The Missing Piece of the Plan

A few weeks ago, I was working with another agent who was obviously distraught. This fellow is approaching retirement in a few years and thought he had everything in place. He had put his kids through school with money he saved. He had life insurance paid up and had put aside enough funds for his retirement to be a smooth transition from his working life. So what bothered my friend?

Shortly before we met, he told me he had been declined for long term care insurance (LTCI). "I have coverage on my wife," he said, "but if something happens to me, stroke, heart attack, an accident, well that'll throw my plan right out the window. I don't have a backup if I become chronically ill."

In my business, we have what is called "cost of waiting". It's a great tool to illustrate how much higher premiums can be than buying a policy when you're younger. In other words, a 55-year old can pay more in premiums than a 45-year old over the lifetime of the policy, even if not paying for the additonal 10 years. But there's another part of the story.

As we get older, we tend to get less healthy, thus making it harder for us to get through underwriting. And in the case of my friend, he had been declined twice, due to pre-existing health issues.

I have another friend who I consider a friendly competitor. We'll stop for coffee every few weeks and talk shop. I mentioned that my clients were purchasing more LTCI than ever before and asked how he was doing in the area? "I don't work that market" was his response. Needless to say, I was amazed. How is he helping his clients see the entire picture without discussing LTCI with them? As a guy that loves analogies, I compared it to a jigsaw puzzle with a huge section in the corner missing from the rest of the pieces. This agent was not doing a complete job for his clients.

Give us a call and we'll be happy to give a free consultation to see if you may need LTCI.

Annuities and Your Legacy

Last week while discussing a retirement gameplan with a client, I mentioned an annuity. Her first response was, "What's that?"

Annuities are savings/investment vehicles in which one can place funds (single premium or ongoing) that grow tax-deferred during the accumulation period. On the backend, the annuity gives options for the distribution of funds. One can receive the funds in one lump sum payment or receive payments for several years or a lifetime. The best part is that you don't have to decide how the money is distributed until the policy contract is completed.

There are two basic kinds of annuities, fixed and variable. Fixed annuities are very conservative and most are offered through life insurance companies. These are appropriate for people who are looking to preserve principle. Variable annuities, on the other hand, are usually invested into the markets, where they can be at risk of loss. An agent would be required to have a securites license to offer these to the public.

Be aware of bonus or enhanced annuities. These promise a bonus of 5-10% for you by signing the dotted. I've personally gone to seminars and was told that the bonus is paid up front, when in fact, the contract has to be completed to receive the bonus. Be careful and ask lots of questions.

A recent ruling by regulators has brought Indexed Annuities into the news recently. These are a type of hybrid product which is considered to be fixed, however it moves up and down with the market. Typically, indexed annuities have a floor or minimum return, as well as a ceiling or maximum return. Unfortunately, there usually are a lot of hidden fees for surrender that are not disclosed. Regulators have determined that since these annuities are based on market movement, only variable licensed agents can sell them, much to the dismay of many in the life insurance industry.

Most of my colleagues agree that they do not feel comfortable offering these indexed annuities to their clients as the product can be confusing for the consumer.

As a final note, annuities can be a great way to defer taxes (I don't want to pay for bailouts. Do you?) And your taxes are based on your distribution of funds during the distribution phase. In other words, if you receive all of your money at once, you'll have a one-time hefty tax bill, whereas you can make smaller tax payments while receiving your funds in smaller increments.

Annuities can be great ways to grow your money, defer taxes and add to your retirement funds. My suggestion for everyone is to do research and stick with an agent that you know. Avoid the agent that shows up at your door pushing an annuity and doesn't take the time to learn what your gameplan is.

Life Insurance From a Wealth-Transfer Perspective

Many clients want to transfer their assets with greater financial efficiency. To do this, one may want to consider life insurance as an asset class. It can also be structured so that the death benefit does not directly depend on financial performance.

Death benefits derived from a permanent life insurance policy can be used to accomplish a variety of objectives:
- Pay off debts and taxes
- Equalize the inheritances of different family members (one child gets the family business, the other receives a death benefit)
- Fund business continuation agreements and successful plans
- Build funds for kid's education
- Solidify the financial security of disabled family members
- Replace funds lost in troubled markets
- Charitable gifts
- Tax deferred growth

One shouldn't think of life insurance as just another payment, but more importantly, think of it in terms of what it can accomplish.

Next time: Annuities