DESIGN

Gain a complete understanding of the client’s financial situation in order to present strategies that will solve problems, align resources and improve the client’s desired results.

Goal

Build Present Position Model

Determine if prospect fits your Ideal Client profile.

1

Objective

Identify Problems

Use the Problem Identification Worksheet and the Cash Flow Analysis Worksheet to discover problems and concerns in the client’s Present Position Model.

2

Objective

Identify Resources

Use the Resource Identification Worksheet to uncover and reallocate unused or misplaced dollars in their Present Position Model.

3

Objective

Determine Life Insurance Discussion

Decide which of the five Life Insurance Discussion(s) are most relevant to improving your client’s Present Position Model.

4

Objective

Determine First Financial Strategy

Decide which financial strategy you would like to present to the client first.

5

Objective

Key Tools

Materials

Questionnaire (Completed)

Present Position Worksheet

Problem & Resource Identification Worksheet

Cash Flow Analysis Worksheet

Strategy Worksheet

Build Present Position Model

The client’s Present Position Model should tell a comprehensive story about what is happening in their financial world. You should follow the same procedure so that other Leap financial professionals, as well as your clients, are able to look at a Present Position Model and read it without misrepresentations, errors, or confusion.

Sample Client Case – Present Position Model

Client

Information

Debt
Information

Additional
Information

Protection
Drawers

Savings

Drawers

Growth

Drawers

Client Information

This section contains basic information about your clients and their families. It is important that you include all persons involved in your client’s immediate family. The people listed in this area are the lives that will be most affected by the decisions your client makes. You should know as much about them as possible.

Here are important guidelines for inserting the client’s hard data from the Questionnaire and financial documents along with soft data from relevant consultative information gathered onto a Present Position Worksheet.

Client Information Window

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Insert the client’s name and age on the top line

Insert spouse’s name and age on the second line

List all children regardless of age. Include children from all marriages

List the client and spouse occupations and base salaries on the appropriate lines

Debt Information

The Debt Information window is where we see all of the information regarding any of the client’s debt such as mortgages, second mortgages, lines of credit, car loans, student loans, personal loans, and credit cards. The debt window can serve as a valuable source of cash flow information needed to solve the client’s financial problems.

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List the type of loan

List the monthly payments

List the unpaid balance

List the loan rate

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List months remaining for payment

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Don’t show excess mortgage payment

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Use Leap calculators to confirm amortizations and schedules are correct

Note:

Prepayment of Mortgage
Do not list amounts in the debt window. Prepayments should be shown as new money inputs into ‘G8’ with an arrow showing the drawer where the prepayment is made
Real Estate Loan(s)
List the principal and interest payment only. No insurance escrow or real estate taxes should be included. If taxes and insurance are escrowed, it should be listed on the Cash Flow Worksheet

Additional Information

The Additional Information window has been placed on the model to account for outside sources of income and miscellaneous notes.

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Include sources of income involving tax refunds, inheritance, bonus income, stock options, severance, gifts, trust income, etc.

Include miscellaneous notes involving other relevant financial information that should be considered.

27 Drawers of the Present Position

The 27 drawers of the client’s Present Position Model are divided up into three main components: Protection, Savings, and Growth. Each component consists of nine drawers.

When showing money coming in or out of the Leap Model, you must use the following guidelines:

Money going into the any of the 27 drawers (e.g., premiums and contributions) should be noted annually with an arrow pointing to the left vertical wall of the corresponding drawer arrow pointing left to right.

Income from any financial instrument that’s being consumed should be represented by an arrow coming out of the appropriate drawer and moving to the left of the model. It should not be placed in the additional information window.

Do not make any calculations for hypothetical outputs on the Present Position Model worksheet.

Do not list net equity in the real estate drawer.

Do not freehand extra drawers or extensions on the model.

Money coming out of a drawer should be shown with an arrow coming out of the drawer from right to left with the annualized amount shown on the left side of the model arrow pointing from right to left.

Download the list of Common Present Position Model Abbreviations

Protection Drawers

The Protection Component is placed at the top of the Leap Model to symbolize its importance and objective to provide more protection against the wealth eroding factors from death, disability, lawsuit, market risk, inflation, income tax increases, and estate taxation.

P1-P3

List the liability limits at the very top of the drawer and the deductibles at the very bottom.

Place an “R” in the center of the home insurance drawer if the client has replacement insurance. Circle the “R” if they have a video or photographs of items in the home.

List the monthly disability benefit at the very top of the disability drawer. List the waiting period and benefit period at the bottom of the drawer.

List the lifetime benefit max of medical coverage limits at the very top of the drawer. List deductibles at the very bottom of drawer.

P6

If the client has attained full Social Security benefits, write “full” at the top of the drawer. If less than full, write “partial.” If no payments have been made into Social Security, write “no”. State and federal pensions should be reflected in this drawer.

P7

Indicate Yes or No for Wills. Insert the latest date each was written.

P8

Indicate Yes or No for Trusts. List the types of trusts or ownership arrangements for assets such as “Ind” (Individual), “JTWROS” (Joint Tenants with Rights of Survivorship), or “FLP” (Family Limited Partnership). Insert the latest date each was written.

P9

Itemize multiple policies for each client. The order of coverage should be:

Client 1 Permanent coverage total
Client 1 term coverage total
Client 2 permanent coverage total
Client 2 term coverage total

With an increasing premium product, list current premium followed by premium for age in parenthesis.

Savings Drawers

The Savings component is in the middle of the Leap Model because it is the next logical step after protection. Savings is important to provide liquidity for short term needs as well as a base of financial security.

S1-S9

Write all Old Money account values in the respective drawers.

List any New Money systematic annual contributions only directly on the Present Position with an arrow pointing to the left vertical wall of the appropriate drawer.

For 401(k), list the annual client contributions and employer match in brackets next to the annual contribution. List only dollar amounts, not percentages.

Note:

Depending on the case, the total shown in a drawer can often be the total of multiple accounts of similar nature.
Brackets denote a contribution that is being made by someone else.

Growth Drawers

The Growth component is at the bottom of the Leap Model, since investments should follow protection and savings decisions.

G1-G6

Old money account values are listed at the very top of the drawer.

List any New Money savings (systematic annual contributions only) with corresponding arrow pointing to the left vertical wall of the appropriate drawer.

Note items such as discounts for employee stock purchase plan in brackets next to Employee Contribution.

List the fair market value of collectibles at the top of the appropriate drawer.

List fair market value of real estate at the very top of the drawer.

List the fair market value of any business interest or tax shelters, at the top of the drawer.

Note:

All the debt on the real estate property should be listed in the debt window and not in the real estate drawer.
If pre-payment of mortgages is being made, list that amount with the corresponding arrow to the vertical left wall of the real estate drawer.
Be sure to annualize all pre-payment amounts.

Identify Problems

To help you identify problems in a client’s Present Position Model, use the Problem Identification Worksheet. This is used behind the scenes to brainstorm and capture all the areas of concerns that they recognize. It is not shown to clients but provides the financial professional with a holistic overview of the potential problems faced by the client.

Sample Client Case – Problem Identification Worksheet

Download the list of Common Problems by Component/Drawer

Cash Flow Analysis

Since the answer to a client’s problem frequently lies within cash flow, cash flow analysis should be integrated into your practice.

The first step to identifying problems in this area and how it may impact the client’s Present Position Model is to audit the client's cash flow using the Cash Flow Analysis Worksheet or the Cash Flow Analysis tool on the Leap Cloud Platform. If you have collected all of the requested documents during the data collection process, building a client’s cash flow can be done with incredible accuracy.

The problem with the traditional budget approach is that it is always a look back on money already consumed. The only way to correct cash flow is to address the spending before it occurs. Part of this is showing the client the future implications of their present decision making as it pertains to their cash flow and budget, and to verify what will happen should the client continue on their present course.

Identify Resources

To help you identify resources in a client’s Present Position Model, you will use the Resource Identification Worksheet. This worksheet is used behind the scenes to capture every possible money supply the client has, regardless of the probability of using that resource. This worksheet is not shown to clients but provides you with a way to calculate potential shortfalls in life insurance coverage faced by the client and possible resources available to afford such premiums.

Sample Client Case – Resource Identification Worksheet

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The Economic Life Value amount of life coverage a company may issue

Place the current amount of life insurance that the client currently has in the window provided

Subtract the current amount from the Economic Life Value amount to get the shortfall of life insurance needed

Run a permanent and term life illustration for the additional life insurance required at the current insurance age of the client to determine the premium needed

In the Model # column, list the symbol of the drawer you are referencing

In the Name of Resource column list the name of the drawer

In the New Money column, if there is new money going into the drawer place the amount next to the appropriate drawer named in the Model # column

Place the available Old Money amount in the Old Money column

Place the name of the additional source on the line and the amount available in the premium available column. Such as: tax refunds and bonuses

Add up the entire cash flow amount and total it at the bottom of the Current Cash Flow Available column. This amount can be used to reallocate new financial strategies

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Note:

If the cash flow amount is greater than the premium required, you most likely will lean toward all permanent insurance. If the total available is less than the targeted premium, then you know that there must be either a blend of term and permanent or some modified premium whole life.

Determine the Life Insurance Discussion

The philosophy and case design concepts of Leap have been built around the power of permanent whole life insurance as a key and fundamental financial tool to the success of any personal financial strategy. Whole Life insurance is the heart or center of the financial strategy because other financial products can often better perform and meet their objectives when whole life insurance is in place.

Leap has five types of life insurance discussions that you can choose from depending on the financial problems faced by the client and the potential resources available for improving their model. The key to choosing the right discussion is to select the concept that will best resonate with your client and have the most initial impacts it relates to their current financial situation.

The Five Life Insurance Discussions

Click + to expand each section.

Family Security Discussion

This discussion and calculation will allow the client to discover what the right amount of life insurance is in order to protect the family’s current and future financial security in a manner they desire.

We first educate the client that there is a maximum amount of life insurance available to them based on their Economic Life Value (ELV). The client’s ELV can be easily calculated by using this formula:

Retirement Age – Current Age x Current Income = ELV

Once the client’s ELV is calculated, we must help the client determine the correct amount of life insurance they want.

The Paydown calculator (found in the “Calculators” section of Financial Stories) can be used to educate and help the client decide on the amount of life insurance death benefit they want in order to protect the Family’s Financial Security. The Paydown calculator inputs are as follows:

PRESENT VALUE = Client’s current life insurance death benefit

ANNUAL PAYMENT = Client’s current income that they want to replace for the family (All of it? Part of it? None of it?)

INTEREST RATE = Interest rate that the client feels they can earn when they receive the death benefit check and invest it (usually a number between 4 – 8%)

NUMBER OF YEARS = Number of years that the client would want their income to be replaced for their family

ANNUAL INCREASE = Interest/inflation rate that the client would want their annual replacement income to “increase” by each year

Once all the client’s inputs have been made into the Paydown calculator, you focus on the last column “Total Value.” If the number in this column ever turns red, that means the client’s current Life Insurance Benefit has been exhausted and no more income replacement is available to the family.

If the “Total Value” column is red, you simply add amounts (try using $500,000 increments) to the “Present Value” until the “Total Value” column never turns to red (i.e., runs out of money).

Once all the years of income replacement are green, you have helped the client discover their correct amount of life insurance death benefit amount.

In some instances, a client may ask:

“But what about my other assets? My family would have more than just my life insurance to use in order to replace my income.”

If you receive this response from the client after using the Paydown calculator, open and use the Family Security story which can be found in the “Stories” section of “Financial Stories” in the Leap Cloud Platform. Refer to Leap’s Family Security training videos and instructions on how to ask the client questions and then make data inputs based on the client’s responses and assumptions throughout the story in order to address the client’s question about other assets.

“True Cost” of Term Life Insurance Discussion

Once the client decides upon the correct amount of life insurance they want in order to replace their income and protect their family’s financial security, they must decide what type of life insurance they will add.

Most financial “entertainers” and financial marketing today advocate the purchase of term life insurance to consumers. Term life insurance does provide most clients the opportunity to purchase large amounts of life insurance for their model at low premium costs. However, most clients have not been educated and do not understand the total “True Cost” of term life insurance if they get what they want and live 40, 50 or 60+ more years.

This “True Cost” of term life insurance can be calculated using the Term Opportunity Analysis calculator (found in the “Calculators” section of Financial Stories).

In order for clients to understand the “True Cost” of term life insurance, they have to be educated on all of the costs associated with term life insurance which are as follows:

The total premiums that your client pays for the duration of their term life insurance policy.
The total interest your client could have earned on the premiums (referred to as Lost Opportunity Cost) had the client known that they were going to live and invested their term life insurance premiums instead of paying them to the insurance company.
The continued Lost Opportunity Costs once the term life insurance policy period expires through the end of life.
The cost of losing the term life insurance death benefit if they outlive the term policy period.

When you add up the term life insurance premiums that the client pays, the lost opportunity costs the client loses on their term premiums over a lifetime, and the loss of the term death benefit, the client may potentially lose and waste millions of dollars! As a result, you can say to the client in closing:

Why would you ever add something to your model, like term life insurance, where if you get what you want, and you live, the result is you lose and the loss could be potentially in the millions of dollars. “Why would you add something to your model, like term life insurance, that leads to you losing millions of dollars if you live?

That wouldn’t make sense to me. Does it make sense to you?

Living Benefits of Permanent Life Insurance Discussion

Many clients have the common misconception that permanent life insurance only benefits the insured left behind as a beneficiary. In reality, permanent life insurance is one of the three most powerful and beneficial drawers for a client’s money in the Leap Model, along with Real Estate (G8) and the Qualified Plan (S9).

Every dollar that a client adds to one of these three drawers in their model (G8, S9 and P9), can lead to a multitude of potential benefits such as:

G8 – Real Estate (4-5 Benefits)

Real Estate that they own
- Builds Equity
- Provides tax benefits
- Requires a fixed payment
If it is Rental Real Estate, the potential for rental income

S9 – Qualified Plans (5 Benefits)

“Free money” if there as an employer match
Ability to defer taxes on contributions and growth until withdrawal
Opportunity to earn market returns based upon where you decide to invest inside the retirement plan
Protected and off limits in the event of a lawsuit
An asset that passes by beneficiary designation, so it bypasses probate.

P9 – Life Insurance (10-12 Benefits)

Own the death benefit
Avoid/recapture term life premiums
Waiver of premium
Protected and off limits in the event of a lawsuit (varies state by state
Accelerated death benefits if the insured has a chronic, terminal or long-term care type illness
Bypasses probate with beneficiary designation
Permanent death benefit provides heirs with estate liquidity
Government Plan Maximizer (Cash Value does not count against eligibility)
Builds equity in the form of cash value
Since cash value grows tax deferred, you have an opportunity to avoid/recapture tax payments
Dividend Options (Cash, Paid-up Additions, Accumulated Interest, Buy One Year Term, Reduce Premium, Pay Loan %, Pay Loan Balance)

These 10 – 12 “Living Benefits” of permanent whole life insurance can be demonstrated by using the “Multiplier” tab of the Dimension of Life Insurance calculator (found in the “Calculators” section of “Financial Stories” in the Leap Software).

Asset Insurance – “Spending” the Death Benefit

Many clients have been told and believe that they won’t need life insurance in retirement. Since the client will no longer be generating an income in retirement, they are correct. However, they may want to consider making sure that they have “Asset Insurance” in place for their retirement years.

One type of “Asset Insurance” is using a permanent/guaranteed death benefit to allow your client to spend their retirement assets in a manner that will enable them to maximize their retirement income. The depleted/spent retirement asset is then replenished by the death benefit at death for the client’s spouse, children and/or charity. Examples of “spending” the death benefit in retirement as “Asset Insurance” include:

Pension Max (Single Life vs. Joint Life Withdrawal Option)
From the client’s qualified plans, the client can choose to withdraw money over one lifetime or over two lifetimes. The advantage of the single life/one lifetime option is that the client will receive more retirement income each year. The disadvantage of this retirement income option is that there is no continuation of retirement income from the qualified plan for the spouse and/or family the day the client dies. In order for your client to consider a single life option and enjoy the most retirement income from their qualified plan, their permanent/guaranteed death benefit (“Asset Insurance”) must be equal to their qualified plan balance the day they die.
Paydown (Principal and Percent Withdrawal vs. Percent Only Withdrawal)
In order for your client to consider a Paydown of Principal + % in retirement in order to maximize retirement income from an investment asset, their permanent/guaranteed death benefit (“Asset Insurance”) must be equal to the balance of the asset that they are paying down to zero by the day they die.
Reverse Mortgage
Aside from a client’s qualified plans, most clients in retirement will be living in one of their largest retirement assets, their home. Through opportunities like a reverse mortgage or a cash out refinance, a client can withdraw tax free retirement income from their home without selling it. However, the day the client dies they will pass their home with debt against it that the spouse must deal with. The solution to the problem of leaving debt on the home for the spouse to deal with is to have permanent/guaranteed death benefit (“Asset Insurance”) equal to the balance of debt built up on the home by the time the client dies.

The bottom line to this concept of “Asset Insurance” is that retirement assets will be spent and enjoyed differently when there is permanent/guaranteed death benefit in place equal to the client’s retirement assets (e.g., qualified plans, investments, home).

This concept of “Asset Insurance” and the comparison of retirement income options available can be calculated using the Person A Person B story (found in the “Stories” section of “Financial Stories” in the Leap software).

Asset Insurance – Using the Cash Value as Volatility Defense

In retirement, most people have three objectives:

Enjoy maximum amounts of retirement income
Have the peace of mind of knowing that they can never outlive their assets
To know that they will leave a legacy behind for their spouse, children and/or charity at their death

Most people are taught the “Traditional” retirement plan that (1) builds up a large amount of retirement assets before retirement so that they can (2) live off the interest as their income in retirement. In today’s world this “Traditional” retirement plan takes care of the 2nd and 3rd objectives above since the client is only withdrawing interest from their retirement accounts. However, at today’s “safe” withdrawal rates of between 2 – 4 %, the interest income generated does not provide the client with the 1st and most important of their retirement objectives – maximum retirement income!

In order to provide the client with the best opportunity to accomplish and enjoy the maximum amount of retirement income from their assets, they would have to keep their retirement assets fully invested in the market. However, due to the volatility of the market, keeping the assets fully invested and withdrawing maximum amounts of income could cause the client to either run out of assets before they die, disinherit the spouse and/or family they leave behind, or both.

The solution to help the client to accomplish all three of their retirement objectives is a strategy involving “Asset Insurance” in the form of the life insurance cash value. In retirement, life insurance cash value is a potential source of income that is not affected by the volatility of the market. Here is how this strategy works:

The client keeps their retirement assets fully invested in the market. When the market is up, they withdraw retirement income from their invested assets.

However, after a year when the market is down, the client uses the life insurance cash value for their retirement income in that year which provides their fully invested assets a year to recover without the pressure of also having to generate income.

The impact of this strategy can best be explained using the Retirement Pressures presentation (found in the “Presentations” section of “Financial Stories”). Furthermore, if you want to compare and calculate the impact of this strategy in retirement use the Retirement Pressures calculator (found in the “Calculators” section of “Financial Stories”).

Download the Five Key Concepts to Better Understanding Life Insurance in Leap

Determine the First Financial Strategy

Once you have completed identifying the problems and potential resources in the client’s Present Position Model, it’s time for you to determine what financial strategy you want to address first with the client.

At this point of the process, the Leap Model should serve as a diagnostic tool. Studying the client’s Present Position Model and cash flow will provide a roadmap to help guide the client in making the appropriate and necessary financial decisions.

A solid understanding of the fundamentals, concepts, applications, and potential financial strategies or money moves is essential. The solution is not just a random series of numbers, but a designed program involving the efficiency of money and its productivity.

Download the Master List of Leap Strategies & Moves

Deciding Which Strategy/Move To Present First

A common theme in all financial decision-making is that people just don’t seem to have enough money to do everything that is needed. As a result, we must teach people to use their limited money supply in the most effective and efficient manner. Just explaining and quantifying needs to the consumer is not enough. We must also help them find the money to pay for it all.

Use the following questions to help you determine which strategy/move you should present to the client first:

What did you learn from the Questionnaire and financial documents?

What problems appeared on the Problem Identification Worksheet?

What needs

have been identified and require solving?

What clues

does the consultative data give

you?

What did you learn from completing the Resource Identification Worksheet?

Tips & Considerations – Client Cues & Information

Clients often reveal in the Questionnaire and/or during the Data Collection Meeting which assets are moveable and which are not.

Select a strategy that you are confident in your understanding and ability to present to the client.

Start with a move that will be least threatening to the client, easy to understand, not complicated to implement, and appears to be an obvious choice.

Put yourself in the client’s position and determine what you would do first. What assets does the client have an abundance of that may tilt the scales toward that particular asset or resource?

Is the client going to inherit any large sums of money in the not so distant future, which may replace any current assets?

New money moves other than qualified plan moves generally are done early in the strategic process. There is no immediate tax impact on the client and it is generally easier to move future money than old money assets.

Extra payments made to a mortgage are another strong candidate for an easy to understand move. It does not require any refinancing which can be problematic and time consuming.

Refinancing of high interest debt such as credit cards, car loans, and personal loans, with low interest loans or deductible mortgages often free up large amounts of monthly payments for premium.

Q & A

What do you do when the client does not have enough savings and investments, has cash flow problems and a difficulty with saving?

With this type of client, use the Cash Flow Analysis Worksheet. This will help find available premium and get the client on a successful track toward financial security.

Designing Your First Financial Strategy

After determining which financial strategy you would like to employ first, use Strategy Worksheets along with the corresponding Leap calculators to begin the strategic design process.

FINANCIAL STRATEGY

Use a Strategy Worksheet, calculate the client’s hypothetical output of the asset you will use for your first move. Show the income taxes, lost opportunity cost, and other costs in your scenario

Use another Strategy Worksheet and show a hypothetical ideal position, which is the same asset without taxes, lost opportunity cost, and other costs.

The difference in the output of the two represents the client’s financial potential on that one asset.

Develop an integrated financial strategy that will improve the client’s results and start to approach the results provided by the hypothetical ideal scenario.

Keep it simple, keep it clean, and stick to the first move scenario. The client must make a positive buying decision. That may be nothing more than completing an application or taking a physical exam for the insurance before any other strategies, moves, or recommendations are to be made.