View the Dec,. 17, 2010 Alternative Investing “Insurance as an Asset Class” segment on BNN.

The financial community is now paying attention to the benefits of insurance strategies for succession and retirement.  But in the last few weeks, I have heard people on several occasions refer to these benefits as “gifts from the government”.  In all my years in the industry, it’s refreshing to hear a new spin on products and benefits that have been around for decades.

In a time where tax hits seem to show up at every corner, the financial community has noticed that this “gift” is the government’s way of saying, “No thanks – you keep it.”  So as we lose sleep over 1% or 2% management fee from our wealth manager or we try to time the market for an extra half point on a GIC, we are missing out on huge savings in tax that goes right to your bottom line.  We’re not talking one percent here or there.  We’re talking about saving up to 46% tax and compounding it all.  We’re talking estate transfers with the gift of no probate.  We’re even talking about the gift of eliminating tax in your holding company AND flowing everything out tax free through the Capital Dividend Account (CDA).  See the power of tax-deferred, compounded returns is the illustration below:

What’s even better is that the government’s gift giving season is all year long.

Step aside, Mr. Kringle.

The attached article on corporate insurance planning by Price Waterhouse Coopers is not new information, but it highlights what we in the insurance community have been saying for decades: that insurance can be a reliable and highly effective investment planning tool.

Insurance is not a magical, “too good to be true” product that you should be scared of.  Consumers and advisors alike should look at it as a tax gift from the government.  Insurance and annuities structured within a holding company can:

• pay tax preferred income,
• accumulate funds on a tax deferred or even tax free bases,
• allow for all proceeds to be received tax free,
• significantly bump the Capital Dividend Account, and
• potentially eliminate any capital gains tax liabilities upon death of the shareholder.

For more information, see Tax Magic: Corporate Estate Transfers by Alistair Whitehead and Jason Safar of Price Waterhouse Coopers.

“The investment industry is solutions-oriented while the multi-family office goes further by helping clients identify and prioritize their family goals in a practical way, and by providing them with a comprehensive, common-sense plan to achieve them.”

That’s a quote from Tom McCullough of Northwood Family Office in an article written by Evan Thompson of Thompson Wiley and Associates.

Jennifer East, President of Onida says, “One of the most consistent questions put to multi-family offices by their clients is: How can I get my children to be stewards of the family wealth and guardians of the
family legacy?”

The most important emerging best practice in financial services is the need for all providers, be it the accountant, lawyer, investment advisor, insurance advisor or family coaches like Jennifer to not only understand and uncover the the client’s real goals and objectives but to also collaborate in a team approach to build the “common sense” plan that Tom refers to.

As advisors, we must embrace that while this coordinated effort will likely lengthen the selling cycle and sometimes force us to relinquish control, the long term benefits will provide much deeper, fulfilling, long term relationship.

Read more in All in the family, published in Advocis Forum, Sept. 2010.

Where to start

The place most advisors start is LinkedIn – the de facto home for business networking. Minimally, advisors should set up their profile and make online connections with associates that they meet in offline settings. Simple enough. But then what?

There are several other ways to use LinkedIn to build your online reputation and ultimately to generate referrals:

• Recommendations – You can seek recommendations from those in your network who you have worked with in the past. There’s nothing like a personal referral – even in the online world.
• Network Updates – Post regular updates on interesting and topical articles you’ve come across or written. These updates, along with regular tuning of your profile, will appear as an information stream to your connections. This keeps you top of mind.
• Answers – LinkedIn Answers offers users opportunities to ask questions and provide answers. This can help you demonstrate your value as a subject matter expert and “go to” person.
• Join a Group – LinkedIn now supports excellent group discussions, enabling you to broaden your professional network and keep up to date on relevant topics.

Don’t forget Facebook

While LinkedIn is clearly a business tool, don’t forget about Facebook. It tends to be a more personal social media tool, but in the advisory business personal relationships matter a lot. A well-managed Facebook presence will give prospects and clients a glance into the kind of person you are – your hobbies, your passions, your values, even your human foibles – all of which can lead to broadening your network and promoting trust.

Don’ts and dos

Don’t be the guy in the online world that is always pushing his virtual business cards on people. Build trust over time by being helpful and approachable.

Steer clear of ranting and raving or others who are. Conduct yourself with civility and respect for others.

Don’t start something you can’t finish. Be consistent and manage your time wisely so you can stay engaged online over the long-term.

To be successful, follow these tips:

• Listen before you leap – Tune in to what people are saying online before wading into the discussion.
• Be a giver – Share information and be as helpful as possible as a strategy for building credibility.
• Show some personality – Sharing personal feelings promotes intimacy which is a big factor in trust.
• Read Trust Agents – Chris Brogan and Julien Smith have written the bible for advisors who want to build their business online.

Like any decision about how you spend your limited networking time, social media opportunities needs to be considered as part of the mix.

No longer can the online setting be ignored.

Our typical client is a sophisticated investor who prefers to be a smart buyer, rather than being sold to.

Our clients get complete transparency and market clout in the insurance procurement process. By avoiding underwriting surprises, IPS helps to create opportunities for more effective planning.

The following chart illustrates the annual premium savings can be achieved by reducing an underwriting rating by just 25 percent on both life and CI policies:

For example, a 55 year-old client applying for $1,000,000 of Universal Life coverage saves $6,000 per year on the cost of insurance for every 25 percent of extra rating they can prevent. Over the course of just a 15-year period, that amounts to $90,000 in cumulative savings.

Quite simply, investors have two choices to ensure their estate planning goals are met. They can earmark a portion of assets and invest in vehicles that offer an appropriate level of risk and return. Or they can invest in a life insurance policy.

Life insurance offers several, almost “unfair” advantages over other investments. Foremost among these is the fact that the death benefit is largely tax-free. And if a policy is owned and funded by a personally-owned company, the proceeds of insurance can flow out of the corporation almost entirely tax-free to the heirs.

Life insurance also offers compelling internal rates of return (IRRs) when compared to other investments. Consider the following scenario:

• A married couple, each 60 years old.
• The husband receives a 50% underwriting rating and the wife is rated standard.
• Annual premiums of $100,000 secures $8 Million of coverage on a joint last to die basis.

The table (right) shows what the equivalent GIC, pre-tax yield (based on a 46.41% personal tax rate) on the invested premiums would need to be in order to match the performance of the insurance benefit:

In fact, the last survivor would need to live to age 105 in order for their GICs to out perform the insurance contact.

Unlike other investments, insurance products are only available to investors that meet the underwriting qualifications. If intergenerational wealth transfer is a planning reality, then advocacy underwriting and competitive sourcing of the insurance contract can make the returns very hard to beat.

Living benefits insurance and why its important as you get older

As we age, our insurance needs change. Learn more about how to protect your income and wealth from the potential financial impact of accidental injury and sickness.

How to create a bidding war for your insurance coverage.

IPS Insurance offers clients the opportunity to manage their own underwriting and thereby make their bid for insurance coverage more competitive. Learn more about how and why this unique approach works in the personal insurance marketplace.