Why Educating Grantors About Policy Mechanics Just Makes Sense

December 21, 2018

As we’ve all heard, there seems to be an overwhelming gap between the mechanics of one’s life insurance policy, and what typical policyowners truly understand about how their policy work. We as life insurance advisors take great pride in bridging this knowledge gap, however the problem still persists which can inevitably lead to a number of potential issues in how one’s wealth preservation ultimately plays out.

According to a recent article by John Bikus of ITM TwentyFirst, a staggering 33% of life insurance policy owners do not understand how their policy works1, a number John still feel is woefully low. John goes on to highlight some important points about why TOLI Trustees should be reaching out to grantors to explain just how their policy works to provided much needed peace of mind and deepen their client relationship.

For those who have dutifully been paying premiums

  • The discussion will reinforce the reasons for taking out the policy
  • Even though the changes in the federal estate tax may have greatly reduced the number of people subject to the tax, life insurance is still a worthwhile financial investment and that point can be driven home by the discussion. Just because the proceeds will not be gobbled up by taxes does not mean the proceeds are no longer as valuable – in fact, they are now more valuable since, for many, one hundred percent of the benefit will go to the beneficiaries, a plus

For Policies Where Low Interest Rates Have Been a Drag on Performance

  • Now is the time to review those policies with clients - when interest rates are ticking up and fixed investments (which most life insurance policies are) have a rosier future

For Grantors Reassessing Their Financial and Estate Planning Future

  • Once they are comfortable their life insurance policy is secure and valuable, you can move on to other subjects that may provide additional revenue for your firm.

For Clients Where Retirement Income Is a Major Concern

  • Some may feel they do not have enough assets to support their lifestyle, some simply have not put a retirement funding plan in place. In either situation, financial planning services can lead to additional opportunities for your firm. For example, clients worried that they may “run out of money” can be introduced to annuities as a funding vehicle for a portion of their assets to ensure a basic lifetime income.

For Higher Net Worth Clients with Well-Funded Retirements

  • These clients still need these services
  • Introduce your investment options as you develop a relationship with them. These clients also have issues other than money you can solve. Most wealthy individuals struggle with how much to pass on to their children and how to structure the inheritance. You can bring great relief to ILIT clients by introducing other trust and estate planning services that can solve their problems.

Opportunities to Open a Dialogue with Beneficiaries

  • Most TOLI trustees we speak with rank retaining the asset – the death benefit after the death of the insured – as one reason for handling ILITs, yet few put in the time and effort to cultivate the next generation of wealth. Why can’t the beneficiaries be clients now so that retaining the TOLI benefit in the future will be cemented?

1 Most TOLI trustees we speak with rank retaining the asset – the death benefit after the death of the insured – as one reason for handling ILITs, yet few put in the time and effort to cultivate the next generation of wealth. Why can’t the beneficiaries be clients now so that retaining the TOLI benefit in the future will be cemented?

Source: ITM Twenty First. Informing Grantors About Their Policy Makes Good Business Sense. John Bikus. https://youritm.wordpress.com/2018/12/11/informing-grantors-about-their-policy-makes-good-business-sense/. December 2018