5 Reasons to Purchase an Indexed Universal Life Insurance Policy Financial Planning

As a financial planner, I feel like Indexed Universal Life insurance is one of the most misunderstood and underutilized tools and asset classes in the market today. I believe that this is because of the newness of the product itself. Indexed Universal Life(IUL from here on out) has only been around for a little over 15 years. Because of this, most financial advisors don’t fully understand it. IUL’s came around after they received their education and set their practices. Thus, individuals aren’t learning from experts, but rather, they rely on media pundits for any information on these programs. In an effort to further educate you, and promote a wonderful product, I give 5 reasons to buy an IUL.

The first great reason to have an IUL in your retirement portfolio is the fact that these products provide minimum guarantees. Unlike placing your funds directly into the market, these funds are protected from the market. They earn interest in a unique way. Interest is credited based on the performance of a chosen index. Rather than being invested in the actual market, you merely receive a portion of the index return. Again, the worst-case scenario is that you earn 0% in a given year. You can never lose money due to market fluctuations. Each year that you do earn interest, that interest is locked in and becomes part of the principal amount guaranteed to not be at risk to the market. What a great way to plan for retirement. This system of guarantees also removes the risk of retiring at the wrong time, when your account value is low due to market losses. It also prevents catastrophic damage to your retirement due to losses in the early years of your retirement.

In addition to the downside protection, these products can perform very well; often times outperforming the market returns seen in a typical investment portfolio. So you don’t have to give up a good return to find a safe haven for your retirement nest egg.

The second great reason for purchasing an IUL is the tax-free death benefit.

Life insurance is often used as a tool in estate planning. It is treated favorably by the IRS tax codes. Often, the funds coming from a death benefit from a life insurance policy are passed on to beneficiaries income tax free. Indexed Universal Life is no different. It becomes a wonderful tool to pass on assets tax free. Unlike other retirement options, such as a 401k, the assets held in an IUL pass on without taxes and give you immediate access to the funds, unlike assets held in real estate. It is also very typical, due to the death benefit common in all life insurance policies, that the death benefit will exceed the accumulation value of the account, meaning you not only leave more to your beneficiaries by paying less in taxes, but also because of the higher death benefit.

The third great reason for looking at an IUL is for the incredible supplemental retirement income that can be generated from it. What if you could put an unlimited amount of money into a Roth IRA, pay taxes on the principal now and have an income generated, tax free, for your retirement, and you could even access it early if you wanted? That would be an incredible deal, right? Well, it exists. It’s called an IUL. You can create a tax-free income through these IUL’s without having to worry about the timing of the market. Rather than rolling the dice of where the tax brackets fall out over your lifetime, why not draw at least part of your income through a program that allows you to fund it limitlessly, and not have to worry about paying taxes on the gains?

This is achieved through policy loans. It’s a new concept, but hear me out. Through a policy loan, you are able to draw out an income from your IUL tax free. Everyone always asks me “what if tax laws change?” Valid question. In theory, it is possible that the laws change and these funds do become taxable, but that would be odd. The government doesn’t tax our loans, only the asset by which the loan is guaranteed. Think for example of your car loan… you pay a property tax on that auto, but you don’t have to treat the loan from the bank that you used as income because it wasn’t income, you have to pay it back. These policy loans function the same way.

Diversification is the fourth reason to purchase an IUL. Since the bulk of your retirement funds are probably in taxed deferred savings accounts, like traditional IRA’s and 401k’s, IUL’s can provide a diversification, not only in asset class, but also in the tax treatment of the account. We typically believe in diversification and have been taught that since our high school years, yet we all have our retirement in the same types of vehicles. All are tax-deferred time bombs with minimum distribution ages and minimum distribution requirements or maximum contribution amounts controlled by the government and current economics in the USA. We are all typically in a blend of stocks and bonds, crossing our fingers that when that day comes to retire, we are up, not down. Hopefully we’ve picked well, though we be uneducated as can be, and yet we bank on this as our retirement program and a whole industry has built itself around it. Amazing that we’ve heard this same concept preached for over 2 decades and we’re still drinking the kool-aide. I’m not going to tell you to not drink, just try a different flavor for a minute. It should be noted that when taxes go up, and they inevitably will, you will pay taxes on those funds that are in taxed deferred accounts. This can hurt the value of the dollars you have saved in those accounts. There is also a little thing called an RMD. Required Minimum Distributions are what the federal government requires us to withdraw from our retirement accounts, based on our age, as a percentage of our account balance. There is always the possibility of these percentages increasing so the taxes can be collected on these funds. This could also cause you to withdraw funds you don’t need. An IUL gives you a great hedge against these potential tax issues.

Finally, the fifth reason to purchase an IUL is because they allow you to work towards becoming your own banker. Have you ever found it odd that you borrow money from a bank even though you have money in the bank? I have. Most IUL’s have loan provisions allowing you to borrow from and pay back your life insurance. The nice thing is, by doing this, you pay yourself the interest rather than the bank. You continue to have a retirement fund that is growing and you aren’t losing years’ worth of interest to the bank. Think of all the interest you have paid for credit cards, auto loans, your mortgage, etc. You can borrow yourself the money instead and you don’t have to worry about the approval process at the bank. Many business owners feel that term insurance is the only type of life insurance for them because they don’t want to tie up their money. This is a false assumption. The funds “tied up” in life insurance are not locked up, but rather, provide more access to funds than most investment opportunities. The funds can be borrowed and replaced with relative ease, making it a wonderful program for creating your own personal banking system.

One final little bonus is that your IUL is permanent insurance, as long as it is built correctly and you fund it properly. You’ll likely have lifetime coverage, even after stopping your premium payments and taking withdrawals. Long after your term insurance is gone, you’ll still have a death benefit to leave those you love.

For these reasons, along with many others, indexed universal life insurance is a great way to help fund your retirement. It is not perfect for all situations, and it is always wise to consult your advisor before purchasing any retirement funding program. That being said, there are five reasons you should give your advisor a call and find out if an IUL is right for you.

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Medical Penlights Money

Every doctor has a few small instruments they keep in their pockets in all times, and medical penlights are one such example. These are tiny flashlights used to illuminate the eyes, nose, throat, mouth, and ears of a patient, which allows the doctor to do his job better. Nurses, EMT’s, and other medical professionals also carry and use these diagnostic penlights, as they make the job of checking on a patient much easier.

These penlights are small, lightweight, and very convenient to carry. The light works well because it comes out in a small beam that is directed right to the target, making it much easier for the body to be seen. The darker places of the human body must be lit up in order for the professional to do his/her job correctly. For the eyes of a patient, the light can help check pupil size and dilation. It helps to have a well lit mouth and throat for a patient who may be suffering from a cold or similar illness. The ears can also be checked for foreign objects and other abnormalities with these medical penlights.

Diagnostic penlights are not only easy to carry, but they are also simple to use. Most come with a small button or clip on the base that will allow you to quickly turn the light on and off. Those that come with a clip tend to be better for those with pockets. The clip can attach to the clothing to prevent the pen from getting damaged or lost by slipping out of the lab coat or scrubs. These penlights run on batteries. Some allow the user to replace the battery when it dies, while others are disposable and just need to be replaced after being used for a while.

There are many brands of medical penlights on the market. It should be noted that not all of these products are created equally. Some come with very low performing lights or batteries, meaning they will need to be replaced frequently. Others are more intricately designed and come with parts that will allow it to be used for years. They tend to be offered in a number of different colors. Buying these items in bulk will usually secure you a more affordable price.

As you can see, the need for medical penlights in a hospital setting is great. It is recommended that every doctor carry one of these devices to make it easier for him to check on his patients. The light is an important tool in diagnostics, as it can help a person see the dim areas of the mouth, nose, ears, and throat. There are a number of different brands and styles available when it comes to diagnostic pens. Selecting those of higher quality will allow you to save money and look more professional with a penlight clipped to your pocket.

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Basel II Summary – What is Important to Know About the Basel II Framework Money

What is Basel II? Who is behind it? Who has developed it? Is it an international law? Do we have to comply? Who has to comply? May I have a Basel II Summary? These are very important questions, and it is good to start from their answers.

The Basel II Framework (the official name is “International Convergence of Capital Measurement and Capital Standards: a Revised Framework”) is a new set of international standards and best practices that define the minimum capital requirements for internationally active banks. Banks have to maintain a minimum level of capital, to ensure that they can meet their obligations, they can cover unexpected losses, and can promote public confidence (which is of paramount importance for the international banking system).

Banks like to invest their money, not keep them for future risks. Regulatory capital (the minimum capital required) is an obligation. A low level of capital is a threat for the banking system itself: Banks may fail, depositors may lose their money, or they may not trust banks any more. This framework establishes an international minimum standard.

Basel II will be applied on a consolidated basis (combining the bank’s activities in the home country and in the host countries).

The framework has been developed by the Basel Committee on Banking Supervision (BCBS), which is a committee in the Bank for International Settlements (BIS), the world’s oldest international financial organization (established on 17 May 1930).

The Basel Committee on Banking Supervision was established by the G10 (Group of Ten countries) in 1974. These 10 countries (have become 11) are the rich and developed countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.

The G10 were behind the development of the previous (Basel i) framework, and now they have endorsed the new Basel II set of papers (the main paper and the many explanatory papers). Only banks in the G10 countries have to implement the framework, but more than 100 countries have volunteered to adopt these principles, or to take these principles into account, and use them as the basis for their national rulemaking process.

Basel i was not risk sensitive. All loans given to corporate borrowers were subject to the same capital requirement, without taking into account the ability of the counterparties to repay. We ignored the credit rating, the credit history, the risk management and the corporate governance structure of all corporate borrowers. They were all the same: Private corporations.

Basel II is much more risk sensitive, as it is aligning capital requirements to the risks of loss. Better risk management in a bank means that the bank may be able to allocate less regulatory capital.

In Basel II we have three Pillars:

Pillar 1 has to do with the calculation of the minimum capital requirements. There are different approaches:

The standardized approach to credit risk: Banks rely on external measures of credit risk (like the credit rating agencies) to assess the credit quality of their borrowers.

The Internal Ratings-Based (IRB) approaches too credit risk: Banks rely partly or fully on their own measures of a counterparty’s credit risk, and determine their capital requirements using internal models.

Banks have to allocate capital to cover the Operational Risk (risk of loss because of errors, fraud, disruption of IT systems, external events, litigation etc.). This can be a difficult exercise.

The Basic Indicator Approach links the capital charge to the gross income of the bank. In the Standardized Approach, we split the bank into 7 business lines, and we have 7 different capital allocations, one per business line. The Advanced Measurement Approaches are based on internal models and years of loss experience.

Pillar 2 covers the Supervisory Review Process. It describes the principles for effective supervision.

Supervisors have the obligation to evaluate the activities, corporate governance, risk management and risk profiles of banks to determine whether they have to change or to allocate more capital for their risks (called Pillar 2 capital).

Pillar 3 covers transparency and the obligation of banks to disclose meaningful information to all stakeholders. Clients and shareholders should have a sufficient understanding of the activities of banks, and the way they manage their risks.

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Registered Disability Savings Plans (RDSPs) Explained Financial Planning

RDSP stands for Registered Disability Savings Plan. The RDSP works as a Canadian savings plan similar to the Registered Education Savings Plan (RESP). To be eligible for an RDSP, an individual must qualify for the Disability Tax Credit, and be under the age of 60. The disabled individual who receives the funds invested in the RDSP is called the beneficiary.

Contribution to a disabled individual’s RDSP can be made by anyone with written permission from the plan holder. The plan holder can be the disabled individual (if they are of legal age, and are legally able to enter into a contract), a legal parent, a guardian who the beneficiary has authorized to act on his/her behalf, or a public agency that is legally authorized to act for the beneficiary.

Contributions to the plan can be made until the year in which the beneficiary turns 59. There is an overall lifetime limit of $200,000 on the contributions that can be made to a plan, but there is no annual limit on the amount that can be contributed.

Government Grants & Bonds

A unique feature of the RDSP, and something it has in common with an RESP, is that contributions made are matched by the government of Canada. This comes in the form on the Canada disability savings grants (CDSG) and the Canada disability savings bonds (CDSB). The CDSG and CDSB can received until the year in which the beneficiary turns 49.

The CDSG has a lifetime limit of $70,000. An individual can receive up to $3,500 of matching grants, with a contribution of $1,500. The schedule for matching, for the year 2010, can be found at this CRA link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rdsp-reei/cdsg-eng.html.

The CDSB has a lifetime limit of $20,000. The bond does not require contributions to be made. The schedule, for the year 2010, can be found at the previously posted link.

Grants and bonds received in any of the ten preceding years of the following events must be repaid to the government:

  • the RDSP is voluntarily closed
  • the plan is deregistered
  • a Disability Assistance Payment (DAP) is made from the plan
  • the beneficiary is no longer eligible for the Disability Tax Credit
  • the beneficiary dies

Is an RDSP Better than a TFSA or an RRSP?

In some cases, a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP) may be more lucrative than an RDSP. This is due to the fact that individuals receive a tax break when withdrawing from a TFSA and when contributing to an RRSP. There is no such tax break for an RDSP, which instead has the grants and bonds, which the other plans do not.

RDSPs are also more restrictive than TFSAs in when and how you can withdraw the funds within the plan. A reliable financial planner would perform calculations based on the grants, bonds and tax considerations, to see which plan is the most beneficial.

Conclusion

RDSPs are a great alternative for disabled Canadians, although they are not the only option. One must weigh the pros and cons of all savings plans, considering factors such as rate of return and the accessibility of invested funds.

Still, RDSPs are a great option for family members of disabled individuals, who would like to set up a trust for their disabled relative, and the grants and bonds can be lucrative to a low-income taxpayer.

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Disadvantages and Bad Habit Woes of Online Education Learning Money

Bad habits are deeply rooted and their change requires a deeper understanding. In all my years of writing about the beneficiaries of online education learning I have come across several disadvantages of online courses.

Modern lives require high-end careers. Kudos to online learning for it has eased the age old conventions of higher education. Now career goals are no longer limited to the handful. Online higher degrees are meant to cater the educational needs at large.

  • Low Motivation – Acquiring online learning experience requires motivation, dedication and sincere endeavors. Students with low motivation and bad study habits can find it difficult to complete an online study. It requires self-motivation as the student has to study on her own and there is hardly any pressure from the part of the tutor.
  • Too Much Time – E-courses require more time than courses in colleges or higher educational institutions. Giving ample time to students is actually a disadvantage. Students with bad habits feel lethargic to attend regular interactive classes and keep postponing the time schedule.
  • Lack of planning – To earn from online education which is well planned may be easy. But the study patterns are not that easy and have to be well planned. Improper study planning added to bad study habits can derail the process of learning. However, the course activities have to be planned if possible with an expert help.
  • Traditional Class Formats Are Missing – Students too familiar and dependent on traditional classes can find it difficult to cope with virtual online classes. Traditional class formats are missing that may lead to confusion. Online classes therefore require more attention and prioritizing.
  • No Availability of Personal Tutorial Help – The tutorial guidance sometimes may not suffice or satisfy the educational needs of the students. So, the student may feel the absence of personal tutorial guidance. An online video class may fulfill the requirement to some extent.
  • Isolation from instructor and classmates – In an online class a learner may feel isolated from the instructor and classmates. Classroom like environment, proper test timings, semesters and project submission within a particular deadline are all missing in virtual classes. Therefore an online learner may feel sluggish to work and study on her own.
  • Lab Work Is missing – Lab work is difficult to mange in virtual classroom rather it is missing. The absence of laboratory work is a serious disadvantage particularly in disciplines like physical or biological science.
  • Self-Learning – Online learning is almost like self learning where a person has to take responsibility of his or her own course of studies.

Limited interactions and missing out on non-verbal communications are potential disadvantages that can only add to the bad habit woes.

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