Financial Planning vs. Life Insurance

Financial Planning vs. Life Insurance

I am a life insurance agent in the State of California with a Bachelor’s degree in Financial Planning. According to my studies, financial planners typically review seven broad areas related to their clients.

  1. Current financial position
  2. Income taxes
  3. Risk management
  4. Retirement
  5. Investments
  6. Estate planning
  7. Education planning and other special needs areas.

Since I have a degree but am not a certified financial planner (CFP), I cannot legally help you with many of these areas. Interestingly, many CFP are also licensed to sell life insurance. But, this article from Financial Advisor magazine (which is a pro-advisor publication, says –

“Effective wealth managers regularly provide life insurance to their clients and ensure that it happens seamlessly. This requires practice, patience and, more often than not, a partnership with a life insurance expert.”

“In a study of 522 financial advisors, roughly 34% of respondents were opposed to offering life insurance. While the remaining 66% were willing to provide it, they were critical of their ability to do so successfully.”

“Two-fifths of advisors, or 41%, reported that life insurance is too complicated to add to their menu of offerings. Without question, insurance is complex and becomes more so when used as part of sophisticated wealth management strategies.”

“The 346 financial advisors in the survey that do provide life insurance are, by their own admission, not very adept at it. Tellingly, not a single respondent considered themselves “very successful” and only 17% reported being “successful.” The remaining 83% categorized themselves as less than successful, which means there is considerable room for improvement for these practitioners.”

“And a similarly large number, 73%, find insurance too difficult to fully understand and represent to their clients.”

It appears that, if you want to take advantage of the many benefits of life insurance, you’re going to need a good life insurance agent. I can help you with the following areas if you live in the State of California

  1. Retirement
  2. Estate planning
  3. Education planning

As a matter of fact, I previous wrote an article for this website ( to show how you can use life insurance to do any and all of the following –

  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 specialized 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 provide tax-free cash to pay for college and help the family of a college-bound student qualify for more financial aid.
  10. Build 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

You can also use annuities (with zero or low costs) as part of your retirement strategy; getting an immediate bonus of up to 10% on the amount you transfer, plus bonuses on additional funds deposited, then receiving a guaranteed income for life in retirement, even if you live longer than expected. If you pass away before using all the money in the account, the balance will be transferred to your heir(s).

If you have any of the needs/goals listed above, please speak to a good life insurance agent ASAP.

Michael Goodman

Independent life insurance agent in Northridge, CA


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U.S. sets new standard for financial advisors

(The article below discusses the new rule being set by the U.S. Labor Department that will require financial advisors to put the needs of the clients first. My first reaction is – why did it take so long to create such a rule? In my practice, I ALWAYS put the needs of clients first and never offer any products or services that are not just suitable for the client, but which satisfy a particular objective.


Labor Department rule sets new standards for retirement advice

By Jonnelle Marte

(view the original article HERE)

The Labor Department announced sweeping rules Wednesday that could transform the financial advice given to people saving for retirement by requiring brokers and advisers to put their clients’ interests first.

The long-awaited “fiduciary rule” would create a new standard for brokers and advisers that is stricter than current regulations, which only require that brokers recommend products that are “suitable,” even if it may not be the investor’s best option.

At a time when mom-and-pop savers are increasingly being put in charge of their own retirement security, the rule is meant to add a new layer of protection to guard workers from poor or conflicted investment advice. The rule is supposed to improve disclosures and to reduce conflicts of interest, such as cases when a firm is paid by a mutual fund company or other third party for recommending a particular investment.

“This is a huge win for the middle class,” said Thomas Perez, secretary of the Labor Department. “In far too many places and on far too many issues, the rules no longer work for working people.”

Proponents of the rule say it should cut back on cases of retirement savers being steered into complicated and pricey investments, leaving them with more savings in their pockets. While the new rule won’t ban commissions, brokers may have to explain why they are recommending a particular product when a less expensive option is available, and they could face scrutiny if they recommend complicated products. Conflicted investment advice costs savers $17 billion a year, according to an estimate from the White House Council of Economic Advisers.

“Hard workers need every dollar to work for them,” said Sen. Elizabeth Warren during a press event Wednesday announcing the rule.

It’s too soon to know exactly how the rule will play out, but the change could lead savers to invest more of their money in low-cost index-based funds, analysts say. Some investment firms could also lower their fees. For instance, LPL Financial said last month that it would allow savers to hold accounts with smaller balances and that it would cut the fees for some funds by up to 30 percent.

Another potential impact of the new rules, which affect people saving in individual retirement accounts or rolling money over from a 401(k) plan to an IRA, is that retirement savers might end up switching accounts or investment firms. Some investors may have conversations with their brokers and advisers over the next several months about whether they should be moved into a different kind of account or work with a different firm altogether.

“We’re definitely going to see investors that are forced to change how they interact with the investment services industry,” says Michael Wong, an analyst focusing on brokerages and exchanges for the fund research firm Morningstar.

Some firms may decide to move investors from commission-based accounts to fee-based accounts, where an investor’s costs may be structured as a percentage of assets invested, Wong said. The move would put savers into accounts where what brokers and advisers are paid would not depend on the type of investment product they sell, he added.

Those fee-based accounts are already subject to fiduciary standards but some financial professionals have said it may raise costs for investors who rarely make trades and are more likely to hold on to investments for the long term.

For some savers, particularly those with small account balances, the new regulations could require them to take on a bigger role in how their money is managed – particularly if they lose the advisers they’re working with now. Some companies facing higher administrative costs may feel pressure to drop clients with low account balances, say below $50,000, which may no longer be as profitable with fewer commissions. Some firms may try to transfer savers into stripped-down, online-based accounts, where they may pay lower fees but also receive less personalized advice.

Members of the financial industry said Wednesday that they were still reviewing the details of the rule but expressed initial worries about how the regulations would affect their relationships with customers.

“We remain concerned that the [Department of Labor’s] rule could force significant changes to current relationships, which may leave clients without the help they need to prepare for retirement,” said Kenneth Bentsen, president and chief executive of the Securities Industry and Financial Markets Association, a trade group for broker dealers and other financial professionals.

The shift could also encourage more people to use discount brokerages or online investment accounts dubbed “robo-advisers,” which typically use algorithms to help people create portfolios, according to a Morningstar report. The online options can often be more affordable than working with a financial adviser, in part because they often using index-based investment options.

Judy Barfell, a 67-year-old retiree near Daytona Beach, Fla., was surprised to learn a few years ago that her IRA savings were invested partially in emerging market funds, high yield bonds and other risky investments. After talking to her adviser about the portfolio and doing some other research, she also realized she was paying roughly twice as much in investment fees each year as she thought she was.

“You trust the people that you put your money with and then this happens,” she said.

Last year, Barfell moved her savings into an account with Rebalance IRA, an online based account where her advisory and investment fees add up to about 0.7 percent of her savings, down from the close to 2 percent in fees she was paying before. She said she is glad the rule will require advisers to put investors’ interest first, something she had previously assumed was required.

“You spend a lot of time in your career cutting out the money to save,” Barfell said. “It’s hard when you have your life … to put all that money aside. And then you save it and to have someone take advantage of you is really disheartening.”

The Labor Department also says educational information offered to retirement savers about types of investments would still be allowed under the new rules. But investment firms consulting savers on whether they should keep their money in a 401(k) or roll them over into an IRA would be required to meet the new standard on any advice they offer. Financial firms would have until January 2018 to get into compliance.


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Let Somebody Else Fund Your Buy/Sell Agreement

For many professionals and small business owners, especially those involved in partnerships, a Buy/Sell agreement may be needed. These agreements are used when one of the partners, or a Key Man, dies and the remaining partners or owners do not want the heirs to become owners or partners. So the remaining partners, using a formula in the agreement, buy out the heirs and the business goes on without the deceased owner. The big question is where to get the money to compete this transaction?
In many partnerships, the business is the largest asset of the partners and the buy-out value of a dead partner may be substantial. If they don’t have enough cash readily available, they may have to find another partner to replace the one that died, they may have to liquidate other income-producing assets, or they might have to borrow the money and take on debt. Is there a better way?
Many partnerships and small businesses use life insurance and a third-party investor to put the funding in place before it’s needed. Life insurance policies are purchased on each of the partners and the premiums are paid by the investor, secured by the death benefit and the cash value. Sometimes, additional business assets are needed to secure the loan for the premium but this is decided on a case-by-case basis. However, the partners do NOT have to provide personal guarantees. The business partners MAY have to make interest payments on the premiums, but that’s it, and the interest payments are usually tax-deductible for the business.
By doing this, the partners have now secured money to buy out the heirs of any partner and will not have to use their own money. They don’t even have to pay the premiums, they just pay tax-deductible interest on the premiums. The insurance company sold a large policy, and the investor makes a highly-secured loan. Everybody wins!


Michael Goodman

Life Insurance Agent in Northridge, CA

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How Life Insurance Costs Compare to Securities for Retirement Planning

Cash value life insurance is one of the oldest financial tools available. It can be used to protect a family from the death of the primary earner, it can be used for estate planning, and the tax-advantaged buildup of cash in the policy can be used for many different purposes, accessible without income taxes or penalties at any age.

But the one knock I hear most often about life insurance is that it’s too expensive to be used for building a retirement income. My answer to this is that – it all depends. Let’s take a look at the math.

If you have $500,000 in a qualified plan (401k, 403b, IRA, etc.) and it’s all invested in an Index Fund with annual costs of just .23% per year, you’re paying $1,150 in annual fees (assuming those are the only fees you’re paying). Your growth or losses are going to pretty much mirror the growth or loss of the index to which you’ve selected. Now take note of this, as your account grows, the amount you pay in fees each year will also grow. That charge of .23% applies to everything in the account every year, just like an annual property tax. If you grow the account to a million dollars, the fees will be $2,300 per year. If you have more money in the account, or if your fees are a higher percentage, then the annual costs will be much higher. So, if you have 30 years until retirement, you’ll pay that fee on the entire amount each year, on all the money you deposited, and on all the growth each year. Is that a bargain?

On top of all this, all the money you take out later will be taxable, every penny. So if you take out a consistent amount each year, like a regular income, not only will you pay taxes on all of it, that income will also probably cause your Social Security income to become taxable. Yes, you saved money on income taxes while the account was growing, but the cash value in life insurance also grows tax-free.

By comparison, the amount you pay for life insurance will depend on your age, health, and the amount of the death benefit. It is not based on the amount of cash value in the policy. What’s a typical life insurance policy cost? If you’re young, it might be just a couple hundred dollars a year. If you’re approaching 60 and in good health, it will still probably be less than $1,000. In addition, the money you take out of the policy in retirement will be tax-free, and you’ll still have a death benefit that pays out (income) tax free to your family or other heirs. How well can this work out? If you’re 25 years old now and can afford to put $200 a month into the right kind of policy (an IUL), you may be able to withdraw over $90,000 per year, tax-free, starting at age 66.
Admittedly, in the first 10 years of some policies (like IUL’s), there are some extra fees. But, if you do the math carefully, you’ll probably see that the cost of life insurance will probably amount to less in fees than the same money in a “qualified” or taxable plan that is being used to build a retirement income.

Michael Goodman

Life Insurance Agent in Northridge, California

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