Where insurance gets de-mystified

Planned Down Time Tonight 10pm

Hello everyone.  Tonight, the Insurance Pro Blog will be temporary offline starting around 10pm EST.  We should be back up and running within a few hours.  Why the downtime?  You’ll just have to wait until later tonight/tomorrow to find out.


Exciting announcement upon our return.

How Come People aren’t Laying Dead in the Streets? Retirement for the Baby Boomers

If you’ve spent any time reading the financial press you’ll likely notice that Americans are chronic undersavers.  In fact, it turns out we’re so bad we recently reviewed a lot of the ideals Alan Greenspan championed and it turns out he might not have been exactly right (or at least that’s the current preveiling theory, I’ve always believed he’s sharply sarcastic and often made subtle jokes while addressing Congress that went over most people’s heads).  If you want “proof” that we’re meandering up the creek without a paddle check here:

 43% have less than $10k for retirement 

The Great Risk Shift 

Retirement Crisis Closes In On Baby Boomers 

Solving a Looming U.S. Retirement Crisis 

Read more…

Whole Life Insurance Distributions, the “Whole” Story

Life insurance agents love to fight over meaningless figures in an attempt to inflate the importance or attractiveness of their products.  Truth is, current facts and figures aren’t going to matter all that much.  I’ve mentioned before that design is super crucial, and I’ve also hinted at the notion that there are core attributes that make some products better than other.  There isn’t really a blanket list of features regarding these attributes, so a little consulting with a knowledgeable agent is prudent.  To highlight my point, however, I’m going to dive into the topic of policy distributions.  This will become part of many posts discussing different features and why they matter.  Throughout all this, you’ll begin to understand why it’s difficult to recommend one carrier as better than all the others, as they can be varied in where they are strong (i.e. one size–or carrier–does not fit all).

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The Term Life Insurance Quoting Game

This one is intended for the consumers out there.  Ever tried to compare term insurance rates across an array of different carriers?  Ever wondered why some are consistently so low while others are incredibly more expensive?  Ever talk to an agent who seems to throw a bunch of numbers at you without a lot of explanation why one might be better than another?  Term life insurance seems like such a simple product and yet a lot of agents can make it so painfully difficult to buy.  Why?   Read more…

Cash Value Life Insurance as an Asset Class

I’ve been meaning to do this for a long time now.  And this discussion will stem several additional posts to address how placing cash value life insurance in your personal portfolio can significantly improve your financial situation, by leaving numerous options on the table that most people forfeit because they pick up and hold onto really bad financial advice.  Approach the following with an open mind, and be prepared to have your outlook on personal finance changed forever.

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Why Stock Market Returns Matter, But Not for the Reasons You probably Thought

I’ve been known to quote stock market returns from a Compound Annual Growth Rate (geometric mean) point of view.  This calculation takes into account the effect time has on a rate of return and is wildly more useful than simply looking at average rate of return (usually quoted as the arithmetic mean).  But any good hardcore day trader or even the wannabe home gamers in the investment world should quickly ask a disarming questions: “so what?”  So the markets have traditionally failed miserably to consistently post a year over year positive return over the course of the past decade.  There are still people who make money investing in equities, even your precious insurance companies.  And you know what?  They are correct.  Read more…

Allan vs. Pam

Spring is here, time to enjoy warmer days (if you’re with me in the Northeast), blooming flours, and a fight between a so called financial educator who hustles a selling system to insurance agents and a fee based financial planner who is pretending to be a consumer/journalist.  Here’s the story.

So what does this all mean?  Pam is being exposed for the swindler she really is?  Allan is looking to knock some competing savings strategies off the table as he competes for your business?  Or perhaps CBS is just doing what all good media outlets do, selling a story.  Let’s take a closer look at this, shall we?

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Indexing In Monte Carlo

Now that we know the basics of indexing, we can dive into a much more interesting topic: Does it work?  We’re going to use a hypothetical contract (it’s actually a real contract from which I have borrowed heavily, but we won’t name names) where there is a minimum interest rate of 2% per year and a maximum of 12%.  I’m going to attack this from two different approaches, one will be a model based on Monte Carlo methods, and the second will be a historical analysis of 140 years of annual growth in the S&P 500 index.

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The Indexed Approach

For several decades insurance companies have been using an approach to determining credited interest rate that is known as indexing.  It’s a practice that has had it’s detractors (yours truly for a little while) and has been a method that has been used for good an evil by well educated and unscrupulous agents respectively.  Today we’re going to dive into what it is, what it’s not, and ask if it works (i.e. is it worth your time).

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The Answer

The answer to yesterday’s question.  It’s roughly where the DJIA would need to be today in order to have achieved an 8% annual growth rate from its peak in May of 2008 (just a little over 13,000).  I bring this up as there was a lot of excitement over the Dow’s breaking into and closing above 13,000 yesterday, but we’ve been there before, we’ve fallen, and now we’re back…4 years later.  In case you missed it, that number is 17,581.9 or about 4576 above where we closed yesterday.

I don’t intend this to be an Us vs. Them statement that shuns stocks.  Simply a way to keep things in perspective and note that risk associated with what a lot of financial advisers have treated as the common practice (being an “investor”).  Also, it’s a reminder that we are no where near territory where we should feel comfortable celebrating.  There’s still plenty of lost ground we, as an economy, need to recover.

So the Dow closed over 13,000.  Big deal.  Call me when it’s over 18,000.  Now that would be something exciting.  However, only if it happens this year.  Fingers crossed.

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