If you drive a car...you should own an
“umbrella” policy.
Consider this possibility...
You are driving to work in your car, the same route you have taken every day for the last five years. Today is just like yesterday, but what you don’t know is that tomorrow is about to be much different.
You continue on your daily commute when you suddenly collide with another vehicle. There are significant damages to both cars but the other driver appears to be badly injured. You are at fault.
Your life has suddenly changed. Your entire financial future may be at risk.
In circumstances such as these, what may happen next is a lawsuit from the other driver. Then, possibly a long string of court proceedings that may leave you responsible for the legal fees, court costs, and perhaps a sizable financial settlement for the injured party.
Your auto policy pays for accident and liability damages up to the policy limit. It could be that these limits are much too low which exposes your balance sheet to unnecessary risk. Your retirement strategy and a lifetime of savings could all be lost...at the blink of an eye.
So how do you protect yourself from a situation like this? First, by simply focusing on protecting against what may happen today before planning for tomorrow.
Next, by transferring the risk of a lawsuit to an insurance company...and away from your balance sheet.
An excess liability or umbrella policy provides coverage where your auto and home policy stop. In the case of the car accident, if you had an umbrella policy in place you may
Umbrella
Insurance:
Sheltering You From a Sudden Storm
UNCOMMON KNOWLEDGE
be able to use the policy to help protect your balance sheet and your income. The primary purpose of an umbrella policy is to protect you from unforeseen events, such as bodily injury, property damage, legal fees, financial settlements, and more.
If you answer ‘yes’ to any of these questions, you could be at higher risk and should strongly consid-er an umbrella policy:
• Do you own a car?
• Do you have teenagers
that drive?
• Do you travel away
from home?
• Do you have pets?
• Do you own a home?
• Do you have a pool?
The Living Balance Sheet® and the Living Balance Sheet® Logo are registered service marks of The Guardian Life Insurance Company® of America (Guardian), New York, NY. © Copyright 2005-2015, The Guardian Life Insurance Company of America.® The Guardian Life Insurance Company of America® (Guardian), New York, NY does not underwrite nor service umbrella, excess liability, homeowners, nor auto insurance. You should speak to
an insurance professional concerning coverage amounts for each of these types of insurances.
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You have more to protect than you may think…
As a general rule, you always want to insure all your assets in an amount equal to their full and complete replacement value. Excess liability protection should be one of the main cornerstones of your financial journey. In addition, you should store a large portion of your wealth in asset types that are protected against the impact of lawsuits. Qualified retirement plans and the cash value of Whole Life insurance are two good examples where suit protection exists, but the way individual states handle lawsuit protection may vary, so check with your individual state. When it rains, you use an umbrella to shield yourself from the elements. Utilizing an umbrella policy to shield you from unforeseen events is no different.
Contact your Property & Casualty professional and find out more about this important element of your protection portfolio. Then, place a copy of this policy in your Living Balance Sheet vault and make sure to review it periodically.
You have worked too hard to build your nest egg. Don’t let a single traffic accident destroy your most important financial dreams and desires.
The primary purpose
of an umbrella policy
is to protect you from
unforeseen events,
such as bodily injury,
property damage,
legal fees, financial
settlements,
and more.
Premium $150 Investment Return 8% Years 25 Wealth Lost $2,805Over the years, you have been taught that your retirement nest egg has a large ‘DO NOT TOUCH’ sign attached to it until retirement. Even at retirement, people hesitate to spend their nest egg for fear of running out of money.
So what happens if you remove that sign and crack that egg open?
Plenty of retirees have done just that and are fully enjoying the benefits of their hard-earned money. After spending years saving and accumulating assets, many people find themselves budgeting more in retirement than in their working years, often spending only the gain on their savings to avoid spending principal.
Whole Life:
The
Key
to Unlocking
your Retirement
So how are the people who are enjoying their assets in retirement doing it?
When thinking about retirement, there are pre- conceived notions that the best way to prepare is to heavily invest, depend upon a 401(k) and rely on social security – and, if you’re lucky, a pension. However, there is an additional step to achieving an enjoyable and secure retirement. It’s whole life insurance used in a way you’ve probably never thought before.
Many people have the common perception that now that my kids are grown, I can drop my life insurance policy so I can save, and even invest that money I was spending on the policy. The loss of the life insurance death benefit from your balance sheet will have a sig-nificant impact on your ability to access other assets in retirement.
What is not realized is that you are losing much more than just the death benefit associated with the life insurance policy; you are losing the freedom to live your retirement life to the fullest.
Rather than looking at whole life as a cost, it is important to see it as an asset with a promise.
The Living Balance Sheet® and the Living Balance Sheet® Logo are registered service marks of The Guardian Life Insurance Company of America (Guardian), New York, NY. © Copyright 2005-2015, The Guardian Life Insurance Company of America
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A New Perception, A New Promise
With whole life in place during your retirement, you no longer have to keep your money locked away and are able to enjoy your wealth without restraint. It sits behind all of your other assets, always there with the promise that it will pay a benefit at your death. Without having the concerns of legacy planning, you can access your other assets more freely – both the principal and its earnings.
The bottom line: A retirement that
includes whole life insurance is better
than one that does not.
By integrating whole life into your overall retirement strategy, you are given the unique combination of having the freedom to spend your retirement assets how and when you want while putting in place a secure legacy plan for your loved ones. Being able to maintain your accustomed lifestyle into your retirement years and even increase your post-retirement income without worry is the ultimate goal.
Savings
$1,000,000
$1,000,000
Whole Life
$0
$1,000,000
Total income living only off interest
and preserving principal
$1,103,774
N/A
Total income spending both
principal and interest
N/A
$1,686,466
Principal goes to your family
as your legacy
$1,000,000
N/A
Whole Life goes to your family
as your legacy
$0
$1,000,000
*Hypothetical is based on a male, age 35, who retires at age 65 and lives until age 85 with a rate of return of 6% in a 35% tax bracket. The hypothetical example does not represent the performance of any particular financial product or security.
Rather than
looking at
whole life
as a cost, it is
important to
see it as an
asset with a
promise.
Many financial planning recommendations and actual wealth building strategies rely on the compounding or reinvestment of interest earned on a financial asset in order to achieve a variety of financial objectives. The practice of “compounding” is commonplace in most financial circles and has been largely held in high esteem by both consumers and professionals alike.
With the discovery of the Exponential Curve, mathematicians were able to calculate how long it would take for a sum to double. Also known as the Rule of 72, one can simply divide an assumed interest rate into 72 to determine how many years are required for the final number to be twice as large as the original number. For example, if a number were to be compounded annually at a 6% rate, it would take 12 years to double (72 divided by 6 equals 12). If that same number were to be compounded at an 8% rate, it would only take 9 years to double (72 divided by 8 equals 9).
The Myth of
Compounding
Interest
UNCOMMON KNOWLEDGE
If a person knows the value of his money today, and chooses to employ an interest rate assumption, then calculations can be made quite easily as to how that money might grow over time.
Consider a person who has $100,000 in the bank today and expects to earn 6% in interest each year. With these assumptions, that individual can predict that by compounding, the bank account will grow to be worth $200,000 in 12 years (72 divided by 6 equals 12). If that same person continues to compound for second 12 year period, the account would be worth $400,000 after 24 years, then $800,000 after 36 years, and so on.
With the discovery
of the Exponential
Curve,
mathemati-cians were able to
calculate how long
it would take for a
sum to double.
The Living Balance Sheet® and the Living Balance Sheet® Logo are registered service marks of The Guardian Life Insurance Company of America (Guardian), New York, NY. © Copyright 2005-2015, The Guardian Life Insurance Company of America. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
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Compounding Taxes
In both taxable and tax deferred accounts, the strategy of compound-ing interest will lead to a compoundcompound-ing income tax. In taxable accounts, as interest is credited each year, the account balance will grow — which is good. However, as annual interest increases, so too will the annual income tax increase that is due on that account. If a taxable account is creating wealth at a compounded rate of 6%, then the annual out-of-pocket income tax liability is compounding (or increasing) at the same 6% rate.
With tax deferred accounts, the same compounding tax is occurring.
However, as opposed to increased taxes being paid out of pocket each year, deferred accounts postpone the tax until distributions are made. Either way, the impact of compounding income taxes triggered by compounding wealth building strategies can be significant.
Year 25 Total Wealth $429,187 Out of Pocket Income Tax $115,215 Original Investment $100,000 TVOM on Taxes Paid $97,354 Year 25 Taxable Interest $329,187 Impact of Taxes, Time Value of Money, and Inflation on Compounding
Inflation $109,378 35% Tax Rate, 3% Inflation and 6% Interest Rate
Alternative Strategies
In many cases, the “redeployment” or movement of earned interest from one financial account to another may lead to improved financial outcomes.
For example, interest previously left to compound might be rede-ployed to purchase life insurance, thereby lowering taxes over time and bolstering protection benefits. Or, instead, this interest may be used to pay off high-cost consumer debt, which may result in a cash flow savings that could be used for other asset building purposes. There are a limitless number of strategies that exist for the use of the interest earned on financial accounts. Consideration of the best options or use of earned interest should occur regularly and become part of a person’s financial review process. In doing so, improved ben-efits and wealth building results may occur.
