How Do You Protect Your Family and Assets with Insurance ?

June 1, 2021 5 Minute Read

I rarely talk about life insurance in this newsletter, yet it is an important part of any financial plan.  Sure, we cover insurance needs, life insurance, disability income and long-term care coverages in every financial plan we do, but I certainly don’t lead with that.  And I don’t go around calling myself a life insurance agent though I am licensed to sell it and frankly know more about it than many so-called experts.   You won’t see me burning up the twitter sphere with admonishments of why you need life insurance.   It’s important to have the right coverage and have your policies evaluated from time to time.  So why don’t I talk about it more?  Probably because I am a little embarrassed by the sleaziness of the industry or because I started in this industry not at one of the hallowed investment houses of Morgan or Merrill but at a life insurance company.   Fortunately, it was a company that saw the value in financial planning and wanted to rebrand itself as a provider of all sorts of financial products and not just life insurance.   It was because this company saw the value in financial planning that I received fantastic training in a broad range of financial topics.


So, in spite of the fact that there are too many companies out there telling you they offer comprehensive planning services but actually just want to sell you products, I am going to share a few stories from my life and practice that may help you see the value in insurance and help you navigate the vast landscape of products out there.


I have delivered death claims.  That’s what they call it when a policy holder dies, and the insurance company needs to pay a claim.  They send an agent out to the house with a checkbook.  OK, they don’t do that as much anymore.  Much of it is handled by filling out paperwork and getting a check in the mail.  My point is that when I have gone to see a survivor, which is usually a wife, it is both welcome and never enough.  You can never buy enough life insurance to prepare those that survive you for the loss of you in their life.   To take an example from my own experience, a longtime, very close friend of mine was in a very serious automobile accident on the way to work on Tax Day three years ago.   Why do I remember it was Tax Day?  It’s one of those things, those arbitrary things, that sticks in your mind.  It was a Monday, April 17.   Tax Day was on a Monday because the 15th fell on Saturday.   Random, but again the way the mind works.  I got a call mid-morning on that Monday from the wife of my close friend.  There had been a horrible accident.   My friend was in a car accident on his way to work.   Not his fault.   An elderly woman had tried to hurry across PCH for an early mass and had broadsided my friend.  Random.  And my friend had been taken to the hospital where he was unconscious in the ICU.   As I talked to his wife the thought went through my head.  “He doesn’t have enough insurance.”  It is a weird thought that came into my brain as I prepared to leave for the hospital, but it is what happens when you are the advisor to a friend and client, and you think about those left behind if he doesn’t make it.   The good news is that he survived and made a complete recovery.  Thank God – or any other exclamation you want to say.   The relief took months and there probably isn’t a day when that day doesn’t impact his family in some way, but he is still here and able to come home to his family.   I don’t know what we would do without him.


Life insurance can have benefits you wouldn’t think of.   Early on in my career I was fortunate to meet a very successful entrepreneur in the motorcycle industry who became a financial planning client.   This was really early in my career and the financial planning lifespan of my company.   I convinced him to do a financial plan for what is now a ridiculously low fee.   He did not implement many of my recommendations.   Why would he?   I had been in the business for a little more than a year.  But he did implement one.   He bought what is called a Second-to-Die life insurance policy that would pay estate taxes after the passing of he and his wife.  You see, in those days the exclusion from federal estate taxes was low and he was a very wealthy individual.  So, the one thing in my recommendations that resonated for him was that he didn’t want his heirs to have to pay any more taxes.  So, he bought a fairly large life insurance policy.   Then, despite my staying in touch for many years, hoping to implement the rest of my recommendations, we fell out of touch.  Until one day, while my wife and I were out looking for a puppy to adopt at the Long Beach animal shelter on a sunny summer afternoon, I get a call.   My motorcycle entrepreneur, who I had not heard from in several years, had some bad news.   He had stage 4 cancer and he owed the IRS over one million dollars.  “I’ll be up to see you on Friday” I said.   How could this happen?   How could this successful business owner, one of the most successful people I knew, have gotten into this mess?   Well, it happens.  Business had slowed during the recession, and he had gotten sick.  What he might easily have overcome by an earlier version of himself had slipped into a real crisis.   I went to see him and his wife who was by the way furious at him that she had no idea they were in such dire straits, and they were completely out of liquid funds.  Broke basically.  So here is what that life insurance policy that was supposed to pay estate taxes for a very wealthy person was able to do.   We took out a loan for $100,000 on the cash value in the policy.   Then I set about to see how we could raise money to pay off the IRS and put some funds in their bank account.   Fortunately, I found out there was a robust market out there for people with life insurance policies they either didn’t need or could no longer afford.  It is a weird corner of the financial services market, nevertheless, a market exists.   We were able to auction the policy to a group of investors for double the cash value in the policy.   My client received a seven-figure check and was able to sell a piece of property and pay the IRS out of escrow.   My client has since passed but his widow and family are doing well due to the life insurance policy my client had set up and an obscure part of the finance world.


Many people have the wrong policy, one they don’t need anymore, or one that was badly designed.  I know, another controversial statement.  But it’s true.  Here is a list of some of the things that can go wrong:

  • Bad interest rate assumptions.  The advisor made too ambitious assumptions about the rate of interest the policy would earn and therefore the policy is at risk of lapsing just when the need it most.  Get you policy reviewed.
  • You have the wrong type of insurance.  Maybe you have Permanent when you should have Term – or vice versa.  One of my clients was paying hundreds of thousand a year for a business buy-sell insurance policy when it should have been Term.  The good news is we were able to fix it.
  • Your agent made a big commission on the policy they sold you and has now moved on.  So, when you need help with the policy they won’t be there.  And they won’t be calling you every once in a while for a policy review unless they are still in the business and want to sell you a bigger policy.
  • Many of the policies that do have cash value are poorly designed or have underlying investments the agent is not competent to advise you on.  In the 90s, variable life insurance policies, based on the performance of the stock market, were sold by agents without securities licenses who weren’t qualified to manage the underlying investments.   Shocking but true.
  • Your agent is motivated by commission not your best interest.   It’s not their fault.   It is the way the industry is set up.
  • There are lots of other issues but at the risk of turning into a rant I will leave it at this.   Have your life insurance policies reviewed, preferably as part of a comprehensive financial plan.

If you are in this business long enough you are in a place to help your clients through some pretty difficult times and life insurance often helps families get through those very difficult times and we haven’t even talked about disability income insurance or long-term care insurance.   We will have to save those stories for another day

We believe everyone should have a financial advocate acting in their best interest, and so I hope this information will help you have peace of mind that you do.