Some people may assume that insurance agents like me despise term insurance. Look at it and wince with a large degree of disgust.
It's no real surprise that I'm no fan of Dave Ramsey. Most would suggest it's due to his anti-permanent life stance, but that's not really it. Sure that helps solidify my belief that the dude knows little about the product, and a quick peruse of his work on this subject should quickly leave any knowledgeable individual with the same impression. But the real thing that annoys me about Dave, Suze, etc. is their lack of a deep and profound understanding of the topics at hand and their constant commercialization and monetization of themselves and their brands. Don't get me wrong, I'm not anti-business (I own one) but today I found something that really floored me.
I wanted to take a moment this week to temper things a bit and remind everyone that the Insurance Pro Blog is not an appendage of the Bank on Yourself or Be Your Own Banker folks. We aren't affiliated and our name nor the Salus Agency (the agency that I own) will show up in any request more information query from Yellen's or Nash's web site. Though we could be described as people with similar focuses, I happen to be a practitioner, while the other two consider themselves merely educators who sell a sales system to insurance agents. On top of this, I don't believe that stocks and mutual funds have no place in your financial lives, I just believe the amount of these products that is necessary to lead a happy, financially healthy life, is grossly overstated. Read More…
You didn't think we'd pass on a chance to tackle this mammoth of the financial planning world did you? A hotly debated notion for years and years pioneered by a guy who started a company to hawk term insurance under a simplistic mantra that appealed to the common folk that was later picked up by every stock broker and “financial expert” that had something to sell that wasn't life insurance.
So are we readying our spread sheets and insurance illustration software to blow the friable theory of decreasing responsibility asunder? Hardly, we talk about insurance all the time, the last thing we need is to make this place any more boring–besides, we know the numbers work in our favor, that's why none of us are really afraid of the termites. If mountaints of numbers and methodology are your thing drop us a line and we'll discuss it in detail. Depending on the feedback, we might go real pro and dedicate a blog post to it–an extra special treat for the holidays.
Why then are we going to waste your time with a silly post about one of the most giggle-inducing “theories” of modern personal finance? Because believe it or not BTID is a topic I find remarkable fascinating. Not because I'm an infatuated practitioner (not even close) but because it's a great example of how in marketing, you don't have to tell the truth, you just can't flat out lie.
After some egging on from those who felt the old basic content was important. I've decided to bring some of it back out for public use. The Basics of Life Insurance series is back (minus the UL one as I'm still tweaking it a bit since I felt it was a little unfairly done).
They should all be categorized under Life Insurance and not too difficult to find.
That's all for now.
Since we completely ignored the fact that there was a Holiday earlier this week, we'll take a minute to wish everyone a belated Happy Halloween (it's even more embarrassing that the last article to drop came out on 10/31). Unless you the one around the office who spends an hour or more before work dolling yourself up for the Halloween customs you planned out almost a year in advance, you're biggest memory from earlier this week was likely taking your kids for an after-dark walk around the neighborhood to beg your neighbors for candy that would keep the kids up all night. And since we're already on the topic of children, we figured today would be a great day to talk about the kids and buying life insurance for them. Nothing scary or controversial there. 😉
So this topic has been debated (somewhat passionately) for years. Some argue forcefully in favor others argue forcefully against it. The traditional naysayers suggest that it's sick to purchase life insurance on your children as the thought of “profiting off their death” is sickening. Still others like to point out that since you don't typically rely on your children as a source of income, it would appear meaningless to purchase life insurance on them. Are they right? Is a life insurance policy on your children just a good ruse devised by an insurance agent who came up with a way to boost his case count and make a quick extra buck here and there? I actually used to sort of think so (gasp!). But then something happened that made me change my mind.
Every once in a little while this question comes up and recently I had someone ask me about this and decided it was a good topic to address. We know that when a policy loan is taken, there is interest charged on that loan that is collected by the insurance company. Now, since whole life insurance is issued by and large by Mutual Insurance Companies the fact that a policy holder is paying interest to a company he or she owns a part of, and participates in the divisible surplus (read profits) of the company, it's not really a kiss-it-goodbye scenario. Still, though, some people take literal phraseology very seriously (I've been in two…disagreements we'll call them…over it literal definitions this week alone). So, for those who look at interest charged on a policy loan and say, “I can get better financing than that with my good credit” is this necessarily the moment when we infinite banking hawks sit back down and say it works for everyone except you Mr. and Mrs. 850 FICO?
Here's something you wouldn't expect to find written around here: Whole life insurance (at it's core) kind of sucks. Sure everything is guaranteed, and to some people and in some applications those guarantees are vitally important. But the thing that drives whole life insurance to the level that makes it an attractive cash accumulation tool for us is what insurance company refer to as the ability to participate in the sharing of divisible surplus, aka dividends.
To be somewhat bold, non-participating whole life insurance is horrendously boring, and probably not worth your time (unless your in your 60's or older and just looking for $5-10k for final expense costs when you die, and if you think that's all it's going to cost, you might want to think again).
The key element that takes Whole Life insurance to the next level is the payment of dividends (participating whole life insurance). Dividends not only supply your policy with loads of extra cash above and beyond the guaranteed cash the insurance company promises you'll have if you pay your premiums, but they also give you the ability to continue to earn money on your money even when you've taken the money out to spend it.
Earlier in the week we declared PUA's the magic behind Cash Value life insurance. If PUA's are the magic, dividends are the mana that grant them their magic.
It makes perfect sense to dedicate some time to the discussion of paid-up additions and their role in cash value life insurance. You’ll find them under a few different names (additional insurance rider, enricher rider, enhanced paid-up additions, etc.), but it all means the same thing.
This feature of a whole life insurance policy is critical for creating a cash-rich policy, and we’ll take some time to explore what paid-up additions are, how they function inside a policy, and, most importantly, why you want them.
Ever flip on over the CNBC and watch their stock picking experts talk about chartology? It's the process of looking at a graphical depiction of a stock or market performance and making “educated” guesses about where the market (or a particular equity) is going based on the statistical data that represents the chart's graphical display. It's not perfect, but it's something a lot of Wall Street types get really excited over, and it's probably something you've run into if you've spent more than 10 minutes with a stock broker who wanted to pitch you on his or her latest and greatest stock idea. Well, here's a chart that most 3rd graders could make a prediction off, and it's not good news for the buy and hold folks. It's the historical data for the Dow Jone Industry Average, the index of the largest publicly traded companies in America (read: where the “low risk” blue chips call home).