Full Life Value?

[Stevuke]

So the accumulated assets, exactly which ones are you talking about? Since we know that 75-200 grand is more then likely less then 5% of the population now lets add in the fact we know Americans are saving at now a negative rate! So are we talking about 401 money (Retirement) or Home Equity?

This particular case was a bit complex (lots of moves). We are using a combination of paying down their CD's and part of their savings. They have also made changes to how much they are putting into their 401k's due to $0 company match. They adjusted their P&C premiums. They have also re-financed their home to buy a vacation home in FL that is going to provide them rental income.

If they are financing a new place in FL, and if they have some qualified money (401k), assuming they will have money outside the 401(k), you can use a 72(t) to get the money out of the 401(k) and into the property tax free. (use the financing tax leverage to offset the additional taxable income).

It's a good and simple wway to entirely eliminate the 401k tax bite.

Just a thought. That could free up some cash for him...let me know if you would like to discuss.


Steven Druckman

 

[James]

Eliminate one check and eliminate the bills (the big debt ones) and lessen the tax bite and then add in SS checks of about 1.200 to 1,400 on two kids and you pretty much at the original life style if not above it.

That's just Ludicrous!

You saying that since we loose income we reduce our tax liability.
I'm with ya there

reduced tax liability + the reduced debt liability + SS = the gross lost income.
Or
reduced debt liability + SS = net income

Ya lost me. That's absurd!


Steven Druckman

Well if you say so. I yet have seen a financial plan that does not take these matters into considerations. If you have two people working more then likely one check doesn't cover Taxes and Debt if we are talking people with household income of 50-100 grand. If we split it up evenly 50/50 at 80 grand (even though an even split is unlikely) that is 40 grand each. So depending upon the House, Auto and Taxes savings from these is likely to meet one paycheck. House equals around 1,000-1,500 dollars easily (I'm in TN adjust the numbers as they fit your area) a month that would be 12-18 grand a year. Auto is close behind these days, lets say on average their is two car payments on fairly new cars, easily 800 dollars a month or about 10 grand a year equalling 8 grand plus the savings on the house payment we are now at 20-26 grand if not higher. Add in the savings of taxes, one parent two kids at 40 has little tax bite if at all, probably a savings of around 3-5 grand so we are now in the 30 grand level. Add in 12-14 hundred dollars of SS money for the children under the Survivors benefits that is around 14,000 dollars a year added into our level of savings of around 30 grand and we are just beginning!

Now what has to be taken into account is the age of the children and the care they'll need. If they are in school may they be 5 or older that isn't such a big issue as if they were pre school age. Yet though the family making around 80 grand does well if both parents are responsible adults able to take care of normal living issues, of course this doesn't fit the "The Spouse is an Airhead and we need total Income Replacement" theory I keep hearing about.

Now in and around my area of TN, normal house is around 180 grand, buy you a pretty nice house. So with a 350 grand insurance check from me, that 50 grand check from the workplace the spouse can pay all debt and lets assume a 9 Grand Credit Card debt (another savings approaching a grand a month to add to the savings total) that is average I believe as stupid as that sounds so likely they have close to 200 grand sitting in the bank and no debt. With an income of 40 grand and you want me to believe that they won't be able to live in the lifestyle they are accustomed too?

Now this scenario is far more likely for the average ins agent to come accross then the ones ya'll are talking such as the 80 grand a year person having the assets to fund a 52 grand yearly premium.

So say what you want, understand this, your are in the minority of those that practice Insurance and those that buy Insurance. Of course you could be totally right, for you that is! So please don't go down the destructive area that one theory is right for all, life simply doesn't work that way.

Once again, please answer me how a family of 50-100 grand, in their working years can afford a HLV level of insurance using a W/L and Term mix, plus all other insurance products needed more so, such as DI that will likely have a bigger premium then the Life Ins policy, lets not forget LTC and Health in the mix.

 

[James]

As I suspected,

I would agree that if it is whole life - the premium should be counted towards the 10-15% recommended savings rate.

After all, after 15 - 35 years. whole life cash value is typically at the aquivalent of a 4 - 6% (not per year but as an interest rate calculation based on the whole life premium PMT and the FV being the cash value over N years) savings veicle (and who would complain about 5% in a muni bond?).

you're using retirement funding of 10-15% making your theory not about DB and cost of living but also retirement. Why not just say it upfront and drop the NEED of the DB? Maybe you did but I must of missed that? Yet your points seem to be all about the issue of need of total income replacement.

 

[indaville]

Once again, please answer me how a family of 50-100 grand, in their working years can afford a HLV level of insurance using a W/L and Term mix, plus all other insurance products needed more so, such as DI that will likely have a bigger premium then the Life Ins policy, lets not forget LTC and Health in the mix.

The prospects for the type of cases I am talking about are out there, everywhere! I have been using LEAP for the last 18+ months, I have yet to find a family earning $50-100k that we have not been able to get full income replacement LI using both WL and term. It is easy. We are talking about LI but with LEAP you make sure that you have maximum coverage in all areas of insurance, P&C, DI, health, etc. You do this before you move down the model to discuss their other financial needs.

It is hard to explain the concepts via an internet chat room, but the system is incredible!! My income and production is up about 250% in the last 18-months (not that I was struggling before LEAP :wink: ) and I am doing a better job for my clients than I was doing the previous 7+ years before I was exposed to LEAP.

 

[Stevuke]

As I suspected,

I would agree that if it is whole life - the premium should be counted towards the 10-15% recommended savings rate.

After all, after 15 - 35 years. whole life cash value is typically at the aquivalent of a 4 - 6% (not per year but as an interest rate calculation based on the whole life premium PMT and the FV being the cash value over N years) savings veicle (and who would complain about 5% in a muni bond?).

you're using retirement funding of 10-15% making your theory not about DB and cost of living but also retirement. Why not just say it upfront and drop the NEED of the DB? Maybe you did but I must of missed that? Yet your points seem to be all about the issue of need of total income replacement.

James,

I appreciate the question.

I believe in Full Replaecment Value or Human Life Value.

I also believe that WL is an absolute neccessity for having a decent retirement (unless you are extravagantly rich, $1MM +/year). Even then WL dramatically improves your retirement, I just wouldn't say that your retirement would suck without it.

I've made the point over and over. You are free to disagree, but an income is important. It must be insured in the event of loss. I must have a sum of money created upon death that will replace the income entirely.
I think this is just crucial for properly protecting your family.
If you make $50K/year, that's $1MM of term. I think someone making 50K can afford $800 - $1600 in premium.

but term is a one use vehicle. It insures against pre-mature death (death before age 65 -80). That's it, it's just about premature death protection.

Now as a longer term planning vehicle we all should have permanent coverage. This gives us leverage for retirement and philanthropic planning. We all need it. It is hard to afford. I make it more affordable by creating it as part of your "safe money" strategy.

Example. Guy makes 50K. Needs (according to me anyway) $1MM of coverage. Is saving 5,500 a year. $3K into stocks and $2500 into munis, corportate bonds CDs or some safe money.

After we take care of DI and liability (I dont do liability myself though), I say look, you're getting 5% taxable in the CD/Bond, why not get 5% tax deferred (or free if you never liquidate and just borrow). Put the $2,500 into WL which is tax deferred

That $2500 will get you $250K of WL

Then we spend another $600/year on $750K of term so that your income is insured if something happens. Maybe we'll even convert some of that later.

By the time I'm done, he's spending an additional $600/year and has the full replacement value that you think is so impractical.

He's getting $250K of permanent coverage in addition to a tax defferred savings outside of a qualified plan getting a better rate or return than he had before with internal creditor and disability protection. (cash value is creditor protected and with waiver of premium it is self insured for DI, so with WP - that $2500 of his income is insured). At age 85, the 250 is now nearly $900K of insurance. Damn near close to the $1MM I think is his HLV.

I like it! and so do my clients.

How is my approach impractical?

Tell me, what would you do with this guy?


Steven Druckman

 

[James]

Okay, now its clear how you are finding the money, why not just say it upfront? You made it sound like a 50 grand a year worker had 5-10 grand laying around that I was somehow missing.

So now we all know this all to common use of W/L contract, yet though I rarely come across the person at this level today saving 10% or more much or less putting the money in CD's.

Yet though, it is in the end about the DB, something I find easy to sell. It isn't about HLV its about "the need of the beneficiary", not that of retirement of the client.

Yet though if you are using the money as much as a saving vehicle then that of a true DB wouldn't it make sense to buy the smallest DB possible with the max amount of premium, if you are using a scheldule of payments that should be easy enough done. Or in other words wouldn't the flexiblity of a UL be better suited? Maybe more costly but still the flexible nature should be worth something.

 

[Stevuke]

What wasn't I saying upfront? (I'm smirking at you)

You continue to astound me with your ignorance!

In your example you caluculate
Tax reduction + debt reduction + SS = previous income.

Since you count the gross income and count the tax savings, (if we assume a 30% tax rate) you are counting the savings as a 100 cent dollar when it's really a 70 cent dollar.

You are counting the savings as pre tax income. You have to pay taxes before you can use your money to pay a mortgage.

It's a little scary that you are a financial planner.

Anyway, at 40K I would say this guy needs 15X income, about $600,000
you got him $350K, about 60% of that, and low and behold,

You've replaced 60 - 70% of his income (because you counted the dollars pre tax).

I also believe in the need of the beneficiary.


The beneficiary needs to have the insured's income replaced!

Steven Druckman

 

[indaville]

Okay, now its clear how you are finding the money, why not just say it upfront? You made it sound like a 50 grand a year worker had 5-10 grand laying around that I was somehow missing.

Or in other words wouldn't the flexiblity of a UL be better suited? Maybe more costly but still the flexible nature should be worth something.

A $50k per year income earner could certainly have $5k-10k to put towards the LI if they needed it. They could be putting 10% into a company 401k that has no match, theres $5k. Do a couple of other moves and you could easily find $5-10k.

I don't ever sell UL, you can build in the same flexibilty with a strong dividend paying WL. But in this case we do not need flexibilty b/c the money is there to fund the policy.

 

[Stevuke]

I agree. UL is often erroneously thought of as cheap Whole Life.

But in reality it is EXPENSIVE TERM.

The increasing mortality rates are designed to make it a back loaded product that will have the greatest tendency to lapse right before it would have had to pay out.

It's basically just term with a fat price tag....


Steven Druckman

 

[James]

I personally think the UL's have gotten better then they were before. You now have the SGUL and the EIUL, UL's in generall have become a staple of the industry.

A $50k per year income earner could certainly have $5k-10k to put towards the LI if they needed it. They could be putting 10% into a company 401k that has no match, theres $5k. Do a couple of other moves and you could easily find $5-10k.

Well I'm a Insurance Guy, I generally don't involve myself in Retirement Funding, yet to be totally honest I show the CV side but not as a Retirement idea. Maybe more so as a LTC side fund. In other words if you are taking money out of 401's I don't need Leap to do that, I can do that easily.

Oh well, I have to keep it simple. Most of my apt's I bring a yellow pad and pencil, I don't even carry my laptop in so much good Leap would do me! Keep it simple, LI is about the DB not Retirement Planning.