One of the most effective ways to fund a retirement plan for people in their 30's, 40's, or even 50's, is through indexed universal life insurance.  The concept is to simply overfund a life insurance policy to accumulate significant cash value.  The main advantages to using this vehicle to fund a retirement plan are the following:

1) Downside protection - Some IUL's guarantee a 3% return every year even if the market goes down and allow for returns up to 14% cap.  This concept has allowed for historical average returns with many carriers of around 8% and guarantees that the portion of your premium allocated to your retirement fund will gain over time! 

2) Tax free income-At retirement - You will have the option to take out annual tax free income!  This is a huge benefit as most of us believe that taxes are very likely going to increase in the future.  Let's assume that you are in a 30% tax bracket at retirement and your cash value accumulation allows you to take out a $70,000 tax free annual income.  This would be the equivalent of $100,000 that you have to pay taxes on!!

3) Death benefit protection - All along the way, you will have permanent death benefit protection to take great care of your family in the event that something were to happen to you prematurely or later in life!!

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College is EXPENSIVE!!!! The best way for a parent to help their child pay for college, without either the parent or the child going into debt with loans, is to start saving early. Early means the younger the better. with compound interest the longer the period over which you save the more the savings grow. Also the longer the period in which you contribute the smaller the incremental payments.

Assuming no interest, if you were to calculate that $40,000 will be needed for college and you begin putting the money away monthly two years before the child begins college you will have to sock away $1,666.67 per month for 24 months. However, if you start 18 years before you only have to save $185.19. Remember this is without interest. If you factor in the interest that the savings will earn, the monthly payment will be less. Again, the longer the period, the greater the impact of the interest, so the sooner you start the less you will have to contribute each month to reach your goal.

There is always the dreadful fact that there is always a TAX when you have a savings account. This is where Life insurance on the child comes into play.

Life insurance on the child gives a parent both tax sheltering and flexibility in the use of the funds. There are three parties to a life insurance contract: the insures, the owner and the beneficiary. When the child is born the parents take out a policy on the child. Assuming the child is healthy, the parents can purchase a very large policy for a relatively low premium payment. The child is the insured but the parents are the owners and can make themselves the beneficiaries. As payments are made cash builds up in the cash portion of the policy. Under the current Tax laws, the investment income generated by an insurance policy are not subject to income tax. So the cash value grows tax free. When the child is ready for college the parents can cancel the policy and withdraw the cash value or keep the policy and borrow the sash value at a low interest rate. If the child decides not to go to college the parents as owners of the policy , can keep the money in the policy or withdraw it and use it for something else. At some point the parents may want to transfer ownership to the child but they are not required to do so.

Life insurance on a child is not for everyone. However, it is one option that can be considered when planning for your child's college education.

Life insurance is not only for Adults.  Several individuals have chosen to insure their children for a number of reasons.  Here are a few of the benefits providing Life Insurance for your children will create.

Death Benefit

None of us want to believe that we could possibly burry our children.  As sad of a thought that is, it does happen.  Funeral costs are expensive, and if the death of a child is not hard enough, the expenses could ruin your family financially.  Sometimes knowing that in case something does happen to your little ones, you will be able to provide them with the services they deserve and be able to mourn their loss without the worry of suffering financially.  Life insurance on a child pays for funeral expenses plus the cost of any medical treatments, particularly if the illness was extended.  Parents often require professional help after a loss that devastating and some funds can pay for bereavement counseling or in cases of severe depression, to replace their income until they come to grips with the loss. 

Rate & Insurability

Purchasing life insurance on a child guarantees that he will have insurance at a lower cost and the policy will remain in place, regardless of later health issues. Even if the child does not suffer any change in health, early purchase of life insurance locks in the cost and policy before he develops bad habits such as smoking, dangerous occupations or risky avocations such as racecar driving. The younger you are when you purchase insurance, the lower the annual cost of the policy. Parents often like to help their children get a good start in life by purchasing policies early for them in order to keep their children’s cost lower later in life.  Level premium whole life policies do this.  Also, term riders for children can be added to a parent’s policy.

Cash Value

Some parents like the idea of a tax-deferred savings in the insurance they purchase for their child. Whole life policies and universal life policies offer a cash reserve for later use. The parents may use the money to supplement college costs or turn the policy over to the child as a gift. If the child receives the life insurance as a gift, she can cash it in, borrow from it for a major purchase, take it as a paid up policy or continue to make payments on it.  Now, who wouldn’t want that for their child! 

For more information please contact us at info@prospersbs.com.

Here it is folks… the definitive top 20 reasons for life insurance. (some of them aren’t serious, but maybe a little funny)  Eat your heart out Letterman!

  1. In case you die
  2. In case a spouse dies
  3. In case a child dies
  4. In case you’re immortal, like a vampire or something
  5. If you own a business
  6. If you have a business partner
  7. If you might get cancer
  8. If you don’t think you need life insurance
  9. If you know what a buy-sell agreement is
  10. If you are inheriting a business
  11. If you are ever planning on retiring
  12. If you’re tired of losing money in the stock market
  13. If you need to ever stay in a long term care facility
  14. If you have debt
  15. If you love your kids
  16. If you believe in smurfs( ‘cause Gargamel is real!)
  17. If you’re a terrorist (our guys are coming for ya!)
  18. If you’re not dead yet (preferably not very close yet either)
  19. If you eat lots of bacon
  20. If you read this whole list

So I mentioned Indexed Universal Life (IUL from here on out) as a great way to “be your own personal bank” in the last article I wrote.  I wanted to take a minute and discuss that now. 

We all know debt is a very touchy, and should be avoided as much as is reasonable.  Banks make an awful lot of money collecting your interest.  Maybe, instead, you should pay cash, right?  But what about the interest you lost by not investing that money instead?  So what should you do?  I’m saying don’t borrow from the bank, don’t pay cash…  How about we start treating our personal finances like we were a business.  Let’s set up a capital fund and use the interest earned by that fund to pay for your new car. 

You have to realize that this setup, like anything good, takes some time and discipline.  No get rich quick schemes here.  You probably want to allow for a good 7 years or so to build up the capital.  Let’s have you put in $35,000 over the first 7 years.  I told you it wasn’t quick.  From then on, you’re going to continue to save for retirement in this same account, but now you’re only putting in $3,030 a year.    Now, in year 8, you purchase your first vehicle through this program.  Let’s assume you stayed pretty mild on the price and purchased a car for $10,500.  You could do this now, every 4th year until retirement.    At retirement, depending or your rate of return in this program, you could have a retirement of tax -free income of $50,000 per year.  Find me a bank auto loan program that will do that for you!

So when you look at the numbers, taking the time to capitalize your auto fund allows you to then consider your car payments each month as a retirement contribution.    Did you catch that?  We just turned your car payment into retirement income!

So, the next question, and the last one I’ll cover in this article, is: What is the best type of account to do this?  I feel that IUL’s are the best-suited account type out there to achieve this strategy.  Compared to the stock market they function better because of lower volatility.  You could lose your capital fund in the market and have to re-fund the base of your plan.  Compared to CD’s, which will give you that retirement amount for 5 years or so, an IUL will give you that money indefinitely, if constructed properly and perfectly funded.

A special thanks to Nelson Nash and his expertise in providing the groundwork for this program, and to Patrick Kelly and his efforts to use his writing abilities to share this wonderful cure for Americans’ financial woes.  It is incredibly powerful.  It has the ability to change your financial life and fix your retirement dreams.  It truly is something that can work for nearly everyone and doesn’t involve Wall Street and it’s fees and volatility.  There are lots of assumptions I made in the example numbers, so call an expert to discuss this program for your individual set of circumstances.  I am one of those experts you can call.  It just might be the most important financial phone call you ever make.

Last week we covered the basics of temporary or term life insurance.  Boring, I know, but not as annoying as that AFLAC duck.  I’m going to shoot that duck!!!   This week we want to take a moment and cover the basics of permanent life insurance.

It is a bit more complicated, but also has many great uses.  I doubt you’ve even heard of some of these uses, but they are so neat you may actually like life insurance by the time we’re done.  Maybe…

There are two basic types of permanent insurance: Whole Life and Universal Life.  Whole Life Insurance is set pretty well in stone at the time it is applied for.  In other words, the death benefit, premium payment schedule are set.  Universal Life Insurance, on the other hand, has neither a set premium nor death benefit.  Your premium is tied to your death benefit and there’s a lot of flexibility in a Universal Life policy. 

The strengths of a Whole Life policy are found in their consistency and guarantees.  The strengths of a Universal Live policy lies in it’s flexibility.  Both will cover you and provide a death benefit  for your lifetime as long as you pay the premiums.  If you remember, term life insurance only insures you for a certain set period of time.

One thing to note is that permanent life insurance is typically more costly than term insurance.  This is because of two reasons.  First, there is a permanent guarantee that the policy will pay your death benefit.  That guarantee means it’ll cost you more than just keeping the insurance company on the hook for 10 years on a term policy.  Chances are you may not die in the next ten years.  The second, and for me the neatest thing, is that permanent life policies can accumulate cash value.  Sometimes they accumulate cash value at an amazing rate.

This cash value in a whole life policy is based on an interest rate and sometimes there is an additional dividend paid on the policy that accelerates cash accumulation.  With universal life insurance cash can accumulate based on an interest rate, and interest rate that follows a market index like the S & P 500, or the cash value can actually be invested directly into the market.  You should note that the way your universal life policy accumulates cash value depends on the type of life insurance you purchased, so make sure your advisor knows what your needs and desires are with this policy so you get the right policy the first time.  I won’t elaborate in this article, but I am going to be bold enough to say that nobody should ever purchase a variable life insurance policy, the kind that invests you directly into the market.  If you want to know why, email me @ ed@prospersbs.com .

Finally, let’s briefly look at the different ways you can use permanent insurance, so you can decide if it’s something that should be in your financial plan.  A quick list includes: estate planning, retirement savings plans, business planning, buy/sell agreements, deferred compensation plans, college funding, and more!

I am a big fan of permanent insurance, especially for it’s cash building potential.  Like any financial tool, you need to talk to an advisor to see if it’s the right fit.  You wouldn’t use a hammer to paint your house and you shouldn’t use permanent life insurance unless it fits your circumstances.  But chances are… it does.

Talk about a boring and morbid topic… or so I thought.  I was heavily recruited to sale insurance from the beginning of my career.  I thought “No way!”.  Nobody grows up dreaming of selling insurance.  Here I am now, though, and I love what I do. 

To clear up what I didn’t know before I changed careers, and what most people don’t know, here’s the basics of life insurance.  Take two minutes and get educated!

There are two basic types of life insurance: Permanent and Temporary.  Permanent life insurance has more variations so lets talk about temporary life insurance first.   I’ll talk about permanent life insurance next week.

Temporary life insurance is most commonly called Term Life Insurance.  It only covers you for a certain time period.  Typical terms include 10, 15, 20, 25 and 30 years.  There is no cash value in the policies, so their benefit is limited to two things:  Peace of mind while you’re alive, knowing that your beneficiary, the person that gets your money if you die, is protected, and, of course, the death benefit if you die. 

Term life insurance is the least expensive type of insurance, since there is no cash value accumulation.  Because of this, virtually everyone should have at least some term life insurance.  It is very difficult to justify not having life insurance when the cost of term life is so low.

If you don’t have term life insurance and are wondering if you should, check out this list and see if any of them apply to you.  If one of them does, then you need life insurance!  

Here you go: 

  • You have children who are minors 
  • You wish to leave a legacy to your adult children
  • You have a mortgage
  • You’re not retired yet
  • You want permanent life insurance but can’t afford it
  • If you have a large amount of debt
  • If you’re married
  • And the list goes on. 
The short and simple truth is you need life insurance, and term life can be a great way to protect your loved ones.  

Tune in next week for permanent insurance and prepare to be amazed!!!  Really! 
Of the many financial instruments that make up a portfolio, life insurance policies tend to be the least monitored.  Many people have policies that have not been reviewed since the policies were purchased several years ago!  Like any other financial tool, life insurance policies need to be managed and adjusted to keep pace with market conditions and with the insured's evolving needs and goals.

Here are some common problems:
  • Among-st older permanent policies, many are underperforming and are severely underfunded.  If action is not taken, the policy will eventually lapse.
  • The policyholder was a smoker when the policy was issued but has since quit completely.  The premiums still reflect the smoker classification, which can be double in many instances!
  • Many are paying high premiums for a permanent policy that is not accumulating cash value at a desirable rate.  
  • Many have experienced life changing events that have drastically changed their insurance needs from the time that they purchased their policy
  • Many have very short term policies such as a 10 year term.  They are almost sure to outlive the policy but will pay a much higher rate at the end of the term to extend it.  In some cases a 10 year term is a good fit but in most cases a 20-30 year term is much more suitable.
Please ask yourself the following questions: 
  • Has my policy been reviewed in the past 2 years?
  • How many years is my term policy for and when will the term end?
  • Am I content with the cash accumulation performance of my permanent policy?
  • Has my life situation changed significantly since I began my policy?
  • Have I spoken with my agent about the possibility of converting my term policy to a permanent policy?
  • Have I learned about how a life insurance policy can be one of the most effective vehicles for a retirement plan?  If you are paying into a 401k or similar plan, you need to pay attention to this one!! 
If you are in need of a free consultation, please contact us at info@prospersbs.com or  call us directly at 855-876-5252. 


Marc & Ed