Does Ken Fisher hate annuities? If Ken Fisher is against guaranteed, lifetime income in retirement, then maybe Ken Fisher hates annuities. Read the annuities pros and cons here before you decide.
Then you can contact Ted Bernstein at 561-869-4500 and request a complementary income annuity quote with guaranteed, lifetime income that you can never lose.
Large amounts of guaranteed income for life is your most important asset in retirement. As we get older, it becomes more difficult to manage complex investment portfolios. Many people have investment advisors to help them manage these complex retirement portfolios but keeping up with the minimum knowledge required to engage with your advisors can be challenging in your 70’s, 80’s and 90’s. In retirement, investment value and asset volatility are simply the wrong measures if your goal is to have stability based on guarantees and predictability.
“Communicating with savers in terms of asset accumulation or the size of investment accounts is unhelpful and some retirement experts, including professors and other thought leaders, suggest it is even misleading.” Ted Bernstein
There is a disconnect caused by how the brokerage industry expresses the value of what matters in retirement. This disconnect is putting people at risk without sufficient reward. You must ask yourself what is more important, guaranteed principal protection or a few more percentage points of yield?
Can you afford to lose 30% of your retirement assets at this point? It just happened to millions of people in 2008. If you were one of those people, can you afford to lose principal again?
Maybe the more important question is this: What is the upside for taking on this risk? The risks far outweigh the rewards. Do you believe the market has a greater chance of being up 30% from here or down 30% from here?
There Is A Better Alternative:
Considering that you CAN participate in market gains when there are gains to be had and NEVER lose principal when the markets are down! Don’t choose to forego the protection guaranteed by the insurance company? In most cases, the insurance companies are rated better than the stocks in your portfolio.
With indexing, you can be in the market and benefit from the gains without putting your retirement assets at risk. Would you rather have an unprotected account made up of equities that can decrease?
With this better alternative, you can “flip the income switch” whenever you choose and begin to draw a guaranteed, lifetime income stream that can NEVER go down, for as long as you live.
Nothing else can do this. It is that simple – that cut and dry.
Guaranteed Income + 100% Liquidity is finally being recognized as a powerful combination for retirement security.
Lifetime income will hedge away longevity risk. It is more important than ever for people to understand the difference between asset accumulation in retirement versus guaranteed, lifetime income streams. Until now, the primary goal has been to increase your assets in order to draw them down in retirement. Professors at leading universities and retirement centers around the world are now asking retirees to re-think the conventional wisdom. Using the right annuities that guarantee liquidity from day one, you can have your cake and eat it too.
“A portfolio of stocks and bonds cannot provide a guaranteed income for life, with Zero risk. On the other hand, the right longevity annuity contract does GUARANTEE you will never lose a dollar’s worth of principal and it will guarantee income you cannot outlive. Today, retirement age people want to protect their IRA assets and other retirement assets from any market loss and interest rate risk. But, they want some upside when the markets are up. It is okay to have some assets in the stock markets but I am against having any retirement assets in the stock market WITHOUT AN INDEXING WRAPPER TO PROTECT THE ASSETS FROM LOSS. Whenever we encounter a client without the wrapper, we ask one simple question: ‘What benefit are you getting from investing without the protection?’ Once people understand how these tools work for them, they re-balance immediately.
Want to learn more? Please contact me. I will clarify and answer any questions on a complementary basis.”
Ted Bernstein, Boca Raton Tribune
P.S. Ken Fisher is wrong about annuities. Why does Ken Fisher advertise, Ken Fisher hates annuities? The answer is simple. Ken Fisher hates annuities because Ken Fisher does not make asset based commissions or recurring revenues from equity accounts when you buy an annuity from an insurance company.
Watch out for these common retirement threats to your nest-egg.
Follow these risk proof retirement tips:
Longevity Risk: Considered by many to be the most dangerous of all retirement threats as life expectancy continues to increase. To mitigate longevity risk, you want to convert lump-sum retirement assets into guaranteed income streams for life. This retirement threat acts as a multiplier to all the other risks. Longevity risk is the risk of outliving your assets.
Insufficient Lifetime Income: A sustained period of near zero percent interest rates on safe investments and the evolution from government and corporate pensions to the privatization of retirement accounts has left many people without sufficient amounts of reliable income for life. Retirees today must reconsider what liquidity means in retirement. What percentage of your nest egg should be in lump investments versus guaranteed lifetime income you cannot outlive? What is the right percentage of each to ensure you don’t run out of gas and run the risk of outliving your assets?
Inflation: With interest rates at historic lows, inflation is a major retirement threat. Learning the secrets about the strategies to manage this “silent” threat is invaluable knowledge. Like un-managed high blood pressure, inflation causes damage that can go un-noticed for too long. Periods of low interest rates are often confused for periods of “no inflation”. Inflation is especially threatening to your nest egg due to limited options to replenish principle.
Incorrect Asset Allocation: The proper asset allocation in retirement is critical. Why do so many retirement aged people say a stock market correction or rising interest rates is keeping them awake at night? IT DOES NOT HAVE TO. Learn the right allocation strategies for a simpler retirement.
If you make one change today, increase the amount of guaranteed income from indexed, income annuities.
Rising Medical Costs: The retirement threat considered by many to be the one capable of immediate damage to a nest egg.
Loss of Spouse & Dementia– Both married couples and single retirees can expect to deal with the real issue of potential dementia in the aging process. For married couples, the loss of a spouse often compounds these challenges and has proven to be one of the most significant retirement threats, especially when one spouse has primary responsibility for overseeing the retirement plan. Leading economists and retirement scholars agree about the benefits of guaranteed income you cannot outlive.
Investment Scams: Be careful of “too good to be true” investments. I have very good radar for scams. Feel free to contact me for an opinion.
Fees: Fees and other charges are similar to taxes levied against your investments. They are disclosed, easy to measure and they add up.
4. Bad Advice: You know it when you see it. I meet with people in or near retirement every day whose number one objective is “no losses”. Yet, they’re retirement assets are invested in stocks and bonds. It never hurts to get another opinion and having a team of professionals with different disciplines is good prevention. Just make sure one of them is a retirement income specialist.
5. Market Losses: Right up there with longevity risk, market losses can be the most devastating retirement threat. You cannot afford losses in retirement. You don’t have income to replenish them and you don’t have the time needed to overcome them. A fixed income annuity keeps you invested with no losses, EVER.
This is just a partial list of retirement threats to your nest egg. The key to security in retirement is to make sure you are not vulnerable to any of these threats. With the right strategy, you can eliminate every risk to your nest egg that leads to peace of mind you may not currently enjoy.
Please call me at561-869-4500 or email me, Ted Bernstein, about a complementary consultation about your specific needs.
What is the difference between bonds in retirement and annuities?
The Wall Street Journal described income annuities as “super bonds”.
Within the backdrop of retirement planning, annuities are often compared to bonds and vice versa. They are different. It is important to know their differences in order to appreciate the superior qualities of an income annuity for retirement income purposes.
Shortcomings of Bonds:
• A bond or a bond portfolio cannot provide guaranteed income for life. • A bond or a bond portfolio does not guarantee results, of any kind. • Bonds and bond portfolios have default risk that bondholders accept without any kind of insurance (General Motors is a recent example of worthless bonds that offered investors no recourse). • Bonds are usually not redeemable early without an early withdrawal penalty.
The advantages of Fixed Indexed Annuities:
1. Guaranteed income you cannot outlive, no matter what; 2. No principal loss, ever; 3. Market upside when markets are up; and 4. 100% liquidity from day one. 5. Backed by insurance companies with strict reserving regulations and state guaranty funds.
Below are powerful conclusions from one of the leading retirement scholars in the world, Professor Wade Pfau. According to Professor Pfau:
“The funds used to buy a fixed deferred income annuity should be viewed as a substitute for a bond investment when evaluating a holistic retirement portfolio.”
“Our findings suggest that a short deferral income annuity can both reduce the cost of funding retirement and provide important behavioral benefits to clients concerned about near retirement market performance.”
“Managing assets to create income becomes a significant challenge for the increasing percentage of Americans who suffer from dementia in old age. A retiree can reduce all of these risks through the purchase today of a guaranteed income stream in the future…”
“A Deferred Income Annuity can also be beneficial as insurance to protect against the risk of outliving assets either due to poor investment performance or reduced cognitive ability in old age.”
Using the right income annuities will simplify retirement planning and provide guaranteed results.
Please call 561-869-4500 or email me, Ted Bernstein, to continue our discussions for your specific needs.
This retirement story in the New York Times, How to make your money last as long as you do, hit the bullseye by explaining how annuities provide guaranteed, lifetime income in retirement.
“Consider an annuity”… [Retirees] will always have enough to cover essential living expenses, no matter how long they live or how badly their investments perform.”
With a portion of your retirement funds in the right type of annuity, the principal is protected by creating guaranteed income that will last “as long as you do”. As you get older, the amount of income increases and will not level off until you begin to draw a paycheck from the contract.
In other words, anyone who wants absolute security in retirement should take advantage of this special kind of annuity.
No other retirement solution offers 100% principal protection, participation in market gains, tax deferral, favorable taxation on distribution, liquid from day one and no commissions paid by you or your account.
Consider an annuity if you are:
Married and in, or near retirement.
Want dependable, predictable income for life.
Single, in or near retirement.
Seeking a simple and safe solution built entirely on guarantees.
Interested in transparency, disclosure and regulated products.
Seeking guaranteed income for life with NO principal risk.
ROI in retirement is reliability of income.
With the New York Times suggesting that people “consider an annuity” to make their money last as long as they do is supportive of everything that is stressed by economists and professors all over the world. Guaranteed, lifetime income in retirement is finally beginning to receive mainstream attention.
Do You Know The Market Value Of Your Existing, Inforce Life Insurance Policy?
Every day, people are receiving significant cash payments for unwanted or unneeded life insurance policies they thought had no value.
If you are 65 or older, you may have a policy with asset value in the secondary market. The value of policies is measured as a percentage of the face amount. If you have a $2,000,000 policy with a settlement value of 10%, it is worth $200,000. It is fairly simple and straightforward to get an appraisal done to determine your policy’s value.
Please email or call me at 561-869-4500. Visit us at Life Cycle Planners in Boca Raton, Florida.
The secondary market is the market for unwanted life insurance policies – they are usually institutional investors. A good analogy is Carmax. They buy cars from people who don’t want or need them anymore. They specialize in the aftermarket of automobiles. In the life insurance industry, there are buyers who specialize in this market and they are typically the highest bidders.
The state of Florida has made it mandatory for life insurance companies to inform Floridians that they should consult with a professional when contemplating a change:
…“a life insurer shall provide an individual life insurance policyholder with a statement informing him or her that if he or she is considering making changes in the status of his or her policy, he or she should consult with a licensed insurance or financial advisor.”
If you have a policy with cash value, its value is based on it and nothing more. Life settlements may not appeal to everyone. Some people don’t like the idea of strangers having an interest in their mortality. It is a perfectly reasonable position, regardless of the potential financial benefit that might exist. There can be meaningful differences in the offers you receive from the secondary market.
Term life insurance policies may have value in the secondary market.
There may be no cash surrender value in your life insurance policy but there may be great “market value” for a life settlement company. The payment you receive in a life settlement transaction is the market value (see the recent case studies below).
It may be in your best interest to consider selling. The goal is to compare offers you receive against the value in the policy.
More than 90% of seniors lapse policies without knowing about this option. They would have considered a life settlement if they were aware of the process.
Further, 79 percent feel their advisers should have told them first.
Depending on several factors, including age, health and policy type, life insurance policies can be valued as much as 20-30% of the face value. If you no longer want to pay premiums for a policy, there are realistic options to consider.
The reasons to consider selling an unwanted or unneeded policy:
· Receive a higher cash payout than cash surrender value.
· Receive money for a term policy.
· Create cash to fund retirement solutions such as guaranteed income annuities, long term care insurance or life insurance with the installment payout option.
For example, 30 years ago, Dr. Smith purchased $2,000,000 of life insurance to protect his wife and children against the loss of his $300,000 income. He was 46 when it was issued and today, at 75, his children are grown and the need for income protection is gone. With nearly $200,000 of guaranteed lifetime income from annuities, a pension and social security, Dr. Smith feels the policy is unnecessary.
The insurance policy had a cash value value of $90,000 if he walked away. The Life Settlement value was 15% of the face value, or $300,000. The decision was simple in this case.
Unfortunately, each year there are too many people who are still unaware of life settlements or they fail to give it proper consideration.
Potential Disadvantages:
Life Insurance benefits are usually income tax-free. Some portion of a life settlement may be subject to income tax.
Paperwork is required to transfer the ownership of the policy.
Proceeds will benefit the buyers, typically non-family members.
Organizations such as the AICPA and hundreds of esteemed estate planning law firms are on record advocating the benefits of life settlements. Life insurance is an asset with great potential value.
RECENT CASE STUDIES REPORTED IN THE INDUSTRY
– an 88 year old male sold a $2,500,000 John Hancock policy, which netted him $500,000 (cash surrender value was $0),
– an 88 year old male sold a $2,000,000 universal life policy for $1,110,000 (cash surrender value was $218,000),
– a 64 year old female sold a term policy for $20,100 (the face value was $250,000; she kept $50,000 for her beneficiary),
– a 72 year old man sold a $896,450 Transamerica policy for $196,476 (cash surrender value was $94,647),
– a 61 year old man sold a $400,000 Mass Mutual term policy for $220,400.
The Today Show this week includes an important recommendation about guaranteed, lifetime income. Although 2016 was a banner year for indexed annuities, we have a long way to go. Too many people do not understand indexed annuities and as a result, they are still measuring their retirement security by the size of their portfolios. As this story points out, you want to “convert” your retirement assets into an income stream that will last as long as you do. Guaranteed income in retirement is the gold standard for security.
“Building block 2: A Fixed Annuity.
Consider converting a portion of your nest egg into a fixed, immediate or deferred annuity that will cover the gap. Essentially, you’re using part of your nest egg to buy a paycheck that can be structured to last as long as you (and perhaps your spouse) live.”
If absolute security is a primary retirement goal for you, please contact me to arrange a discussion about guaranteed income solutions. There are dozens of threats to your nest egg in retirement and I will explain how to mitigate them with the power of guaranteed income contracts. You will not learn about these strategies from traditional money managers. You can email me or call me directly at 561-869-4500.
In Retirement, ROI is Reliability of Income. Helping you shift your focus from asset accumulation to guaranteed income will create more security in your retirement plan. Economists, professors and thought leaders all over the world are helping planners and their clients change the dialogue about why sufficient levels of lifetime income are more beneficial and valuable than asset accumulation in retirement. If your goal is maximum security without principal risk, you will benefit from this shift in focus.
The financial risks of living longer.
We strive to create a long, healthy and enjoyable retirement. That is a reality if you are well positioned in retirement with reliable sources of income supporting your lifestyle. The financial downside of living longer is the increased risk of outliving your wealth – referred to as longevity risk. Many professors and economists believe it is the single biggest threat in retirement.
Warren Buffett (that wise, wise man from Nebraska) said, “that in order to succeed, you must first survive.”
When it comes to retirement income, investors are dramatically underfunded, but that trend might be changing: Willis Towers Watson’s 2016 Global Benefits Attitudes Survey found 59 percent of millennials and 66 percent of Baby Boomers are willing to pay a higher amount for a guaranteed retirement benefit. The data suggests that people with guaranteed income in retirement are happier than those without it.
Protecting your spouse.
For couples, joint annuities allow a steady flow of income during each spouse’s lifetime andafter the first death. Compared with a single-life payout, a joint payout will pay less each year, but the guaranteed lifetime income for your spouse will take care of her in a way that nothing else can. Managing a complex investment portfolio for a surviving spouse is challenging on nearly every level. Converting your retirement assets into guaranteed income streams is retirement planning state of the art. The assets remain 100% liquid and there can be no losses. Gains are added to the principal.
Further, I believe that guaranteed monthly income payments are perfectly suited to offset the risks of health changes and normal cognitive declines.
How to Manage Longevity Risk.
Ideally, you need guaranteed, lifetime income streams that provide income for as long as you are alive, under any conditions. You, nor your spouse, can outlive guaranteed, lifetime payments from an insurance company. Too many people in or near retirement are invested too heavily in the stock market, creating a real threat to their nest egg when the market has a normal correction. By re-balancing your portfolio, you can move these assets out of harms way and put a protective wrapper around them.
Absolute security in retirement requires that you convert a portion of your retirement assets, including IRA monies, into reliable lifetime income from insured contracts that create guaranteed income from insurance companies. Working with experienced retirement professionals ensures your heirs will receive all unpaid principal if that is your goal.
According to Yale Professor, Roger Ibbotsen:
“Investors should be willing to pay an insurance premium to hedge away the longevity risk.”
You need guaranteed income solution if you are:
At or planning for retirement.
Concerned about outliving your money.
Concerned about spouse’s well-being upon your death.
Currently have retirement assets invested in bonds, stocks or real estate.
Have insufficient guaranteed lifetime income.
Concerned about losing investment control as you get older or if health is compromised.
Do not have a plan for retirement or longevity risk.
A Private Pension – How it Works.
There is no principal risk. A longevity annuity is designed using indexing strategies. Simply put, this means there is a guaranteed floor of 0% and reduced gains on the upside. When the market is up, the contract will capture some of the gains and when the market is down, there are NO LOSSES as you contractually cannot earn less than 0%.
Return of Premium – I recommend contracts that are 100% liquid from day one (minus any disclosed contract fees). With this special guarantee in place, you are protected from unforeseen events or a bad decision. With all of your capital GUARANTEED and LIQUID, you have the freedom to take advantage of “better” contracts if it makes sense to do so in the future. Without the traditional surrender penalties levied against your account if you change your mind, threats from inflation are minimized.
Mortality Credits.
There is no other investment that guarantees income for life without ANY principal loss – ever. Because insurance companies create assets called mortality credits and then share them with their annuity clients, they are able to do what no other investor or company can do. The word guarantee does not apply to the world of equities. Longevity annuities are built around guarantees and this is quite a distinction offering you real choices.
Income for life, 100% liquid from day one, guaranteed principal protection and tax deferred growth. A secure retirement plan should be built on this foundation. An advisor who is experienced in retirement and longevity planning will prove to be invaluable to helping you create reliable income you cannot outlive. In retirement, an income advisor will become the most important member of your team.
If guaranteed lifetime income is a primary retirement goal for you, please contact me to arrange a discussion about helping you with retirement security and the power of guaranteed income. You will not learn about these strategies from traditional money managers. Please email me or call Ted Bernstein directly at 561-869-4500.
Most people report uncertainty about the definition of claim triggers in their long term care insurance policy. My experience confirms that people want a better understanding about what IS covered and what MAY NOT be covered. You will be surprised about today’s long term care policies and find they DO cover you when you need it most.
The issue of Long Term Care is at the top of the list of retirement threats facing many of us. It is one of the largest uninsured financial risks facing the elderly in the United States today. Incredibly, long term care represents about 8½ percent of all health care spending for all ages and more than 1 percent of GDP.
Eligible claims: Let’s focus on what many people find confusing – benefit triggers and when can you claim? For example, the REQUIRED wording for chronically ill is:
You cannot perform at leasttwoactivitiesof daily livingwithout substantial assistancefor at least 90 consecutive days; or
Cognitive impairment issues creating and requiring supervision in order to protect you from health and safety threats.
These are standard and straightforward definitions. Being aware of them will lead to the receipt of proper benefits under the contract.
The benefits are in the details! Looking closer at number One:
‘You cannot perform at least two activities of daily living without substantial assistance…’ Does this definition require the insured to be sick in order to meet the chronically ill definition?
No. These benefits are triggered by a loss of functional capacity – meaning you cannot manage Activities of Daily Living (ADL) without assistance.
Activities of Daily Living (ADLs) are defined as “the things we normally do… such as feeding ourselves, bathing, dressing, grooming, work, homemaking, and leisure activities”.
Eligibility of claims in these cases IS NOT tied to a specific diagnosis or injury. You are not required by the policy to have MS, Parkinson’s, a stroke or any other diagnosed medical condition. You might be 70 years old or 85 years old – that does not matter.
A large number of people receiving long term care benefits do have one or more chronic conditions but do not have a catastrophic diagnosis. They are still eligible for claims under the right contracts.
Without a doubt, the longer we live, the more likely it is that we will need help with our daily living activities.
Fortunately, being sick is not a requirement to receive legitimate benefits.
Please feel free to contact me to arrange a consultation about long term care. There are dozens of threats to your nest egg in retirement and I will explain this one and any others you wish to discuss. You can email me or call me directly at 561-869-4500.
Make no mistake about it. The research continues to confirm that getting advice from professionals is beneficial in every measure: insurance, retirement planning, investing and quality financial plans.
Within 4 to 6 years, households who used advisors accumulated 58% more assets than those who self-directed their investments.
Using a professional advisor for 7–14 years essentially doubled the wealth accumulation of those without an advisor.
After 15 years, households held 2.7 times more wealth than those who did not seek professional guidance.
No other strategy guarantees lifetime income with no principal risk like indexed annuities.
These are NET RESULTS after taxes and accounting for the costs of the professional advice.
Advisors encourage their clients to save twice as much while simultaneously helping their clients develop long-term insurance, investment and retirement plans.
The Growing Demand for Advice.
Millions of people benefit each year from the value of annual reviews. Life Cycle Planning is financially rewarding and leads to more security. We will continue to demonstrate the value of professional advice by offering the best products, solutions and service to our clients. Please call us at 561-869-4500 or email me to arrange a complementary meeting to discuss how we may help.
Why do high net worth people borrow to purchase life insurance?
Premium financing relies on the concept of interest rate arbitrage. A loan enables life insurance owners to keep their money working for them and earning a higher rate of return than the interest rate charged for the loan. Instead of paying life insurance premiums with their own capital, a low cost loan is advantageous. This rate arbitrage must be favorable and appreciated for a successful premium financing arrangement to be suitable and make sense for the borrower.
The Advantages of Premium Financing are:
Low cost method to fund permanent life insurance while offering great flexibility in the future.
Using well managed leverage to drive down out of pocket costs.
Using life insurance to offset estate taxes.
Using low cost loans to fund permanent life insurance with the goal being of having fully funded policies in the later years.
To minimize out of pocket costs in early years until the anticipated exit strategies can pay off the loan.
Successful premium financing is understanding the risks and managing expectations. Working together with insurance companies and lenders ensures successful outcomes. People borrow money to pay for life insurance because they can borrow the annual premiums at a lower rate than what they are earning on their money. This historically reliable arbitrage between loan interest rates and a borrower’s ROI must be present for this to make sense. Later, we will explore this important arbitrage in more detail.
Premium Financing gives families with illiquid estates the ability to acquire large amounts of needed liquidity at death. By only paying annual interest on the loan, the out of pocket cost is less than paying properly funded permanent policies. Many estate planning attorneys find this financing strategy helpful to accomplish their wealth transfer objectives.
With short term interest rates near zero percent, life insurance premium financing gets strong consideration among high net worth life insurance buyers. Proceeds from life insurance provides the much needed liquidity that complements succession planning and wealth transfer planning strategies. Financing jumbo life insurance policies is often appealing to HNW people and their advisors because the arbitrage DOES EXIST between actual borrowing cost and the client’s overall ROI. If we look back 50 years, we see that interest rates are lower than insurance company crediting rates, with almost no exceptions. This correlation is the foundation of successful premium financing.
I have arranged financing for more than 500 families over the course of my career. As a result, I bring valuable expertise and experience that benefits consumers, their advisors, lenders and life insurance companies. For example,it is true that low interest rates are beneficial, if nothing more than causing a lower out of pocket cost. But, financing a life insurance policy should make sense whether interest rates are 3%, 6% or 9%. When borrowing costs increase, the values inside the life insurance policy should also be increasing. That can also lead to less collateral being needed for the loan and less premiums to fund the policy.
The borrowing rate is only one part of the premium finance story. Historically, insurance companies pay higher interest on policy cash values than borrowers pay for interest on loans. This is the other important rate arbitrage that should exist in properly structured premium finance arrangements.
Premium Financing Done Right.
Not free life insurance.
If premium financing is not “free life insurance”, then what is the true cost of financing a life insurance policy? It is the annual interest expense; that is the true out of pocket “cost” of a premium finance loan. When the loan is paid off, either during lifetime or upon death, that too is part of the cost.
With rates near 0%, premium financing is a strategy that deserves strong consideration for high net worth individuals, families and business owners who need permanent life insurance coverage. Compared to paying the annual premiums out of pocket, there are advantages to using a competitively priced loan to pay the premiums.
A properly structured premium finance arrangement is best suited for people who need and want coverage for life. The cost to borrow the annual premiums should be at least 3% lower than the ROI on their other assets. This creates another arbitrage that justifies premium financing. For example, if the loan interest rate is 4%, then the borrower’s ROI on other assets should be 7% or greater. If it is not, then it may not make sense to finance life insurance.
Premium Financing Considerations:
Each premium finance loan is unique and should be stress tested using conservative assumptions. We recommend working with experienced insurance professionals, advisors and experienced lenders who are familiar with this asset class.
The majority of the collateral for premium finance loans is typically the cash value within the policy. The reason lenders are willing to make premium finance loans at low interest rates is because cash value is considered to be as creditworthy as cash. Currently, premium finance loans are less than 3%. While interest rates are at historic lows, it can be wise to consider locking in a fixed rate.
Exit Strategy and The Loan Payoff.
There must be a sensible exit strategy to pay off the loan. One option is to use cash value from the policy. Another is to use assets already in the trust, such as inheritance monies, liquidity events from sales, etc. When the cash value of the policy is used to pay off the debt, make sure the policy is properly funded to remain inforce for life, after the cash value has been withdrawn or borrowed from the policy.
Can Real estate be used as collateral for premium finance loans?
Lenders typically do not like lending against real estate for these loans because the collateral is not easily available. However, there are some lenders that do work with existing clients to use real estate to support these loans. This tends to complicate something that is already complex. Customers with strong relationships have been known to receive loans from their existing bank.
Premium Financing and Estate Planning.
A premium financing arrangement can be beneficial to your overall estate plan. The life insurance policy is typically owned in a trustwithout gift tax or estate tax consequence. It is not uncommon for $25,000,000+ life insurance policies to be financed and owned in trusts that may be exempt from gift or estate taxation.
Premium Financing Is Best Suited For:
Clients who need jumbo amounts of permanent death benefit. 2. Clients who understand leverage & complex financial transactions, or 3. Clients using life insurance to offset estate taxes.
Business owners interested in succession planning and key-person protection may also be good candidates for premium finance arrangements:
Top 7 Premium Finance Considerations:
Lenders and insurance companies require that these loans are collateralized. The policy’s cash value is typically the majority of the collateral. In the early years, there is typically a small gap which the policy owner is required to satisfy.
The borrowing cost and the policy crediting rates have long been favorably correlated for these types of structures. They historically move in the same direction with the insurance policy crediting rates and dividend scales being higher than the borrowing costs.
Assuming you feel this strong correlation will continue in the future, financing may be right for you.
A positive rate arbitrage is created when policy crediting rates are greater than loan costs and a cushion is created that can be used when interest rates turn volatile or increase rapidly.
When interest rates rise quickly, there may be temporary rate compression or even rate inversion. Either scenariocould increase the annual interest expense until rates stabilize.
The cash value of the life insurance policy ultimately represents 100% of the required collateral for the loan. Gap collateral must be pledged until the cash value is 100% of loan value, typically in less than 10 years.
Properly structured, no personal guarantees are necessary.
Premium Finance Risks:
– Decreasing policy interest rates and policy performance risk. – Increasing borrowing costs or inability to refinance. – Policy lapse risk. – Collateral call risk. – Income tax risk.
STOLI RISK:Many premium finance structures have been created or used to take advantage of consumers and insurance companies by purchasing policies owned by strangers. They do this for the sole purpose of re-selling or using them for an illegal profit. We will not participate in STOLI arrangements and we urge people to avoid using life insurance for anything other than long term death benefit. Stranger Owned Life Insurance (STOLI) is not legitimate premium financing and should be avoided. Before proceeding with any premium financing arrangement, you want to fully understand the risks mentioned here and the exit strategies.
Inforce Life Insurance Policy Premium Financing:
Policy is the only collateral for the full loan balance; no PG.
Our capital source is a New York lender experienced in this asset class.
7-year loan maximum.
Fees and interest are financed as part of the loan. Little or no out of pocket expense.
Competitive interest rate.
Life expectancies: 12 years or Less. Sweet spot is 9 years or less.
Insureds: 70 and over.
Individual Policies: $3-99m face.
Portfolios: $35-500m face.
Issued Preferred or Standard.
Term sheets: Please allow turnaround time of 3-4 working days.
International loans not an issue.
In addition to securing coverage and arranging for the right lenders for each loan, Ted is often hired as an impartial consultant to help life insurance buyers determine which is the best financing solution. These cases often involve jumbo insurance amounts. Working with an experienced consultant on your side that is not selling product can prove to be very valuable.
You can Email Ted or contact him directly at 561-869-4500.
More than 90% of seniors lapse policies without knowing about this option. They would have considered a life settlement if they were aware of the process.
