There are many reasons for buying life insurance. Among them are income replacement of the wage earner, debt payoff at death, funding college education in the event of premature death, business buyout obligations, and so on.
Life insurance as a means of passing an estate began to fade from the financial landscape during the last secular bull market that began in 1980. Level premium and guaranteed whole-life policies were replaced with policies with variable premiums, and cash values which were interest rate sensitive or tied to the ever-rising equities markets. Much of this was in response to consumer demand for policies that emphasized living benefits as opposed to just death benefits. Policy equity could be tapped for retirement income when death benefits were no longer needed or to fund other future lump sum needs. Life insurance as an estate transfer device generated more yawns than excitement. Throughout the next thirty years, permanent life insurance was seen as a necessary evil mainly for those with estates large enough to need the cash from insurance to pay estate taxes.
Today, with the lackluster returns from the financial markets, and estate taxes only affecting estates over $10 million (for married couples, $5 million for individuals) it might be time to rethink the role that permanent life insurance can play as a pure wealth transfer device.
Consider Rudy and Sandra. They are 58 and 56 respectively, and have savings and investments of $500,000. They have four children aged 22, 26, 29, and 30. As part of the sandwich generation, both of their parents are still living, but neither set of parents is financially well-off so a future inheritance is unlikely. Their children are not dependent on them, but they face financial pressures that their parents did not have, and Rudy and Sandra are concerned about their future. Rudy and Sandra would like to leave the bulk of their assets to their children at their death. However, based on what they need in retirement, there is a possibility that they will deplete their funds before they die, leaving nothing for their children. Rudy had plenty of life insurance when the children were younger, but he cancelled it after they left home.
Based on their current age and health status, Rudy or Sandra could purchase $500,000 of affordable level premium guaranteed whole life insurance that can ensure an inheritance for their children even if they consume all of their portfolio assets during retirement. If their children later become financially independent and the insurance is no longer needed for wealth transfer, they can access the guaranteed cash value which has grown independently of the financial markets.
Last week, the Investor Protection Trust (IPT) released the results of a survey regarding the growing problem of elder financial abuse. Available online at 
Stocks and U.S. Open Golf
The secular bear market we have experienced since 2000 (chart below) hasn’t given long-term investors a chance. With interest rates near all-time lows, bonds offer little opportunity for investors. Sooner or later, rising interest rates will result in severe casualties to those choosing to extend bond maturities in an attempt to pick up yield. And money markets, well… we all know that money market funds, CDs and other cash equivalents don’t pay anything these days. That leaves us with few liquid opportunities other than stocks, and that means patience.
We will continue to have opportunities such as the cyclical bull market of 2009-2010 which saw the Dow Jones Industrial Average rise +94.4% from its 2009 low to the 2010 high, but during the interim periods a neutral or bearish stance is necessary. With momentum only slightly positive and supply/demand indicators slightly negative, we continue to test our patience and remain neutral towards stocks for now. – Stacey Wall
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