How To Create And Protect Your Wealth With Insurance


Published on

  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

How To Create And Protect Your Wealth With Insurance

  1. 1. “Discover How To Create and Protect Your Wealth with Insurance” Mark Huber, CFP, Author Monique Cornish, Mortgage Specialist To listen to this audio recording just ”copy and paste” the link above into your “browser window and it will play in your media player. To “download” and listen later on your computer or iPod just ”right click” the link above and “save as” to your computer. © Copyright 2010 Mark Huber, CFP -1-
  2. 2. Hello and Welcome!We want to ask you a question…Does creating and managing wealth just mean making it grow?Be honest now!No.It also means keeping it safe!As we know:Everything in life carrys risk!What we must come to terms with is...either to...Avoid It. Assume It. or Transfer It!In todays economy, protection is more important than ever.In early 2000 and again in 2008, many people have learned how itfeels to lose 20% to 30% of their portfolio from a market downturn.Imagine losing as much as 80% due to illness or death!The future is uncertain; the economy unsure, and even governmentand company plans dont cover everything.To many people, saving begins and ends with their investmentportfolios. They rarely think of insurance, but they should, becauseeven the best laid plans can be derailed by unexpected events.For example, what would happen to you and your family if your spousebecame ill had an accident or even died?Any one of these can reduce your income and increase your expensesso you may have to dip into your savings sooner than planned.You may even need to spend it all before you reach retirement! © Copyright 2010 Mark Huber, CFP -2-
  3. 3. Insurance: To serve and protectYes, insurance (all types of it) acts just like our firemen and police…How?Well, insurance products serve and protect our needs and assets – andin fact can help us in growing our assets!Life insurance: Personal life insurance is invaluable -- to coverunexpected costs so your investments are left intact to grow. Or ifyou or your spouse should die, life insurance can cover the lost incomeof a spouse as well as estate debts and taxes.Critical illness insurance: This pays money as a “lump sum”. Andcan be used for anything…mortgage payments, for extra medicalexpenses and long term care.Disability insurance: This “replaces” your lost income due to aninjury.Think of savings and insurance as offence and defense.When it comes to a good wealth management plan, you need twothings - to grow your investments, and to keep those investmentssafe until YOU are ready to use them.That takes both investments and insurance. Neither can do the jobalone, but together theyre a team. Investments such as stocks andbonds, term deposits and registered portfolios (offensive players) pushyour nest egg toward your retirement goal. Insurance policies(defensive players) protect it from being intercepted along the way.Safety is worth the sacrifice in contributions.You only have so much disposable income (cash flow) to put away,theres no question that buying insurance will leave less for investing.However, on the other hand NOT buying insurance may leave yourtotal investments and estate exposed to undue risk.As always, the best approach is diversification - dont put all your eggs © Copyright 2010 Mark Huber, CFP -3-
  4. 4. in one basket. Just as spreading assets across several types ofinvestments can minimize risk of loss from market volatility, allocatingsome of your savings to insurance can minimize risk of loss fromillness or death.Depending on your age and income, a sensible proportion might be70% to 90% savings and 10% to 30% insurance.The good news?The younger you are today, the lower your insurance premiums will be- and the more will be left over for investment purposes. And as yourincome increases over time, the proportion required for insurance can(and should) then be adjusted."If insurance were free - we would ALL have as much as we wanted.But, because its not free - it then becomes a matter of negotiatingthe price for the amount we need". - Mark Huber, CFPAs a person who wants to prosper and succeed you have an obligationto yourself and your family to consider the risks to your wealth, andhave the proper insurance products and strategies that can protectyou.The need for life insurance can be divided into two categories:If-I-die and When-I-die.If-I-die life insurance refers to having protection for a specifiedperiod of time.An example of If-I-die life insurance is insuring the family incomeearners so that there are sufficient resources to raise children in theevent that one or both parents pass away. Once the children areraised, the need for this coverage is greatly reduced or in fact ends.Because If-I-die life insurance is needed for a relatively short timeframe, term insurance or low cash value permanent life insuranceworks just fine.When-I-die life insurance is intended to remain in force UNTIL theinsured dies. © Copyright 2010 Mark Huber, CFP -4-
  5. 5. Examples of When-I-die life insurance are:The insured receives a pension that stops upon his or her death--lifeinsurance can provide the insureds spouse with the equivalent of themissing payments in the event the spouse survives the pensioner--andAs an estate-planning asset. When-I-die life insurance is permanentinsurance that can be whole, universal, or variable life.For many individuals, term insurance will usually be able to cover offthe risk in your particular situation.Its cheap, effective, and popular--especially with consumers whoveembraced the buy term and invest the difference mantra touted bymany financial advisors.And for young families on a budget, term is often the only productthey can afford that will provide them with the amount of coveragethey need.However, term life isnt a panacea, especially for high-net-worthconsumers with complex financial-planning objectives.For these clients, permanent life insurance—either whole life or its twomost popular derivatives, universal life or variable life--offersimportant tax savings and estate planning advantages that often cantbe duplicated by other financial products.Perhaps the best way to decide when permanent life is the betterchoice is simply to know when term insurance does make sense.For most consumers, term will be the appropriate purchaseonly if:The period for which insurance is needed is finite (since term insuranceis, by definition, finite), and there are no savings or estate planningobjectives associated with the purchase.ORThe consumer simply cannot afford the amount of life insurancecoverage needed except by purchasing a term policy. © Copyright 2010 Mark Huber, CFP -5-
  6. 6. The general rule, is that permanent insurance should be purchased--assuming the policyholder can afford the premium—if that personwants to have the insurance in force when he or she dies.That seemingly simple statement reveals a surprising basic truth aboutterm insurance: most of it expires well before the policyholder does.While thats a risk that a 28-year-old father of two might be willing toassume-he needs lots of coverage and he needs it right now, just incase he does die young--its not palatable to insurance buyers withlong-term needs.Lets look at some examples.Estate PlanningIf its true that death and taxes are the only certainties in life, its alsotrue that they are tightly, maddeningly linked--and destined to remainthat way for the foreseeable future.Taxes continue to take a big chunk out of estates--ranging from 13%to as much as 48%. Paying these levies can be a tremendous burdenon heirs, who in some cases must sell off personal property or thefamily business to settle up with CCRA (Revenue Canada).Life insurance provides a way out. Because the death proceeds ofan insurance policy are free of income taxes, a policy can providefamily members with the wherewithal to pay estate taxes and stillretain family assets.Similarly, an insurance policy can be used to fund a business-succession plan by ensuring that whoever takes over a company uponthe death of the current owner can afford to do so. (In such cases,the proceeds of the policy would be used to pay for the business ratherthan to settle estate taxes.)In a similar manner, an insurance policy can serve as a tax-advantaged tool for bequeathing money to heirs. It can, for example,finance a grandchilds college education or provide for someone, suchas a handicapped child, who otherwise couldnt provide for his orherself.But all of this works only if the insurance policy is in effect atthe time of the insureds death. © Copyright 2010 Mark Huber, CFP -6-
  7. 7. This is an instance where permanent insurance is not just preferredbut almost required, since term insurance is rarely in force at the timeof death.Tax-deferred InvestingFor high-net-worth clients who have exhausted other tax-advantagedinvestment vehicles such as RRSPs, a life insurance policy provides yetanother way to build wealth while minimizing income taxes.Generally speaking, we dont think of life insurance as an investmentvehicle, however, if one analyzes this issue from an internal-rate-of-return perspective, many clients can see that if they keep theirinsurance for a long period of time, perhaps 20 years or more, theymay be better off buying a permanent insurance policy and thensurrendering it to receive the cash value, rather than purchasing terminsurance and investing the difference in a taxable account.Additionally, if set up properly, the cash surrender value of a policymay be used as collateral for a bank loan or series of loans, theincome of which to the investor is TAX FREE. (The interest on the loanis not only tax deductible but need not be paid by the investor, simplyleft to be collateralized along with the loan. On death the loan isdischarged and the residual is paid to the named beneficiaries - TAXFREE).Planning for the UnexpectedTo be sure, conveying the value of permanent life insurance cansometimes be challenging.The younger the client, the farther out the benefit. Many clients have adifficult time appreciating how much their net worth is likely to grow in30 or 40 years, or what their estate planning picture might look like.Sometimes, life insurance needs that were expected to disappear at 60or 70 years of age remain. However, by then, buying a new policy orany sort, term or permanent, may be prohibitively expensive.With a properly selected permanent policy, you have the ability to say,I dont know what my feelings are going to be or what my needs willbe when Im an octogenarian, but I dont have to worry about that.And if I decide that I dont need my life insurance policy any more, Ican cancel it, and there will be a nice cash value waiting for me as abonus. © Copyright 2010 Mark Huber, CFP -7-
  8. 8. In a nutshell - this is what insurance is for!The objective of "Risk Management" is to make sure that you and yourfamily are in the proper financial position in the event of emergency oropportunity - NOW and in the future.It involves a well thought-out plan to pass your wealth on to your heirsand to ensure that they are well provided for in the event of yourdeath or disability.Youre Worth How Much?What is the value of a human life? Most have heard the story of howmuch youre worth if you were to break the human body down into itschemical and mineral components and sold them. Youd be lucky to beworth $10 (not counting various add-on items such as pacemakers,gold fillings, etc.).But we know that people are worth more than that.On the opposite end of the spectrum you will have heard the phrasehes worth millions, referring to the value of a persons property,investments, etc.But in asking the question Im not really looking for either answer. Iam posing the question with respect to how much life insurance youshould buy to insure that your dependents are cared for in the event ofyour death.In my view the majority of people are under insured because theydont know how much they are worth.We buy insurance to replace something that we might lose. • If your house burns down you have insurance to make sure you can rebuild it. • If your car is totaled in an accident you have insurance so you can get another car. • When you buy life insurance you are trying to replace the value of your life. © Copyright 2010 Mark Huber, CFP -8-
  9. 9. Unless you have a clone thats for sale, how do you know howmuch you are worth?We know that money cannot replace you as a person, any more thanfire insurance can replace the family photographs or the antiquejewellery your grandmother left to you.What you get back with payment of an insurance claim is the financialvalue of the item that you lost.So the more precise question is: What is your financial value? Whatwill your dependents lose if they lose you?To digress for a moment, please remember that if you have a milliondollars in the bank and you die, the million is still there. The taxmanmay come, but the point is that the asset you had didnt die; you died!What I want to examine is what you are worth.A slave trader would have had the easiest time answering myquestion.He would have told you that the financial value of a slave was basedon their ability to work and produce, and how long they could beexpected to do that.And thats your financial value. Youre not worth more and youre notworth less.For insurance purposes, your financial value should be based on whatyou can do (earn) in the future, and how long you could be expectedto earn it.Your gross annual income is the annual value of your life.You may feel you are worth more than what you are being paid, butfrom the point of view of your dependents, your financial value is thepaycheque that you bring home.Assume you earn $30,000 per year.If you die, your family loses the $30,000. © Copyright 2010 Mark Huber, CFP -9-
  10. 10. If you are 40 years of age, and expect to work 25 more years (untilyou retire) then you would have provided your family with $30,000times 25 or $750,000.There it is, thats the most that YOU are worth.If you die, thats what they lose.Buy $750,000 of life insurance and your family is in good shapeif you die.An astute investor will stop me at this point and note that this$750,000 will earn interest (or grow in a fund).Assuming you invest $750,000 at 5%, the annual interest incomewould be $37,500, which is more than the $30,000 you were trying toprovide in the first place.Technically, $600,000 would provide $30,000 a year at 5% and the$600,000 would go on doing that forever.By the way, so you know, a 40-year-old male, non-smoker in verygood health can buy $600,000 of 10-year term insurance for lessthan $600 per year?So before you get spooked by these big numbers, it costs very little tobuy that amount of life insurance if its term insurance.For most, term is the kind to buy.Now for those who think $600,000 is overboard, let me introduceanother component to the calculation which is often overlooked:Its called inflation. But Mark, inflation is very, very low and it wontmake that big a difference. I beg to differ.Assuming that inflation is 2%, and that you expect your dependents toincrease the $30,000 each year by that 2% (a $600 increase in year 2,etc.), your $600,000 will be gone in 28 ½ years (thats assuming 5%interest).So if I wanted $30,000 per year for 25 years, based upon 2% inflationand 5% interest, what would be the lump sum amount to get the jobdone for just 25 years? © Copyright 2010 Mark Huber, CFP - 10 -
  11. 11. The more precise number is $541,300. By lowering your insurancefrom $600,000 to $540,000, youll be saving yourself a whopping $55per year!So much for precision.The next point that can be made is that I can earn more than 5% onmy money; suppose I can earn 8%.Okay, put 2% inflation and 8% interest into the equation and you canlower $540,000 to $410,000. That will save you $110 per year (lessthan $10 per month). At that point I would argue that 8% is not whatyou can expect to earn on interest-bearing investments in a 2%inflationary economy; 5% is more realistic.To obtain 8% you will be asking your family to accept some risk intheir investments. Are they astute enough investors for that?Is the risk that your family might not get 25 years of income worth the$110 per year in premium savings?But assume you settle on the $410,000 amount, how many 40-year-olds, making $30,000 per year, actually carry anything close to thatamount of insurance?After many years in this industry, I am now less concerned with whatkind of life insurance people were buying, and far more concernedabout how much they were buying.Understanding your real financial value to your family, has made merealize that most people dont buy big enough life insurance policies.Trust me, your widowed spouse does not care what kind of lifeinsurance you bought after you die. Whole life or term.Dependents only care how much the death benefit was for.The choice of what to do next is now all yours to make. © Copyright 2010 Mark Huber, CFP - 11 -
  12. 12. Your next step?For your very own FREE Mortgage Insurance Investigation contactme, Mark Huber, CFP here at: 604-207-9970 ormhuber@HowToUseInsuranceToCreateWealth.comAndYour other next step?For your very own FREE Mortgage ConsultationContact: Monique Cornish, Mortgage Specialist The MortgageGroupPhone: 604.707.6324Cell: 604.219.9556Fax: 604.648.9455Email: © Copyright 2010 Mark Huber, CFP - 12 -
  13. 13. Who Is Mark Huber?Mark Huber, CFP, AuthorMark Huber is a practicing certified financial planner (CFP) with over22 years of experience in the financial services industry.Mark’s boutique planning practice works with a select group of clientswho are all share a passionate vision for creating true wealth andliving their dream lives.Heres A Sampling Of What A Few People Have Said Already...To whom it may concern:Most of us trust our car mechanic, family doctor, postman, butsomehow we decide to manage our financial affairs ourselves.We spend a lot of time reading, researching and making doubtfuldecisions.Everyone can go on internet and buy some stocks or mutual funds.Information today is basically free, but know-how is priceless.You can buy all the tools you need to fix your teeth, but would you doit yourself?If your financial well being is important to you, talk to great financialplanner Mark Huber. © Copyright 2010 Mark Huber, CFP - 13 -
  14. 14. It is your map to financial stability.Sincerely yours,AZHi!Thanks for your guidance and advice Mark. Our biggest regret is thatwe did not make the changes that we have made under you years ago!Craig and Michele - Vancouver, BCDear Mark,We just wanted to say that we are very happy with your financialadvice and the services you offer.You always respond to us quickly and thoroughly on all our inquiriesand we always feel that you given priority to all our requests - big andsmall.Thank you for helping us to look at our investments in a creative andeffective way.It is a pleasure working with you and we definitely recommend yourservices to all our friends/family looking for good financial advice tomake their money move!L and AVancouver, BC © Copyright 2010 Mark Huber, CFP - 14 -
  15. 15. Contact Information:Mark Huber, CFPSetForLife Financial Services8380 Ash StreetRichmond, B.C. V6Y 2S3Office Tel: 604-207-9970Office Fax: 604-207-9971Email: mhuber@HowToBeSetForLife.comSuite 2050-1050 West Pender StreetVancouver, B.C. V6E 3S7Office Hours are Monday-Friday9:30am to 4:30pm PST.Or “by appointment”Other sites authored by Mark Huber:http://WeSaveYouTaxes.comhttp://HowToBeSetForLife.comhttp://HowToGetRidOfYourMortgage.comhttp://HowToUseInsuranceToCreateWealth.comFollow Mark on Twitter: with Mark on FaceBook: © Copyright 2010 Mark Huber, CFP - 15 -
  16. 16. Who Is Monique Cornish?Monique Cornish, Mortgage SpecialistMonique Cornish is a Mortgage Consultant with The Mortgage Group’sVancouver office and comes from a background of finance andmarketing, with an emphasis on service quality.Monique has been in the real estate/financing industry for many yearsand attributes her success as a Mortgage Consultant to approachingeach client interaction from a client’s perspective.Spending the time necessary with every client ensures a completeunderstanding of their particular lifestyle and financial situation toensure that clients are matched with the best mortgage product in themarket.Moniques vast knowledge of different lenders and their programsgives her the requisite tools to ensure that each client ends up withthe mortgage product that offers them real value, and meets theirunique needs.Her goal is to have every client be not only proud of the rate thatMonique was able to secure for them, but be knowledgeable about whytheir particular mortgage product offered them the best fit.Moniques personality puts her clients immediately at ease. She thenmakes the lending process of securing a mortgage smooth and hassle-free © Copyright 2010 Mark Huber, CFP - 16 -
  17. 17. Contact Information:Monique Cornish, Mortgage Specialist, The Mortgage Group#105 - 1385 West 8th AvenueVancouver, BC V6H 3V9Phone: 604.707.6324Cell: 604.219.9556Fax: 604.648.9455Email: © Copyright 2010 Mark Huber, CFP - 17 -
  18. 18. Copyright 2010 SetForLife Financial Services. All rights reserved worldwide.Neither Mark Huber, SetForLife Financial Services assume any liabilitywhatsoever for the use of or inability to use any or all of theinformation contained in Marks Web Sites, Blogs, emails, ebooks,Podcasts, audios, teleconference calls, reports, broadcasts andnewsletters.The information expressed and contained in Mark Huber’s Web Sites,Blogs, emails, ebooks, Podcasts, audios, teleconference calls, reports,broadcasts and newsletters are solely the opinion of the author basedon his personal observations and over 22 years of experience in thefinancial services industry – and that of his guests – based on each oftheir own experiences.As with anything involving investments and investing strategies, youagree to always consult with your professional adviser before makingany investment decisions.Use this information at your own risk. Be responsible! Alwaysdo your own due diligence. -The End- © Copyright 2010 Mark Huber, CFP - 18 -