Thursday, February 28th, 2013 | | |
We have a problem. According to LIMRA, a high percentage of Americans don’t know much about life insurance, and if they don’t understand it, they are not going to buy it. In a recent test, LIMRA gave 4,000 people a life insurance IQ test to gauge their knowledge and understanding of life insurance. Only 1,200 passed the 10-question exam, and the majority answered fewer than five questions correctly.
Those who knew the most about life insurance cited multiple sources of information that attributed to their understanding of life insurance. They also owned life insurance and heard about it through work, a seminar or financial planner. Most were older, more educated and viewed life insurance as important. But out of the entire group, less than 1% of those who took the test answered all ten questions correctly.
One of the top reasons consumers give about why they don’t buy life insurance is because it is “too confusing.” The study showed that consumers with a better understanding of life insurance have a higher level of confidence in insurance companies than those less knowledgeable about life insurance.
Ownership of life insurance is at a 50 year low, even though last year showed an increase in the number of policies purchased. Seventy-five million families depend on life insurance to protect their loved ones, but according to the Census Bureau, there are 112 million families in America. That means one-third of the families have no life insurance, and many of those insured are under insured.
According to the 2012 LIMRA and LIFE Barometer Study, the amount of insurance owned is less than four times the typical individual’s annual income. The correct amount to own, based on the individual’s age, should be 10 to 20 times their current income. Based on a study by Swiss Re, the total amount of underinsurance may be as much as 22 TRILLION dollars.
As an advisor myself, I understand that we have a lot of work to do in the life insurance industry, and the first thing to be done is to educate Americans about the need to take personal financial responsibility by utilizing life insurance and related products in this process, and that is what the LIFE Foundation is all about.
Tuesday, February 26th, 2013 | | |
There is much that takes place when a marriage dissolves. Not only is it an emotional period, but all the assets acquired while a couple were together also have to be divided. One important asset that must be taken care of, but might not immediately come to mind, is a life insurance policy. While many couples name their spouses as the beneficiaries of their life insurance policy when they’re together, it’s more than likely they don’t want this to remain the case after the divorce.
Why do so many people fail to make this change and their policy’s death benefit winds up going to their ex-spouse? To put it simply, they forget. This is a detail that gets overlooked with all of the other things that require their attention at such a time. Unless you contact your life insurance provider and notify them of the change, your policy’s beneficiaries will stay as-is, regardless of the split.
Making the change is easy
Changing the beneficiary on your life insurance policy is easy. You simply need to contact the life insurance company, request a change of beneficiary form and fill out the relevant paperwork. It’s a good idea, too, to make sure this change is noted in any other paperwork surrounding your living will or your estate, so that there is no confusion after you’re gone.
It’s also a good idea to check if your workplace insurance policy can be changed to reflect a beneficiary other than your ex-spouse. You may find that your work policy will only allow you to name specific people (i.e. close relatives like your children) as your beneficiaries and that some policies will actually prohibit you from making a change of beneficiary in some situations.
Check the laws surrounding life insurance policies and beneficiaries in your state to see what changes you have the right to make and when. In some states, for instance, you may have to automatically name a new spouse as the recipient of a policy’s death benefit.
A new spouse in the picture
If you are getting divorced and planning on getting remarried soon after your divorce, you’ll have a lot to think about, especially if you have children from a previous marriage. You may want to consider setting up a trust to name as the beneficiary, instead of just blindly listing your soon-to-be spouse, especially if the policy was originally planned to take care of your children.
Most likely you took the life insurance policy out to protect your children financially if something ever happened to you. Make sure you don’t do anything that can jeopardize the original plan. If a trust is not something you want to do or can’t afford to do, you may want to think about talking to your life insurance advisor to get a separate policy and plan for the new marriage. This way you make sure the original policy does what you intended, which is take care of your children.
Get the billing right
One last thing to remember. Who pays for the policy? If your ex-spouse was paying for the policy, you need to make sure you get the billing updated. This will make sure there is no chance the policy will lapse by non-payment.
You should defiantly speak to your life insurance advisor and make sure you are getting sound advice. After all, it’s the ones you leave behind who will be left to clean up anything you don’t take care of now.
Checklist of things to do:
- Talk to you life insurance advisor for advice
- Contact the life insurance company to get change of beneficiary forms
- Check to see if your work life insurance policy beneficiary can be changed
- Talk to your attorney about a setting up a trust
- Think about getting a separate policy to cover a new marriage
- Make sure billing is updated and current
Friday, February 22nd, 2013 | | |
Have you heard of the 4% Rule? That’s the amount of money that could be safely withdrawn from an investment account without depleting it over the lifetime of the individual.
William H. Byrnes, Esq., and Robert Bloink, Esq., LL.M. recently wrote an article, “Are Annuities the Solution to Old 4% Retirement Rule,” in AdvisorOne, saying that for years, the 4% rule provided the baseline from which advisors determined strategies for retirement account withdrawals. The rule is simple, well-trusted, and until recently, relatively unlikely to fail. But, the authors point out, in today’s low-interest rate environment, the strategies that worked for the past 20 years are simply not working, meaning that advisors and clients must create alternative solutions for providing sustainable retirement income.
People who have traditionally sought aggressive investment returns and have not looked favorably on annuities cannot ignore the evidence. New studies suggest that annuities are a competitive alternative to the old 4% rule.
The authors go on to say that: the 4% rule suggests that if you withdraw 4% of the balance from a retirement account each year, you will be able to create a sustainable retirement income stream with virtually no risk of exhausting the account assets. This strategy has worked for years, more or less, but there have always been problems, such as the failure to account for actual investment performance in any given year. It has generally been a safe bet, however, that you will not run out of money, which is the greatest fear for many retirees.
With today’s low interest rate environment, the 4% rule is no longer a safe bet. A study by Texas Tech professor and Research magazine contributor Michael Finke shows that, because interest rates are about 4% lower than their historical average, the anticipated failure rate for the 4% rule has gone from 6% to a 57%, meaning that if the 4% assumption is used, your chance of running out of money before life expectancy is 57% of the time.
The authors add that, the study found that the failure rate would remain at 18% even if interest rates increase in five years’ time, though there is no evidence to suggest that we will return to 20th century interest rates anytime soon, if ever. The bottom line: it is time to change the 4% withdrawal strategy.
Retirement accounts are not yielding the returns that they have in the past, and the potential of a 57% failure rate by following the 4% rule is something you should pay attention to. Annuity products may have not look so attractive when the 4% rule’s failure rate was 6%, but the current landscape puts annuities in a new light. They should be seen as more attractive than ever because they can guarantee a lifetime income stream, no matter how long you live, and they should be part of your retirement income planning.
Contact your agent of financial advisor for more information.
Tuesday, February 19th, 2013 | | |
People buy life insurance because they love someone. My life is proof of that.
When I was 17, my father, who was just 52 years old at the time, was diagnosed with colon cancer. Sadly, his cancer progressed and I watched him become sicker and sicker. Finally, when I was 19 and my father was 53 years “young,” he lost the battle to cancer.
Although I was too young to appreciate it at the time, looking back now, I can see how fortunate we were that our life insurance agent had always been looking out for us—even if my parents thought he may have been a little too eager.
My parents bought a life insurance policy when they were first married, and again when they built their home. Then when my sister was born, they bought another, and when I was born still another. When they needed to plan for college and retirement, again they bought a policy.
My father was a big believer in owning what he purchased, no “renting” for him, so he had purchased whole life insurance policies. Of course this was in the day when folks didn’t have a lot of money, and a high paying job was considered $40,000 a year.
I understand now that if weren’t for the persistency of our family’s agent and my parents believing what he preached, the outcome for our family would have been much different. There’s a lot of craziness that could have happened. Instead, the claim was paid and my mom was able to maintain her financial dignity by paying off debts that were a result of my father’s treatments. She was able to keep simple things like Christmas and birthdays a fun and happy time—even without dad.
The experience of the power of life insurance has had a far-reaching effect in my life. I was just 19 when my dad died, and to be honest, I didn’t truly grasp what life insurance had done for my family at that time. But when I was 26, after starting out in another career, I came “home” to life insurance. I am now an advisor and, much like our agent did those many years ago, I help families plan for the future—whatever it may bring. I help them understand that people want life insurance for what it does, not for what it is.
I don’t need to make up the importance of life insurance; I lived it. I know that people buy life insurance because they love someone. And I’m living proof. It could have been a lot different.
Friday, February 15th, 2013 | | |
“Let’s pay down $10 million of debt—together.” That’s the kind idea the LIFE Foundation is excited to get behind. And that’s why we are helping to sponsor the Debt Movement, the brainchild of Jeff Rose of GoodFinancialCents, which is creating a community of people focused on getting rid of their debt.
While the main focus of this blog is to help you better understand how life insurance and related products are an important element in your financial plan, we also know that no financial plan is sound—or can be built on—if it is weighed down with too much debt.
We also understand how hard it is to take that first step, look your debt in the eye and start to make changes. But that’s the beauty of the Debt Movement—you are not doing this alone. More than 2,000 people have joined the movement and have paid down $180,000 so far.
By joining the movement you can:
Take the first step, and just click to learn more.
We at LIFE wish you luck! And let’s us know how you’re doing.