Since everyone dies, we know exactly what the end result of a life insurance program will be. We just don’t know however WHEN any individual will die so we don’t know how financially efficient the program will be. In other words, the younger or sooner someone may pass away the financially more efficient the payoff from life insurance.
- Walt purchased a $1million life insurance policy at the age of 47 and died from a brain tumor at age 53. Everyone would agree that (no matter what Walt paid for it) he made a good investment buying that policy…an Internal Rate of Return (IRR) of about 108% per year?
- Sharon purchased the same kind of policy at the age of 63 is active and in good health most of her life and died at the age of 93. After 30 years of paying premiums….an IRR of about 5.1% per year. Should she have put her money in a mutual fund? Maybe, maybe not.
- Tom and Gina ages 62 and 60 repositioned $100,000 into a Life with Long Term Care Linked Benefit joint strategy. If either of them ever needed care, they would have $7,600 per month each for as long as care was needed. If they never needed care, their family would receive $190,000. Everything is guaranteed by the life insurance company. Receiving a solid safe return, care or no care.
Most folks who sell life insurance or long term care for a living will concentrate on the “need” and “scare” tactics. You don’t need “scare” tactics, just focus on the benefits and that you have addressed a risk that needed addressing. Many critics of insurance criticize because they don’t truly understand the benefits, focus on costs and most likely offer an alternative. However, almost all alternatives involve some risk.
On the other hand, those of us who deal with life insurance in the context of our clients overall financial and retirement planning clearly have a different perspective when we consider the investment aspect. We can see the value in our clients’ portfolio and to their family when a portion of their assets are “invested” in a life insurance policy. But just like any other investment, it is impossible to tell what the final rate-of-return or outcome will be because we do not know when the insured will die.
Now consider the risks of Critical, and Chronic Illness that in all cases occur before death. Just think of the rate of return on your money and what a wise decision you would have made, if your client were to have a significant health challenge, like a stroke, heart attack or kidney failure? How about an organ transplant after only 15 years owning and paying for a policy? Be a smart advisor and make sure the insurance your clients are “investing in” contains an “acceleration rider” allowing them to access some or all of the death benefit while they are still alive. Things happen and they may need some serious money to cover the cost of that organ transplant and the rehabilitation that follows.
Again, the critics of life insurance mostly just lack understanding of what it does and how it works and more importantly don’t factor in the added emotional benefits of owning it. Don’t miss a fundamental concept in financial planning; that the only time one can truly judge success or failure is when it is time to use the money or pass it on. Until then, all investing and insurance is a work in process. The big difference between “investing” in life insurance versus other options is that with life insurance you always know “what” the end result will be, it’s only a matter of “when”. With other investments you will likely not know the “what” and the “when”. That’s why having some of both increases predictability of results, reduces volatility along the way and for most people, reduces stress, allowing us to hopefully help our clients enjoy life a little longer.
At Westland, we understand the value of committing a portion of a clients’ portfolio to insurance that creates large assets just at the time they are needed most, no matter when that may be. Your client’s heirs will think you are a hero for doing such a good job of protecting their family portfolio.
Partner with Westland to help you figure this all out and be by your side if needed when presenting solutions to your clients.
Hopefully you are thinking of clients where you can add real additional significance and value to their family with protection and legacy strategies.
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