AccuQuote Blog

Our life insurance blog is dedicated to providing you with valuable information from experts on the topics of insurance, financial planning and personal finance.

What is Time Diversification? (and what does it have to do with life insurance?)

By Byron Udell

 

There is not a financial advisor on the planet worth his salt that does not recommend diversification. 

Diversification among asset classes.  Diversification WITHIN asset classes.  “Never put all your eggs in one basket,” so they say.

Why?  Because it minimizes risk and smoothes out bumps in the road by reducing the volatility in the value of a portfolio. 

So what’s missing?

LIFE insurance.  Life insurance is a financial instrument unlike any of the above.  It’s an asset class that has characteristics that perform infinitely better under certain circumstances than any of the above.  And while an otherwise perfectly balanced, perfectly allocated portfolio may protect you against certain types of risks, it completely fails to protect you if it has no time to perform. 

Take Bob, 50, who has no life insurance, but has stocks, bonds, real estate, and cash.  The experts say Bob and his wife will have plenty for retirement when he turns 65.  But if Bob dies tomorrow — no matter how well diversified he thinks he is — his financial plan will have failed.

Life insurance is the only way to protect against the possibility that you might not be around to see your investments blossom, and not including life insurance exposes your portfolio to significant risk.

What asset class, other than life insurance, would guarantee to turn pennies into dollars?  The fact is, the odds of death are 1 out of ONE… that’s 100%!  We just don’t know when.  And if it happens before the rest of your portfolio has time to do its job, your financial plan didn’t succeed, at least with respect to your spouse, children, and grandchildren.

Adding life insurance to a portfolio—looking at is as an asset class that provides what I call TIME DIVERSIFICATION—is the ONLY way to protect against the very real possibility that you may not have time to finish the job.  NOT including life insurance in a portfolio exposes that portfolio to significant risk that could otherwise be entirely eliminated.  I’d go so far as to say that, based on the statistics in the marketplace, and my almost 30 years of experience, it may be the biggest oversight of our time. 

Take a look at this link, http://www.investopedia.com/university/risk/risk2.asp, which discusses the various different types of risk and diversification.  They totally ignore time as a risk and speak nothing about time diversification.  It’s amazing to me that the well accepted diversification paradigm could overlook this critical risk factor.  But then again, it wasn’t THAT long ago that everyone thought the earth was flat, and that the sun revolved around the earth.  It always takes time and significant energy to change a paradigm.

Fact is, if you happen to die before your time, life insurance is an asset class that delivers an ROI at death that is impossible to match.  And even if you happen to die when you’re supposed to (at your actuarial life expectancy), then its returns are STILL better than long term zero-coupon bonds.  In fact, the ROI at death, at life expectancy, is actually HIGHER than the insurance company earns on the premiums. 

Life insurance is, unfortunately, the most universally misunderstood financial product on the planet.  But when you actually look at the numbers, it’s really not that hard to understand. 

I ask you, do you think it’s likely, or even possible, that you or I will live long enough to make a bad deal out of a life insurance policy?  I don’t think so. 

And when you die, while you will likely leave behind lots of different assets, life insurance is by far the cleanest.  When set up properly, the life insurance proceeds are paid in cash within days, are income and estate tax-free, are not subject to the costs and complications of probate and, as such, can immediately be deployed for living expenses or other investments.

Bookmark and ShareSubscribe

Posted in Accidental Death Insurance | No Comments »

Can I Still Get Life Insurance If I Use Marijuana?

By Byron Udell


I never thought I’d be writing a blog post like this, but with the “holiday” (April 20th, or 4/20) approaching, it makes sense to talk about how smoking marijuana can and will affect your life insurance rates.

Fact is, most companies will still consider you insurable if you like to indulge, whether it be recreationally or medically.  However, those companies will most likely put you in the “smoker” or “tobacco” classes, which have rates as much as 4x those assigned to otherwise healthy non-smokers.  Of course, your rate also depends on other factors like your health and lifestyle.

There are a select few companies who will give you a non-smoker, preferred rate if you only use marijuana 1-2 times a month.  There’s no way the average consumer would know which companies treat marijuana smokers favorably; that’s why comparison shopping and using a smart quote tool is so important.

Like with any health condition or lifestyle choice, it’s imperative that you’re 100% honest and forthcoming on your application.  If you're not, and they find your THC (the active chemical in marijuana) levels elevated, your whole policy can and probably will be rescinded, or voided.  Even worse, if you die, and they found out you smoked, vaped, ate, or consumed marijuana in any way, your death benefit will NOT be paid.

You should know that if you use cocaine, heroin, methamphetamine, or any unauthorized prescription drugs, you WILL be denied coverage.  Also, if you have been arrested for selling or possessing marijuana, you will most likely be denied coverage.

It’s probably a good idea to stop smoking for a week or two before you get your medical exam. For more tips to help you get the best exam results, check out this short video.

All life insurance companies are different and they will quote differently.  That’s why it’s ideal to shop the market.  At AccuQuote, we do this for you!

Bookmark and ShareSubscribe

Posted in Life Insurance | No Comments »

“Hmm…How Should I Spend My Tax Refund?”

By Byron Udell

For many people, tax time is kind of like Christmas in the spring – only you don’t have to hang all the decorations!  When you get an extra check in the mail, it’s natural to start thinking about all the cool stuff you can buy.

According to the IRS, the averagetax refund this year is $2,815.

What are you planning to do with all that money?

I have to tell you, there’s no better time thanright now to FINALLY get life insurance.Of course, I’m a life insurance guy, so that’s what I would say.But hear me out. There are 4 really good reasons you should at least think about buying now:

1)  You have the money in your hands!  Sure, you could buy a few “toys” which will be fun for a little while, but wear out and break later.  Or you can use your money on something that will last…something that will be worth more than you pay to get it.

2)  Term insurance is cheaper than ever.It’s shockingly affordable.

If you’ve ever hesitated to get life insurance because you worried it would cost too much, maybe this example will put your mind at ease:

A 40-year old man (non-smoker) with average health can get $500,000 worth of coverage for a 25-year term for just $899/year or$78.66/month.  If he paidupfront for the whole year, he would still have $1916 from his tax refund to play with.

3) The younger and healthier you are, the lower your premiums will be.Even if you’re working on improving your health, the clock is still ticking.Science hasn’t found a way to stop people from aging yet.  And even healthy people fall victim to unexpected accidents and illness.  If you’re healthy and apply now, you never have to worry about an accident, diabetes diagnosis or cancer scare sending your rates through the roof.

4) You know you need it.  You don’tneed a new Apple watch.  You don’tneed to trade in your 37’ LCD television for a 40’ LED.  Your kids don’tneed the newest cell phones.

But if you die, your family will need to cover your final expenses.  They probably willneed to replace your income. They’ll definitely need time to grieve.  Now, you can hope that you live forever, or that you have a couple million dollars in the bank when you do go…or you can prepare now, just in case the dream scenario doesn’t quite work out.

You get to make that choice.

(Here’s the cool thing: with premiums like the one in the example above, you can take care of your life insurance and still have cash left over to spend on a toy or two.)

 

Bookmark and ShareSubscribe

Posted in Life Insurance | No Comments »

Read The Motley Fool Before You Retire

By Byron Udell

If you’re a regular reader of this blog, you know that I think The Motley Fool really gets it right when it comes to doling out personal finance advice and providing educational and informative content.

Well, my man Jason Hall is at again, this time giving us a thorough and comprehensive guide to what we should be thinking about as we head into retirement.  The title of the piece, “Read This Before You Retire,” is direct and to the point (like me!).  The headline tells you how important the information contained in the article really is.

Jason goes as deep as any journalist I know in his research and reporting.  For this story, he called on me to comment on how to prepare for the unexpected.  He quoted me talking about life insurance and long term care.  While sudden death is unexpected, eventual death is a certainty (as far as I know, the odds of death are still 1 out of 1).

When it comes to long term care, the numbers, which I lay out in the TMF piece, show that needing assistance when you’re older is fairly likely.

It’s a great read.  Enjoy and learn from it.

 

Bookmark and ShareSubscribe

Posted in Life Insurance | No Comments »

The SECRET of How to Win the Game of Life Insurance (Part 3)

By Byron Udell

 

Now that you know the SECRET to winning the game of life insurance (DIE WITH YOUR POLICY IN FORCE!), it’s time for some real world examples.

I told you earlier that The Secret can work with term insurance, universal life, or any other kind of life insurance.  Now I’m going to show you exactly what I mean.

Winning the Game with Term Life Insurance

On the surface, the only way to win the game with term life insurance is to do something you don’t want to do—die before you’re supposed to (dying young is not exactly ideal, at least not in my mind).  But even if you don’t die before your time, term might still work, but only if you’re smart enough to “convert” your policy to permanent insurance before  you lose the right to do so, and then hold on to the coverage long enough to die with it in force.

What about Permanent Insurance?

It costs more than term, but it DOES have a level premium for the rest of your life.

Consider this example:  I bought a policy last year…age 55.  1MM of coverage at a price of just over $10,000 a year.  Assuming I live to age 85, I will have made 31 payments of $10,000, or around $310,000.  My family will receive $1,000,000 tax FREE—for a gain of $690,000.  That’s an AFTER TAX rate of return of over 7%, and the pre-tax equivalent rate of return, at least for me, is well over 11%, and it’s a conservative, fully guaranteed contract, issued by a multi-billion dollar, A+ rated financial institution that’s been around for well over 100 years. 
 
And remember, that high return is if I die about when I’m supposed to.  If I die early, then my policy really pays off. The returns are astronomically high.  When I bought my policy, I tried to fathom a scenario under which I could live long enough to make the purchase a bad deal.  The fact is, I can’t.  Even if I live to 100, I still WIN the game.

Let’s look at another example, one that’s more representative of our average customers:  Age 43, female.  500K policy, LIFETIME guaranteed premium of about $2,500 a year.  Say she lives to age 86.  She will have paid in $2,500 times 43 years, or a total of $107,500.  Again, at her death, her family would receive $500,000 …tax free… for a net gain of $392,500.  The AFTER tax internal rate of return on that is over 7.5%.  The pre-tax equivalent is, again, right around 10 or 11%, depending on your tax bracket.

In today’s world of ZERO interest, where else can you go and get returns this high WITHOUT taking market risks?

The Choice is Yours

Some people ask, HOW can the life insurance company make any money on a policy where they’re returning a 7% rate of return if you die at life expectancy, and an astronomical return if you die early?  Especially when they’re only earning roughly 5-6% on the premiums you’re paying!

In case you weren’t listening, they DON’T make money on those policies.  Again, If YOU DIE WITH YOUR POLICY IN FORCE, the insurance company WILL LOSE money on it.  The people who buy—and DROP—their policies PRIOR to dying are the ones who subsidize the returns for people who are smart enough to DIE WITH THEIR POLICIES IN FORCE.  Look at it like this:  the losers pay the winners, and the house (the insurance company) takes a small cut.  I know it sounds crazy, but it really is that simple.  

Here’s the bottom line:  TO WIN THE GAME OF LIFE INSURANCE…you have to own a policy that you’ll be able to KEEP until you die.  Now for most of us, that means a policy with an affordable, predictable, and level premium for life.  

The choice is yours.  If you are going to own life insurance, you’re either going to WIN the game, or you’re going to LOSE the game.  We WANT our customers to WIN.  When you call us at 800-442-9899 or get a FREE quote on AccuQuote.com, we’ll tell you how to win, and give you simple ways to make that happen.  As always, it will be up to you as to whether you decide to take our advice.

Bookmark and ShareSubscribe

Posted in Life Insurance | No Comments »