What should I consider before purchasing insurance!
Total Comments: 21
Posted: Fri Nov 13, 2009 05:12 pm Post Subject:
Insurance teacher, it's not that I disagree with you on this one, but in most cases for most people, there really isn't too much to it. It's not rocket science and it's all based upon assumptions that we know are going to be wrong.
With term insurance so cheap, why not just use whatever method you want and then add on a few hundred thousand for safety?
If Johnny Paycheck's unknowledgeable advisor believes in a 10x income approach and has him buy $500,000 of coverage, he could simply for a few extra bucks up this to $750,000. It would be nice if planning took place, but even without advanced planning, with this amount Mr. Paycheck's family has enough that they should be able to maintain the standard of living.
The low cost means that when in doubt, buy more.
I'm not disagreeing with anything that you wrote. It's a shame that you are accurate.
Posted: Fri Nov 13, 2009 08:51 pm Post Subject:
With term insurance so cheap, why not just use whatever method you want and then add on a few hundred thousand for safety?
First of all, term insurance is getting more expensive again, but that's not the issue. My concern is that term insurance is a great temporary solution to a temporary problem. Term insurance CANNOT solve a life insurance problem for the person's entire lifetime. Why not? Good question.
1. Term insurance gets more expensive every time the policy renews, if the policy allows renewal. It gets to a point where it's ridiculously expensive.
2. Most term carriers will not sell nor renew level term insurance once the insured gets to around age 60-65. Now, there are carriers that go past this age, but whew...look at the premiums for term insurance on an 80 year old man!
Then there's the "buy term and invest the difference" theory espoused by a few companies out there. This is (most of the time) the stupidest thing that I have ever heard. Can it work? Yes. Does it? Not very often.
Now onto the Value Approach. This only works in the most simple life cases where there aren't any high-end and appreciable assets nor estate planning requisites. A simple amount of coverage can absolutely work here. My problem with this, as previously posted, is the ignorance and poor training of the agent force out there. Give me a properly trained producer force and I'll give up my argument. Not gonna happen.
What about those insured's who aren't in the workforce? How would you estimate the human value of, say, a homemaker? Oh, it can be done...but how would YOU do it? What about those people who derive their income passively? What about those insureds who don't actually have to work for a living and have plenty of money, say through an inheritance? How do you figure out the amount of life insurance necessary for that demographic?
Not trying to sound demeaning, but in my experience those agents who use a simple multiple of earnings as the amount of necessary insurance coverage are working with low to lower-middle class clientele. Middle-class and higher income ranges take this concept off the table.
Comments?
InsTeacher 8)
Posted: Fri Nov 13, 2009 11:46 pm Post Subject:
I don't know why, but the forum won't let me post while logged in to this thread.
Anyway
@Ins Teacher
I think we have similar goals, but the human life value of yesteryear is not quite my application.
I would take someone and multiple earnings by as much as 30 times in some circumstances. Not as a way to sit down and quickly tell someone you make X so we'll take X times 30 and that equals Y and that's how much you should buy.
I want the human life value number there to show how big they may actually need. I'll let them beat the number down with the "Well I only need it for this that and this..."
You are correct in stating that there are other factors, estate planning, charitable possibilities, etc. I too believe it's a bad idea to simply multiply an income but a certain number and say "here you go" and never get any deeper than that.
Capital needs analysis as I understand it is a process often used to knock down death benefit amount. E.g. "Well you think you want income covered for 5 years, the house should be paid off, and you want some money to send the kids to school so that equals..."
Big mistake in my opinion. It's a conversation starter, and sometimes substantiating evidence, not the answer.
On a side note, I have a friend who got tangled up with a CFP who he ended up with by virtue of being an orphan at a certain insurance company. He called her b/c he wanted to drop his coverage amount of his VUL from 800k to some number below that. The agent went along with it, by replacing his policy with one of those niffty high commission EIUL's. *Waves finger*
Posted: Sat Nov 14, 2009 04:16 am Post Subject:
I find out what my client wants to accomplish and figure out the lump sum needed to make that happen.
For most people, like it or not, the bulk of their insurance need has to be covered by term insurance. That being said, a large portion of these people should also have permanent coverage.
Posted: Mon Nov 30, 2009 09:34 pm Post Subject:
Again, lots of advice from many perspectives. Some of it very good, some of it not so hot.
I'll side with InsInstructor on most of his points, but I'll take a big exception to the one about "Buy term and invest the difference" as being the "stupidest thing" he may have ever heard. It is not stupid, but it does require discipline. I don't see any discussion of his thoughts on cash value insurance here, but products such as Universal Life (UL, EIUL, VUL, MVAUL) are nothing more than even higher cost term Annual Renewable Term insurance is sheep's clothing, and often make less sense than 20- or 30-year level-premium, level-term.
"Human Life Value" as Dr. Huebner envisioned it was appropriate in its day, when wage earners made $500 per year in income. That model does not work today for any number of reasons. But everyone who works does have human life value, and even some non-workers such as stay-at-home parents, have human life value (perhaps more than they think). It is PART of a proper needs analysis.
The so-called "capital analysis," as I've seen it demonstrated, makes too much use of hypotheticals about current assets/liabilities to suit me as a proper tool. I gather as much data about all aspects of my clients' finances, savings, investments, debt, mortgages, and more, as well as what their goals are (something no one has mentioned above) in order to complete my analytical work. One does not have to be a CFP or ChFC to do this right. but they do have to understand the same things taught to prospective candidates for those professional designation exams.
I don't use "rules" such as 10x or 30x income as a starting point or a talking point, because they are mere guesses. I don't ask questions such as "How much insurance were you thinking of getting?" or "How much can you afford?" because there are answers to those questions that are in the best interest of the agent and not the insured. If I do my analysis thoroughly, I know how much insurance they need, what type(s) will work best in their situation, and how much they can afford. If they don't have the necessary cash flow available for the proper amount of insurance, I can usually help them rearrange their finances to do so, or meet some of the need with additional term insurance at a lower cost for a limited amount of time.
I do my level best to do what's in the client's best interest 100% of the time, without regard to my own. Because I understand that when I help enough people get what they want and need, I am well-taken care of as a result.
When I offer a client term insurance, I only recommend a policy that is renewable to at least age 95. BUT! I show them that it's going to begin its trek along the path to hugely expensive beginning around age 45-55. And that helps reinforce the need to be saving separately in addition to their insurance. I cannot hold their hand forever in that part of the process, but I will to help them begin it.
I cannot subscribe to the premise of a book I found in an antique shop entirely by accident 6 or 7 years ago, written in the 1930s with a debt of gratitude to Dr. Huebner. The premise of book was that it is necessary for the insurance company to take the money from the young man and hold on to it until he is older and wiser. That's tantamount to calling a client too stupid to manage his own money.
Granted, we don't teach people how to do that before we graduate them from 6th grade, let alone high school or college. We allow most people, unfortunately, to learn it in the School of Hard Knocks. Along the way, they usually encounter a few unscrupulous car salesmen, real estate agents, and, sadly, insurance agents, too.
Each of those lessons learned is painful, and damaging financially. None of them should ever occur. So it's no wonder that I put much effort into my own continuing education and also trying to educate my clients as I do, so that they know who to turn to for advice that can be trusted.
Posted: Wed Dec 02, 2009 12:17 am Post Subject:
Max, my statement about buy term and invest the difference being a "stupid" idea should not be taken out of context. Here's my exact statement:
Then there's the "buy term and invest the difference" theory espoused by a few companies out there. This is (most of the time) the stupidest thing that I have ever heard. Can it work? Yes. Does it? Not very often.
Note that I said that "most of the time" it's the "stupidest thing I have ever heard." Why do I say that?
Because the common client of the (then) A.L. Williams (now Primerica) crowd was that "Johnny Paycheck" type of customer that is more concerned with putting food on the table as opposed to "investing the difference." The idea was most commonly thrown at those who can least afford to actually invest. If they do invest, the knowledge that they possess is minimal at best (look at the demographic here) and the chance of loss of principal is high unless "invested" in safe, secure stuff.
Those with the disposable and expendable income can easily make this work if they have a clue of what investing (for a profit) actually entails.
That was my point, and I think you'll likely agree.
InsTeacher 8)
Posted: Wed Dec 02, 2009 12:38 pm Post Subject:
"Buy term and invest the difference" is one of the stupidest things ever uttered.
The "Buy term and invest the difference" slogan was started by AL Williams and it was a replacement technique designed to get people to drop permanent life insurance policies. It's disingenuos at best and harmful at worst.
Don't misconstrue my words. I'm not saying that buying term insurance is stupid. Most people who need insurance should own some term insurance. My problem is with the idea of "buy term and invest the difference".
How about "buy whole life and invest the difference"? After all, whole life is much cheaper than term insurance long term.
Posted: Wed Dec 02, 2009 01:09 pm Post Subject:
You're right, I overlooked the "(most of the time)". And you're also right that I am in general agreement with you.
However, I wouldn't necessarily cast Primerica in a negative light. Yes, their target market is middle-income families, who will find it harder to "invest the difference" given the financial pressures many are facing these days. But their Financial Needs Analysis is a reasonably sophisticated tool that provides those same folks with guidance on what it will take to get them where they need/want to be in an easy to understand format.
I've also had clients who, prior to me, received 150 page binders of junk from the old American Express Insurance organization that was supposed to map out their financial future, and they never read it, or didn't know how to use it, and in the meantime weren't paying attention to the statements from the VUL policies they were sold, and paying premiums toward, as better than "buy term and invest the difference" and several lost tens of thousands of dollars through lousy asset allocation.
And I've had students who sell EIUL and VUL for another "marketing organization" that uses a knock-off of Primerica's Financial Needs Analysis and that also encourages its clients to stop contributing to their IRAs and 401(k)s in favor of the insurance policies because "there's no limit to how much money you can put in, and you can take it all out tax-free. But you have to pay tax on your IRA or 401(k)." A combination of poor and bad advice mixed with incomplete truths. And this same organization encourages folks to take out home equity loans to fund their EIULs or VULs. The worst kind of "margin account" imaginable. Potential to lose your home, your savings, and your insurance all in one, not to mention the huge tax liability that could also follow. They pass themselves off as financial counselors on a mission to free middle income Americans from debt. Their target market is not fully funding its IRAs and 401(k)s, let alone putting amounts into their new EIUL or VUL that exceed those maximums.
You don't always get what you pay for in our industry, which I believe is truly unfortunate. So I try to stay as educated on the Insurance Code, tax laws, and the dynamic changes that are constantly taking place and shape our industry from year to year, so that I bring added value to my students and my clients.
Posted: Wed Dec 02, 2009 01:41 pm Post Subject:
Fjalfja . . .
Art Williams did not "invent" the buy term and invest the difference concept, he read about it in a book by Norman Dacey, What's Wrong With Your Life Insurance, and took the concept to middle income families who had no idea they could become investors.
Have you ever read Dacey's book? (I have two copies that I now jealously guard as collector's items.) How about Die Broke by Stephen Pollan? Or Financial Self Defense or any of the other books by the late Charles Givens? Or the works of Suze Orman? How about Financial Peace or Financial Peace Revisited by Dave Ramsey? Buy term and invest the difference is far more widely discussed by others than by Primerica and its agents.
"Buy whole life and invest the difference" is, to put it mildly, absurd. When does "the difference" begin to occur? Age 60, 65? Try starting a new WL policy at that age and tell us what the premiums are? Still higher than that of a new term policy at the same point in time.
Granted, the "difference" you are describing is cumulative, but, in comparison, it truly only occurs beginning in the later years of a term policy. It is so huge in the other direction beginning with the early years of a level term policy, that your BWLID proposition fails to achieve a greater impact over the long haul, especially when the time value of money is factored in.
And I'm not saying that term life is appropriate for all situations, because it most assuredly is not. But where it is not is largely in specialized uses of life insurance, like key-person and the estate planning needs of survivorship policies or last-to-die policies to pay estate taxes instead of being forced to sell off assets at the most inopportune time.
[I'm sure there will be much more discussion of this later in 2010 when it becomes clear that Congress is going to allow the unlimited estate tax exemption of GW Bush's EGTRRA to expire after 12-31-2010, exposing tens of millions of heirs of mere homeowners with some investments and retirement plan assets to be exposed to the sting of estate taxes of up to 55%. How do you think they plan to cover the massive deficits that are built into Obamacare? It's called fuzzy math.]
Properly followed, BTID can result in considerable asset accumulation long before the COI of Annual Renewable Term becomes unreasonable and unnecessary.
Correctly explained to a client in their 20s-40s, the motivation to save is strong. Showing/helping them to free up cash flow to be able to achieve it is paramount. But, obviously, you cannot force anyone to follow the plan. Free will intervenes. That's why Ramsey's Financial Peace University is having such success. It teaches people how to overcome the free will "desires."
If you haven't yet seen it or done it, try the initial 12-week Financial Peace University program created by Dave Ramsey. A little knowledge will take anyone a long way. Proper knowledge will protect a person forever from financial abuse by others. You'll discover what it means to "Live like no one else, so you can live like no one else." A more powerful extension of the BTID foundation.
Posted: Tue Dec 08, 2009 04:13 am Post Subject:
Speaking of calling people too stupid to watch over their financials...oh did someone mention Dave Ramsey...
http://www.youtube.com/watch?v=3b-q8MLfH2w
My favorite quote from this clip is: "other than the home and including the home." Say what?
So, million, 2 million, half million you know something like that no biggy if it's a little less or little more...more or less (look I phrase things like Dave!)
Oh and take the money from the account (the million, 2 million, half million plus or minus a few thousand other than the home and including the home...maybe, sort of, kind of) and put it in good long track record mutual funds that yields 10% and replaces you.
Here's the good news, if someone were lucky enough to find a registered rep. dumb enough to make an income recommendation involving a "good long track record mutual fund" that had enough risk to yield or grow 10% expected per year, FINRA would be nice enough to take that rep's licenses away for life and there would probably be a claim filed against his or her E&O insurance sizable enough to correct the damage this terrible advice has caused.
I remember one day sitting with a young couple when I mentioned Dave Ramsey, the wife turns to the husband and asks, "that whack job that wrote that book you bought?"
And Suze Orman...really? She gets quoted as a financial genious...
http://www.youtube.com/watch?v=6vnN9liFWaE
For starters the agent selling that contract is not going to make $10k, the base policy premium for that policy would be something like 5-6k, the rest would be paid up additions.
Now, on the licensed in 49 states comment and alluding to the idea that it makes her some sort of super insurance wiz. I too can be licensed in 49 states...I can even be licensed in HI and be...I guess...smarter than Suze, all I have to do is go to a place like NIPR and pay a few thousand dollars and get my non res license in the remaining states I'm not licensed in. Probably about 20 minutes of checking off boxes and putting in a credit card number.
Now this one I really like:
http://www.youtube.com/watch?v=bSF5SUG_XX8
So the annuity I sold to a client of mine to use as his 403b is good, but the same variable annuity I put his other money in is bad because...hmmmm, I guess this is very confusing.
And the absolute best:
http://www.youtube.com/watch?v=rd_3nCENMT8
I'm confused (after all this is all very confusing) is she saying that it makes sense to have a VA when you know you're going to die, or that it makes sense if there's a return of premium death benefit on the VA? Because I'm not aware of a VA that doesn't have a return of premium death benefit. In fact, some will give me a high water mark death benefit.
Posted: Fri Nov 13, 2009 05:12 pm Post Subject:
Insurance teacher, it's not that I disagree with you on this one, but in most cases for most people, there really isn't too much to it. It's not rocket science and it's all based upon assumptions that we know are going to be wrong.
With term insurance so cheap, why not just use whatever method you want and then add on a few hundred thousand for safety?
If Johnny Paycheck's unknowledgeable advisor believes in a 10x income approach and has him buy $500,000 of coverage, he could simply for a few extra bucks up this to $750,000. It would be nice if planning took place, but even without advanced planning, with this amount Mr. Paycheck's family has enough that they should be able to maintain the standard of living.
The low cost means that when in doubt, buy more.
I'm not disagreeing with anything that you wrote. It's a shame that you are accurate.
Posted: Fri Nov 13, 2009 08:51 pm Post Subject:
With term insurance so cheap, why not just use whatever method you want and then add on a few hundred thousand for safety?
First of all, term insurance is getting more expensive again, but that's not the issue. My concern is that term insurance is a great temporary solution to a temporary problem. Term insurance CANNOT solve a life insurance problem for the person's entire lifetime. Why not? Good question.
1. Term insurance gets more expensive every time the policy renews, if the policy allows renewal. It gets to a point where it's ridiculously expensive.
2. Most term carriers will not sell nor renew level term insurance once the insured gets to around age 60-65. Now, there are carriers that go past this age, but whew...look at the premiums for term insurance on an 80 year old man!
Then there's the "buy term and invest the difference" theory espoused by a few companies out there. This is (most of the time) the stupidest thing that I have ever heard. Can it work? Yes. Does it? Not very often.
Now onto the Value Approach. This only works in the most simple life cases where there aren't any high-end and appreciable assets nor estate planning requisites. A simple amount of coverage can absolutely work here. My problem with this, as previously posted, is the ignorance and poor training of the agent force out there. Give me a properly trained producer force and I'll give up my argument. Not gonna happen.
What about those insured's who aren't in the workforce? How would you estimate the human value of, say, a homemaker? Oh, it can be done...but how would YOU do it? What about those people who derive their income passively? What about those insureds who don't actually have to work for a living and have plenty of money, say through an inheritance? How do you figure out the amount of life insurance necessary for that demographic?
Not trying to sound demeaning, but in my experience those agents who use a simple multiple of earnings as the amount of necessary insurance coverage are working with low to lower-middle class clientele. Middle-class and higher income ranges take this concept off the table.
Comments?
InsTeacher 8)
Posted: Fri Nov 13, 2009 11:46 pm Post Subject:
I don't know why, but the forum won't let me post while logged in to this thread.
Anyway
@Ins Teacher
I think we have similar goals, but the human life value of yesteryear is not quite my application.
I would take someone and multiple earnings by as much as 30 times in some circumstances. Not as a way to sit down and quickly tell someone you make X so we'll take X times 30 and that equals Y and that's how much you should buy.
I want the human life value number there to show how big they may actually need. I'll let them beat the number down with the "Well I only need it for this that and this..."
You are correct in stating that there are other factors, estate planning, charitable possibilities, etc. I too believe it's a bad idea to simply multiply an income but a certain number and say "here you go" and never get any deeper than that.
Capital needs analysis as I understand it is a process often used to knock down death benefit amount. E.g. "Well you think you want income covered for 5 years, the house should be paid off, and you want some money to send the kids to school so that equals..."
Big mistake in my opinion. It's a conversation starter, and sometimes substantiating evidence, not the answer.
On a side note, I have a friend who got tangled up with a CFP who he ended up with by virtue of being an orphan at a certain insurance company. He called her b/c he wanted to drop his coverage amount of his VUL from 800k to some number below that. The agent went along with it, by replacing his policy with one of those niffty high commission EIUL's. *Waves finger*
Posted: Sat Nov 14, 2009 04:16 am Post Subject:
I find out what my client wants to accomplish and figure out the lump sum needed to make that happen.
For most people, like it or not, the bulk of their insurance need has to be covered by term insurance. That being said, a large portion of these people should also have permanent coverage.
Posted: Mon Nov 30, 2009 09:34 pm Post Subject:
Again, lots of advice from many perspectives. Some of it very good, some of it not so hot.
I'll side with InsInstructor on most of his points, but I'll take a big exception to the one about "Buy term and invest the difference" as being the "stupidest thing" he may have ever heard. It is not stupid, but it does require discipline. I don't see any discussion of his thoughts on cash value insurance here, but products such as Universal Life (UL, EIUL, VUL, MVAUL) are nothing more than even higher cost term Annual Renewable Term insurance is sheep's clothing, and often make less sense than 20- or 30-year level-premium, level-term.
"Human Life Value" as Dr. Huebner envisioned it was appropriate in its day, when wage earners made $500 per year in income. That model does not work today for any number of reasons. But everyone who works does have human life value, and even some non-workers such as stay-at-home parents, have human life value (perhaps more than they think). It is PART of a proper needs analysis.
The so-called "capital analysis," as I've seen it demonstrated, makes too much use of hypotheticals about current assets/liabilities to suit me as a proper tool. I gather as much data about all aspects of my clients' finances, savings, investments, debt, mortgages, and more, as well as what their goals are (something no one has mentioned above) in order to complete my analytical work. One does not have to be a CFP or ChFC to do this right. but they do have to understand the same things taught to prospective candidates for those professional designation exams.
I don't use "rules" such as 10x or 30x income as a starting point or a talking point, because they are mere guesses. I don't ask questions such as "How much insurance were you thinking of getting?" or "How much can you afford?" because there are answers to those questions that are in the best interest of the agent and not the insured. If I do my analysis thoroughly, I know how much insurance they need, what type(s) will work best in their situation, and how much they can afford. If they don't have the necessary cash flow available for the proper amount of insurance, I can usually help them rearrange their finances to do so, or meet some of the need with additional term insurance at a lower cost for a limited amount of time.
I do my level best to do what's in the client's best interest 100% of the time, without regard to my own. Because I understand that when I help enough people get what they want and need, I am well-taken care of as a result.
When I offer a client term insurance, I only recommend a policy that is renewable to at least age 95. BUT! I show them that it's going to begin its trek along the path to hugely expensive beginning around age 45-55. And that helps reinforce the need to be saving separately in addition to their insurance. I cannot hold their hand forever in that part of the process, but I will to help them begin it.
I cannot subscribe to the premise of a book I found in an antique shop entirely by accident 6 or 7 years ago, written in the 1930s with a debt of gratitude to Dr. Huebner. The premise of book was that it is necessary for the insurance company to take the money from the young man and hold on to it until he is older and wiser. That's tantamount to calling a client too stupid to manage his own money.
Granted, we don't teach people how to do that before we graduate them from 6th grade, let alone high school or college. We allow most people, unfortunately, to learn it in the School of Hard Knocks. Along the way, they usually encounter a few unscrupulous car salesmen, real estate agents, and, sadly, insurance agents, too.
Each of those lessons learned is painful, and damaging financially. None of them should ever occur. So it's no wonder that I put much effort into my own continuing education and also trying to educate my clients as I do, so that they know who to turn to for advice that can be trusted.
Posted: Wed Dec 02, 2009 12:17 am Post Subject:
Max, my statement about buy term and invest the difference being a "stupid" idea should not be taken out of context. Here's my exact statement:
Then there's the "buy term and invest the difference" theory espoused by a few companies out there. This is (most of the time) the stupidest thing that I have ever heard. Can it work? Yes. Does it? Not very often.
Note that I said that "most of the time" it's the "stupidest thing I have ever heard." Why do I say that?
Because the common client of the (then) A.L. Williams (now Primerica) crowd was that "Johnny Paycheck" type of customer that is more concerned with putting food on the table as opposed to "investing the difference." The idea was most commonly thrown at those who can least afford to actually invest. If they do invest, the knowledge that they possess is minimal at best (look at the demographic here) and the chance of loss of principal is high unless "invested" in safe, secure stuff.
Those with the disposable and expendable income can easily make this work if they have a clue of what investing (for a profit) actually entails.
That was my point, and I think you'll likely agree.
InsTeacher 8)
Posted: Wed Dec 02, 2009 12:38 pm Post Subject:
"Buy term and invest the difference" is one of the stupidest things ever uttered.
The "Buy term and invest the difference" slogan was started by AL Williams and it was a replacement technique designed to get people to drop permanent life insurance policies. It's disingenuos at best and harmful at worst.
Don't misconstrue my words. I'm not saying that buying term insurance is stupid. Most people who need insurance should own some term insurance. My problem is with the idea of "buy term and invest the difference".
How about "buy whole life and invest the difference"? After all, whole life is much cheaper than term insurance long term.
Posted: Wed Dec 02, 2009 01:09 pm Post Subject:
You're right, I overlooked the "(most of the time)". And you're also right that I am in general agreement with you.
However, I wouldn't necessarily cast Primerica in a negative light. Yes, their target market is middle-income families, who will find it harder to "invest the difference" given the financial pressures many are facing these days. But their Financial Needs Analysis is a reasonably sophisticated tool that provides those same folks with guidance on what it will take to get them where they need/want to be in an easy to understand format.
I've also had clients who, prior to me, received 150 page binders of junk from the old American Express Insurance organization that was supposed to map out their financial future, and they never read it, or didn't know how to use it, and in the meantime weren't paying attention to the statements from the VUL policies they were sold, and paying premiums toward, as better than "buy term and invest the difference" and several lost tens of thousands of dollars through lousy asset allocation.
And I've had students who sell EIUL and VUL for another "marketing organization" that uses a knock-off of Primerica's Financial Needs Analysis and that also encourages its clients to stop contributing to their IRAs and 401(k)s in favor of the insurance policies because "there's no limit to how much money you can put in, and you can take it all out tax-free. But you have to pay tax on your IRA or 401(k)." A combination of poor and bad advice mixed with incomplete truths. And this same organization encourages folks to take out home equity loans to fund their EIULs or VULs. The worst kind of "margin account" imaginable. Potential to lose your home, your savings, and your insurance all in one, not to mention the huge tax liability that could also follow. They pass themselves off as financial counselors on a mission to free middle income Americans from debt. Their target market is not fully funding its IRAs and 401(k)s, let alone putting amounts into their new EIUL or VUL that exceed those maximums.
You don't always get what you pay for in our industry, which I believe is truly unfortunate. So I try to stay as educated on the Insurance Code, tax laws, and the dynamic changes that are constantly taking place and shape our industry from year to year, so that I bring added value to my students and my clients.
Posted: Wed Dec 02, 2009 01:41 pm Post Subject:
Fjalfja . . .
Art Williams did not "invent" the buy term and invest the difference concept, he read about it in a book by Norman Dacey, What's Wrong With Your Life Insurance, and took the concept to middle income families who had no idea they could become investors.
Have you ever read Dacey's book? (I have two copies that I now jealously guard as collector's items.) How about Die Broke by Stephen Pollan? Or Financial Self Defense or any of the other books by the late Charles Givens? Or the works of Suze Orman? How about Financial Peace or Financial Peace Revisited by Dave Ramsey? Buy term and invest the difference is far more widely discussed by others than by Primerica and its agents.
"Buy whole life and invest the difference" is, to put it mildly, absurd. When does "the difference" begin to occur? Age 60, 65? Try starting a new WL policy at that age and tell us what the premiums are? Still higher than that of a new term policy at the same point in time.
Granted, the "difference" you are describing is cumulative, but, in comparison, it truly only occurs beginning in the later years of a term policy. It is so huge in the other direction beginning with the early years of a level term policy, that your BWLID proposition fails to achieve a greater impact over the long haul, especially when the time value of money is factored in.
And I'm not saying that term life is appropriate for all situations, because it most assuredly is not. But where it is not is largely in specialized uses of life insurance, like key-person and the estate planning needs of survivorship policies or last-to-die policies to pay estate taxes instead of being forced to sell off assets at the most inopportune time.
[I'm sure there will be much more discussion of this later in 2010 when it becomes clear that Congress is going to allow the unlimited estate tax exemption of GW Bush's EGTRRA to expire after 12-31-2010, exposing tens of millions of heirs of mere homeowners with some investments and retirement plan assets to be exposed to the sting of estate taxes of up to 55%. How do you think they plan to cover the massive deficits that are built into Obamacare? It's called fuzzy math.]
Properly followed, BTID can result in considerable asset accumulation long before the COI of Annual Renewable Term becomes unreasonable and unnecessary.
Correctly explained to a client in their 20s-40s, the motivation to save is strong. Showing/helping them to free up cash flow to be able to achieve it is paramount. But, obviously, you cannot force anyone to follow the plan. Free will intervenes. That's why Ramsey's Financial Peace University is having such success. It teaches people how to overcome the free will "desires."
If you haven't yet seen it or done it, try the initial 12-week Financial Peace University program created by Dave Ramsey. A little knowledge will take anyone a long way. Proper knowledge will protect a person forever from financial abuse by others. You'll discover what it means to "Live like no one else, so you can live like no one else." A more powerful extension of the BTID foundation.
Posted: Tue Dec 08, 2009 04:13 am Post Subject:
Speaking of calling people too stupid to watch over their financials...oh did someone mention Dave Ramsey...
http://www.youtube.com/watch?v=3b-q8MLfH2w
My favorite quote from this clip is: "other than the home and including the home." Say what?
So, million, 2 million, half million you know something like that no biggy if it's a little less or little more...more or less (look I phrase things like Dave!)
Oh and take the money from the account (the million, 2 million, half million plus or minus a few thousand other than the home and including the home...maybe, sort of, kind of) and put it in good long track record mutual funds that yields 10% and replaces you.
Here's the good news, if someone were lucky enough to find a registered rep. dumb enough to make an income recommendation involving a "good long track record mutual fund" that had enough risk to yield or grow 10% expected per year, FINRA would be nice enough to take that rep's licenses away for life and there would probably be a claim filed against his or her E&O insurance sizable enough to correct the damage this terrible advice has caused.
I remember one day sitting with a young couple when I mentioned Dave Ramsey, the wife turns to the husband and asks, "that whack job that wrote that book you bought?"
And Suze Orman...really? She gets quoted as a financial genious...
http://www.youtube.com/watch?v=6vnN9liFWaE
For starters the agent selling that contract is not going to make $10k, the base policy premium for that policy would be something like 5-6k, the rest would be paid up additions.
Now, on the licensed in 49 states comment and alluding to the idea that it makes her some sort of super insurance wiz. I too can be licensed in 49 states...I can even be licensed in HI and be...I guess...smarter than Suze, all I have to do is go to a place like NIPR and pay a few thousand dollars and get my non res license in the remaining states I'm not licensed in. Probably about 20 minutes of checking off boxes and putting in a credit card number.
Now this one I really like:
http://www.youtube.com/watch?v=bSF5SUG_XX8
So the annuity I sold to a client of mine to use as his 403b is good, but the same variable annuity I put his other money in is bad because...hmmmm, I guess this is very confusing.
And the absolute best:
http://www.youtube.com/watch?v=rd_3nCENMT8
I'm confused (after all this is all very confusing) is she saying that it makes sense to have a VA when you know you're going to die, or that it makes sense if there's a return of premium death benefit on the VA? Because I'm not aware of a VA that doesn't have a return of premium death benefit. In fact, some will give me a high water mark death benefit.
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