The Greatest Financial Tool

“The World’s Greatest Financial Tool

And Why You Are Not Using It Properly”

Did you know that there is ONE, and only one, financial tool that can help you do ALL of the following things (without hitting the lottery) –

  1. Replace the income of a deceased spouse, parent, or guardian?
  2. Provide an instant estate for your family or heirs if you die?
  3. Leave an estate or legacy to your favorite charity, school, or other cause?
  4. Provide money to pay for long term care at your home or a facility?
  5. Guarantee the value of a “key man” to a business?
  6. Can provide money to execute a “Buy/Sell Agreement” in a business?
  7. Pay your estate taxes or other debts when you die?
  8. Can be sold for cash?
  9. Can help the family of a college-bound student qualify for more financial aid?
  10. Or builds a cash value that can be accessed without penalties or income taxes for –
  • Emergencies?
  • Investment?
  • Paying off your house?
  • A financing alternative to expensive banks and finance companies?
  • Building a retirement income free of income taxes?

Well, there is.  It’s called life insurance and it’s a much more valuable tool than you’ve probably ever been told.  In fact, other people have probably given you a limited view of life insurance. Even some of the most well-known financial writers in newspapers and magazines do NOT understand the value of life insurance and life insurance agents.  It is impossible to put a value on the massive damages these people are doing to you and others just like you!

TERM LIFE INSURANCE

Have you ever heard somebody say, “Life insurance is only for death protection” or “You should only buy term insurance; it’s pure insurance protection and it’s cheaper”?  Well, they are only part right.  In the correct situation, term insurance MAY be the perfect solution for your situation.  As the name implies, term insurance is designed to protect somebody from the harm that might come from the premature death of a loved one during a specific period of time, or “term”. A friend of mine is a perfect example. When my friend and his sister were in college, his mother took out a term insurance policy to make sure that if anything happened to her before both of her kids had graduated, their college tuition would be guaranteed. Another situation might arise if a spouse or parent was going to be working in an extra dangerous job for a period of time. A term policy that provides extra coverage for that specific period of time is perfectly appropriate in that situation. But does this apply to most people and most situations? No, it does not.

Term insurance normally starts out less expensive than permanent insurance, but gets more expensive as the years go by, especially when you get older. This is why it’s been said that only 2% of term life insurance policies are paid out by insurance companies. The other 98% are either upgraded or abandoned, mostly because the insured person can no longer afford to make the payments.  I recently delivered a quote for a 20 year term policy to a man in his 50’s that was only a little over $600 a year but, in 20 years, the annual premium jumps to over $13,000 per year!  What do you think is more likely?  Will he renew the policy in 20 years and make the much larger payments?  Or is it more likely that he’ll abandon the policy and no longer have coverage?  What will his heirs get if he dies without coverage? Nothing!

WHOLE LIFE

On the other hand, whole life was designed with a very different goal in mind. The annual premiums for whole life are fixed for life when you start, based on your age, your health at that time, and the amount of the death benefit. At some point, the premiums for whole life become LESS expensive than term life and remain that way for the rest of your life.  Even more important, whole life policies are designed to end in one of two ways, either you will die and your heirs will get the death benefit (free of income taxes), OR you will live long enough to get a complete refund of the premiums you paid, which is typically an amount equal to the death benefit!  So, one way or another, whole life is designed to be FREE protection! This is because, in a whole life policy, part of the premium payment goes into a “cash value” account, which grows at a fixed rate, sometimes with dividends added. As we will examine later, the cash value of a permanent life insurance policy can do MANY things and here’s what the financial writers are all missing – cash value life insurance has many LIVING BENEFITS that can be used to improve the quality of your life WHILE YOU ARE ALIVE, if they are needed.  Term insurance does not!

Some years ago, an insurance agency made a lot of money using the phrase, “Sell your whole life, buy term, and invest the difference” and a lot of people sold their whole life and bought term; many from that company.  Unfortunately, they didn’t invest the difference, or their investments didn’t perform as well as they hoped and, when they reached retirement age, they could no longer afford the term insurance, and they also didn’t have the cash or investment value they needed.  You can imagine the lawsuits that ensued and, I can tell you, that company went out of business.  However, it’s surprising how many people are STILL repeating that phrase!  You are a lot luckier than the people that bought into that craziness because you are reading this report and you are going to know that there is a better way.

INDEXED UNIVERSAL LIFE

In 2013, the fastest-growing form of permanent life insurance is called “indexed universal life insurance” and it combines all of the living benefits of whole life, with a great degree of flexibility, with the opportunity to earn a much higher rate of return on the cash value.  The cash value can now be “overfunded” (within limits) to take advantage of the opportunity to earn a higher rate without risking the cash value to exposure in the securities markets. That’s a lot of information to squeeze into just two sentences, so let’s take a closer look.  An indexed universal life insurance policy has a death benefit, just like term and whole life insurance.  But the annual premiums are flexible and can change from year to year.

YOU get to decide how much they change from year to year, depending on your priorities.  THIS is the biggest reason why affluent people LOVE indexed universal life insurance.  If you want to emphasize just the death benefit, you will only pay the cost of the insurance.  If you want to increase the cash value and take advantage of the opportunity for greater returns, you will overfund the policy by increasing the premium payments.  There are limits to how much you can overfund a policy to keep it from becoming a MEC (modified endowment contract), but that is beyond the scope of this report.  Just know that there are limits to how much money you can put into these policies, but they are always designed to remain within those limits and your insurance company will normally alert you if you approach them.

The opportunity to earn greater returns on the cash value without exposing the money to market risk comes from linking the cash value to the performance of a stock market index without actually investing the money in the index.  There are many stock market indexes that are used by insurance companies.  When you own one of these policies, you will have the chance to choose which index is used, but the most common is the Standard & Poors 500 Index (S&P 500).  Let’s examine how this works by assuming you have linked your account 100% to the S&P 500.  In simplest terms, if you have $10,000 in your account and the S&P goes up 5% in a year, your account will have $10,500 at the start of the next year.  If the S&P goes up 10% the following year, you will add $1,050 and start the next year with $11,550.  Simple, right?

Here’s where it gets interesting.  If the S&P goes down the next year (by any percentage), your account will not go down AT ALL!  This is because indexed universal life insurance policies come with a “floor.”  That floor means that your cash value never goes down, it only goes up or stays the same.  So, in our example above, if you start year three with $11,550 in cash value and the S&P goes down, you will start the next year with the same $11,550.  To illustrate how important this is, look at the performance of the S&P 500 from the year 2000 to 2010.  The S&P went up by an average of less than ½% per year during that time, but indexed universal life policies averaged over 9% because they went up when the market went up, but stayed the same when the market went down.

Now there is a caveat about the performance of universal life insurance policies.  To pay for the protection of the “floor”, insurance companies normally have a “cap” on the percentage by which your cash value can increase in a single year. For example, they might say that the percentage of increase is capped at 12%, which would mean your cash value cannot increase by a rate higher than that.  So, if the S&P goes up by 15%, your account would only go up by 12%, the maximum under the cap.  So, what we say in the insurance industry is that, when the market goes up, you participate in the upward movement.  When the market goes down, you are protected from losses due to market forces.

There are many details which we have not discussed here, because my goal is to give you an idea of the power of this financial tool while helping you understand the reasons why it is still so poorly understood and utilized by adults of all ages and income levels.  It is tragic that so many people are either underinsured or have no life insurance at all in 2013.

WHAT TO DO NEXT

Do you remember the list of 10 things at the top of this Report that I said can be accomplished using just one financial tool?  The only financial tool that can help you do all 10 of those things is an indexed universal life insurance policy.  If you would like to learn more about how this tool may or may not be appropriate for your unique needs, I would love to meet with you.  Give me a call at (714)585-2371 and ask for Michael Goodman.  I promise that NOTHING will be offered for sale at that meeting.  We will discuss your needs and circumstances and I will answer any questions you have.  If there is a need for a solution that I can offer, then we’ll start working on it.  But the next move is yours.  It’s been said that knowledge is power, but that’s only part right. Knowledge PLUS ACTION is power.  Take action now and call me.

Michael Goodman

(714)585-2371

 

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