A Few Good Life Insurance Agents_3Revised0628 NICHOLSON
Category: Ted Bernstein
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Annuities & Disappearing Surrender Charges
Surrender charges on fee-based variable annuities seem to be retreating faster than the polar ice caps, new filings reveal.
“These advisor-sold contracts typically have no surrender or a very short surrender (period) with very low penalties,” said Kevin Loffredi, senior product manager, annuity solutions, for Morningstar.
Surrender charges penalize an annuity contract holder for canceling the contract before a certain date. They also allow insurance companies to recoup their commissions paid upfront to advisors on the sale of a commission-based contract.
http://insurancenewsnetmagazine.com/article/surrender-charges-disappearing-act-3332#.WYoxfxPyuUk
For annuity buyers, contracts with shorter or no surrender penalties is advantageous. In the past several months, there has been a rush of insurance companies introducing products with better surrender charge solutions. The challenge for them will be distribution.
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Catastrophe Insurance For Critical Health Problems says Ted Bernstein Boca Raton
Living Benefits Adds Immediate Protection For Critical & Chronic Health Problems says Ted Bernstein, at no extra cost! Does Your Current Policy Allow You to Take an Advance Against the Face Amount at No Cost? Learn How You Can Get Money From Your Life Insurance Policy. Living Benefits Life Insurance by Ted Bernstein Boca Raton
Life Insurance is benefiting from innovations in medicine, prevention and intervention. These innovations lead to lower premiums. Policies from only 5 years ago are obsolete in terms of price and features. For most people, being older does not matter; rates are dropping at a faster pace than we are aging and the coverage is getting better too. Catastrophe Insurance For Critical Health Problems by Ted Bernstein Boca Raton
Call us today at 561-869-4500 to upgrade your policy to one with living benefits, either for term or permanent policies.
The following link answers the most basic questions about the value of adding living benefits to your coverage:Living Benefits Life Insurance by Ted Bernstein Boca Raton
Living Benefits: LIVING BENEFITS OVERVIEW
Our job is to guide you through the selection process to make sure you get a policy with all the living benefits (critical, chronic, terminal) and the lowest premiums. We offer policies that most other agents can not offer you. Because we have been selling living benefits coverage since 2013, we are market leaders for A+ carriers specializing in living benefits. Living Benefits Life Insurance by Ted Bernstein Boca Raton
Want to learn more? Please contact me at 561-869-4500 or by email. I will clarify and answer any questions on a complementary basis.”
Ted Bernstein Boca Raton Florida
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Department of Labor Fiduciary Rule is DOA
Today, the President delayed the Department of Labor’s Fiduciary Rule that was set to take effect in April. I have been advocating for either a repeal or a delay for many months. The rule was hastily written and poorly written during the Obama administration.
The DOL fiduciary rule attempted to legislate the definition of working in the best interest of a client. On the face of it, trying to legislate this kind of behavior is absurd. Compounding that absurdity, the regulation itself was rife with ambiguities that would undoubtedly create litigation between consumers and insurance companies, wealth management companies, banks and others. This country does not need anymore poorly drafted legislation leading to litigation over judgment calls.
All is not lost however. I truly believe that most professionals are working in the best interest of their clients. There are, for sure, some bad actors who just don’t seem to understand this concept. They seem to be intensely focused on how much commission a product pays or how high of a fee they can charge against the account each year. They will survive changes in regulations, that is for sure. The DOL’s failed attempt here has a silver lining. It most certainly was felt by some of these bad actors as a shot across the bow. Some will be more cautious now, some may even try to up their games.
For consumers of financial service products and advice, many have been monitoring the debate. Working in the best interest of a client is the gold standard for service. Fees and commissions are not the litmus tests. Charging fees is not better than being paid commissions. They are just different. That is an easy point to make. As one of the country’s leading proponents for life insurance without commissions, I would be the first person to say that a fee based model is better; but it isn’t.
The right professional makes recommendations based on several factors that place well ahead of compensation. The rejection of the DOL “fiduciary rule” today will not ensure that consumers have an easy way in determining who is working in their best interest. To know that always has and always will require a bit of work. I suggest that consumers ask for referrals, speak with other professionals such as C.P.A’s and attorneys as well as local chambers of commerce leaders. Trusting your gut is also important, along with the other due diligence.
If you would like to discuss this topic or anything else, please email Ted Bernstein or call me at: 561-869-4500
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Life Insurance Premium Financing – Minimizing The Risks.
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 trust without 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 scenario could 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.
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Everyday Tips For Longevity In Retirement.
1. Time passes faster every day. Don’t make it worse by rushing and stressing over time. Where are you going?
2. Take care of your body so it will take care of you later. Don’t let your world get smaller each day – stay fit and mobile.
3. Intimacy and friendships remain important regardless of where you are on the life cycle spectrum.
4. Healthy relationships are the most important thing in your life. Steve Jobs at end of life:
While the above-quoted essay does not represent either Steve Jobs’ final words nor remarks he made (in either oral or written form) at any time during his life, his biographer Walter Isaacson did record Jobs’ expressing regret at the end of his life about how he raised his children:
“I wanted my kids to know me,” Mr Isaacson recalled Mr Jobs saying, in a posthumous tribute the biographer wrote for Time magazine. “I wasn’t always there for them, and I wanted them to know why and to understand what I did.”
“He was very human. He was so much more of a real person than most people know. That’s what made him so great,” he added. “Steve made choices. I asked him if he was glad that he had kids, and he said, ‘It’s 10,000 times better than anything I’ve ever done’.”
It wasn’t always thus. In the early stages of his career, Jobs, who was adopted, denied being the father of Lisa and insisted in court documents that he was “sterile and infertile”. He acknowledged paternity when she was six, and they were later reconciled.
5. Money talks. It says “Goodbye.” If you don’t convert assets in the market into guaranteed lifetime income, you’ll wish you had. And then it’s too late.
6. Many of the seeds you planted in the past, some good and some bad, will begin to bear fruit and affect the quality of your life as you get older.
7. Acceptance is grace, freedom and peacefulness.
8. Don’t let your possessions own you. Consider them on the trouble vs. enjoyment scale. Simple but enlightening.
9. You may regret some things you didn’t do far more than the ones you did that were “wrong”. If you get the chance — do them. You may not get the chance again.
10. Every day you wake up is a gift.
11. Converting retirement assets – stocks, bonds, CDs and Treasury’s – into a Longevity Annuity will eliminate risk, guarantee income for life, allow you to enjoy retirement and sleep at night. Do you want to receive guaranteed monthly income, paid to you no matter what? Or, do you want to be responsible to mange a complex investment portfolio into your 80’s and 90’s? Talk to friends and others who receive large amounts of guaranteed, lifetime income and ask them for their opinion about this critical issue.
If guaranteed lifetime income is a primary retirement goal for you, please contact me to arrange a no obligation discussion about my views concerning retirement security. There are dozens of threats to your nest egg in retirement and I will explain the power of guaranteed income contracts and why you will never learn about these strategies from traditional money managers. You can email me or call me directly at 561-869-4500.
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2016 Election and Your Retirement
The 2016 Elections are over, and now you should learn on how this will affect your retirement. Here are a few resources to help clarify the change of landscape:
What a Trump Administration Means for Your Retirement
What impact will a Trump presidency have on the 46 million Baby Boomers living in the U.S.? President-elect Trump, a Baby Boomer himself, has his work cut out for him when it comes to dealing with Social Security and Medicare. READ MORE
Why The Roth IRA May Be Big Winner In 2016 Presidential Election
With the 2016 presidential election behind us, we can all start thinking about what this country will look like under President Donald Trump. Notwithstanding all the pre-election campaign rhetoric about immigration, foreign policy, etc., one thing we are quite certain about is that President-Elect Trump is serious about reducing personal income and corporate tax rates across the board. READ MORE
The Real Lessons the Presidential Election Holds for Your Retirement Strategy
Since last week’s presidential election, we’ve seen a deluge of investing and retirement advice. Some is perfectly reasonable: Don’t make any radical moves in your 401(k)! But some recommendations, such as putative ways to “Trump-proof your portfolio,” are in my opinion questionable to say the least. READ MORE
If you would like to take that first step, please drop me an email, or give me a call. I am Ted Bernstein, and I will answer any questions that you might have. No stress, no pressure, just a simple first step in the process.
Please call me at 561-869-4500 or email me at tb@lifecycleplanners.com
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Life Insurance Industry Must Do Better Controlling The Important Conversations.
Can you recall any life insurance company campaigns targeting consumers directly about the value and virtues of their core products? Have you ever seen these ads during the LPGA, The Masters, The World Cup or the World Series?
They could be promoting the value of income annuities in retirement, or the differences between permanent life insurance and term insurance? Each of those events reaches the necessary demographics for our industry. Imagine if Apple did not advertise directly to their customers? What if Ford didn’t advertise directly to buyers but GM and Toyota did, spending hundreds of millions of dollars targeted right at those consumers? The immediate impact on GM sales would be dramatic.
Imagine if these companies left the sole messaging responsibility to their local, privately owned distributors? They wouldn’t. It would be disastrous in every way. And yet, this is exactly what is happening with the life and annuity companies; almost without exception.
This is not about brand advertising. There is plenty of money being spent on branding ad campaigns while Suze Orman, Ken Fisher and Dave Ramsey have taken control of these conversations affecting our businesses.
Why are these companies not advertising and marketing their products to their policyholders? One explanation from some companies is that they do not sell directly to consumers and as a result, it is not their responsibility. Insurance companies rely on a variety of distribution methods to sell and reach their policyholders, mostly through a network of professional agents who specialize in the sale of these products.
Distribution in the automobile industry is similar. For example, as consumers, we are unable to purchase a BMW directly from the BMW company. Nor can we buy a Cadillac directly from GM. We buy from their middleman, their dealerships. The car companies support their distributors in many ways and one way is through direct to consumer advertising and marketing. The manufacturers advertise on a national level and their dealerships are targeting more locally in a coordinated partnership.
We have reached the point where our product manufacturers must seize this responsibility and begin to advertise, promote and market the products they manufacture, directly to insurance and annuity buyers. Over the past several years, there has been an obsession to “crack the code”, to find a way to jump start and create online consumer demand for life insurance and annuities. Unfortunately for all stakeholders, no magic bullet has been found. Life insurance is sold, not bought. But the insurance companies can help us create demand for these products. We are the industry’s “dealerships” and we simply cannot afford to shoulder this responsibility without their help.
The time is now for the industry to use its formidable resources and take control of these conversations. The carriers should begin inspirational campaigns that are dedicated to influence consumers to take action. This messaging requires complex, multi-media campaigns. I believe the ROI will be significant on many tangible and intangible levels, especially on new sales.
Without this change, calculated misinformation from our competitors will continue to influence consumers about our products. Consumers will lack the education based information to make informed decisions which negatively impacts sales. As the whole pie continues shrinking, so too will the overall slice for each distributor. We know this happens. The industry continues to lose agents every year and the remaining agents have reached an average age of 60. Sales are down or flat every year!
Currently, it is our competitors who define our products, our services and our professional status. They spend more, they message better and they communicate better with financial journalists. With all due respect to the few journalists who cover and do know the insurance and annuity space well, there are far too many others making incorrect and un-rebutted claims about our industry. I worry every time I see an article about life insurance and annuities written by journalists without the credentials to critique these products. Asking the distribution system to be solely responsible for pushing back against these misinformation campaigns is ineffective. By definition, we are easily dismissed for lacking objectivity and impartiality.
As these trends persist, crises of uninsured’s and under-insured’s have emerged into a national problem. I also suggest that there is a crisis of incorrectly insured’s, people who own the wrong coverage. There are millions of term insurance policyholders in their 50’s and 60’s who are near the end of the guaranteed term period, without good options. They didn’t convert and the conversion deadline passed meaning they cannot convert if they wanted to. For some, obtaining new coverage is filled with hurdles. Their health has changed and their budgets may not allow them to acquire what they now need.
How did they get here? Suzy Orman, Dave Ramsey and Art Williams told them to buy term and invest the difference. But nobody did. They bought term but didn’t invest the difference with any kind of discipline, if they did at all. Too many inexperienced insurance agents told people they would not need life insurance once their kids were grown and independent. Ask any person over 50 with kids and a spouse if they have no further need for life insurance today. There is plenty of pain and blame to go around but these consumers deserve good solutions going forward and we need to counsel the millennial generation about how to buy the right blend of affordable protection, for now, and permanent coverage for later. The cheapest term insurance product when they’re 35 is not the answer.
It is time for the entire compensation system to be reconsidered. Part of the reason for the widening gap of un-insured’s and under-insured’s in the middle market is because the commission is too low for sales in this market. As premiums drop and commission levels remain constant, the selling compensation is dropping in real terms.
To conclude with some good news, I am hearing more and more carrier interest about direct to consumer campaigns. Let’s hope this interest turns into real, meaningful dialogue about these issues, with all stakeholders.
I can be reached at Life Cycle Planners, Email or Facebook.
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Guaranteed, Lifetime Income Trumps Asset Accumulation in Retirement.
What is more important in retirement, assets or guaranteed income? More and more retirees want lifetime income and protected principal.
Too many people are tired of seeing their retirement assets whipsawed by the markets and guaranteed income is receiving its proper share of consideration. With markets at all time highs, now is a perfect time to convert assets to income.
People want security and less stress as they transition into retirement. Before retirement, we focus on accumulation and growing our assets. Time is on our side and we are still earning income. These are powerful factors that justify this mindset. More assets means more future income. We see this validated when purchasing income generating annuities.
Decumulation.
Decumulation is the technical term for the distribution phase of retirement. Who does it benefit to remain focused on asset accumulation, in retirement? More and more economists and retirement professionals are suggesting that we shift our focus from asset accumulation to asset protection and guaranteed, lifetime income. As retirement experts, we are questioning the conventional wisdom that underpins this issue. Like everything in financial planning, each person’s circumstances are unique and this uniqueness drives individual recommendations. Factors such as succession and health play a role in how much of our retirement assets should be converted to income. For each of us, there is a perfect balance.
You can reach us at 561-869-4500 or email Ted to arrange for a complimentary consultation. If you are worried about keeping your retirement assets at risk, let’s talk.