We are all creatures of habit to some degree, and as positive as some habits can be (going to the gym regularly, for instance), using the same old strategy for every case may not be the best way to serve our clients. It may be the path of least resistance, however, and that's where the problem starts.

What problem? Call it "group think", auto pilot, or any other phrase that sticks in your mind. They are all pointing to the same root problem - thinking the way we currently design life insurance policies is the way we should continue to in the future. Increasingly, the more sophisticated agency is finding ways to fund polices that result in superior returns at mortality. What are they doing that is so different? I think the most important difference is the focus on the performance of the policy in the same terms you would use in considering any other financial instrument or investment opportunity - what is the rate of return I can expect for my investment, or in this case insurance premium?

There is a second component to this, and that is being very down to earth around mortality, particularly the time horizon. How does this slightly different focus change the way we design policies? Consider the following:

• Female age 55
• Preferred Health
• $2 mil face amount

Over the last ten years this type of case more than likely landed on a carrier using a guaranteed to age 100 or 120 design with extended maturity. When we take a look at the Internal Rate of Return (IRR) at age 85 to 90 (expected mortality, more or less) we end up somewhere between 4.5% and 6% tax free. Not a bad deal by any means, particularly when you consider that this is a guaranteed return, rather than something that is subject to market risk (yes, I know there is a type of longevity risk that continues to drive down the IRR. Hang on for a minute.). This sale is almost always focused on who has the lowest premium, and I think that is the absolute wrong way to evaluate an insurance policy.

So what could we change? What would make a difference here in terms of IRR? How about structuring the death benefit differently? Maybe use a little Return of Premium Rider? Now we may be on to something! Keep the premium the same, add the ROP Rider, solve for the face.....hey, the IRR is about 40 basis points higher at life expectancy! One problem - the initial death benefit is only $1.44 mil, and I need the full $2 mil right now. What do we do? If we hold the face amount constant at $2 mil, we can achieve the same IRR, but have to pay quite a bit more per year. The actual performance is still 40 basis points higher at mortality, but I am on a budget here.

So what do we do now? I still want to play with the ROP rider because I like the increased returns, but I need to keep my premium down. In this case, we moved to a product with guarantees to age 85, projected performance to age 120, and an IRR at mortality that comes in at some 130 to 160 basis points higher than the vanilla guaranteed design. Problem solved. I'll trade the shorter guarantee period for increased performance. The added benefit? The face amount at age 85 has increased to $2.68 mil thanks to the ROP rider.

The reality is that not every client is going to be open to this, but some of them will be. In addition, when we start to use life insurance as a part of an overall asset management strategy or estate planning strategy, this focus on the IRR at expected mortality begins to make much more sense than a vanilla design. Effective use of ROP riders is just one way we pull better performance out of the same product you may already sell. Let's give your next case a fresh perspective.