Life Insurance: Too Much, Too Little or Just Right?

The thought that you may not need life insurance is anathema to most life insurance agents. But as a Certified Financial Planner who is also a life insurance agent, I have a different point of view. There are times when you may not need life insurance. To me, there are three reasons to have life insurance. You should use it to provide a way to replace the breadwinner’s income in the event of premature death, as a means to pay future estate taxes for pennies on the dollar or to employ some exciting special-situation strategies. Otherwise, you may not need life insurance and could better use that money to fund higher priority items like Long Term Care Insurance. Using life insurance to replace the breadwinner’s income during the earning years prior to retirement is a practical necessity, especially when you have children. Unfortunately, there are still many people who fail to protect their loved ones in this way. Because of our life insurance policies, my wife and I take great comfort knowing that our family would be well cared for should either of us pass away. If you don’t have enough life insurance to replace your income should you die, you could be placing a tremendous burden on your family. For single parents it is even more important! A simple rule of thumb to determine if you have enough life insurance is to divide your salary by .05. For example, if you earn $50,000 per year you should have approximately $1,000,000 in life insurance. In most situations, I recommend 10, 20, or 30-year term insurance as opposed to permanent insurance. Get the length of term that will take you to your retirement age. Once you retire you may no longer need life insurance. If you’ve accumulated enough assets to provide comfortably for your lifetime, then life insurance is no longer needed for income replacement. Don’t cancel that policy yet, though, because you may need it for other reasons. An individual can pass $2 million to heirs free of Federal estate tax. If you’ve successfully accumulated more than this then you may need life insurance to pay for future estate taxes. Even with the recent changes in estate tax laws, many still find themselves facing hundreds or thousands of dollars in estate taxes at their death. With proper planning, married couples are able to pass $4 million to their heirs in 2006 without incurring Federal estate tax. Unfortunately, few married couples have the proper plans in place and end up forfeiting one exemption which results in reducing that amount to $2 million. Life insurance is a wonderful way to pay death taxes without eating into the estate itself. This is particularly true when a large percentage of an estate is tied up in non-liquid assets, such as real estate. In those cases, those assets would have to be sold in order to pay the taxes. With the proper use of life insurance you can avoid these situations entirely, and do it in such a way that you pay your taxes for pennies on the dollar. If your estate is smaller, you may not need life insurance to help cover future estate taxes. The third use of life insurance is for special-situation strategies. There are unique strategies that will dramatically increase the amount of support you can provide your favorite charitable causes or provide a financial safety-net for your loved ones for generations. Even those of modest means can provide literally millions of dollars to worthy causes, while passing on a legacy of giving to future generations. Very few are aware of these strategies, but if you’d like to find out how you can take advantage of them, please give me a call. As a former missionary and head of a non-profit organization, I understand the impact such giving can have on deserving charities. If you don’t fit one of these situations you may no longer need life insurance. Don’t take this decision lightly, though, especially if your health has diminished. Also, depending on your age and health, you may get more by selling your policy instead of canceling it. Consult a qualified, unbiased professional prior to canceling your policies just to make sure. I’ll personally respond to your questions, free of charge. Go to http://www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Equity-Indexed Annuities: Seeking Legal Recourse

One of the main reasons I so adamantly oppose the use of Equity-Indexed Annuities is because what the investor receives isn’t anything like what they expected. What should you do if this happens to you? Read on to find out. If you are retired or near retirement. You’ve undoubtedly been told about the ‘it’s-too-good-to-be-true’ benefits of an equity-indexed annuity. (I’ve written extensively about why I do not like equity-indexed annuities. You can find these articles at www.guardingyourwealth.com.) Unfortunately, tens of thousand seniors are falling prey to these sales pitches. I know because I hear from many who eventually realize the mistake they’ve made. Many have been duped into investing all of their liquid assets into them. Some are shocked to find out that after 10 years, they still can’t get their indexed return unless they annuitize for another 5 years. All of them face huge surrender penalties. And the vast majority of these investors are seniors for whom such annuities are totally unsuitable. Most people don’t realize what they’ve done until they need to do something with that money. Having contacted the insurance company to get THEIR money, many find out that they’ve been ‘lied to, ripped-off and deceived’, says Cristina Pierson of Gordon Hargrove & James P.A. Cristina works with John Hargrove, a Florida attorney that regularly represents the elderly in annuity litigation. “Many have lost their life savings in a scheme to manipulate citizens into purchasing equity-indexed annuities,” Hargrove says. Hargrove should know what he is talking about. He has been litigating these cases since 2001 and was involved in a class-action lawsuit against American Equity Investment Life Insurance Company. Other insurance companies are being sued over alleged abuses relating to equity-indexed annuities. A consumer fraud federal class-action lawsuit was filed in Minnesota in March of 2006 against Allianz Life Insurance Company of North America, specifically related to the Master Dex 10 Annuity, the 10% Bonus PowerDex Elite Annuity and the Bonus Dex Elite Annuity. AmerusLife is named in a separate class-action lawsuit filed in Florida. Here’s what you should do if you feel stuck in an equity-indexed annuity and want to get out. First, send a letter to the insurance company stating the complaint. Explain your situation and financial status. Be direct. For instance, “How could you do this to someone who is 80 years old?” If you feel you’ve been lied to and deceived, make sure you say so in the letter. Specifically state how much you have lost or stand to lose. Tell them specifically what you want them to do. For instance, maybe all you want is to get your money back. If so, tell them. Ask that they respond to you in writing. Consider seeking legal council so the letter gets sent on the attorney’s letterhead. For some reason, insurance companies always seem to pay more attention to those letters! Second, contact your State Department of Insurance and formally file a complaint against the agent and the insurance company. The Department of Insurance can’t help you get your money back, but filing the complaint may keep others from falling prey. Urge them to pursue the matter to their fullest ability and ask them to discipline the agent. Talk to your friends. You aren’t alone. If this happened to you it has happened to others in your area. If possible, band together as a group to file the complaints—it will carry much more weight. Third, get other family members involved. Don’t feel guilty and try to hide what has happened. They can help you find an attorney. They can plead your case on your behalf to the insurance company. And they can help protect you in future financial decisions. If legal council is sought, it’s important that you find an attorney who is experienced in dealing with these cases. Search the internet to find articles that mention the lawyers involved in these cases. Also, reputable attorneys will take your case on a contingency basis, receiving their fee from what they negotiate with the insurance company. You should receive the full amount recovered, not that amount less attorneys’ fees. If you’re a victim of equity-indexed annuity fraud, do something about it. There are ways to recover what you’ve lost and regain control of your money. Have a financial question? Go to http://www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.

Reader Questions Advisor Recommendation

I recently received a question from a reader in Florida who is taking an early retirement. Like many investors, he was confused after meeting with a couple advisors. My advice to him might save you from making a wrong decision, too. “Phil”, (not his real name), has the option of taking either a lump sum payment or a monthly pension from his employer. He goes on to detail his financial situation: 401k, money market accounts, house paid for, no debt, low monthly expenses. Phil has lived beneath his means, saved his money and achieved financial freedom. Phil writes: “I met informally with 2 CFP's. They are working with people at (my company)...but they seem to only push annuities. After reading your articles on annuities I am cautious...I have always been conservative with my finances, but I realize that to retire at 55 I might have to expose myself to the equity markets. I would like to talk with an advisor who will show me multiple options and talk straight, with no fluff.” Here’s a shortened version of my actual response: “You are in one of the most important times of your life and are facing what may be your biggest financial decision. Whatever you do, be careful. It looks like one of your initial questions is whether you should take a lump sum. Generally speaking, I feel that people should take the lump sum because it gives them greater control, flexibility and access. It also becomes an asset that can increase in value and be passed on at death to your heirs. There is risk in doing so, though. Many retirees have been duped by advisors into investments that weren't in their best interest and ended up losing large portions of it as a result. You have to be willing to invest some time and energy finding the advisor that is right for you. Even then, you will want to keep track of what is going on at least on a monthly/quarterly basis so you can alert the advisor if you become concerned. There are several things to keep in mind regarding choosing an advisor. First, you aren't going to know if the advisor (or investments) you've chosen is the right one for you until probably 6-12 months down the road. Commission-based salespeople with their packaged products needlessly force you to make a 7-10 year time commitment. That's why it is VITAL that you not be in a situation where it will cost you thousands and thousands of dollars to make a change. On the other hand, fee-based advisors like me only get paid for the time you use our services. There's no commission, no time commitment and no automatic surrender penalty. This gives you significant control and flexibility. You remain the boss. If I don't keep you satisfied then I'm not going to keep you as a client. Second, beware of the advisor that promotes buy and hold. They're the ones that tell you to 'just hang in there' while they watch your account drop in value--and do nothing. The diversification I use combined with the technological safeguards I’ve created result in my clients being comfortable going for the growth because they know I'll take action should things not go as expected. Third, don't feel pressured to make a decision by anybody. There's no investment that is so great that you need to rush into it. You can take your time to find someone you feel comfortable with. Talk to their references (existing clients). Even then, only start with a portion of your nest egg and let the advisor prove him/herself.” Like I told Phil, you too need to beware of financial salespeople pushing pre-packaged solutions. If it’s designed for the masses it’s not designed for you. Don’t give in to sales pressure. Take your time-- this may be the biggest financial decision of your life. A wrong move is costly. Just because someone has the right initials behind his or her name doesn’t mean they will act in your best interest—most won’t. Be very skeptical. Do some independent research. It didn’t cost Phil a penny to get my opinion. It won’t cost you anything either. If an investment is being recommended that you aren’t sure about, I’ll be happy to provide a second expert’s opinion. Go to http://www.guardingyourwealth.com and click on ‘Ask Jeff’. In addition to being a nationally syndicated columnist and Certified Financial Planning Practitioner, Mr. Voudrie provides personal, private money management services to clients nationwide.