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  • Eric Watchorn

Insurance & Risk Management

Invest in Your Health

Usually this topic often encompasses exercise, a healthy diet for body and mind, as well as great relationships.

Yet this topic can also be expanded with our point of view. Our financially speaking point of view revolves around the possibility of formally leveraging your healthy life to create long-term security for you and to those around you. This security is manifested while alive and while not.

The utility of this is explained with these examples:

Years ago, presidential candidate John McCain secured initial campaign financing by using his $3 million life insurance policy as collateral.

In 2002, Doris Christopher sold her kitchen tool company, the Pampered Chef, to Warren Buffett for a reported $900 million. Seven years earlier, she launched the company with a life insurance loan.

Even in the midst of the Great Depression, J.C. Penney used a loan against his $3 million life insurance policy to resuscitate his retail stores after the 1929 crash.

While a country may or may not be sinking into the depths of a depression, it’s clear by now that there is no such thing as a perfect investment strategy. As the markets are challenged, now is an ideal time to learn about the proven benefits, strengths, and versatility of life insurance and annuity investing.

Large banks invest immense sums of their Tier 1 capital reserves—a bank’s most important asset and a key measure of its strength—into permanent life insurance underwritten by major life insurance companies. (See “Banking on life insurance” for more details below.)

Why do banks look to insurance companies for sound investment?

Unlike banks, life insurance companies do not use excessive leverage. If a bank has $1 million on deposit, it can lend out up to $10 million to the public. This leverage is called “fractional reserve lending,” and it can lead to instability & inflation.

Indeed, excessive leverage is a major reason why banks are challenged today and have throughout history. However, if a life insurance company has $1 million on deposit, that company may loan no more than $920,000, and usually only a fraction of that. As such, life insurers are 100 percent reserve-based lenders, which makes them stable institutions in down economies.

Investing in your health is adopting Life Insurance – but Why?

Basically, any investment can be chosen at any time. Often there is no qualification, except a suitability review. Yet with life insurance, you really only get the best options when healthy. And, your health can change from one day to another. Covid and many illnesses have taught us that age is not a deterrent of illness. Getting it while it is a possibility is wise.

There are two basic types of life insurance: term life, which is essentially a rented policy for a specified period of time; and permanent or “cash-value” life, which is insurance for as long as you live.

While a mix of both types of policy proves valuable for most investors, financial rewards are attainable only with permanent life policies.

Following are some of the key benefits of investing in permanent life insurance and annuities: Safety!

Permanent life and annuities, when backed by the general account of a life insurance company, contain financial guarantees, are protected by state guarantee funds, and adhere to strict investment portfolio standards.

Enormous losses in today’s stock market illuminate the dangers of investing without guarantees.

During the Great Depression, when more than 10,000 banks failed, 99.9 percent of consumers’ savings in life insurance and annuities remained safe with legal reserve life insurance companies.

Earnings in addition to guaranteed rates. Although additional earnings above guarantees are not assured, most life companies paid additional earnings even during the Great Depression.

Permanent life insurance and annuities are savings systems.

A major problem today in financial planning Power Points Insurance companies do not invest their money in the potentially unstable way that banks do.

Yet please note that life insurance policies should never be created for short-term investing.

Registered retirement savings accounts and the marketers of mutual funds have successfully blurred the difference between “saving” and “investing” - when one saves, money is safe and liquid. When one invests, 100 percent of your money is at risk 100 percent of the time.

When you save through permanent life insurance and annuities backed by the general account of a life insurance company, your funds are safe, liquid, and tax-favored.

Valuable tax benefits. Savings and earnings within permanent life insurance and annuities grow tax-deferred, and loans from insurance are not taxed as ordinary income.

What’s more, insurance proceeds are received income-tax-free and, in most cases, estate-tax-free.

Asset protection. Although asset-protection privileges for lawsuits and bankruptcy vary depending on the timing of origination, life insurance, segregated funds and annuity assets are very favored & mostly immune to bankruptcy risks.

Life is a gamble. The greatest risk we face is the risk of premature death. Protecting those people or causes we love with life insurance is a wise allocation of resources.

Professional money management. Savings within a life insurance company are professionally managed to secure the highest rate of return with the maximum amount of safety. You will enjoy diversification by industry as well as by geography. You have access to your money in a life insurance policy through loans and other options.

Today, money within a registered retirement plan is money in a straitjacket until retirement.

Unfortunately, your money is still subject to market risk, taxes, inflation, and lost opportunity costs. Not so with permanent life insurance, which offers you access to your savings through loans.

Life insurance and annuities can perform additional economic jobs as well. By attaching riders onto base life insurance and annuities, these products can provide additional benefits for disability protection, critical illness, and retirement funding. Life insurance and annuities are wills unto themselves. They are able to accommodate multiple and complex beneficiaries and can be easily changed without legal costs. At your death, they also bypass probate—thus avoiding legal bills, appraisal costs, taxes, and other expenses common even to midsized estates.

Insure your life as you would insure the economic replacement value of your automobile, home, or practice. Your human life is the greatest economic value of them all—the creator of all property values.

As a general rule, the economic replacement value for life insurance for a physician under 40 is 20 to 25 times his annual income. Physicians who are young will need large amounts of term life insurance—pure death benefit protection.

As cash flow improves and debts such as student loans are paid down, purchasing permanent life insurance makes economic sense.

When buying life insurance and annuity products with savings components, purchase products that are backed by the general account of the company first. The table below shows some large US Banks and the monies they allocate for permanent life insurance.

POWER POINTS to remember:

Insurance companies do not invest their money in the potentially unstable way that banks do. They are also not subject to bail in legislation.

A mix of term and permanent life insurance is ideal for most investors, though only permanent life offers interest and return rewards.

Life insurance policies should never be created for short-term investing.

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