21 years ago today I started in the financial services. Back then there were no Roth IRA’s, Long Term Care insurance basically didn’t exist. Banks and insurance and investments were all separate, email was barely used and no texting.
To all my friends in financial services, here is a PSA in honor of Groundhog’s Day. Don’t be Ned the Head!
November is Long Term Care Awareness Month. It is a good time to review your planning and coverage.
What? You are only in your thirties with young kids? Great! Review your parents’ coverage! Why? My grandparents went into a nursing home when I was young and spent several years there. And my parents used most of the money that they had been saving for my college to help pay for it because there was no long term care insurance. I am still paying off student loans, something my grandparents would have never wanted. My parents have long term care partially to make sure that my siblings and I do not have to chose between our parents’ care and our kids’ future.
LIAM is about understanding life insurance and its applications. So let’s take a look at an application that maybe you haven’t thought of: insuring your parents.
The first thought that many people have on this is “That’s morbid!” Death is an inevitable part of life, and understanding that death will eventually come allows us to embrace life even more, to be able to plan ahead with clear thoughts instead of emotional reactions.
Life insurance is designed to create an estate at death, whether it is when you are thirty and have young children and a mortgage that need to be taken care of, or when you are eighty and have grandchildren. Assuming that Mom and Dad want to create a legacy to help their grandchildren or to assist grown children financially, life insurance is a smart financial planning tool. Let’s look at a case study.
Assume that Mom and Dad are 70 and have three kids. One of the kids is very successful, one is OK, and one is a financial mess because they just are lazy and has never grown up. Let’s for simplicity say that each of the kids has two kids, so there are six grandchildren. Mom and Dad are retired and aren’t going to worry about money, but aren’t lavish. They have “enough, but not too much”.
Successful son knows that ultimately his brother that is a mess is never going to be able to send his kids to college nor own a house because of his inability to be a financial grown up (he has no mental or physical disabilities, just lazy and made a lot of mistakes). The OK one will not be able to send his kids to school without a tremendous amount of student loans even though he is hard working and intelligent because of his career choice. The successful one is not concerned about his children’s education or his own financial future, but does not want to be his brother’s keeper for the rest of his life. So what should he do to make sure that he helps his relatives while not coddling or insulting them?
He buys life insurance on Mom and Dad. He names the other brothers and their kids as the beneficiaries (and his kids too so that his wife doesn’t complain). And he makes sure Mom and Dad sit down and explain the planning to his brothers.
When they pass on, each grand child and the other two brothers get one eighth of the insurance proceeds (say $100k each for ease of discussion), expected in a bit over a decade. This will be enough top cover state school education for each of the grandchildren, guaranteeing at least a basic level college education. If they want to go to a higher level school or for graduate work it will be the kid’s responsibility to cover the additional costs, but getting the threshold education covered is a huge help and very important to Mom and Dad.
There is also enough money for the OK child to either supplement their children’s education or their retirement savings, basically making sure that they too will be financially OK for the rest of their life. They won’t be rich, but they will not be completely stressed about money. The insurance makes their life a bit easier.
And the brother that is a mess? His kids will have the chance for their education, something he would have never been able to achieve. There will be an influx of cash to allow him to eventually buy a house if that is the goal, or actually be able to save for retirement. Yes, he could blow it on stupid things like muscle cars and beer, but with some pre-planning by Mom and Dad that too could be avoided and this child protected from themselves (especially if they have a chemical addiction).
And the successful son, what does he get? Peace of mind! He knows his nieces and nephews will get a decent education so that they have a shot at success. He knows his OK brother will continue to be OK, even a little better than that. And his mess of a brother will not be his financial responsibility ever again. Successful brother has basically bought himself independence from the financial and emotional burden of the rest of his family by planning ahead with Mom and Dad.
And Mom and Dad get to spend more money on themselves and their grandchildren while they are still here because of the life insurance planning. They have a guarantee of a legacy for the future, so can go ahead and spend a bit more and spoil their grandchildren like all good grandparents do because now they can do so with a clear conscience. All because of the life insurance.
I spent 9/11 in Washington DC. There was heightened security due to the threat of another attack, with a highly visible police and military presence. And yet I was there with 1,500+ other people for a reason and would not be intimidated nor scared off by a potential attack as I was there defending against an actual attack, one by our own elected officials against the American people that they are supposed to represent. America is broke, we all know that if you live outside of the Beltway. But those that we sent to Washington for the most part only really have been focused on this since they realize that their jobs are in danger, and so they are looking for political points and easy solutions to difficult problems instead of focusing on responsibility and fairness. If I told you that the Congress is attempting to tax for the first time an industry that has existed here longer than the US Income Tax itself, is directly responsible for over one out of five dollars saved for retirement, and whose products directly protect over TWO THIRDS of our population, you would probably think “What are they thinking?”. If I were to show you that this industry saves the government billions of dollars a week by preventing people from slipping into poverty, stops home foreclosures, and covers medical expenses while creating hundreds of thousands of jobs (actually increasing employment and tax revenue during the current crisis) your intellectual side would be dumbfounded as to why the Congress would even consider weakening one of the economic drivers of the country. And if I then told you that this industry is one of the single largest creditors of the US government, and literally helps prop up Washington with their constant buying of billions in bonds thus subsidizing the budget you would be convinced that our politicians are borderline insane. Yet most people never hear of this. I spent most of the past week away from my children to go to Washington to try and educate the elected officials and bureaucrats about the economics of what they are considering. I invested my time to protect the financial livelihood of several million people in the industry across the country, most of whom do not even support the association that is sacrificing to protect their economic freedom. And I worked well into the night from before dawn to try and rally my troops to be able to stand against this internal threat to America hiding in Washington that would continue to sell out our futures in an attempt for short sighted political gain. The vast majority of Americans directly and materially benefit from the work of the life and health insurance industry, yet because of the mis-perceptions encouraged by the political machine and media the industry is vilified when it should be thanked for the protection it provides, the people it employs, and the economics it already creates. So even though I now derive only a portion of my income from the insurance world, I dedicate myself to continuing to serve the field and our clients by preventing the politicians from damaging America further by cutting out one of the few remaining economic pillars supporting our country. I give time and money to help ensure that insurance will help take care of all of our children instead of depending upon yet another unfulfillable promise from the government. I give of myself so that the wolves of Washington do not take what we as citizens have built, fleecing and eating those who can not or will not defend themselves. I sacrifice my business to keep others in business, whether they sell insurance or sandwiches. And like most who came before me, I chose to serve instead of being drafted, because our country was built and defended, inside and out, by choice. What is your choice? What are you willing to do to protect your future? Are you willing to give of your time and talent to protect your family and your job? Are you ready to face the threat of self driven politicos with selfless service to others in your community and field, to let our leaders know that they are leading us down the wrong path? Will you sacrifice and stand up for your beliefs? Tell your officials to stop being petty, to stop looking for popular yet unworkable solutions, and get to the mission of building a better, more responsible America that we can turn over to our future generations with pride just as our fore-bearers did with us. There are no easy solutions to complex problems, but there can and should be fair and logical ones. Will you help create the solutions or be forced to accept the consequences of your inaction?