Life Insurance is often overlooked in a person’s financial plan. Simply put, life insurance provides a cash payment to a beneficiary who was economically dependent upon the deceased person.  Life insurance benefits are generally received by a beneficiary free of income taxes.

Life insurance can help a family to pay their mortgage, create a college education fund for a child, pay monthly living expenses and provide for retirement of surviving spouse or significant other.  

How do you determine the amount of life insurance you need to protect your family?

When determining how much life insurance you need, evaluate how much it costs you to run your household on a monthly basis to buy food, electric, gas, clothing and other necessary items.  Add these up to come up with a monthly budget. Multiply this figure by twelve and the number of years you wish to pay this budget.

Do you owe money on credit cards or major debts such as mortgages or home equity loans or other loans? 

Do you wish to fund your children’s college education with life insurance proceeds? Find out from your local library or the internet what college will cost when your child is ready to go to college.

How much income do you earn annually? As a rule of thumb, you can approximate your economic value to your family by multiplying your annual income 5 to 10 times to determine your life insurance need. 

Add up your budget needs, loans to be repaid, college funding needs, and retirement needs of a spouse or significant other and total these.

Do you have other life insurance policies personally or through your employer?  Subtract this amount from the above total. This is your approximate insurance need.

What kind of life insurance policy should you purchase?

There are two basic types of life insurance, Term and Permanent Insurance. 

Term insurance is generally recommended when a family may only need insurance for a period of 10 to 20 years and the insurance need will eventually disappear.  Term policies can help a family to afford larger amounts of insurance because these policies are less expensive than permanent policies.  Term insurance premiums can become expensive as you grow older.

Permanent Insurance is designed to provide insurance protection for a lifetime. This type of policy has higher premiums than term insurance and also accumulates a cash value in the policy that can be borrowed or used to provide retirement income, pay college expenses, or used for other expenses. Insurance cash values grow tax-deferred inside the policy.

There are several types of permanent insurance policy. 

Whole Life Policies provide guaranteed premiums, death benefits and cash values as long as the premiums are paid.  Depending on dividends paid, contractual cash and death benefits may exceed guaranteed benefits. 

Universal Life provides flexible premium payments and death benefits that can remain level or increase over time.  These policies can be designed to last for a lifetime or until a specified year based on the amount of premium that is paid into the policy annually.  The interest credited to the policy is based on the insurance company’s portfolio of investments and can go up or down at the discretion of the insurance company.

Variable-Universal Life policies are universal policies that allow the policy owner to invest the premiums into separate accounts that are similar to mutual funds.  The policy cash values grow according to the performance of the underlying sub-accounts and are not based on the insurance company’s portfolio.  These policies are designed to give the policy owner a choice of investment options that meet that person’s long term goals. Investment risk is assumed by the policy owner and not the insurance company. Performance can affect the policy cash values, death benefits, and duration of coverage.  Investment performance is not guaranteed.

No obligation review of your life insurance needs

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Long Term Care Insurance
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Disability Income

Disability is potentially the greatest risk to a person’s financial security.  Without the ability to earn income, people are unable to pay their bills, enjoy a certain standard of living and save for retirement.  In fact, statistics show that you are much more likely to become disabled prior to age 65 than of dying prior to age 65. 

If you are fortunate, you may have some disability protection provided by an employer’s group disability policy (Disability Income Insurance should not be confused with workman’s compensation which pays only in the event you are injured on the job.)  Individuals often find that they need to supplement group long term disability with the purchase of an individual disability policy.

Individual Disability Income Protection provides replacement income of up to 60% of your income.  The policy premiums and benefit are based not only on your age and the coverage selections you make, but also upon your profession.

Disability Terminology

• Definition of Disability – This defines what qualifies as a disability and whether the insurance policy pays if you are unable to perform the duties of your occupation or any other occupation that you are suited based on experience and level of education.
• Benefit Period – the length of time that benefits will continue once you go on claim.
• Waiver of Premium Benefit – This feature waives future premiums when you become disabled.
• Guaranteed Insurability Rider – Allows you to purchase additional amounts of insurance without medical questions.
• Cost of Living Increase Rider – Increases the monthly benefit based on an annual inflation factor.
• Residual Benefit Rider – Pays a portion of your benefit when you earn less than your pre-disability earnings.
• Waiting Period – The period of time following a disability before benefits begin to be paid.

Other types of Disability Coverage:

Short Term Disability – These policies are provided by employers to cover the first 13 to 26 weeks of a disability before long term disability becomes payable.

Disability Overhead Expense Insurance:  These policies cover the cost of running a business during a disability of a shareholder employee.  This policy pays for monthly operating expenses typically incurred by the business owner.

Disability Buy Out Insurance:

Disability Buy Out policies are purchased by partners in a business to pay for the cost of buying the shares of the business from a disabled partner.  Similar to life insurance buyout insurance policies, disability buyouts are triggered after a partner has been disabled for a period of months. The insurance would be used by the working partner to pay for the purchase of the disabled partner’s business interest.

Applying for Disability Insurance

Individual disability insurance is very exacting from an underwriting point of view.  The following are a list of situations that could have significant impact on the type of coverage offered.

• Psychiatric conditions.  If you have sought psychiatric treatment ever, and/or most importantly over the last 24 months.

• If you take any psychiatric medications.

• Chiropractic or other doctor treatment for any physical conditions and/or any muscle skeletal conditions.

Please note that most insurance carriers require a medical exam or non-medical questionnaire, blood and urine samples, and 1 or 2 years of tax returns and or business financial statements.

 Underwriting a disability policy may take 6 to 8 weeks to complete. 

back to top If you have any questions about disability income insurance or would like to receive a free quotation, please contact us on the contacts page or go to the individual page to request a quote page.

Retirement Savings
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Annuities

Annuities are legal contracts issued by insurance companies to provide immediate or deferred income. 

1.             Immediate Income Annuities – An investor seeking income may wish to invest in an insurance contract called an immediate income annuity.  This is a type of investment where a premium payment is made to the insurance company in exchange for a series of periodic income payments lasting for the investor’s life, a number of guaranteed payments, or for the life of the investor with a minimum number of guaranteed payments.

1. Fixed Income Annuity contracts make guaranteed payments to the investor for a specified payment period.  The insurance company takes responsibility for the underlying investment performance and there is no change in the periodic payment amount.
2. Variable Income Annuity contracts have underlying separate investment accounts that can rise or fall in value. The investor owns unit shares in these accounts and receives periodic income payments from the insurance company that vary according to the performance of the separate account.  The insurance company liquidates a particular number of units owned by the investor in order to make each payment.  As the unit values rise or decline in value the periodic payment increases or decreases accordingly.

2.          Deferred Annuities – in this type of annuity, premiums are paid into an insurance contract where they accumulate tax-deferred until the payment period commences.  Investors wishing to build assets for retirement choose annuities as a long term tax-deferred investment vehicle. After age 59 and ½ years of age, the annuitant can elect to receive income payments (annuitize the contract) effectively exchanging the contract for an immediate income annuity.   A portion of the income payment is taxed and a portion is treated as a non-taxable return of the original premium payment (except qualified retirement annuities such as IRA’s which are fully taxable).

A.    Fixed Deferred Annuity contracts provide a contractually guaranteed interest crediting rate.  Many of these contracts credit a higher non-guaranteed interest rate to the account for a period of time. However, the insurance company can change the non-guaranteed rate at their discretion.  The assets of a deferred annuity are based on the insurance company’s general portfolio account and the insurance company is responsible for the investment performance.

B.    Variable Deferred Annuity contracts provide the investor with a choice of separate investment accounts (much like mutual funds.)  The annuity owner’s return on investment will depend upon the performance of the underlying separate accounts.

This is a basic explanation of the terms of an annuity.   It is important to review all the features of an annuity contract and to understand how the contracts work before purchasing one.  As independent insurance agents, we constantly review new products and product enhancements.  Please call or contact us on the contacts page of this web site if you have questions about annuities.

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Mutual Funds

Mutual Funds are pools of assets operated by an investment company that are invested for the benefit of the shareholders by a money manager.  Effectively, investors buy shares of the fund which can rise or fall in value similar to an individual stock or bond.    

The fund manager will typically purchase stocks and or bonds in accordance with a stated set of objectives based on the size of the company (small, medium and large capitalization corporations), by geographic region, or by investment objective (growth, income or balanced). 

We help our clients to select mutual funds that meet their investment goals based on their time horizon (how long they will be invested), their investment philosophy (conservative, moderately aggressive, aggressive) and their investment experience.

Mutual funds are attractive because they provide diversification from the risk of a single issuer.  Mutual funds afford an individual investor the opportunity to make a small to large investment in different asset classes in order to diversify the investment and to spread out risk.  Many asset categories perform differently in certain economic conditions.

Through our broker dealer, PGP Financial Inc., we have access to a wide array of mutual fund companies and products.  We can help an investor to design a portfolio of mutual funds including retail mutual funds in A, B and C share classes as well as institutional mutual funds which are fee based.

Factors that affect the decision of retail funds versus institutional funds are numerous.  However, to name just a few:  size of the account, duration of the investment time horizon, whether there will be ongoing contributions or liquidity concerns.

While we do not give tax advice, we consider each client’s taxable situation before making investment recommendations.  There are many mutual fund programs that are specifically tax managed to help a client increase after tax returns. 

We recommend asset allocation programs that seek to broadly diversify investment portfolios into asset categories as a percentage of the total portfolio.  These asset allocated portfolios can be designed to meet a client’s conservative, moderate or aggressive investment objectives. 

Please contact us if you would like a complimentary analysis of your investment situation.

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Portfolio Asset Allocation
There are studies that show asset allocation is the primary determinant for portfolio performance. In other words, if you buy the right industries, and have diversified well, the stocks aren't the reason you have good returns. It's the fact that you've allocated your assets correctly among various industries. A study published in 1986 in the Financial Analysts Journal, done by Gary Brinson, L. Randolph Hood, and Gilbert Beebower found that the most dominant factor in determining portfolio returns for 91 large pension funds was asset allocation for the period of 1974 to 1983. The three variables chosen were asset allocation, market timing and individual stock selections. A very strong 93.6% of the returns were attributed to asset allocation, by far the strongest of the three determinants. That says getting your assets in the right place is the best thing you can do for your portfolio.

Asset allocation can be as numerically numbing as you'd like or as simple as buying 10 different industries and at least 20 different stocks. Asset allocation is all about minimizing risk. When you've got the right industries in your portfolio, the actual stocks are secondary in importance.

To go even further, a correctly allocated asset portfolio is diversified over several asset classes, not just different industries in the U.S. stock market. To be absolutely diversified, you should own stocks, bonds, real estate, foreign stocks, etc. But that's beyond the scope of this piece. Let's assume you've got other assets and you're only looking at the stock portion of your investments. Now you need to invest in a way that allocates that money correctly. Here are a few ideas.

First determine your goals for the portfolio. If you're looking for income, then your portfolio will look much different from the aggressive growth stock investor. But both investor types will be looking for the same diversification. For income, you'll want a mix of high yield bonds (usually best held by using mutual funds specializing in them), investment grade bonds and notes, treasury bonds, notes and bills and a money market account. If you're looking for aggressive growth, then some mutual funds specializing in them plus individual stocks in at least five different industries is a good beginning. The income objective is usually for investors who have retired while the aggressive growth is for the younger investor with a lot of time. That's traditional thinking.

Asset allocation would suggest that for preservation of capital the income investor also has to add some equity to the portfolio. Inflation will ruin an income portfolio. The best alternative: buy equities. Look at mixing large cap growth stocks paying good dividends with the income securities. That way your investments have a chance of keeping up with inflation. Again, your goal is allocate your assets in such a way as to minimize risk. Loss of principle from inflation is also a risk and needs to be considered for all income accounts.

If your portfolio is fairly well balanced among the asset classes, and you're looking to allocate your capital only in the stock portion, consider this strategy: look at industries that are highly correlated, negatively correlated, and totally uncorrelated. Here's what that means.

If you have stocks in industries that are highly correlated (that means they will move together based on the same economic event), then buying a semiconductor stock and a computer manufacturing stock doesn't diversify your portfolio. While they are in two different industries, they will both move in the same direction, based on computer sales. Be aware that some industries are highly correlated and will not give you diversification.

On the other hand, many industries are inversely correlated, meaning that the stocks in them will move in the opposite direction based on the same economic event. For example, when the price of oil drops, the oil producers and oil service providers stocks will go down. But one industry that benefits from this event is the airlines stocks. The largest variable cost factor for airlines is the cost of fuel. So the airlines will benefit, if they have the right management, when oil prices are low.

As for stocks that have no correlation at all, some examples would be drug and grocery issues. These industries will continue to have steady sales no matter what the economy does because people have to take their medicines and eat. But they aren't correlated, positively or negatively, to each other.

Take the time to allocate your stock assets over several industry groups, being aware of how each affects the other, if at all. The more "neutral" you can construct your portfolio, the better your returns will be. Remember, over 93% of your return can be traced to the industries you own rather than the stocks.

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