The Financial Procast

Happy New Year to all of those who've stopped by the Insurance Pro Blog on the first day of 2014!  We're busy making plans for the new year as you read this on our never ending quest to bring our community greater value this year than we have in the pa...

Happy New Year to all of those who've stopped by the Insurance Pro Blog on the first day of 2014!  We're busy making plans for the new year as you read this on our never ending quest to bring our community greater value this year than we have in the past. If there's something you'd ... Keep Reading

Today is our end of year listener Q&A extravaganza! Yes, while the rest of the financial media is taking a break during the ever-extending Thanksgiving/Christmas/New Year's holiday season, we know that our audience may like to take a break from all the festivities to listen to the Financial Procast. Actually, we're not that delusional, but we figured we could easily pre-record a Question and Answer type of episode for you and since you guys are the ones throwing us the questions, it's easy enough for us to show up a few days in advance of the holiday and record an episode for you. Here are the questions that we answered in this episode: 1.  You guys seem to hate on attorneys (or more specifically law school) from time to time. Do you think law school is a waste? Or do you just hate attorneys?  Keith from Texas   2.  Brantley and Brandon,  I don't understand why you hate 7702 Plans. Don't you realize that they offer amazing tax benefits to the client? And they are a private from the federal government. They keep uncle Sam's hands off my money! Ed from TN   3.  What is the tax consequence for someone who borrows all the available cash value of a policy that matures before the insured dies? Very old policies matured at ages in the 90's. I stumbled on your excellent, factual website/podcasts while googling some months ago.  Fred from MD   4.  Hey Guys,  Quick question, how do I add a paid-up additions rider to my indexed universal life policy?  Tim from MI   5.  Brandon,  What is the best whole life contract available today?  Rebecca from CA   6.  Hello,  Thanks for all that you do. I really appreciate your site and podcast, I've learned a ton. I was wondering if you could give us a preview of what's in store for the coming year?  Bob from Texas   7.   I've been looking at illustrations for whole life insurance and was wondering if my planned premium should be the 7-pay premium to max cash?  Thanks for your awesome web site!  Deming from CA   8.  Hi Brandon and Brantley,  I've been wondering, especially after listening to your indexed universal life podcast, if the risk of indexed universal life insurance is not really that much more than whole life insurance, should I replace my whole life policy for indexed universal life insurance for the better expected return?  Also, can you make more podcasts? I love them!  Jiang, from WA Brandon and I would like sincerely thank all of the people that regularly visit this site.  We are amazed by the response that people have to the information we provide and humbled by all of the support we receive. Some changes are coming for The Insurance Pro Blog and for the Financial Procast in 2014--all in our most sincere effort to better serve our community.  If you have any suggestions or need any help, please feel free to reach out to us via our contact form or call us toll free at 1-888-834-0909, we're always happy to hear from you.

Today is our end of year listener Q&A extravaganza! Yes, while the rest of the financial media is taking a break during the ever-extending Thanksgiving/Christmas/New Year's holiday season, we know that our audience may like to take a break from all the festivities to listen to the Financial Procast. Actually, we're not that delusional, but ... Keep Reading

This week, we're spilling the beans on something I'm sure you've all been dying to hear about…surrender charges.  What are they?  Why do some life insurance policies and annuity contracts seem to have such long and harsh surrender charges? What do we think of surrender charges…good or bad? And much more on today's financial procast. ... Keep Reading

This week, we're spilling the beans on something I'm sure you've all been dying to hear about...surrender charges.  What are they?  Why do some life insurance policies and annuity contracts seem to have such long and harsh surrender charges? What do we think of surrender charges...good or bad? And much more on today's financial procast. First, we should talk about what it is. Our definition (which means it's  nowhere close to official):  It's basically as contingent deferred sales charge--an amortization of the expenses associated with the distribution and/or manufacturing of the insurance contract in question.  It includes all of the marketing expense, underwriting cost, and the commission paid to the agent for selling you the product. Instead of charging you (the consumer) an upfront sales charge for purchasing the product, the insurance company says "buy this, keep it for a specified length of time and you won't have to directly pay us any fees."  However, if you decide you'd like to terminate our relationship before the period has ended, we're going to ding you for it and we'll keep a portion of that money to compensate us for a proportionate amount of the expenses we (the insurance company) incurred for issuing the contract. You won't pay to get in but you might have to pay to get out if you want to do it earlier than we initially agreed--that is you and the insurer. Some are longer than others In the past, we've seen pretty long surrender charge schedules.  Some that stretched out for 20 years and pretty some very hefty charges associated with the early years of the schedule (think 18% or more)...yikes! We don't really see an instance where something that long is warranted and we think something with that high of a charge is a bit punitive.  But do all insurance products have surrender charges? Yes they do. Even whole life insurance? I thought that one of the big selling points of a whole life insurance policy is that there was no surrender charge?  Yes, there is no mention of anything called a surrender charge. But there's no denying that whole life insurance absolutely amortizes the expense over a number of years.  The only difference is that in a whole life policy there's no explicit disclosure of what those expenses (i.e. surrender charge) are. There's a reason that your cash value lags in the early years of a whole life insurance policy.  Yes, it's true that there is no adjustment in the cash surrender value if you decide to take all of your money out of whole life insurance contract, however technically speaking there is much more "cash in the bank" with the insurer than you are seeing as represented by your cash value.  They just aren't required to tell you what that is and they're only required to show you what the surrender value is. In a universal life insurance contract, you will see the account value (the total) and the surrender value (the total minus the surrender charge). What do we really think of surrender charges? We think it's a really clever way to get people to leave their money with an insurance company.  Yep, it's a really great marketing strategy. It's as if some marketing executives were sitting around one day and one of them (pure genius) said, "Hey...you know all that money we have reserved for them that we don't show them?  What if we put another column in the ledger where we showed it to them and put it right next to the column where we show them what they'll actually receive if they want to pull it all out of the policy?" Talk about an emotional trigger. There's hardly a person who can stand to see that the surrender value is $50,000 but the account value is $48,000 and is willing to walk away without that $2,000. We've encountered this very thing many times.  People don't like losses. Yes, the money isn't really yours but the insurance company has done a clever thing by showing it to people and it applies pressure to stay put.

This week we're back with part 2 in our two part series on how life insurance will fair in a booming stock market?   Hope you're buckled in for this one, I'm sure some feathers will be ruffled but that wouldn't be all that unusual...would it? We ...

This week we're back with part 2 in our two part series on how life insurance will fair in a booming stock market?   Hope you're buckled in for this one, I'm sure some feathers will be ruffled but that wouldn't be all that unusual…would it? We think it's fair to assume that we can basically ... Keep Reading

Over the past year or so, we've been hit with this question quite a few times: If the market rally keeps up, how long before all the people who've been buying cash value life insurance as an alternative asset decide it's time to rush back into stocks? So, today we decided it was time to address it.  Actually this is part 1 of a two part series that we'll be doing on this topic.  The first part will focus exclusively on what the stock market rally and subsequently higher investment returns means for participating whole life insurance. Next week, we'll focus on how this all effects universal life insurance. I think what people are really asking us is --are we worried that a continued rise in the market will lead people away from purchasing cash value life insurance? No, we’re not concerned about this in the least. Why? Because the market doesn’t rise in a vacuum, if the market continues to accelerate we’ll likely see whole life insurance benefit as well.  Huh? Yes that’s right. Even though participating whole life insurance is directly linked to the performance of the stock market, one cannot deny that market forces effect everything in our economy. That’s just a fact. So, in a rising market we’re likely to see every sort of investment/savings/asset benefit from the rise as it signals growth in the economy—at least over the long run.  One certainly can’t pay attention to short term market fluctuations as any sort of indicator other than erratic human behavior. Also, let’s not forget the best reason for warehousing cash inside of a whole life insurance policy… Safety You will not see a decline in your cash value when the market takes a dip.  Yes, it’s true that you won’t see a year that your dividend yield matches the return of the S&P 500 but we’d contend…you shouldn’t really compare the two. For years, it seems that too many advisors/agents have felt that selling whole life insurance meant they had to compete with other market type investments i.e. mutual funds, ETFs, stocks, real estate etc. We think that’s flawed logic. Indeed we’re big advocates of employing cash value life insurance as an asset.  But there’s a devil in the details of that statement…I said “an asset” not “the asset”. No we don’t think you should have ALL of your money in cash value life insurance and there’s no right answer as to how much of your money you should have there.  However, as things stand today in our world, we’re not aware of any other alternative that offers the degree of safety, liquidity and yield that rivals the cash value of your permanent life insurance policy. Is the Prosperity Train Back on Track? That’s hard to say, with every great rise comes a great decline or at least a consolidation where people begin to take money off the table. We always have to consider institutional investors, who are always under pressure to post ever higher returns to report to their existing clients and to bolster their marketing to new investors.  These mutual funds, pensions, and hedge funds can move the market by making large buy/sell decisions at any time. Where do we think the market is headed…we don’t predict that sort of thing and we don’t sell securities of any kind.  But we’ll share something with you that is interesting to see and let you reach your own conclusions. That is a five year snapshot of the SPY (and ETF that mirrors the S&P 500).  I’ve highlighted and circled the value on Dec. 1, 2008 and you can clearly see the value as of this morning. "The four most dangerous words in investing are: 'this time it's different.” Sir John Templeton, legendary investor and philanthropist. So we’ll assume that all the financial pundits are correct and that investment returns do average out quite well over time. Our problem with this philosophy is—how much time?  If you were 65 and planning on retiring  in January 2009  the downturn in the market derailed that retirement plan of yours.

Over the past year or so, we've been hit with this question quite a few times: If the market rally keeps up, how long before all the people who've been buying cash value life insurance as an alternative asset decide it's time to rush back into stocks? So, today we decided it was time to ... Keep Reading

Continuing on with our theme of the the past few weeks, we're going to cover another of those topics that would have probably been really useful for our community about 60 some odd episodes ago.  Oops...sometimes we get all excited in talking about thi...

Continuing on with our theme of the the past few weeks, we're going to cover another of those topics that would have probably been really useful for our community about 60 some odd episodes ago.  Oops…sometimes we get all excited in talking about things that we generally regard as more interesting and in doing so ... Keep Reading

We are exhuming the body of the Retirement Income horse.  Yeah, we figured we haven't quite beaten this horse enough, so we're gonna dig him up and beat on him some more. This is all metaphor of course, we don't have any real hatred of horses or any other animals for that matter. Recently, in my quest to bring our audience ever relevant information in our weekly podcast, I stumbled upon a Forbes article written by Rob Russell that cites a Morningstar report from earlier in 2013 that caught my eye. The data from Morningstar suggests that the proverbial 4% withdrawal rate of your retirement portfolio, may not work so well after all. Sequence Matters For those of us who've been talking about  this for a number of years, it's always nice to see further validation of the realities as they exist.  The afformentioned report brings it's hypothesis to the fore in it's opening paragraph: Bond yields today are well below historical averages.  This has significant implications because portfolio returns in the earliest years of retirement have a larger impact on the likelihood that a retirement income strategy will succeed than returns later in retirement.  The majority of research on sustainable withdrawal strategies has used a stochastic (Monte Carlo) simulation process based on long-term averages, where the expected return of an asset class is the same for each year of the simulation.  While this approach is reasonable when markets are near long-term averages, we believe it is less useful when there is a significant and sustained deviation such as the current low bond yield market. There's the rub. To further illustrate the problem, take a look at this chart (credit the Morningstar report once again for this) Are you still with me?  I hope so. I know it all seems overwhelmingly technical and slightly boring, however, there's an important takeaway from Figure 2.  There is a direct correlation between bond yields in the present and what one can expect as an annual average return in the future. So, this means (according the research and illustrated in figure 2 above) that "the current yield on bonds can describe 92.03% of the average annual 10 year future compounded bond total return." Ouch.  That puts a significant dent in the assumed rate of return for a bond portfolio going forward.  Consider this, according to the Ibbotson Intermediate Term Government Bond Index the average annual return from 1930 to 2011 was 5.5%. The research from Morningstar shows us that over the next 10 years we can expect about 1.8%.  That's nearly 400 basis points lower. What sort of impact do you think that will have on a 50/50 portfolio of equities and bonds?  Especially if you're starting your retirement income withdrawals today.  Assume for a minute that your retirement income simulations assume a 5.5% return on the bond portion of your portfolio in the first year.  Now, consider that the current intermediate term government bond portfolio yields about half that today. You're starting off your very first year behind--the returns were grossly overestimated.  Whatever your projections were--they're now wrong.  And because  the power of compounding can work for you or work against you, your assumptions will be impacted geometrically.  In other words, your probability of failure goes from 10% to about 50%. I've shortcut some of the finer points here but I figured you'd all appreciate that after the opening. How Do We Fix It? Save more, then double down. It doesn't do much good to point out all the problems without providing a solution...right?  And I'm guessing none of our audience can guess what we'd suggest would be the solution. Sidebar:  If you're new to our site, we welcome you and suggest you spend some reading some of our 300+ other posts. You'll quickly discover what we like as a solution. A properly designed cash value life insurance policy would certainly help with the retirement income problem.

We are exhuming the body of the Retirement Income horse.  Yeah, we figured we haven't quite beaten this horse enough, so we're gonna dig him up and beat on him some more. This is all metaphor of course, we don't have any real hatred of horses or any other animals for that matter. Recently, in ... Keep Reading

(Complete Show Notes Below) In the 63rd episode of the Financial Procast: We are definitely putting out a show that's much more focused toward our listeners that are insurance agents and insurance company personnel.  Typically our episodes have a clear objective to educate and help out the consumer–so we warn in you in advance that ... Keep Reading