Howard Sharfman is one of the top insurance professionals in the world. He is responsible for creating over $17 BILLION of insurance proceeds. He is most proud of the fact that so far he is responsible for over $1 billion of death claims that have been paid out to insure that the dreams and wishes of his clients are fulfilled.
I have known Howard for decades and was always impressed with his knowledge and acumen. Howard was running a workshop titled “Portfolio Stabilization Using Life Insurance” at a recent AALU meeting I attended. His co-presenter was Leigh Harter. She did an excellent job setting the stage with some very informative analytical slides that showed how life insurance could help to smooth out the volatility and provide liquidity when it was most needed.
We all braced when Howard, the master, got up to speak. We all anticipated the magic words, the killer analysis, the masterful illustration and the impeccable closing concepts! Surprisingly, Howard spoke about something completely different.
Here is what he said:
He said, despite the fact he works with high-net-worth clients, he NEVER uses illustrations because if the illustration looks to good to be true, people don’t believe it. If it doesn’t look that good, they won’t proceed. From my point of view, one thing for sure you know is that a life policy never performs the way an illustration portrays.
What he does is tell them stories, not just how the insurance can offset risks of other investments but, more importantly, how insurance can provide guarantees to the dreams and wishes he uncovered during his discovery interview. The clients’ dreams and wishes are more important than a column of numbers.
He relays similar experiences he’s had with other clients (without disclosing names of course). All wisdom comes from specific human experiences! When the human brain hears a good story it omits oxytocin the so called “love hormone.” By telling stories, you have the ability to create a biochemical bond which is critical in creating trust. Whether you are recommending someone to buy a $50MM second to die or a $500,000 part term, part whole life, trust and relationships are what’s truly critical.
It’s Not Really About The Product
Also, people’s understanding of the technical parts of our products is limited. Storytelling creates the emotional bond they attribute to the product. In other words, it’s not really about the product. It’s about having the family stay in the house, provide money for the elderly parent to be taken care of so the siblings don’t break up over unbalanced caregiving.
For the high-net-worth person, it’s the feeling of making sure the new hospital wing is built, the beneficiaries don’t have to run and dispose of the business, or no matter what the stock market would be doing at the time of death their heirs would not be forced into selling at a bad time. Howard’s key is tapping into how they would FEEL! Guess what… high-net-worth people have feelings too.
The Many Uses Of Life Insurance For High-Net-Worth Clients
Why would a multi-millionaire who is age 52 and liquid allocate assets to life insurance? Like Shakespeare who said, “let me count the ways,” Howard shared a few answers from his NFP organization that he carries around. Here are a few:
1) GUARANTEED LIQUIDITY AT DEATH - Everybody dies.
2) NON CORRELATED/ LOW CORRELATED - When the market crashes, everything is correlated, which means all those painstaking asset allocations strategies go out the window because everything crashes. Market activity has no impact on death claims.
3) IT’S PREDICTABLE
4) GUARANTEES A FAMILY LEGACY
5) PROVIDES TAX-DEFERRED GROWTH
6) INCOME TAX FREE AND, IF SET UP CORRECTLY, CAN BE ESTATE TAX FREE TOO
7) PROTECTED FROM CREDITORS
8) 200-300 BPS INCREASE IN YIELD OVER BONDS OF SIMILAR QUALITY - Since everyone dies, the death benefit rocks.
9) ALLOWS HIGH-NET WORTH FOLKS TO STAY IN ILLIQUID INVESTMENTS WHEN THEY ARE OLDER - Many significant investments are in partnerships (general and limited).
10) COVERS GP/LP CAPITAL CALLS (See # 9)
11)PRUDENT ASSET ALLOCATION (See # 2)
12) CAN BE POSTED AS COLLATERAL AT 90% (Not if policy is a MEC or single premium)
13) IF THE CASH VALUE GROWS AT THE SAME RATE OR ABOVE BONDS, THAN THE INSURANCE VALUE OVER THE CASH VALUE COULD BE CONSIDERED FREE
14) PRIVATE TRANSFER OF WEALTH
15) CAN BE USED IN BUSINESS IF NEEDED (not if policy is a MEC or a single premium)
16) CHARITY BENEFICIARY CAN BE NAMED
There you have it: sixteen great reasons for high-net-worth clients to consider life insurance.
Thank you Howard for bringing us back to reality. Your comments remind me of the famous T.S. Elliott poem:
We will not cease our explorations and at the end of all of our exploring is to return to the place we began, but knowing the place for the first time.
My 40 years in this industry has truly been a journey of exploration and discovery. I started my career thinking that it was unprofessional to share anything personal in a business setting. Over time, I came to realize that it was the stories and my "WHY" for being in the business that both differentiated me and connected me to others.
Over the last two decades, I've shared this revelation with over 400,000 advisors, encouraging them to move beyond just facts and figures - to share their experiences. Hearing Howard speak on the topic provided a reaffirmation of the power of stories and fills me with great optimism for the future of our industry.
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