The New Need For Permanent Life by ps94506


									         The New Need For Permanent Life Insurance

                                  By David A. Bardes

When it comes to life insurance, whatever your school of thought, be it a fan of term
insurance or a buyer of permanent life insurance, permanent life insurance just got a shot
in the arm, a booster shot, no doubt.

It seems as if the first wave of baby boomers that are retiring are buying annuities in the
droves. It seems everyone that knows we are in a zero interest rate growth period, a
single premium immediate annuity can produce a lifetime guaranteed income and get a
roughly 10% internal rate of return, after taxes. Just turn on your television and watch all
of the annuity commercials.

The best piece of wisdom that is, in written format, is a white paper written by two
college professors, that explains and proves the importance of annuitizing part of your
estate at retirement. After reading the paper, titled Investing Your Lump Sum At
Retirement, you will go out and buy annuities, it is that powerful of an argument in favor
of single premium variable annuities and the entire concept of logical annuitization. You
can find the article at my website, I have received
permission from the author to distribute it freely. You may want to get his permission if
you are going to post it or use it with your clients. The author’s email in the article, on
the front page.

Despite their popularity, the one greatest hesitation of single premium annuity products
buyers is their remorse of forgoing such a large lump sum of cash, granted in lieu of a
large guaranteed monthly income for life, which just creates a big dent to your next egg.
The loss of the lump sum to your estate may cause you not to buy the annuity. This is the
number one objection to buying single premium immediate annuities.

The solution, it seems, is to buy life insurance equal to the amount of the single premium
immediate annuity. Therefore the estate does not take a dent. The amount of your estate
becomes whole again. Well, people thought out that solution years ago and found out
that life insurance at age 70 is too expensive to financially justify the purchase.

Here comes the part of why permanent life insurance is getting the boost, and that is
buying the permanent life insurance at age 50, or 40, or even 30, totally justifies
financially it’s logic to buy it early for when you need it later. You need the death benefit
at age 70, so buy it now, while it’s cheap. To run the math take a permanent life
insurance illustration, the cost of it that is, and then subtract all of the cost of the term
insurance you’ve been paying every year for 30 years, and the resultant sliver of
increased cost becomes a run on the internal rate of return to the polices cash values. The
permanent life insurance becomes an asset. An asset that, then, at age 65 or 70, you buy
a single premium annuity and you have the life insurance to cover the loss of cash. But
the permanent life insurance policy has a tax deferred cash value growth factor and an
income tax free death benefit. The death benefit goes directly to your beneficiaries
within two weeks of your death.

Life insurance produces cold cash at death. Therefore, for this approach to work, you
don’t even need to have a trust or other legal effects over the policy. The life insurance
policy has all the legal protections built in already; an owner, an insured, and direct and
protected beneficiaries. The life insurance is, or was, used to cover the purchase of a
single premium immediate annuity, but after death, it become liquid again at a most
opportune time. The cost of settling your estate may have to come out of the life
insurance death benefits, remember, it’s cold cash at the most important time.

The way to prove that the math works for you is figure out about how much money you
want to annuitize, just an estimation, then get quotes for permanent life insurance,
subtract the wasted term insurance premiums, place a single premium immediate annuity
in at age 70, with most of each payment tax free, and guaranteed for life, then estimate
death at age 85, bring in the tax free death benefit, then run an internal rate of return on
all the cash flows and you may be presently surprised by the effective rate of return.

This whole reality means that as early as age 30, individuals should start buying
permanent life insurance. Buy some more as you age, build up a portfolio of permanent
life because you can use it as an effective wealth-growing tool at retirement. Employers
can even provide permanent life insurance as a voluntary benefit.

David Bardes is the President & CEO of Bardes Consulting, LLC, a fee-only life
insurance consulting firm ( that has saved its clients
tens of millions of dollars in cost savings and plan efficiencies.

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