What could you possibly not know that they do!? Theoretically the wealthy don’t need it, right? Turns out, they’re the biggest buyers of life insurance. The wealthy have clearly nailed math.
Get in with the money-makers and learn how to math with Byron – the right way.
Here’s a question I get asked all the time: Why do so many wealthy people buy large amounts of life insurance when they clearly, or at least ostensibly, don’t need it?
The answer is simple: Wealthy people are usually pretty good at math. They’ve crunched the numbers and figured out that if they just make sure to hold onto their policy until they die, the rate of return on their premiums, at death, will be higher than any other safe, conservative investment they could make. In fact, it’ll even beat many of their more risky investments, without having to take the risk.
To them, it’s just another asset class. Let’s face it, every investment advisor or money manager on the planet always recommends diversification. As we all know, that means not putting all your eggs in one basket. You might own some stocks, but not all one stock. And not just stocks, but some bonds too. Perhaps some real estate, precious metals, commodities, maybe even some cash. And if it’s all done perfectly, given enough time, theoretically, by diversifying, your returns should be steadier… and given enough time, all should be fine in the long run.
But what if you die earlier than you plan to? No one expects that to happen and we don’t want to think about it, but it happens to people every day. TIME then is a key component to the success of any financial plan. Investments need time…to grow.
Your portfolio is probably diversified to protect against a whole raft of risks, many of which will never come to pass. For example, some of us own gold as a hedge against a currency devaluation, which may or may not happen. But remember, death too… is a risk to your portfolio… and your plan for your family… but unlike the other risks, death is a certainty. Doesn’t it make sense to diversify your portfolio against the possibility that you might die early? I call this TIME diversification.
The fact is, if you die young, there is simply NO asset class that’ll even come close to outperforming a life insurance policy. And, if you die when you’re supposed to, right around your life expectancy, the rate of return is still around 6% after tax, that’s an 8-12% pre-tax equivalent depending your tax bracket, which beats virtually every other safe investment on the planet.
The best part is that unlike any other type of financial instrument, life insurance doesn’t need time to grow. For example, say you’re age 55, and you buy a $1,000,000 life insurance policy for $10,000 a year. If you die next year, the $10,000 instantly turns into 1 Million dollars. Die in 3 years, $30,000 in premiums will have turned into 1 Million dollars, tax free. Die in 20 years, and you will have turned $200,000 in premiums into $1,000,000. In fact, it’s almost impossible to fathom a scenario where you could live too long, and turn it into a bad deal.
So that begs the question…. should you consider taking a small slice of your portfolio and diversifying it into life insurance, as an asset class? That’s up to you … but I know I did!
If you have any questions, or want to see the specific numbers in your case, so you’ll know exactly how this works, give us a call at the number on your screen. I’m Byron Udell, Founder and CEO of AccuQuote, and you can ask for me personally. Or you can go to AccuQuote.com to learn more.
Four minutes well spent! Now, check out nifty calculator below and get a better idea of how much life insurance you actually need.
Nifty Life Insurance Calculator
Our Life Insurance Calculator can help you get a rough idea of how much coverage you’ll need to make sure your family is okay financially when you die.
Annual income before tax: $Annual income is an important factor in determining your needs, but it’s not the only one. When you die, your life insurance is like your final paycheck.
% of income needed by dependents: %Because you’ll be gone, presumably they won’t need as much as you’re currently earning. Typically, 80% of your current income is a good place to start.
Your Age: yearsThe younger you are, the more years of your income your family stands to lose when you die.
Number of years benefits are needed:If you died tomorrow, how many years of income do you want to provide for your family?
Annual inflation rate (estimate): %Because of inflation, in order to maintain your family’s current standard of living, you’ll need to plan for increases in their annual income to keep pace. Historically, inflation has averaged between 2% and 4%.
Annual interest rate (estimate): %This is an assumption as to how much you believe your spouse will be able to earn on the death benefit proceeds. We have found that most surviving spouses are usually very conservative in how they invest the death benefit. The most common thing we see is that the money gets deposited into a bank account. You know your spouse better than anyone. Pick a number that you feel your spouse will be able to comfortably earn on the proceeds.
So what’s next? Call us at 877-794-9817 and let’s chat about the types of coverage that may make the most sense for you.