PURIST: Only 54 percent of adults in America have life insurance. Why is this percentage so low?
Joe Colombo: Mostly due to many thinking that life insurance is too expensive, and they do not know what life insurance can do.
PURIST: Most people purchase life insurance to cover burial costs and final expenses, allow a surviving family to pay off a mortgage, and replace income lost by the death of a family’s primary earner. What are other reasons and good uses for life insurance?
JC: In a young person’s case, the problem is creating cash so their family can pay off a mortgage. For the older person, it is to conserve it. Much of my work is with individuals, families, and businesses whose net worth often exceeds $20,000,000.
PURIST: How do you help those individuals, families and businesses that are worth more than $20,000,000?
JC: Many of these clients are illiquid. Realize that part of what everyone owns is not theirs. It belongs to Uncle Sam. When a large estate is left, Uncle Sam expects his cut or percentage paid to him within nine months. To these clients, I do not necessarily sell life insurance. I am selling money. Life insurance is the only tool that takes pennies and guarantees dollars.
PURIST: How can a life insurance policy guarantee dollars that will only cost pennies?
JC: There are many types of life insurance policies. Term insurance is only temporary. A healthy 50-year-old can rent life insurance for as little as one-tenth of a cent per dollar. $1,000,000 of coverage would cost less than $1,000 per year. Permanent insurance for the same healthy 50-year-old would cost 1 penny per dollar per year. $1,000,000 coverage guaranteed for life would cost less than $10,000 annually.
PURIST: You mentioned that you help many wealthy clients who probably need more than $1,000,000 of life insurance. So, if a 50-year-old would like to buy $20,000,000 of permanent insurance, they would need to pay $200,000 per year? Is there a more efficient way to purchase large amounts of life insurance?
JC: With the help of specialists in this area, we can arrange for life insurance premiums to be financed by a bank. This reduces the client’s out-of-pocket costs. This strategy is called premium financed life insurance.
PURIST: Have you been doing this for a long time, and how many clients have you secured life insurance using this strategy?
JC: My team and I have been doing this for 10 years. We have secured insurance using this strategy for approximately 200 individuals/families as a group.
PURIST: Is there any risk to this type of transaction?
JC: There are always risks when you are leveraging to purchase something.
PURIST: Have any of the 200 transactions your team has been involved in not been successful?
JC: I am glad to say that we are well known for being a very conservative team of professionals, and we under-promise and over-deliver. All transactions that followed what was designed at inception are performing better than planned.
PURIST: Can you give us an example of a real-life case?
JC: Six years ago, a female client of ours, age 52 and in good health, was fortunate to have an inherited real estate portfolio. She wanted to make certain her children would have the proper liquidity to pay estate taxes when the portfolio passed to them. It was agreed that she should secure life Insurance to have a guaranteed death benefit that would provide for her children. This would eliminate any need to sell any property or refinance and take on any additional debt. Over the past five years, the client’s total cost to secure a lifetime guaranteed amount of $27,000,000 of life insurance has been $729,000. The strategy is guaranteed, and she has no additional charges in the future. She secured future money at a rate of 2.7 cents per dollar.
PURIST: How is it best for someone to get started with you and your team in strategizing what might be the best type of life insurance planning to meet their needs?
JC: It all starts with a phone call, or preferably a meeting in person.
PURIST: Do you charge fees ?
JC: No. We consult and design risk management plans without fees. If our recommendations and solutions make sense, the carriers we select compensate us directly. We also get paid through referrals. If we’ve added value and earned the client’s trust, referrals are appreciated. That is how we grow our respective practices