Cash Value Life Insurance as an Asset Class

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.

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Why Stock Market Returns Matter, But Not for the Reasons You Probably Thought

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. 

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Allan vs. Pam: Bank on Yourself

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?

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Indexing In Monte Carlo

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.

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The Indexed Approach

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).

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Looking for some Good Ideas for your Emergency Fund? Part 3 Reasons 6, 7, and 8

Looking for some Good Ideas for your Emergency Fund

Here we are, the conclusive post to the Emergency Fund trilogy (sounds special).  Again, if you'd like a refresher on all 8 reasons from the original post they are:

  1. Increased rate of return
  2. Tax deferral
  3. Potentially tax free withdrawal
  4. Death benefit
  5. Private and non-probate asset
  6. Fewer fees (in most cases)
  7. Recaptured opportunity
  8. Systematic savings

    Keep ReadingLooking for some Good Ideas for your Emergency Fund? Part 3 Reasons 6, 7, and 8

Looking for some Good Ideas for your Emergency Fund: Part 2 Reasons 1-5

Part 2 Reasons 1-5

So last time we dove into general design, and this time around we'll be addressing why this is such a great idea.  I left off the last post with 8 reasons for using cash value life insurance as a spot to store emergency fund cash.  If you forgot here they are:

  1. Increased rate of return
  2. Tax deferral
  3. Potentially tax free withdrawal
  4. Death benefit
  5. Private and non-probate asset
  6. Fewer fees (in most cases)
  7.  Recaptured opportunity
  8. Systematic savings

Keep ReadingLooking for some Good Ideas for your Emergency Fund: Part 2 Reasons 1-5

Looking for some Good Ideas for your Emergency Fund? Part 1: Cash Value Life Insurance?

Cash Value Life Insurance as an Asset Class

In the spirit of the Holiday Season, which just wound down for the most part (hurray I can drive by major commercial locations again!), I figured I'd make today's piece a sort of “holiday gift ideas with cash value life insurance that kick ass” type post.  For years I've been advocating what I'm about to roll out here, and I've got clients who have accomplished some seriously nice cash positions that are crushing what others are traditionally taught to do with their emergency fund money on a rate of return playing field.

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An Oldie, but Goodie

An Oldie, but Goodie

I remember quite vividly the first time I saw this video.  I was still a career agent with one of the big 4 Mutuals and we had a special meeting conducted by the Director of Individual Life Sales.  He came from the Home Office to give us a presentation on the topic of life insurance as an asset class and brought with him this video recorded a few months prior on CNBC.

httpv://www.youtube.com/watch?v=1sskwUTj4z8

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What Is Universal Life Insurance & How Does It Work?

The Basics of Life Insurance Part III Universal Life Insurance

Prior to booming interest rates from the later '70s and early '80s, your life insurance options were pretty much term insurance and whole life insurance (and these nifty things calls endowment contracts that have since gone the way of the dodo).  But, as interest rates started to skyrocket and insurance companies appeared to lag way behind, many began tough criticisms of the industry for offering such tiny returns compared to CD's and other interest-based savings vehicles.

The industry maintained that its payment of dividends accounted for the fact that policy loans did not change the dividend paid (essentially taking money out without taking money out) and required a smaller dividend payment.  Still, the spread was pretty great and a lot of people began taking large policy loans and placing the money into other savings vehicles with much better returns in the short run.

Some companies tried to combat the interest rate environment by changing the way in which they paid dividends.  The Guardian Life Insurance Company of America was instrumental in changing the payment of dividends by pioneering what is now known as Direct-Recognition to compensate for the interest spread.

They paid a higher dividend rate by addressing what all of the insurance companies were fearing, money leaving the contracts.  So, Guardian began a practice of paying higher dividends if the money stayed in the contract, and reduced the dividend on loaned values of the policy.

Others in the industry decided to go in a different direction.  Instead of changing up dividend treatment, they decided to create a new product.  A product that took the guarantees that Whole Life brought off the table, but allowed for an opportunity to make more money on the cash value in the policy if interest rates continued their rally.  This new product was called Universal Life Insurance

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