Insurance Quotes & Advice

With an uncertain future for the economy, is life insurance the smart move? Usually during troubled times and a falling stock market, investors would retreat into the bond market for safety.

However, the bond market may be the last place to seek shelter right now. Trouble in the bond insurance market and the downgrading of some the largest firms in the industry has not only put a damper on new issuance but has devalued all of the bonds they currently insure.

The insurance industry has been doing fairly well amidst the chaos currently embroiling most of the financial sector. John E. Girouard, the founder of the Institute for Financial Independence, say’s that whole life insurance is the way to go in the article ‘The Investment Bomb Shelter for Scary Times’.

“Few people know that the life insurance industry was one of the few economic sectors to survive the Great Depression intact. It was one investment that kept its promises.”

“Buying a policy from a mutually-owned company, you become an owner instead of a customer. It’s like becoming your own bank.”

Whole life is just one aspect of life insurance that is doing well, annuities are also staging a strong comeback as sales grew in the third and fourth quarters last year.

The characteristic that makes life insurance attractive right now is their ironclad guarantees, not to mention their favorable tax shelter implications. While they may not offer the highest returns that other investment vehicles might, there is no fear of loss like in the stock and bond markets.

For the past few years the stock market and the rest of the economy have been on a nice little run but the good times may be over.  As every day passes the scope of the mortgage crisis seems to grow larger with even the federal government finally beginning to take notice.

Many analysts feel that we may be entering a period of increased volatility in the stock market.  Last month we saw large movement swings on a day to day basis with the overall outcome being the largest one month loss for the market in five years.  Credit concerns as well as volatility in the price of oil has Wall Street acting like a yo-yo.

This can have a large impact on your retirement planning and you should be concerned.  There are many different choices out there from mutual funds, life insurance, and annuities.  With the growing concern that the economy may be on a downward trend and its added elements of risk what you choose now could affect you for the rest of your life.

Should you go with a variable annuity and the possibility of higher returns or stick to the safe choice of a fixed annuity?  For the most part a variable annuity would act like a mutual fund in that it is a diversified portfolio with the stock market as it’s underlying investment.  A fixed annuity would be more like a diversified bond fund.

The variable annuity is a rather recent financial product that insurance companies came up with to combat the growing popularity of mutual funds.  In effect it’s almost like a microcosm of the mortgage market.  Fixed mortgages were around forever but then adjustable rate mortgages were introduced and became popular because of their so called “teaser” rates.

When the stock market was going up, the variable annuity seemed like the no-brainer but that’s not the case anymore.  Some people  may be wishing now that they had gone with the safe and steady fixed annuity and it’s guaranteed rate of return.  Kind of like the people with ARM’s that wish they had gone with a fixed mortgage and it’s set payment schedule.

Many people purchase life insurance policies so that in the event of an untimely death, the needs of their loved ones are taken care of. However purchasing an annuity contract is the exact opposite. It is an insurance policy in the event you live too long, beyond the means of your assets.

An annuity is a unique financial product offered by insurance companies with the distinct feature of offering a guaranteed income stream for the remainder of your life. The U.S. Securities and Exchange Commission defines annuities as follows. “An annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.”

There are two basic types of annuities, fixed or variable with each having the option of being either being immediate or deferred. Immediate annuities will begin making payments in the period after the contract is entered while deferred annuities will begin making payments at some future date.

Fixed annuities will grow at an agreed upon rate whereas the value of variable annuities will be determined by the value of the underlying investments. For an added cost many insurance companies will offer a variable annuity that will have a guarantee that the value will not fall below the initial principle amount.

Like a 401(K) plan or IRA, income is earned on a tax deferred basis in that you don’t pay any tax until you start receiving your first distribution payments. But unlike those other two plans an annuity contract is not restricted in the amount of money you can place into it. Another key feature is that distributions from those retirement plans receive preferential tax treatment in that they are not taxed as income if used to fund an annuity contract.

With the uncertainty in the social security system in the future, coupled with the news that many companies are unable to fund their employees pension plans, annuities are becoming more and more important in planning for your retirement years. Talk to your financial advisor and insurance agent to see if an annuity is right product to meet your long term financial goals.