This one is intended for the consumers out there. Ever tried to compare term insurance rates across an array of different carriers? Ever wondered why some are consistently so low while others are incredibly more expensive? Ever talk to an agent who seems to throw a bunch of numbers at you without a lot of explanation why one might be better than another? Term life insurance seems like such a simple product and yet a lot of agents can make it so painfully difficult to buy. Why?
Cash Value Life Insurance as an Asset Class
I've been meaning to do a piece on Cash Value Life Insurance as an Asset Class. And this discussion will stem several additional posts to address how placing cash value life insurance in your personal portfolio can significantly improve your financial situation, by leaving numerous options on the table that most people forfeit because they pick up and hold onto really bad financial advice. Approach the following with an open mind, and be prepared to have your outlook on personal finance changed forever.
Why Stock Market Returns Matter, But Not for the Reasons You Probably Thought
I've been known to quote stock market returns from a Compound Annual Growth Rate (geometric mean) point of view. This calculation takes into account the effect time has on a rate of return and is wildly more useful than simply looking at average rate of return (usually quoted as the arithmetic mean).
But any good hardcore day trader or even the wannabe home gamers in the investment world should quickly ask a disarming question: “so what?” So the markets have traditionally failed miserably to consistently post a year over year positive return over the course of the past decade. There are still people who make money investing in equities, even your precious insurance companies.
And you know what? They are correct.
Allan vs. Pam: Bank on Yourself
Spring is here, time to enjoy warmer days (if you're with me in the Northeast), blooming flours, and a fight between a so called financial educator who hustles a selling system to insurance agents known as Bank on Yourself and a fee based financial planner who is pretending to be a consumer/journalist. Here's the story.
So what does this all mean? Pam is being exposed for the swindler she really is? Allan is looking to knock some competing savings strategies off the table as he competes for your business? Or perhaps CBS is just doing what all good media outlets do, selling a story. Let's take a closer look at this, shall we?
Indexing In Monte Carlo
Now that we know the basics of indexing, we can dive into a much more interesting topic: Does it work? We're going to use a hypothetical contract (it's actually a real contract from which I have borrowed heavily, but we won't name names) where there is a minimum interest rate of 2% per year and a maximum of 12%. I'm going to attack this from two different approaches, one will be a model based on Monte Carlo methods, and the second will be a historical analysis of 140 years of annual growth in the S&P 500 index.
The Indexed Approach
For several decades insurance companies have been using an approach to determining credited interest rate that is known as indexing. It's a practice that has had it's detractors (yours truly for a little while) and has been a method that has been used for good an evil by well educated and unscrupulous agents respectively. Today we're going to dive into what it is, what it's not, and ask if it works (i.e. is it worth your time).
How to Pick a Good Insurance Agent
Recently I got a little upset over a post made by another blogger who positions himself as a financial guru for a specific audience, and my issue with a particular piece he did was based on some serious flaws concerning his framing of the issue.
…but there's some gold that I think comes from people like him (and please understand, this is not one my über sarcastic moments). I'll be bold enough to state that when he and his followers state emphatically that insurance agents are con-artists, they aren't referring to me. They are instead referring to the thousands of fly-by-night agents who get picked up from within the dark and scary gutters that the likes of many an insurance sales manager goes looking. Those attracted to the business with champaign wishes and caviar dreams. Those who have a vision board hanging up over their desk with a sports car and lake-house on it. Those who categorize their clients by the size of the paychecks they produced them.
How Policy Blending Works and Why You Want to Know about It
People know that I'm generally a pretty big fan of policy blending. It's essentially a process of combining term insurance with a whole life policy to increase the MEC limit on a whole life contract so that more paid-up additions can flow into the policy. This means more of your outlay goes towards PUA's which means the policy has a higher cash value from the start. This is the design feature that really separates whole life used primarily for death benefit from whole life used for cash accumulation purposes. It requires a little deeper understanding of what's going on, and so isn't always a first choice method among newer or less skilled agents (and there's a big difference between an agent who has been in the business for 10 years and an agent who has had 10 first years in the business).
Single Premium Whole Life Insurance, a Really Safe Place to Store Cash
I'm not going to commit personal finance heresy when I say that as we get older safety of principal becomes way more important than rate of return (personally I believe it's a lot more important even for the younger crowd than a lot of people would have you believe, but that's a fight for another day), today instead I want to talk about Single Premium Whole Life. Also, as people get older and tend to realize they aren't immortal, life insurance suddenly becomes a lot more coveted. If you want to set me off on a several hour long discussion about putting things in order before it's too late, ask me about the number of people in the 60+ crowd I've talked to who stress over whether or not they can afford that 20 year term premium and if they think they'll be dead in the next 20 years so they can “make good on the policy” (copious amount of forehead slaps understood).
Enter Single Premium Whole Life Insurance…
Amateurs…Why I Love to Hate Them
Note: This one took some time and I'm a few days past my normal schedule. It seemed necessary.
So I've known about this guy who is apparently an emergency room physician who got burned some years ago by an NML agent who did what a lot of career agents do (promise someone the sun, the moon, and the stars, and fail miserably to deliver). I've not made this comment publicly here until now, but I've long believed that usually the only difference between Primerica agents and the rest of the career guys and gals is the name of the company on their business cards. They all love to dream up these great strategies, but once the hammer drops on the part they care most about, they're off to the next one.
My original decision on this individual was to simply leave him be. Let him do his thing and pay him no attention (despite the frequent requests I get from people asking what I think about his stuff). But, he recently put together a piece with a truck-load of inaccuracies. I don't care if you want to go against my advice, or think you can build a better mouse trap, but I start to get a tad irritated when someone wants to build the illusion of being an informed resource for personal finance, who has enough time to write about it, but apparently doesn't have enough time to fact check.
(I've removed the link at this time, because I've decided not to promote this crap)
