Most wealthy people wish to preserve and protect their assets from federal estate taxes when those assets are transferred to their heirs. Perhaps you’re in this situation, and are looking for the best solution?
High net worth people use large amounts of life insurance to create the lowest possible cost of liquidity for the purpose of minimizing the impact of estate taxes. Without life insurance, federal estate taxes are paid 100% from estate assets.
Jumbo life insurance coverage, (often financed in a creative way), is a critical element in state-of-the-art succession planning and will help you transfer wealth with ease and much greater certainty.
High net worth people pay close to 50% in estate tax, on top of paying many other taxes while accumulating their wealth.
Minimizing the burden of taxation on transferred wealth is sensible planning.
For these reasons, properly structured permanent life insurance is a necessary part of sophisticated estate planning strategies. To support and enhance these planning techniques, life insurance guarantees that liquidity is available upon death. This means less pain for your heirs.
Highly regarded income and estate planning attorneys are leading advocates of life insurance for estate planning purposes because it creates the immediate liquidity that binds their wealth transfer plans.
Use your existing assets to secure jumbo life insurance coverage.
The cost of life insurance is low when structured properly. It is very important to understand how the jumbo life insurance definition affects pricing.
The cost of life insurance is a fraction of the return generated from the death benefit.
As people become more wealthy, it becomes increasingly more difficult, without insurance, to successfully protect the majority of their assets from estate and gift taxation.
Once the decision to purchase life insurance coverage is made, the question of how to best pay for the insurance can be considered. These issues are dependent upon many factors and it is why customization is always best. Should the premiums be accelerated? Should the coverage be whole life or indexed universal life?
Does premium financing make sense?
Borrow the Premiums to Pay For the Life Insurance Policy.
Premium Financing:
Borrowing the premiums from a bank can be an optimal way to fund permanent life insurance while offering great flexibility in the future.
Uses well managed loans to drive down out of pocket costs.
Non recourse design requires minimal collateral other than the life insurance policy.
Results in fully funded policies with many options to pay off the loan (always dependent on projections).
Minimizes out of pocket costs in all years until the anticipated exit strategies pays off the loan.
Work With Me To Help You Structure The Right Plan.
For 30+ years, I have been working with individuals, families and businesses facing these very same issues. Typically, my clients work with a team of cutting edge professionals. Whether they are estate planning attorneys, CPAs and wealth managers, my clients are people who appreciate expertise from professionals who bring valuable experience from their respective fields. I have helped my clients acquire more than $1B of permanent life insurance coverage and I have placed individual policies in excess of $50,000,000. I work with my clients to create value in many ways.
Driving down the commissions in jumbo life insurance policies can have a direct correlation to better policy performancein the early years.
I will help you get the best underwriting offers possible. It is critical to help the underwriters properly evaluate an applicant’s medical history in order to qualify for the best rate class.
Testimonial:
“After spending several years working with top tier estate and tax advisors to put a succession plan in place, our counsel put us in touch with Ted Bernstein for the purpose of getting life insurance. I can’t say it any simpler than by saying, after working with Ted, I became aware that there is a real difference between insurance people. Ted is approachable and good at making insurance relatable.” Jake Garlick, Virginia
Please contact Ted Bernstein at 561-771-4647 or email him at TB@LifeCyclePlanners.com. He offers a complimentary consultation to discuss anything you wish about premium financing, succession planning and wealth preservation. If you have questions about Private Placement Life Insurance (PPLI), Ted can help make sense of this very complicated vehicle.
Even though you are older, it can often make sense to buy a new life insurance policy.
We tend to think that because we are older, we are prohibited from getting a better policy. But that is not the case. If you currently own life insurance and you are healthy, there is better coverage out there. This is intended to help you acquire better coverage and the rationale for doing so.
First, you have nothing to lose by shopping the market.
Here is the good news:
Life insurance is not a “one and done” acquisition. Would you shop a mortgage rate if a better one seemed possible? Would you get a better car for a better price? Most people want the benefits of technological improvements. The same applies to life insurance!
Of course, it always depends on individual analysis and the details. I am not suggesting life insurance owners run out and blindly replace their life insurance policies. I am suggesting there is no downside to considering better coverage.
Over the past 30 years, the terms “switching” or “replacing” became “negative terms” within the life insurance industry. They are not, by definition, negative terms.
There was a time when unscrupulous agents churned business, but those agents are long gone and protective measures are part of the fabric of our industry. The industry does a nice job policing itself.
I would suggest that the pendulum has swung too far. Some life insurance applications in some states include replacement paperwork with dozens of pages that are nearly impossible to complete. To be clear, I am 100% for consumer awareness and replacement guidelines that protect life insurance buyers.
Innovationis the force behind better life insurance products.
People with existing life insurance deserve to know that replacing, changing or switching one policy for another may be a smart thing to consider. Policyowners must become aware of this from insurance companies, agents, associations, industry pundits and advocates. It is imprudent to keep a life insurance policy without knowing if better coverage is available.
Let me help you choose the best policy for your needs. Let’s get started.
The process begins with a current discussion of your health. Fortunate consumers are the ones in similar or better health compared to the time they last bought a policy. There are meaningful innovations to consider.For example, accelerated benefits alone make a strong case for trading up. Accelerated benefits give policyowners the ability to take an advance against the policy. The advance comes from the face amount, not the cash value account, and it is not a loan. Many term policies now have accelerated or living benefits too.
If your current health is similar to the last policy you bought, it is likely that you can upgrade. Buying life insurance today is a much simpler process and depending on the amount of coverage, it can all be done online, without a medical exam.
There is no downside in taking advantage of better rates, lower premiums, more benefits and more flexibility.
Please contact Ted Bernstein at 561-771-4647 or use the form on this page. You can email Ted at TB@LifeCycIePlanners.com. He offers a complimentary consultation to discuss anything you wish about life insurance or annuities. Read what other clients have chosen to say about Ted. Please visit at www.facebook.com/lifecycleplanners
(For all the uninsured people with families and/or businesses that are unprotected by life insurance, the first several hundred pages of google results offer advice about the benefits of owning life insurance. If you don’t own any life insurance, it may be far less expensive than you think).
If you’re in good health, you have much better options to consider before converting an inforce term insurance policy. For healthy people, converting is usually the option of last resort, but there are exceptions. First, you have to know the actual conversion deadline but more than 90% of term insurance owners do not understand the conversion options, or the deadline.
For many reasons, most people do not convert their existing term policy to a permanent policy. The most obvious reason is that the majority of life insurance buyers are not good candidates for permanent life insurance. For them, a less expensive option might be a term policy without conversion options. Not many companies offer this option but it can be the perfect solution. However, for the people who need and want permanent coverage, it makes sense to shop for a new policy with other carriers – BEFORE CONVERTING. Most insurance companies do not expect healthy people to convert term policies. They assume only unhealthy policyholders will convert without shopping and based on that fact, converting can be a very expensive proposition.
In a perfect world, everyone would like a permanent policy for the cost of term insurance. When we are young, term is easy on the budget and reaching age 50 seems a hundred years away. Young insurance buyers are often told:
They won’t need life insurance in the future.
Their kids will be grown and other assets will make life insurance unnecessary.
Their spouses won’t need protection when the kids are grown; and
Once they reach retirement, the need for life insurance goes away.
For some people, those statements might be true. But for many, those statements do not apply and when they don’t, term insurance is the wrong product solution. In reality, our feelings about life insurance change as we get older – ask anyone over 50. Or ask anyone with grandchildren or anyone who has been divorced. Even if you initially opted for temporary term coverage for budget reasons, we recommend replacing it with a permanent policy. The sooner the better and well before the temporary coverage expires.
There is a small number of life insurance companies with great term insurance products. These companies have low rates, they allow conversion in ALL YEARS and they allow the term policy to be converted to all available products.
The decision to convert a term policy depends on your health and your current goals and objectives. If you are going to convert term insurance while you are in good health, you hopefully have the right kind of term policy. If not, the options may not be ideal, making conversion a critically important issue when buying a new policy or reviewing inforce policies. Too many term life insurance agents want you to believe that price matters more than anything else when choosing a policy. Nothing could be further from the truth. For example, accelerated benefits are invaluable and add no cost to a policy.
We hear from people when they are shopping for new coverage or searching for information about conversion options, usually near the end of the guaranteed period. Like many financial planning issues, help from a professional is your best bet. Getting current policy information about the conversion options will provide clarity about the best possible course of action. Life insurance is not one size fits all, there are no simple answers that apply to each individual. The end of a term insurance policy is an important deadline that brings the question of life insurance coverage into focus again.
When a term insurance policy is expiring, it should be treated just like the purchase of a new one. How much coverage is needed now and how has that changed? How long do you want the coverage to last? The issue of duration is one of the most important considerations as it determines not only the type of policy to consider, but it’s premium too.
The longer you want coverage, the higher the premium will be and the sooner you lock in a permanent insurance rate, the less it will be over the long run. For people who prefer to control and minimize future costs, permanent insurance has a much lower net cost than term.
If you purchased a 20 year term policy 10 years ago, in effect you only have a 10 year term policy without living benefits and the conversion deadline may be right around the corner.
Things are changing. Life insurance buyers today are benefiting from education, innovation, technology and medical science. However, your current policies are not receiving any of these improvements. New policies offer access to accelerated benefits against the face amount of a policy, at no additional cost. Your life insurance policy is now an emergency fund in the event of a chronic illness. A $2,000,000 policy is eligible for a $1,000,000 advance from the face amount, under the illness rider. Even if there is zero cash value in the policy, it remains eligible for an advance because these special advances come from the face value, not the cash value. Ask an experienced agent to compare your existing policies against what is available in today’s market.
To take advantage of these innovations, please contact us at 561-771-4647 or complete the contact form on this page to schedule a complementary discussion.
Although annuities and investments are not the same things, there are important differences and similarities between them:
Other than variable annuities, 100% of the principal and the growth of an annuity is guaranteed, no matter what. Even when the stock market was down 40% in 2007 and 35% in 2020, annuity contracts were protected and no principal was lost. With variable annuities, the policyowner does assume market risk, making them very different tools. What follows is a discussion of some of the pros and cons of annuities versus investments.
Annuities create GUARANTEED, INCOME FOR LIFE. Using the right annuities can create unbeatable amounts guaranteed, future income that will be greater than any other strategy. For this reason, many people describe annuities as private pension plans.
All the money in an annuity is guaranteed, including all gains it earns from the day it is purchased. Everything in an annuity contract is regulated and spelled out, providing the most transparency. This creates safety, security and predictable outcomes. This is quite different from investments, such as real estate or equities in the stock market, which are good examples of speculation and risk. One is not better or worse than the other. They all have their places in a comprehensive financial plan. Annuities are precise, transparent and dependable. Most of our clients have annuities and investments.
Tax Deferral: Not paying tax during the annuity’s growth phase can be very meaningful. Taxes will ultimately be paid on distributions. Annuities are not tax shelters but the advantages of tax deferral is significant, especially for retirement purposes.
Rather than exposing inherited assets to loss, mismanagement and other risks, annuities are often used to create lifetime income for beneficiaries. Grandparents are increasingly using annuities to create sheltered income for children and grandchildren. Structured properly, the income is protected and safe from divorce and probate.
Unlike investments, some annuity companies offer generous bonuses to new policyholders. They do this by crediting the incoming account value with as much as 10%. Many people consider the bonus as an offset to surrender charges. The bonuses are added to the annuity’s account value and begin earning interest from day one.
Most annuities have NO FEES and there is NO COMMISSION paid from your assets. The one time commission is paid from the insurance company, NOT YOUR ASSETS. For example, when you pay a single premium of $200,000 into an annuity, the amount earning interest from day one is $200,000 plus the bonus if there is one. In comparison, a 1% fee for the same $200,000 investment is reducing the account value each year, by $2000. At the end of 10 years, it adds up to $20,000. If that fee taken from your account is 1.5%, then you will pay $30,000 over 10 years.
For people under age 59.5, there is a small penalty for withdrawing money from their annuity. Investments are not subject to these types of penalties.
Some annuities and some investments have surrender penalties. CDs are examples of investments with surrender penalties. Annuities have small, declining surrender penalties to allow insurance companies to invest your money with longer durations and better returns.
For a quote, please call us at 561-771-4647 or email Ted Bernstein, about a complimentary phone consultation.
High net worth people tend to appreciate value and typically want life insurance protection for life.
Permanent life insurance (sometimes referred to as whole life insurance) offers much better value for life insurance buyers than any type of term life insurance. The net cost of permanent life insurance is undeniably better.
Net cost is the total premiums paid minus the total cash value. For example, if $80,000 of total premium is paid into a permanent policy over 10 years and the cash value of the policy is $80,000, there is a net cost of $0. That is not an error. It is how permanent insurance is designed. Comparatively, if $40,000 of total premiums were paid into a term policy over the same period, the net cost would be $40,000. The cost of term insurance increases as we get closer to life expectancy while a whole life premiums are level or may have been paid up in the early years.
The longer you own a permanent life insurance policy, the better the net cost will be. A lower net cost number is better. Conversely, the longer you own term insurance, the higher the net cost will be.
There are two types of life insurance that all policies fall into – permanent insurance and term life insurance. Most jumbo life insurance policies are permanent policies.
What are the differences between term insurance and permanent life insurance?
Permanent life insurance provides lifetime coverage, meaning that it can be designed to provide lifetime coverage or coverage to a target age. The target age is selected by the policy owner, not the insurance company. Not everyone needs or wants coverage for life.
Some permanent life insurance policies build up equity or cash in the policy and some do not. Because term insurance has lower premiums in the early years, people mistakenly believe that term insurance is “better” coverage. Not only does permanent insurance have much lower net cost over time, it has much greater flexibility and it is more easily customizable.
Permanent life insurance is the best value for lifetime coverage.
Term insurance is temporary insurance – it expires at the end of a guaranteed period. Permanent insurance will stay inforce as long as the policyowner wants to keep it. Permanent insurance puts the policyowner in control of when coverage ends, not the insurance company.
“Over the past 25 years, people were sold a complicated marketing gimmick called “buy term and invest the rest”. Individual policyholders were told they could invest better than insurance companies, encouraging them to invest the annual difference between a term premium and the higher premium for a permanent policy. The difference would go into a side investment fund to be invested with hope it would be used to pay for the much higher term premiums later in life.
Buy term and invest the difference has proved to be a costly mistake for millions.
Although this sounded reasonable to unsuspecting life insurance consumers, “buy term and invest the rest” proved to be nothing more than slick marketing. It has been primarily promoted through multi-level marketing groups and entry level insurance agents. The projections are often run using unrealistic interest rates to grow the side fund. Someone who bought a 20 year term policy in 2005 may have seen projections using 7% while the actual interest rate over that period was half that amount, or less. The proponents often use average S&P returns to justify using high growth assumptions within the side fund. That is not a fair assumption either because the side fund cannot afford losses, forcing the side fund to invest conservatively.
Insurance companies invest and manage billions of dollars compared to individuals who usually invest much smaller amounts. Insurance companies employ the best and brightest in their investment departments and insurance companies are able to monitor assets on a 24/7 basis, while policyholders cannot. There are no taxes paid while the insurance company is managing the assets. Person after person will tell you they never invested the annual difference. They bought inexpensive term insurance but never built up a side fund. The few who did invest, did not invest with discipline. If they skipped years or withdrew funds from the side fund account, the whole thing was derailed. The result is a messy trail of people with expiring term policies or compromised health. In worse case situations, some have no side fund and they cannot get new coverage because of health issues.
Most people do not convert their term policy for good reasons.
More and more people buy permanent life insurance when it is properly presented to them. “But what about Dave Ramsey and Suze Orman who don’t like permanent life insurance?” They are not insurance professionals and they do not offer advice to individuals because that would require them to be in compliance, carry the proper licences and put their reputations on the line. It is easy for pundits to make unsubstantiated claims. They sell ad space, books or subscriptions.
Buying life insurance is often a process over a lifetime, not a one-time event. Term insurance can be the right decision for young families. The right time to consider buying permanent insurance is sooner than later. The following triggers lead people to consider permanent insurance:
When moving from the “paycheck to paycheck” lifestyle, we become potential permanent life insurance buyers. Since ninety seven percent (97%) of all term policies do not pay a claim, then 97 percent of ALL term premium were wasted. High Net Worth (HNW) consumers and high income earners choose permanent life insurance because it has better value:
Replacing Your Income: If your family or business depends on you and your income to run smoothly, permanent life insurance is the right product for those who can handle the higher premiums.
Immediate Liquidity: Very wealthy people own permanent life insurance. They want the guaranteed liquidity it provides at death.
Permanent Life Insurance Is The Best Tool For Mitigating Succession Planning Problems:
The value of assets fluctuates significantly and death is always the worst time to sell a business or other assets.
Many people have children working in a family business. Life insurance is the great equalizer for those children who do not work in the business. Without liquidity in these cases, there is great risk to a smooth succession of a family business.
More and more grandparents own a life insurance policy for each of their grandchildren. The insurance policy is straightforward, inexpensive and a “feel good” asset knowing how it will impact the grandchildren.
Premium Financing. Wealthy people have the ability to finance life insurance. When it makes sense, it is a very effective tool to create tax free wealth.
The majority of our new clients have life insurance and annuities when we meet them. People are often surprised to learn they are not paying the lowest premiums and they’re also surprised by how much innovation has occurred since they last bought coverage. The addition of living benefits is a great example of a fundamental change to life insurance coverage that is here to stay. On the annuity front, people may not know that annuities guarantee that principal is never lost and some annuities include Long Term Care riders for small rider fees. In essence, these annuities double or triple the monthly payments for long term care needs.
Working with insurance professionals brings these four advantages:
Experience.
Guidance through the process.
Automatic reviews.
Inside baseball.
One of the most difficult industries to successfully navigate on your own is the insurance industry. The products come from the actuarial science world, making them difficult to understand for most people. The rate of change within the industry is what makes it impossible to navigate on your own. There are hundreds of insurance companies fighting for market share by constantly creating unique and innovative products. These companies have some of the brightest and most well educated people improving the products they bring to the markets. Unless you make it your business to get educated and stay educated, you will always be ahead when working with professionals. There is nothing simple about buying life insurance or annuities. Even term insurance appears to be a commodity, but it is not. Every company’s product is different and there are significant differences within the carriers.
For example, unless you have studied the issue of conversion deadlines and living benefits, it is impossible to compare apples to apples for a specific policy you may be considering. The living benefits from one company may cover chronic and terminal illness, but not critical illnesses. That could mean the difference between a stroke being covered by your policy, or not. The two products might be identical in price but one covers critical illnesses and the other does not. I recently helped a couple in California. When I met them, they were unaware that living benefits could allow them to take advances against the face amount of a policy. They were unaware that accelerated benefits are a part of many life insurance policies at no additional cost. When agents sell only price, these things are overlooked. Part of our value is to help people determine exactly what they need and want, and then work backwards to find the best product to match those needs.
Inside Baseball – what you really need to know.
No more medical exam! With apply and buy, get up to $5,000,000 of coverage online, in one virtual meeting. There are no doctor records, blood or urine tests, or medical exams that slow down the process. Meetings with agents can be online or in person. The rates for these policies are priced the same as fully underwritten ones. There is no additional cost to apply and buy. Permanent, whole life, universal life or term to 100 can be applied for and issued in an hour.
More and more term policies do not allow convertibility in all years even though life insurance buyers want long conversion periods. This could be unnecessary risk for most people. Before accepting a policy that cancels the conversion option before the end of the term period, we recommend comparing the rate to policies with a conversion option in all years. Only you can determine if one or two percent of premium is worth cutting out important riders and applications. Our job is to give you the right information to help you make the best possible decisions. Why do conversions matter in a term life insurance policy?
A Custom Guide.
Think of a life insurance policy like a brand new Smartphone right out of the box. The phone will have the ability to make calls and do a few other basic things like take photos and go online. I guarantee that your Smartphone and mine do totally different things in addition to those embedded basics. Your phone probably does not have quote engines for life insurance, a NASA photograph app and Tax Facts. Life insurance policies are customized the same way. Basically, they provide a death benefit and some build up equity. But, like the smart phone, that is where the similarities end. My policy includes living benefits, it builds up guaranteed cash values and it pays the death proceeds in guaranteed, equal installments over time. I have different planning goals and objectives than my clients and my life insurance policies and annuities will reflect them.
There are endless examples that make these same points. There is great value in working with insurance professionals who are committed to staying on the cutting edge of the industry. Our new clients have previous life insurance and annuity coverage that we improve from our experience and from our “inside baseball” knowledge of the industry. For example, life insurance companies often retire products because something about them is too good in today’s market. That can be really good information to know and share with our clients. Most people are not aware of how rapidly innovation is occurring and how quickly it is out-dating their current policies.
Jumbo Life Insurance Policies – better pricing matters.
High net worth consumers and ultra high net worth consumers are more likely to buy permanent life insurance to solve liquidity problems upon death and to generate tax free distributions from privately funded pension plans. By far, permanent life insurance is the most economical way to purchase insurance for long term needs. In addition to the superior net cost, it is versatile and flexible. For people buying jumbo life insurance policies, you benefit by being aware of the advantages that were specially designed for jumbo life insurance policies.
“I’m all set”is one of the most common beliefs people have about their insurance coverage. Most of the time, they’re not.
A Regular Review is the Key.
A good life insurance professional is encouraging their clients to review their policies to learn about worthy suggestions and recommendations. A good agent will bring ideas and concepts that might enhance the coverage for their clients. If you are not getting this service currently, you will with us. Please call at 561-771-4647 or email me at TB@LifeCyclePlanners to get started. We offer a complementary conversation about anything on your mind concerning your insurance coverage, succession plan or retirement plan.
If you currently own a term life insurance policy or if you are shopping for one, this information will help you get the best possible policy for your needs.
Without knowing the future, it is impossible for any of us to “predict” when our need for life insurance coverage goes away, if that ever really happens.
The most important step when buying ANY life insurance policy is thinking through the issue of duration. How long do you need and want the policy to last? Once you know whether that is for life or only for a number of years, the right type of policy begins to become more clear. Duration is the major factor in price and it determines which type of policy suits you best.
People who buy term insurance in their 30’s or 40’s are told that 20 year term insurance is a great option because the premiums are low and because life insurance isn’t important in your 50’s and 60’s? It’s true, the premiums are low. They are low because the chance of dying is small in our 30’s and 40’s and 97% of all term policies lapse without paying a benefit.
Buy Term and Invest the Rest – A Failed Theory.
If you are worried that your current TERM LIFE INSURANCE policy will expire soon without good options for new coverage, perhaps you were sold a sales concept suggesting that you should buy term insurance and build up a side savings account outside the policy. Known as “buy term and invest the rest”, people were led to believe they could create their own permanent life insurance plan to beat insurance companies. Why give an insurance company your money to invest when you can do it yourself? It sounded reasonable to consumers and untrained insurance planners.
Many people are told they wouldn’t need or want life insurance once they were near retirement or when their kids were independent. For millions of Americans, “buy term and invest the rest” has proven to be nothing more than questionable assumptions with serious consequences. Too many of the victims have been left without life insurance coverage for the future AND no hefty savings account. Now what they need is proper guidance and help to make sure they can get, and afford, a new policy to fit their current objectives.
What went wrong:
Buy term and invest the rest was marketed to sell term policies. People were advised to invest the annual difference between a term policy and a whole life policy in a side account.
The side account was to be used 20 years later to pay the future premiums of a new and more expensive policy.
For example, if a 20 year term premium was $2000 & the whole life premium was $8000, the difference of $6000 was to be invested each year by the insurance policy owner.
The salespeople often projected the growth account at 7% or more.
The side accounts have not grown anywhere close to 7%, after tax.
A huge percentage of people never “invested any of the difference”.
Savings accounts were used for other things, if there was any savings.
The conversion deadlines passed in most term policies.
Current health issues cause new policies to cost more than anticipated.
In divorce settlements, any savings accounts were often divided.
Second marriages extend the need for life insurance, well past 50.
Coverage lapses occur well before life expectancy.
What to do now:
Check your existing policy’s conversion language, asap.
Determine your insurability for new coverage.
Seek counsel from an experienced life insurance professional.
Compare policies with different durations of coverage.
Buy a customized, flexible policy for today and tomorrow.
CALL NOW FOR A COMPLIMENTARY CONSULTATION AT: 561-771-4647
Life insurance is a lifetime need. Ask anyone over 50 if they feel differently about how long they need life insurance.
As we get older, people worry about how their current health issues might affect the rates for a new policy. A few extra pounds, high blood pressure or high cholesterol are common issues that may increase the premium for a new policy, but not as much as you might think!
More than 95% of all term policies are NOT INFORCE at life expectancy. It would be the equivalent of paying for auto insurance only until retirement age and hoping you don’t get into an accident.
Mitigating Term Insurance Risks, Seven Tips.
Term insurance can certainly be appropriate coverage for some young families. They may not yet have the financial resources to pay for permanent protection and buying term is better than being uninsured. Or, term insurance may be appropriate for bank loans, key-person business life insurance and and divorce agreements. However, buying a term life insurance policy if you have a permanent need is throwing away money.
“Buy term and invest the difference” or “buy term and invest the rest” was a marketing gimmick that gained awareness through non-insurance professionals like Dave Ramsey, Suzy Orman and thousands of untrained insurance agents who promoted a sales gimmick instead of a counseling people about a critically important solution built on guaranteed outcomes.
Busting the myths about term insurance!
As a result of not investing the difference, you end up in the worst possible position: without coverage AND without a savings account to pay future premiums.
“Life insurance protection is a key risk mitigator in a family’s financial plan and it’s something people need for life,” says Deborah Bernstein. “We stress the importance of working with the right professionals who customize their unique circumstances.” Flexible policies can adapt to our natural life cycles with flexible premiums for unforeseen events like Pandemics or recessions. Lowering or skipping premium payments can prove to be very helpful during these times.
Life insurance is intersectional in a family’s planning as it is part of the income protection plan, the succession plan and the financial plan. Done correctly, you can buy one policy for life.
7 tips when buying life insurance:
Don’t Assume Life Insurance Is Too Expensive. This is a common reason people don’t own enough coverage or the proper type of coverage.
Don’t Count on Employer-Provided Coverage as Being Sufficient. Group term insurance through work is not adequate for most people. It is too expensive compared to individual coverage and it is never convertible to a competitive policy with all the current riders and options. Look at it this way: the premiums are the same for the unhealthy smokers as they are for healthy non smokers. Is that the rate you want to be paying?
Use Experienced Agents Who Represent All Companies. The rates or prices between insurance companies can be quite different. Try not to limit your search for a life insurance policy to just one company. Let a professional do the comparison shopping for you. We work with all the relevant companies to find the best match for our clients.
Disclose All Requested Information to the Insurance Company. During the underwriting process, it is important to answer all of the questions honestly. Insurers will verify the information you provide through the application. You are granting permission to obtain medical records from your doctors, check prescription drug history and motor vehicle history. Full disclosure is best.
Don’tAssume Health Issues Will Keep You From Getting Insurance. Don’t assume that you won’t get life insurance at affordable rates if you have common health issues. Each life insurance company has its own underwriting guidelines. For example, some may be more lenient about diabetes or cardiac conditions. Some give better prices to smokers.
Buy The Right Amount of Coverage for the Right Duration. The more life insurance coverage you buy, the more you’ll pay. That doesn’t mean you should skimp on coverage, though, just to save money. The Insurance Barometer Study by Life Happens and LIMRA found that one in three respondents said they didn’t have enough life insurance coverage.
Please contact us at 561-771-4647 or complete the contact form on this page to schedule a complementary discussion.
Indexed universal life insurance (IUL) is an innovative, low risk type of permanent life insurance. It is primarily intended for people interested in long term life insurance coverage and tax favorable distributions, typically during retirement. These policies are well suited for life insurance buyers seeking large policies, known as jumbo life insurance policies. For premium financing, some consumers prefer to use an indexed product (see reasons below). The use of indexing strategies guarantees there will a loss of cash value when markets are down. No market losses makes IUL an appealing product for risk averse consumers. The fact that 0% is the lowest crediting rate possible makes it worthy of consideration, especially when the stock market is down 30%. The interest credited to IUL policies will never be below 0%. In fact, some products guarantee a floor of one or two percent.
Do IUL policies reduce risk for life insurance buyers? Since none of the policy’s cash value is ever invested directly in the stock market, it does provide a buffer against normal market volatility.“Zero is your hero” feels pretty good when markets are down 25%.Market losses during these market cycles can be quite damaging.
We might think that dynamite and an IUL insurance policy are nothing alike. One is an explosive and the other is often described as another boring type of life insurance policy. While that may be true, in the wrong hands, dynamite can be catastrophic. In a professional’s hands, dynamite can be part of a well controlled plan to bring down a multi-story building without much of a fuss. In the wrong hands, an IUL policy can make a big mess and create nothing but unintended future problems. Properly used by a professional, an IUL policy can be the ideal product choice. Not all buildings should be brought down with dynamite and not all insurance plans call for IUL.
The use of indexing strategies may result in buying a policy with the lowest possible net cost of any policy measured in the medium and long term. Of course, this depends on how markets perform, the sequence of returns, how the policies are credited and how often and when the insurance companies lower the cap or participation rates. In order to achieve optimal returns, a greater level of understanding and responsibility by the policyowner is essential. It is definitely not a set it and forget it type of life insurance policy, unlike whole life. With the proper amount of education, indexed universal life is suitable for the following insurance buyers:
Between ages 25-55 (ideally).
Want permanent life insurance.
Appreciate flexibility.
Consistent, high income.
High net worth.
Interested in retirement income.
Considering premium financing.
Willing to routinely review inforce policies.
Like other permanent life insurance contracts, IUL builds up tax deferred cash value when interest is credited to the policies. A number of well-known indexes, such as the S&P 500 or the Nasdaq-100 are typical indexes options. There are no government imposed restrictions or limitations on contributions or distributions, like there are with qualified retirement plans. The cash value can be accessed without penalties or taxes, unlike a 401(k) or IRA. These policies are often used as private pension plans by people without access to a corporate pension plan.
There are policy expense charges and fees in IUL policies that should be understood by the agent and the policyowner. In good contracts, the fees are capped, which means they are less impactful as the premium levels increase. Indexed Universal Life is not a good alternative to term insurance or other products that do not build up cash value. It is most beneficial for younger consumers who want permanent insurance, flexibility, strong potential upside and tax free withdrawals near retirement.
The advantage of a policy that guarantees to never lose principal due to market performance can be compelling. Another reason for IUL’s popularity is because it is a powerful tool that smooths out returns. “The key to minimizing sequence of return risk is to reduce volatility, which IUL does far more than the S&P 500”, says Sam Rocke, SVP at Ash Brokerage.
Insurance companies share in the index’s upside when markets are up. They do this with simple cap rates and/or participation rates. For example, if the S&P is up 20% one year, a policy with a cap rate of 12% will credit the policy with 12% interest that year. Essentially, cap rates and participation rates create a partnership between policyholders and the insurance company. The insurance companies take all the risk.
The results are impressive as consumers are flocking to the safety of indexed universal life insurance. The product had $2.3 billion in sales for 2019 and the first half of 2020 saw more of the same record breaking growth.
Why Universal Life Insurance?
The retirement vehicle for many corporate employees is a 401(k). There is market risk with 401(k)s which is fairly well understood by individual investors. In addition to the market risks they assume, there are contribution limits, taxes that are deferred until withdrawal time as well as substantial recurring fees. For many, a 401(k) may not be the perfect retirement solution, by itself. Near retirement, the loss of principal is too costly. For others, they want the option to make flexible and much larger contributions than 401(k)s or IRAs allow. For these people, an indexed universal life policy can be an excellent addition to the other investment vehicles.
The stock market is volatile and it has been known to punish short term and medium term investors. Once people can see retirement in their future, a growing number of them begin to feel differently about the inherent risks in the stock market. Principal protection quickly becomes their main concern, rather than maximum yield. Yield is undoubtedly important, but an extra 1% is not worth exposing principal to drops of 30%.
What are the costs? Funded properly, these policies should have sufficient internal growth to offset the increasing cost of insurance charges and other internal fees. The current cost of insurance expenses and fees are subject to change and they are deducted from the cash account each year. Managed and funded properly, the account values should outpace annual deductions. I have many younger IUL clients who began funding their IUL contracts with oversized premium contributions. They benefit in two ways by doing that. Overfunding creates a cushion of cash value that can be used if income takes an unexpected hit and overfunding in good years can help in smoothing out the returns.
What is Universal Life? Some history about this product is beneficial. In the 1970’s, the rate of return of whole life insurance was 2-3%. When interest rates shot up to historic rates in the late 70’s and the 1980’s, EF Hutton created a flexible, interest sensitive product to compete against whole life. Other life insurance companies followed, with some crediting more than 12% at the time. Sales of universal life were meteoric. Billions of premiums poured into these contracts. As a young agent during this time, there was insufficient agent education about the impact of interest rates on long term policy performance. Policies sold based on double digit projections were destined for trouble.
As interest rates gradually decreased, new projections should have been provided to policyholders, by their agents. If a policy was purchased using illustrations based on 10% assumptions, it should have been re-projected again when rates fell to 6% and again when rates fell to 4% and again when they fell to the guaranteed rates in the contract. LOWER INTEREST RATES WILL CAUSE THE POLICY TO NEED MORE PREMIUM TO MEET THE PROJECTIONS THAT WERE BASED ON HIGHER RATES. WHEN THESE POLICIES WERE NOT FUNDED WITH THE HIGHER PREMIUMS NEEDED TO OFFSET THE LOWER CREDITING RATES, THE POLICIES TURNED INTO TICKING TIME BOMBS.
Adding insult to injury, when the looming crisis in a policy isn’t detected, it may leave the policyholder with no options. It’s like driving towards the edge of a cliff in the dark. You have no idea until it’s too late. The problem happens faster for older policyholders. For most agents, companies and policyholders, these were tough lessons. They taught us the value of regular reviews and to project life insurance conservatively. Things change that affect policies. The problem is not universal life. The problems were aggressive insurance company projections, insufficient agent education.
Indexed universal life (IUL) is not a “set it and forget it” type of policy to own. There are other policy types that are much easier to manage. Every potential IUL buyer should only work with an experienced life insurance professional familiar with indexing strategies. Choosing the right life insurance company is more critical than ever with this type of policy. Some companies are new to IUL and others have been real innovators and pioneers over the past 20 years. These are things the right life insurance professional will share with you.
Most people may know that the stock market index has returned approximately 8% over the long term but less than 4% for average investors over the same time frame.
A variety of reasons are attributable for this gap. The biggest factor is emotion. Investors make all types of investment mistakes for many different reasons. Some are due to panic and some are due to their understandable inability to devote enough time and attention. Not only do investors have to be willing to commit the time, they also have to be ready to act every time action is required. Too many find that impossible while they are working, running businesses and caring for families.
Individual investors can never take their eye off the ball. Failing to buy and sell at the perfect times make it impossible to attain the average long term historical rates of return.
Timing the market is tough, even for professionals. When mistakes occur, they impact the overall yield. Warren Buffett says the first rule of investing is to never lose money and he’s right. But to do that, you must be laser focused at all times. Using an IUL prevents investors from ever losing money due to stock market returns.
IULs have a minimum rate of return, usually between 0% and 2%. For example, if you have $200,000 in a stock account and it drops 20%, you will be down by $40,000. The account value starting in the next year would be $160,000 (minus any fees). In the IUL policy, the same 20% market loss would result in the cash value remaining at $200,000 (minus any fees).
The Concept of Stacked Gains. The importance of stacked gains can not be stressed enough when markets are up. A 10% gain in the following year would result in new interest being credited to the policy in the amount of $20,000, putting the policy’s value at $220,000 at the end of the second year. In the stock account, there would be $160,000 plus the same 10% for year two growth (minus fees). The stock account value at the end of the second year would be $176,000 (minus fees).
The comparison is $220,000 in the IUL versus $176,000 in the stock account. From that point forward, the new base in the IUL is $220,000, never to go lower than that from market losses. Over time, protecting your principal from market loss, makes a huge difference in the policy’s accumulated savings. The cash value in an IUL can drop due to cost of insurance charges and/or fees. It shouldn’t happen but it is something to discuss with a life insurance professional at the point of purchase.
The Upside (cap rates) and the Downside Protection (the floor).
If never losing any principal due to negative market returns still sounds too good to be true, let’s peel back the onion a little bit. Quite simply, they are buying options to insure the downside guarantee that your policy will never lose principal from market losses. Life insurance companies employ some of the sharpest minds in the investment world to manage these assets. The people they have working for them are dedicated to nothing else. There can be billions of dollars allocated in these strategies.
Life Insurance Premium Financing
Using IUL contracts for premium financing is another strategy we use when it is appropriate for individuals to finance a policy. Today, it is the lure of low interest rates that makes financing a consideration. Premium financing should only be for high net worth individuals with at least $5,000,000+ of net worth. A person who needs permanent life insurance but does not want to use their own capital to pay the premiums is a good candidate for premium financing. An arbitrage should exist between the cost of the premium finance loan and the policyowner’s return on investment. For example, HNW people with an ROI of 10% on their assets can borrow the premiums today at 2% and for them, that may be ideal. That creates an 8% arbitrage and some lenders will gladly lock in longer term rates with favorable terms.
The goal of a premium financing strategy is to pay off the loan and be left with a properly funded life insurance policy, payable at death. With more than 30 years of premium finance experience and having placed over 600 financed policies, I have strong relationships with traditional lenders and specialty lenders that work with our clients to finance these policies. Many of our clients have their own banking relationships and they prefer doing business with them. In those cases, our job is to guide them through the insurance company requirements. You can learn more about premium financing here.
Policy Design
The way in which an IUL is initially designed is determined by the goals and objectives of the policyholder. For example, when using the policy to maximize tax-free income in retirement, the policy should be maximum funded, meaning the initial death benefit is low. A lower death benefit will result in less cost of insurance charges.
Is there a “best index or design” to choose? There is no way to know which indexed strategy will perform the best, either over the long term or the short term. We encourage our clients to work with professionals who will follow “best practices” when recommending index strategy allocations. That includes proper understanding of the index choices in order to make the right decision about which fund or funds to select.
Taxation – Indexed Universal Life Receives Favorable Tax Treatment which should be discussed with your insurance professional. Qualified plan distributions from a 401(k) and an IRA are subject to income tax while the death benefit is income tax free. If an estate is large enough to trigger estate taxes, the policy can structured in trust to avoid estate and gift taxes.
Loans are not income, according to the IRS. Therefore, any withdrawals taken as loans are not taxable. For retirement purposes, this is advantageous as the distributions from your IUL are not reported on your income tax returns because they are not treated as income. As a result, this money does not affect your social security taxes or Medicare.
The IUL Loan Structure
Tax-free loans are one of the most compelling reasons to consider IUL, especially for retirement income planning. Indexed Universal Life has different loan types, including an indexed or participating loan. The discussion of policy taxation and loans are important ones and a web page is not a sufficient resource to explain these loans. A web page is good for reference but to cover this topic in the best interest of policyholders, it should be done person to person.
Considerations:
Tax-free distributions and death benefits
Guaranteed principal protection during negative market returns
Maximum flexibility
Favorable policy for premium financing
Unstructured loans
Stacked gains from indexed growth
Less risk
Caps and participation rates are not guaranteed
Decreasing surrender charges
Creditor Protection (varies by state law)
Living benefits
Financially strong underwriters
Please contact me at 561-771-4647 or email me to arrange a complimentary consultation about anything on your mind concerning life insurance, annuities or retirement planning.
Use These Simple Tips To Compare Term Quotes Or To Compare An Existing Term Life Insurance Policy To A New Quote.
Start by determining how many years of coverage remain in your CURRENT policy? For example, if you bought a 20 year term policy in 2015, it now only has 15 years remaining because it ends in 2035. In essence, you have a 15 year term policy. Next year, it will be a 14 year term policy. To get an apples to apples comparison, you need to compare the cost of a new 15 year term policy to your current premium payment.
How long is your current policy convertible without new evidence? This is the most important provision in your existing policy and what you need to know about a new policy. Most people are unsure about the conversion deadline in their current policy. The conversion option matters. It allows the policyholder to switch from term insurance to permanent coverage, without new evidence of insurability. It is critical for anyone with health changes to be aware of this date.
Make a list of any other features in your current term policy. For example, does your current term policy allow you to take a lump sum advance against the face amount of the policy, at no cost? Nobody should own a policy today without accelerated benefits. Another option is a return of premium. It pays you all your premiums back if you stay in the policy to the end. These are just some features that may not have been available when you last bought coverage.
Base the new quote on a realistic assessment of your current health. Getting the best possible underwriting class results in big premium differences. The annual premium differences for Preferred vs Standard can be 20% or more.
WITH THIS INFORMATION, YOU WILL BE ABLE TO EFFECTIVELY COMPARE THE DIFFERENT POLICIES AVAILABLE TO YOU! Share the information with the agent you trust to obtain these quotes for you. In no time, the numbers tell the story. Maybe you can reduce your cost or maybe you can spend the same and get a policy with more years and more benefits. You will be surprised at how much better new policies are today.
Get A Quote! Please call us at 561-869-4500 or email Ted Bernstein, about a complimentary phone consultation.
“You have asked an excellent question. Thank you for asking. The Stock Market is in a Bear Market even though the Financial Services Industry would prefer that the average American not know this reality.
Below is a chart of the S&P500 which is an index of the largest and most important corporations in the US. There are actually 505 companies issues in this index. It is formulated and averaged so it is not the total price of all of these but a value based on this quantitative formula. This is a Monthly Chart so that you can see that this is indeed a Bear Market and that is is just beginning. The monthly chart provides enough data so that you can see the prior two most recent Bear Markets also. The Bear of 2000–2003 and the Bear of 2007–2009. And at the far right hand side, the current bear of 2020 -______.
There were also the SARS epidemic of 2002, and the H1N1 Flu Pandemic of 2009. So all 3 Bears had either had a serious new novel virus develop at some point in the bear cycle. Now, please remember that technical analysis is NOT a predictive tool. It is a graphical tool that uses historical data to study prior market activity to understand the current situation. Every Bear Market is unique but every bear market has similarities to past bear markets. Studying 120 years of bear markets, the average bear loss is 50%. The duration is average 1.9 years depending on the speed of the loss. Slower bear declines last longer, fast steep bears are shorter in duration.
The Stock Market LEADS the economy. In other words, the stock market reflects the corporate and business health at growth potential BEFORE the economy goes into a recession AND before the economy begins to recover and later expand. Studying the history of the past two bears we can see that the stock market recovered well ahead of the economy. The recessions lasted longer but the stock market was already bottoming and moving upward as the recessions continued. It is common for Bear Markets to have 3 phases: Denial, Disbelief, and Capitulation. The recent rebound occurred (indexes and components moving up) occurred precisely at a strong technical support level. Technical indicators signaled early that a rebound aka fake rally was likely as the indexes hit that support level.
Banks acting as Market Makers supported the major index components which are heavily weighted to specific corporations deemed most important to the economy by the banks, financial industry and government. Then the Financial Services Industry, needing inflows of money to stay in business launched a massive promotion to new investors and inexperienced investors telling them that the recent market crash was an “opportunity to buy stocks at bargain prices!”
So many younger investors, or new investors who know nothing about how all of this works as the educational system in the US doesn’t provide education about the financial markets even for college students unless their degree is in financial services. Many new franchises also started recently from the popular neighborhood broker franchises. You see them in the strip malls. These smaller funds managers are new too and trust their corporate statements which tell them how to promote to get more money to place to stay in business. There has been a massive amount of money taken out of the stock market over the past 2 years. Money Market Funds are holding a vast quantity of funds in safety while this bear is still going on. These are the wise, experienced, educated investors who wisely sold during the speculative activity in 2019 to January 2020. The first quarter earnings season starts April 14th. The professional side of the market knows that the earnings reports are going to be the worst since 2008–2009, perhaps worse.
The recent runs up are technically very fragile. There is no longer billions of corporate cash to continue buybacks which fueled the 2018 -2020 speculative bubble. Therefore, this bear market is just on pause for the moment. The market is not in a rally. Stocks are not near their previous all time highs. This is just a bear market bounce. These happen periodically during a bear and mislead the average investor into buying stocks into a bear market…” April 24th, 2020
