Offering financial security to clients in the 21st century

By William Baker, J.D —————–>

In the not too distant past,  the path to financial security was significantly more linear than it is today. Many traditional notions about financial security; such as building a career with a company, retiring at a certain age, building the proverbial nest egg and home ownership have changed. In today’s world, for private sector workers, job security doesn’t exist; retirement is an abstract notion; no matter how secure you may think your “nest egg” is, it can be quickly wiped out by conditions beyond your control; home ownership is either beyond the reach of many Americans or in those cases where Americans do own a home, their costs of ownership are spiraling out of control.

The changes described in the previous paragraph have not done away with the need for life insurance, health insurance, long term care insurance and conservative investment alternatives. For each of the financial service categories mentioned in the previous sentence, there are a lot of products to choose from. Contained within each of the previously mentioned financial product choices there is also a dizzying number of additional choices that are used to tailor each product to your particular needs.

To determine what your personal requirements are for any or all of the previously mentioned financial products you will need to cobble together the puzzle pieces of your life so you can proactively discuss your needs with an experienced financial professional who can assist you in finding the product(s) that is/are right for you. Insurance and conservative investment alternatives need to be considered in the context of your lifestyle and overall financial situation.

Because almost everybody purchases life insurance, health insurance, long term care insurance and conservative investment alternatives separately, it is important to understand that these products often have common elements. For example, cash value life insurance policies, like annuities, offer tax deferred cash buildups; some annuities offer long term care provisions. Therefore, it is important to take these commonalities into account when purchasing any of these products.

That brings us to the topic of riders. Almost every insurance and annuity contract sold today contains optional policy enhancements, called riders, that can be purchased for an additional cost. If you buy a rider, it adds one or more benefits to the basic insurance or annuity contract. For example, a long term care insurance policy might offer a nonforfeiture benefit rider that would automatically continue the policy with a reduced lifetime payment maximum if the policy terminates due to default after the policy has been in force for several years. Always be aware of all riders that are available when you purchase a life insurance or annuity plan. The financial service professional you are speaking with should be able to provide you with a detailed description of each rider that is offered with your life insurance or annuity purchase.

You should also understand how annuities and life insurance policy are taxed. A good starting point for learning about the taxation of annuities is IRS Publication 575 titled, Pension and Annuity Income. For life insurance taxation you should take a look at IRS Publication 550 titled, Investment Income and Expenses,  IRS Publication 554 titled, Tax Guide for Seniors,  IRS Publication 525 titled, Taxable and Nontaxable Income and IRS Publication 17 titled, Your Federal Income Tax.

One of the easiest almost always overlooked ways to understand what you are actually buying, when you purchase a life insurance or annuity plan, is by reading the contract and accompanying attachments. In California, you have 30 days from the day that you receive an insurance or annuity policy to examine and, if you decide, return it. Since you are going to either be paying premiums for many years and/or investing a lump sum of money into an insurance or annuity contract, reading the contract and having the person who sold you the contract explain any parts of the contract you don’t understand, makes a lot of sense.

Don’t sign any piece of paper unless you understand exactly what it is that you are signing. When you purchase an annuity or life insurance plan, the person selling it to you will be having you sign numerous documents. ALWAYS read whatever it is that somebody is having you sign. If you don’t understand any part of the document you are signing, have the person who is having you sign the document explain it to you. If they either cannot answer your question to your satisfaction and/or you don’t feel comfortable signing the document, don’t sign it.

It is also important to understand the financial condition of the company you are purchasing a life insurance or annuity plan from. Purchasing one of these financial products from a company that is financially unstable is an exercise in futility and frustration because it defies the logic of purchasing the insurance or annuity to provide financial security. You would be better off putting your hard earned money under your mattress than handing it over to a financially unstable company.

Make sure you understand how the benefits you have purchased are triggered and exactly how you access those benefits once they are triggered. To get the best value for your money, from the insurance or annuity plan that you purchase, you want to fully utilize your benefits and make sure you are properly reimbursed or are not paying out of your pocket for benefits paid for by the plan that you purchase.

When it comes to insurance, buy what you need, buy what you can afford. If money is no object, it is not necessary to worry about the afford side of the equation when purchasing an insurance product. On the other hand, for those people where money is no object, you shouldn’t buy more insurance than you require because it is a waste of money. If affordability is a consideration, you need to find an insurance product from a financially stable company, that is priced to provide you with the most features for the least amount of money.

The more that affordability becomes a factor in the purchase of an insurance product, the higher the probability becomes that the person buying the insurance will be under-insured. This is a big problem, especially when it comes to health insurance. In the health insurance arena, most mainstream media attention is given to the uninsured. However, there are probably millions of Americans who are also under-insured when it comes to health insurance. For example, many so called catastrophic health plans, offering extremely low premiums, do not provide coverage for doctor’s visits or prescription drugs.

Information about insurance and annuities is instantly available and easy to obtain online. On the other hand, it is often difficult to successfully apply this information to provide the best solution to the financial need being addressed. That’s a big reason why you should work with an experienced financial professional who specializes in insurance and/or annuities before purchasing insurance or an annuity.