LeeGT Insurance

Life Insurance is a Women’s Issue
There is a looming crisis for Baby Boomer women. The facts are clear: 7 out of 10 Baby Boomer women will become wid­ows.1 And, because Boomer women tend to marry men older than themselves, and live longer than men, they can look for­ward to a widowhood of 15, 20 even 25 years.1 These women are going to be living with the consequences of how much life insurance is on the man in their lives. I am not at all say­ing that women should not have life insurance, quite the con­trary – they need to have life insurance as well. Many Boomer women are the breadwinners in their family. But, again, the facts are clear – there is a 70 percent chance that the woman will be the beneficiary of the life insurance contract.1 So, it is imperative that insurance professionals approach this issue with Baby Boomer women.
Most Boomer men are underinsured.2 Now, with home prices, stock portfolios and 401(k) accounts down, they are the most underinsured they have ever been. If Boomer women do not ensure that the men in their lives are properly covered, they will live with the consequences. I always tell women to not just take my word for it. A simple homework assignment will suffice – find a widow who is living well, and find one who isn’t. Talk to them. There is really one thing separating those two women – life insurance!
Life Insurance is a Tax Issue
The average marginal tax rate in the last 100 years has been about 61 percent.3 It has been as high as 90 percent and as low as in the low 30 percent range.3 The current marginal tax rate is 35 percent. 401k’s and IRA’s started when marginal tax rates were near 70 percent, and that strategy made perfect sense: take money out of your paycheck that you otherwise would pay 40, 50, 60 percent or more, allow it to grow tax deferred, and take it out when you retire and are in a much lower tax bracket. As I said, this makes perfect financial sense. However, does this strategy still make perfect sense? I think not.
Our country is facing a financial mess – we’ve been in two wars overseas costing hundreds of billions of dollars; we have spent over a trillion dollars in the last few years with bailouts, stimulus plans, more bailouts. We have Social Security that is not properly funded. We have Medicare that is eight times worse. Government and military pensions are underfunded. Every man, woman and child now owes about $500,000 each in deficit obligations!4
So let me ask you a question – Where do you think taxes are going from here? If you said “up,” then let me ask you another question – why are you putting any more money into your 401(k) (other than to get the match), your IRA, deferred com­pensation, 403b’s, etc.? So you can avoid paying taxes at our current low rates, defer and grow it so you can take it out when marginal tax rates are possibly back in the 40, 50 percent or higher range? That would make terrible financial sense. What is the solution? Permanent life insurance!
While you don’t get to deduct your premiums, they do grow tax deferred. Here is the kicker – you can withdraw money from these policies TAX FREE! And when you die, the benefits go to your family TAX FREE as well! Additionally, in many states, the cash value and death benefit are protected from creditors. As more and more wealthy people figure this out, permanent life insurance sales will go through the roof.
Life Insurance is a Wealth Transfer Issue
One of the most difficult life insurance sales is trying to con­vince someone who has $15 or 20 million that s/he needs to purchase a large, permanent life insurance policy. S/he will often say, “I’m wealthy, the last thing on earth I need is any life insurance – you’re just trying to make a big commission.” Even attorneys and accountants struggle with this one. I han­dle this objection by simply agreeing with the client. “You’re right! You don’t need any life insurance. But the facts are clear. When you die (notice I didn’t say if), when you die, without an effective estate plan in place, there is the potential for substan­tial estate taxation. What you do need is a way to transfer your wealth in the most tax-efficient way possible. If we could do it with stocks, bonds, real estate or any other vehicle, we would. But, again, the facts are clear – permanent life insurance is the very best wealth transfer tool available.”
A simple example would be a person who has $15 million. The agent could put $10 million into a life-only lifetime in­come annuity. Why life-only? Because at death, that $10 million is completely eliminated from the estate – no income taxes or estate taxes on that $10 million. Okay, but won’t the family be upset about $10 million disappearing from the estate? Absolutely not, because that $10 million was pay­ing the premiums on a $20 million Life Insurance policy in a trust outside of the estate – completely income and estate TAX FREE! (See an advanced planning attorney to set this up properly with gifting, trusts, etc.). Again, when wealthy peo­ple and their attorneys and accountants fully understand this, the only sensible solution is permanent LIFE INSURANCE!
This article was first published by the American College in the Wealth Channel Magazine under the title, Three  Simple Life Insurance Client Discussions for Times Like These.
1) Source:  2000 Administration on Aging; “Older Women” – Older Americans; Month 2000:  In the New Century…The Future is Aging
2) Source:  Women and Life Insurance – The Bridge to Somewhere by Mary Quist-Newins, CLU®, ChFC®, CFP® 4/13/2009
Source: 48 Million US Households are Underinsured Says AAA; Business Wire; Sep 13 2006
3) Source:  Top US Marginal Income Tax Rates, 1913-2003; www. truthandpolitics.org
Source: History of Federal Individual Income Bottom and Top Bracket Rates 1913-2008; www.ntu.org
4) Source:  America’s Total Debt Report by Michael Hodges, April 2

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