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Wealthy Family Secrets That Could Benefit Your Middle-Income Clients

Posted by Lori Fogle on Wed, Oct 07, 2020 @ 12:00 PM

The top 1% have a "secret" they've used since the Great Depression to help put themselves and their families in a better position.

But we think middle-income clients can benefit from this wealthy family secret as well. In this post, we’ll share how. Plus, we'll cover how you can make a living as a financial professional in this market.


In case you haven't guessed, we're talking about the benefits of permanent life insurance. You're probably well-aware that the wealthy use whole life or indexed universal life (IUL) for various reasons…

They could be business owners who use life insurance as a financial tool or they could use it to leave a legacy for their family or for estate and tax planning needs.

Because of that, we’ll often hear that permanent life insurance is ONLY for wealthy clients. And we agree they should have life insurance. But what if all your clients don't fall into that bracket?

The good news is, your middle-income families, defined as those having total household incomes between $40,500 and $122,000, can use permanent life insurance too.

Typical financial guidance may be short-sighted

Middle income families are usually given the advice that they have to scrimp and save and that paying less is always better. But that’s a short-sighted view that the wealthy don’t have.

Middle income clients could get more benefits with less risk… And it’s NOT by solely relying on:

  • Deferring taxes
  • Saving all their money in qualified plans
  • Putting money in the market
  • Or buying term and investing the rest

However, for many, this is all they know. No one has told them about the secrets of the wealthy.

The question is why not?

Because more than likely, their goals are also to:

  • Protect and provide for their family
  • Potentially decrease taxes in retirement
  • Enjoy tax-free income
  • Enjoy tax-deferred growth and pass a tax-free legacy to loved ones.

I’m sure you would agree that at least some of your moderate-income clients want to achieve economic independence and security in the long-term. Plus, leave a legacy just as much as wealthy clients do, if not more.

And yet, InsuranceNewsNet points to a study that says, “ownership of life insurance fell among households earning less than $100,000, declining by 25% over the past 10 years.

As of January 2020, 46% of adult consumers did not own life insurance. Although 36% of respondents said they intended to purchase life insurance in the next 12 months, many were without it during the height of COVID-19.”

And sure, a client with a scarcity mindset might not want to spend $400 a month in life insurance premium payments because they view it as “losing" $400. Whereas, another client, if they knew they could put $400 in and get 3X that amount out in supplemental income*, would do it every single month without fail.

So no, not every middle-class client will be a fit just like we can’t pigeonhole any client into one type of product. But clients who do see the value in achieving the goals mentioned above, middle-income or otherwise, are worth speaking to on this subject.

How moderate-income families you serve can benefit

If almost half of all adult consumers don’t own life insurance, we have to draw the conclusion, assuming they can pass medical and financial underwriting, that they don’t feel that they need it OR that they don’t feel they can afford it.

Let’s address the first concern:

They don’t feel they need it. Maybe they hate the idea of life insurance. Maybe they like it but don’t know how to use it properly. Maybe they really don't need it because they don't need a death benefit.

OR could it be that they simply don’t understand that benefits can extend beyond just a death benefit they leave for their beneficiaries?

For example, they might not realize that life insurance can be used to help pay off debt quicker. Chances are, moderate-income clients (just like low income and the wealthy) have debt they’re paying high fees on and will for years to come. What they may not understand -- because most people don’t -- is that what you might gain by earning a few more percentage points in interest...

Often pales in comparison to what you could gain from getting rid of interest charges and fees on credit cards and loans, including a mortgage.

They’re likely thinking about saving for retirement but are using the common solution of a 401(k) to do that. But what they might not know is that deferring taxes, while it might save them money in the short-term, can significantly reduce the income they get when they have to start paying Uncle Sam in retirement.

They may anticipate having to save for their kid’s college expenses down the road but think the only options are putting money in a savings account or 529 plan. No one has introduced them to the idea of how permanent life insurance can be used to help with college funding.

What some individuals in this income bracket need is more certainty and less stress. Everything’s good as long as nothing unexpected happens… well, 2020 put an end to that. We’ve learned we don’t know what’s going to happen day to day. We actually never did, but it’s even more apparent now.

Which means, they need a way to make the money they do have work more efficiently and they need guarantees, which is what a properly structured permanent life insurance policy could do for them.

Depending on your client’s age, they may be thinking about how they’ll pay for costs associated with long-term care. This could be a chronic condition, being diagnosed with a terminal illness or eventually, nursing home bills.

For wealthy individuals, they may have cash readily available where paying for these costs may not be as much of a concern. But the middle class? Something like this could be devastating to their finances and lifestyle, if they can afford it at all.

Now, for the second concern: It's probably too expensive.

Where's the money to fund the life insurance policy going to come from?

One could assume that moderate income clients are living paycheck to paycheck with no discretionary income. However, if asked, you may find many of your middle-income clients have a little extra leftover per month. Or, depending on the client’s individual circumstances, they might be able to redirect contributions they’re making elsewhere to pay the premiums on a life insurance policy.

But is it worth it?

Let’s say a wealthy client funds life insurance at 100K in premium annually and has the potential to get 3X their premium in return, tax free. Middle income individuals can do something similar-- it’s all a matter of scale.

Take a similar person, same age and health as the wealthy individual, but they can only afford $400 a month ($4800 annually). He/she could have the same potential 3X accumulation tax free on their money. The only difference is they buy less death benefit to maintain a maximum funding scenario just like the wealthy individual. This means the client would need to maintain a maximum non-MEC premium to retain the tax benefits of the policy.  If they funded the policy over the MEC premium, the cash value would no longer be tax free when it's withdrawn. 

But what if the budget truly doesn't allow for permanent insurance premiums?

You might run into situations where your clients truly can’t afford the premiums of IUL or whole life and if that’s the case, they may be able to purchase a term policy to do a conversion later on.

So, to recap a few options:

1. A term policy that can be converted to a permanent policy down the road. This serves two purposes; it provides added death benefit that is likely needed for the insured’s family and gives them the opportunity to convert portions of it into the permanent policy. This would allow them to continue funding the policy to grow their cash value. All without going through underwriting. This ensures they keep an efficient accumulation design at all times.

2. A whole life insurance policy offers fixed rate guarantees and with a dividend paying whole life, you can turn the dividends into an income stream later without having to borrow from the base policy.

3. An IUL policy offers flexible premiums and gives a client the ability to earn potentially more than a fixed interest rate -- especially in the low rate environment we’re in now. Plus, they’d have some protection from market downturns.


When it comes to the value a permanent life insurance policy brings, it has less to do with a client’s net worth and everything to do with strategy.

Which route you end up going is of course up to each individual client -- their risk tolerance and goals.

What this can do for your financial practice

But here’s another question that might be on your mind and we’ll go ahead and put it out there…

Does it pay to work with middle-income financial services clients to purchase a permanent life insurance policy?

It might seem like you should seek out those with a high net worth, but if you get in front of enough middle-income clients who need a death benefit and tax-free cash value growth potential that a life insurance policy offers, this can be a smart market for you to serve.

You don’t always need the multi-million-dollar target premium cases. After all, whale clients may only come along occasionally. Meanwhile, you might have quite a few middle income families that are uninsured or underinsured and who just might be open to a conversation about protecting their income as well as paying for college costs in the future or growing money they could access in retirement, income-tax free, among other ancillary benefits.

We have agents who are successful in this market. In fact, one we can think off the top of our head wrote 50 cases for over 300K in target production.

Here's the bottom line

If your goal is to help more people, you have an opportunity to do that with permanent life insurance. To let moderate income clients in on this wealthy family secret.

Now, we’d love to hear from you. What are your thoughts on this topic? What was your biggest takeaway?

Did you find this blog post helpful? If so, please like or share. Better yet, enter your name and email address below to receive similar content from us.

Tags: IUL (indexed universal life insurance), whole life insurance, permanent life insurance



This content is for informational and educational purposes only and is not designed, or intended, to be applicable to any person's individual circumstances. It should not be considered as investment advice, nor does it constitute a recommendation that anyone engage in (or refrain from) a particular course of action.

*Hypothetical illustration assumes Male, Age 45, Preferred Non-Tobacco

Life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads, surrender charges and other charges or fees that will impact policy values. Keep in mind that most life insurance policies require health underwriting and, in some cases, financial underwriting. Each case is individually underwritten as the severity of medical conditions varies among individuals. Formal underwriting evaluation and pricing is based on the individual characteristics of each case.

Guarantees and benefits are based on the claims-paying ability of the issuing insurance company. Broker/dealers, insurance agencies and their affiliates who sell the policy make no representations or guarantees regarding such ability.

Proceeds from an insurance policy are generally income-tax-free, and if properly structured, may also be free from estate tax. Income tax free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans.  Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce death benefit, or cause the policy to lapse.   This assumes the policy qualifies as life insurance and is not a modified endowment contract.  Please tell your clients to consult with their attorney or tax advisor about their specific situation.

This blog post is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Partners Advantage Insurance Services, a Gallagher Company, it’s affiliated companies, and their representatives and employees do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.

Although care is taken in preparing this material and presenting it accurately, Partners Advantage Insurance Services, a Gallagher Company disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it.