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Tuesday, April 21, 2009

Life Insurance

Smart Decisions with Money

Let me first mention that I have over 25 years experience in both the Financial Services and Resort Real Estate Development industries. During that time I was able to win numerous sales awards and begin my own Sales coaching practice. That practice has been built around developing rainmakers who establish meaningful relationships with their clients which have been founded and built upon trust. I am willing to expose the myths and the manipulations in the marketplace because people’s financial health is second only to their physical health. The most important decisions made are those that involve money. Without money there is nothing a family or individual can accomplish. So gathering wealth and protecting wealth for the future generations is a life long venture. Those who have the social and financial responsibility of helping people in these areas need to start with personal integrity and work out from there. The decisions on investing, buying a home, retirement planning, family income planning, estate planning, tax planning and many others are paramount to the future success you hope to enjoy. So let’s discuss some of the key elements in this arena.

The foundation for any financial plan is protection. Just as building a house upon sand would be silly and wasteful; starting a financial plan without developing financial protection is silly and wasteful. The tools used for protection are insurance based products. These products have been developed with risk in mind. There are only 3 things you can do with risk, you can avoid it, you can assume it or you can transfer it.

Some risks are unavoidable such as death, it is a certainty. You cannot avoid death. Now you can assume the risk yet that would mean that you are undertaking the entire financial risk of your human life value. Simply figure how many years you would work until say 65 and multiply that by how much income you earn and there is a human life value. Now, this is the future financial subsidy you will provide for your family and loved ones. Impossible for you to undertake this assumption as time is not guaranteed. Therefore the most prudent way to handle this risk is to transfer it. (In essence you are purchasing time) By transferring it to an insurance company you are paying pennies on the dollar for the future financial subsidy to be guaranteed to your family upon your death. Of course this is commonly referred to as Life Insurance. Real simple concept you transfer the risk to the insurance company by buying dollars for pennies depending on you age and health.

Of course other risks include you home, auto, health etc… these all require protection of risk.

Today, I just want to stay on topic with life Insurance as this is a greatly misunderstood and often times manipulated protection. I am not here to argue the virtues of types of Life Insurance, as surely that argument has created more myths and innuendo then religious wars. Let’s simply say that every person’s situation is unique and there are many different scenarios and solutions all of which require a strong personal reflection.

I just want you to know that everyone needs to be protected! The only reason that you would not be protected is that you intend to EARN NO MONEY whatsoever. In this case then you do not need any Life Insurance. Now the frightening facts are that over 65% of our population today has NO Life Insurance coverage whatsoever. Why you ask? Well the answers are many yet I submit that most people are scared to speak with an agent for fear of being ripped off. How sad is that? The greatest financial product in the world is undersold because most people fear the sales force.

Of course when you see information like I exposed yesterday, you can certainly understand the consumer’s fear. I understand it and am quite familiar with it. In reference to yesterday’s marketing silver bullet pitch it referenced what is termed LIFE SETTLEMENTS.

This has a major impact on those who are 70 years and older. Understand that a Life Settlement is a estate planning tool that has functional use for those families that may have a pressing need for immediate revenue and are transferring a future death benefit for dollars today. In other words one is selling their Life Insurance contract. Again, this is a specific type need that is unique in each individual case and there are times that this type of transaction is advised and useful. Yet the predators (magic silver bullet marketing) have found a way to manipulate this meaningful concept into a one size fits all speculative greed based transaction. The way this is done is to approach 70+ people and advise them as to their “hidden asset” which of course in this case is their insurability. Remember the purpose for large amounts of life insurance say 2 million and more was due to estate planning. This would be for a small percentage of people who have accumulated a large enough estate to be subject to the estate taxes. This is a small percentage of the population anyway you cut it. So this planning is a type of success planning. Yet many agents have now been taught to manipulate the financial need for these substantial death benefits and simply create a need for the vast majority of those who might like to cash in their hidden asset. So, you are asked to be insured for several million by simply putting up a small percentage of assets against a loan for the premiums on the policy. You wait 2 years (beyond the contestable period) and then the people who lent the premiums will take your policy to the market place and sell it, of course they will recoup their loan plus a percentage of the proceeds and you who had the hidden asset will get a reasonable payoff for living the two years and hopefully dying within your life expectancy (PS there are reports which are now generated that take into account your present health and genetics and determine roughly how long you life expectancy will be. ) These reports are very valuable when it comes to determining how long you income needs will be.

While all of this appears to be a minor abuse, it in reality is jeopardizing the entire sanctity of the Life Insurance Industry. You see one of the great benefits of Life insurance is that if it is properly set up and applied it pays out a tax free benefit to the beneficiary, and most importantly can be used to create a TAX FREE income for the insured. NO OTHER Financial product can do this. For many years one of the great staples of Life insurance is what is called the inside cash build up. A life Insurance contract can grow dollars tax deferred and can then have those same dollars come out TAX FREE. How this is done is again a uniquely individual situation and requires prudent planning.

Those maverick agents who have been manipulating your “hidden asset” have put the life insurance contract in jeopardy. Congress has long looked at the inside cash build up in these contracts and salivated at getting their hands on some more tax revenue. The Insurance industry has been successful at keeping the sanctity of tax deferral and tax free benefits alive, yet the speculative nature of an abused Life Settlement market place has caused potential difficulties for the industry. That affects everyone in the market place both young and old. It affects premiums that you pay; it affects tax benefits that you and your family enjoy.
All this because of sales manipulations that are driven by personal greed. None of this is done to benefit clients it is all done to benefit the agent.

The Advocacy Network was created to watch over your best interest in all decisions about money. As a totally objective 3rd party observer, we simply want you to have the true information, full disclosure and clear transparency in all the circumstances and situations you face. This gives you the necessary due diligence to make smart decisions about money.