As CPAs get deeper into financial services and wealth management, they will have to solve more and more complex financial problems which often cut across unfamiliar planning territory.  One group of clients many firms hope to close, can be both challenging and rewarding.  They are high net worth individuals, those clients who fit into the $10 million-and-above club. If you are fortunate in grabbing the opportunity to inform and perform for high net worth clients, you must stop and think about what is important to this group.

What drives and motivates them?  By tapping into their passions, one can customize extremely focused conversations that grab their attention and curiosity.  For instance, based on the experiential data gathered from estate planning attorneys in Boston who recommend life insurance to fund trusts, the gestation cycle from recommendation to funding of the trust is between 6 and 18 months.  When an estate attorney recommends insurance, it is because there is a disparity between the tax the client owes and the ability to fund the obligation.  So the question is: Why the reluctance to bulletproof the estate plan with life insurance?  CPAs, seeking this type of client, must be prepared to address these issues from within the firm.

High net worth clients are successful people who do not like being told what to do.  They made their hay by watching, learning, observing and honing their personal desires to be successful in spite of the obstacles.  Because of their nature and indomitable spirit, they believe they will figure out a way to solve a problem or address a goal.  They are more used to delegating their low-profit responsibilities to others so that they can concentrate on their own success.  So when a CPA advises his client to purchase a $10 million life insurance policy for estate and intergenerational planning purposes, he may find resistance, even though it was explained that without this valuable protection asset, half of their estate would be lost to taxes.  Why would they not be ripping at their breast pockets grabbing for their pens to sign applications to stop this giant crack in their foundation?  The reason is they do not want to pay for it, even if they can afford it and that issue seldom gets addressed satisfactorily by planners.

When a client pays a $250,000 premium for a $10 million life policy, he or she is taking away from the principal and growth of their investment portfolio.  They step back to analyze the situation and it takes a long time to figure out how to bite that premium bullet given the information and options presented by their advisors.  They know that they might lose wealth to the government but their first reaction tells them it is an expensive protection proposition and they are hot-wired to go around or over obstacles.  As advisors, we have to anticipate these reactions and be able to address them from the client’s perspective and certainly be able to offer a solution that speaks to their resistance.

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    * A need for life insurance.
    * Have a minimum net worth of $5,000,000 ($10,000,000 preferable) or more.
    * Have verifiable annual income in of $200,000 or more.
    * Have liquid assets sufficient to pledge as collateral for the loan.
    * Meet life insurance policy underwriting guidelines.
    * Commit to at least $1,000,000 in loans to provide premium.

How Premium Financing Works
 
The premium finance concept is simple your client borrows money to pay life insurance premiums. The actual transaction itself can be quite complex. For that reason it is crucial to involve legal and tax advisors in the process.
 
While each premium finance transaction is unique, every transaction consists of two separate financial instruments; a permanent cash value life insurance policy, and a loan. The process occurs in two steps;

  1. The Life Insurance Policy

After the policy is approved, a loan application is submitted to the lender for approval. The lender will review your client’s credit and financial status and decide whether or not to make the premium loans.

Once loan approval occurs your client’s premium finance case is underway. The documents are then sent to your client’s legal counsel to be executed, and the policy is funded.

Legal and Tax Considerations
 
Premium financing has tax implication in a number of areas including estate, gift, and income taxes. Your clients must rely on their own legal and tax advisors to review and explain the legal and tax issues for their specific case.

LEP will partner with financial advisors, insurance professionals, insurance carriers, general agents, broker dealers, CPA’s, attorneys and producer groups to bring the most innovative and effective advanced sales concepts to market. Our solution sales team will provide the resources and materials necessary to market and sell advanced concepts into the marketplace and partner with your practice as support for all your client’s needs.

• Don’t try to do everything yourself. When it comes to advanced planning it’s impossible to know everything about every advanced technique.
• Don’t let your client go without advanced solutions— team up with a specialist.
• Don’t wait to expose your client to advanced concepts. You’ll lose your client to a competitor.
• Cultivate relationships with other advisors in different categories, such as attorneys, CPAs and casualty agents
• Products alone are not solutions, but a product combined with legal document and a constructive use of the tax code often is a solution.