Some clients may hesitate to purchase life insurance as it can be difficult to realize its overall value in some cases. To help clients understand the value of their investment and the benefits that life insurance offers, advisors must be able to show clients how they can get the most out of their investment. 

One key metric that can make a compelling case is the internal rate of return (IRR). IRR, combined with the traditional benefits of life insurance, can help position life insurance as a stable alternative to traditional equity or fixed-income investments. Here are four creative strategies to help clients realize the IRR potential of their life insurance: 

1. Tiered premium approach: Maximizing financial flexibility

A tiered premium policy is a unique approach to premium payments that provides financial flexibility for policyholders. This strategy allows individuals to start their life insurance coverage with lower initial premiums. As their financial capacity grows over time, they can gradually increase these premium payments.

The tiered premium structure typically involves predetermined levels or "tiers" of premiums that policyholders can choose from based on their current financial situation and future expectations. This adaptability is advantageous for individuals with limited financial resources when purchasing the policy but anticipate increased income or improved financial stability.

This adaptability optimizes the client's outlay relative to the overall benefit, contributing to improved long-term performance and overall IRR.

2. Skipped premium design: Navigating financial challenges

By allowing policyholders to temporarily skip premium payments, such as during financial hardships, this approach provides a safety net for clients while potentially boosting IRR by delaying some of the client’s outlay to a later date. While premium payments are skipped, the life insurance policy remains active, and coverage continues, ensuring that the insured and their beneficiaries remain protected. 

Keep in mind that skipped premium policies typically have specific conditions and limitations outlined in the insurance contract. These conditions may include a maximum number of allowed skipped payments or restrictions on when and why premium payments can be deferred. It’s also critical to note that if the policyholder skips too many premium payments, the policy may be at risk of lapsing. It’s important for advisors and their clients to closely monitor the policy to ensure continued coverage. 

3. Premium deposit accounts: Generating additional interest and returns

A premium deposit account can help a life insurance policy generate additional revenue for the client. This feature enables policyholders to allocate a lump sum premium payment into a separate account with the carrier. The account operates similarly to an interest-earning savings or investment account and can positively contribute to the IRR. By capitalizing on the power of compound interest within the policy, clients can increase the overall value of their investment.

In addition, the premium deposit account provides flexibility in premium payments. Instead of paying regular premiums directly from personal funds, the policyholder can use the accumulated funds in the account to cover the cost of insurance.

4. Single premium immediate annuity (SPIA): A steady income stream

A Single premium immediate annuity (SPIA) is a type of annuity contract purchased with a single lump sum payment, and it begins providing a stream of income payments almost immediately. A SPIA is a good option for clients seeking a different approach to maximize IRR. By providing a steady income stream as an alternative to a single lump sum premium, a SPIA allows policyholders to use after-tax income to cover their life insurance policy costs. This strategy diversifies the financial portfolio and potentially boosts the overall IRR.

How Modern Life can help

Modern Life’s brokerage team helps advisors calculate IRR and determine the best strategy for clients. Our platform provides advisors with comprehensive illustrations and outputs, empowering them to demonstrate the potential IRR that various policies can offer. Here’s an example.

In addition, here are some other ways Modern Life can help your firm run faster and smoother than ever before:

• Client onboarding: Modern Life streamlines client onboarding with user-friendly digital forms and shareable links, reducing paperwork and saving valuable time.
• Document management and requirement tracking: Modern Life offers a secure platform for storing, organizing, and sharing client documents, facilitating seamless case management.
• Carrier and product choice: Advisors gain access to a wide range of carrier choices for permanent policies and can compare quotes and policy illustrations from multiple carriers, helping clients find policies that align with their unique needs and budgets.
• Fast quoting times: With Modern Life's digital underwriting capabilities and strong carrier connections, advisors experience a 41% shorter approval time, and clients save an average of 17% on their policies.
• Access to expertise: Whether it's clients with a stroke history or a criminal record, Modern Life's brokerage managers, with decades of experience, can provide valuable insights and assistance to secure coverage.
• Generative AI chatbot: Modern Life's chatbot is explicitly designed for life insurance advisors. It can answer common client questions, generate new sales concepts, and assist with creating marketing materials.

Next steps

By incorporating innovative strategies such as the tiered premium approach, skipped premium design, premium deposit accounts, and single premium immediate annuities, advisors can help clients achieve higher internal rates of return. These creative approaches address common client hesitations and position life insurance as a dynamic and flexible investment option. With Modern Life's support, advisors can empower clients to make informed decisions that align with their financial goals.

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