Selling insurance in 412(e)(3) pension plans
By Dan Vinal
WebPrez Insurance & Annuity Videos
You probably don't sell any 412(e)(3) pension plans. Very few financial advisors do. You might not even know much about them.
Within the business of retirement planning, they haven't been given much press or attention. I think that's because they cannot be funded with stocks, bonds or mutual funds. They can only be funded with life insurance or fixed annuities – with guaranteed account values.
Target market door opener
But even if you don't actually sell any 412(e)(3) plans, they are a great "door opener." Why? Because 412(e)(3) pension plans offer small business owners (especially independent contractors) and professionals (physicians, accountants and attorneys) potentially huge annual tax deductions. That's huge as in $100,000, $200,000 or even $300,000 per year. And for one person business entities, all of that money goes into the business owner's or professional's personal defined benefit pension account.
Now tell me that won't get someone's attention.
Not for every business owner or professional
Of course, 412(e)(3) plans are only for business owners or professionals with fewer than five employees, and ideally for those without any employees. But according to the 2010 US Census Bureau, there are 10.1 million self-employed, and 10.3 million independent contractors. That's a bog market!
And of course they must be earning enough money to make large annual contributions, which certainly reduces those numbers considerably. But hey, it's still an appealing target market, right?
Again, you may not actually sell any 412(e)(3) plans, and you may not want to sell them, but your knowledge of how they work — their advantages and disadvantages — and your introduction of them to prospect clients will do two things for you:
- Get you into a potentially productive discussion with desirable target market prospects — because everyone is interested in saving money on a tax deductible basis; and
- Demonstrate your professional expertise — which could be a competitive differentiator, and enable you to present other solutions to your prospect's problems.