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All Insurance Purchases are an "Accident of Timing"...Except One

If you could design...

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No one wakes up on a beautiful Saturday morning, stretches, and says “there is only one thing that can make this day better…I’m going to find an agent and buy insurance!” 

Insurance is not a fun item. It’s not a shiny toy. It's purchased when necessary. It’s purchased when there is a death nearby which results in a sense of mortality (Life Insurance). It is purchased when Mom or Dad need help (Long-Term Care). It is purchased when there is a new car (auto insurance).  And so on…  Insurance is usually purchased when an event creates motivation to do so and is “an accident of timing”.

However, there is one kind of insurance that escapes from that corral: “Participating, Non-Direct Recognition Whole Life Insurance”. Why?  It's purchased for its "living benefits" attributes.  It has been used for well over a century for wealth accumulation, portfolio stabilization, and income.  Many, at all socioeconomic levels,are aware and use it aggressively. 

Insurance? Wait, wait…think about this:

If you could design the perfect financial instrument for growing your money throughout your life, what attributes or characteristics would be important?

  • Liquidity – immediate access to funds for emergency, opportunity, financing big-ticket purchases, etc. with no restrictions or cost to access

  • Safety – something that is highly rated by third-party rating services

  • Guarantees on the Principal – I can’t lose it to downside market risk

  • Guarantees on the Growth – for at least a competitive long-term return that is predictable

  • History of Proven Consistency with Very Low Volatility – for over 160 years

  • Tax-Deferred Accumulation – just like a qualified plan or annuity

  • Untaxed Distribution – unlike a qualified plan or annuity

  • No Contribution Limit – unlike qualified plans (IRA, 401k, etc.), there is no limit on how much can be contributed per year

  • No Distribution Limitations

  • Flexibility

  • Funding Continuation – in the event of disability

  • Would avoid probate

  • Would provide for a multiple of account value – at death to heirs

  • Income Tax Free – to heirs at death

These attributes of a perfect financial instrument maximize efficiency, control and safety (the “ECS” factor) which creates predictability and security for retirement. If this type of financial product existed, how much of your long-term portfolio would you allocate toward it?

Yes, it’s Insurance…but what it’s called should not get in the way of what it can do for you.

The post All Insurance Purchases are an "Accident of Timing"...Except One appeared first on If I Had Known - a personal finance blog.

Alex Himel