There’s a great video clip from CNBC where life insurance is discussed as a new asset class. With today’s financial markets’ volatility, the stability, tax deferred interest, potential increasing insurance through dividends of a whole life insurance policy can be very attractive.

One of the moderators recalls ten years ago when commodities were added as an asset class and look what happened there!  I highly recommend this video.

In a rocky economy stability and preservation of capital may be your best bet.  We have often recommended whole life insurance to those with good income and a strong asset base.  Why?  Term life insurance is often a good and the right choice to get sufficient life insurance.  The first step is always:  Get enough.  Then look into the type of life insurance.

BusinessWeek.com just had an article quoting the chief economist at Standard and Poor’s and discussing why whole life insurance can be a great choice.  This goes against the generalities of some pundits who say one should always get term life insurance.  The truth is never that simple.  The true answer is that it depends and most importantly that you get enough life insurance, no matter the type.

Of all the questions we get, one of the top ones is how much life insurance should I have?  Also, Do I have enough life insurance?

There are tools to calculate how much life insurance is right.  You can look it up on the lifeinsure.com site or simply use the “Interest method.”

This works as follows:  How much income would your family need to maintain life style, save for future needs and wants such as college and retirement for your spouse and build in a “fudge factor” for not having enough?  Let’s say the answer to that question for you is $$80,000 per year.

The formula then is to

1.  Pick an interest rate that you think your spouse or dependents could make.   Let’s use 5% for an example. 

2.  Divide the income ($80,000 by 5% or .05)  That comes to $1.6 million. 

3.  Thus you need $1.6 million of cash to provide $80,000 per year.  You can subtract the amount of liquid cash or investments from the $1.6 million and you now have a life insurance amount to work with.

Here’s the formula:  Income needed per year divided by interest rate = result minus cash and liquid investments.

See the page at the lifeinsure.com site How much life insurance should you have?

In an article today in The Dallas Morning News on keeping your money resolutions, one of the points was to check if you’ve covered your insurance needs.  The article mentions both life insurance and disability insurance.

The question asked was:  Do you have enough life insurance?  But no formula was given.  You can check the lifeinsure.com site and read up on some of the simple methods used to calculate how much you should have. 

Here’s a simple formula:  1.  How much money would your family need to live per year?  2.  What interest rate could your spouse earn safely?  3.  Divide the annual amount needed by the interest rate.  4.  Then take off liquid assets in savings accounts and stocks and bonds.

Here’s an example:  Family needs $80,000 per year.  You think your spouse can earn 5%.  Divide 80,000 by 5% (.05) = $1,600,000.  Then take off savings at say $300,000 = you should get $1,300,000 of life insurance.  To double check or prove the numbers take the $1.6 million X the interest rate (5% or .05) and you’ll get $80,000.

Hope this helps.  Call us at lifeinsure.com 866 691 0100 if you need any help with this or any life insurance question.

Business life insurance is an extensive topic that can’t be covered in one blog post but here’s some data to start with.  There’s a helpful article on business life insurance from The Baltimore Sun that speaks to the often neglected concern of what happens to a business (and the business owner’s family) if an owner or key employee should die.  What happens to the ownership?  What is the financial loss if a key employee, whether an owner or not, should pass away?  What would be the reaction of customers?  Of suppliers?  Creditors?

The best way to avoid this uncertainty is to have business life insurance.

The two most common types of business life insurance are life insurance to fund a buy-sell agreement and to cover the financial loss of a key employee.  You can find out more about how to structure these types of business life insurance by talking with the experts at lifeinsure.com.

Â

The Motley Fool has a recent article about how whole life insurance has had a resurgence among 30 year olds.  The author takes the common viewpoint of the financial media that one should buy term life insurance.  The author at least says: “It’s not that buying a whole life policy is such a terrible idea.” 

The problem with this article and other similar ones is the generality.  There is never an “always”.  (except for that generality!)  As the author says:  “Most 30-somethings would be better suited to lock in rates with a 20-year level premium term policy. When you reach your 50s, consider reducing your coverage amount and perhaps using a shorter 10- or 15-year term. If you don’t think your insurance needs will fall in 20 years, you can get a 30-year level term policy right away. “

There is a problem with this logic.  Having been in the insurance business for many years, I don’t know of a single beneficiary, (spouse/children) who is or would be thrilled that the term life insurance policy that their spouse or parent has been paying for 20 or 30 years is suddenly at zero at age 50 or 60. 

I do know of people who buckled up, thought long and purchased whole life insurance in their 20’s, 30’s and 40’s who now have a wonderful legacy for their family and have opened up choices in financial planning that they wouldn’t have had if they hadn’t made that commitment.

This is not to say that term life insurance is not a great financial tool.  It is, if one is limited in their income and savings choices.  The first and most important move if you have loved ones who depend on your income is to have life insurance and to have a substantial amount that really replaces your income.  Sometimes term life insurance is the only choice but if one is doing well financially and takes care of their retirement programs and other savings programs, then whole life insurance can be a superior choice and enhance the other asset pools.

Â

It’s interesting that about three quarters of Americans think that life insurance is too expensive to put into the family budget but the facts are different.

Term life insurance has reached its lowest costs in history because people are living longer and because of competition among life insurance companies.

This info comes from a recent study shown in a recent article in earthtimes.org where David Woods, the president of Life Insurance Foundation for EducationÂ

The Motley Fool has a recent article covering life insurance and disability insurance especially as regards retirement.  The gist of the article is that events can occur that can block the full funding of retirement.  The two events discussed are premature death and the effects of this on one’s family and disability and the effect on one’s income.

The article recommends getting adequate life insurance and disability insurance.

 From the article regarding life insurance:  “The real key is to provide your family with enough protection to give them the widest flexibility in rebuilding their lives without you. Facing the grief of your loss will be tough enough without tough financial decisions to make at the same time.”

About disability insurance:  “The essential aspect is to make sure it will continue providing income as long as you need it. For most people, that means a policy that will pay you until you would have retired.”

There is an extensive article on life insurance in Black Enterprise Magazine’s web site. 

It’s always good to see exposure for the life insurance topic so that more people will do what’s most important i.e. get the life insurance that’s needed so parents make sure that their children are taken care of in case of death.

The important point to remember that may not have been fully emphasized in the article are to get the most possible life insurance regardless of type of life insurance chosen.  Keep in mind who life insurance is for:  Those who will be effected or hurt financially

Now there’s an interesting statement coming from an author of a blog on life insurance!

It was just to catch attention but there is an interesting alternative method.  Instead of using the life insurance to pay the estate taxes.  Have the life insurance go to the children (estate tax free if set up properly by an attorney in in an ILIT - Irrevocable Life Insurance Trust), then have the balance of the estate placed in a Charitable Lead Trust.  A Charitable Lead Trust (CLT) is a unique instrument where the interest on the principal is used by the charity for a number of years.  At the end of those years, the principal (in this case one’s estate) goes to the children estate and income tax free.  If the charity chosen was a family foundation, then the children can direct funds to help social, health, community and/or religious programs. 

Thus you create three “inheritances”:  1.  At death through ife insurance  2.  At the end of 15 to 20 years where the original amount (plus any earnings in excess of the federal rate) go to the heirs estate and income tax free and 3. An inheritance to help society that can be directed by the children through a foundation.  In this solution, no estate taxes are paid.  One has, in a way, redirected taxes towards one’s favorite charitable causes.  You’ve been able to “dial in” a tax free benefit at death, delay a second inheritance which would have been likely planning anyway (and make it tax fee as well) and help your children contribute to society through your legacy.

Compare this to the most common solution (which is still better than no solution).  Life insurance is purchased through an ILIT as an estimate of estate taxes.  At death, the trust with the insurance proceeds, buys assets from the estate equal to the estate taxes and the estate pays the taxes.

Why not have it all using the “three inheritance” solution.  The experts at lifeinsure.com can discuss these alternatives with you in concert with your legal and financial professionals.