The ol' ball n chain

September is Life Insurance Awareness Month!

Life insurance can do some pretty amazing things for people. It can buy loved ones time to grieve. It can pay off debts and loans, providing surviving family members with the chance to move on with a clean slate. It can keep families in their homes and pre-fund a child’s college education. It can keep a family business in the family. It can provide a stream of income for a family to live on for a period of time. Life insurance can do all of these wonderful things for your family…there’s just one small catch. You need to own life insurance.

There’s a growing crisis of too many Americans not having adequate life insurance protection. According to the industry research group LIMRA, 30 percent of US households have no life insurance whatsoever. Today there are 11 million fewer American households covered by life insurance compared with six years ago. Here’s the bottom line: A majority of families either have no life insurance or not enough, leaving them one accident or terminal illness away from a financial catastrophe for their loved ones.

What if you were suddenly gone and your family had to manage on their own? When was the last time you did the math to make sure your loved ones would be OK financially? Have you checked with your employer to find out what kind of life insurance benefit you have through work and whether you have the option to increase your coverage? When was the last time you had your life insurance needs reviewed by an insurance professional?

To make sure Americans are reminded of the need to include life insurance in their financial plans, the nonprofit LIFE Foundation coordinates Life Insurance Awareness Month. Each September, LIFE is joined in this educational initiative by more than 100 of the nation’s leading insurance companies and industry groups. 
LIFE’s website is the leading source of objective information about life insurance. Spend a few minutes learning more and trying our interactive tools like the Life Insurance Needs Calculator. If you find that you have a need for coverage, we strongly urge you to act by contacting an insurance professional in your community or your benefits manager at work. Your family’s financial future is too important to leave to chance.

Love Birds!

Lauren +Sam! Someone is getting married!!! Super stoked for you two!

Whole Life Insurance: The New Asset Class

Whole Life Insurance: The New Asset Class

November 17th, 2009 // 12:10 pm @ Andrew Rosenbaum

In economic terms, an asset is any form in which wealth can be stored. Asset classes have three essential characteristics:

1. They embody a future benefit that involves a capacity to contribute to and receive future net cash flows.
2. They involve a resource controlled by a firm or an individual that offer the possibility from which future economic benefits (besides cash) are expected to flow.
3. They allow the owning entity control and access to the benefit.

I liken the performance of permanent life insurance to that of an investment-grade bond with a super-bonus.

The word “bond” works well here because a bond is a financial instrument that is very stable, reliably producing low-risk gain. It doesn’t offer crazy, off-the-chart returns; just safe reliable actual rates of return.

The super-bonus is the death benefit, which is payable income-tax free to the policyholder’s chosen beneficiary. More importantly, with the right strategies the death benefit can be leveraged by the policyholder  to use while living.

When used this way (which I discuss in the next chapter), whole life insurance is an asset class of substantial value that meets all the designated criteria:

• The cash value provides the policyholder with living benefits similar to a fixed account with a guaranteed minimum return that can be used for a wide range of applications.
• The death benefit provides cash when needed most.
• The tax-deferred cash accumulation can be accessed income-tax free.
• The death benefit is payable income-tax fee and, with the proper strategies, estate-tax free.
• Policy proceeds are typically beyond the reach of creditors.
• Unlike equities, with a waiver of premium rider, the policy is self-completing in the event of disability.
• The death benefit is based on the event of death — not a market event that can cause a downturn in value.
• Premiums may be funded with interest earned from other invested assets in lieu of budgeted income.
• Adding permanent life insurance to a portfolio of cash, bonds and equities can produce at least as favorable long-term result with less risk then a similar portfolio without life insurance.

Because of these factors, I view permanent life insurance as an unknown new asset class. It is even more appealing in that it still flies under the radar screen of the federal government’s tax-claw.

Here’s another example of a tax benefit using this financial contract. Imagine you put $10,000 of annual premium into a permanent life insurance policy for ten years.

Your basis on this policy would be $100,000 ($10,000 x ten years). Let’s say that over the ten years the equity in the policy grew to $110,000 of cash value. Because permanent life insurance operates with a First-In First-Out principle, you could take the $100,000 (your basis) out of the policy without creating a taxable event.

You could also borrow virtually the whole amount as a loan, using the cash value as collateral. Of equal importance is that you can do so without disrupting the cash value growth, or the death benefit  features of the policy.

Most insurers have very low net cost associated with borrowing cash values. But the most powerful features are the utility, liquidity and control you have over your money.

Life insurance as an ASSET, not an expense

Funk Family Photo's

Need Life Insurance for your business???

When should life insurance be utilized for businesses and business owners?

They write whole books about this, but let me list just a few areas where it may be appropriate.

Many businesses are sole proprietors or family owned. When the business negotiates a loan with the bank, the bank usually wants a personal guarantee of the owner to repay the loan. A life insurance policy on the owner in the amount of the loan can make sure that at the death of the owner, the loan can and will be repaid to the bank without undue financial strain on the business.

If your business has more than one owner, it would be good business practice to have a buy-sell or stock redemption plan in place. If one owner dies, the agreement specifies how the deceased owner’s share of the business will be purchased.

While this buyout could be spread out over a period of years, the cost to the business could be difficult to sustain if it adversely affects the companies cash flow. Life insurance, purchased at a minimal expense, may be a much more cost effective solution to funding the cash required for the payout. It also provides peace of mind the other owners and the deceased’s heirs knowing that they are assured of receiving the payout as specified in the agreement.

There are many more uses of life insurance for business, and we will discuss these in future blogs.