Insurance Pro Blog Podcast | Life Insurance and Annuity Insights

Today's episode dives into a discussion of how economic conditions and more specifically how interest rates have and will effect whole life insurance dividends. What happens if rates go down further? I know it doesn't seem likely but there are other countries around the world that have negative short term rates currently.

Or better yet, what happens if rates move higher (as the Fed seems to be indicating will happen throughout the rest of the year)?

I'm pretty sure that no one ever anticipated a world where the Fed would hold short-term interest rates at 0% for as long as it has. Obviously, this has had an impact all along the yield curve (see below).

And it certainly has an impact on life insurance companies.

But probably not in exactly the way that you would expect. Life insurance companies definitely buy boatloads of bonds as they are required to “match” underlying assets with the liability they assume in issuing new policies.

However, they're not under as much pressure as you might think.

Why? Well, listen to the episode to hear more on the specifics.

In today's episode, we dipped into the mailbag and pulled out a question from one of you, our listeners. To be more precise, the question was part of a comment that was asked after episode 25 (Life Insurance as a Retirement Tool Part 1). Kevin asked: You guys touched on the expenses associated to the ... Keep Reading

 

In today's episode, we dipped into the mailbag and pulled out a question from one of you, our listeners. To be more precise, the question was part of a comment that was asked after episode 25 (Life Insurance as a Retirement Tool Part 1).

Kevin asked:

You guys touched on the expenses associated to the Life Insurance and how they compare to the other investment tools available.

Could you do a podcast elaborating the “researched” numbers comparison that was broadly talked about in this podcast? I understand your method is different from the vanilla type structured policy, but it would be even better if you can compare your structured policy’s expense to vanilla version policy’s expense to the common market based retirement account’s expense.

We thought this was a great question and is something that we've discussed privately at length. So, Brandon got to dust off Excel and get to work crunching numbers. He was excited to say the least.

What did he discover after plugging in all the numbers?

Listen to find out.

And we wouldn't be doing our job if we didn't encourage you to contact us if you'd like us to do some specific number crunching for your situation. Life insurance isn't always the best answer but often times it can be a piece of the puzzle.

First, if you haven't listened to the previous episode (IPB 025), you really should. That episode will provide a bit of context for today's episode. I'm sure that most people who frequent this site and listen to our podcast assume that we think life insurance is a virtual financial swiss army knife. And while it is ... Keep Reading

First, if you haven't listened to the previous episode (IPB 025), you really should. That episode will provide a bit of context for today's episode.

I'm sure that most people who frequent this site and listen to our podcast assume that we think life insurance is a virtual financial swiss army knife.

And while it is indeed a wonderful tool. It's not always the right choice for every situation. In fact, if I had to hazard a guess, I'd say that we've probably turned away two dozen people over the last several years because life insurance was not the solution to their problem.

Yes, I know, it seems highly unlikely that two life insurance salesmen would turn away business from people that actually ask us to sell them life insurance. But it does happen.

I've said it before but it bears repeating…life insurance is not the panacea. It doesn't always work out best for people and when that's the case, we tell them so.

When Doesn't It Work

Please don't take this a blanket advice. Unlike so many financial talking heads out there, we don't fancy making proclamations for everyone. Until we know the details of your particular situation, there's no way for us to know precisely if using life insurance as a retirement tool is a viable strategy for you.

But…there are some instances where there is a very high likelihood that life insurance won't work out so well for you.

Here's an incomplete list:

* You need immediate income–there are people in our industry that are not willing to tell a prospective client that using life insurance may not work. But we have rarely (can't recall even one time) seen an instance where someone wanted to take a lump sum, plow it all into life insurance and then start withdrawing money the next day made sense.

* You're health is not that great–now there will likely be some debate around this particular issue. There are some other life insurance marketing gurus out there that suggest if you can't obtain coverage or get coverage at standard rates, you should just use one of your children or grandchildren as the insured and dump all your money into their policy.

Not a great idea, most of the time. If you have adult children that are gainfully employed, it can work (to a degree). But it turns out that while we view the death benefit as a secondary benefit (given our policy design), life insurance companies are very much concerned about the death benefit. As such, they don't understand why you'd need a $4 million death benefit on your 8 year old.

* Your hobbies–there are times that your avocation takes you out of consideration i.e. base jumping, stunt pilots, racing jet-powered motorcycles etc. While you may be able to obtain coverage, the likelihood is that the extra expense that will be added will cause the policy to perform poorly in terms of the return on cash.

* Most of your money is in qualified plans (IRA, 401k, 403b etc.)–this one will probably cause a fair degree of squawking but that's okay, we're accustomed to that. Typically the benefit you receive by purchasing life insurance cannot overcome the inertia of the tax bill. Now, there are exceptions to this and they usually revolve around people that have a lower earned income.

* Maximizing a pension benefit (pension maximization)–turns out that you probably can't have your cake and eat it too. The idea here is that if you have a pension you could choose the “single life” or “life only” payout to get the highest monthly benefit. Then you purchase life insurance on your life to provide your spouse with a death benefit that will be large enough to replace the lost income from the pension after you're gone.

Sounds great, but we've rarely seen it work. It can, but you need to purchase the life insurance well in advance (while you're still young...

One of the biggest problems for most Americans is understanding how to convert the balance they have saved in retirement plans, brokerage accounts etc. into an income they can use during retirement. The financial services industry has done a masterful job at training “advisors” to help their clients accumulate cash. But very few advisors take the ... Keep Reading

 

One of the biggest problems for most Americans is understanding how to convert the balance they have saved in retirement plans, brokerage accounts etc. into an income they can use during retirement.

The financial services industry has done a masterful job at training “advisors” to help their clients accumulate cash. But very few advisors take the time to understand how to help their clients generate income.

On the surface, it doesn't seem like that difficult a problem.

You have a pot of money. You have social security. You need (x) amount in addition to what you're getting from social security to support your lifestyle.

And all of that is true, it's not a complicated problem. However, the solution involves much more strategic thinking than most people are willing or able to offer.

There are any number of ways that you can address the retirement income problem. This two-part series will focus on how life insurance fits into your retirement income strategy.

If you're interested in reading and/or listening to some of our other musings on the subject, here's a good list to get you started:

How Much Do You REALLY Need to Generate Your Retirement Income

Retirement Income Taxes…Are You Really Ready to Write the Check?

The Retirement Income Conundrum

CNBC Thinks Life Insurance Works for Retirement Income

Why Life Insurance Works So Well for Retirement Income

Create Your Own Pension

And as always, if you'd like to discuss the particulars of your situation, please use our contact form to get in touch with us.

We love paid-up additions and if you've listened to us at all, you're not all that surprised. But we’ve made a little misstep in terms of being so broad in our discussion about them. And we're always adding new people to our audience. So it bears repeating… Not all paid-up additions are created equal. While ... Keep Reading

 

We love paid-up additions and if you've listened to us at all, you're not all that surprised. But we’ve made a little misstep in terms of being so broad in our discussion about them.

And we're always adding new people to our audience. So it bears repeating…

Not all paid-up additions are created equal.

While there are more characteristics with paid-up additions that are similar than different, there are some sharp contrasts that very much matter.

There are four key elements that you need to understand to make an informed decision before purchasing a whole life insurance policy using a paid-up additions rider:

1. Maximum annual paid-up additions payments

2. Lifetime maximum paid-up additions payments

3. Payment flexibility (can the policyholder adjust the paid-up additions rider up and down and can the policyholder make paid-up additions payments as lump sums throughout the year instead of systematically with the premium mode [annual, monthly, quarterly]?)

4. Paid-up addition rider load fees

You can’t just blindly assume that because a policy uses paid-up additions it meets the criteria that we would demand of a properly designed whole life policy.

If you'd like our definitive guide to paid up additions click the button below. Please note that if you already purchased this from us, do not buy it again…the information hasn't changed.

 

Here's a picture of the Table of Contents to give you a better idea of what's included:

If that looks like something you might find useful, please go over and purchase the guide here.

Edit: We are currently updating the guide and should have it available again soon.

Well, the Department of Labor has finally rolled out their long awaited ruling on retirement accounts and a new “fiduciary rule”. Rather than re-invent the wheel here in this post, I'm going to refer you to this piece I wrote last summer: Can the government fix your retirement woes? Also, if you want to read ... Keep Reading