News Archive March 2010

KISS Rocker's New Gig: Selling Life Insurance
From: The Wall Street Journal
Posted: April 3, 2010

You might buy car insurance from a gecko or a cave man, but would you consider buying life insurance from a blood-spitting hellion in leather pants?

Gene Simmons, the 60-year-old co-founder of the rock band KISS, hopes so. If you are wealthy enough, that is.

Mr. Simmons's new group, Cool Springs Life Equity Strategy, was launched last month to tap into a lucrative demographic: entertainers, sports stars and other people with a net worth of $20 million or more who need a life-insurance policy of $10 million or greater. The firm's founders, who include David R. Carpenter, formerly of insurance powerhouse Transamerica, believe there is big opportunity to sell jumbo insurance policies to rich people.

The only glitch: Cool Springs is based in Franklin, Tenn., near Nashville but far from the entertainment meccas on the East and West coasts. Last September, the founders realized they needed a rainmaker.

So they reached out to a fire breather.

Widely regarded as one of the best merchandisers in the music world, Mr. Simmons has his hand in "everything from KISS condoms to KISS caskets," as the bass player puts it. He is the co-executive producer and star of the reality show "Gene Simmons Family Jewels," now in its fifth season. There is a KISS coffeehouse in Myrtle Beach, S.C., and even a KISS postage stamp.

Cool Springs promises wealthy people that they can buy enormous insurance policies without spending any of their own money on the annual premiums, which can top $300,000 for older people.

The firm purports to offer new twists on longstanding estate-tax-planning strategies. The Cool Springs Life Equity Strategy is based on the assumption that Congress will reinstate the currently lapsed estate tax. A high estate tax makes life insurance more attractive to the ultrawealthy. Policies that include a savings component can rise tax-free during the holder's life, and proceeds at the person's death can be free of estate, gift and income taxes.

Cool Springs says its twist is a proprietary financing program. Working with an investment bank, it arranges a loan for the buyer to cover the premiums. The loan is repaid either along the way, out of the policy's accumulated savings, or at death, from the policy proceeds. Cool Springs says its approach holds down a buyer's borrowing costs.

By focusing on supersize policies, Cool Springs says it can charge a much-smaller commission than agents normally collect - less than 40% of the first-year premium, compared with 100% or so for ordinary consumers. The rest of the money remains in the policy, where it rises over time - producing, in theory, a better return for the holder.

Cool Springs says it has applications in progress, including one from Mr. Simmons, who says he is taking out a $10 million policy.

Borrowing to pay for life insurance is nothing new. As debt ballooned in the U.S. in recent years, the business of lending for life-insurance purchases was brisk before falling sharply during the financial crisis, say industry executives. Life insurance firms don't release information detailing customers' borrowing activity, so precise figures on the market's size aren't available.

The most logical candidates for the transactions are wealthy people with illiquid assets, such as businesses or real estate, who are facing large estate-tax bills. For most people of lesser means, simple term insurance, paid for out of pocket, is a better alternative, say financial advisers.

Some advisers and estate-planning attorneys aren't enthusiastic about the notion of borrowing money to pay insurance premiums under any circumstances. They say borrowing costs can run higher than the buyer expects, or the arrangements can run into other problems, such as a bank tightening its collateral requirements. One of the biggest concerns is that borrowing programs presume that savings within the policy will earn more than the interest on the loan - but if interest rates spike sharply, the borrowing costs could jump ahead of interest earnings.

"Premium financing is a riverboat gamble with the odds heavily stacked against the borrower," says David Barkhausen, who runs Life Insurance Advisors Inc., in Lake Bluff, Ill. "While it may appeal to those with an appetite for a free lunch, it depends on winning a combination of bets."

Joshua Rubenstein, an attorney with Katten Muchin Rosenman in New York, is similarly skeptical. "What if collateral value drops or interest rates spike � or tax law changes - it did this year - or in some way the plan doesn't perform as projected?" he asks.

Cool Springs says it has gotten borrowing and other costs low, and is choosing high-quality policies with the best opportunity for strong earnings growth to minimize risk. It "won't do a transaction with anyone who isn't in a position" to write a check for the premiums, says Samuel B. Watson, a 29-year veteran of the life-insurance industry who runs Cool Springs Financial Group LLC. Under the Cool Springs Life Equity program, a buyer's attorney must sign off on transactions.

KISS, the rock band, has inked many deals with lawyers over its 37-year history. Formed in the early 1970s, the band struggled to breakthrough until they re-created their live experience on the 1975 album, Alive! The band's stage antics whipped crowds into a frenzy. Members were disguised by their heavy makeup and Mr. Simmons himself often stole the show with his liberal use of blood and fire. The platinum-selling record catapulted the band into global stardom, complete with licensing deals for action figures, comic books and other merchandise. The band lost its spark in the 1980s before resurging a decade later.

Mr. Simmons met Mr. Watson about three years ago through a Wall Street firm where each had business ties. They have been friends since. "I felt like the best way to get the word out was through Gene," Mr. Watson says.

"I've been in the business my whole career, and life-insurance executives do not have audiences," adds Mr. Carpenter, the Transamerica veteran. "Gene has audiences. Gene has the reputation [as] a genius merchandiser and marketer. He has great ways of conceptualizing products."

For instance, Mr. Simmons describes the Cool Springs program in terms of buying a sofa from a factory rather than from a pricey retailer. Say a buyer spots a beautiful sofa in a Rodeo Drive showroom but a salesman there tells him his brother works at a wholesaler and can get it more cheaply. Then the brother says his brother-in-law works in the factory. By getting rid of the middlemen, I have "no cash out of pocket," Mr. Simmons says.

Mr. Simmons says "the curiosity factor" helps him promote the venture. He and Cool Springs' co-founders were feted recently at the home of a Manhattan socialite, and will host parties in London and Cannes in May following the start of a European leg of KISS's latest tour.

Mr. Rubenstein, the lawyer, won't be attending any of those events. But he keeps an open mind about new insurance vehicles.

"Tell me when Alice Cooper comes out with one," he says.