Category Archives: Insurance

The Case for Universal Life Insurance as a Conservative Investment Alternative

Everything we do in life involves some element of risk.  Some risks are known, and believed to be understood, while others are more uncertain and involve either probability or magnitude that we find difficult to quantify.  When investing, we generally seek to obtain the highest return possible given the amount of risk that we are able and willing to tolerate.  Unfortunately, gauging the degree of risk associated with various investments is not always easy.  Studies have shown that people tend to prefer known risks over unknown risks[1].  In many cases, this propensity, referred to as “ambiguity aversion,” can cause us to overweight or exaggerate risks that we are unable to quantify or that we do not entirely understand.  At the same time, people are prone to downplay risks that are common and familiar, where undue significance may be attributed to our own subjective personal experience (i.e., “I’ve done this for years, and nothing truly bad has happened to me, so it must not be very risky.”).  Taken together, these (often subconscious) biases can prevent us from properly assessing our alternatives – resulting in decisions that are based on perceived risk, rather than actual risk.  Chances are, you know people who are frightened of flying in airplanes but don’t think twice about getting into an automobile, despite statistics that place the odds of dying in a plane crash at 1 in 11 million while the odds of dying in a car crash are (according to some sources) as high as 1 in 5,000.[2] Continue reading

What Kind of Life Insurance Should I Have?

Picking the right life insurance is tricky.  Should you go with the absolute cheapest coverage, term? Or is it better to buy a cash value policy such as whole life?  What other choices do you have (such as return of premium) which may work better in your situation?  Like many personal finance decisions, the right type of life insurance depends entirely on your individual needs.  The purpose of this article is to help you assess your needs and find the right type of insurance.  As always, feel free to contact me directly if you seek professional help with this.

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Analyzing the Value of Life Insurance as an Asset

One of the more challenging aspects of advising clients about life insurance is helping them to recognize that life insurance is an “asset,” rather than an “expense”.  For many people, this view is a bit of a foreign concept in a world where other types of insurance (auto, homeowners, health, and liability, just to name a few) merely reimburse the policyholder for a contemporaneous, out-of-pocket, economic loss that the policyholder hoped would never occur – leaving the policyholder in the same economic position as he or she was in before the loss took place.  Life insurance is unique in the sense that it covers a loss that is certain to eventually occur:  It is not a question of whether the policyholder will have a claim, but instead when.  As long as the policy is maintained, the stream of premium payments will ultimately result in the policyholder’s receipt of the death benefit – which allows for a rate-of-return calculation that is inapplicable to other types of coverage.

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An Update on Variable Annuity Pros & Cons

The variable annuity market experienced tremendous growth over the past decade. The introduction of a product which guarantees lifetime income payments while providing the opportunity for market growth was precisely what many investors were looking for. Companies such as Prudential, MetLife, AXA, Nationwide, Jackson, and Transamerica rolled out product after product which generated billions of dollars in sales through financial advisor channels. The purpose of this article is to determine if these products are still working well for investors and to point out the challenges which the current market environment presents to the insurance companies which issue these variable annuity products. In essence, are the product offerings at the current costs worth purchasing? Or should investors be looking at other products and strategies to augment their retirement income?

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Do you own Life Insurance?

Recent studies show that life insurance ownership is at a 35-year low with only 44% of US households owning some form of life insurance.* That statistic likely reflects the fact that families feel the need to drop their insurance coverage ahead of other items when times get tough. People need to understand that life insurance isn’t strictly a luxurious method used by wealthy people to pass funds along to the next generation. Rather, it’s a strategy employed to avoid potentially awful scenarios in which the loss of a loved one results in financial hardship for others. Even a basic, inexpensive term policy can help avoid such a situation from ever taking place. As a comprehensive wealth manager, I plan to go over my clients life insurance coverage in more detail during 2013. Most people are primarily concerned with the management of their investments but not with potential risk exposures in the form of lost income/wages and what coverage should be in place to minimize that risk. More on this below…

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The Variable Annuity Market is Shrinking

It seems like every time I turn around another variable annuity (VA) provider is closing its doors. Sun Life, John Hancock, AXA, Genworth, and ING are among the companies which have either limited new contributions to one of their VA products, taken some other step to minimize exposure to the VA market, or completely exited the market. Meanwhile, that has translated into more premium dollars for big players like Prudential and Jackson National which have increased market share over the past year, according to Bloomberg Financial. The irony here is that VA sales in Q3 of 2011 hit $8.8B which was the highest level since Q3 of 2007.* One would think companies would want to enter this arena and compete for new dollars, not run the other way.

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Comparing & Contrasting Variable Annuity Riders

As most of my readers know, my blog is designed to inform clients about issues related to financial planning, investment products, and the economy. Lately I’ve been fielding more questions than usual about the various annuity products out there and which ones are best, the worst and potentially the most interesting. It’s also no surprise that variable annuity features and riders change frequently to correspond to changing market conditions and current client needs. It would be nearly impossible for the average investor to be fully informed about the differences between variable annuities offered by Prudential, Jackson National, Nationwide, AXA, Sun Life, Transamerica, etc. Well, this post should provide some clarity and also give you insight into how the insurance companies think about and price these products.  Note: While some of the information below is still accurate, the various annuity riders and pricing have changed over the past few years. If you are looking for product specifics which are accurate for 2013 forward, please send me an e-mail or give me a ring.

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Is a Variable Annuity Right for You?

Welcome to one of the most misunderstood financial products out there. It’s no surprise how little most investors know about variable annuities because they’re extremely complicated and their explanations often come from insurance brokers and financial advisors who often don’t adequately explain their potential benefits and drawbacks. Over the past year variable annuity (VA) sales have skyrocketed as investors seek guarantees which may help them keep retirement plans on track.* So, who exactly is this product right for?

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Should high net-worth individuals purchase long-term care insurance?

In the past long-term care insurance has been purchased primarily by middle and upper-middle class people. The wealthy tend to ‘self-fund’ their long-term care needs with extra assets which would otherwise be included in their estates. But now, with long-term care costs rising dramatically and over 40% of Americans 65 and older needing some sort of long term care, better planning is needed to protect assets.* If we give further consideration to increasing life-spans and the diminishing effect the recession has had on many households in the $2-5M net worth range, it may make sense for more wealthy individuals to start purchasing long-term care insurance as both a hedge against these risks and a protective measure for future giving ability.

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Variable Annuity Pros and Cons: What’s all the Chatter About?

The chatter surrounding variable annuities is louder than ever. Investors want security regarding their money in the face of increasing amounts of uncertainty about the future. Variable annuities may feed this desire with two features not generally offered together: the opportunity for growth combined with a variety of guarantees protecting both the payment to a beneficiary if the account owner dies, and the income derived from the principal amount invested.

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