by: Mark D. Milbrod, CLU
Principal, Agent Support Group- February 2017
When you were a kid, you probably had a lemonade stand at some point. It was for most, our first experience in running a business. We created a stand, a sign, a price, etc. If it was really hot outside, we learned about supply and demand. We could probably get more money since people needed to cool down with that refreshing cup of lemonade. At the end of the day, we counted up all of our money and it looked great. Let’s say you had $20. Now you had $20 to spend, but it wasn’t that easy. The realization came when you had to factor in the cost of your time, the materials to make your stand, the lemons, the cups, the sugar and so on. In the end, you really didn’t “make” $20. If you were lucky, you were left with a couple of bucks.
This gets me thinking about our clients. Using the lemonade stand as a metaphor for planning, have you asked them lately how their lemonade stand is going? Do they realize the cost of running their stand and in the end, what is left over? As we all know, it is difficult to get people to talk about tough topics such as Life Insurance, Long Term Care, Disability Income and more importantly, having enough money to retire.
If we talk about Life Insurance, there is a discussion that has to take place asking how much of a lump sum is needed and how much future income needs to be replaced. After their personal funds, what is left over? With almost all, there is not much in reserve to sustain a family for any length of time. The life insurance proceeds become what is “left over” from that $20. Similarly, when dealing with estate planning, the life insurance becomes the bulk of money left to heirs. People forget that Life Insurance is a contract to buy money. So why not buy it for pennies on the dollar.
The same argument can be made for Disability Income Insurance and Long Term Care protection. Today, we can provide LTC benefits in more efficient ways via Linked-Benefit Plans and Long Term Care Riders. Without any of these in place, there is usually not much “left over,” if anything at all. One of the major objections we get when bringing up LTC coverage is that it is too expensive. Your response should be… If you think LTC Insurance is expensive, see what it costs without it.
Last but not least, Annuities, namely Guaranteed Income Annuities. These are the most underused financial instruments available today. With advances in medical science, people are living longer and are truly afraid of outliving their retirement assets. Ask your clients how long they want to guarantee their retirement income? My guess is that they want it forever. People make the mistake of liquidating assets for income when needed and as such, are subject to market timing risk. With Guaranteed Income Annuities, a paycheck will be there regardless of how long you live. After all, liquidity is not a one time event, it’s a lifetime event. There is no other product that can take away market risk and guarantee income for as long as you live.
So, let’s go back to our lemonade stand for a moment. You made your $20 and you thought it was all yours. When it was all said and done, you walked away with a couple of bucks. That was not nearly enough compared to all of the work you put in. Your life’s lemonade stand is no different. Life Insurance, Disability Income, Long Term Care or Annuities are all ways to protect our families so that we have enough “left over.”
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