The Insurance Doctor

Category: financial planning

  • 12 Fixed Annuity Advantages

    12 Fixed Annuity Advantages

    The Federal Open Market Committee or FOMC is the Federal Reserve’s monetary policymaking body.  It is responsible for the formulation of a policy designed to promote stable prices and economic growth.  Simply put, the FOMC manages the nation’s money supply!

    The Federal Open Market Committee (FOMC) holds eight regularly scheduled meetings (usually every six weeks) during the year.  Last month, during their March 15th-16th meetings, the FOMC approved its first interest rate increase for the “Federal Funds Rate” in three years.  The reason for the rate increase is to address spiraling inflation without torpedoing economic growth.

    This brings the “Federal Funds Rate” (the bank lending rate banks charge each other for interbank overnight lending) from zero to between 0.25%-0.5%.  They had kept the rate near zero since the beginning of the Covid-19 pandemic.  The FOMC has all but committed to small increases for each of their next six meetings, which could bring that rate up to 1.9% by year’s end! 

    You might be asking yourself “what does this all mean and how do these interest rate changes impact me and my family?”  The move in the “Federal Funds Rate” corresponds to an increase in the “Prime Rate,” which immediately pushes lending rates higher for most forms of consumer borrowing and credit.  This means mortgage rates, car loans, and some variable student loan interest rates will be increasing. 

    The good news is this also means that bank account and CD (Certificates of Deposit) rates will increase as will fixed annuity rates!  When fixed interest rates go up, it can have a negative effect on the stock market, as conservative investors often reposition funds from the “choppy” stock market in favor of the fixed, predictable, and guaranteed interest rate returns of fixed annuities, CDs and bank accounts. 

    Fixed annuities are written primarily by insurance companies offering safe alternatives that provide fixed, guaranteed, and predictable returns.  They are also one of the more flexible financial products.  Fixed annuities can be converted into a guaranteed income for life, similar to a pension with a guaranteed monthly income.  They make an excellent pension supplement or primary pension if you do not have one.  Fixed (no fee) annuities are often confused with variable annuities which can have high fees. 

    See My Top 12 Advantages of Fixed Annuities below:

    1. Guaranteed Interest Rates: You can choose how long to guarantee your interest rate, usually between 3-7 years.

    2.  Guaranteed Principal: The principal is protected regardless of market conditions, company performance, or the economy.

    3.  Interest Rates: Insurance companies offer higher interest rates usually by 0.25%-0.50% than bank CDs, bonds, or Treasury Bills!

    4.  Tax-Deferred:  You do not pay income taxes until you start withdrawing funds, which allows for faster accumulation providing greater income.

    5.  No Fees:  You pay NO annual management fees while funds accumulate and NO fees on death benefits to heirs!

    6.  Protected From Creditors: If you get sued, creditors cannot go after/attach fixed annuity funds.

    7. Bypasses Probate: Fixed annuity death benefit proceeds bypass probate. They save on estate fees, and court costs and go directly to named beneficiaries outside the will. They are private and therefore cannot be contested.  Usually, the beneficiaries receive the lump sum funds in 1-2 weeks.     

    8. Lifetime Income Options Available:  At any time, your annuity may be converted into a guaranteed lifetime income stream you cannot outlive.  This product works very well for seniors looking for a steady income.  The biggest fear of seniors is the fear of “running out of money!”

    9. Annual Withdrawal Options Available:  Most fixed annuities allow for withdrawals between 10%-20% of the account balance annually.

    10. Annuitization: This unique annuity feature allows the policyholder to take a guaranteed income for life or a shorter-term (such as 10 years) and have a portion of the income excluded from taxation.  There are a variety of guaranteed income combinations to choose from.

    11. State Protection: Should the annuity insurance company become insolvent, there are state protections (depending on which state you reside) with limits between $100,000-$500,000 in most states.

    12. Piece Of Mind:  Fixed Annuities are secure and offer peace of mind to account holders knowing they are guaranteed to not lose money regardless of economic uncertainties.

    In conclusion, Fixed Annuities should have a place in everyone’s portfolio!  

    For more information and a no-fee consultation to discuss your specific needs, feel free to reach out to me at Rob@InsuranceDoctor.us. 

  • 6 Tips to find the RIGHT insurance broker

    6 Tips to find the RIGHT insurance broker

    One thing this pandemic has done is flush out poor advisors, as there is no hiding during Covid-19.  CPAs, Attorneys, Insurance Advisors, Stockbrokers and Financial Planners should be well-aware of the latest Covid-19 updates, income tax and estate tax rule changes to properly advise their clientele.

    I have been on many Zoom Panels, Seminars, Workshops, and Podcasts over the last 14 months, and it is disturbing how clueless many advisors are!  I feel bad for those that are taking their advice.

    Insurance brokers and agents are trusted with matching their clients with the most suitable life, health, homeowners, auto and business insurance policies.

    Every insurance company has a specialty niche product and pricing sweet points, they are not all the same!  It is important that your broker of choice is well-versed in policy differences from one company to another, and is informed of the latest news, trends, and new advanced products coming to market. Your broker should understand your needs and concerns and be capable of explaining your options in a simple and understandable fashion.

    Follow these tips on what to look for in finding the right insurance broker or agent:

    TIP 1: Knowledge and Experience:  There is no substitute for experience.  Look for brokers that have been in their field for a minimum of 5 years.  The better ones will also have advanced planning designations (higher education) next to their names.  Look for at least one of the following 3 designations: CLU (Chartered Life Underwriter) CFP (Certified Financial Planner) or CSA (Certified Senior Advisor).  The more designations, the more educated and well-rounded your broker will be.

    TIP 2: Independent Agents:  The following may be counter intuitive.  Brokers are in a better position to help you than “captive agents” thatIndependent only represent one company.  Independent brokers represent you client, and offer numerous insurance policy options.  They must be well-versed on all policies to find the best fit for you.  Captive agents (i.e. Allstate, New York Life etc.) are employees of their respective companies.  They usually offer proprietary products first to qualify for their company-sponsored trips and subsidized health insurance.  Make sure your agent places your needs before their own!

    TIP 3 Fee Structure:  Most of the established independent brokers do not charge a fee for time or services.  They receive compensation from whichever insurance company you decide to do business with.  Beware of agents, planners and advisors that charge steep upfront consultation fees! 

    TIP 4 Get a Second Opinion:  Most people are already working with an agent or broker.  Do yourself a favor and get a second opinion using the tips given in this article.  You will be surprised at what you can learn from a free consultation with an independent broker. 

    TIP 5 Due Diligence:  Invest the time to call several brokers.  Start a list and seek advice from friends, family, or colleagues that are satisfied with their broker. Check reviews on google business, the internet and gather as much information as possible. 

    TIP 6 Quality Service: Part of quality service is timely service.  When you call around, make a note of how long the advisor takes to get back to you.  Usually, like a first date, that first communication sets the tone for the relationship.

    President Biden has outlined his proposals for sweeping income and estate tax changes.  These proposals, if passed, can and will affect multiple generations of Americans going forward.  Not knowing about these rules while advising clients is a form of advisor malpractice.

    If these 6 tips fail, reach out to me at Rob@InsuranceDoctor.us!

  • Secret Codes 1031 and 1035 (exchange)

    Secret Codes 1031 and 1035 (exchange)

    Last week we talked about 4 ways to tap into the cash of your life insurance policy.  This week, we are taking it to the next level and will outline ways to exchange (or rollover) an existing annuity, life insurance or endowment policy for a better policy whilst deferring tax on the transaction.

    Since President Biden has proposed increasing capital gains from the current 20% to 39.6% (let’s call it 40%) for those in the top income bracket, tax loopholes like the 1035 and 1031 exchange become even more valuable.

    A 1035 exchange is defined as is a provision in the IRS tax code (1035) allowing for a tax-free transfer (or rollover) of an existing annuity contract, life insurance policy or endowment for another one of like kind.

    It is easier to understand the power of 1035 exchanges by using examples of when it is in a client’s best interest to take advantage of this tax loophole.  Scenarios when we used the 1035 exchange to improve client positions over the past 3 years include:

    1. Client has a 20-year old traditional whole-life insurance policy with a $100,000 cash value (earning zero interest) and is interested in a new policy with the long-term-care rider(chronic illness rider): RESULT: We rolled over the cash into a new policy so Mary can now access a portion of her death benefit for long-term care needs (by exercising the new chronic-illness rider while living) should she become ill without having to buy an expensive long-term care policy.  Mary paid NO TAX on her 1035 exchange!
    2. Client’s wife died of Covid-19, so we reviewed his 5 annuities, one of which was only paying 1.2%: RESULT: John had a 10-year-old annuity that had a 7-year rate guarantee of 3.5%.  Unbeknownst to him (John never read his annual statements) his annuity renewal rate dropped to 1.2% in 2018, so he did a 1035 exchange to a new annuity with a different company locking in his rate of 2.75% for 7 years.  John paid NO TAX on his 1035 exchange!
    3. Mark’s 2nd wife (15 years younger than him) just died from Covid-19 and he has a large life insurance policy on himself he feels he no longer needs or wants to pay for.  RESULT: Mark did a 1035 exchange (rolled over his cash value) from his life insurance policy to a fixed annuity paying 3% in New Jersey (where he has a summer home).  Now, he no longer has to pay his life insurance premium and all of his money (cash value) is earning 3% guaranteed (no fees in a fixed annuity) for 10 years instead of the 0% he was earning on his whole-life policy.  Mark paid NO TAX on his 1035 exchange!

    DISCLAIMER: The 1035 exchange check must go directly from one insurance company to another.  The policyholder cannot ever receive (called constructive receipt) the check!

    The 1035 exchange is a powerful tool for insurance and financial advisors that is under-utilized mostly due to ignorance or a lack of creativity.  There is a similar tool called a 1031 exchange available for real estate. 

    DISCLAIMER: Please consult with your realtor, financial advisor, and real estate attorney before deciding if a 1031 exchange is right for you. 

    I reached out to interview George Russo over the weekend as I know he has extensive 1031 exchange experience, for an explanation and some tips.

    In real estate, a 1031 exchange is a swap of one investment (or business) property for another (considered like-kind) that allows capital gains to be deferred, not eliminated.  It can work if you are looking to sell an investment property, you do not need the money and do not want to pay the capital gains taxes.  Savvy investors use 1031’s to defer capital gains and build wealth!

    George said, “it is critical to know the rules and work with experienced advisors when handling these sophisticated transactions.”  Steps he mentioned include:

    1. Sign a contract of sale of your property.
    2. Within 45 days you must “identify” 3 similar properties based on value.
    3. Choose an “intermediary” (remember, like the 1035 exchange you CANNOT ever receive the cash, so the intermediary holds it).
    4. Sell your property.  You now have 180 days to close on the new property.
    5. Close on the new property within 6 months and your basis gets transferred from the old to the new property with no taxation.

    Although Covid-19 has its challenges, there are also opportunities to improve your financial position and quality of life for the LONG-HAUL!  

    If you are interested in a life insurance or annuity policy review, feel free to reach out to me at Rob@InsuranceDoctor.us. 

    It has been a joy writing my “Financial Wave” column for The Wave as we approach our 1-year anniversary on May 1st, 2021!

  • 6 Tips to get your 2020 financial house in order

    6 Tips to get your 2020 financial house in order

    Now that we are in the first quarter of 2020 it’s easy to get off track from our goals.  Follow these 6 tips and with a little time and effort your 2020 finances will be more organized and less stressful.

    1. Organize your paperwork: It’s hard to feel in control when you can’t find anything.  Gather all papers, shred duplicates/old statements and put them all in a box or accordion file.
    2. Go Paperless:  I know habits are hard to break.  Wherever possible create electronic files.  See if you can receive e-bills instead of paper.  Use a flash or thumb drive as a back-up and keep it off-premises.
    3. Protect against identity theft: You can request a free copy of your credit report once per year from all 3 credit bureaus.  Go to www.AnnualCreditReport.com
    4. Put your finances on autopilot: Use EFT direct deposit for all checks, pension and social security received.  Set up automatic payments for recurring bills.  It’s easy and will save time going forward.
    5. Create your 2020 tax file: Most people have to scramble to pull together all tax forms etc.  Start now by setting up a 2020 file and stashing forms/receipts etc as needed.
    6. Review your insurance coverage:  Protect your nest egg and your family by regularly reviewing your life, health disability, and long term care insurance.  If this is confusing to you contact us for a 2nd opinion.

    Your financial house needs regular upkeep.  Putting in a little time and organization will decrease clutter and help you focus on your goals and objectives.

  • 5 Tips to Improve Your Credit Rating

    5 Tips to Improve Your Credit Rating

    Not only is credit a key factor in securing loans, potential employers may review an applicant’s credit and it’s also used to determine auto and homeowners insurance rates you pay.

    1. Don’t close old accounts: While this may seem counterintuitive, closing a card may negatively impact your credit. It reduces your credit-to-debt ratio and credit history which lower scores.improve credit rating, tips, consumer
    2. Ask for an increase on your credit line: If you have a $5,000 credit limit and you are using $2,500 on average, that’s a 50% ratio. If you get an increase to $10,000 credit limit now you are using only 25% of what’s available which will improve your scores.
    3. Limit the total amount of cards you have: People are tempted by all the great initial credit card offers but applying for too many cards can negatively impact your scores.
    4. Avoid fees: Credit card companies charge fees for late payments even when it’s just a day or two. Making late payments may trigger a higher interest rate and show up on your credit report.
    5. Pay off 100% of your balances every month: Carrying over balances from month to month is a costly way to do business and it can also show up on your report.
  • 6 Tips for your Financial New Year’s Resolution

    6 Tips for your Financial New Year’s Resolution

    Six out of ten American’s will make some type of financial based new year’s resolution for 2019.  Usually, there’s a triggering event like receiving your December 2018 credit card bill or spousal pressure to name two.  Follow these tips:insurance, New York, financial services

    1. Consolidate Financial accounts: Close 1 or 2 existing financial accounts that you are not tracking or have insignificant monies in. This will save brain space, reduce statement clutter and avoid paying unnecessary fees.
    2. Increase your 401k/employer retirement contributions: Raise your contributions 1%/year minimum.  You won’t feel the difference however over time it can make a major impact when entering retirement.
    1. Develop a budget and/or expense statement: Review credit card, bank, and checkbook statements to get a handle on inflow and outflow of money. Start using a program like quick books or if old-school draft a budget by hand and hang it up where you can see it.  This can cause heavy emotional denial, however, better now than later.
    2. Set up a system to save systematic money: Either something informal like putting the $20 you are saving in gas on fill-ups in a jar.  Formal ideas like buying a cash value life insurance policy or setting up an Eft thru your bank account.
    3. Protecting your health saves your wealth: We all know about the escalating cost of health insurance and health care in general. Renew that gym membership, yoga studio or dust off that treadmill in the garage.
    4. Bring balance to your life: Take that vacation you have been putting off. The rest and rejuvenation will impact your health.  Statistics show that one who works 46 weeks/year will out produce a 52 week/year worker. It will give you something to look forward to and forces one to be very productive before leaving and when returning home.  Use frequent flyer miles if need be.

    You will be amazed at how much better you will feel by following these 6 easy steps! Contact Robert here for a free consultation.

  • 6 Tips for Winning the $1.6 Billion Lottery

    6 Tips for Winning the $1.6 Billion Lottery

    Right now the Mega Millions lottery is up to $1.6 Billion!  Take a look at these tips to not let winning the lottery ruin your life.

    1. Take the annual installments: Why pay Uncle Sam up front?
    2. Hire a good estate lawyer: Wills and trusts will need to be drafted immediately.
    3. Stay anonymous as long as possible: There will be lines of people looking for handouts including family and friends.
    4. Take an immediate long vacation: Hope that interest dies down by the time you return.
    5. Hire a financial planner: You would be surprised how many lottery winners are broke inside of 5 years.
    6. Give to charity: It’s the right thing to do and can help with badly needed write-offs.
  • 5 Tips How to Find a Good Insurance Broker

    5 Tips How to Find a Good Insurance Broker

    Insurance brokers and agents are trusted with fitting their clients into suitable life, health, homeowners & business policies to name a few.

    There are numerous insurance providers and they are not all the same.  It’s important that the broker you choose is well-versed in policy differences from company to company and informed of the latest news, trends, and products. He/she also needs to be concerned with your personal planning needs and capable of explaining your options in a way you can understand.

    Follow these tips on what to look for in finding a right insurance broker or agent:

    TIP 1: Knowledge and experience:  There is no substitute for experience! Look for brokers that have been in their field for a minimum of 5 years.  Proficient brokers will usually also have advanced planning designations (insurance degrees) next to their names.  Look for at least one of the following 3 designations: CLU (chartered life underwriter) CFP (certified financial planner) or CSA (certified senior advisor).

    TIP 2: Independent brokers, not agents:  This may be counter-intuitive.  In reality, independent brokers are in a better position to help you than “captive agents”.  The independent broker represents numerous insurance companies and must be well-versed on all their policies in order to find the best one for you.  The captive agent (i.e. Allstate or New York Life) often promote their own company products first in order to qualify for their company-sponsored trips and subsidized health insurance.  Make sure your broker places your needs before their own!

    TIP 3: Fee structure:  Most of the established independent brokers don’t charge a fee for time and/or services.  They receive compensation from whichever insurance company you decide to do business with.  Beware of agents/planners and advisors that charge steep upfront consultation fees.

    TIP 4: Get a second opinion:  Most people are already working with an agent/broker.  Do yourself a favor and get a second opinion using the tips given in this article.  You will be surprised at what you can learn from a free consultation with an independent broker.

    TIP 5:  Due diligence:  Invest the time to call 2 or 3 brokers.  Start a small list and ask around.  Friends, family or colleagues that are satisfied with their broker are a good place to start.  Check for their presence and reviews on the internet and gather as much information as possible.

  • 6 Facts Nobody Knows About The 2018 Trump Tax Reform

    The Trump Tax bill has affected individuals and businesses both in the USA and abroad.  It’s still being dissected.  Check out these facts:

    1. Eliminates health ins tax penalty in 2019: The 12/22/2017 tax bill signed into law eliminates the tax penalty for individuals who fail to maintain (MEC) minimum essential coverages as of 1/1/2019.
    2. The Employer Mandate still applies: Applicable large employers (ALE) will continue to face penalties for failure to offer affordable coverage providing minimum value to their full-time employees.
    3. Individual Mandate Penalties are still in force in 2018: Individuals who go without health coverage for 3-month or longer in 2018 will still have to pay a penalty (unless they qualify for an exception)!
    4. More options are available for 529 monies: Families can withdraw up to $10,000/year tax-free to use for public, private or religious elementary or secondary school expenses
    5. Home Equity Loans (HELOC’s) may no longer be deductible: HELOCs (home equity lines of credit) and 2nd mortgages are ONLY deductible if used for “substantial improvements” to the home and the combination of the 1st mortgage and HELOC or 2nd mortgage doesn’t exceed the new cap of $750,000. (previously $1.1m)
    6. Pro athletes can no longer deduct agent fees in 2018: The NFL explains it by saying since players pay agents directly and agent fees are not deducted from game checks, they will no longer be deductible under the Trump Tax Reform.
  • 5 reasons seniors should sell their life ins. policy in 2018

    5 reasons seniors should sell their life ins. policy in 2018

    Many seniors are creatures of habit and are holding onto their large life insurance policies with expensive premiums that they may no longer need or afford.  Based on the new Tax Law Reform, 2018 could be the best time to sell their policy.

    1. The Estate Tax has been increased: The tax exemption has been raised to $11,200,000 per person, $22,400,000 per couple hence the policy may no longer be needed to pay any estate tax.
    2. Tax law change on selling life insurance policies: People who sell their policies will now receive the same treatment as those who cash surrender their policy. In many cases, selling the policy can net 2-4 times more than the current cash value!
    3. 20+ settlement companies bid on your policy: We have access to 20+ settlement companies that will bid on buying your policy for much more than the current cash surrender value.
    4. Term policies can also be sold: Even term policies with zero cash value can often be sold for cash.
    5. Receive money instead of paying expensive premiums: Many seniors are on a fixed income and struggle to pay premiums. This way they can receive a lump sum of cash and no longer have to pay those premiums which should improve their quality of life.

    Reach out to us to find out how it works and to obtain a no cost, no obligation quote on how much money you, your parents and/or grandparents can get by selling their policy!