Is Equity a Nasty Word?


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Is Equity a Nasty Word?

Americans are saving money at an abysmally low rate. The bottom line is way below the bottom line. The savings rate fell below 0% in 2005, according to a U.S. Commerce Department report as of January 2006. It seems everyone, including the federal government, is working on the charge account system. The national debt keeps rising and it appears our administration and Congress have yet to meet a spending plan they didnÂ’t like.

The television commercials for refinancing your home are seductive and repetitive. They have beautiful people in comfortable surroundings telling us how we can lower our house payments by large percentages and consolidate all those bothersome bills into one simple monthly payment. What they fail to reveal is that the refinanced loan lengthens the mortgage. It may seem like a good solution, but at best itÂ’s only a band-aid. Human nature is such that new bills come in, eventually the total outlay is larger than it was before refinancing, and the mortgage payoff is postponed decades into the future. The announcers are good looking and sometimes famous people who seem to have the customerÂ’s best interest at heart, but often they are only actors reading a script for pay. Many years ago a refinancing company in Detroit was sued for some false numbers. A famous Hollywood star was the ad spokesman for the company. When he was put on the stand in the trial, he said, "I am only the talent. I just read the script."

Our children, who may be studying economics in college, are being trained to live on the charge account system. Student loans are a fact of life. In most cases, they are necessary to get the education, and thatÂ’s all right. But it starts the kid off with a philosophy that it is okay to owe. The students are also subject to privacy invasions by mail offers to get credit cards.

How often do you get those letters telling you that you have been "pre-approved" for some gigantic new credit card at amazingly low rates? The cheese is always free in the mousetrap, and read the small print. The personal letter makes you feel important. It sounds like you have been selected using the most careful criteria. What is the purpose of all this refinancing? Who makes money on the deals? Eventually, the term, "maxed out" will appear in the dictionary.

In all such promotions the enticements are not permanent. The only thing that remains is the debt. Most people respond to the come-ons without too much thought and feel wonderful as the process evolves. Everyone treats them nicely and they feel like superstars as the paperwork script unfolds. They even go home and tell friends and neighbors about how awesome the process was and how good they feel now that the future slate is clear. We in the insurance business hear this all the time as the "Buy term and invest the difference philosophy." How frequently does it work?

Thinking about retirement, it is a difficult thing to prepare wisely for the days when the income should be more than the outgo. Our population is aging and living longer. Our business is to help clients prepare for those days. It is not easy and it is so far off into the future that it is difficult to put high on the priority list. As we age, we become part of the "Monday, Tuesday, Wednesday pill box" crowd. We get discounts at the movies and department stores, but at the same time medical costs keep rising, usually at a rate higher than general inflation.

It used to be we talked about the three-legged stool of retirement savings: employment benefits, Social Security, and personal savings. Just pick up any newspaper and read about benefits shrinking or being cancelled by major employers, especially in the automobile industry here in Detroit. New employers are not so quick to put in pension and hospitalization plans.

Social Security is not as lucrative as it once was. The tax contributions are accelerating and are likely to continue doing so. Every so often a client will ask me if I think Social Security will be there when they reach the eligibility age. I always answer yes, because we canÂ’t do away with it, but I emphasize that how we pay for it is a serious question. It used to be Social Security benefits were not taxable. Now there is a tax if a recipientÂ’s total income goes over certain amounts.

WhatÂ’s left? Personal savings is the answer. Most people are not doing so well at it, and thatÂ’s where we can help. It is first a mission and secondly a profession. "Equity" is not a bad word. We can create it through our permanent products. The public needs it and we have the tools and capacity to assist. We may be the only leg on the stool that really lasts.

It is hard to find any investment that has all the attributes of successful investing to equal a permanent life insurance policy with some tenure on it. Consider these factors.

• Tax-free accumulation

• Maximum leverage

• 100% liquid

• Available to the executor to pay taxes

• Flexible

• Requires small cash flow commitment

• Not subject to claims of creditors

• No federal income tax

• No federal estate tax

• No state inheritance tax

• No gift tax

• No capital gains tax

• No probate

No other financial asset but permanent life insurance, structured with the proper ownership, has all those qualities.

It is a great thrill to meet with clients, in reviewing their programs, and show them summaries highlighting increases in cash value more than the previous yearÂ’s premium. Was it really a cost or not? It is merely a capital transfer. They havenÂ’t spent anything. It shows up in their net worth. If necessary, they could borrow it back or reclaim the surrender value. It is their money, not the insurance companyÂ’s. That truly is a good definition of the word, "premium." Whoever coined that word for life insurance payments had tremendous foresight. We could explain the meaning and make many sales. I am going to focus more on it in my interviews.

There is a great need for term insurance, of course, as there is for universal and all other varieties. But the word "term" means temporary, and term policies donÂ’t cover all the bases that permanent policies do. Buying and relying on term is like wetting the bed. Eventually, you have to get up and do something about it. Every kind of term policy covers a specific need, but none has the flexibility that permanent insurance has. Term premiums rise like the rent in a house if you stay there for a long while. Whole life premiums stay level and just accumulate value, or can become paid up in time, like buying a house as opposed to renting.

How many term life owners have you heard praise their 15- or 20-year policy? Just about as many as laud their homeownerÂ’s or auto policies, if they never had a claim. What has your experience been with owners of permanent policies of the same tenure? Are they happy with the equity they have created and moan over the fact they should have bought more? The ultimate example of this for me was a client who once yelled at my secretary, "Why didnÂ’t Burt sell us whole life?!" He had been my client for 30 years, and weÂ’d had dozens of interviews. In many of them the subject of permanent insurance had come up. The client always had "better" ideas for what he would need in retirement. He said his business and profit sharing plan would develop more than the cash value. When he reached his seventies and saw his premiums rising, the venom turned toward me.

Once in a while someone tells me, "Insurance is a lousy investment." I respond, "Most investments are lousy life insurance. They are designed to do different things. LetÂ’s make a time and discuss it." The buy-term-and-invest-the-difference concept reappears with each succeeding generation, despite the fact that it depends on several flawed premises: "the difference" will always be diligently invested every year, regardless of personal circumstances and business cycles; the investment will always be successful; and somehow the need for insurance magically will disappear at age 65.

Term and minimum payment variable policies take an awful lot of tending. The payment must be made in a timely fashion, otherwise restrictions and conditions apply. Miss a quarterly term premium by a couple of weeks and forms and verifications apply. And who knows what has changed health-wise or occupation-wise since the policy was issued? Miss a whole life premium, on the other hand, where the policy has some cash value, and the automatic premium clause kicks in to keep the policy in force.

Whole life is a sleep-good product both for the client and the agent. With half a century in the business and seeing how the economic climate of the country can change, I feel good about the whole life policies I have placed. The longer they are in force, the better it gets. When I give speeches and answer questions afterward, I am often asked what product I sell the most. The answer is easy. I sell all of them, but whole life with its cash value equity makes the most sense and cents.

With the hype from cable TV and radio ads, everyone thinks they can get a better deal by pushing buttons. It is our job as agents to help them push the right buttons through intensive, meaningful preparation for the future. It is not easy to sell the "more expensive" product, but with the clientÂ’s best interest in mind, it is our mission to explain, with vigor and honesty, what we can do for the future. They or their beneficiaries will thank us.

Sale on and save on!

Burt Meisel is a registered representative of and offers securities and investment advisory services through MM Investors Services, Inc., member SIPC, 33533 West Twelve Mile Road, Suite 295, Farmington Hills, MI 48331, telephone (248) 324-9337.
Atlas said:
Social Security is not as lucrative as it once was. The tax contributions are accelerating and are likely to continue doing so. Every so often a client will ask me if I think Social Security will be there when they reach the eligibility age. I always answer yes, because we canÂ’t do away with it, but I emphasize that how we pay for it is a serious question. It used to be Social Security benefits were not taxable. Now there is a tax if a recipientÂ’s total income goes over certain amounts.

Well the government have tip their hands on what the future funding of SS will be! People just are not listening, like usual. If you remember that little short guy that use to be Clinton's Secretary of something, Reich, Robert Riech I think check spelling. Yet what he said as been said by others and if you look at the right of private property being water down one can easily see what is next. How many Trillions of dollars are stuffed away in Qualified Accounts? How much money is stuffed away in Companies Retirement Plans? Companies are and have been for a while now defaulting their Retirement Plans, guess who picks them up? If you answer the US Government via some program you would be correct. The talk is, once the government has to bail out so many Retirement Plans by the private sector and the SS funding is seriously in trouble just how hard to you think it will be for them to convince enough people to support a Money grab of Qualified money just sitting around making interest? Remember half of the electorate are real close pay nothing in Income Tax, these people are likely the ones that have little in Qualified Accounts, just think how they will stand on such a thing if their Retirement Security is on your dime.

Slogan, "Hey we are all in this boat and those fat cats have way too much and need to think of the Nation as a whole". This money will save SS and your retiement check will be secure! Yea I can see this happening esp. if the tax laws stay the way they are.
When Social Security was first established, it was self sustaining, as a matter of fact, it ran a surplus for years.
When Social Security was first established, it was self sustaining, as a matter of fact, it ran a surplus for years.

Yes and No...It was and is only self sustaining if you have a lot more people working per each person drawing on it. It has never been a program that you contribute your dollars now and later get your dollars back. Whats funny is if you do this in the private sector the government will lock you up and throw the key away.

Well, you may be right, besides that, somewhere along the line, the government made the decision to borrow from the social security trust fund. As a matter of fact, I am embarassed to say it, I think Wilbur Mills ( D from Arkansas ) who was head of the House Ways and Means Committee, was the one who came up with that brilliant idea. He was an alcoholic and was going with a stripper named Fanny Fox.