Why permanent life insurance with living benefits can help you become your bankerArticle added by Charles McGruder on October 27, 2011

Charles McGruder

Lancaster, CA

Joined: February 23, 2010

We have a responsibility as financial services professionals to help our clients navigate these troubled waters.

We know life insurance is the true foundation of our society. Our life policies programs have made a course correction. We can now put our clients on the right path or provide them with alternative solutions.

Example A below gives us the Dave Ramsey old style program. He offers the following steps to financial independence by using the advantages of term life insurance and investing the difference in mutual funds. There are some flaws in the program.

Term life insurance is very expensive later in life, but when you need the coverage the most (between the ages of 80-85), term becomes a non-player. The hope under the Ramsey plan is that you will have saved enough money through investments in mutual funds, stocks and bonds to offset the cost of term insurance coverage in your later life.

Example A: Traditional 401(k) investment retirement plan

32-year-old father earning $40,000 per year
  • Has two children, ages 4 and 2
  • Invests 15 percent of his income in his company 401(k) mutual funds ($500.00 per month)
  • Uses only a 15-year mortgage plan
  • Buys $500,000 20-year term insurance for "nothing" — about $50.00 per month
  • Money needed for 529 college savings plan is $418.00 per month over 16 years*
  • Total financial savings, including college for the kids, comes to a monthly payment of $968.00

*529 plan projected on the basis of the 2-year-old with help for the 4-year-old

20 years later, now at age 52
  • Both children grown, now 24 and 22, are out of the house
  • By investing 15 percent of his income, he now has around $500,000-$700,000 in his mutual funds
  • House is now paid for, as well as everything else — no debts
  • If he dies, let’s see: kids are gone, no debt, house paid for, wife has $500,000-$700,000 retirement income.
However, this plan doesn’t plan for unforeseen drawbacks such as catastrophic major medical events. Every 40 seconds, someone in the U.S. has a stroke. Every 30 seconds, someone in the U.S. is diagnosed with cancer.

Example B: Alternative personal retirement plan plus 529 alternative plans.
This program features a multi-purpose IUL policy that contains living benefits, protecting clients' assets and retirement nest egg from events catastrophe major medical events.

32-year-old father earning $40,000 per year
  • Has two children, ages 4 and 2
  • Invests $500 per month of his income into index universal life insurance policy vehicle. Initial death benefit is $523,225. Projected income growth is 8.3 percent annually.
  • Uses only a 15-year mortgage plan
  • At age 46, his first child starts college — $15,000 per year from cash value
  • At age 47, projected 15-year mortgage is paid off
  • Children college fund funded by cash value of index universal life policy
  • At age 48, his second child starts college investment $30,000 per year. First child is a sophomore in college
  • At age 50, his first child graduates from college
  • At age 52, his second child graduates from college
  • At age 65, he retires with annual income of $54,380 from IUL policy.
  • If he dies at age 100, the projected death benefit is $1,284,580
Permanent life insurance plans with living benefits offers protection against the yo-yo effect of the stock market, mutual funds and bonds. 401(k)/IRA plans are not available until after age 59½ without paying a 10 percent early withdrawal penalty plus current year taxes.

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