Insurance services

Your credit union likely makes most of its life insurance salesto members who are newly married or starting a family. But did youknow there are a wide variety of life events that prompt the needfor coverage? Training your staff to identify these scenarios canlead to better member service and, ultimately, more policies sold.Here are five under-the-radar needs for life insurancecoverage:

1. Coping with end-of-life expenses. Finalexpense insurance is designed to cover the burial expenses as wellas unpaid medical bills at the time of a loved one's passing. Thedeath benefit is paid directly to a named beneficiary (often aspouse, an adult child or even a funeral home) who decides how tospend the money. The death benefit is usually a low to moderateamount (generally as high as $25,000) to cover only the finalexpenses, and is not intended for income replacement or to covermortgage payments, college funding or any other large financialresponsibility.

So, who is an ideal candidate for final expense insurance?Generally, those over 50 with moderate income and some outstandingdebt are best suited for this product, particularly if they alsohave health issues.

2. Settling estate taxes. Members withsignificant wealth and a large estate typically find value in lifeinsurance for the specific purpose of paying estate taxes andsettlement costs rather than having to liquidate estate assets.

Additionally, creating an Irrevocable Life Insurance Trust maybe the most effective method of ensuring that life insurance fundsare available when needed. Although the trustee may apply for lifeinsurance, they are not the owner and beneficiary of the policy,the trust is. The death benefit is paid to the trust. It's up tothe overseeing trustee to disburse the death benefit to thebeneficiaries of the trust according to the terms.

3. Passing on money to the next generation. Intheir later years, people often strategize about how they wouldlike to transfer wealth to the next generation. Typically, theseassets are housed in savings vehicles like CDs, mutual funds,savings accounts and taxable brokerage accounts. However,inheriting money through these vehicles can come with heftytaxes.

Single premium whole life insurance is an alternative route tothe same destination. With this tool, policyholders can make onelump-sum payment that provides the beneficiary with a guaranteedtax-free death benefit at the insured's death. A single premiumwhole life policy may be the appropriate choice for reasonablyhealthy individuals who are between the ages of 50 and 80 and havesome legacy money earmarked for their loved ones or favoritecharitable organization.

4. Donating to charity. Life insurance may beused to benefit certain charitable, religious, scientific oreducational organizations, and provide favorable income and estatetax benefits to the donor, provided that person gives up all rightsto and interests in the policy.

The extent of any tax benefit that the donor may receive willvary. It is important for individuals to have a conversation withtheir tax accountant or financial planner before deciding whatmethod would make the most sense for their personalcircumstances.

5. Planning for business continuation. Forbusiness owner members especially, there is increased risk involvedwith the financial responsibility of running your own company orengaging in business with other parties. In many cases, lifeinsurance can be used to offset unexpected costs that may arise inthe following situations:

• Funding buy-sell agreements: A buy-sellagreement is a legal contract that determines what will happen to abusiness in the event that an owner or partner dies. A buy-sellagreement among owners of a business obligates the deceased owner'sestate to sell their interest to the surviving owner(s) at apredetermined and agreed upon price. Typically, life insurance isused to fund these agreements.
• Covering the departure of key employees: Abusiness can suffer a financial loss because of the premature deathof a key employee who has specialized knowledge, skills or businesscontacts. Key person insurance, which is typically owned by andpayable to the company in question, is intended to offset thatrisk. If the business has cash flow problems, is newly formed orhas a short-term need for key employee insurance, then “term” lifeinsurance coverage should be used. However, in most cases, thevalue of the key employee to a business increases over time. So theneed would likely be long term, necessitating the purchase of apermanent life policy.
• Equalizing inheritance: Business owners maywish to have one of their children inherit the family business,particularly if that child has contributed to its success. In thesesituations, the business owner could plan to bequeath the businessto a child who is interested in continuing it, while purchasinglife insurance for their other children to “equalize” theinheritance.
• Creating retirement income: If a business isto continue operations during the retirement of an owner, thatperson might desire compensation in the form of continued salarypayments, retirement plan benefits or proceeds from the sale of thebusiness interest. A permanent life insurance policy can certainlybe used to meet this objective.

As your credit union explores new avenues of growth, don'tdiscount the potential for existing life insurance offerings. Itall comes down to getting to know your members, where they are intheir lives and what financial goals are important to them. Withthis knowledge, you'll be better able to identify new salesopportunities like those listed above.

Craig Simms

Craig Simms is SVP and Chief Marketing Officer for VantisLife Insurance Company. He can be reached at 860-298-6005or [email protected].