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LESSON 1:
How to Use Patented, Independent Life Insurance Pricing and
Performance Research in Your Year End Planning to Create
Immediate Bankable Results in Your Practice
Prepared for:
Research Accepted by NFP
Prepared by Steven Zeiger
XRAY YOUR LIFE INSURANCE SERVICES
1120 Avenue of the Americas
New York, NY
Tel 917 750 6201
[email protected]
i @
lif i
For presentation by a licensed Insurance Banking Center®
© 2009 XRAYYOURLIFEINSURANCE.COM
All rights reserved
Patented Independent
Research Reports
P t t 6,456,979
Patents
6 456 979 &
7,698,158
Endorsed Provider NJBA and NYBSCO
XRAY is a licensed IBC
How To Apply THIS Patented, Independent Research for Bankable Results Now
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Agenda Items
1. Education- learn how to use Patented Pricing and Performance Research in year end planning
Case study:
• Male age 54
• $29,791,472 life insurance in force
• Best Available Rates and Terms- written warranty
• www.Policypricingcalculator.com
2. Sample Monte Carlo Simulation Case Study
• $25,000,000 life insurance in force
• Determine the probability of a premium call, or policy lapse
3. Sample Consulting Opportunity
• Uninsurable Case Study
4. Which clients to begin with—Triaging
5. Mining- “No one comes to mind” from your partners, business is slipping away from your clients.
Prevent competitors from eating your lunch
6. Commission and Consulting Trigger Opportunities for 2010. Time is of the essence.
7. Cochran vs KeyBank
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Let’s Learn About Pricing and Performance Research
• A 36 page life insurance illustration
• 426 numbers
• Summarized pictorially on one page
• Independent
• Multiple patents
• Multiple endorsements
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Why Utilize Pricing and Performance Research?
•CPAs- E & O, 6694 Penalty for undervaluation of an asset such as for a hedge, for
estate and gift tax purposes, Circular 230 for nondisclosure of risk and remediation
•CPACPA as trusteet t
UPIA PIA
UPIA,
PIA, UPMIFA
UPMIFA, ERISA
•CPA- E & O, advising non professional trustees. Vicarious liability when referring to
p
trustee.
corporate
•CPA- licensed to sell life insurance: more revenue, more independent, research does
the selling
•CPA/PFS- Fiduciary, new business opportunities.
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
What You Always See
Typical Product Comparison
54 male
male, Preferred Non
Non-Smoker,
Smoker $12,200,000
$12 200 000 death benefit
A typical life insurance illustration on a 54 year old will have
over 364 numbers that are impossible to compare
Quick Compare Report - Premium Solve – 1035 rollover = $806,000
$806 000
Initial
Initial
Premium
Company/
Death
Annual
Pay
Name
Class
State
Product
Benefit
Premium
Years
AG - American General Life Companies
Prospect
M54
P
NY
12,200,000
157,090
12
ContinUL
Allstate Life of New York
Prospect
M54
P
NY
12,200,000
170,518
12
Legacy Secure NY 2007
Aviva Life and Annuity Company of NY
Prospect
M54
P
NY
12,200,000
114,601
12
Empire Solution Series II 2008
GLICNY
G
C
Fixed
ed Life
e (
(formerly
o
e y AML)
)
P
Prospect
t
M54
P
NY
12 200 000
12,200,000
172 049
172,049
12
GenGuard UL NY
GLICNY Fixed Life (formerly AML)
Prospect
M54
P
NY
12,200,000
187,946
12
Lifetime Protector SG II NY
ING Life
Prospect
M54
P
NY
12,200,000
173,519
12
ING GDBUL II NY
John Hancock
Prospect
M54
P
NY
12,200,000
170,856
12
Protection UL-G 10
Lincoln Financial Group
Prospect
M54
P
NY
12,200,000
163,060
12
Lincoln LifeGuarantee UL 2009
Metlife Investors
Prospect
M54
P
NY
12,200,000
159,916
12
Guarantee Advantage UL (2001 CSO)
Nationwide
Prospect
M54
P
NY
12,200,000
153,654
12
YourLife No-Lapse Guarantee UL
Principal Life
Prospect
M54
P
NY
12,200,000
157,753
12
Universal Life Protector III
Prudential
Prospect
M54
P
NY
12,200,000
176,808
12
PruLife UL Protector (2001 CSO)
Sun Life
Prospect
M54
P
NY
12,200,000
172,278
12
Sun Universal Protector [2010]
Transamerica
Prospect
M54
P
NY
12,200,000
197,989
12
TransACE CV
Thi report
This
t is
i for
f
agent
t use only.
l
These
Th
values
l
are not
t guaranteed
t
d and
d actual
t
l results
lt may be
b greater
t
or less
l
than
th
those
th
shown. These values are not valid unless accompanied or preceded by a source ledger for each policy illustrated. Refer to
the source ledger for guaranteed elements and other important information.
Sex
Age
WHAT’S MISSING FROM THIS PRESENTATION?? 1.
2.
3.
4.
Independence
Hundreds of other companies
Cash Value Performance
Insurer Ratings
5.
6.
7.
Internal Costs
Pricing Stability
Historical Performance of the
Underlying Assets
Probability of Premium Call How Effective Will Your Decision Be Without This Information?
Financial Strength & Claims Paying Ability
Financial strength and claims paying ability: (1 Star)
- Insurer's financial strength and claims paying ability ranks on the top decile (top 10% all
pq
quartile 25% )
insurers)) ( ½ star for top
- High ratings and low cost is considered more appropriate than otherwise.
- Insurer's ratings
g and rankings
g by
y the four leading
g rating
g services using
g a composite
p
index.
-Financial strength is not related to investment performance, or future investment performance
-
Lengthy period of risk exposure/front end/back end fees/health issues
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Cost Competitiveness
Cost Competitiveness:
- Cost structure and premium that is more competitive than the relative benchmark- top decile.
- Low premiums that are the result of a low cost structure, attributable to some demonstrable
operating underwriting or marketing advantage are considered more appropriate than otherwise
operating,
otherwise.
-Note: cash values are confiscated at death. Low COIs associated with high cash values (low
amount at risk) must be compared with the present value cost of forfeiting those cash values at
death Creating value vs.
death.
vs destroying value
value.
-For every dollar that you save in expenses, that is one dollar less to pay in premium and 50% less
to pay in gift tax.
-www.xrayyourlifeinsurance.com click pricing calculator
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Pricing Stability
Pricing Stability:
i i S bili
‐ Pricing on all life insurance policies is a function of three variables: (1.) cost of insurance charges, (2.) policy expenses, (3.)actual earnings on policy cash values. ‐ Pricing for the policy under evaluation is adequate and reasonable. COI charges an policy expenses purely based on actual claims and operating experience.
‐ Insurer
Insurer'ss retention capacity allows it to exercise substantial control over pricing. retention capacity allows it to exercise substantial control over pricing
‐ The pricing for the policy under evaluation is based on interest assumptions, which are in line with historic returns for the asset classes corresponding to the asset types, for which the cash value is invested. Or, they are unrealistic
‐ No way of predicting whether a policy will perform as illustrated, however the system does consider whether the values illustrated are consisted with the insurer's historical experience.
‐ How potential changes and experience might impact future performance. And if this experience has been fully disclosed.
‐To be considered suitable, the pricing must be adequate to meet future claim T b
id d it bl th
i i
tb d
t t
tf t
l i
obligations and expense obligations of the insurer
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Cash Value Liquidity
Relative Policy Value:
- Cash value liquidity for this policy is greater than the representative benchmarks.
- The cash value liquidity can be less relevant in certain plan designs, policies with
higher cash values and greater liquidity are generally considered more appropriate than
policies with lower cash and limited access.
-Judged on short, medium and long term (1, 10 and 20 years)
-Higher cash values give more planning options, exit strategies, greater flexibility
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Historical Performance
Historical Performance:
- Historical yield on the insurer's general account supporting illustrated cash values is roughly the
same as the average historical net yield for all the insurers
insurers.
- By law, insurers are invested in predominately declared rate investments, such as bonds and
mortgages.
- Policy credit rates may be higher or lower than the insurer's net portfolio yield at a given time.
- Over time, policy credit rate must correlate with the yield on the insured's general account.
- Higher historical net yields are generally considered more appropriate than policies whose cash
values are invested in general accounts and with lower historical net yield.
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Compare Dis‐similar Products
•Gross rate- return applied before expenses
•Net
N t ratet return
t
applied
li d after
ft deduction
d d ti ffor iinvestment
t
t related
l t d expenses
•Net net return- return applied after all expenses
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Product Rating
•
•
•
•
•
•
•
Product Rating: ( example: 4 1/2 stars out of 5 stars)
Product Type: WL (UL, VL, SWL, SUL, SVL, GUL, SGUL, GVL, SVL, COLI, BOLI)
Premium Type: Fixed (Flexible)
Min. Face Amount: $10,000
Optimal Funding Strategy: Mixed (Minimum Premium, Maximum Accumulation)
Pricing Style: Retail Institutional Experience- Rated
Net Portfolio yield: Policy under evaluation 6.89% 5-yr Avg. Net Portfolio Yield* all
policies 6.53%
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Premium Comparison vs. Benchmark
•Calculates the minimum level annual premium required over 7 years to endow the policy •Assuming a 6.25% average net policy earnings rate
•Assuming current expense assumptions for a policy issued to a
•For a policy issued to a 54 year old male Non‐Smoker Preferred + risk.
•$12
$12,200,000 face amount
200 000 face amount
Policy Under Evaluation
I tit ti
Institutional
l Pricing
Pi i B
Benchmark
h
k
Benchmark for All Policies
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Internal Costs vs. Benchmark
C t off Insurance
Cost
I
Charges
Ch
Policy Expenses
Premium Loads
1. Policy Under Evaluation
2. Institutionally Priced Policies
3. Retail Policies
Policy Expense Breakdown
•Measures the present value cost per $ of Death Benefit of the individual cost components
• Policy expenses, premium loads, COI (Cost of Insurance)
•Assumes
A
id
identical
ti l ffunding
di amounts
t and
d ffunding
di patterns
tt
•Policy issued to a 54 year old male Non-Smoker Preferred + risk.
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Hypothetical Policy Cash Value Growth vs. Benchmark
1. This graph shows how different policy charges effect policy value and death benefit.
2 Hypothetical2.
Hypothetical may not be used project actual policy performance or tax treatment
treatment.
3. Assumes $260,330 is deposited with the current insurer and all others
Policy Under Evaluation
Institutional Pricing Benchmark
Benchmark for All Policies
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Policy Expense Breakdown
COI- deductions for claims
COI
Policy expenses- Mortality and expense charges, other account value based charges
Premium loads- state tax, Fed DAC tax, admin, distribution and operating expenses
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Case Study: P t t d Lif I
Patented Life Insurance Pricing and Performance Research
Pi i
dP f
R
h
•
•
•
•
Male physician age 54. Male
physician age 54.
Issued Preferred and Preferred plus
Obt i d 9 li i /
Obtained 9 policies / past 12 years (3 ½ ‐
t 12
(3 ½ 4 ½ stars)
4½ t )
$29,791,472 current Life Insurance
• “Constantly hit over the head by life insurance agents”
• Trustee/attorney “intrigued” by independent view
/
y
g
y
p
• Signed limited power of attorney
• GO TO THE PDF pages 1‐7
GO TO THE PDF pages 1 7
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Prepared for: REDACTED Joel Kassimir, MD
“Best of Breed”i Individual Life Products
Summary of Policy Costsii,iii (per $1M of Death Benefit)
Policy Holding,
1
Suitability Star Ratings ,
Asset Allocation Profile &
Assumed/Expected Rate of Return
Public Insurer NY@ 6.25% ½
WeightedAverage
Annualized
iv
Death Benefit
$13,160,381
NON-Guaranteed
Inforce Holding(s)
v
Very Conservative
@ 6.62%?
$11,314
NON-Guaranteed
1
“Best of Breed”
5
Very Conservative
@ 6.62%
6
$11,314
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Fully-Guaranteed
1
“Best of Breed”
5
Very Conservative
@ Guaranteed
$11,314
vi
Warranty- Best Available Rates and Terms
Policy Holding,
Suitability Star Ratings1,
Asset Allocation Profile &
Assumed/Expected Rate of Return
PUBLIC INSURER NY@ 6.25%
½
PUBLIC INSURER NY @ 6.60%

MUTUAL INSURER NY@ 6.79%
½
NON-Guaranteed
Inforce Holding(s)
Very
Conservative[ii]
@ 6.62%?
NON-Guaranteed
“Best of Breed”1
Very
Conservative5
@ 6.62%
Fully-Guaranteed
“Best of Breed”1
Very
Conservative5
@ Guaranteed
$13,160,381
$11,314
$11,3146
$11,314[iii]
$1,152,341
$16,070
$12,563
$14,368
$1,203,652
$21,628
$12,358
$14,682
WeightedAverage
Annualized
Death Benefit[i]
[i]
Death benefits are expressed as the weighted-average annualized death benefit with any changes in death benefits from year-to-year being weighted for the time-value-of-money using
a discount rate equal to the assumed policy earnings rate indicated.
[ii] A Very Conservative Risk Profile is appropriate for policyholders whose primary objective is preservation of cash values and who require stable growth and/or a high level of income,
access to p
policy
y cash values within 3 y
years, and are highly
g y risk averse and p
prepared
p
to accept
p lower returns to p
protect capital
p
without regard
g
to the negative
g
effects of inflations, and
where cash values are allocated predominantly to high-grade corporate and government bonds and government-backed mortgages which together are expected to produce returns
ranging between -2.22% and 16.58% and average at least 6.0% or more over time (Source: Morningstar). Actual results may vary.
[iii]Existing policy holding(s) where insurer representations as to future policy costs are equal to or less than best-available rates and terms, and are therefore shown to be maintained in
the “best-of-breed” portfolios. However, to the extent existing policy holding(s) are maintained in “best-of-breed” portfolios, such existing policy holdings may not allow for diversification of
invested assets underlying policy cash values and thus may not perform like other holding(s) in the non-guaranteed “best-of-breed” portfolio, and/or may not include premium/death
benefit guarantees and thus may not behave like other holding(s) in fully-guaranteed “best-of-breed” portfolio.
© 2010 XRAY YOUR LIFE INSURANCE SERVICES LLC All rights reserved
Reduced Life Expectancy/
U i
Uninsurable Case Study
bl C
St d
Reduces Cost/ Increase Death Benefits with Internal Adjustments
From which p
policy?
y Into which p
policy?
y When? How to? Why
y not? ™
62 year old, uninsurable, $25M portfolio, sub-portfolio of 10 whole life policies $5M
DB,, premium
p
of $165k
$
p
plus $
$33,6k
, interest p
plus $
$33.6k conditional recognition
g
cost
equal $232K annually.
1. Repaid $542k loan internally, generates a savings of $27,000 of interest plus
$33,600 conditional recognition cost, Savings equal 60K.
2. Switch $119k of dividends from “paid up additions” to reduce
premiums. Generated savings of $46,000 plus $6,000 (i) plus $6,000 (CR) equals
$58,000.
3. Switched $155,000 loans charging 8% percent to 5% savings of $4,679.
4. Switch premium from quarterly to annual, saving $6,800.
5. Increased death benefit by taking loans taken vs surrendering additions. Death
benefits projected to increase $924k on $4.83mm sub portfolio and $1.7mm- 10 yrs.
Grand total savings of $130,000 including gift tax $195,000 a year which is $2.9M time
value of money for life expectancy (10 years)
Sample Monte Carlo Simulation Case Study
Sample Monte Carlo Simulation Case Study
•
•
•
•
•
•
Female age 55 issued preferred
Female
age 55 issued preferred
Policy year 7
Death Benefit $25 000 000
Death Benefit $25,000,000
Annual premium $191,462
$25 000 000 P j t d
$25,000,000 Projected cash at age 100 @ 8%
h t
100 @ 8%
Client asks “what are my risks?”
– Insurer raises cost of insurance charges
– Policy underperforms expectations
– Will premium be paid
Will
i
b
id
• LOOK AT THE PDF
Insurance Portfolio Repurposing
Timely Year
End 2010
Estate Planning
Tools
Pushback:
Lack of Funds /
Liquidity / Need
The Funds/
Mortality Risk/
Impact on
Natural Death
Up Front: At
Inception
Throughout Term
At End Of Term
q
Need Adequate
Income to Pay
Annuity/
May Need Liquidity
/ Need Tax Money (
on cg in nongrantor)
CLAT
™
Risk of Premature
Death
Impact on
Gifted Asset
At Natural
Death
Income Tax Deduction
Recapture in Grantor
CLAT
Carryy Over Basis
IDGT
Need Seed Money
(10%)
Need Installment
Money
Or: Need Balloon
Payment Money
Income Tax vs. Gift Tax
/Loss of Seed Money
Carry Over
Basis
Intra-Family
Loans
Need Money
Need Installment
Moneyy
Or: Need Balloon
Payment
y
Moneyy
Income Tax vs. Gift Tax
Carry Over
Basis
GRAT
Need Funds For
Reinvestment/
Income
Need Adequate
Income to Pay
Annuity
GRAT Fails
Carry Over
Basis
Roth IRA
Conversion
Need Tax Money
May Need Liquidity
During 5 Year
Blackout Period
Risk That the Tax
Free Distributions
Law May Change
Bad Outcome Prior to
Crossover Period
Copyright 2010. All Rights Reserved. Confidential and Proprietary to Intergenerational Wealth Preservation, Inc.
Next Steps
Next Steps
25