Whole life is a valuable and versatile financial product that provides an ideal foundation for your finances. However, it’s not always easy to understand the ins and outs or how to best USE it!
Statements from life insurance companies aren’t always clear and helpful. Policyholders don’t always understand the power and flexibility of their policies. And not everyone knows how to utilize whole life insurance to improve their overall financial strategy.
This week, we launched an incredible new resource to help you discover exactly how to make the most of your policy. It’s called “Whole Life 101”—a video course from yours truly, Kim D. H. Butler. We have been working on this behind the scenes for months and this week is the Grand Opening for the Whole Life 101 course!
If you’ve been paying attention, you’ll know that bonds aren’t what they used to be. Values are declining, risk is up, investors are selling, bond funds are underperforming, and municipal bonds are no longer the safe haven they once were.
“With the demise of the bond insurance industry in the financial crisis, credit quality in the market has become a much bigger concern for investors,” reported financial journalist Andrew Osterland on February 28, 2018 for CNBC.com. Earlier in the year, Financial Times noted sell-offs and declared that “the long bond rally could stall—and perhaps even unravel—in 2018.” This week, Bloomberg.com noted “concerns over volatility” in high-yield bonds. Even Kiplinger.com, which typically faithfully tows the line of “typical” financial advice, had harsh words for bonds in a December 2017 article:
“When we leverage, we aggregate and organize existing resources to achieve success.”
– Richie Norton, The Power of Starting Something Stupid.
Do your assets pass the leverage test?
When you invest or store your dollars somewhere, it’s important to consider if – or on what terms – you can borrow them back should an urgent need for cash arise. While you may not plan on wanting or needing your dollars back, it’s common for people to find themselves in financial situations they didn’t anticipate.
The ability to use an asset as collateral is also a test of its strength. Dollars in the form of saving accounts, certificates of deposit, and other negotiable instruments can be easily collateralized in most cases. Unfortunately, savings accounts and CDs offer an extremely low rate of return as well as little flexibility or other benefits.
“Old age isn’t so bad when you consider the alternative.”
– Maurice Chevalier
“Am I too old for life insurance?”
We get this question a lot, surprisingly, often from people who are only in their 50’s or 60’s. But even if you are in your 70’s or beyond, you’re probably not too old for life insurance, particularly whole life insurance.
Most mutual insurance companies will insure people up to age 85 with a whole life policy. Health is more important than age when it comes to determining whether or not you will qualify. But many people over age 60 or 70 qualify for life insurance, even with a past health crisis.
However, just because you CAN get life insurance doesn’t mean it’s right for your situation. Let’s explore why many seniors ARE buying life insurance, along with some of the pros and cons of doing so. This article is for you if you:
wish to leave an inheritance for children or grandchildren
want to protect your significant other
desire the flexibility and liquidity that whole life provides
are a middle-aged adult considering whole life insurance for a parent.
I don’t want to tell you how much insurance I carry with the Prudential, but all I can say is: when I go, they go too.”
– Jack Benny, comedian (1894-1974).
An on-air penny-pincher who pretended that he would sooner die than part with a dollar, the real Jack Benny was a kind and generous man. Also an excellent planner, his widow was well-taken care of after his death and even received a daily red rose from the local florist, a provision arranged for in his will.
Ed McMahon, the former co-host to Johnny Carson on The Tonight Show, was another generous celebrity. Gifted with an optimistic personality and a hearty laugh, McMahon lacked Benny’s budgeting and strategizing skills. (Perhaps he took more after the Celebrity Sweepstakes Winners he helped create….) In spite of decades of career success, McMahon lost his health in 2007, then nearly lost his home to foreclosure in 2008 before passing away in 2009 at the age of 86.
While Donald Trump reportedly may have assisted the aging, ailing celebrity to stay in his home, the McMahons were also helped by another friend who told them about Life Settlements. As Pam McMahon (Ed’s widow) reports, they were previously unaware that they could sell a life insurance policy, thus using it as a liquid asset in a time of need.
Ed McMahon carried multiple life insurance policies, and the premiums became an unmanageable burden to them, especially when injuries prevented him from working. According to a letter written by his widow Pam McMahon,Ed had more than one policy and they were able to sell one to ease their financial stress.
More Seniors Are Selling Their Life Insurance Policies
Interestingly enough, another well-known celebrity has chosen to endorse Life Settlements (and probably not because she needs a paycheck – this octogenarian is still red-hot in show business!) Actress Betty White has done commercials for a company in the Life Settlement industry and has gone on record stating that she “would encourage any senior who is considering letting their life insurance policy lapse to consider a life settlement.” (I can’t help but wonder if she is the friend who helped the McMahons with her advice….)
But there are many other reasons, besides financial stress, to consider selling a life insurance policy. The beneficiary may have passed away. The policyholder might simply wish to use the money differently, such as starting a business or sending a grandchild to a private college. The policy holder may have multiple policies and no longer need them all, or the policy may insure a “key man” in a business partnership who has retired.
Is selling your life insurance policy the only solution for seniors seeking cash?
Absolutely not! Many seniors simply don’t qualify. For instance, if you are healthy and in your 70’s, it is doubtful that you could find a buyer for your policy. Life settlement investors and their intermediaries are looking to buy life insurance policies of individuals who are nearing life expectancy. Typically, the insured is in their 80’s and/or in poor health. Even if you do qualify to sell your policy, it’s important to look at what option makes the best sense for your particular situation.
Oftentimes, retirees have “lazy assets” that could be put to better use. There are better options than earning one percent or so in a bank certificate of deposit. Sometimes, a reverse mortgage may make sense. (Learn more about that option in this podcast with Kim Butler.) Or perhaps you can change the SEQUENCE of how you are spending your assets. This strategy can help and reduce taxes and increase income!
We invite you to schedule an appointment to learn about ways to generate more cash flow. You can also sign up for our Prosperity Accelerator pack and you will receive an ebook and articles with our favorite strategies for income.
Do you own a whole life insurance policy? One advantage of a whole-life policy is that it gives you many options. For instance, the cash value can be used to pay up premiums so that no more premium payments are ever needed! There are other ways to use your policy to obtain cash (while you’re still living) – withOUT having to sell your policy.
Are you interested in investing in Life Settlement Funds?
“I have often said that if people truly understood this product, that they would line up around the block to purchase it. That product is participating (dividend-paying) mutual whole-life insurance.”
– Todd Langford, Truth Concepts financial software
“Is Whole Life Insurance a Good Investment?”
Perhaps no question has generated as much controversy on financial blogs and forums as this one.
Indeed, The White Coat Investor website’s most popular post on whole life insurance (written by a self-appointed, unlicensed financial “expert” who is a full-time physician) has generated over 800 comments from both fans and foes of whole life. The posts begins with a warning that the comments may take “over 4 hours to read,” and links to further articles that reveal the author’s limited understanding of the product.
“Typical” advisors, media-hyped financial gurus and bloggers say, “Stay away from whole life insurance!” Meanwhile, many passionate agents and advisors try in vain to correct the misconceptions, irritating others who believe their enthusiasm is motivated only by commissions.
And regardless of which side of the fence the opinions fall, both sides often get their facts wrong, and few seem to understand the role of saving and liquidity in an investor’s personal economy. The long-term, generational benefits of both cash value and death benefit are often overlooked. Diversification is also poorly understood, and the fact that you can’t have all of your dollars in equities (or even in stocks and bonds) and be properly “diversified.”
This website is provided for informational purposes only. The information contained herein should not be construed as the provision of personalized investment advice. Information contained herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security or investment. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future.
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