Skip to main content

Sound Advice: July 15, 2020

Insurance

“An ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.”
Ambrose Bierce

One can only marvel at the broad scope of insurance schemes created in the pursuit of fat commissions for insurance agents.  From the simplest plans, such as whole life, to the ultracomplex, which no one understands but promises to provide rewards beyond one’s wildest dreams, it’s an area where fear and greed work together to soften the brain of the buyer and enrich the pocketbook of the seller.  

There are certainly risks requiring the protection of properly selected insurance, but the range of products developed to generate hefty ongoing profits is ever-expanding.  The industry continues its efforts to stay ahead of people who are struggling to understand what these products are and why they need them.

One example is life insurance, which has numerous permutations.  Life insurance is needed to provide protection for lost income when a spouse dies, mortgage debt, and education for children.  These specific risks are well covered by term insurance, which is far less costly than whole life.  The latter, typically sold as a worthwhile investment (which it is not), is more expensive and tends to generate more substantial commissions for the selling agents.

Annuities are worse.  They come in two varieties: fixed and variable.  Both bring big commissions to the sellers.

Fixed annuities, in their simplest form, are akin to rolling the dice.  The agreement provides the annuitant with a regular fixed payment over his/her lifetime.  If you live longer than statistics suggest, you may be a winner.  If you’re gone quickly, you lose and the company wins.  Why?  Because when you buy the policy, you transfer a specified amount of money to the insurance company with no possibility of return.  

For fixed annuities, there are variations both in terms of timing and survivor’s rights that reduce the risk to the buyer, but these variations lower the ongoing payment stream.

Variable annuities are quite different.  For one thing, the funds transferred can be withdrawn.  For another, there is usually no ongoing stream of income.  Their best and perhaps only worthwhile use is as an option for tax-deferred investing when all other ways of sheltering income have been exhausted.  But like most insurance products, the fees for variables can be nosebleed high.  

And then there are the ultracomplex schemes that require sophistication and concentration to decipher the techniques involved in outwitting the IRS, leading to newly found avenues of wealth preservation and enhancement.  Here, too, if it sounds too good to be true, it is too good to be true.  


N. Russell Wayne, CFP®
www.soundasset.com
www.soundasset.blogspot.com

Comments

Post a Comment

Popular posts from this blog

Sound Advice: February 21, 2024

800-000-0000 That’s 800-000-0000 Again, 800-000-0000 That’s the typical closing for the hard sell commercials that are increasingly polluting media airwaves.   These are the commercials for products or services you rarely need or most definitely should avoid. A substantial number are on behalf of groups of attorneys who would have you believe that you and many others may be entitled to cash compensation for having used or being exposed to some evil item or substance some time in the last few decades.   The pitch always includes a comment that there’s no cost to you unless there is a settlement in your favor. Much of this is rubbish, but when the appeal suggests that there’s nothing to lose, why not take a shot.   And, as you would expect, “advisors” are standing by 24/7 to take your call and help get the process in motion.   What kind of advisor would be available at 3 a.m.? One version of this approach pops up every year between October 15 th and Decemb...
Post a Comment
Read more

Sound Advice: September 21, 2022

The Professional Approach To Stock Selection There are various approaches to stock selection, but the two that predominate are fundamental analysis and technical analysis.  Fundamental analysis is a numbers-based method that evaluates key factors such as income and financial health, including the past, present, and future.  Technical analysis emphasizes movements and formations of stock prices. Fundamental analysis is based on factors that over time have proved to have a meaningful impact on stock price movements.  The optimal picture of corporate profitability is steady growth, both in the past and, prospectively, in the coming years.  Steady growth is rewarded by higher valuations of underlying earning power than those accorded companies with erratic progress. When professionals screen (filter) the data of the broad universe of stocks, they look for companies that move ahead every year, regardless of the prevailing economic conditions.  Although high pas...
Post a Comment
Read more

Sound Advice: July 26, 2023

Is Day Trading a Good Idea? Day trading can be both exciting and potentially profitable, but it also comes with significant risks and challenges. Whether it's a good idea depends on several factors, including your financial situation, risk tolerance, time commitment, and knowledge of the markets. Here are some considerations to keep in mind: Risk and volatility: Day trading involves buying and selling securities within a short time frame, often within the same day. This exposes you to the inherent volatility and risks of the market. Prices can fluctuate rapidly, and unexpected events can have a significant impact on stock prices, making it challenging to consistently make profits. Time commitment: Day trading requires a substantial time commitment. It involves closely monitoring market movements, conducting research, and executing trades. It can be stressful and demanding, as you need to be actively engaged in the market during t...
Post a Comment
Read more