Insurance Pro Blog Podcast | Life Insurance and Annuity Insights

 

Did you know that whole life insurance is just for rich people? Have you ever heard that? Do you agree?

It could be argued that all types of permanent life insurance (whole life and universal life) are better suited for those of higher income. But…

There's a problem with organizing these sorts of ideas into neat little boxes. 

Who decides what “rich” means?

I've lived in a couple of different areas of the country and have colleagues that stretch from coast to coast with plenty living in the “flyover” states in between. And there's one thing I can say with absolute certainty.

What's rich in middle Georgia is not the same as what rich would be in northern California. It's all relative.

And nailing down the suitability of whole life insurance based on income is no less relative. Not that we don't have criticism for the way whole life insurance is often sold.

In fact, there are often times that people are sold whole life insurance at the expense of their financial well-being and that is problematic.

The Scenario

Example: Tom(31) and Sue (28) are a married couple living in North Carolina. They have a combined annual income of $80,000/year. They're considering a life insurance purchase for the first time because they have a baby on the way.

They decide to talk to their friendly neighborhood life insurance agent who goes through a needs analysis with them and determines that based on all the things they'd like to accomplish for their family's financial plan, it would be appropriate for them to have $500,000 of coverage on Tom and $300,000 for Sue. 

Their max. budget for the life insurance is $150/month. What should they do? No brainer–both buy level term policies to meet the coverage amount. If they have any money left, they should put it in their savings account–they're going to need it.

A traditional approach might be to sell them the term insurance they need and then take the rest of the money and apply it to a small whole life policy.

Is that the worst thing they could do? No, it's not. But this is why most people develop the opinion that whole life insurance is no good.

Will that very small policy actually perform well? Over the course of 30 years, it will likely have a decent internal rate of return on cash (IRR) but the amount of money going in so small relative to everything else, they likely won't be overjoyed with the outcome.

That's why people develop negative opinions about whole life insurance. Not because it's inherently bad. It's just not great when they compare it to the many thousands of dollars they invested in their 401k. I suspect that if they calculated the true compound annual growth rate, they wouldn't be as excited about their retirement accounts either.

Whole life isn't just for rich people but it is for disciplined people who are committed to putting away a significant portion of their discretionary income/savings to build an asset that has future tax advantages with a low risk to principal.

If that sounds interesting to you, let us hear from you. We'd be glad to help you get started.

 

 

 

Ever pick on something that was so easy to make fun of that it makes you feel a little bit guilty? Yep, me too. And that's exactly how I feel about the 529 plan. It's bad in so many different ways that this probably could have been an hour long episode (or more). Think about ... Keep Reading

 

Ever pick on something that was so easy to make fun of that it makes you feel a little bit guilty? Yep, me too. And that's exactly how I feel about the 529 plan.

It's bad in so many different ways that this probably could have been an hour long episode (or more).

Think about it…who doesn't want to sock away a boatload of money into a plan that pays for your children's educational expenses only to find out that you can't really use it to pay for all of their educational expenses.

And if they don't use it for one reason or another, it's all tied up with strings that make it less than easy to get your money back out.

I'm not sure about you but I know that when it comes to my children and paying for things, I'm a big fan of flexibility. That's worth more to me than a $500 deduction from my state income taxes (generalization depending on where you live).

At any rate, if you're interested in what 529 plans have to offer or the lack thereof, listen to the episode.

And if you'd rather use life insurance to save for your children or grandchildren, feel free to reach out to us. We're happy to help.

Perhaps you've heard or seen some of the rumblings about certain life insurance companies raising their cost of insurance (COI) charges on blocks of universal life insurance business. To be sure, this is not something that's great news. But is it really the calamity that some news stories make it out to be? Here are ... Keep Reading

 

 

Perhaps you've heard or seen some of the rumblings about certain life insurance companies raising their cost of insurance (COI) charges on blocks of universal life insurance business.

To be sure, this is not something that's great news.

But is it really the calamity that some news stories make it out to be? Here are links to three different stories that are raising the red flag about the issue:

John Hancock Hit With Class Action Lawsuit Over Cost of Insurance

Surprise: Your Life-Insurance Rates Are Going Up

Retirees Stung by ‘Universal Life’ Cost

It's never great to hear about life insurance companies having to change their pricing on blocks of existing policies. But it actually happens more than you might realize.

And quite honestly the other side of the “horror” stories concerning this increased COI for universal life insurance policies is something that's not discussed. So, as part of today's episode we're going to look at what the real problem is with universal life insurance. And no, it has nothing to do with the increased cost of insurance.

It's actually more fundamental than that and could largely be avoided. Listen to find out more.

We've are often asked about the Infinite Banking Concept and our opinion of it. If we you want to read more about it, we've actually written some other posts about it in the past. You can find those here: Infinite Banking Lies About Universal Life Bank on Yourself, Infinite Banking, etc. Can You Bank on ... Keep Reading

 

We've are often asked about the Infinite Banking Concept and our opinion of it. If we you want to read more about it, we've actually written some other posts about it in the past.

You can find those here:

Infinite Banking Lies About Universal Life

Bank on Yourself, Infinite Banking, etc.

Can You Bank on Universal Life Insurance?

In this episode, we're digging into what was the original intention of the concept and discussing how it has been perverted by other “experts” in recent years.

So…why doesn't your financial advisor seem all that eager to get into a discussion about life insurance? Most, other than suggesting you should probably have some term insurance will never even bring it up. Why is that? Aren't most financial advisors also licensed to sell insurance? Yes, they are and they love selling variable annuities. ... Keep Reading

 

So…why doesn't your financial advisor seem all that eager to get into a discussion about life insurance? Most, other than suggesting you should probably have some term insurance will never even bring it up.

Why is that? Aren't most financial advisors also licensed to sell insurance?

Yes, they are and they love selling variable annuities. What's the aversion to offering life insurance to their clients?

Surely if you're going to refer to yourself as a “financial advisor” you are representing yourself as one who advises their clients regarding all matters of their financial lives…right?

Well, there are really only a couple of reasons we can think of that would explain the aversion:

* Ignorance–they just don't know enough to competently engage in the conversation regarding life insurance.

* Compensation–most financial advisors are of the mindset that it's their job to “gather assets”. If they can gather enough and charge an fee based on “assets under management” (AUM), life is good. Example: financial advisor builds his practice to have $100 million in AUM and charges on average 1% fee. That's a million bucks a year on autopilot. Life insurance is not part of that equation.

Now, I'm not suggesting there's anything wrong with getting paid to perform a service. It's not a bad business model that's for sure.

But…

I do wonder if perhaps those who bill themselves as financial advisors who offer comprehensive advice could do a better job of at least mentioning the life insurance need?

If you want to read other posts we've written on the subject, here is one and here is another.

Today we're keeping with the theme from last week's episode. We're discussing the alternatives that you have to whole life insurance. So, if you weren't stuffing thousands every year into your whole life policy, what else could you be doing with that money? Obviously, you could be buying more cars, boats, houses, toys etc. but ... Keep Reading