The Financial Procast

Life insurance policy loans are a long standing feature of cash value life insurance. And this feature can be a very powerful financial tool at your disposal when used correctly. I would even argue that this feature should be the focus of such books as Bank on Yourself® and Be Your Own Banker®. Having a grasp of policy loans and the mechanics therein goes much further to make the case for life insurance as a viable financial tool. Today, I want to walk through a few examples (with math to back them up) that highlight my point about life insurance loans potentially being the superior method of financing purchases. We Finance Everything we Purchase I think it was Neslon Nash’s crew that started pointing this one out. In truth, we finance everything we buy, whether it be through interest paid on a loan we acquire to make a purchase, or by the interest we forfeit when we use the money we have in the bank (or elsewhere) to make a purchase in-lieu of using a loan. Remember, compounding interest either works for you or against you.  There's no way to remain neutral. And because we finance everything that we buy, it is my goal to try and minimize the negative economic impact that this truth has on our lives. Two Loans with Two Different Outcomes Let’s use a hypothetical car loan for $35,000. In one circumstance, we’ll use a traditional bank loan to make the purchase. And in the other, we’ll use a life insurance policy loan to make the purchase. We’ll start with the traditional approach. Your Friendly Banker After stripping down to your financial underwear to get the lender to approve you for a loan, let’s say you roll out of the dealership in your brand new car while baking in the glory of that new car smell (it’s the glue that holds the carpets down) and grinning at the thought of your new toy. Your new toy also comes with a book, not the instruction manual, but a 72 page coupon book that you’ll get to look at once every month. You’ll tear out one of the coupons and mail it to the friendly banker who wrote the loan on your shiny new car (unless you opt for EFT). You managed to get a 5% loan rate on your car, and with a purchase price of $35,000 you get to send a check for $563.67 with each of those coupons. All told, you’ll pay the friendly bank $5,584.42 in interest for the privilege of driving around in "your" car before you actually own it. Not too bad, but you could do better. The Life Insurance Loan Option Instead of coming to the table ready to negotiate price and lending terms, you get to come to the table with cash in hand. No need to answer questions about your finances, and no need to have your credit pulled (those credit checks don’t exactly help your FICO score after all). You purchase the car for the same amount, and roll out of the dealership, same smile, and same new car smell. But this time, you have no coupon booklet. While you’re not under any obligation to send a monthly payment to the insurance company, you choose to because you want to repay the outstanding policy loan. You repay the loan, assuming the same payment schedule from the traditional loan scenario, $563.67. Because interest is only charged at the end of each policy year, you actually the pay the loan off about three months early and—get this—pay a total of $4,245.68 in interest. Or let me put that another way--you pay $1,338.74 less in interest than you would have if you borrowed from the bank. All the while knowing that if you missed a payment, there would be no late payment fee, no calls from collections, and no worries if you have to skip a few months and make up the payments later. But what if you Could get a Better Deal on the Bank Loan? Assuming you pay your bills and you have good credit therefore you’d save more money by getting a better loan interest rate (keep telling yourself that). All right, let’s assume 4%. Then you’ll pay $4,425.91 in interest to that bank, or $180.

In today's episode of the Financial Procast we're talking about the Guggenheim group getting sued–kind of, ETF portfolios lag traditional mutual fund portfolios, retirement savings tax breaks may be cut for high earners and myRA's gonna save us all.  Guggenheim Partners Gets Sued for Racketeering On February 11, a lawsuit implicating Guggenheim Partners, LLC and ... Keep Reading

In today's episode of the Financial Procast we're talking about the Guggenheim group getting sued--kind of, ETF portfolios lag traditional mutual fund portfolios, retirement savings tax breaks may be cut for high earners and myRA's gonna save us all.  Guggenheim Partners Gets Sued for Racketeering On February 11, a lawsuit implicating Guggenheim Partners, LLC and three of the life insurance companies it owns was filed in federal court.  The complaint was filed by Clarice Whitmore and Helga Maria Schutski and included 105 pages (most of which I read). The complaint details how Guggenheim began acquiring distressed life insurance companies back in 2006 including Wellmark (now called Guggenheim Life), Security Benefit Life, and Equitrust.  None of the companies were insolvent but all three were certainly under pressure to "right the ship" with very thin surplus ratios etc. Without diving off too deep--lets focus on the 30,000 foot view of this case. If you'd like to read it, here's the entire case: Whitmore and Schulski v. Guggenheim Partners, LLC The summary of allegations is that basically Guggenheim (a private equity firm) bought these life insurance companies, developed "to good to be true" products to inflate sales, and has designed an elaborately complex accounting scheme to systematically loot these life insurance companies of the cash. Hmmm...I seem to remember a couple of guys voicing their concern about private equity getting into the life insurance business.  Wonder what ever happened to them? I should also mention that the case was withdrawn the same day it was filed.  We're not sure exactly why but our guess is that there's some maneuvering going on by the plaintiffs' attorneys to file it in a different court. We'll keep you posted as we learn more. Hulbert Says ETFs Lag Mutual Funds In a story released last week by MartketWatch, Mark Hulbert of the Hulbert Digest released some data that shows us model ETF portfolios are lagging similar portfolios of open-end mutual funds. I thought ETFs were the way everyone should be investing in the market?  They're cheaper, they can be traded intraday, and most of them are passive, that is that they are based on a particular index. So why aren't they doing so well?  Hulbert says, "I can only speculate, but my best guess is that ETFs' advantages are encouraging counterproductive behavior.  Their low cost, coupled with the ability to get into and out of them at any time during the day, as well as the ability to sell them short, have seduced advisers into trading too often" The President Would Like to Cut More Tax Breaks Yes you read that correctly.  President Obama is expected to present his 2015 fiscal budget to Congress and as part of that budget he's going to ask them to reduce some of the tax breaks that high income earners get for participating in employer-sponsored retirement plans. In fact, he would like to limit the value of all tax deductions that are defined as defined contribution exclusions and deductions to 28% of total income.  The estimates are that this would bring in an additional $1 billion a year of new tax revenue. According to a story at Pension & Investments, "Based on current tax brackets, the 28% limit would reduce the tax advantages of retirement savings for people earning more than $183,000 or couples earning more than $225,000. The overall cap for all tax-preferred retirement accounts would limit them to providing an annual retirement income of $205,000, which would currently cap tax-preferred accounts at $3.4 million, but could go lower as interest rates rise. It's not likely that this will make it through Congress but it certainly gives you another opportunity to gain perspective into the future of tax policy in the United States.  Hint: It's not likely to get better. myRA's Gonna Save Us All No, probably not but it's fun to talk about.  In case you haven't heard about it,

Here's what we have on tap for today:  Millennials are stingy with their money, 401k matches get cut, another life insurance company sheds their broker-dealer and one CEO says the poor should stop whining.  New Survey Says Millennials are Stingy Acco...

Here's what we have on tap for today:  Millennials are stingy with their money, 401k matches get cut, another life insurance company sheds their broker-dealer and one CEO says the poor should stop whining.  New Survey Says Millennials are Stingy According to a recent UBS Investor Watch survey, millennials, the generation born between the early ... Keep Reading

In episode 75 of the Financial Procast: Hartford wants to buy back old fixed annuity contracts The National Women's Law Center says Long Term Care insurance is covered by PPACA Advisors whine about their clients not giving referrals Changes you can expect for 2013 tax return Hartford wants to buy back old fixed annuity contract ... Keep Reading

In episode 75 of the Financial Procast: Hartford wants to buy back old fixed annuity contracts The National Women's Law Center says Long Term Care insurance is covered by PPACA Advisors whine about their clients not giving referrals Changes you can expect for 2013 tax return Hartford wants to buy back old fixed annuity contract In an announcement recently, the Hartford Financial Services Group offered to buy back some of its legacy fixed annuity business. This is not new territory for the company as back in 2012 they offered to buy back some it variable annuity business from clients who had contracts with enhanced living benefit riders.  Those features raise the potential income benefit payments over time in spite of market performance. In other words, features the company now deems to be too costly for them to keep on the books. Now, the Hartford would like to buy back fixed annuity contracts.  Estimates say that some 90,000 contracts will be affected in the offer.  Most contract holders that are being offered a buyout are holding onto fixed annuities that have guaranteed minimum interest rates of 3%. The National Women's Law Center says LTC insurance covered by PPACA It seems the cascade of "unintended consequences" is beginning for PPACA (aka Obamacare). A nonprofit legal organization that represents women's interests has filed complaints with Health and Human Services, as well as, the Office for Civil Rights. The complaints claim that charging women more for private long-term care insurance violates section 1557 of the Patient Protection and Affordable Care Act (PPACA). Insurers have always claimed that women have higher costs associated with long term care due to their longevity.  The insurance companies argue that LTCi is not covered by PPACA as it's not major medical insurance. PPACA Section 1557 states: An individual shall not be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity, any part of which is receiving federal financial assistance, including credits, subsidies, or contracts of insurance, or under any program or activity that is administered by an executive agency or any entity established under this title (or amendments). Since many LTCi contracts provide "partnership" programs with the states (they coordinate with Medicaid nursing home benefits), there may be  a case here.  Only time will tell. Remember when then speaker Pelosi said, "But we have to pass the bill so that you can find out what is in it, away from the fog of the controversy." Well, the bill is passed--the fog...not so much. Advisors whine about their clients not giving referrals Research conducted in a survey from ByAllAccounts shows that less than 50% of respondents have given referrals to their financial advisor. Here's a chart of their results    Changes you can expect for 2013 tax return There are quite a few changes to look out for in your 2013 tax return.  We discuss each one in detail. Here's a list to make note of: 1.  Additional Medicare Tax 2. Changes in the Net Investment Income Tax 3. Tax rates change--top bracket is now 39.6% 4. Tax rate change on capital gains 5. Must be 10% or more of AGI to deduct medical expenses 6.  Increased personal exemption (by $100) 7. Increased limit on itemized deductions 8. Rules on same sex marriage filing status 9. Change in home office deduction  

Here's what we covered in today's episode: Why has the CFP Board decided to shorten its certification exam? Crowdunding for startups…is it a good idea? FINRA wants to stop clean records as condition of settlements Paying Fines is just the cost of doing business for financial services companies  The CFP Board Cuts Down the Length ... Keep Reading

Here's what we covered in today's episode: Why has the CFP Board decided to shorten its certification exam? Crowdunding for startups...is it a good idea? FINRA wants to stop clean records as condition of settlements Paying Fines is just the c...

Today we've all sorts of goodness to bring your way on the Financial Procast.  I'll be honest, sometimes it's a real struggle to find three or four things from current financial industry news that are worth talking about. Sure, for the last six months or so, there is a veritable plethora of PPACA (Obamacare) news ... Keep Reading

Today we've all sorts of goodness to bring your way on the Financial Procast.  I'll be honest, sometimes it's a real struggle to find three or four things from current financial industry news that are worth talking about. Sure, for the last six mont...

In today's episode: Research from Citi Private Bank Says Liquidity is Hurting You Yep, that's right.  The folks over at Citi Private Bank are telling us that they believe our fear of having money tied up for long periods of time or the willingness to have limited access to our money is hurting our returns. ... Keep Reading

In today's episode: Research from Citi Private Bank Says Liquidity is Hurting You Yep, that's right.  The folks over at Citi Private Bank are telling us that they believe our fear of having money tied up for long periods of time or the willingness to have limited access to our money is hurting our returns. They believe that people shouldn't be scared of locking up money money for months, if not years in hedge funds, private equity funds, and real estate. According to Citi private bank (which only works with clients who have at least $25million in assets), investors are missing the boat by their desire to have short term liquidity. The research relies on some statistical "evidence" that shows, the top 25 percent of buyout-focused private equity fund produced a 10 year total annual return of 26.3% and the top 25 percent of real estate focus private equity funds returned 29 percent.  Then they go on to compare those returns to the S&P 500's total return of 7.2% over the same time period. Rolling my eyes. I have no idea where these numbers are coming from.  They didn't enlighten us with their sources but to make my point it's not all that important. What is important...why would you compare this to the S&P 500?  Not even in the same ballpark--from the perspective of evaluating risk, availability, pricing, or liquidity.  I'm not disputing the numbers they quote, I'm just saying why bother comparing the two? It's like comparing the build quality of a Bentley to a Chevy Malibu. Athene is on the prowl According to a recent report, Athene Holding Ltd., an insurer controlled by Apollo Global Management, LLC is looking to make more acquisitions in 2014. To do this, they are looking to raise $500 million from investors through a private placement offering. Athene says it will raised the funds through a private placement seeing a minimum of $5 million from each investor. As more blocks of business become available, it seems that Athene would like to keep some "dry powder" (cash) available for those opportunities. Is this a new trend in private equity? Apparently it is, a report released by Deloitte LLP on its outlook for the industry said, "there is a growing interest of private equity firms in the life insurance and annuity business...such capital market players see an opportunity to leverage their asset management skills and improve their returns by tapping into a large pool of capital while diversifying their portfolios." Is this a good thing for the life insurance and annuity industry?  You'll have to listen to find out what we think ;) LinkedIn Sues John and Jane Doe Well, it seems the people over at LinkedIn are a bit upset. Some unknown hackers have been creating fake user profiles, connecting with people, and scraping all their usable data.  This is all done through automated scripts with the intent of compiling a huge database of LinkedIn user information. Why would anyone do that?  Well, who knows exactly but our guess is that it's done to create a database that might be sold en masse or in pieces to various marketing organizations.  User data certainly has monetary value in the marketplace. But who is LinkedIn gonna sue?  The "scraping" is clearly a violation of their user agreement and LinkedIn is claiming that it's faud.  However, the hackers are yet unknown and the scripts that were used have been traced to cloud computer housed on Amazon Web Services platform.  Yeah, that's the same amazon that sells you everything under the sun. Amazon also has a large web services platform that allows paying customers to utilize much of the company's infrastructure. We can understand why they're upset and maybe they'll get some where with figuring out who is behind the whole thing. Is Your Partner/Spouse Keeping Money Secrets? Research from Prudential PLC (the real Prudential based in the UK) tells us that about 20% of people living in the U.K.

Today we're getting back our roots so to speak and delving into some of the more interesting financial news stories that we've uncovered from the last few weeks. After a run of episodes where we essentially tackled one topic/issue at a time, we decided to revisit our original format this week.  Hope you enjoy! Can ... Keep Reading

Today we're getting back our roots so to speak and delving into some of the more interesting financial news stories that we've uncovered from the last few weeks. After a run of episodes where we essentially tackled one topic/issue at a time, we decided...