Introduction the context of Life Insurance Planning. Strong Foundation. Life Insurance is the foundation of a strong financial program

Transcription

1 Introduction the context of Life Insurance Planning Strong Foundation Life Insurance is the foundation of a strong financial program

2 Nick Murray on UNSINKABLE PLANS A financial plan that s unsinkable unless it hits an iceberg isn t really unsinkable. And it isn t a plan. It s more in the nature of a bet, and prudent people don t bet on the financial fate of their families. Source: The New Financial Advisor 7 Glorious Outcomes of the Financial Plan 1) If a breadwinner dies prematurely, the family s lifestyle will not be fatally compromised: They will stay in their home Education plans will remain financially on track The family s business (if there is one) won t have to be sold precipitously at a disadvantageous price Source: The New Financial Advisor :::Nick Murray

3 7 Glorious Outcomes of the Financial Plan 2) If a breadwinner becomes disabled, the family s lifestyle will not be fatally compromised: They will stay in their home Education plans will remain financially on track The family s business (if there is one) won t have to be sold precipitously at a disadvantageous price Source: The New Financial Advisor :::Nick Murray 7 Glorious Outcomes of the Financial Plan 3) The children and/or grandchildren of the family will be able to afford the very best education for which they can qualify, without still being saddled with student loans when they themselves have children. Source: The New Financial Advisor :::Nick Murray

4 7 Glorious Outcomes of the Financial Plan 4) The current generation of the family will be able to retire at its own time and on its own terms, with a high degree of confidence that it will never outlive its income---that its dignity and independence will not be undermined by up to three decades of rising living costs. Source: The New Financial Advisor :::Nick Murray 7 Glorious Outcomes of the Financial Plan 5) The current generation will, if necessary, be able to contribute meaningfully to the support of its parents. Moreover this generation will never become a financial burden to its children---even if extended nursing home stays or other types of long-term care are required. Source: The New Financial Advisor :::Nick Murray

5 7 Glorious Outcomes of the Financial Plan 6) Even as retirement income rises to offset inflating living costs, this generation s capital will continue to grow over time, endowing meaningful legacies to the succeeding generations. Source: The New Financial Advisor :::Nick Murray 7 Glorious Outcomes of the Financial Plan 7) Estate taxation won t force the sale of a family s important assets (homes, business, etc.). This liability will be funded out of the residual capital, and/or it will be insured. Source: The New Financial Advisor :::Nick Murray

6 7 Glorious Outcomes of the Financial Plan FIVE OUT OF SEVEN OUTCOMES REQUIRE INSURANCE THREE OF THOSE REQUIRE LIFE INSURANCE. ( A sixth outcome would be aided by having permanent life insurance.) :::Nick Murray Life Insurance Protects Your Client s Most Valuable Asset.. his ability to work & build her ability to run her business -select projects -hire people -get the jobs done the ability to create income and wealth!

7 Which is more important? the Goose or the Golden Eggs If you didn t say the Goose! we need to talk!

8 Why Individuals Buy Life Insurance Human Life Value Pay off obligations & debts Fund education for children Provide family survivor income Systematic savings Estate Preservation Why Businesses * Buy Life Insurance Replace Human Life Value of Key People Pay off obligations & debts Provide Executive Benefits to reward & retain employees Correct Reverse Discrimination Provide family survivor income for key employees) Fund retirement for key employees Fund Business-Succession Plans *businesses don t buy life insurance people do

9 Human life value What Are Your Tomorrows Worth? Based on a Person s Current Monthly Income These Are the Potential Total Earnings to Age 65 Age 4,000 5,000 6, ,680,000 2,100,000 2,520, ,200,000 1,500,000 1,800, , ,000 1,080,000 Human life value What Are Your Tomorrows Worth?.cont d. Based on a Person s Current Monthly Income These Are the Potential Total Earnings to Age 65 Age 8,000 10, ,840,000 4,800, ,880,000 3,600, ,920,000 2,400, ,000 1,200,000

10 Dynamic Human life value How Does Human Life Value look as clients grow older? Current Working Yrs. Human Age Income Ahead to Life Value $60, $2,400, $105, $3,675, $160, $4,000, $250, $3,750,000 Dreaming wants vs. needs What if you asked a client to describe his dream house? Why is so difficult to get him to describe his dream of financial security for his family? Our failure to ASK about his dreams he s not afraid you ll try to sell him his dream house

11 Needs for life insurance Debts & Obligations Home mortgage Equity credit lines Student loans Credit card debt Money borrowed from parents Leases on automobiles Needs for life insurance Funding Education for Children Private or parochial elementary school Four years (or more) of college Graduate or Professional School Post-school support?

12 Needs for life insurance Future College Costs College Cost Projector Results Current One-Year Costs: $35, Tuition Inflation Rate: 5.00% Years to Enrollment: 18 years First Year Projected Costs: $84, Second Year Projected Costs: $88, Third Year Projected Costs: $92, Fourth Year Projected Costs: $97, Total Projected Costs: $363, Tuition and Fees only PUBLIC COLLEGES & UNIVERSITIES The average cost of tuition and fees by region, from most to least expensive by region Avg Tuition & Fees '04-05 New England $6,839 Middle states $6,300 Midwest $6,085 Southwest $4,569 South $4,143 West $4,130 University of Illinois at Urbana fall, 2006 Estimated First Year total costs: $21,038

13 Tuition and Fees only PRIVATE COLLEGES & UNIVERSITIES The average cost of tuition and fees by region, from most to least expensive by region Average tuition & fees '04-05 New England $25,660 First Year TOTAL COSTS fall, 2006 Middle States $21,439 Stanford: $46,060 West $19,998 Harvard: $46,225 Midwest $18,690 U of Chicago $47,299 South $17,317 Miami of Ohio: $35,762 Southwest $15,867 Needs for life insurance Principal Required to Generate Family Income-principal retained Assumed interest: 75, , % 2,500,000 5,000, % 1,875,000 3,750, % 1,500,000 3,000, % 1,250,000 2,500, % 1,071,429 2,142, % 937,500 1,875,000

14 Needs for life insurance Principal Required to Generate Family Income (30 yrs)-depletion of principal $ 75,000 $ 150, % $ 1,514,134 $ 3,028, % $ 1,348,779 $ 2,697, % $ 1,210,581 $ 2,421, % $ 1,094,304 $ 2,188, % $ 995,826 $ 1,991, % $ 911,880 $ 1,823,761 Principal Retained (interest only) vs. Principal Depleted (planned bankruptcy) $ 150,000 $ 150,000 Principal Retained Principal Depleted 3.0% $ 5,000,000 $ 3,028, % $ 3,750,000 $ 2,697, % $ 3,000,000 $ 2,421, % $ 2,500,000 $ 2,188, % $ 2,142,857 $ 1,991, % $ 1,875,000 $ 1,823,761

15 Principal Retained (interest only) vs. Principal Depleted (planned bankruptcy) $ 75,000 $ 75,000 Principal Retained Principal Depleted 3.0% $ 2,500,000 $ 1,514, % $ 1,875,000 $ 1,348, % $ 1,500,000 $ 1,210, % $ 1,250,000 $ 1,094, % $ 1,071,429 $ 995, % $ 937,500 $ 911,880 Conveying Urgency Why Should Your Client Start Today?

16 Forced/Systematic Savings age 25 annual age assumed saving earnings 65 3, % 380,519 6% 492,143 7% 640,829 8% 839,343 9% 1,104,876 10% 1,460,555 Forced/Systematic Savings age 35 start later, same annual savings- ½ the result annual age assumed saving earnings 65 3, % 209,282 6% 251,405 7% 303,219 8% 367,038 9% 445,726 10% 542,830

17 Late Start Means Twice the Effort annual age assumed saving earnings 65 3, % 380,519 6% 492,143 7% 640,829 It will take an annual saving of $6,350 to accumulate the same amount at 65 if client starts at 35 instead of annual age assumed saving earnings 65 6, % 442,981 6% 532,141 7% 641,814 Tools you can use What Are Your Tomorrows Worth? Howard Wight s questions to ask your client

18 Tools you can use What Is Your Philosophy about Life Insurance? Howard Wight s questions to ask your client Tools you can use The Life Insurance Team & Issues to Be Addressed

19 TYPICAL Approach To Life Insurance Purchase Financial Stability Product Features Projected Performance CORRECT Approach To Life Insurance Purchase Projected Performance Insurance Company Financial Strength & Historical Performance Product Suitability

20 REMEMBER The illustration is not the product. SOME TOOLS FOR CORRECT APPROACH TO LIFE INSURANCE PURCHASE Due Care FINANCIAL STRENGTH Rating Reports Vital Signs HISTORICAL PERFORMANCE Full Disclosure