The story of how to sell death benefit insurance

I talked about this exact idea with multiple Advisors this week, so I started to write about it and I wrote a short story about…insurance.

Specifically, how to sell death benefit insurance to business owners, especially those that may not want/need insurance.

I’ve always found that I learn better through real world scenarios than I’ve ever learnt through theory. So, I bet you’re the same.

I mean, I’ve learnt more about World War 2 from Saving Private Ryan, Call of Duty and Band of Brothers and countless other content than I ever did learn (or at least remember) from my High School History class.

And, that’s because of something so simple:

If you’re entertained, you’ll be educated. Your brain just turns on another level to learn faster that way. You’ll be a sponge and understand concepts that might be foreign to you otherwise.

This is what this case study will do. Last week I talked about accessing cash while living, now here is a case study around using insurance for death benefit purposes.

Now I should note, the word count on this email is a tad bit higher. This might be the biggest email I’ve ever written. I don’t think you should view this an email, instead think of it as a Saturday Essay while you enjoy your coffee.

Read on if you dare…

The Story of Bernard Bozelli as told by my fictional Financial Advisor – Marshall Dawson.

The Beginning

Successful business owners are all alike. But, every unsuccessful business owner is unsuccessful its on own unique way.

I’d must have found every unsuccessful business owner out there. I’d been knocking on doors, trying to scrounge up new clients for group insurance, term insurance, really anything to keep the lights on.

I’d sit down with them and then I’d realize that they didn’t have any money. These prospects would tell me “times were tough” and it was impossible to keep employees.

I’d heard that swan song so many times. When people looked like they had money, they didn’t. Those that looked like they were poor, turned out they were loaded.

I remember seeing a picture of ‘ol Sam Walton, the founder of Wal-Mart as he drove his dirty pickup truck and his scuffed up rubber boots. He was a common man who just happened to be a Billionaire.

This is the world we live in. And on that note…

I don’t think I’ve had a chance to introduce myself, but I’m Marshall Dawson, Financial Advisor at your service.

I stumbled into the insurance business right out of college, and stumbled isn’t the right word.

I had no other options.

So, here I am. Times have been tough, but I’m sure I don’t need to tell you.

Commission-only isn’t for the faint of heart, and my heart wasn’t that strong to begin with.

I can tell you this one thing: I know the children’s names of my payday lenders. That is how bad its been some months. But this is business, right?

There was a point when I only had $8 to my name. Do know how much gas you can get for $8?

That was the first time I moved back in with Ma & Pa. Not the only time either.

It was all about grinding it out to one day make it in this business. This business isn’t easy. But I guess what business ever is.

If it was easy, every Tom, Dick & Harry would be here. Heck, you might not even be reading my story if it was so easy. And, I’d hate to see what’s going to happen with all this Artificial Intelligence.

A.I.

That’s all people want to talk about these days.

Chat GPT.

Do remember H.A.L. from 2001?

“I’m sorry Dave, I’m afraid I can’t do that.” That’s my big worry.

The good news is that what I’m about to layout for you, I don’t think A.I. will ever be able to do. Or, at least not in my lifetime.

I want to tell you the story of Bernard Bozelli. Bernard is a wealthy man who happens to be broke.

Self-made.

When I first met him, after he sized me up of course, he told me had “400 doors” doubling to 800.

I had no idea what that even meant, but I knew it meant he had money.

What was funny about Bernard is that even though he had some much wealth, he never had any money.

Later on in our relationship, we’d go for coffee at all the dives in town and he’d tell me:

“I forgot my wallet, can you buy my coffee?”

So, I’d whip out my credit card, because I myself didn’t have any money. Here we were, me pretending I had money, with him who actually had money, never paid for anything. But that's not true. I had money. Because of Bernard.

That’s probably why he had money, come to think of it.

But let me tell you how I got to meet the illustrious, resident ‘el cheapo Bernard Bozelli.

I’d heard that all you need in life is 30 seconds of courage, and you can have anything you want. I saw it in a movie a few years back and decided I’d put it into play.

I didn’t want to live with my parents anymore. I wanted to find a wife. I wanted to have a family. And, I wanted to enjoy all that life had. And to do all that I needed money. I needed to be successful and that was insurance.

That meant I needed to move upstream in my business. I needed to find real business owners who made real money. The ones with real money, don’t flaunt it. They call it “whisper wealth”. The people with the real money are real quiet about it.

But if you open your eyes and listen, you can see these people everywhere.

They don’t drive fancy cars or even live in extravagant homes. But, they do some things others don’t.

They network. At the golf course. At church. In the community. They rely on some important people to help them grow their business. The one thing all these people need is:

A good banker – a private banker.

In order to tell this story properly, I need to introduce you to Ashley.

Let me take you back 15 years and give you a bit of my history. I grew up in a little town called Wolford Village, about 30 minutes from the main drag. It was a town of farmers, farmers and more farmers and then some people that commuted into the city.

As a joke, I remember some of my fellow students (who was going to be a farmers) drove their green John Deere tractor right into the Principal’s parking spot. It was funny at the time and still is, to be honest. That was the kind of school I went to.

At this school, I was middle of the pack. I wasn’t an honor student, not even close. I was a solid C student. But, the smartest girl I’ve ever known at the school was Ashley Wagner.

Even that name sounds like she’d be smart, right? Well she was. Top of her class. A great athlete too. She wasn’t in my friend’s circle, but she was always nice. I knew she’d be successful.

Flash forward 15 years and now Ashley is as successful as I thought she’d be. And, you’re not going to believe this, but she became the youngest private banker in her company at the tender age of 26.

So here I was, a struggling financial advisor trying to grow my insurance business at the tender age of 32. And Ashley was moving up in her company and her career. There were good things to come for her, for sure.

But, at this moment, I had an opportunity. If I had the courage to seize it.

Here’s what I thought:

I could reconnect with Ashley, build some sort of relationship and maybe, just maybe we could help each other grow our businesses together. It was a long-shot, but worth the try.

I know private bankers work with only the wealthiest individuals. Worst case scenario, I reconnect with school buddy. Best case scenario, I change my life.

So here’s what I did. I opened my LinkedIn and searched:

“Ashley Wagner”

Like Facebook, we’d been connected ages ago. I wasn’t sure if she used LinkedIn much, but I gave it a try. And then I sent her this message, trying to be as casual as possible:

“Subject Line: Congrats On Your New Role

Hey Ashley,

I saw that you just moved to Maple Bank as their new Private Banker a few months ago. I always knew you’d be so successful, especially after you epic Grade 11 speech on the Putin war machine. You were so right back then!

I’d love to reconnect with you, as I’m now a Financial Advisor working on my own practice. I’ve been growing my insurance business in the high-net worth space and I might need a banking partner to keep up the growth.

I’d like to discuss with you some ideas that I think could help both of us grow in the market.

Let me know if you have some time to reconnect.

Marshall”

So, I may have lied a bit. I wasn’t growing into the high-net worth market. I had one client who I managed $250,000 for, which I don’t think qualifies. The rest of my business was family market stuff, term, etc. But I needed to move up market and this was my way in.

But I got the meeting. I reconnected with her and pitched her the following:

A partnership idea.

One, where we host an exclusive event for high-net worth individuals about subjects they’d be interested in, luxury watches, cars and fashion. She’d invite some guests, I’d arrange the content and book the venue. It would be a chance to form better relationships and give some value to these clients.

If we did it well, not only would they enjoy the event, but they’d tell friends who would want to come as well.

That means more wealthy people for the both of us.

It was a good idea and it would have worked. It was a sound strategy and she liked it.

But at the last minute, it got kiboshed by some people at her company. They didn’t want me involved in their clients at all.

I was disappointed, but I understood.

On the way home, my cell rang. All I could see was Ashley’s face, because she used that new feature with the iPhone where you can put a picture. It was jarring, and exciting at the same time.

Why was Ashley calling? Did I do something wrong? Has something changed?

I picked up immediately, bracing for more bad news.

“Listen, I’m really sorry about that. I did, I do want to do what you talked about. We’re in competition with all these other banks and it’s tough to get and keep clients…well it’s nonsense. I think you can drive value for these people, which is good for us. Anyways, I’m sorry about all that.”

“I know, I understand.” This was all I could say.

“But, I’ve got another idea,” Ashley was talking extremely fast, I could barely keep up. “I’ve got a prospect that looking to do a gigantic development deal with us. We don’t manage his money, but we do have a crack at his new deal. He’s not technically a client, sooo….let’s go after him together?”

Was that a question? Or, a demand?

Did this just happen? Did I want to go after this client together?

You bet your bottom dollar I wanted it. I couldn’t say “Yes” fast enough.

“Let’s do it.”

This was my official introduction to Bernard Bozelli, the super developer. In reality, he was trying to get a $125M series of loans to develop a new series of properties in what is considered a bad part of town.

Ashley wanted a chunk of the debt. I wanted a chance to pitch him insurance. Why not work together? And this is what we did. We decided to woo Bernard Bozelli to work with us.

I went back home that night and got a good night’s sleep and told Ashley we’d connect tomorrow to discuss the game plan.

The Deal
 
Here was the plan:

We were going to take Bernard out for a nice lunch and pitch him on the ideas. But, we had a trick up our sleeves. We knew that Bernard, was a devout Roman Catholic and a big supporter of his Italian heritage. And, if we could do something unique and special for him, we might be able to sway him our way.

The first thing I did was call up a nice Italian restaurant, one that is typically closed for lunch and ask them to open for us, for this special occasion.

Second, I had a friend who was Italian, and his 93-year-old Grandmother was still alive and still cooking in the kitchen and I wanted her to be at the lunch and basically pretend that she was part of making the food.

And third, there was a speciality Italian store in town, and I wanted to bring him a special bottle of Balsamic and Olive Oil that he couldn’t find anywhere else.

All of this might seem over the top for someone. But this guy was a serious business owner. He’s likely been targeted so many ways. He might sit back and think:

This was special. No one does this for me. These people are my people.

Or he might think. All bankers are the same. Who cares.

But, it was worth the little investment we made, to make all of this happen.

All in, this cost us a grand total of $1,500. But, Bernard could make us hundreds of thousands of dollars in compensation.

“I’m excited for this. I’ve never done anything like this.” Ashley told me as we arrived to the restaurant, 30 minutes early to welcome Bernard.

“I know, me neither. But this guy is the real deal. I don’t know about you, but he could change my whole life.”

We walked into “Fatto a Mano”, the award winning local Italian restaurant that was never open for Lunch, but for us today it was…at a cost of course.

“Welcome my friends,” Ezio, the owner greeted us with a smile, ear to ear. “I’m so happy to be serving you today and of course your guests.”

We introduced our group which included myself of course, Ashley and our Italian Grandmother for the day, Nonna Lorenzo. We settled in at the tables and Nonna went to the back and donned a floured apron and started helping in the kitchen.

“The sauce tastes…bene,” Nonna said playing her part. She took it a bit far, but we loved every moment of it.

Everything was in order. Were we about to change our lives? Maybe, but it was fun at the same time too, right?

Not long after we arrived, Bernard showed up. As per what we expected, he came in with a wrinkled suit, scuffed up shoes and a winning smile.

Ashley made eye contact with Bernard with a big smile, “Thank you so much for coming Bernard. I’m so excited to have you here today. This is my colleague Marshall and were here to win you over today, OK?”

“That’s why I’m here.”

Right on cue, Nonna Lorenzo limps out with her 93-year-old self with fresh bread and balsamic and olive oil mix. “For our guest of honor”.

Bernard stops himself. Maybe he sees his grandmother in Nonna. Or, maybe something else. But he stops just for a second.

“Let me introduce Nonna Lorenzo, she doesn’t normally work, but when she heard that we’d have you here today, she didn’t want to miss out on serving a pillar of the community.”

“Thank you, Nonna.”

And trays and trays of food came out.

First, it was the Polpette, Smoked Salmon & Chips and Tomato and Ricotta.

Then, the Primi of Risi Bisi & Tortellini Vuoti.

Then, the secondi of Lobster & Prosecco Risotto & Halibut and Asparagus.

Affogato to finish and all of this paired with a 2015 Nusserhof.

All in all, this was called wining and dining. And, we hoped that it would be enough. We talked about his business, what he wanted to do and how we might help. Ashley kept on telling him that she wanted some of his business.

And then he invariably asked, “What do you do?” Looking right at me.

I had practiced this a million times and I knew I had one shot to get his attention. Even though he was eating food and drinking wine that I will pay for.

I told him while looking straight in his piercing blue eyes: “I help business owners like you, get money out of your company tax-free by using other peoples money.”

It was moments like this that change your life.

He looked at me and looked at Ashley. And then looked and me again. The smallest smile ever crept slowly on his face.

I think in that moment, he knew. We were different.

Ashley kept pitching him all about how her team was flexible, could structure the loan in different ways and I was talking about how he could get money out of his company tax-free.

“OK, guys. You got me. I’m willing to listen. No one does what you guys have done here today. You’ve convinced a restaurant that never opens for lunch to open. You’ve brought in food that I’ve only ever eaten when I was a kid. You’ve taken the time to understand me. You got me.

“Here’s the deal. I’m developing some properties on west side. I need a $125 million dollar loan. We’ve got some private investors and I need another $50 million. Show me a competitive deal and I’ll consider it for the loan. Now, Marshall, what is this business about getting money out?”

My turn:

“You’re a real estate developer and investor. You’re a father. You might think you only have 2 kids, but you’ll soon have 802. 800 units and 2 warm-blooded treasures. When the tax man eventually comes knocking, which one are you willing to sell? I’ll bet that if you’re like most, the answer is none. You don’t want to sell anything, right?”

“Probably not.”

“And why should you. You built up this empire. Why should you have to sell. But, when you die. Regardless of if you sell or not, the government is going to be after it’s pound of flesh. They will take their money from your family. This is where I come into play. I can make sure that they are paid off without touching a single one of your kids, including those 800 doors.”

“And how do you do that?”

“Insurance of course. But, because you have assets. You can actually have the bank pay for your insurance.”

“Tell me more.”

“A lot of this discussion involves some fairly technical tax rules. And, I’ve found that in all likelihood, you’ll have to get your banker (I said pointing at Ashley), your accountant, your lawyer and maybe a few other people on board. And, its got to make sense. But, here’s the short of it is:

“You’ll have massive tax liabilities. The gist of it is that all those taxes you’ll have to pay at death will be eliminated and the cost of the insurance will be paid by Ashley here.” I said pointing to my friend Ashley.

I took out a napkin that was sitting on the table.

“You’re 50 right?”

“That’s right.”

I drew out 50 in big red print. Then I drew $125 million next to it. I then drew an arrow to age 85 and wrote $350 million.

“Over the next 30 years, if you only grow that piece of real estate at 3.5%, it will be worth $350 million. The tax you’ll owe on that is $56 million. Now, your accountant and lawyer might be able to bring it down. But, do you want me to eliminate that to 0?”

He laughed. “OK. Let’s set up a meeting.”

As we ended the lunch, I think we had him. We did something for him that no one else did. We took our time to know him, but we also took our time to make this lunch special for him. We gave him a unique experience. There was a chance we wouldn’t get anything for it. But, if we could give him what he wanted at competitive prices, why would he deal with anyone else?

The Numbers
 
There are a lot of moving parts to this case study. But, let’s throw some numbers so you can get a flavour.

When I met Bernard he already owned 400 doors with a value of about $100M. With no planning from his accountant and lawyer, that would grow to about $400M by his death. If at the same time, he added another 400, just double the liability.

But, if his team implemented an estate freeze, it would freeze the value of his liability at the current value.

So, let’s deconstruct this first.

Assuming no other assets, let’s give his current shares a value of $100M. And, since he was a “start from the ground” type of guy. The cost basis of those share would be minimal, at about $100,000. This means, the current capital gain waiting for him at death is:

$100M - $100K = $99.9M Capital Gain

50% inclusion rate = $49.95M

Tax rate of 53.53% = $26.73M

This means Bernard had a tax liability waiting for him of $26.73M. Maybe his accountant could multiply the capital gains exemptions a ridiculous number of times, if they could somehow turn this into an active business, maybe.

Maybe they would do a wasting freeze, so maybe it comes down a bit from that number. So, let’s round down to $20M.

Bernard is still going to owe $20M on his death. Where is the money going to come from? The family could sell some real estate. But, is that the best option?

And, this is all under the assumption that he freeze the shares now and send the next set to the kids. Maybe he’s not ready for that, as he might feel he’s losing control of his baby.
It also assumes capital gains inclusion rates stay at 50%. It assumes a lot, but let’s just run with it.

To cover $20M of risk, it will cost about $275,000 per year until he dies using a Level UL. That means he will shell out $11M if he lives to age 90 (in today’s dollars of course).

Is there a better way?

What if instead he did an Immediate Financing Agreement with Par and borrowed all the money, so that the out of pocket is a fraction of this cost.

So, now we’re going to need to convince Bernard to shell out not $275,000 per year, but $1.47M for 10 years or 5x the amount. But, the minute he pays that amount, Ashley will send him back a cheque for $1.47M. No out of pocket. It’s beautiful.

Now, we have eliminated his tax bill and we haven’t caused him to dump any excess equity into the insurance policy.

Exactly what we promised him. And, here’s the good part. His accountant and lawyer are more than likely to sell the insurance solution for me, if it makes sense.

But, there’s another even bigger opportunity that I don’t want you to miss.

If the estate freeze does happen, it means a new set of shares will be issued to the Family Trust. Those shares are going to have all the growth of not only the “400 doors”, but the “800 doors”.

Let me run some math for you:

New ACB on new set of shares: $300M ($100M + the $200M new investment).

Value of the 800 doors in 70 years (when the kids of approaching their 80s at 3.5%): $4.1 Billion.

Tax Payable in 2093: $1.1B

I know this math seems a bit loopy, but it could be a reality. So another opportunity is to insure the children today, because their future tax liability is likely going to be an insane number.

They might want to start looking at taking care of that number, sooner rather than later.

At the end of the day, what we’re trying to do for Bernard is to protect what he’s built from the savages of government. And, if we can have a bank pay for the cost and use the efficiency of insurance, why would we ever say no?

This isn’t some love of insurance. It is a hatred for taxes.

So, if you’ve built something of value, you should by default love insurance. That is, if it’s been explained properly.

And with this, I’m going to close our weekly insurance email.

All the best,
Andrew