The Full-Service CPA

Before trying to sell insurance, understand what the client is all about.

eek first to understand.” This advice is as true when CPAs deal with a client’s financial life as it is in all other relationships. As trusted advisers, CPAs are in the best position to meet clients’ insurance needs. But before trying to sell life insurance, the most successful practitioners first develop solid personal relationships with their clients. This approach makes it comfortable for CPAs to touch on all aspects of a client’s needs and opens the door to making available all of the firm’s resources. An audit partner may discover the owner of a company the firm is auditing has another child on the way. The firm may now be able to offer this client a wide range of other services including life insurance, pension and estate planning.


When serving insurance clients, the CPA’s first step is to understand the client’s financial goals and perspectives. Understand what insurance policies the client already has and their original purposes. Check to see how these policies are currently performing. Next, compare the original intent with actual performance. It’s important to spot any shortfalls between a policy’s purposes and the client’s needs. All top business professionals gather these types of data to help them provide the services clients need.

This process has several purposes:

To improve the client’s position vis--vis the insurance products he or she has now.

To meet unfulfilled needs and discover needs not yet identified.

To position clients for future financial events.

For example, a young person can buy a single life term policy to insure against a premature death. Later, once that client has acquired a substantial net worth and concern shifts to estate planning, a term policy may no longer be appropriate. He or she may now require coverage that protects the children and surviving spouse and provides funds to pay estate taxes. A second-to-die policy may serve this purpose.


The first way to meet a client’s insurance needs and add value to the relationship is to learn about his or her life beyond accounting and tax issues. Specifically, CPAs should find out what, if anything, has changed since the last insurance transaction, focusing their questions on three areas: life, health and business. The answers provide a broad perspective on aspects of the client’s life that are likely to affect insurance coverage as well as offer a good starting point to evaluate not only a client’s changing insurance needs, but also how the firm’s other accounting, tax or consulting services might benefit them.

Life questions. CPAs provide an intensely personal service. That gives them permission to ask clients if they’ve married, remarried or divorced since the last meeting. CPAs may also consider asking whether the clients are contemplating any such changes in the near future.

CPAs should also ask the client about life goals. Is there a different strategy for accomplishing them now than there was at the last meeting? When do they want to retire? What will they do then? How much money will they need? Each of these answers provides a direction in which to steer the client’s financial plans.

Health questions. How is the client’s general health and that of his or her spouse and dependents? What did the client’s last physical exam reveal? Has the client altered his or her smoking habits? Changes in health can affect activity levels in business as well as insurability. An ex-smoker may have premiums reduced; ex-cancer or heart patients may be able to move to the standard risk category. Likewise, the time elapsed since a diagnosis of a disease such as cancer can actually improve a person’s insurability. It’s up to the CPA to connect these dots.

Business/wealth management questions. A CPA should ask who the client’s other advisers are. It’s always good to know who a client uses as his or her attorney, estate planner, money manager, investment banker and the like. If he or she doesn’t have a team of professionals already assembled, the CPA may need to recommend some candidates to ensure the client is receiving good advice in all areas of his or her financial life.

Another question to consider is how the client’s net worth has changed. In particular, what has happened to the value of his or her investment portfolio? With the recent equity market fluctuations, these changes are likely to be substantial and may affect the amount of insurance the client needs as well as other considerations such as tax planning or estate distribution.

CPAs should determine whether the client’s financial resources are sufficient to meet his or her goals and also ask about plans for asset protection, preservation and transfer. Insurance is usually a critical component of these plans.

Don’t forget to ask how the client’s business is doing. Is it progressing according to plan? What changes have occurred that may require altering the insurance strategy? Is he or she contemplating selling the company? What type of sale will it be—stock sale, asset sale or ESOP? All can have different insurance-related consequences.


CPAs should consider the implications of new tax laws such as the changes expected from the coming alterations in the split-dollar insurance rules. IRS notice 2001-10 will significantly alter taxation of the cash value buildup of equity split-dollar life insurance policies. (See “Has the IRS Killed Split-Dollar?” JofA , July01, page 54, for more on the future of split-dollar.)

Perhaps the biggest tax change affecting insurance needs is the phaseout of the estate tax resulting from the 2001 tax relief act. Estate tax rates will decline and be eliminated entirely in 2010—but only for that one year under current law. Clients who maintain life insurance to cover estate taxes may no longer need this coverage. But before recommending changes, CPAs should factor in the return of the estate tax in 2011, unless Congress changes the law. It may be wise for clients to hold on to existing insurance—particularly the ones with insurability problems—until it’s clear Congress will make the estate tax repeal permanent.


The answers to the life, health and business questions may require a change in insurance coverage. For instance, after disposing of the business a client may no longer need a key person life insurance policy owned by his or her company. In that case, selling the policy in the aftermarket may provide the client with a new source of cash. (See “New Value in Old Policies,” JofA , Oct.01, page 113, for information on how to do this.)

Clients whose health circumstances have changed—for better or worse—may need a new life insurance policy from a different company. It just may be they can get more comprehensive coverage at a lower cost. Or they may now be eligible for coverage they couldn’t get before.

Changes in lifestyle also require insurance adjustments. For example, advancing age probably indicates a need for long-term-care insurance. This is something that’s so obvious it’s often overlooked—until the premiums are exorbitant. Just pointing out the rates for a one month stay at a local nursing home should convince most clients they can’t ignore this issue.

It’s also important for CPAs to look at a client’s wills and trusts. Often, the way these documents were written no longer reflects current needs. Some documents may be outdated after the 2001 tax law changes. For example, if life insurance beneficiaries have changed, this may contravene a trust’s directives. Or some estate-tax-savings strategies may no longer be necessary based on reduced tax rates. During the estate tax phaseout through 2010, it’s probably a good idea to recommend the client have his or her estate documents reviewed at least annually.


The proficiency of CPA firms offering insurance services will increase as familiarity with this practice area grows. Likewise, the ability to draw insurance services into the overall client service plan also will improve. In the near future, aggressive CPA firms will systematically link all of their clients’ financial needs with the firms’ various practice areas. Some firms are expanding beyond insurance into asset allocation and investment management. Firms that expand their focus beyond tax and accounting work have a better chance of meeting all of their clients’ diverse goals and objectives.

Neil Alexander, CFP, is founder and president of Alexander Capital Consulting, LLC, in Los Angeles. His e-mail address is .


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