to understand that a potential heir to the agency may be a person "who looks like my daughter" or worse yet "reminds me of that slacker nephew of mine." Fair or not, accurate or not (your nephew may well be a slacker), perception is reality, and it's more than possible these attitudes are causing very real damage to your agency.

After all, weren't all of us told at our high school graduations "the youth are the future of our country"? Then they just might be the future of your agency, too - if you'll let them.

Age as a Significant Market Consideration

Much has been written about the various age groups in our country, mostly by advertising and marketing experts. The need for people in those industries to refine and target their campaigns has led to an endless focus on age demographics.
The value of such demographics may be based upon various facts or assumptions. For example, it is a generally accepted fact in life insurance that the vast majority of people move through a three-phase "human life cycle" based solely upon age. In the first phase (birth to age 22), most people are "net consumers" as they grow and move through the educational system. The second phase (work years until retirement) is the "net savings" years. Upon retirement, people quit working and begin living off of their accumulated savings, becoming "net consumers" again. While clearly an oversimplification, the value of this "human life cycle" assumption is that it accurately represents the broad economic life of the vast majority of people. Many highly successful life and financial services programs have been developed based upon the inferences and assumptions made from this human life cycle as to what the majority of prospects will be interested in at a specific time in their lives.

Age as a Determinant of Buyer Perceptions and Attitudes

As marketing and sales organizations, insurance agencies should pay no less attention to age distinctions as determinants of attitudes and perceptions. This is not meant as an endorsement for the abundance of stereotypes and literature that is largely pop psychology, but an acceptance of reality. Every salesperson knows prospects make buying decisions based upon the prospect's perceptions of need and value, not those of the salesperson. The heart of every successful sales technique or system is the need to uncover those perceptions and attitudes, understand how they will determine the prospect's decisions, and tailor the sales presentation to solve those perceived needs at a price the prospect considers a value.

Yet, this simple truth that consumers make purchasing decisions based upon their value systems and worldviews is often ignored by agents and agencies who treat every prospect as if they will respond in the same way to the same sales tactics and materials. For example, it would seem obvious that a veteran of World War II will not see the world through the same eyes as a 30-year old. One 85-year-old veteran of the war in the Pacific is a constant puzzle to his children over his continuing refusal to purchase a Japanese car. "Dad, the war ended a long time ago. It's just a car!" they laugh as they drive away in their Toyota. But what they fail to understand is at a very crucial and intense time of their father's life, his entire perception of Japanese people was derived from fighting soldiers whose intent was clearly to kill him and his friends. Having personally seen and endured the violence this enemy inflicted and having seen many of his friends killed and maimed in battle, he is now expected (by a bunch of kids who clearly have no clue) to just forget about all of this? While some veterans may have been able to do so, it is not the younger generations' right to judge him for his reactions and perceptions growing out of his past experiences. This is not theory to him, it is reality.

So how can an agency expect the 30-year old to respond to a given salesperson or sales technique in the same manner as this veteran has over the years? It can't, and yet every day many agents try.

This single example is meant to illustrate the literally thousands of life events that individuals experience and the inescapable fact that those experiences and the participant's reactions and perceptions to them create in large part the worldview of each individual. Share those experiences across a large group of people of common age and you develop a "generational" worldview or mindset that colors the entire group's perceptions and behavior. Acknowledgement of these differences and the development of an agency approach to sales and hiring that takes these factors into account is the key goal of this paper.

In Part 2, we will try to define and understand the various "generations" we face every day.

Beneficiary Designations for Roth IRAs - Part I

Kestler Financial Group — Sun, 21 Nov 2010 00:00:00 GMT

When you establish a Roth IRA, you're generally required to complete a beneficiary designation form with your Roth IRA custodian or trustee. The beneficiary (or beneficiaries) you name will receive the remaining funds in your Roth IRA after you die. Although choosing a beneficiary may seem straightforward, there are actually several tax and nontax points to consider--and the beneficiary decisions you make now may have significant consequences in the future.

Whether you have a Roth IRA or a traditional IRA, your primary goal should be to choose beneficiaries for whom you want to provide. Because Roth IRAs are different than traditional IRAs, though, the considerations for choosing beneficiaries may differ. Unlike traditional IRAs, Roth IRAs are not subject to the lifetime required minimum distribution (RMD) rules. In addition, qualified distributions paid to your Roth IRA beneficiaries are free from income tax.

Tip:

It's important for your beneficiaries to receive professional tax advice as soon as practical after your death so that they may be informed of all of the options available to them and apprised of the time limits for making beneficiary-related decisions. You should also seek professional advice before making a Roth IRA beneficiary designation, because there may be income tax and estate tax consequences associated with your choice.

You don't have to take required minimum distributions from a Roth IRA during your lifetime

If you have a traditional IRA, federal law generally requires that you begin taking annual RMDs from your account by April 1 of the calendar year following the calendar year in which you reach age 70½ (your "required beginning date"). In some limited cases, your choice of beneficiary can affect the way these RMDs are calculated.

By contrast, Roth IRAs are not subject to the RMD rules while you're alive. Consequently, if you don't need income from your Roth IRA, or if you want to preserve the funds for your beneficiaries, you don't have to take distributions from your Roth IRA during your lifetime. If you do choose to take distributions, you need not follow a set schedule--you're free to withdraw as much (or as little) as you like, regardless of the beneficiaries you have named for your Roth IRA. With a Roth IRA, your choice of beneficiary has no impact on the distributions you take (or decide not to take) while you're alive.

Qualified Roth IRA distributions are free from income tax
Unlike traditional IRAs, certain distributions from Roth IRAs may be completely free from income tax. To be free from federal income tax, a Roth IRA distribution must be considered a qualified distribution. A distribution is qualified if a five-year holding period has been satisfied, and if at least one of the following also applies:

You've reached age 59½ at the time of the distribution
The distribution is made because of a qualifying disability
The distribution is made to pay qualifying first-time homebuyer expenses ($10,000 lifetime limit)
The distribution is made to your beneficiary or estate after your death

So, if you own a Roth IRA, distributions made after your death to a beneficiary (or to your estate) will be free from federal income tax if the five-year holding period is satisfied. The five-year period is measured in tax years, beginning with the tax year for which your first contribution was made to any Roth IRA (or, if earlier, the tax year in which you converted a traditional IRA to a Roth IRA).

For instance, if you made your first Roth IRA contribution on April 15, 2006 (for the 2005 tax year), your contribution is treated as having been made on January 1, 2005, for purposes of the five-year rule. Distributions made on or after January 1, 2010, therefore, are considered qualified distributions. (That's because they weren't made within the five-year period of January 1, 2005 to December 31, 2009.) As long as your beneficiary doesn't take distributions from the inherited Roth IRA until after the five-year period has passed, the distributions will escape federal income taxation.

Tip:

A single five-year holding period applies to all Roth IRAs you own. You don't determine a separate five-year holding period for each Roth IRA.

Caution:

A surviving spouse who treats a deceased spouse's Roth IRA as his or her own must independently satisfy the criteria for a qualified distribution. That is, the distribution must satisfy the five-year rule (see technical note below), and must be made either after the surviving spouse (not the deceased spouse) attains age 59½, dies, becomes disabled, or incurs qualifying first-time homebuyer expenses.

Technical Note:

A surviving spouse who treats a deceased spouse's Roth IRA as his or her own gets to use the earlier of the deceased spouse's Roth IRA contribution date or his or her own Roth IRA contribution date in determining the starting point of the five-year holding period, for both the inherited Roth IRA and any other Roth IRA the surviving spouse owns. See Treas. Reg. Section 1.408A-6, A-7(b).

Nonqualified distributions may (or may not) be taxable

If a beneficiary takes a distribution within the five-year holding period, the distribution is considered a nonqualified one. Special rules determine how nonqualified distributions are taxed (or not taxed) for federal income tax purposes. Because Roth IRAs are generally funded with after-tax contributions, the portion of a distribution that represents your contributions to the Roth IRA is never taxable. However, the investment earnings portion of a nonqualified distribution is subject to income tax.

Roth IRA distributions are considered to consist of contributions first and earnings last. If a beneficiary must take nonqualified distributions, therefore, he or she can withdraw all of your contributions tax free before tapping into the taxable earnings (it gets more complicated if you've converted a traditional IRA into a Roth IRA).

Example(s):

Bob contributed $3,000 to his first Roth IRA in 2005 for the 2005 tax year. In 2006, he contributes another $3,000 for the 2006 tax year. Now say Bob dies in 2007. The Roth IRA will pass to the designated beneficiary of Bob's Roth IRA, Bob's brother Al. If Al takes a $3,000 distribution from the Roth IRA in 2007, it will not be a qualified distribution since the five-year period does not end until December 31, 2009 (January 1, 2005 through December 31, 2009). However, even though it will not be a qualified distribution, Al's $3,000 distribution will be considered to consist of Bob's contributions and will therefore not be taxable. Because Bob will have contributed a total of $6,000 before his death, Al will be able to take another $3,000 distribution within the five-year period and still owe no federal income tax. Any amount distributed on or after January 1, 2010, including earnings, will be considered a qualified distribution and will be free from income tax.

Tip:

The federal 10 percent premature distribution tax that may apply to premature Roth IRA distributions (i.e., nonqualified distributions taken before age 59½) does not apply to post-death distributions, regardless of your beneficiary's age or your age at the time of your death.

Your beneficiaries must take timely post-death distributions from the Roth IRA to avoid penalties

Although you aren't required to take lifetime distributions from your Roth IRA, the beneficiaries of your IRA will generally be required to take "required minimum distributions" (RMDs) from the account after you die. The distribution methods available to your beneficiaries are similar to the options available to traditional IRA beneficiaries (using the rules that apply for deaths prior to the taxpayer's required beginning date). (Note that special rules apply to surviving spouses who are beneficiaries.)

Your nonspousal beneficiaries will have to take post-death distributions according to one of the following methods:

The life expectancy method
The five-year rule

Caution:

No matter which payout method is selected for post-death distributions, a beneficiary can choose to receive more than the required amount in any given year. However, if a beneficiary receives less than the required amount in any given year, he or she will be subject to a federal penalty tax. This penalty tax is equal to 50 percent of the difference between the required distribution and the amount actually distributed. (This is the same penalty tax that may apply to required lifetime and post-death distributions from a traditional IRA.)

Caution:

The Worker, Retiree, and Employer Recovery Act of 2008 waives required minimum distributions for the 2009 calendar year.

Life expectancy method

A designated beneficiary can generally take distributions over his or her remaining single life expectancy, beginning no later than December 31 of the year following the year of your death. If there is more than one designated beneficiary, the age of the oldest beneficiary (i.e., the one with the shortest life expectancy) must be used to calculate the distributions. (Exception: If separate accounts are established for each beneficiary, distributions will be calculated separately for each account.)

Five-year rule

A designated beneficiary can generally take distributions according to the five-year rule. Under this method, distributions are taken over a five-year period ending on December 31 of the year during which the fifth anniversary of your death occurs. The beneficiary has discretion over the timing and amount of distributions, as long as all of the funds are distributed within the applicable five-year period.

Caution:

Because RMDs are waived for 2009, the five-year period is determined without regard to calendar year 2009. For example, if the Roth IRA owner died in 2007, the five-year period ends on December 31, 2013, instead of December 31, 2012.

Four critical dates for taking action

When planning for post-death distributions, your beneficiaries must pay particular attention to four dates: (1) nine months after your death, (2) September 30 of the year following the year of your death, (3) October 31 of the year following the year of your death, and (4) December 31 of the year following the year of your death. Each of these dates may have a tax decision or requirement associated with it.

To be valid, a disclaimer (refusal to accept benefits) must be signed by a beneficiary and meet other requirements no later than nine months after your death. Therefore, even though the designated beneficiaries are determined on September 30 of the year following the year of your death, a disclaimer may need to be signed much earlier to meet the nine-months-after-death rule. If a beneficiary makes such a valid disclaimer, the IRA funds will generally pass to any other primary beneficiary(ies) or to the designated contingent beneficiary (if there is one).
September 30 of the year following your death is the day to finalize who are the "designated beneficiaries." The 2002 final IRS RMD regulations mandate that IRA beneficiary designations are final as of September 30 of the year following the year of your death. Only beneficiaries remaining on that date will be included when determining post-death distributions from the Roth IRA.
October 31 of the year following the year of your death is the deadline for furnishing documentation relating to a trust as a beneficiary.
If the life expectancy method is selected, distributions must begin by December 31 of the year following the year of your death. If the distributions don't begin by that date, your beneficiaries can't use the life expectancy method, and the five-year rule becomes the default payout method.

Caution:

Although the date for finalizing beneficiaries for distribution purposes is September 30 of the year following the year of your death, an IRA or plan account can be split into separate accounts up until December 31 of that same year. If separate accounts are established, each account is treated separately for purposes of determining post-death distributions. Due to the inconsistency between the September 30 and December 31 dates, it may be advisable to create separate accounts by September 30 rather than waiting until December 31. The rules governing separate accounts are complex. For more information, consult a tax professional.

Special options available to spousal beneficiaries

Special distribution options may be available to surviving spouse beneficiaries (discussed below).

Your options when choosing Roth IRA beneficiaries

Who can you designate as your Roth IRA beneficiary? Basically, you have the same options that the owner of a traditional IRA has. Because Roth IRAs are different from traditional IRAs, though, some special considerations may apply. Your beneficiary choices generally include the following options.

Tip:

For general information on multiple beneficiaries, primary and secondary beneficiaries, "designated" beneficiaries versus "named" beneficiaries, and other issues, see our separate topic discussion, Beneficiary Designations for IRAs and Retirement Plans.

Surviving spouse

If your surviving spouse is the sole designated beneficiary of your Roth IRA, he or she will have certain options that are not available to other types of beneficiaries. For instance, your surviving spouse can generally elect to be the new account owner of the inherited Roth IRA. Alternatively, your surviving spouse can generally elect to roll over the inherited funds to his or her new or existing Roth IRA. In either case, the inherited funds will be in a Roth IRA in your surviving spouse's own name. (Other types of beneficiaries must withdraw from the Roth IRA that is in your name.) This outcome is significant for two reasons:

As a Roth IRA owner, your surviving spouse can name new beneficiaries of his or her choice (your children, for example). These new beneficiaries will receive the funds remaining in the Roth IRA after the death of your surviving spouse. By having new beneficiaries, the period of time for the tax-free accumulation of earnings in your Roth IRA is extended (subject to the post-death RMD rules, of course).

Caution:

You may not be happy that your spouse has this discretion to change beneficiaries, especially if you have children from a prior marriage or you are concerned that your spouse might remarry and name the new spouse as the primary beneficiary.

As a Roth IRA owner, your surviving spouse will not be subject to the lifetime RMD rules. He or she can take distributions from the account if desired, but there is no requirement that he or she do so. This creates the opportunity to preserve the funds in a tax-advantaged environment for the new beneficiaries.

Of course, these are not the only options available to a surviving spouse beneficiary. Your surviving spouse can also elect to disclaim the inherited Roth IRA funds, or take post-death distributions under the life expectancy method or the five-year rule. (In most cases, though, it will be in a surviving spouse's best interest to exercise one of the unique spousal options.)

A child, grandchild, or other individual

You may want to name your child, grandchild, or other individual as the beneficiary of your Roth IRA. As mentioned, a nonspousal beneficiary must take the Roth IRA distributions in one of the following two manners:

By the end of the year during which the fifth anniversary of the account owner's death occurs, or
Over the remaining single life expectancy of the beneficiary, with the first distribution starting no later than December 31 of the year following the year that the account owner died

If you designate a grandchild or other young beneficiary for your Roth IRA, he or she may be able to take post-death distributions over a long payout period using the life expectancy method. This could maximize tax-advantaged growth opportunities by allowing some of the funds to stay in the Roth IRA for many years. And unlike a traditional IRA post-death Roth IRA distributions may be free from income tax.

Caution:

If you name your grandchild as IRA beneficiary and have a substantial estate, the generation-skipping transfer tax (GSTT) may be an issue. Before naming any beneficiary, consider consulting a tax planning or estate planning professional for more information.

A trust

You can name a qualifying trust as the beneficiary of your Roth IRA if the IRA custodian or trustee allows such a designation. If all requirements are met, the beneficiaries of the trust can be treated as the designated beneficiaries of the Roth IRA. When a qualifying trust is the beneficiary of a Roth IRA, post-death distributions are calculated based on the life expectancy of the oldest trust beneficiary, which can reduce the time that distributions can be spread out.

Suppose, for example, you name your 70-year-old brother and your 10-year-old grandchild as co-beneficiaries under a trust. For distribution purposes, your grandchild must use your 70-year-old brother's life expectancy (since your brother is the oldest beneficiary). Therefore, your grandchild will lose the deferral of payouts that could occur if his or her life expectancy were used instead. Still, a trust can be an especially useful tool if you want your children (or other individuals) to benefit from your Roth IRA but want to maintain some control over their access to the funds.

Tip:

You may be able to establish separate trusts to enable each beneficiary to use his or her life expectancy when calculating required post-death distributions. Consult an estate planning attorney.

Caution:

There are costs associated with establishing and administering a trust, including the cost of retaining an attorney for advice and to draw up the trust agreement.

A charity

You may name a charity as the beneficiary of your Roth IRA. Such a move may be especially attractive if you don't have any loved ones, or if you want to benefit your loved ones through other means. From an income tax standpoint, though, it's not always advisable to name a charity as your Roth IRA beneficiary. Because a qualified charity is a tax-exempt entity, the benefit of income-tax-free Roth IRA distributions is wasted on the charity. It may make more sense to benefit a loved one with the income-tax-free Roth IRA distributions, and leave a traditional IRA or other taxable assets to your favorite charity. (The beneficiaries of a traditional IRA usually have to pay income tax on their distributions. Because a qualified charity is tax exempt, though, the charity would receive the distributions tax free.)

With charities, the five-year rule is used for taking post-death distributions (i.e., all distributions will be taken on or before the end of the year during which the fifth anniversary of the account owner's death occurs).

Your estate

If you name your estate as the beneficiary of your Roth IRA, the money in the account first goes to your estate, and then what's left passes to your heirs according to the terms of your will (if you have one) or through the laws of intestacy. Naming your estate as beneficiary is usually not advisable. First of all, you sacrifice some planning options. Second, the Roth IRA will have to pass through the probate process instead of going directly to your loved ones; this can be costly and protracted and can unnecessarily expose your Roth IRA to creditors. Finally, you may not be able to stretch distributions out over the lifetime of an individual beneficiary. Generally, the five-year rule will apply.

Why your choices matter

There are several factors you may want to consider when selecting beneficiaries for your Roth IRA. Although your primary concern may be to provide financial security for your loved ones, you should also take into account the ages and needs of your loved ones. In addition, you should keep the Roth IRA distribution rules in mind, as well as the beneficial income tax treatment that the Roth IRA may afford.

Because choosing a Roth IRA beneficiary is an important decision, you may want to select a beneficiary with the help of a tax advisor or other qualified professional. In addition, you should review your beneficiary choices periodically to ensure that they continue to be appropriate, since your financial and personal circumstances (and those of your beneficiaries) may change over time. Fortunately, you'll generally be free to add or remove beneficiaries whenever you want (though certain restrictions may apply).

Income tax considerations

As discussed, if the five-year holding period is satisfied, your beneficiaries will not have to pay income tax on your Roth IRA funds after you die. Moreover, funds left in a Roth IRA continue to accumulate free from income tax. So, the longer the funds remain there, the more your beneficiaries may benefit from tax-free growth. This is where your choice of beneficiary can play a critical role; your beneficiary designation may determine (in part) how long the funds can remain in the Roth IRA after your death.

Estate tax considerations

Your Roth IRA beneficiary choice may also impact your federal estate tax situation. Estate taxes may be a concern if you expect the value of your estate to exceed the applicable exclusion amount ($3.5 million for 2009, $2 million for 2008). The full value of your Roth IRA will be included with your other assets to determine how much (if any) federal estate tax is due from your estate.

One potential estate-tax-saving strategy may be to name your spouse as the beneficiary of your Roth IRA and other assets. The federal marital deduction allows you to leave unlimited assets to your spouse free from estate tax.

Caution:

By leaving all of your assets to your spouse, you may waste your applicable exclusion amount. You may defer estate taxes, but when your surviving spouse dies, his or her federal estate tax liability may be higher than necessary. Consult an estate planning attorney for more information.

To take full advantage of both the unlimited marital deduction and both spouses' applicable exclusion amounts, a better strategy may be to leave some of your assets in trust for your spouse and to leave some assets to other beneficiaries (such as children or grandchildren). Having a potentially income-tax-free Roth IRA in a death-tax-saving trust may make more sense than having a taxable traditional IRA in the trust. Another possibility is to leave your Roth IRA and/or other assets to charity, allowing your estate to benefit from a charitable deduction.
Estate planning for retirement assets is complex. Consult an estate planning attorney about appropriate strategies to minimize estate taxes, and about how your Roth IRA should fit into your overall estate plan.

State law considerations

You must also consider how state law may affect your Roth IRA. Your spouse may have legal rights to your Roth IRA regardless of whether he or she is named as the primary beneficiary. In addition, if your roles are reversed (your spouse is the Roth IRA owner, and you are the primary beneficiary) and you die first, state law may prevent your surviving spouse from changing the beneficiary designation after your death regarding your interest in the assets (unless you grant your spouse the power to make these changes in a will or other document).

Caution:

States may differ in their income tax and estate tax treatment of Roth IRA distributions. You should consult an estate planning attorney for details regarding these and other state-specific issues.