1. From Here to Security SM Conference Title and Date Speaker Name, Title
2. While this communication may be used to promote or market a transaction or an idea that is discussed in the presentation, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements.
3. Before investing in variable life insurance, investors should carefully consider the investment objectives, risks, charges, and expenses of the policy and the underlying investment options. This and other information is contained in the free prospectus, which can be obtained from your local representative. Please read the prospectus carefully before investing. Insurance issued and plan administrative services provided by Principal Life Insurance Company. Securities offered through Princor Financial Services Corporation, 800/247-4123, member SIPC. Principal Life and Princor ® are members of the Principal Financial Group ® , Des Moines, IA 50392.
9. “ In recent years, the United States (along with the rest of the industrialized world) has seen an increase in life expectancy, and this trend is expected to continue. Presently, at age 65, a man has a 50 percent chance of living beyond age 85, and a woman has a 50 percent chance of living beyond age 88. While this increased longevity may be viewed as positive, it also presents a host of risks.” With Longevity Comes Risk: LIMRA MarketFacts, Spring 2006 Life expectancy is on the rise
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17. For those seeking a comprehensive analysis, Financial Strategies assesses where you are now, where you want to go and how to best get there. Financial Strategies
18. Get a handle on all aspects of your financial picture
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20. Not everyone wants or needs a complete analysis. Some may prefer an examination of specific needs. For them, we offer a free From Here to Security check-up to examine their life and disability insurance needs. From Here to Security SM
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One question that may be asked is, “Do you count on employee benefits to take care of your financial needs?” You may have many benefits at work, and they are very important. For example, your 401(k) plan can help you save for retirement with pre-tax dollars accumulating tax-deferred. If you have a defined benefit plan where you work, it may provide an income in retirement based on your age and years worked. However, the number of defined benefit plans is decreasing, and today, less than 17% of workers have access to them. Long-term disability insurance, if offered, can help offset the loss of income caused by an unexpected injury or illness. Workers compensation will help make up for lost income if you are injured on the job. Many companies provide some life insurance and many provide health insurance benefits as well.
All these benefits are great, but: Not everyone enjoys the same benefits. While some companies are generous, others have had to control expenses by cutting or not providing benefits. They may not solve all your needs. For example, the life insurance you qualify for is likely far less than the amount necessary to take care of your family in the event of your premature death. You may leave your current job and take another job with less or no benefits. Many people dream of owning their own business, but are shocked to see the cost to replace the benefits they enjoyed with their former employer. And many benefits are not portable, meaning you lose them when you leave your employer. When you retire, you may not keep many of the benefits you had while working, or they may be drastically reduced. Benefits may not keep current with inflation and could leave you short-handed down the line. Benefits are usually offered at the sole discretion of the employer and may be reduced or eliminated due to rising costs. In addition, if another company buys your company, it may offer substantially different benefits than you currently enjoy. Finally, you have almost no control over employee benefits.
Some statistics from a study by the Life Insurance Marketing Institute tell us that: Two-thirds of surviving spouses report the lack of adequate life insurance had a devastating impact on their families financial security. And, after 5 years, more than four out of 10 surviving spouses consider their financial situation worse than before the death of their loved one.
Since the early ‘60s, we have seen a steady decrease in the number of individuals who own individual life insurance, and since the mid ’70s, the number with any kind of life insurance has decreased.
Let’s think about where you are on your financial lifeline. When Social Security was introduced in 1936, the life expectancy was about 60. The retirement age was set at 65 with the expectation that a majority of people would not even live to retirement, and the majority of those that did, would not live long after retirement. Well today, the full Social Security retirement age is still 65 and will be graduating up to 67 over the next few years. Many people are retiring earlier than that, and still more want to or intend to. How many of you want to retire before 65? Can anyone tell me what the life expectancy is today for someone who is age 35? It is approximately 80 years of age and rising constantly. In your great grandparent’s day, the average person worked 40 to 50 years to fund less than 10 years of retirement on average. Today, people work fewer years to fund many more years of retirement. By the time some of you retire, you may expect to live almost as long in retirement as you worked. What does this mean? Simply, it means that you will have to have a plan that anticipates a long life and factors in such things as taxes and inflation if you are going to meet your goals. Let’s look at this lifeline and assume the person is age 35. The first question would be, “Where is he or she?” How much has he or she accumulated to date? The way we define this is called net worth. Who can tell me what net worth is? That’s right, it is what we own minus what we owe, and hopefully, that produces a positive number. As we move down the lifeline, we see this individual has 27 more years that he or she plans to work full time – we call this the accumulation period. During this time, assets are accumulated to sustain him or her through retirement. At age 62, this individual will retire, but not fully. He or she will work for eight more years on a part-time basis until retiring fully at age 70. This phenomenon will continue to increase as people become more aware of the pitfalls of retiring too soon and living too long. During this period of time, his or her primary goal for retirement assets is preservation. At full retirement, he or she will begin liquidating and spending the assets, hoping to spend down, but not out, of money before death. After death, the assets will be distributed to his or her heirs, and estate planning may ensure that the remaining assets go to the right place in the right way. As I am sure you are aware, managing this process can be full of pitfalls, such as: 1) Where you are and what you have today, as well as the opportunities available to you, 2) Where you are going (Do you have a plan and are you staying ahead of the game? Or is it time to assess your goals make sure your efforts are going to achieve them?), 3) What the obstacles are (We will discuss how taxes, inflation and your financial decisions will affect your progress to your goals), and 4) What strategies are available that can help ensure you meet your goals.
A 65-year-old man in the U.S. has a 50 percent chance of living beyond age 85, while a woman has a 50 percent chance of living beyond age 88. While living a long life may be positive, many risks come into play such as: Will my savings last as long as I do? Will illness and/or long-term care costs eat up my life savings? Will I have money left to leave a legacy for my children, grandchildren, church or other benefactor? These are just a few questions to ponder as we look to retirement.
We know from LIMRA International’s study, The Financial Impact of Premature Death , that the financial situation of a household before death is often poor. In that study, more than half of the deceased died from a terminal illness. This means the deceased was likely unemployed prior to death. The spouse may have stopped working to be a caregiver to his or her ill spouse. “Premature death” is defined here as death between the ages of 21 and 65, which for most people, is during their primary working years.
Why is life insurance the last thing we think about? While we tend to worry more about immediate needs such as medical expenses, saving for retirement and college expenses, life insurance can have a major impact on the financial stability of the people left behind.
Life insurance not only helps pay for funeral expenses, but it can also provide money for future mortgage payments, your child’s education and basic living expenses. Here are some statistics from LIMRA that indicate why some people have recently purchased life insurance. Income replacement is the biggest reason. In other words, making sure the money is there for the spouse and kids if you die Final expenses came in at #2. These include funeral costs as well as expenses incurred as the result of an illness, hospitalization, etc. Paying off the mortgage was #3. Many people are concerned with providing a debt-free home for the family so they won’t have to move into more affordable housing. Transferring wealth was the smallest reason. Life insurance provides efficiencies in transferring wealth to the next generation through income tax free death benefits and using trusts or ownership arrangements that avoid estate taxation.
Single people may buy life insurance to cover debt, or they may wish to lock in rates at a young age anticipating needs in the future. Young families generally purchase life insurance to provide for the family in the event of premature death (i.e., replacing income, paying off debt, providing cash for future expenses such as college, or emergency expenses that may come up in the future). Middle age couples generally buy insurance to offset lost income and/or retirement benefits in the event of the spouse’s death. Retired couples may also be concerned about replacing lost retirement benefits and may want to transfer assets in an efficient manner to children, grandchildren, or a favorite charity. Business owners purchase life insurance for a multitude of reasons, including helping to: Guarantee the value of the business for their survivors Supplement retirement savings Protect against the financial loss due to the death of a key employee Reward key employees with an additional benefit Cover the debt of the business for creditors. There are many more reasons that people purchase life insurance that I haven’t mentioned, but the bottom line is, “the need for life insurance is broad and varied.”
Just to review some of the important tax advantages of life insurance: The death benefit generated by a life insurance policy is generally free of all income taxes. That shows how important the government views life insurance as a tool to help families stay together financially and off of welfare. The cash value that may build up in a permanent life insurance policy grows tax-deferred. The cost basis (or premiums paid) can be recovered from the policy - if the cash-value is sufficient - without being subject to income tax, on a first-in first-out basis. For example, if you paid $1,000 a year in premiums for 20 years, you could take a cash surrender from that policy for $20,000 with no taxes due. The withdrawal would affect the death benefit of the policy and could cause it to lapse, so you should always consult your agent before making such withdrawals. Loans can generally be taken against the cash value without being subject to income taxes, even if they exceed the cost basis of the policy. Modified endowments are policies that exceed premium restrictions determined by the IRS. Your agent or financial representative will be able to discuss a modified endowment and it implications.
Let’s look at the various types of life insurance that are available in the marketplace. Term insurance is available for premium guarantee durations of one to 30 years generally. Term offers low-cost protection for short or relatively short-term needs. Traditional universal life insurance offers flexible death benefit and premiums that may be tailored to meet each individual’s needs. The cash value is credited with interest rates that are determined by the issuing company and generally relate to market interest rates at a given point in time. Universal life insurance with secondary guarantees is primarily designed for death benefit protection. The premium can be structured to provide a death benefit guaranteed for a given number of years up to lifetime. Variable universal life insurance offers flexible death benefit and premiums like universal life. Whole life offers a fixed amount of protection with a fixed premium. Guaranteed cash values accrue in the policy, and dividends (dividends are not guaranteed) or return of excess premium may be payable at the issuing company’s discretion. All of these policies have their place and any may fit a given situation better than others. An analysis of your needs and goals may help determine the right kind of policy to fit your needs, and our From Here To Security calculator has a unique tool to help you determine what kind of life insurance may be right for you.
How much life insurance do you need? Everyone’s needs are different and depend on such variables such as cash needs for emergencies, college funding, debt liquidation, etc., long-term financial obligations, ongoing living expenses replacing lost income for the future, and finally, the current available financial resources to determine how much additional money would be needed. As a rule of thumb, many experts, including James O. Michael, recommend 10 to 15 times your annual income. That may seem like a lot of insurance, but ask yourself this: “If I’m making $50,000 a year, would I feel comfortable taking $500,000 to $750,000 to agree to never make any income other than what that money would generate for the rest of my life?” Think about it.
Many people want a comprehensive analysis of all areas of their finances. For those people, we offer Financial Strategies. Strategies will help give you a picture of where you are, where you want to go financially, and how to best get there. Although some financial professionals often charge for this type of in-depth analysis, we make it available through this program at no charge.
Financial Strategies examines all aspects of your financial planning, including: college funding, tax issues, budgeting, retirement, asset allocation and investment strategies, wealth accumulation, estate planning, survivor benefits, disability insurance, executive benefits, and business continuation if you are a business owner. This approach focuses on understanding you and what you want to accomplish.
Planning for your future is critical, and in Financial Strategies, we will help you: Set and prioritize your goals Create an action plan Understand ways to implement your plan Make you aware of how to monitor your progress Even if you do not set goals and put into place a plan, you may still get where you want to go, but let me share a startling fact with you. In a Harvard Business School study, it was found that of 100 graduates of the school, three out of 100 had written goals and plans and updated them regularly. The other 97 either had no specific written goals, or they were outdated. After 20 years, the three with a written plan had more wealth than the other 97 combined. Were other factors involved? Probably, but people with specific and defined goals and plans can be more successful than those who leave their financial future to chance.
Some people feel that they are best served by an analysis of their protection needs. If you feel your life insurance and/or disability insurance protection may be inadequate, Principal Life Insurance Company has developed the “From Here to Security” program. From Here to Security is a combination of consumer education materials that will help you understand the often confusing world of life and disability insurance, and calculators that can help you clearly define your own life insurance and disability income insurance needs as well as the kind of life insurance policy that might be best for you. These tools are available on our website, in booklets, or on disk, whichever you prefer.
Why participate in this program? We all need to plan. As a financial professional with the companies of the Principal Financial Group ® , I am trained to work with you to help you prepare for your financial future. If you already have done some planning, it still may be valuable to visit with me. It may validate that you’re on the right track.
The goal-setting process itself is a very positive and revealing exercise, and helps crystallize the direction in which you are headed. You can discuss and weigh affordable options to help you meet your goals. You will receive the kind of professional financial needs analysis and assistance that many people pay a fee for, and at no cost to you!
So you can see we are prepared to help you in virtually any area of financial concern you have, whether it be helping you with your protection needs, maximizing your 401(k) plan, doing a thorough analysis of your financial needs, or managing your retirement income. Please sign up for individual meetings in any of these areas as sheets are passed around, and if you want the From Here to Security Review, see me after the seminar, and I will give you the booklet or CD. Any Questions?
