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By Mike Mills, CFP®, CFS
I don’t think I ever realized how much I was in love until I saw my bride walk into the church in front of God & all my friends. I was again reminded of that same awesome feeling when my children were born; it was the most unselfish feeling that I ever felt.
It is human nature for spouses to protect the economic interest of the family unit. After interviewing hundreds of families the one goal that almost always is mentioned by older Americans is the desire to pass assets to the next generation.
Many people that I speak with choose to take advantage of Permanent Life Insurance as an efficient vehicle used to transfer assets to loved and ultimately protect their family in the certainty that is waiting for each of us at the “end of our road”. With permanent life insurance policyholders can mitigate the financial risk caused by an untimely death yet they can still benefit from a long life. With Valentine’s Day approaching I wanted to write about new developments with this often misunderstood product. Today, most permanent life policies contain heavy up front loads, commissions, and surrender charges.
Good things may not always come to those who wait
In my experience, most of us demand a quick result mindset and are not interested in waiting 10-15 years for a financial product to mature even though it could be in our best interest. High surrender charges and long break even returns equate to a lack of flexibility that in the short term frequently benefits insurers more than those they cover. Because of an understandable limit on patience many insurance buyers cancel their policies which is the best thing that could happen to an insurance company as it releases them from their obligation to pay a death claim.
Being forced to wait year after year to experience the many positive attributes that life insurance can provide a well executed financial plan can be extremely frustrating, but the future holds hope for us yet.
The Future of Permanent Insurance
Luckily the same forces that are “flattening” the world have also resulted in a new option for accredited insurance buyers. Private Placement Life Insurance (PPLI).
This new concept is revolutionizing the insurance industry’s old agency based system that is layered with fees and hidden distribution cost that ultimately are passed through to policy holders in the form of lower returns. With Private Placement Life Insurance (PPLI) an insurance buyer gets two important benefits that policyholders have always wanted from life insurance; flexibility and product choice.
With PPLI you can purchase a policy directly from an insurance carrier with no surrender charges, giving the policy holder complete liquidity in the policy at all times. Furthermore, with PPLI a policyholder can choose his/her own investments, public or private, which are much more appealing than only being limited to the options selected by the insurance company.
The cost of PPLI is typically less than comparable policies sold through the agency system. When PPLI is evaluated against more common investment options like mutual funds, hedge funds, or private equity owned in a taxable account, most investors discover that combining the many planning benefits of permanent life insurance within a vehicle that offers liquidity and investment flexibility, owning permanent life insurance suddenly becomes the favored financial product not a necessary evil that needs to be minimized or avoided.
As PPLI becomes more common I think you will find that its policyholders will spread the word quickly about the many benefits like tax deferred cash value accumulation, a tax free death benefit, creditor protection, the avoidance of probate, investment flexibility and pricing transparency. All of this for a reasonable cost. In my opinion, PPLI is the holy grail of financial products as it allows life insurance to regain its rightful place as the heart of a financial plan.
For more detailed information on PPLI contact our office and we can point you to more detailed information on this cutting edge product.
Read more of Mike's articles in the Financial Solutions Archive.
Michael Mills, CFP® is a CERTIFIED FINANCIAL PLANNER™ Professional and Managing Principal of Mike Mills Wealth Management, LLC. Securities & Advisory Services are offered through the BFT Financial Group, LLC, Member FINRA/SIPC/MSRB 751 E. Southlake Blvd, Ste 110 Southlake, TX 76092 817-416-7300.
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