Month: January 2014 | Bob Ritter's Blog, ideas for financial service professionals

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Next time you are confronted by a “termite” who tells you cash value life insurance is a lousy investment, try asking one of these questions:

1. “If something you believe to be true turns out to be wrong, when would you want to know about it?”

Or this:

2. “If I agreed with you, then we’d both be wrong. Do you want to know why?”

Or this:

3. “Do you dislike cash value life insurance so much that you’ll give up yield just to avoid it?”

If a CPA or attorney is the termite, either #1 or #2 can be effective, but #3 needs to be reworded a little.

4. “Do you dislike cash value life insurance so much that you recommend clients give up yield just to avoid it?”

If you’re bold enough to use these questions, you must be able to prove the point, so follow-up with this question:

“Would you like to see how you would have to earn over 12% in order to match the yield of cash value life insurance?”

Most reasonable observers will generally answer that they would like to see the proof of your claim.

Proof? As an example, click here to review the indexed universal life (IUL) illustration we prepared for Elizabeth Rand, MD, from Case Study #2 in last week’s Blog #36. Her policy is intended to be a source of after tax retirement cash flow coupled with substantial death protection.

After reviewing Dr. Rand’s comparison to term insurance and a side fund on Pages 1 – 3 (note on Page 2 of the illustration that the term and side fund evaporate in year 28), pay particular attention to Page 4. It shows that Dr. Rand would have to earn a pre-tax, equivalent, compounded rate of return of 16.12% on the side fund each and every year to match the results of the IUL cash value.

Might you be asked to prove it? You might, but it’s simple. Run the illustration with the side fund at 16.12%, and you’ll have the documented proof as the side fund and cash value come together in the last year of her illustration.

Note: Dr. Rand’s IUL illustrates participating loans which makes her comparative yield pretty substantial.

Does Dr. Rand’s illustration apply to all prospects? Of course not, and we suggest you develop several masters at different ages and different amounts and carry them with you. This way, an appropriate one will always be available when you need it — and you will need it.

Click here for a similar comparison using a less substantial policy. Page 4 in this case illustrates a pre-tax equivalent rate of return of 13.29% for the side fund to match the results of the IUL. (The difference is mainly caused by the fact that this particular IUL carrier does not illustrate participating loans.)

The Suze Ormans of the world are relentless in discrediting cash value life insurance. I don’t care how big or small your case is — they are simply wrong! If you have the cash flow to buy permanent life insurance, you’re nuts to buy term.

We prepared Dr. Rand’s comparison to “Term and Invest the Difference” in the InsMark Illustration System. For licensing information, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275). Institutional inquiries should be directed to David Grant, Senior Vice President – Sales, at dag@insmark.com or 925-543-0513.

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Note: Last week, we promised to compare how Dr. Rand intends to use her IUL as the funding instrument for a deferred compensation arrangement. We will do that in one of the next few Blogs.

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