On Thursday night as I watched one of my favorite television programs, “Lou Dobbs’ Money Line” on CNN, there was a report that talked about how a $1,000.00 investment in a cross section of US stocks had diminished over the last twelve months. If you had made this investment, and depending on the stock you chose, your $1,000.00 was now worth anywhere between $929.00 and $459.00. That mean you could have lost as much as 50% of your money.
We in the Bahamas have not fared much better. If you were like me who looked for safe sectors in our stock markets to invest in last year, then you know there were none to be found. No matter how diversified you became, we all still lost money last year. All of us watched our portfolio deteriorate right before our eyes, powerless to do anything about it.
In 2002 it was a case of bad compared to worse and based on what’s being said by the experts we can expect more of the same in 2003.
There has never been a time when there is so much uncertainty in the markets, whether it’s from the threat of international conflict, corporate restructuring or consumer pessimism. There has never been a time when so many economic fundamentals are up in the air at the same time. Even our usually dependable real estate sector is forecasting minimal growth for 2003. As it is expected to be affected by shrinkage in the ever-lucrative office and upscale residential rental market, occasioned by expatriate workers.
So what do you do? Why not take time to ensure that you are properly managing your family’s money!
Even if you have little money, or you’re heavily in debt, it’s important to re-evaluate your situation and come up with a plan to cut your expenses and maximize your earnings. It’s a sure bet to improve your finances.
Secondly, review your saving and investment habits, as these may be out of whack.
Although the experts have said it all along, it is good that persons are now realizing that an investment in the stocks market is risky business. They are now realizing that you can lose money and that you should only invest from money you can afford to lose.
But there is a product outside of stocks and mutual funds that is not so uncertain and allows you to:
1. Protect your Principal.
2. Get a guaranteed return on your investment.
3. Create an immediate Estate for your family.
The only product that provides these comforts is Whole Life Insurance. It is an invaluable tool and you should be sure to include it in your financial planning.
Cash Value Life Insurance
Whole Life insurance is life insurance that has both an insurance component and a savings component called cash values. It provides life insurance protection for your family in the event that you die, but it also accumulates a cash value over time.
You pay one premium for the total insurance policy and a part of that premium is used to pay for the insurance coverage you have purchased. The remaining part of the premium goes toward the investment savings.
This savings portion of the policy is invested in one or more investment vehicles (stocks, bonds, mutual funds, etc.) that the insurance company select and the investments chosen will generally provide a better rate of return than a typical bank savings account. What’s more, the cash value of your policy can usually be accessed if you need money.
Who should consider cash value life insurance?
A Whole Life insurance or Cash value life insurance is well suited to anyone wanting to cover long-term needs, because coverage continues for the rest of your life or to age 100. You won’t need to renew your policy periodically, nor will you need to provide proof of insurability once the policy is in place. Most cash value life insurance also allows you to lock in a premium schedule (level premium), so you won’t have to worry about the rising costs of insurance as you get older or your health deteriorates.
Advantages of cash value Life insurance
Life insurance protection
As with any life insurance policy, one of the main strengths of Cash Value Life Insurance or Whole Life Insurance is that it can provide adequate financial resources for your surviving loved ones in the event of your premature death. Knowing that this protection is in place allows you to sleep a little easier at night.
Your Principle is Guaranteed.
In addition to Whole Life insurance providing protection, you can rest assured that your premiums will not exceed your returns. In the earlier years, your account will not reflect this, as there are certain items such as reserves that must be established at the onset of a policy. As well as administrative and commission expenses which are higher in the earlier years. But in a few years your cash value should begin to grow and with the help of compound interest continues to grow.
Lets you make money on your money
Whole Life insurance will give you a return on your money (assuming that sound investment choices are made for the cash value portion of the policy). But even if the investment returns of the company are not that great you still make money on your money as most insurance companies guarantee that it will credit a minimum amount of interest to your cash values. Insurance that lacks the cash value feature, such as term insurance, doesn’t offer such investment opportunities.
Allows withdrawals from cash value
Depending on your insurance company and the exact type of policy you have, you may be able to withdraw a portion of the cash value in your policy. A withdrawal from a cash value policy is similar to a withdrawal from a bank savings account and almost as easy to make. As long as you maintain enough cash value in the policy, you can make withdrawals and still keep the life insurance protection in effect at your desired coverage level.
Allows loans against cash value
You can also take loans against your policy using the accumulated cash value as collateral. The interest rate is determined in advance and is often lower than the rates banks offer. If you die before the loan is repaid, however, the death benefit proceeds will generally be reduced by the amount of the outstanding balance.
Diverse investment choices
The insurance company because of its size and operations typically have a wider range of investment choices available for the cash value portion of your policy, which works to your advantage and result in more favourable returns.
Disadvantages of cash value insurance
Premiums more expensive than term life premiums
The premiums for cash value life are usually quite a bit more expensive than for a comparable amount of term insurance. The reason is that, with a Whole Life or cash value policy, you are paying for both insurance and the savings component of the policy. With a term life policy, you are simply paying for straight life insurance or the death benefit only.
What can you use your cash values for?
Like any life insurance policy, the primary purpose of cash value insurance should be to provide life insurance protection for your family. Beyond that, cash value insurance can be put to any other uses because of its unique savings element. You can, in fact, use it much as you would use your other investments. The expected growth of your cash value makes this type of insurance a good way to save for major financial goals such as making a down payment on a mortgage, paying off a mortgage early, retirement, starting a business, or funding your children’s education.
Given the ability of a Whole Life insurance policy to:
1. Protecting your Principal.
2. Give a guaranteed return on our investment. And
3. Create an immediate Estate for our family
I feel that it is Your Best Bet For ’03 and Beyond!
Glenn Ferguson, FLMI, HIA
Comprehensive Insurance (Agents & Brokers) Limited
P.O. Box N-9715, Nassau Bahamas
Tel: 242 327-0854 Fax: 242 327-0853
email: glen@coralwave.com
