I am not sure but I think it was the best selling author
and successful financial strategist Douglas R. Andrew who
first coined the term, "Investment Grade Insurance
Contract". But what exactly is an investment grade
insurance contract and why should you care?
Insurance contracts in general are some of the most often
misunderstood financial vehicles on the planet and yet they
offer some opportunities that can not be found in any other
financial products. Why should you care? Because not
knowing about the unique advantages of an investment grade
insurance contract could cost you literally thousands of
dollars in missed opportunities. Let's take a look at some
of these opportunities and then we can break down for you
just what an investment grade insurance contract really is.
There are many financial vehicles that allow your money to
grow tax-deferred while you are trying to grow your nest
egg. And any financial advisor will tell you that
tax-deferred growth is an advantageous pursuit. Making
interest on your interest without having to split that
growth with Uncle Sam means that you will end up with a
much larger account than if you had to pay taxes along the
way. Even if you have to pay tax at the end when you pull
the money out you still end up way ahead of an investment
vehicle that offers no tax shelter. But what if you could
grow your money in a vehicle that was not only tax-deferred
but where you could pull your money out tax-free when ever
you need it. How much better off would you be? Well an IGIC
(Investment Grade Insurance Contract) can help you do
exactly that if you know how. But before we get into what
it is and how to set one up lets talk about another unique
advantage.
Recently, I met with a client of mine who is about to
retire and he expressed to me that he has been sheltering
his money in tax-deferred accounts like IRA's and 401(k)'s
his whole life and now that he is about to retire he was
worried about what happens to all of that money when he
passes away? After all he didn't squirrel all of that money
away just to leave it to his silent partner (The U.S.
Government). Well had he been saving that money in an IGIC
instead of in his government regulated retirement vehicles
he could have left the entire account to his children, his
grandchildren or whomever he chooses with no income taxes
due.
So far we talked about this IGIC offering tax-deferred
growth during the accumulation stage of your life and then
tax-free distributions during the distribution stage of
your life and then lastly we talked about how this plan can
be passed on to your children income tax-free in the wealth
transfer stage of your life but are these the only
benefits? Actually no. There are at least 3 other
advantages that I can think of.
The first other advantage in addition to the tax break is
that your money can grow without any stock market risk.
This makes for a very nice supplement to most government
regulated retirement plans like 401 (k)'s that are often
subject to sharp stock market losses. Yet even with this
protection in place the return on your money can also be
very competitive.
Another advantage of the IGIC is that the when set up
properly you have very liberal access to your money. If you
are currently using IRA's or 401(k)'s your money is
generally tied up until you are 591/2 except for certain
rare circumstances. And if you borrow out your funds
beware, stiff penalties apply if you don't pay the money
back on their terms and in their time frame. Often you are
forced to garnish your wages just to pay back a loan of
what is supposed to be your own money. None of these harsh
requirements are involved with an IGIC. Access to your
money is much more easily accomplished because the plan is
not a government regulated retirement vehicle.
The last advantage that I have room for in this article is
that if you were to pass away prematurely before retirement
the IGIC would provide an insurance benefit to your loved
ones that would always be much more valuable than the sum
of all your contributions. This last benefit helps you
begin to see just what an investment grade insurance
contract really is.
You now know most of the benefits of an IGIC but what is it
exactly and how do you set one up? An Investment Grade
Insurance Contract is simply a permanent life insurance
policy that has been set up in exactly the "opposite" way
that most insurance agents tend to set them up. The most
common way the typical life insurance agent goes about
setting up your plan is to first determine how much life
insurance you need. Then he or she tries to calculate, what
is the largest amount of insurance they can give you for
the smallest amount of money out of your pocket?
When a life insurance policy is structured using that
method a good portion of your premium dollars ends up going
back to the life insurance company in fees and insurance
charges. (See my article on life insurance fees and charges
to learn more) You will most likely be disappointed in the
growth of your cash value.
On the other hand there is an alternative way to structure
a life insurance plan that tends to go against the
conventional wisdom of trying to get as much death benefit
"bang for your buck" as possible. In this alternative
scenario the agent or advisor structures the plan to give
you the least amount of death benefit that the IRS requires
so that you can stuff your plan with the highest allowable
amount of cash that the law permits. Why would anyone want
less death benefit you ask? Because the lower the death
benefit in relation to your premium the less you pay in
insurance charges and the more cost effective your plan
becomes.
But you are probably wondering why go through all of that
trouble to calculate the correct proportions? How does that
benefit you? Well if you set this up correctly you get all
of the benefits mentioned above and a competitive return on
your money over the long haul.
Are there any disadvantages to IGIC's? Like any financial
vehicle there are always pros and cons. Some things to
consider are that you are not able to write off your
premium dollars like you do in an IRA or 401(k) plan.
Another problem is that if you are not in at least somewhat
decent health you may not qualify for this type of plan.
Also these plans are designed to work best over the long
term as they offer advantages in multiple stages of your
life. To get the full benefit from an IGIC you should be
looking to invest your money for the long term even though
you will have short term access. If you are looking for
high short term speculative gains this is not the program
for you.
Lastly there are lots of ways to set up these plans. You
can use many different types of life insurance as your
chasse. You can use Whole Life, Universal Life, Variable
Life, or Equity Indexed Life. But often times it is not the
product that is the biggest concern, it is instead finding
someone who truly understands how to structure these plans
correctly so as not to violate the current tax-code. Make
sure your advisor has been fully trained in understanding
IGIC's and has helped other people to set them up. For a
listing of quality financial advisors you might try doing a
Google search under "International Association of
Registered Financial Consultants" or "Found Money
Management". Advisors on both of these sites have been
through extensive training and should understand these
concepts in detail.
----------------------------------------------------
Antonio Filippone is a respected speaker on a wide range of
subjects. He has been published in the official journal of
the IARFC as well as interviewed on the Radio about his out
side the box financial strategies. Readers who are
interested in gaining more information on how to live debt
free and truly wealthy can request a complimentary copy of
Mr. Filippone's booklet by visiting his website at
http://www.tonyfilippone.com
No comments:
Post a Comment