Need to Know: Whole Life Insurance

Robin Weingast life insurance benefits planningLife insurance has been around for thousands of years. It is believed that the Romans originated the product to fund burials of military personnel who were members of a burial club.

Over time, the reasons for owning life insurance grew more complex, such as to meet estate planning or business planning needs, in addition to personal protection. Product innovations and designs also occurred to meet varying factors, including economic concerns, investment market cycles, medical advances and increases in longevity.

Throughout that time, one proposition has remained constant: None of us know when we’re going to die. Whole life insurance is uniquely positioned to meet that proposition and, thus, has seen a resurgence in popularity because unlike term insurance, it is a permanent life insurance product. And unlike variations of universal life products, it is not subject to interest rate and market fluctuations provided the required premiums are paid.

Once thought of as an expensive form of death protection, whole life insurance lends itself well to various scenarios. Among them:

Scenario 1: Clients who want a higher return with lower risk.

Given current low interests, which are yielding minuscule returns on bank and fixed income financial products, whole life insurance’s cash value growth is now seen as a higher-yielding financial product with similar risk profiles. Yes, it is still life insurance, but the cash value element is often thought of as a bond or CD alternative.

Insurance carriers guarantee an interest rate in cash values. Mutual companies also often provide an annual dividend which is not guaranteed, (although most has paid a dividend every year). The dividend further increases cash values, all of which grows tax-deferred and can potentially be accessed income tax-free through withdrawals to basis and loans thereafter.

Scenario 2: Clients who want a healthy investment portfolio.

Whole life insurance is a non-correlated asset class in a healthy, diversified investment portfolio. For entrepreneurs and more aggressive investors, whole life insurance serves as a counter-balancing force against concentrated positions and aggressive investments.

Scenario 3: Clients who need permanent protection.

The average mortality rate has increased dramatically in recent times due to advances in medical technology, greater access to healthcare, and greater awareness of wellness. As a result, families often realize that there is no standard or finite period to maintain life insurance, such that when the period is over, the “need” or desire somehow goes away.

Other products and designs may not be able to guarantee death benefit coverage through advanced ages without:

• increasing premiums on existing coverage;

• adding to underwriting to get new coverage; and

• reducing coverage on existing policies to maintain the policy and/or premium.

The above shortcomings have led to a renewed awareness of whole life insurance. By design, the death benefit is guaranteed if the premium is paid, thus ensuring the policy will be there when protection is needed. Premiums have been amortized over the expected life of the product so as not to place sticker shock on those who are no longer actively employed but still want and need coverage.

Scenario 4: Clients who have business planning needs.

In business planning situations, advisors and clients have traditionally turned to term insurance to fund buy-sell agreements. Increasingly, however, business owners have discovered that the likelihood of dying while in the business is remote.

It is more likely that the business owner will become sick, injured or leave the business due to retirement or some other life event. As a result, the cash value buildup in a whole life policy is an attractive vehicle to create a sinking fund that will act as a down payment on an installment sale or to supplement a lifetime buyout, while the death benefit ensures funding in the unlikely event of death.

If death does not occur, then the policy can be re-purposed for personal planning use of the departing owner. A well-drafted business continuation plan can address this situation.

Scenario 5: Clients looking for a favorable cost structure.

Overall, costs of a whole life policy are too often misunderstood. As measured by premium outlay, there is no argument that whole life presents the highest premium. However, over a lifetime, whole life insurance generally provides both the highest IRR of premium to death benefit (measured at life expectancy) and also the best cost structure as measured by net present value of premiums relative to cash values.

Scenario 6: Clients who need a “forced” savings vehicle.

As increases in college tuition continue to outpace inflation, and as more individuals and families are realizing they won’t be saving enough in traditional retirement accounts to meet retirement expenses, whole life insurance and its cash value buildup are excellent supplemental sources to accumulate wealth while also protecting the family. The premium payments are often seen as a “forced” savings vehicle.

Thus, there are many reasons why whole life products have enjoyed a resurgence in popularity. For those advisors who don’t typically work with whole life, perhaps a fresh look is warranted. To take a fresh look, contact the Robin S. Weingast & Associates team today. We’re here to help!

Resource of the Month: “Educating Employees About Your 401 (k) Plan”

Robin Weingast 401kWith market volatility, there’s a good chance that your employees are also experiencing anxiety about  their retirement plans. Now is the perfect time to make sure your team understands everything they need to know about their 401 (k) plans and to make sure they are contributing enough to meet their long-term goals. 

Not sure how to explain things to them? Our Resource of the Month can help. It will provide you with tips and tools on how to structure information sessions, what information you should include, and how a small investment in time may motivate your team to invest more in their 401 (k) plans.

Download “Educating Employees About Your 401 (k) Plan”

Need assistance making this happen at your company? The Robin Weingast & Associates team is here and ready to help. Contact us today to discuss setting up an employee information session. 

 

Need to Know: Three Tips to Keep Calm During Market Volatility

Robin Weingast Market FluctuationThe end of the summer certainly wasn’t dull, as overseas market fluctuations impacted US markets and had people panicking. Beyond worrying about short-term investments, you may be one of the many people who is wondering if you need to dramatically overhaul your retirement plans. We understand, and we’re here to help. Here are three things to keep in mind during market volatility:

1) Stay Calm

This may seem counterintuitive, and maybe even impossible, but resist the temptation to panic and start moving your retirement money around during volatile times. In fact, sometimes the smartest move is to sit back, watch, and see what develops.

Remember that changes in the market don’t impact regulations and rules about retirement plan distributions and remember that changing the age at which you begin withdrawing your retirement savings will have long-term consequences. A moment of panic might not just impact your short-term future, it might impact your long-term goals. Staying calm will help you asses what steps you need to take based upon what’s actually happening.

2) Avoid change for the sake of change but don’t be afraid to change if you need to.

We know, this is really two tips, but they go hand-in-hand. A common next step after panic is to take action — and it’s usually sudden and non-strategic. Another temptation is to “stay the course” and not act at all, because you fear more change. Don’t be tempted to make a change in your retirement plans just because the market is changing or because you’re worried about what volatility means for your future. In the same vein, if the reality is that fluctuations really are impacting your long-term goals, you need to be prepared to take the necessary steps to correct your course.

The first step is to assess where you are relative to your goals. This piece offers a really simple way to assess if you actually need to change or if you will be ok to proceed as you have been. The answer will be different based upon your age, your goals, and what you have done to save for retirement so far. We also like this piece because it makes recommendations about what to do if you’ve not even begun retirement planning. 

Whatever situation you find yourself in, there will be steps you can take if you need to — and reassurances that not doing anything may be exactly in line with your long-term goals.

3) Use your Resources

Let’s face it — you’re busy running your business and don’t have time to suddenly become a financial or retirement planning expert. And that’s ok. You have a team of people who are here to help you navigate uncertainty and volatility, and Robin S. Weingast & Associates is part of that equation. We know it can be overwhelming to figure out how to balance your business goals with your retirement planning, and that market fluctuations only add to the challenge. Our number one goal is to make sure that you have retirement peace of mind, and we’re here to do whatever we can to help you achieve that. 

If recent events have you concerned, now is the time to contact us. We’re here to make sure you feel confident and satisfied with your plans for the future. Contact us today to see how we can help.