Mutual funds are fast becoming the most preferred investment portfolio for many prospective investors. Before opting to invest in a fund, it is always better to know about different companies selling them and the fee they charge for their services.
Insurance companies: Insurance companies should be the least considered option while buying a mutual fund. In most cases, insurance companies never sell this type of fund directly. They often combine the benefits of a mutual fund along with certain other products. These combinations are offered to customers in the form of unit-linked products. Another disadvantage of buying such products from an insurance company is the sales load that these funds carry. A sales load can be defined as the fund commission paid to brokers. This can range from 4 to 8 percent.
Banks: Another unfavorable place for buying fund is a bank. Disadvantages of buying a fund from a bank are the same as they are with insurance companies. Even banks prefer to sell the funds in the form of loaded funds. Investors either need to bear the entry load or the exit load. Another disadvantage is that banks do not offer much variety keeping in consideration the investment objectives of the investor. Also, in most banks, there are no capable financial advisors providing much information about the funds and their advantages to customers.
Stock brokers and investment advisors: One should approach these groups with caution. Some of these people tend to sell the funds loaded with heavy entry or exit costs. Even if an investment advisor offers a no-load fund, he charges heavy fees for his financial service.
Discount stock brokers: These people are one good source of buying these types of funds. This is because, these brokers are registered with different mutual fund companies and offer a wide variety of fund options to investors without any load. Discounted stock brokers are primarily preferred more than mutual fund companies due to their value of expertise in this sector and also the advice they offer to customers are usually based on their investment needs.
Mutual fund companies: These should be the most preferred source of buying a fund. These companies do not charge any transaction charges to customers who approach them directly.
Tuesday, April 29, 2008
Unit Linked Insurance Plan In India
In India, Unit Linked Insurance Policies (ULIPs) are insurance policies that combine risk coverage with investing in the stock/debt markets. In effect, they are designed to behave as normal insurance policies plus mutual funds.
An investor's contribution to ULIPs gets invested in specific types of portfolios that he/she chooses. The policy typically pays back based on market returns on investments at the end of the insured period. Therefore, it forms an interesting savings instrument that can get good risk cover.
Features of ULIPs include:
1. Units allotted under ULIP schemes have Net Asset Values (NAV) declared regularly, like a mutual fund
2. Investors can invest across types of portfolios similar to mutual funds - growth equity, balanced, debt funds, etc. Investors can move across portfolios, typically at nominal costs
3. Investors can invest as a lump sum (single premium) or make premium payments on an annual, half-yearly, quarterly or monthly basis. Premium amounts can be changed over the course of ULIP's life
4. Investments qualify under Section 80C of the Income Tax Act. Maturity proceeds from ULIPs are tax free. There are no long term capital gains tax and 10% short term capital gains tax on equity portfolios within ULIP. For debt funds, long term capital gains tax is 10% while short term is at the investor's marginal tax rate.
5. However, charges charged by insurance companies can be quite confusing - therefore, investors should compare them with similar mutual funds to see if charges quoted are reasonable.
Despite their interesting structure and potential benefits, investors are better off clearly understanding portfolio types offered, performance of fund managers and expenses/fees before investing in ULIPs.
An investor's contribution to ULIPs gets invested in specific types of portfolios that he/she chooses. The policy typically pays back based on market returns on investments at the end of the insured period. Therefore, it forms an interesting savings instrument that can get good risk cover.
Features of ULIPs include:
1. Units allotted under ULIP schemes have Net Asset Values (NAV) declared regularly, like a mutual fund
2. Investors can invest across types of portfolios similar to mutual funds - growth equity, balanced, debt funds, etc. Investors can move across portfolios, typically at nominal costs
3. Investors can invest as a lump sum (single premium) or make premium payments on an annual, half-yearly, quarterly or monthly basis. Premium amounts can be changed over the course of ULIP's life
4. Investments qualify under Section 80C of the Income Tax Act. Maturity proceeds from ULIPs are tax free. There are no long term capital gains tax and 10% short term capital gains tax on equity portfolios within ULIP. For debt funds, long term capital gains tax is 10% while short term is at the investor's marginal tax rate.
5. However, charges charged by insurance companies can be quite confusing - therefore, investors should compare them with similar mutual funds to see if charges quoted are reasonable.
Despite their interesting structure and potential benefits, investors are better off clearly understanding portfolio types offered, performance of fund managers and expenses/fees before investing in ULIPs.
Tuesday, March 25, 2008
Worldwide Mutual Fund Companies
There are lots of Mutual Fund Investment Companies all over the world. With the growing popularity of the investment it has become important to analyze the best companies but there is no particular criteria to base the analysis. With the help provided by the professionals and the financial advisers it has become very easy to invest in mutual funds and it has become the secured way to generate money. There are various types of mutual funds and there are three main that are income funds, growth funds and balanced funds.
As mutual funds are becoming most preferred investment portfolio it is important that you know exactly where to buy these instruments so that your hard earned money is in safe hands. If you are trying to invest in mutual funds of insurance companies then it will not prove to be very profitable. They don't sell the product directly but try to combine with other products. Banks also provide with mutual funds but in the form of loaded funds. So if you want to generate more income, trust the stockbrokers and the investment advisers.
While selecting a group that offers investment advices you should be very cautious and beware of the fake groups. Try to research online about the group and read the reviews and feedbacks of the users so that you get the idea of the benefits and the drawbacks of the group easily. With so many mutual fund investment companies and various options available in the market it becomes difficult to choose the right one. You should know clearly your financial goals before investing and choose the mutual fund investment companies to invest your money. In this way you will get maximum returns for your money.
As mutual funds are becoming most preferred investment portfolio it is important that you know exactly where to buy these instruments so that your hard earned money is in safe hands. If you are trying to invest in mutual funds of insurance companies then it will not prove to be very profitable. They don't sell the product directly but try to combine with other products. Banks also provide with mutual funds but in the form of loaded funds. So if you want to generate more income, trust the stockbrokers and the investment advisers.
While selecting a group that offers investment advices you should be very cautious and beware of the fake groups. Try to research online about the group and read the reviews and feedbacks of the users so that you get the idea of the benefits and the drawbacks of the group easily. With so many mutual fund investment companies and various options available in the market it becomes difficult to choose the right one. You should know clearly your financial goals before investing and choose the mutual fund investment companies to invest your money. In this way you will get maximum returns for your money.
Buy Mutual Funds
Mutual funds are fast becoming the most preferred investment portfolio for many prospective investors. Before opting to invest in a fund, it is always better to know about different companies selling them and the fee they charge for their services.
Insurance companies: Insurance companies should be the least considered option while buying a mutual fund. In most cases, insurance companies never sell this type of fund directly. They often combine the benefits of a mutual fund along with certain other products. These combinations are offered to customers in the form of unit-linked products. Another disadvantage of buying such products from an insurance company is the sales load that these funds carry. A sales load can be defined as the fund commission paid to brokers. This can range from 4 to 8 percent.
Banks: Another unfavorable place for buying fund is a bank. Disadvantages of buying a fund from a bank are the same as they are with insurance companies. Even banks prefer to sell the funds in the form of loaded funds. Investors either need to bear the entry load or the exit load. Another disadvantage is that banks do not offer much variety keeping in consideration the investment objectives of the investor. Also, in most banks, there are no capable financial advisors providing much information about the funds and their advantages to customers.
Stock brokers and investment advisors: One should approach these groups with caution. Some of these people tend to sell the funds loaded with heavy entry or exit costs. Even if an investment advisor offers a no-load fund, he charges heavy fees for his financial service.
Discount stock brokers: These people are one good source of buying these types of funds. This is because, these brokers are registered with different mutual fund companies and offer a wide variety of fund options to investors without any load. Discounted stock brokers are primarily preferred more than mutual fund companies due to their value of expertise in this sector and also the advice they offer to customers are usually based on their investment needs.
Mutual fund companies: These should be the most preferred source of buying a fund. These companies do not charge any transaction charges to customers who approach them directly.
Insurance companies: Insurance companies should be the least considered option while buying a mutual fund. In most cases, insurance companies never sell this type of fund directly. They often combine the benefits of a mutual fund along with certain other products. These combinations are offered to customers in the form of unit-linked products. Another disadvantage of buying such products from an insurance company is the sales load that these funds carry. A sales load can be defined as the fund commission paid to brokers. This can range from 4 to 8 percent.
Banks: Another unfavorable place for buying fund is a bank. Disadvantages of buying a fund from a bank are the same as they are with insurance companies. Even banks prefer to sell the funds in the form of loaded funds. Investors either need to bear the entry load or the exit load. Another disadvantage is that banks do not offer much variety keeping in consideration the investment objectives of the investor. Also, in most banks, there are no capable financial advisors providing much information about the funds and their advantages to customers.
Stock brokers and investment advisors: One should approach these groups with caution. Some of these people tend to sell the funds loaded with heavy entry or exit costs. Even if an investment advisor offers a no-load fund, he charges heavy fees for his financial service.
Discount stock brokers: These people are one good source of buying these types of funds. This is because, these brokers are registered with different mutual fund companies and offer a wide variety of fund options to investors without any load. Discounted stock brokers are primarily preferred more than mutual fund companies due to their value of expertise in this sector and also the advice they offer to customers are usually based on their investment needs.
Mutual fund companies: These should be the most preferred source of buying a fund. These companies do not charge any transaction charges to customers who approach them directly.
Monday, March 10, 2008
Mutual Insurance Policies Used As Investment Tools
Has your financial adviser ever recommended you use life insurance as a savings or investment tool to help you accumulate wealth for your future goals? Perhaps you have wondered, is this a cost prohibitive strategy? After all how much of that money is really going to pay for that large death benefit and how much really goes back to you?
Surly all of these fees and charges do add up at the end of the day but there are many things to consider if you want to find accurate answers to these questions. The first thing you have to understand when considering life insurance as an investment tool is there are many ways to structure a life insurance policy. 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. 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, using a properly structured life insurance contract allows you to enjoy certain tax-benefits that are difficult to mimic in other investments. For example not only will the money you put in your life insurance plan grow tax-deferred but if you do this correctly often times you can access this money tax-free.
Even with the added cost of insurance that you would pay inside a life insurance plan vs. another type of investment vehicle in many instances the tax-breaks alone can more than make up for the added cost.
But let's look at those added fees for a moment. If your contract is put together properly as mentioned above, it most often works out that your costs are about 1% to 1.5% over the life of the contract. Is this cost prohibitive?
Well, where would you put the money if you did not use a life insurance contract? How can you really know if you are getting a fair value unless you make an accurate comparison to your other choices?
If you are like most people your first choice would probably be investing in some sort of a mutual fund. But what kind of fees does the average mutual fund charge? According to the Chicago Tribune, Feb. 26th 2006 "The industry average for mutual fund expense ratios or annual costs is 1.3%" So the cost to invest in a mutual fund is about the same as the insurance contract. But what do you get for your 1.3% in a mutual fund? Advice, period. What do you get for your 1.5% in a properly structured life insurance contract?
You get an income tax free death benefit for your family and tax-favored growth with tax-free access to our money. If you select life insurance as you investment vehicle you are really swapping out the mutual fund expence charges (that you would have paid anyway) for the life insurance charges. If you don't need the insurance and you live to a ripe old age then good for you. If you do need it, your family will be forever grateful you chose to forego the mutual fund investment choice.
By the way so far we have only looked at mutual funds obvious expenses but we did not even consider the many hidden costs to owning mutual funds. For example most mutual funds today have turnover rates in excess of 90%. That means that they rarely follow a buy and hold philosophy, and instead tend to sell about 90% of their portfolios in a given year in order to buy different stocks. Each time they buy and sell they incur transaction fees that are passed on to you. We can only estimate how much the funds pay in transaction cost because the funds themselves do not even know that amount. In addition all of this trading, costs the share holder additional expenses in capital gains taxes and this is really just the tip of the iceberg.
Once you add the 12b-1 fee to the estimated transaction fees along with the added capital gains tax the average mutual fund investor looses 3.1% of his investment returns to these costs each year. John Bogle, the creator of the Vanguard 500 mutual fund had this to say about the 3.1% average fee of today's mutual funds, "That may not seem like much but such costs would consume 31% of a 10% market return. Add in the 1.5% capital gains tax bill the average fund investor pays each year, and that figure shoots up to 46%, nearly half of a potential 10% return".
As noted above when you look at the fees inside the average mutual fund they can add up to more than double the fees in a properly structured life insurance contract.
So what is the bottom line answer to the question, is life insurance a cost prohibitive way to invest? Plain and simple, it depends! Depends on what you ask? Is the insurance plan structured properly? And where would you put the money if it did not go into an insurance contract?
No matter where you invest your money there are sure to be fees that go along with that investment. Life Insurance is no different. However in the life insurance plan the cost of the insurance is basically absorbed by avoiding mutual fund management fees and otherwise payable income taxes. That being said if you do decide to use life insurance as an investment tool make sure that you are talking with a qualified advisor who fully understands not only its cost but also its potential.
Surly all of these fees and charges do add up at the end of the day but there are many things to consider if you want to find accurate answers to these questions. The first thing you have to understand when considering life insurance as an investment tool is there are many ways to structure a life insurance policy. 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. 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, using a properly structured life insurance contract allows you to enjoy certain tax-benefits that are difficult to mimic in other investments. For example not only will the money you put in your life insurance plan grow tax-deferred but if you do this correctly often times you can access this money tax-free.
Even with the added cost of insurance that you would pay inside a life insurance plan vs. another type of investment vehicle in many instances the tax-breaks alone can more than make up for the added cost.
But let's look at those added fees for a moment. If your contract is put together properly as mentioned above, it most often works out that your costs are about 1% to 1.5% over the life of the contract. Is this cost prohibitive?
Well, where would you put the money if you did not use a life insurance contract? How can you really know if you are getting a fair value unless you make an accurate comparison to your other choices?
If you are like most people your first choice would probably be investing in some sort of a mutual fund. But what kind of fees does the average mutual fund charge? According to the Chicago Tribune, Feb. 26th 2006 "The industry average for mutual fund expense ratios or annual costs is 1.3%" So the cost to invest in a mutual fund is about the same as the insurance contract. But what do you get for your 1.3% in a mutual fund? Advice, period. What do you get for your 1.5% in a properly structured life insurance contract?
You get an income tax free death benefit for your family and tax-favored growth with tax-free access to our money. If you select life insurance as you investment vehicle you are really swapping out the mutual fund expence charges (that you would have paid anyway) for the life insurance charges. If you don't need the insurance and you live to a ripe old age then good for you. If you do need it, your family will be forever grateful you chose to forego the mutual fund investment choice.
By the way so far we have only looked at mutual funds obvious expenses but we did not even consider the many hidden costs to owning mutual funds. For example most mutual funds today have turnover rates in excess of 90%. That means that they rarely follow a buy and hold philosophy, and instead tend to sell about 90% of their portfolios in a given year in order to buy different stocks. Each time they buy and sell they incur transaction fees that are passed on to you. We can only estimate how much the funds pay in transaction cost because the funds themselves do not even know that amount. In addition all of this trading, costs the share holder additional expenses in capital gains taxes and this is really just the tip of the iceberg.
Once you add the 12b-1 fee to the estimated transaction fees along with the added capital gains tax the average mutual fund investor looses 3.1% of his investment returns to these costs each year. John Bogle, the creator of the Vanguard 500 mutual fund had this to say about the 3.1% average fee of today's mutual funds, "That may not seem like much but such costs would consume 31% of a 10% market return. Add in the 1.5% capital gains tax bill the average fund investor pays each year, and that figure shoots up to 46%, nearly half of a potential 10% return".
As noted above when you look at the fees inside the average mutual fund they can add up to more than double the fees in a properly structured life insurance contract.
So what is the bottom line answer to the question, is life insurance a cost prohibitive way to invest? Plain and simple, it depends! Depends on what you ask? Is the insurance plan structured properly? And where would you put the money if it did not go into an insurance contract?
No matter where you invest your money there are sure to be fees that go along with that investment. Life Insurance is no different. However in the life insurance plan the cost of the insurance is basically absorbed by avoiding mutual fund management fees and otherwise payable income taxes. That being said if you do decide to use life insurance as an investment tool make sure that you are talking with a qualified advisor who fully understands not only its cost but also its potential.
Potential Benefits Of Mutual Insurance Policies
In India, Unit Linked Insurance Policies (ULIPs) are insurance policies that combine risk coverage with investing in the stock/debt markets. In effect, they are designed to behave as normal insurance policies plus mutual funds.
An investor's contribution to ULIPs gets invested in specific types of portfolios that he/she chooses. The policy typically pays back based on market returns on investments at the end of the insured period. Therefore, it forms an interesting savings instrument that can get good risk cover.
Features of ULIPs include:
1. Units allotted under ULIP schemes have Net Asset Values (NAV) declared regularly, like a mutual fundt
2. Investors can invest across types of portfolios similar to mutual funds - growth equity, balanced, debt funds, etc. Investors can move across portfolios, typically at nominal costs
3. Investors can invest as a lump sum (single premium) or make premium payments on an annual, half-yearly, quarterly or monthly basis. Premium amounts can be changed over the course of ULIP's life
4. Investments qualify under Section 80C of the Income Tax Act. Maturity proceeds from ULIPs are tax free. There are no long term capital gains tax and 10% short term capital gains tax on equity portfolios within ULIP. For debt funds, long term capital gains tax is 10% while short term is at the investor's marginal tax rate.
5. However, charges charged by insurance companies can be quite confusing - therefore, investors should compare them with similar mutual funds to see if charges quoted are reasonable.
Despite their interesting structure and potential benefits, investors are beter off clearly understanding portfolio types offered, performance of fund managers and expenses/fees before investing in ULIPs.
An investor's contribution to ULIPs gets invested in specific types of portfolios that he/she chooses. The policy typically pays back based on market returns on investments at the end of the insured period. Therefore, it forms an interesting savings instrument that can get good risk cover.
Features of ULIPs include:
1. Units allotted under ULIP schemes have Net Asset Values (NAV) declared regularly, like a mutual fundt
2. Investors can invest across types of portfolios similar to mutual funds - growth equity, balanced, debt funds, etc. Investors can move across portfolios, typically at nominal costs
3. Investors can invest as a lump sum (single premium) or make premium payments on an annual, half-yearly, quarterly or monthly basis. Premium amounts can be changed over the course of ULIP's life
4. Investments qualify under Section 80C of the Income Tax Act. Maturity proceeds from ULIPs are tax free. There are no long term capital gains tax and 10% short term capital gains tax on equity portfolios within ULIP. For debt funds, long term capital gains tax is 10% while short term is at the investor's marginal tax rate.
5. However, charges charged by insurance companies can be quite confusing - therefore, investors should compare them with similar mutual funds to see if charges quoted are reasonable.
Despite their interesting structure and potential benefits, investors are beter off clearly understanding portfolio types offered, performance of fund managers and expenses/fees before investing in ULIPs.
Thursday, February 21, 2008
Financial Advice And Insurance Plans
Has your financial adviser ever recommended you use life insurance as a savings or investment tool to help you accumulate wealth for your future goals? Perhaps you have wondered, is this a cost prohibitive strategy? After all how much of that money is really going to pay for that large death benefit and how much really goes back to you?
Surly all of these fees and charges do add up at the end of the day but there are many things to consider if you want to find accurate answers to these questions. The first thing you have to understand when considering life insurance as an investment tool is there are many ways to structure a life insurance policy. 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. 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, using a properly structured life insurance contract allows you to enjoy certain tax-benefits that are difficult to mimic in other investments. For example not only will the money you put in your life insurance plan grow tax-deferred but if you do this correctly often times you can access this money tax-free.
Even with the added cost of insurance that you would pay inside a life insurance plan vs. another type of investment vehicle in many instances the tax-breaks alone can more than make up for the added cost.
But let's look at those added fees for a moment. If your contract is put together properly as mentioned above, it most often works out that your costs are about 1% to 1.5% over the life of the contract. Is this cost prohibitive?
Well, where would you put the money if you did not use a life insurance contract? How can you really know if you are getting a fair value unless you make an accurate comparison to your other choices?
If you are like most people your first choice would probably be investing in some sort of a mutual fund. But what kind of fees does the average mutual fund charge? According to the Chicago Tribune, Feb. 26th 2006 "The industry average for mutual fund expense ratios or annual costs is 1.3%" So the cost to invest in a mutual fund is about the same as the insurance contract. But what do you get for your 1.3% in a mutual fund? Advice, period. What do you get for your 1.5% in a properly structured life insurance contract?
You get an income tax free death benefit for your family and tax-favored growth with tax-free access to our money. If you select life insurance as you investment vehicle you are really swapping out the mutual fund expence charges (that you would have paid anyway) for the life insurance charges. If you don't need the insurance and you live to a ripe old age then good for you. If you do need it, your family will be forever grateful you chose to forego the mutual fund investment choice.
By the way so far we have only looked at mutual funds obvious expenses but we did not even consider the many hidden costs to owning mutual funds. For example most mutual funds today have turnover rates in excess of 90%. That means that they rarely follow a buy and hold philosophy, and instead tend to sell about 90% of their portfolios in a given year in order to buy different stocks. Each time they buy and sell they incur transaction fees that are passed on to you. We can only estimate how much the funds pay in transaction cost because the funds themselves do not even know that amount. In addition all of this trading, costs the share holder additional expenses in capital gains taxes and this is really just the tip of the iceberg.
Once you add the 12b-1 fee to the estimated transaction fees along with the added capital gains tax the average mutual fund investor looses 3.1% of his investment returns to these costs each year. John Bogle, the creator of the Vanguard 500 mutual fund had this to say about the 3.1% average fee of today's mutual funds, "That may not seem like much but such costs would consume 31% of a 10% market return. Add in the 1.5% capital gains tax bill the average fund investor pays each year, and that figure shoots up to 46%, nearly half of a potential 10% return".
As noted above when you look at the fees inside the average mutual fund they can add up to more than double the fees in a properly structured life insurance contract.
So what is the bottom line answer to the question, is life insurance a cost prohibitive way to invest? Plain and simple, it depends! Depends on what you ask? Is the insurance plan structured properly? And where would you put the money if it did not go into an insurance contract?
No matter where you invest your money there are sure to be fees that go along with that investment. Life Insurance is no different. However in the life insurance plan the cost of the insurance is basically absorbed by avoiding mutual fund management fees and otherwise payable income taxes. That being said if you do decide to use life insurance as an investment tool make sure that you are talking with a qualified advisor who fully understands not only its cost but also its potential.
Surly all of these fees and charges do add up at the end of the day but there are many things to consider if you want to find accurate answers to these questions. The first thing you have to understand when considering life insurance as an investment tool is there are many ways to structure a life insurance policy. 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. 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, using a properly structured life insurance contract allows you to enjoy certain tax-benefits that are difficult to mimic in other investments. For example not only will the money you put in your life insurance plan grow tax-deferred but if you do this correctly often times you can access this money tax-free.
Even with the added cost of insurance that you would pay inside a life insurance plan vs. another type of investment vehicle in many instances the tax-breaks alone can more than make up for the added cost.
But let's look at those added fees for a moment. If your contract is put together properly as mentioned above, it most often works out that your costs are about 1% to 1.5% over the life of the contract. Is this cost prohibitive?
Well, where would you put the money if you did not use a life insurance contract? How can you really know if you are getting a fair value unless you make an accurate comparison to your other choices?
If you are like most people your first choice would probably be investing in some sort of a mutual fund. But what kind of fees does the average mutual fund charge? According to the Chicago Tribune, Feb. 26th 2006 "The industry average for mutual fund expense ratios or annual costs is 1.3%" So the cost to invest in a mutual fund is about the same as the insurance contract. But what do you get for your 1.3% in a mutual fund? Advice, period. What do you get for your 1.5% in a properly structured life insurance contract?
You get an income tax free death benefit for your family and tax-favored growth with tax-free access to our money. If you select life insurance as you investment vehicle you are really swapping out the mutual fund expence charges (that you would have paid anyway) for the life insurance charges. If you don't need the insurance and you live to a ripe old age then good for you. If you do need it, your family will be forever grateful you chose to forego the mutual fund investment choice.
By the way so far we have only looked at mutual funds obvious expenses but we did not even consider the many hidden costs to owning mutual funds. For example most mutual funds today have turnover rates in excess of 90%. That means that they rarely follow a buy and hold philosophy, and instead tend to sell about 90% of their portfolios in a given year in order to buy different stocks. Each time they buy and sell they incur transaction fees that are passed on to you. We can only estimate how much the funds pay in transaction cost because the funds themselves do not even know that amount. In addition all of this trading, costs the share holder additional expenses in capital gains taxes and this is really just the tip of the iceberg.
Once you add the 12b-1 fee to the estimated transaction fees along with the added capital gains tax the average mutual fund investor looses 3.1% of his investment returns to these costs each year. John Bogle, the creator of the Vanguard 500 mutual fund had this to say about the 3.1% average fee of today's mutual funds, "That may not seem like much but such costs would consume 31% of a 10% market return. Add in the 1.5% capital gains tax bill the average fund investor pays each year, and that figure shoots up to 46%, nearly half of a potential 10% return".
As noted above when you look at the fees inside the average mutual fund they can add up to more than double the fees in a properly structured life insurance contract.
So what is the bottom line answer to the question, is life insurance a cost prohibitive way to invest? Plain and simple, it depends! Depends on what you ask? Is the insurance plan structured properly? And where would you put the money if it did not go into an insurance contract?
No matter where you invest your money there are sure to be fees that go along with that investment. Life Insurance is no different. However in the life insurance plan the cost of the insurance is basically absorbed by avoiding mutual fund management fees and otherwise payable income taxes. That being said if you do decide to use life insurance as an investment tool make sure that you are talking with a qualified advisor who fully understands not only its cost but also its potential.
Insurance For Employees And Businesses
Insurance fraud. It happens daily. There are a number of bogus health insurance companies and agents in Dallas, Houston or anywhere else in Texas who will take your money and run. So, before you purchase health insurance for your employees or your business, make sure the insurance company you're dealing with is legitimate. Start by checking your insurance agent's credentials to be sure he or she is licensed to sell insurance in Texas.
An insurance scam artist may act without a license or use fictitious documents to appear legitimate. The following information will provide what you need to make the right decision when purchasing health insurance for your business or individual employees. The scammers are out there just waiting for you to take the wrong step. Make sure you know what's waiting for you before you get scammed out of a lot of money.
In the last couple of years, the Texas Department of Insurance (TDI) has shut down 51 agents and 10 companies for selling unauthorized insurance. There are currently 376 open investigations against suspected unauthorized insurance scams in Texas.
The first thing is to check to see if a potential company is authorized to sell insurance. Then check to see if your insurance agent or agency is licensed. If you fail to find your company or insurance agency, don't assume it's unauthorized. Check with your agent for more information. Or verify by calling TDI’s toll-free Consumer Helpline weekdays between 8 a.m. and 5 p.m. at 1-800-252-3439. Insurance company data is usually updated at 7 a.m. each business day.
Businesses, school districts and individuals are bilked out of thousands of dollars each year by scam artists who misrepresent themselves as insurance agents. So, while the search for affordable health insurance can be a daunting task, don't blindly follow an agent. But did you know you run the risk of purchasing a phony policy even if you work with a legitimate agent? At times, even experienced agents can unknowingly sell illegal insurance products. Though honest agents will do their level best to avoid such circumstances, it can still happen. Worst of all, you could be on the hook for a wide range of costs and expenses that you thought your insurance was covering.
The typical health insurance scam moves pretty fast. Scam agents flood the market to help generate as many quick sales as possible. Often, payments will be requested up front to help ensure they get as much money as possible before they disappear. After the fake agents have reached their goal, they simply sit back and watch the monthly payments roll in. Then, just as quickly as they appeared, they are gone, only to re-appear later under a new name and a new scam. The individual or company may never know they've been duped until, after thousands of dollars in premiums have been paid, they then try and file a claim.
It's important to know what to look for. Here are some of the most common signs that an insurance company may be a scammer:
• They claim extremely low rates, or offer minimal or no underwriting.
• The health plan will accept almost anyone, including those with pre-existing or serious illnesses.
• The plan claims to be federal, not state regulated. (ERISA or union plans, for example)
• Sales pitches that avoid the word "insurance" or the use of certain insurance terminology even though it operates like insurance. For instance, it pays "consultant fees" instead of commissions, or refers to premiums as "contributions."
• The product claims to be "fully funded," "fully insured," or "reinsured" but agents are not told the name of the carrier insuring or underwriting the product.
Sometimes the path may seem clear and the choice easy, but in an effort to save money, there may be some things that aren't clearly visible at first glance. So how can you avoid the scammers? Check out each insurance company and agent you deal with. It only takes a little extra time, but the effort could possibly save you headache, heartache, and thousands of dollars down the road.
If you’re a small business owner who would like to offer affordable health insurance plans to your employees, but can’t afford group health insurance, you should consider offering your employees the revolutionary, comprehensive individual health insurance solutions created by Precedent specifically for young, healthy individuals. If you’re interested in an individual health insurance plan on your own, you should also take a look at Precedent.
Backed by American Community Mutual Insurance – which has been in business nearly 70 years and is B+ (Very Good) rated by independent A.M. Best – Precedent offers affordable, individual health plans with catastrophic coverage, but without a high deductible, and we’ll offer these plans to your employees at a discount. For more information, visit us at our website, http://www.precedent.com. We offer a unique and innovative suite of individual health insurance solutions, including highly competitive HSA-qualified plans, and an unparalleled "real time" application and acceptance experience.
An insurance scam artist may act without a license or use fictitious documents to appear legitimate. The following information will provide what you need to make the right decision when purchasing health insurance for your business or individual employees. The scammers are out there just waiting for you to take the wrong step. Make sure you know what's waiting for you before you get scammed out of a lot of money.
In the last couple of years, the Texas Department of Insurance (TDI) has shut down 51 agents and 10 companies for selling unauthorized insurance. There are currently 376 open investigations against suspected unauthorized insurance scams in Texas.
The first thing is to check to see if a potential company is authorized to sell insurance. Then check to see if your insurance agent or agency is licensed. If you fail to find your company or insurance agency, don't assume it's unauthorized. Check with your agent for more information. Or verify by calling TDI’s toll-free Consumer Helpline weekdays between 8 a.m. and 5 p.m. at 1-800-252-3439. Insurance company data is usually updated at 7 a.m. each business day.
Businesses, school districts and individuals are bilked out of thousands of dollars each year by scam artists who misrepresent themselves as insurance agents. So, while the search for affordable health insurance can be a daunting task, don't blindly follow an agent. But did you know you run the risk of purchasing a phony policy even if you work with a legitimate agent? At times, even experienced agents can unknowingly sell illegal insurance products. Though honest agents will do their level best to avoid such circumstances, it can still happen. Worst of all, you could be on the hook for a wide range of costs and expenses that you thought your insurance was covering.
The typical health insurance scam moves pretty fast. Scam agents flood the market to help generate as many quick sales as possible. Often, payments will be requested up front to help ensure they get as much money as possible before they disappear. After the fake agents have reached their goal, they simply sit back and watch the monthly payments roll in. Then, just as quickly as they appeared, they are gone, only to re-appear later under a new name and a new scam. The individual or company may never know they've been duped until, after thousands of dollars in premiums have been paid, they then try and file a claim.
It's important to know what to look for. Here are some of the most common signs that an insurance company may be a scammer:
• They claim extremely low rates, or offer minimal or no underwriting.
• The health plan will accept almost anyone, including those with pre-existing or serious illnesses.
• The plan claims to be federal, not state regulated. (ERISA or union plans, for example)
• Sales pitches that avoid the word "insurance" or the use of certain insurance terminology even though it operates like insurance. For instance, it pays "consultant fees" instead of commissions, or refers to premiums as "contributions."
• The product claims to be "fully funded," "fully insured," or "reinsured" but agents are not told the name of the carrier insuring or underwriting the product.
Sometimes the path may seem clear and the choice easy, but in an effort to save money, there may be some things that aren't clearly visible at first glance. So how can you avoid the scammers? Check out each insurance company and agent you deal with. It only takes a little extra time, but the effort could possibly save you headache, heartache, and thousands of dollars down the road.
If you’re a small business owner who would like to offer affordable health insurance plans to your employees, but can’t afford group health insurance, you should consider offering your employees the revolutionary, comprehensive individual health insurance solutions created by Precedent specifically for young, healthy individuals. If you’re interested in an individual health insurance plan on your own, you should also take a look at Precedent.
Backed by American Community Mutual Insurance – which has been in business nearly 70 years and is B+ (Very Good) rated by independent A.M. Best – Precedent offers affordable, individual health plans with catastrophic coverage, but without a high deductible, and we’ll offer these plans to your employees at a discount. For more information, visit us at our website, http://www.precedent.com. We offer a unique and innovative suite of individual health insurance solutions, including highly competitive HSA-qualified plans, and an unparalleled "real time" application and acceptance experience.
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