It's not what you say; it’s how you say it
Dale W. Martin, CLU, ChFC
Maya Angelou said, "I've learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel."
I have been in the life insurance business for more than 35 years. One of the first books I read was Ben Feldman's The Man from East Liverpool. What struck me about Ben was how he could be a wordsmith like no one I had ever heard before. He could take a discussion about a life insurance product that is somewhat complicated and turn it into a compelling story.
I am sure that you have heard someone tell a story that kept your attention throughout. The story maybe made you laugh, cry, or get angry. But what it really got you to do was react! A good story or analogy might get you to react positively or negatively, but it will get you to react.
Inversely, an ineffective discussion will cause you to lose interest, think negatively about the giver of the communication, and generally make you daydream about moving on.
Like I said, I have been in this business for more than 35 years. I wish I could remember every client appointment, but I do remember the ones that were aha moments, appointments where I said something that worked or didn't work. I will go through a few personal cases that turned out to be aha moments for me. Over the years, I have learned that it is not what you say; it is how you say it.
First of all, what do you say when people ask you what you do? I have heard people in my industry say the strangest things when they are asked this question.
"I am a dream catcher. I help people accomplish their dreams and desires." This sounds like something that you would hear on the Las Vegas Strip.
"I have a three-step process. First, I meet with my clients and discover what they want to accomplish regarding their financial goals. Then, I run a plan to determine if they are on track, and if they are not, I show them how to get back on track." Does this answer the question as to what you do? This answers the how, not the what.
Whatever you say, be concise and to the point. All you are doing is making people feel like you are a confident person who is good at what you do. In fact, most of the time they are not even listening to what you say. They are just trying to start a conversation. They are just looking to see if you are a person whom they would like.
I say, "Thank you for asking. I am in the financial services business. My clients have worked hard at gathering their assets, and I specialize in making sure that their assets go to whom and where they want them to go at their deaths in the most tax-efficient manner."
It's simple, and I believe it tells them enough about what I do and may cause them to want to learn more.
The Client Meeting
When I schedule a client meeting, I make sure that clients know why they are coming to see me. They know that they are going to spend time talking about transferring their wealth.
I take the position that people need three criteria to meet with me:
- They will have "leave on" money. In other words, they will have something left over at their deaths.
- They are relatively healthy.
- They love someone or something. They have to care about something enough to plan for it at their death.
Now let's get into the meat of my talk: How should you react to this comment? "I don't believe in life insurance."
I was meeting with a client from the country of India about how to effectively transfer his wealth. He came into my office with his wife, son (who was in his business), and his son's pregnant wife. He had a net worth of over $20 million.
When he came into my office, the first thing he said to me was, "Dale, I just want you to know—I don't believe in life insurance." Now, the young Dale Martin would have said "Why?" and tried to convince him right then and there why life insurance is a good idea. Or said something brash like "Well, it isn't a religion!"
My older and wiser self simply said, "OK," and I moved into my discussion about transferring their wealth.
I always go through a simple, one-page diagram. [visual]
I discussed all of the different ways to effectively transfer his wealth, such as gifting, FLPs, LLCs, GRAT, IDGT, QPRT, and CRT. We had a number of strategies that he liked, and the discussion went on for more than 25 minutes. I finally said, "An easy strategy to help transfer your wealth is to take $2 million from the left side of this diagram, put it in a trust on the right side, and immediately make it $6 million tax free." [visual] He said, "That sounds too good to be true." I said, "The bad thing about this strategy is that you can't do it." He said, "Why not?" I said, "Because you don't believe in it!" He said to me, "You're good!" He bought the life insurance.
The moral of this story is, don't panic when a client says something negative about your solution. I will typically acknowledge the comment, but ignore it until I can come back to it when I am in control of the discussion. Sometimes it turns out that the client will not buy what you are saying. Sometimes it turns out as it did with my Indian client.
Here is another question or comment I get a lot: "Why don't I just buy term insurance for this?"
I am fortunate to be in front of people with a great deal of wealth. I don't know about you, but in this marketplace, I get a lot of attorneys who want to use term insurance inside an irrevocable life insurance trust. They get freaked out about the large premiums that are required to purchase the large death benefits that are associated with their clients. They always want to price out term insurance. In other words, they want to play God. They want to tell the clients when they have to die. When I was up in Minnesota, I used to use this analogy: Buying term insurance for your estate plan is kind of like wetting you pants in the middle of the winter. At first, it feels really good, but after a while, not so much. This always gets a reaction. Almost everyone thinks back to when they were children and if this might have happened to them. I say, "Term insurance is a lot less out of pocket, but over 95 percent of them don't pay off. If you use it for your estate plan, more often than not you will outlive the term, and all of the premiums that you paid will be for naught." I start out the discussion about life insurance like this.
I ask them why people buy life insurance between the ages of 25 and 65. The answer is if they die. Term insurance is a viable product to cover someone if there is a definable need and a definable amount of time. What word changes during the years 65 to 100? Instead of if, it is when. Term insurance can't be used because we don't know the definable amount of time. Permanent insurance is the desired approach.
How do you answer this question? "What kind of life insurance should I own?"
I get this a lot. They hear words like term insurance, whole life insurance, universal life, indexed life, and variable life. They have no idea what they are and when they should consider buying it. I start by saying, "There are two main reasons why people buy life insurance: (a) for the death benefit to protect their loved ones and (b) for cash value accumulation for themselves while they are alive.
It works like a tug of war: The more emphasis you put on growing the cash value, the less death benefit you will get. Inversely, the more emphasis you put on the death benefit, the less cash value you will get.
So, if clients are only interested in protecting their loved ones for a period of time, then term insurance is the answer.
If they want to protect their loved ones for a lifetime, then a guaranteed universal life might be the answer.
If they say that they want to use life insurance as a retirement vehicle, then a fully funded VUL or IUL or whole life might be the answer, depending on their risk tolerance.
It gets tricky when they want the cash accumulation/retirement strategy, but they don't want to fund it properly. In my opinion, this is where a lot of my competitors don't do their clients any favors. They purchase the death benefit that is needed and minimum fund the contract. Going back to my tug of war analogy, they try to accomplish both objectives with one product, and they end up failing on both ends.
When I get clients who want both benefits but just can't afford to fund a permanent plan to its max capacity, I do a mixture of term and permanent that fits their budget.
A 35-year-old male who can contribute $14,000 per year but needs $2.5 million of death benefit:
- $2,000 per year would purchase $2 million of 30-year term.
- $12,000 per year could be put toward a max funded indexed UL option B death benefit. Initial DB would be $500,000.
If I would have put the total $14,000 per year into a $2.5 million IUL, it would not accomplish what the client wants.
Believe me, I get a lot of clients with underfunded permanent policies. They are very angry that someone sold this to them and didn't max fund it. I always say, "If the government puts a limit on how much you can put into something, this tells you that it is a good investment and you need to fund up to the max."
The best way I have found to explain why an overfunded contract works for their benefit is by using another analogy. Down here in Florida, they understand this one:
Have you ever bodysurfed? What happens when you are catching the wave and you get on top of it right away? You ride it all the way into the beach, right? What happens when you don't quite get on top from the beginning? It drives you right into the sandy bottom, right? These overfunded life policies work the same way. Insurance contracts are front-end loaded. Most of the costs come out in the first few years. If you don't pay the max, most of the premium is taken up by the costs. You don't catch the wave, and eventually the policy will not perform. Inversely, if you overfund the contract, you will have excess cash in the early years and therefore get on top of the wave from the start. The magic of compound interest takes hold, and you end up with a very healthy retirement fund.
Here is one that I get quite often. Especially from the brokers who refer me to their clients: "Life insurance is costly!"
Clients view life insurance as a cost, right? Why is that? I think it is because of the word insurance. They associate that word as something that they buy in case something happens. Term insurance is a good example of a cost. So is auto and home insurance. It only pays out if something happens.
We need to get the client off the cost to focusing on the investment.
I once was with a 78-year-old widow who had a net worth of only about $5 million. She was under the estate tax exemption, but she was going to have quite a bit left over to give to her three children at her death. She loved zero coupon bonds. She liked the conservative nature of the ones that she owned. She didn't want to take any chances in the market. On average, she was getting about 3 to 4 percent taxable return on her bond portfolio. I simply said, "If I could find you a 4 percent tax-free zero coupon bond, would you buy it for your children?" She said yes. I showed her taking $1 million and purchasing a $1.8 million UL. The tax-free IRR at her age 90 was 5.15 percent, at age 95 it was 3.61 percent, and at age 100 it was 2.78 percent.
An interesting history on this one. We had talked to them about life insurance about 10 years prior to her husband's death, but they didn't do it because of the cost of the premiums. I didn't approach it like I did with her, and I should have. You need to get them off the word cost and change it into an investment.
Which leads me to the next comment that I hear a lot: "Life insurance is a bad investment!"
What do you say when people say that life insurance is a bad investment? I first ask why they feel that way to get a better feel of where they are coming from. My answer usually sounds like this:
Well, I agree with you if it is used improperly. It all depends on how you are positioning it within your financial plan. For example, if clients are young and looking for ways to enhance their retirement plan beyond their qualified accounts, life insurance can provide a 4 to 5 percent tax-free return for them. In addition, it has a feature that I call a "plan completion." If you die prior to retirement, it will make sure that your spouse or heirs will receive the asset in your absence. It is kind of like setting up your own private pension plan.
I was meeting with a 31-year-old professional athlete. He had just signed a very big guaranteed contract. He made the comment that he had always heard that life insurance was a bad investment and that he should steer clear of it. I approached this as a tax diversification strategy.
I used a whole life product from a well-known company. This investment vehicle has the following:
- Guaranteed cash accumulation
- Tax-deferred growth and tax-favored distributions
- Not directly affected by market conditions
- Strong dividend history
- Attractive internal rate of return
- Income distributions not treated as net investment income and excluded from Medicare surtax
- Access to the cash prior to age 59 with no 10 percent penalty
- Guaranteed income tax‒free plan completion death benefit
I focused on what he needed. He was concerned about income after his playing days were over. I showed him that when he turned 50, he could take $556,400 per year tax free from this for the next 20 years. In addition, this investment fit the lower left-hand box of the Morningstar Style box. This is the nonsexy box. [visual] It is more conservative and rather boring. We can fill the other boxes with investments that will be more aggressive in nature and provide a possible better upside. This strategy will give you some downside protection.
Here was an aha moment that taught me a very valuable lesson: Ultrawealthy people think in terms of percentages not dollars.
I was completing the largest insurance policy that I had every written at the time. It was a $90 million second-to-die policy with an annual premium of $2.2 million. We were using a privately financed strategy to get around paying gift tax. The client had a net worth of $150 million. I was referred to this client from his broker. We were all done with the underwriting, and I was presenting the final paperwork to the client and his attorney. Up until now, the attorney was on board with this strategy. Out of the blue, the attorney said, "You know, Sam, you don't have to do this. You have enough investable assets to pay the potential estate tax." Of course, I could have kicked the attorney under the table, but I sat still, probably because I was shocked. What the client said changed my attitude about how I would handle future high-net-worth clients.
He turned to his broker and asked, "What did you return on my portfolio last year?" The broker replied, "Roughly $10 million." The client said, "So what you are asking me to do is to invest 2.2 percent of my growth on my portfolio to increase my net worth by 60 percent guaranteed. That sounds like a no-brainer to me!"
The best part about this was that the attorney just sat there and took it like a man. He basically was embarrassed that he even said what he said. I could have cheered out loud, but all I did was sit there and take note of what was just said. You see, wealthy people think in terms of percentages. From then on, I never quoted premiums and death benefits in terms of dollars. I always use percentages.
"How much life insurance should I have?"
We all love it when we get this. I have heard agents answer this in a number of ways. When an average client asks me this, I usually say, "Well, we could go through an extensive analysis and look at what your family would need in the event of your death, but I will tell you that it usually comes to seven to ten times your annual income. Closer to ten if you are the single breadwinner and closer to seven for dual-income families." This usually answers this question.
Now, when I am talking with an ultra-high-net-worth client, I answer it a lot differently. I simply say, "As much as you can get!" I say that insurance companies will only give people an amount of coverage that they deem is appropriate depending on their net worth and income. I say that if they put a cap on what they can get, then why not get as much as they can.
"We are under the gift tax exemption of $10.8 million, so we don't need to buy any life insurance."
If I had a dollar for every time I heard this, I wouldn't need to be working. I have found that the best way to get around this is to appeal to their legacy. I have found that people love their children, but they really love their grandchildren. I ask them, "Do you know the names of your great-grandparents?" Usually the answer is no. I then say, "Do you think you would know their names if they were giving you $50,000 per year?" This always gets a chuckle out of them, and they say, "Heck, yes." Then I say, "How would you like to be that great-grandparent? How would you like it if every year, your linear descendants would get a birthday gift from Grandma and Grandpa Jones? You would be remembered forever."
They usually think this is only available for the ultrarich, like the Kennedys and Rockefellers. I show them how to do this on a smaller scale.
I had a 74-year-old couple worth $8 million, with three children and five grandchildren. They gifted $1 million into a defective grantor trust with dynastic provisions and added $50,000 annually to purchase a $2.1 million insurance policy. I said, "You can seed the trust with $1 million and use that money to give to your grandchildren as birthday gifts while you are alive, and then we will supercharge it with the life insurance at your death in order to get the trust to last for generations." They loved this idea. Bottom line, I didn't sell them life insurance; I sold a legacy to their future generations.
Another way to answer this objection is what I call "CPR." I show them how they can breathe life into their plan with CPR:
C—Consume your assets during retirement.
P—Protect from creditors and divorces.
R—Replace your assets for your heirs at your death.
I show them how they can contribute X amount of dollars into a second-to-die policy without affecting their retirement lifestyle, protect that asset from creditors and the bad choices of the partners of their children, and then, at their deaths, replace the asset with the death benefit. This is a very simple approach that will get you a lot of activity.
Allow me to finish with this. Think of the last movie you went to. You sat in that comfortable seat with your popcorn and soda. For the next two hours, you were in the moment. You were there! Those actors had you thinking that you were right there with them. The storyline, the characters, the sets all felt real to you, right? Now let me take you somewhere else. You are on the scene while they are rehearsing. No sets, lighting, or sound. Just actors saying their lines. They make mistakes; they stop and ask questions or make comments. The movie doesn't even seem real at this point, right? You probably can't even tell what the movie is going to be about. What is the difference between the first time they rehearse and the final movie that we see in the theater? Practice, practice, practice. You need to approach this business just like an actor. Don't wing it. Winging it is for losers. If you don't practice, you will come across like an amateur. Be a pro. Memorize, professionalize, and then naturalize. I hope some of the ways that I say things to my clients will help you.
Dale W. Martin, CLU, ChFC, is a 17-year MDRT member with 17 Top of the Table qualifications and a Past Chair of Top of the Table from Palm Beach Gardens, Florida. He specializes in connecting generations through wealth preservation and transfer. He has extensive experience providing sophisticated strategies for high-net-worth families, executives, business owners and their professional advisors.