Today's episode dives into a discussion of how economic conditions and more specifically how interest rates have and will effect whole life insurance dividends. What happens if rates go down further? I know it doesn't seem likely but there are other countries around the world that have negative short term rates currently.
Or better yet, what happens if rates move higher (as the Fed seems to be indicating will happen throughout the rest of the year)?
I'm pretty sure that no one ever anticipated a world where the Fed would hold short-term interest rates at 0% for as long as it has. Obviously, this has had an impact all along the yield curve (see below).
And it certainly has an impact on life insurance companies.
But probably not in exactly the way that you would expect. Life insurance companies definitely buy boatloads of bonds as they are required to “match” underlying assets with the liability they assume in issuing new policies.
However, they're not under as much pressure as you might think.
Why? Well, listen to the episode to hear more on the specifics.
First, if you haven't listened to the previous episode (IPB 025), you really should. That episode will provide a bit of context for today's episode.
I'm sure that most people who frequent this site and listen to our podcast assume that we think life insurance is a virtual financial swiss army knife.
And while it is indeed a wonderful tool. It's Read More…
One of the biggest problems for most Americans is understanding how to convert the balance they have saved in retirement plans, brokerage accounts etc. into an income they can use during retirement.
The financial services industry has done a masterful job at training “advisors” to help their clients accumulate cash. But very few advisors Read More…
We love paid-up additions and if you've listened to us at all, you're not all that surprised. But we’ve made a little misstep in terms of being so broad in our discussion about them.
And we're always adding new people to our audience. So it bears repeating…
Not all paid-up additions are created equal.
While there are more characteristics with paid-up additions that are similar than different, there are some sharp contrasts that very much matter.
There are four key elements that you need to understand to make an informed decision before purchasing a whole life insurance policy using a paid-up additions rider:
1. Maximum annual paid-up additions payments
2. Lifetime maximum paid-up additions payments
3. Payment flexibility (can the policyholder adjust the paid-up additions rider up and down and can the policyholder make paid-up additions payments as lump sums throughout the year instead of systematically with the premium mode [annual, monthly, quarterly]?)
4. Paid-up addition rider load fees
You can’t just blindly assume that because a policy uses paid-up additions it meets the criteria that we would demand of a properly designed whole life policy.
If you'd like our definitive guide to paid up additions click the button below. Please note that if you already purchased this from us, do not buy it again…the information hasn't changed.
Here's a picture of the Table of Contents to give you a better idea of what's included:
If that looks like something you might find useful, please go over and purchase the guide here.
Edit: We are currently updating the guide and should have it available again soon.
We’ve reported on operational cash flow among life insurers in the past and note that we hold this metric in high regard for a multitude of reasons.
Our philosophy is that operational cash flow shows us true profitability of a life insurance company, especially among whole life focused insurers. Why is that? Well, it's primarily because life insurers have a unique income reducing option at their disposal with policyholder dividends. Read More…
Well, the Department of Labor has finally rolled out their long awaited ruling on retirement accounts and a new “fiduciary rule”.
Rather than re-invent the wheel here in this post, I'm going to refer you to this piece I wrote last summer:
Can the government fix your retirement woes?
Also, if you want to read the opinions from both sides of the argument that were published in the last couple of weeks, here are three pieces that cover the new rule:
- Read the summary written by Kim O'Brien at Americans for Annuity Protection
- Read the summary written by Michael Kitces
- Read the summary written by Jack Marrion of the Advantage Compendium
Our big takeaway…the cheapest/least expensive option is not always the best option. What's best for clients is entirely subjective.
Today we're talking about one of the less glamorous aspects of our business…customer service. It seems like an obvious thing.
Surely a life insurance company that sells a particular product will be able to deliver service requests that are made by their customers. I wish that were always true.
In fact Read More…
In the world of “financial advice” there is certainly no shortage of bad ideas. Today's podcast focuses in on one particular concept that we think is particularly dumb.
There are some savvy marketers out there that would suggest if you are not able to obtain life insurance coverage for yourself (for one reason or another) you can still benefit from all of the awesomeness that is cash value life insurance.
Yes, all you need to do is to use your child as the insured and then you can dump all the premium you would have paid to your policy into the policy for your kid.
Seems like a great idea…in theory.
In fact, we have had the idea pitched to us by so many people in the industry over the years that we now use at as a barometer of sorts to indicate a lack of experience from the person doing the pitching. Why will it… Read More…
In today's episode we discuss the ins and outs of using a lump sum of money to fund your cash value life insurance policy (you can use universal life or whole life). With the paltry interest being paid by savings and money market accounts, life insurance can be a great place to warehouse cash that you don't need right away.
It's not the panacea but if you have time to wait, it is a viable way to do better with a portion of your net worth.
The most common problem we encounter is the strategy being implemented incorrectly. Yes, there is a right way and a wrong way to do this.