So this created a ton of buzz….but the question remains if it will actually sell, and I think that a lot of people are falling victim to what we call “Magpie Syndrome” focusing on the shiny object, in this case all the perks, and losing sight of what probably matters most: price.
Let’s dispel some myths right now: Level pay pricing is largely the same “apples to apples” Protection UL 13 vs. 15. Take a male, age 55, PNS solve for $1000 @ 105. Pricing went down even if we use Bronze, which is automatic and requires no action from the client. If we climb Vitality levels, the story becomes even more compelling. Check out the chart: Savings from 3% to 16%
Bronze and sliver are pretty much a push, but gold and platinum? That’s real money and likely a better contract to own long term based on the presence of real cash value.
So that’s the story. Combine that with underwriting that is second to none and a suite of rewards that are the nuts and cherries on top of a very delicious sundae, and you have the story positioned properly for the death benefit space. We need to remember to keep it simple…..and focus on the impact on price, not all of the other stuff that comes with it.
Speaking of simple, there is one other element that is worth mentioning: Life Tracker. This platform is automatically part of the product with or without the rider, and it provides an automatic snapshot of what happens to the contract based on ANY variance: Vitality discounts, premium timing, crediting rate changes, you name it. This is powerful, and should not be discounted. It effectively automates the annual review process.
Look, we may not sell much variable in third party, but this may be the way to get in to that market with a name brand company like John Hancock:
- Basically one design: Cash maximization, run on JH SalesNet
- Drop Ticket application
- Simplified underwriting, even versus other similar programs: Fewer data base checks, more straightforward interview
- SMOKERS are eligible. This is a big one, completely unique versus ERP and Accelerated Underwriting.
- For the advisor, it’s a way to access a tax-advantaged wrapper to allow them to manage assets that would normally be subject to tax.
These facts alone make this worth talking about, but before we can talk about the how we need to show an advisor why it makes sense to manage assets inside a life insurance contract, and that conversation is all about taxes.
If, based on the available subaccounts, the advisor thinks he can manage the portfolio to achieve a similar gross return to what they could do on the outside, how big an advantage does the tax treatment of a life insurance contract give the client? It depends on the tax rate, and there are two ways to think about it:
First is the impact of taxation on gross return. Significant? Obviously. Reductions of 28 to nearly 40% based on federal rates alone can take a gross of 8% all the way down to less than 5%. That’s not going to make anyone happy. Of course, cap gains rates are lower, but even they will bleed off 20% of the client’s gains.
The other way to think about it is to consider how high a return the advisor would need to generate in a taxable environment to keep up with the life insurance contract. They would need to squeeze anywhere from 224 to 317 basis points out of the portfolio to achieve an equivalent result. That does not happen without taking on more risk, and that is not something most clients are going to be willing to do.
Based on this, life insurance has a place in the conversation, but we have not talked about the expense side yet. Subaccount level expenses are going to be more or less like a management fee on a mutual fund account, so let’s just call that a push. That leaves the costs related to the death benefit as the last variable, and with the “hard-wired” design that minimizes the death benefit, those costs are going to be far, far less than the tax hit the client would take in a taxable investment.
That’s the trade: insurance expenses versus tax, and in this situation, life insurance wins, and will likely continue to win based on where tax rates are likely to go.