Income and Annuity Strategies

In real life – Life Insurance is a great investment and those who might say otherwise are not relating to real life.

Since everyone dies, we know exactly what the end result of a life insurance program will be. We just don’t know however WHEN any individual will die so we don’t know how financially efficient the program will be. In other words, the younger or sooner someone may pass away the financially more efficient the payoff from life insurance.

  • Walt purchased a $1million life insurance policy at the age of 47 and died from a brain tumor at age 53. Everyone would agree that (no matter what Walt paid for it) he made a good investment buying that policy…an Internal Rate of Return (IRR) of about 108% per year?
  • Sharon purchased the same kind of policy at the age of 63 is active and in good health most of her life and died at the age of 93. After 30 years of paying premiums….an IRR of about 5.1% per year. Should she have put her money in a mutual fund? Maybe, maybe not.
  • Tom and Gina ages 62 and 60 repositioned $100,000 into a Life with Long Term Care Linked Benefit joint strategy.  If either of them ever needed care, they would have $7,600 per month each for as long as care was needed.  If they never needed care, their family would receive $190,000. Everything is guaranteed by the life insurance company.

Most folks who sell life insurance or long term care for a living will concentrate on the “need” and scare tactics. That is what many critics of insurance and the financial press focus’ on. How expensive is it, and do you really “neeeed” it vs. what they offer and know better?

On the other hand, those of us who deal with life insurance in the context of our clients overall financial and retirement planning clearly have a different perspective when we consider the investment aspect. We can see the value in our clients’ portfolio and to their family when a portion of their assets are “invested” in a life insurance policy. But just like any other investment, it is impossible to tell what the final rate-of-return or outcome will be because we do not know when the insured will die.

Now consider the risks of Critical, and Chronic Illness that in all cases occur before death. Just think of the rate of return on your money and what a wise decision you would have made, if you were to have a significant health challenge, like a stroke, heart attack or kidney failure? How about an organ transplant after only 15 years owning and paying for that policy? That wise decision you made is assuming your advisor was smart enough to make sure the insurance you were “investing in” contained an “acceleration rider” allowing you to access some or all of the death benefit while you are still alive.  These things happen and you may need some serious money to cover the cost of that organ transplant and the rehabilitation that follows.

The critics of life insurance mostly just lack understanding of what it does and how it works and the added emotional benefits of owning it. They miss a fundamental concept in financial planning; that the only time one can judge success or failure is when it is time to spend the money. Until then, all investing and insurance is a work in process. The big difference between “investing” in life insurance versus other options is that with life insurance you always know “what” the end result will be, it’s only a matter of “when”. With other investments you will likely not know the “what” and the “when”. That’s why having some of both increases predictability of results, reduces volatility along the way and for most people, reduces stress, allowing us to hopefully enjoy life a little longer.

At Westland Wealth we understand the value of committing a portion of a clients’ portfolio to insurance that creates large assets just at the time they are needed most, no matter when that may be.  Your heirs will think you are a hero for doing such a good job of protecting the family portfolio.