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Explaining Life Settlements
Some Universal Life Insurance policies have LONG TERM CARE riders...which is different than a life settlement. While these are popular...ARE THEY RIGHT FOR YOUR SITUATION?
Personally, I am not in favor of too many purposes attached to a life insurance policy whether it is the LTC rider or a disability income benefit rider ... for a couple of simple reasons for most young people ... it locks you into a plan that you may desire or may need to adjust in the future..... If you are age 45 or older, then a universal life insurance policy with a LTC rider may make sense for your situation...
- but, I warn you against trying to have one policy cover too many potential problems for you
LIFE INSURANCE TO INCREASE YOU PENSION OPTIONS --- many people don't realize that as they get ready to retire from a job where they are going to receive a traditional pension benefit of monthly income for life they are actually deciding on how much life insurance to purchase and unlike buying a policy for yourself.... this one comes with no way to change course and it could be the most expensive and worse decision of one's life/
Recently, a friend of mine retire from teaching after 40 years. Now, I don;t know how much his full option benefit was but considering how generous the pensions are for teachers and state workers are .... I would say it was probably in the neighbor hood of at least $5,000 a month after 40 years of service, In Pennsylvania , LEGISLATORS gave themselves a 50% increase to their already generous pensions back in 2001 and they also gave teachers and state workers a 25% increase to an already generous calculation. However currently the state pension system is $70 Billion in the red ...and pension cuts could be coming soon even to retirees. Colorado, in better shape than Pa. cut their pension by 19% just in 2017...
But forget all that for a minute. My friend retiring at age 62 had a spouse also the same age. If you have a spouse they must sign off on any decision you make. His decision would have gone like this using $5,000/ month as an example monthly income
OPTION A: Retire at 100% ($5,000 a month income) and the day you die ...no more money would be paid out
OPTION B: Retire at 85% ($4,250 a month income) and the day you die ...your spouse will receive 50% of that amount $ 2,125/month for the rest of her life ...... He just bought a guarantee of continuing income for $750 month or $9,000 a year for the rest of his life and should his spouse die first... Tough, no going back
OPTION C: Retire at 70% ($3,500 a month income) and the day you die ... your spouse will receive the same amount $3,500 a month income for the rest of her life. This is the most often chosen income option. Once again, no going back .... and if this option was chosen he just bought guaranteed income for someone he may outlive for the cool cost of $1500/month or $ 18,000 a year.
Now, let's add back into that decision that whatever option he chooses the monthly benefit could be reduced for him or his survivor by about 20% or more at some point in the future. He has no control over that unless the state bought him an annuity where the payouts were based on an insurance company and not the state. There are no easy answers to this dilemma.
However, he could have chosen another option:
OPTION D... take a portion of the amount you were planning to reduce the monthly income by...purchase a life (with a large death benefit insurance policy (term or cash value) and take the full benefit instead. At some point, if the spouse dies first drop or reduce the death benefit... Of course after age 70, the policy could be sold as a LIFE SETTLEMENT for a to be determined amount as well
Unfortunately, my friend died at age 64.... Did he make a good decision... I do not know even if I would know what decision he made... because who knows how long his spouse will live...but, I do know that at 62 he could have bought a lot of death benefit for either of the two amounts. He could also have chosen OPTION B instead of OPTION C and used a portion of the difference in monthly cost to buy some life insurance that would provide a lump sum when he dies and still have a guarantee a higher monthly income from his retirement benefit.
the point here is do not look at life insurance as a waste of money at any time ... DEATH is the only thing in life that truly is guaranteed .... by looking at life insurance as a planning tool (not to build retirement income, although it can provide retirement income both from cash value and from the sale of the benefit or to maximize a pension).
FYI ..WHILE I USED MOST COMMON CHOICES BASED ON SPOUSES OF THE SAME AGE... OTHER OPTIONS and OTHER AGE OFFSETS WILL FACTOR INTO THE CHOICES YOU RECEIVE ...BUT DON'T FORGET TO RESEARCH JUST HOW FINANCIALLY SOUND YOUR PENSION MONEY IS..WHETHER YOU WORK FOR THE GOVERNMENT, A BUSINESS or A UNION.
Maximize Pension Income
TRANSFER OF CASH VALUE LIFE INSURANCE --- is a countable asset for Medicaid purposes. There s a 5 year look back period At age 54, I had a 60 year old applicant who told me about his mother. He had to put her in a nursing home a few years earlier. She had 5 small cash value policies on which she was not just the insured, but the owner. When she needed some extra money for expenses she was incurring at the home, he cash one of her policies in. Within a week, he told me the government called and asked him about that policy and if she owned any more. The government wanted the money from all of them or she would be evicted from the nursing home.
The next year at age 55, I had a serious health incident. Within a week after my release, I transferred ownership of that policy to my children. Thankfully, the 5 year period has now passed, so, should I now qualify at some point for Medicaid to get into a nursing home I won't have that worry. I have been hanging on to ownership of my home ...but someday in the not too distant future I need to review that situation.
If used properly, life insurance can be both a valuable planning tool for asset protection and preservation and for retirement income.
Whether, you use term or cash value life insurance or a combination of both...be sure to have an adequate amount of death benefit for your situation. Some agents and financial planners will suggest as much as twenty times your income for the right amount of death benefit. Others will use 5 times your income + one more for each additional child you have under the age of 13.
There is no perfect number..... BUT, because term life insurance is relatively inexpensive ...you would be wise to have too much than too little... Once in place, an insurer will always allow you to reduce the amount ..because you reduce their risk.... but you may never get the chance to increase the amount.
INVESTING IN MUTUAL FUNDS IS OVER-HYPED .... I'VE SHOWN YOU THE LONG TERM RESULTS EXPERIENCED BY AVERAGE INVESTORS ACCORDING TO INDUSTRY WATCHDOG DALBAR. The following is a video by a California company that wants to sell you Indexed annuities..... L.V. B. (ME) believe annuities can play an important part of your financial planning and security that's why I sell them...but not every annuity is right for every person
Answering Dave Ramsey 12% Myth
Annuities
Annuities that provide guaranteed lifetime income streams are much like a life insurance contract but not all annuities have as strong a guarantee as others and yet the word annuity and it being sold by a life insurance company can provide a false sense of security to some buyers.
Here's Suze Orman with some good annuity advice
ask Suze What's Wrong With Annuities
ONE OF THE HOTTEST CASH VALUE LIFE INSURANCE
POLICIES ARE INDEXED UNIVERSAL LIFE
Here's a SALES VIDEO concerning that benefit
IUL -Indexed Universal Life
CAUTION: This benefit has no long term history associated with it. This is just one of the life insurance industry's attempt to get their hands in your pockets If you do like this type of policy ...you can always start out with a small death benefit, load as much premium allowable by law without exceeding the guidelines for tax favorability ...and buy term for the balance. I would also pay attention to the guarantee and not the current estimated returns. REMEMBER, it is a life insurance contract first and the stock markets go up and down.... I go back to what those older agents told me 30+ years ago... assume no more than an average 6% annual return ...which is still pretty good but with the internal cos of mortality involved I would guess no more than a 4% to 5% long term gain in your deposits...which OH BY THE WAY still would beat those long term average annual returns made in mutual funds according to DALBAR ...BUT, if it prevents you from taking full advantage of a company match and /or a tax deductible contribution.... it probably is wise to be cautious.
If you really like this concept ...consider this ....
buy all or mostly all term...and the amount you were going to deposit into the IUL use that amount for an indexed annuity with the same guarantees of safety ...but none of the higher internal costs of permanent life insurance. You can even use the indexed annuity as part of a ROTH IRA... that way once the surrender charges are finished you can have tax-free penalty free access to your money IF you want... but make sure to consult a TAX consultant first before starting his strategy and later again when you want to withdrawal money. TAX LAWS can change in an instant and let me emphasize.. I AM NOT A TAX EXPERT and I DO NOT GIVE TAX ADVICE.
In order flash large numbers before the eyes of prospects... a sales person needs to illustrate many, many years of compounded interested or growth to average prospects. Dave Ramsey has criticized life insurance agents for doing that very same thing...and I agree with him ... but then he does the exact same thing with his illustrations. ONLY DIFFERENCE. What an insurance agent does is use an illustration with two guarantees.. Guarantee of principal and guarantee of minimum return. Also all internal costs cost are illustrated. What Ramsey and many others like him do is use illustrations that contain any guarantees on principal - so the value shown one year could actually all be gone the following year, no guarantee of interest or growth and usually does not illustrate any internal costs. Yet he and others are amazed just how rich they will be someday if they just follow this type of investment advice. SAY WOW !
PRUDENTIAL - EVERYBODY'S DOING IT
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