Lisa Mitchell

Last month’s One Idea from AgencyONE’s Case Design department discussed a planning option for businesses that is currently experiencing a resurgence in popularity – the Executive Bonus Plan. Executive Bonus Plans are an effective way to help retain key employees by using overfunded life insurance. November’s ONE Idea prompted calls from advisors who wanted to discuss designs and ideas for prospective cases using an Executive Bonus Plan.

EXECUTIVE BONUS PLAN – POLICY & AN LTC RIDER?

One of our AgencyONE 100 Advisors was quick to point out that I had not mentioned the inclusion of a Long-Term Care (LTC) rider on the underlying life policy. I opted NOT to add an LTC rider primarily because it would increase policy costs, and these increased costs would affect future cash values AND projected income amounts. Future benefits/values are impacted when taking income and LTC benefits from the policy at the same time. After talking with the advisor about her case, I checked to see how the addition of an LTC rider would impact the initial sale. It would be worth adding if the numbers made sense. LTC coverage is an extremely valuable benefit to many people right now. The client would receive a policy that provides death benefit, cash values AND/OR possible LTC benefits – MORE options and MORE value for the business owner client to offer the key employee.

EXECUTIVE BONUS PLAN – 2 CASES TO CONSIDER

Let’s look at two cases that use the same premium and solve for a minimum non mec death benefit (DB). One is designed for maximum cash value and income while the other includes the LTC rider.

Looking at the values in the table above, I was surprised that they did not significantly drop with the addition of the LTC rider. It is assumed that cash value and income are still the main requirements, but what if we go a step further and design a plan using the same $10,000 premium but make it focused on death benefit as opposed to cash value and income. The higher DB will provide a larger pool of potential LTC benefits.

The above GUL design will provide the key employee with a fully paid-up policy after 15 years and has the option to accelerate the death benefit for LTC if needed in the future. This option is different than the original design from last month’s ONE Idea which used the restriction of cash value to help incentivize the key employee to stay with the company. The DB design does not have cash value but requires the payment of 15 premiums to become fully paid up. If the key employee wants the policy with ALL of its benefits, he/she will need to remain employed or continue to make the premium payments themselves upon departure from the company.

EXECUTIVE BONUS PLAN DESIGN – A PERSONAL CHOICE

Selecting a plan focus is a very personal choice so, it is important to include the key employee in the decision process and allow him/her to determine which plan works best. As mentioned earlier, more options translate into more value for the key employee with the goal of increasing employee retention. Not everyone has the same planning goals.

AgencyONE works to collaborate with you and your clients to design the best possible solution to fit your clients financial and insurance planning goals.

Tis the season of STRESS!!! The hustle and bustle of the holiday season is upon us, and this time of year can cause increased anxiety and even depression. Both are common diagnoses and are not just considered seasonal. As with any condition, there are varying levels of severity. In this ONE Idea, we will discuss the differences between anxiety and depression and how they are viewed during underwriting.

Anxiety Is a Normal Emotion

Everyone deals with some level of anxiety in their lives. However, when a person continuously feels disproportionate amounts of anxiety, specialists might view this as a medical disorder. Anxiety affects an alarming forty million people in the United States according to the National Alliance on Mental Illness (NAMI), and COVID concerns have caused higher levels of stress for many people. As a result, AgencyONE’s Underwriting team is seeing an INCREASE in medical records that have ANXIETY notations.

Excessive Anxiety

Anxiety disorders are characterized by excessive nervousness, fear, apprehension, and worry that does not go away and may cause:

• increased alertness;
• fear;
• panic; and
• physical signs such as a rapid heart rate and breathing, sweating, etc.

An anxiety disorder can also affect how a person processes emotions and reacts (or overreacts) to certain situations. The condition can vary from mild to severe and include obsessive-compulsive behaviors and even post-traumatic stress disorders.

Anxiety Treatment

As the most common group of mental illnesses in the country, anxiety is treatable by safe and available medications. Surprisingly, less than 50% of Americans seek the necessary treatment. Anxiety by itself, if considered “controlled” with mild medications, is a LESSER underwriting concern. However, many times it is paired with a second diagnosis of depression which can be a GREATER underwriting concern.

Characteristics of Depression

Depression affects adults, adolescents, and children. It is a condition characterized by ongoing feelings of sadness and loss of interest or pleasure in daily activities. Common symptoms include irritability, anxiety, disinterest, fatigue, insomnia, change in appetite, avoiding people, feelings of worthlessness or guilt, difficulty thinking, concentrating, or making decisions, and excessive crying. The most concerning is when the patient has recurrent thoughts of death or suicide, or a suicide attempt.

Causes of Depression

Depression can be influenced by many factors such as environment, genetics, hormones, or simply changes in how our brains function over time. Along with anxiety, depression has varying levels of severity from mild and situational (like a grief reaction), to major and recurrent. Treatment strategies for anxiety and depression can range from psychotherapy, diet, exercise, brain stimulation therapies or prescription medications. Depressive/anxiety conditions may require multiple medications, dosage adjustments, and for some it can be an ongoing challenge to manage.

Underwriting Specifics

No two cases are alike. So, WHAT makes for a better or worse mortality risk? First, the diagnosis. Is it considered mild, moderate, severe, recurrent, or in remission? How long has the applicant carried the diagnosis? What treatment (medication) is the client taking and has the dose changed recently? A client taking the same medication long term with no changes means STABILITY and underwriters LIKE stability.

Carriers also will want to know about:

• Any history of drug or alcohol misuse
• Any history of an adverse driving record
• Any history of hospitalizations for mental illness, attempted suicide, or missed work or school of greater than a week
• Any recurring symptoms within the past year
• A stable social situation including marital status, occupation
• Any co-existing physical illnesses, especially chronic, persistent pain
• Any other co-existing mental illness or personality disorder
• Any suicidal tendencies, previous attempts, family history, or access to firearms

Case Study

The Turners are a married couple who own a successful tech-related business and are seeking $10MM of Survivorship Indexed Universal Life Insurance coverage for the benefit of their two children.

Mrs. Turner is a 55-year-old healthy woman with no significant medical history aside from a diagnosis of generalized anxiety disorder. She has no history of depressive symptoms but does complain of excessive worrying related to her health, her family’s health, and her finances/business’ success. Mrs. Turner has experienced a significant improvement in these symptoms with the help of monthly cognitive behavioral therapy. Due to therapy, she is able to effectively manage her symptoms without the need for a daily prescription medication. She has a prescription for Xanax to be used only as needed, for example when flying or public speaking. AgencyONE negotiated a BEST CLASS offer with Carrier A, while Carrier B and C held her offer to Preferred Non-Tobacco rates due to her anxiety history and Xanax prescription.

Mr. Turner is a 60-year-old man with a history of both anxiety and MAJOR depressive disorder. He does not have any history of suicidal thoughts or attempts but does require daily Zoloft to effectively manage his depressive symptoms. He also has a prescription for Xanax to take, as needed, for anxiety and a prescription for Adderall to take daily for a history of ADHD. Mr. Turner’s depression was successfully under control for several years and considered in remission, but he did experience an increase in depressive symptoms during the height of the pandemic. This resulted in an increase of his Zoloft dosage and a recommendation to start therapy. Mr. Turner followed through with this recommendation and is back on track with his treatment plan. AgencyONE was successful in negotiating a Standard Non-Tobacco offer at Carrier A. Carrier B and C held their offer to Table 2 Non-Tobacco due to the recent dosage change and the need for three psych-related medications.

*These are all carrier SIUL products solving for coverage to 121.

AgencyONE’s Underwriting Team consistently offers experienced, knowledgeable and “think outside the box” underwriting to their AgencyONE 100 Advisors and clients and provides the best offers available in the marketplace.

The retention of employees has been on the minds of many lately – including advisors and their business owner clients. Business owners are more concerned than ever in retaining and rewarding their key employees and executives in order to maintain their businesses and manage them efficiently. At AgencyONE, we’ve received numerous 4th quarter requests from our AgencyONE 100 Advisors that suggest this “concern” is factoring into the financial planning for many businesses.

One longtime employee retention plan is called a Section 162 bonus plan. When was the last time you used one of these for a client? AgencyONE has quoted these periodically over the last year, but I recently was surprised by a similar request from two different advisors who were interested in using this to help their corporate clients. We even went a few steps further and presented a Double Bonus Funding Pattern with a Restrictive Endorsement.

A 162 Bonus Plan aka Executive Bonus Plan

What is a Section 162 Bonus Plan or an Executive Bonus Plan? This is a plan put in place by an employer that is essentially a “raise in pay” that usually involves the purchase of a life insurance contract on the life of an employer’s selected key executive. The employer pays the premiums on the policy in the form of the bonus and can deduct that amount as a business deduction for ordinary and necessary business expenses under Section 162(a)(1) of the Internal Revenue Code of 2001. Total compensation, including bonus, must stay within the bounds of reasonable compensation.

How an Executive Bonus Plan Works

The following is a basic structure for an Executive Bonus Plan:

1. The insurance policy is owned from the outset by the executive. The executive names their beneficiary and has all rights of ownership in the contract.
2. The employer pays the bonus in the form of premiums sent directly to the insurer.
3. The entire premium paid is by the employer under an executive bonus arrangement and is charged to the executive as ordinary compensation income and reported on their IRS Form W-2. Each bonus is subject to FICA and FUTA tax. The bonused premiums are considered a non-cash, fringe benefit for withholding purposes, so the premiums will be added to regular cash wages paid during the year and the appropriate withholding adjustment will be made. In many cases, the employer will assist the executive even further by paying an amount sufficient to pay both the premiums and the tax on the bonus. This is often called either a “double bonus” or “grossing up.” (The arrangement is generally not recommended for S Corporation owners or partners since those businesses are not separate taxpaying entities.)

A Sample Case

Let’s review one of the recent cases I mentioned above. The owner of a small company has been concerned with employee retention. All of the press regarding the “Great Resignation” has been worrying and he wanted to make sure that two of his most key executives were incentivized to stay with the company (male executive age 38 and female executive age 42). The owner was willing to bonus each employee $10,000 per year for 15 years and also wanted to “gross up” the bonus to cover the taxes due. Assuming the executives were in a 35% tax bracket, that would result in a total bonus of $15,385 per year.

Restrictive Endorsement Bonus Agreement (REBA)

To provide the retention incentive that the employer wanted, the AgencyONE 100 Advisor recommended the addition of a Restrictive Endorsement to the bonus arrangement. A Restrictive Endorsement is created between the employer and the key executive. This agreement requires the employer’s consent for the executive to have access to the policy values, which provides enticement for the executive to remain employed for a specific length of time. The agreement may also stipulate a vesting and repayment schedule in the event the executive does not fulfill the employment time frame set forth in the agreement. AgencyONE’s plan was designed to allow the executive 10% access to the cash value in year one and this will increase by 10% each year through year 10. In year 10 the Executive will be fully vested in the plan and will have 100% access to the cash value. Our carrier partner on this case has the administrative processes in place to help implement and monitor the terms of the Restrictive Endorsement.

Key Executive Benefits Under the Plan

Let’s explore what the key executive receives under this arrangement. We will focus on the younger client’s projected values (male executive age 38).

As you can see in the first few columns to the left under “Executive”, the employer bonuses a total of $15,385 per year with $10,000 of that going to the policy premium. The remainder of $5,385 per year goes to the executive to pay the required taxes. Then looking further right under the “Executive” section you can see the illustrated Net Cash Values and the key executive’s accessible cash values (Accessible Surrender Value). Finally, the last two columns on the right show the Employer’s Tax Savings on the Bonus and After-tax Cost of Bonus. After 10 years, the executive (insured) has 100% access to the cash values (the specified length of time in the Restrictive Endorsement), and in our design, the employer makes 5 more payments to the plan. Assuming a 5.75% crediting rate, this projects an income stream of $50,484 per year to the key executive from ages 71-85. Of course, the key executive can access the money any way he chooses AFTER the Restrictive Endorsement expires.

Highlights of an Executive Bonus Plan

For the Employee:

• The policy funding the plan is owned by the executive
• The plan can be designed to meet personal needs
• The executive’s tax cost can be covered by an additional bonus from the employer
• Any growth in policy cash values accumulate tax deferred
• Tax preferred income can be received from the plan via withdrawals and loans
• The executive has some control over the plan, including beneficiary selection and asset allocation

For the Employer:

• Bonuses are tax-deductible
• The employer has complete discretion in selecting who is included
• There are no maximum or minimum contribution requirements
• No IRS approval required
• Minimal administration expense
• Plan may be terminated at any time pursuant to the agreement
• Plan design is simple
• Using a Restricted Endorsement Bonus Arrangement (REBA) can create “golden handcuffs”

Underwriting for this Solution

The executive will need to be fully underwritten for use of this solution. Since the face amount on this case is below $1,000,000 and the key executive is younger, he can apply through Accelerated Underwriting (AUW) which could result in a quick turn-around assuming he qualifies. The details of this case tend to be right in the “sweet spot” for AUW solutions which are run with a minimum non mec death benefit to maximize the cash value over time. You can find an up-to-date Accelerated Underwriting spreadsheet on your personal AgencyONE Advisor Dashboard in the Underwriting dropdown tab. The sheet outlines all of our carrier partners’ AUW programs. Please note that you will need to be authorized to use our website to access this tool.

More business owners and employers are looking to retain key executives during this “Great Resignation” job market. An Executive Bonus Plan arrangement is a creative way to help incentivize these executives. The additional compensation paid into the policy, the opportunity to eventually receive vested policy cash values, and the beneficiary death benefit may encourage key executives to remain employed longer.

AgencyONE has the experience and knowledge to assist in the planning, underwriting, and placing of insurance solutions to fit any of your clients personal or business needs.

As many of you know, I spend a lot of time on the phone with financial advisors assisting them in defining ways to mitigate risks resulting from mortality, morbidity, longevity, and taxes. During a recent call with an investment advisor and one of our AgencyONE risk advisors, I came across a fact pattern that I feel compelled to share.

The PROBLEM

The only way that I can describe what we discovered in the clients’ financial profile was that the couple had been extremely successful in their financial and investment planning. They have a net worth of $40,000,000 and one of them is still working (and making $1,000,000 pre-tax) at age 75. The clients’ asset base was comprised of $10,000,000 in a non-qualified managed portfolio and a $5,000,000 home. The PROBLEM was that of the remaining $25,000,000, $10,000,000 of the couple’s assets were in IRAs ($1,000,000 of that in Roth IRAs) and $15,000,000 was in Variable Annuities. Clearly, the couple had done “all the right” things.

You may be humored by my choice of the word “PROBLEM”, but let’s unpack this because at age 75 and age 73 respectively, this couple, or better said, their estate …. their children and grandchildren, were facing a very severe threat of confiscation by their other beneficiary, the IRS.

Additional Details

The clients “burn rate” for living expenses is approximately $500,000 per year after taxes and we assumed a 3% inflation rate. Our priority is that all living expenses are met to maintain the lifestyle to which the couple are accustomed and that the income producing, or other available assets, are sufficient to accomplish that goal. The investment advisor felt comfortable using a 6% gross rate of return for the IRAs and Variable Annuities and a 6% total return (2% dividends and 4% growth) for the non-qualified assets. The husband intends on working until age 80 at his current income rate. While continuing to generate a meaningful income, it is important to note that the couple was also taking Required Minimum Distributions from their individual IRAs and both were already taking Social Security benefits, which were all modelled into the analysis. Finally, this couple had already taken advantage of the lifetime gift exemption to transfer approximately $8,000,000 out of their estate and into trusts for their 3 adult children, leaving them $15,400,000 of available gift tax exemption in 2021.

Projection of Estate & Cash Flow Analysis

After detailed discussion with the investment advisor, a projection of the estate was completed including a cash flow analysis for living expenses. The income and estate tax projections are shown below year by year, with the blue highlighted rows indicating projected life expectancy.

Transfer Tax Details

We assumed that the Estate Tax regulatory regime will remain as is with the Sunset provision of the 2017 Tax Cut and Jobs Act reducing the available unified credit for estate tax purposes in January 2026 (Column 3 minus the $8,000,000 already gifted). There was no analysis of a reduced exemption based on the current administrations tax proposals, but clearly, this would trigger an even larger transfer tax.

Transfer Tax Challenge

While the estate tax is a challenge at just over $27,000,000 (see Column 4), what is often missed is the impact of the additional income tax due on Tax Deferred Assets (Column 5 – the Annuities) and Retirement Plan Assets (Column 6 – the IRAs). Combined, these result in an additional $8,220,000 in income taxes that would be paid by the beneficiaries of those assets. The resulting total transfer taxes paid at the death of both spouses is just over $35,000,000.

Finding Tax Efficiencies

Upon seeing the transfer tax problem, we discussed options with the investment advisor to find ways to reduce the size of the taxable estate and begin to find tax efficiencies in the wealth transfer objectives of the clients.

AgencyONE’s process on these cases is to create scenario planning or modelling of various recommendations, which may include but not be limited to:

1. Making additional gifts of assets to children or trusts;
2. Accelerating distributions from qualified assets;
3. Accelerating distributions from annuities;
4. Making charitable donations; and
5. Funding life insurance in a trust or trusts, which may include Spousal Lifetime Access Trusts.

Unique Challenges

This case presented some unique challenges because annuities cannot be transferred to another individual or entity, such as children or a trust, without triggering immediate recognition of gain and triggering a tax (I.R.C. Section 72(e)(4)(C)). Furthermore, qualified plan assets, such as IRAs, cannot be gifted to children or to a trust without it being deemed a taxable distribution. Both types of assets comprised over 60% of the gross estate for these clients.

Recommended Solutions

AgencyONE’s recommendations included transferring $10,000,000 of the clients non-qualified assets and accelerating IRA distributions to fund annual gifts to their trust to purchase $10,000,000 of 2nd to die life insurance on an abbreviated (5 years) premium flow. Without any additional planning, we were able to meaningfully reduce the clients’ taxable estate and provide the following enhancements to their wealth transfer after providing all lifestyle cash flow needs:

While we accelerated the income tax burden during the first 5 years of planning, by life expectancy the increased income tax paid over what would have otherwise been required by their RMDs was only $500,000, but the increased wealth transferred to their heirs was almost $12,000,000.

Dead Assets

IRA’s and Tax Deferred Annuities that are not spent down during one’s lifetime, as we see many wealthy individuals and families with large balances in both, are dead assets, with a possible income and estate transfer confiscation of 60% or more.

AgencyONE has the expertise, the analytic tools and the experience to assist investment and risk management advisors in completing this sort of analysis and proffering recommendations for consideration by the planning team.

Conversations that financial planners have with their clients can be tricky. Most financial advisors only talk about “the money” and hope that the recommended planning is put in place so that future generations can continue to reap financial rewards. Other financial advisors, who tend to retain clients for multi generations, expand the conversation and go deeper, talking about other aspects of their clients lives and value systems which may be equal to or more important than “the money”. But what could be more important than “the money”? When asked, your clients will often tell you that there are a lot of things that are more important than ”the money”, such as family and health, relationships and education, or time and attention. These non-financial aspects to your clients lives truly reveal what is important to them today and the values that they would like to impart on future generations. And these conversations and the planning that results from them will determine whether your clients are leaving or living a legacy.

This ONE Idea, from October 2021, presents an article authored by AgencyONE Partner, Gonzalo Garcia, CLU, and published in the September 2021 issue of Broker World Magazine. Gonzalo’s article, entitled Leaving or Living A Legacy – What’s Your Story?, while well over a year old, still resonates. It focuses on the conversations that financial advisors who want to retain their clients for multiple generations SHOULD be having with them NOW so these clients can optimize multi-generational true wealth and be LIVING their legacies as opposed to LEAVING their legacies.

We invite you to read this article through the Broker World link and hope it assists you in reframing the conversations you have with your clients.

High Net Worth Foreign Nationals (HNWFN), aka Global Citizens, are a GROWING market of individuals who typically possess assets and interests across the world and find particular financial safety and security in US domiciled businesses and properties. The growth of this market has expanded BEYOND the traditional US markets we’ve come to expect and includes both US citizens living abroad (typically for more than 12 weeks per year) and non-US citizens living in the US. The HNWFN market offers more OPPORTUNITY than EVER to write US based Life Insurance protection for your applicable clients. Foreign National Underwriting for High Net Worth Global Citizens is a growing and lucrative market.

This ONE Idea will provide an understanding of this HNWFN market and also provide information on our upcoming webinar titled, High Net Worth Global Citizens & Foreign National Underwriting. AgencyONE will be hosting this webinar in October and specifically dedicating it to this market and its opportunities.

What Qualifies A HNWFN?

HNWFNs typically have a net worth of $5M or more and possess global business interests and property and other assets that TIE them to the US. Because these assets and interests require protection against risk, properly structured temporary and permanent life insurance coverage can help mitigate the risks to which HNWFN are exposed – including generational wealth transfer and taxation on their worldwide income and assets.

Benefits of Life Insurance for HNWFN

Taxation issues may arise for couples when one partner is NOT a US citizen and become problematic upon the death of one spouse. Most clients are NOT aware that taxes will be due …until the IRS letter arrives! The solutions to this problem lie in strategic estate planning and the necessary life insurance protection.

US life insurance offers many benefits to the HNWFN:

• Asset diversification in global markets
• Assets that are held in US dollars
• Possibly less restrictions than life insurance from their home country
• Increasing number of carriers available
• Better pricing and more coverage availability
• Industry regulation offering security and privacy

Underwriting for the HNWFN is NOT uniform from carrier to carrier. It varies and depends upon many factors such as:

• Country of current residence
• Citizenship
• Connection/ Nexus to United States
• Travel schedule
• Green Card/ VISA status – an area of confusion for many advisors and clients.
• Green Card Holder – someone who is a permanent resident alien (Foreign National non-US citizen). Underwriting for a green card holder is treated like the underwriting of a US citizen and is routine for the most part.
• A VISA is issued to a citizen of a foreign country wishing to come to the US. They are more complicated because there are so MANY types (student, tourist, temporary worker, long-term worker, etc., etc., etc.), limitations depending upon country of origin, residency minimums, and rating limits.
• Ability to provide applicable medical and financial requirements
• Solicitation requirements

Every High Net Worth Foreign National Case is Different

As always, each case is different, but AgencyONE’s extensive knowledge about this market and our carrier partner relationships will help you identify the RIGHT CARRIER for your client and get your CASE PLACED. Following are some examples of cases that were recently placed:

1. $5M Key Person Term Coverage – Japanese Citizen

A 44-year-old standard NT female came to the US to live and work as a CEO of an advertising firm. She needed $5M of term insurance for Key-Person coverage. AgencyONE identified a number of carriers that would have been ideal for this client, but as we got further into the underwriting process, we discovered that the client still owned property in Japan. This ownership had the client falling into the HNWFN classification as opposed to a resident alien. This was a problem because most carriers will not provide coverage to Japanese citizens. (Japan has regulations that do not allow citizens to buy insurance coverage outside of their home country.) AgencyONE worked with one of our carrier partners who was willing to write this case and provide the client with the key person term coverage needed despite her status as a resident alien.

2. $7M Permanent Coverage – Canadian Citizen

A 54-year-old preferred NT male who is a Canadian citizen spends the majority of his time in Russia. His advisor approached AgencyONE looking for $7M of permanent coverage and asked if we had any carriers that would accept this risk. This client had ties to the United States in the form of real estate interests and brokerage accounts. The challenge with this case was the amount of time the client spends in Russia. Many carriers who write HNWFN business have Anti Money Laundering (AML) concerns with the country of Russia. AgencyONE again identified the RIGHT carrier for this client and was able to secure the permanent coverage requested despite the fact that the client spent the majority of his time in Russia. A great outcome for all involved. (Cheers – vashe zdorov’ye)

3. $9.8M Permanent Coverage – Chilean Citizen

A very wealthy 48-year-old Chilean citizen who was an impaired risk had relocated to the US. He was in the US on a specific visa. This VISA, an investor visa, qualified the client as a HNWFN. This required that he be underwritten as a HNWFN rather than as a domestic client. Since the client had a medical risk that would have bumped him out of allowable coverage through a HNWFN program but not a domestic program, AgencyONE needed to manage the case with “the right” carrier partner to view the client domestically. The coverage was needed to offset future taxes. With the Investor visa, the client would eventually be a permanent US resident and citizen or green card holder exposing his global net worth to US taxes.

Details Make or Break a Case

We often say at AgencyONE that the details will make or break a case. The HNWFN market is exciting, challenging and rewarding. Term and permanent coverage are available from many carriers, but it is CRITICAL to understand the carrier NUANCES – there are MANY. The HNWFN platforms that the carriers offer are unique in that they are even MORE competitive than the products offered. Securing coverage is the key and AgencyONE has the KNOWLEDGE and RELATIONSHIPS to direct your client to the right carrier!

We hear you loud and clear! The traditional underwriting process often presents many challenging hurdles – lengthy applications that include multitudes of invasive and personal questions, varying carrier requirements including blood, urine, EKGs, and the time-consuming attempts to get APS information. It can take MONTHS to get everything required to approve a policy!

Insurance companies are regulated by the individual states (NAIC State Insurance Regulation) in which they are licensed to sell insurance AND operate under specific requirements outlined in their reinsurance treaties. They are audited regularly. Like it or not, all underwriters are REQUIRED to ascertain specific information to assess mortality accurately and approve the desired death benefit.

That said, AgencyONE’s carrier partners are equally frustrated with the time-consuming underwriting process. As a result, they have developed many NEW and IMPROVED life insurance opportunities for you to offer your clients, with much LESS invasive or NO underwriting at all.

This ONE Idea addresses the opportunities to add coverage to your client’s existing portfolio OR to apply for new coverage with LITTLE TO NO UNDERWRITING!

Opportunities If You Have Sold Life Insurance To Clients In The Last Three To Five Years

Add More Insurance Coverage

Did you know that programs are available that allow you to add more coverage using older underwriting requirements? You may have clients with policies that are a perfect fit for these programs. It is time to take a look at your existing book of business!

Basics: The programs that allow you to add coverage require the in-force policy to be fully underwritten at an approved carrier within the last three to five years at standard rates or better. Depending on the carrier, these programs offer additional Permanent coverage equal to the face amount of the existing policy up to $1M, $2.5M or $3M, with a maximum age of 65.

Case Example: Cheryl Smith bought a $2MM, 10-year Term key-person policy two and a half years ago. Since that time, Cheryl bought a new house and got married. Cheryl’s life changes prompted the need to increase her personal coverage. Her Advisor suggested one of our top carrier partner’s Term Plus Perm Program. The new insurance company was able to use Cheryl’s old labs and ran the MIB, Script Check and MVR. Cheryl was approved and purchased an additional $1MM UL policy with a Long-Term Care Rider – WITHOUT A NEW EXAM OR LABS AND IN LESS THAN TWO WEEKS!

External Conversion or Exchange Programs

If you have a client with Term coverage in-force at a carrier with limited conversion options OR Permanent coverage in-force at a carrier with an uncertain future, your clients have options to consider for policy conversion or exchange.

Basics: With External Conversion Programs, your client will surrender the original policy for a new one. Perhaps your client was enticed by the new carrier’s product specifics – a rider, better pricing, longer guarantees, or better company ratings. Generally, the face amount for the new policy will match the existing policy up to $1M and up to age 65. The original policy must have been fully underwritten at an approved carrier within the last three to five years at standard rates or better.

Case Example: Seth Gold is a 56-year-old attorney who bought a fully underwritten $1MM, 10-year Term policy four and a half years ago at Preferred rates. During his annual planning review, Seth was advised to purchase Permanent coverage. Because he was not satisfied with the conversion options at his policy’s existing carrier, Seth’s Advisor suggested a Term to Perm Exchange program with a different carrier. Within two weeks, Seth was able to exchange his Term coverage for an IUL policy which included an imbedded chronic illness rider – WITHOUT GOING THROUGH FULL UNDERWRITING!

Underwriting Options For New Insurance Coverage

Accelerated Underwriting – more options, higher face amounts, NO LABS and fast approval!

We refer to accelerated underwriting (AUW) as a yes/no, lab-free, algorithmic-based program. The first AUW program hit the market in 2014 and since then, many carriers have followed suit. These programs have historically been geared toward your healthier clients under age 60. This is generally still the case; however, the face amounts being considered have INCREASED quite a bit! Today, we have carrier partners who are approving applicants through age 50 for up to $5MM and up to age 60 for $3MM – using ONLY the application, telephone interview, MIB, MVR, Script Check, etc. to underwrite the case. Some carriers offer an entirely digital experience!

Expedited Underwriting – expanded options, older ages, higher face amounts, with NO LABS!

During COVID, getting an insurance exam became extremely challenging. Carriers had to pivot to get business placed. Those who had been piloting alternative data sources like patient portals, electronic health records, lab data, etc. had to quickly incorporate these tools into their underwriting. We also saw carriers temporarily modify their established AUW guidelines. These modifications allowed cases to be approved at higher ages and face amounts WITHOUT an insurance exam IF the carrier could procure enough recent medical information to satisfy the exam requirements (labs, build, blood pressure, smoking status, etc.) through these alternative data sources. In many instances, particularly with the Human API portal data, we were able to obtain what we needed to approve the case in minutes!

What began as a “temporary” fix to the insurance exam issue, as a result of COVID, has now become a part of the permanent guidelines at many carriers.  Expedited or frictionless underwriting sets parameters (age, face amount and other criteria) and allows an underwriter to use digital or clinical data (including the traditional APS) to satisfy exam requirements. We now have an opportunity to issue up to $10 Million of coverage, up to age 70, WITHOUT AN INSURANCE EXAM if the client has had a physical and labs within the last twelve months! (And for higher net worth individuals who receive executive physicals, we may be able to secure even MORE coverage through Executive Underwriting Programs).

Updated Tool for You!

Please review the updated Accelerated Underwriting Programs spreadsheet which includes ALL the new and expanded carrier programs. You can always find the most current version on the AgencyONE website on your Advisor Dashboard in the Underwriting drop-down tab. There are SEVERAL hyperlinks there which will direct you to additional information.

Underwriting Has a Shelf-Life – “We Aren’t Selling Bicycles!”

The insurance solutions you offer are VERY meaningful to the families and businesses they protect. AgencyONE strives to get your clients’ insurance coverage in place as quickly and efficiently as possible. Underwriting delays can have serious repercussions – especially if your client experiences a health change, or worse, before the policy is placed in force.

We work with our AgencyONE 100 Advisors to prevent delays by helping them identify and Ask The Necessary Questions, be aware of and understand the available underwriting programs, and to foster engagement among all of the involved parties.  Let AgencyONE’s underwriting team help you – we have all the information you need at our fingertips!

Please contact AgencyONE’s Underwriting Department at 301.803.7500 for more information or to discuss a case.

AgencyONE’s weekly ONE Ideas are designed to discuss a range of industry topics that are linked to current trends in Advanced Markets, Case Design, and Underwriting. There has been a lot of activity within the industry over the last 6 months (COVID, the election, ongoing interest rate pressures, and product changes) so this week’s ONE Idea will offer a RECAP for this past month with links to the full copy of each AND a list of all of our published ONE Ideas since the beginning of 2021 with a hotlink to the full article.

JUNE ONE IDEA RECAP

We started out the month with an Underwriting ONE Idea on June 4th entitled You Want Preferred Offers? You Need to Understand Preferred Criteria! This well-written ONE Idea from our underwriting experts discusses the details of a PREFERRED rating and WHAT the carrier expects to place the offer. This ONE Idea provides a deeper understanding of the rating and is intended to help you have meaningful and educated conversations with your clients while setting the proper expectations at the outset of the case.

Our second ONE Idea for the month came From the Desk of Gonzalo Garcia, CLU on June 11th and is entitled End of Term Insurance Period STICKER SHOCK! This article discusses what happens to Term policies at the end of their term period, the Annual Renewable Term rate that goes into effect and the various product options and carrier restrictions that the advisor and the insured need to understand. The assistance of a savvy advisor is CRITICAL to helping the client establish his/her financial needs and goals, and to understand the impact of physical health on the renewal or conversion of a policy.

ONEIdea number three for the month came From the Desk of Ed Stark, CLU, ChFC on June 18th and is entitled A Premium Finance Insurance Case (with options) That Went Well! This article highlights examples of the Premium Finance cases we see at AgencyONE, why advisors and clients like the Premium Finance option, the difficulty in illustrating a Premium Finance case, and a case study that shows the detail that goes into planning and executing a successful Premium Finance case.

SIX MONTHS OF ONE IDEAS

Following is the list of all ONE Ideas from January to May 2021:

Advanced Markets/ Economic Outlook

May 6: Attack of the Step-Up in Basis – Life Insurance to the Rescue
Apr 16: Optionality is KEY to Estate Planning Today
Mar 26: A Worry for All – New Proposed Tax Law
Mar 1: A Simple Solution to the Estate & Gift Tax Quandary
Feb 12: Why Fee Advisors Should Consider No Load or Low Load VULs
Jan 27: Section 7702 – How to Design an Efficient Life Insurance Contract
Jan 15:  2020, Interest Rates, COVID, & the Life Insurance Industry

Underwriting

May 14: Why is My Client a Preferred Life Risk, but Declined for Long-Term Care?
Apr 5: Aortic Aneurysm – Can I Still Get Life Insurance?
Mar 5: You Have to Ask the Questions: Marijuana & Disclosure Issues
Feb 5: ASPIRE Makes Life Insurance More Affordable When Living with Diabetes
Jan 11: Underwriting Success in 2021 Despite COVID

Product Intelligence

May 21: Death Benefit Design Options Using Section 7702 Compliant Products
Apr 23: Term Insurance Locks in Future Insurability
Mar 19: Finding the Right Insurance Solution – Drilling Down
Mar 12: A Personal Story – Life Insurance for Children
Feb 19: Life Insurance – What is Left to Sell?
Jan 22: Policy Servicing – Help Your Clients & Help Yourself

HELP YOUR CLIENTS UNDERSTAND THE PROCESS

Each of these ONE Ideas is meant to help you and your clients gain a better understanding of the planning, product selection, design, and underwriting that goes into the purchase of life insurance. We hope you find these ONE Ideas helpful when assisting your clients with their financial, wealth, and estate planning needs. Thank you for entrusting your business to AgencyONE. We greatly appreciated the opportunity to serve you and your clients.

Please contact AgencyONE’s Marketing Department at 301.803.7500 for more information or to discuss a case.

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