The Top Three Reasons You Must Have Life Insurance

Hello. My name is Tom Hegna, president of TomHegna.com. The American College recently came up and asked me to write an article on why people would buy life insurance in times like these with all the market turbulence going around. And I said there's three simple reasons why people will continue to buy life insurance in markets like this. Number one, I say life insurance is a women's issue. Now what am I talking about? Life insurance is a women's issue. Well, I had a chance to speak at the National Association of Home Builders several years ago. And this was before the market crash and 4,000 people from around the world came there and they needed a speaker. And my company knew I lived there so they kind of sent me over there on a cheap date I could go give the talk. And I'd never given this talk before so I came a day early. And I can't make this up. The first slide was this. It says What Women Want by Tom Hegna. Now that would be funny enough but I don't know what women want any more than any other guy does. And as soon as I think I know then they change their mind. But there were some great slides in that presentation and I've got one here for you. Do you realize that 70% of all baby boomer women are going to be the beneficiary of the life insurance policy? See 7 out of 10 baby boomer women will become widows. And because they typically marry men who are older than themselves and they typically live longer than men, they can look forward to a widowhood of 10, 15, 20, even 25 years. So what I say is women are going to live with the consequences, good or bad, of how much life insurance is on the man in their life. Now am I saying it's not important for women to own life insurance? I'm not saying that at all. Women are making more money than ever. They need more life insurance than ever. But the facts are clear. 70% of the time they're going to be the beneficiary of the contract. We've got to go out and talk to these women about the importance of life insurance on the man in their life. And I say look, you don't have to take my word for it. Go find a widow who's living well and find one who isn't. There's only one thing that separates those two women, and that's life insurance. Make no mistake about it, life insurance is a women's issue. The second thing I say is life insurance is a tax issue. Now what am I talking about? Well, if you take a look at this slide, this shows the history of the marginal tax rate in America. Did you know that for most of your parents' life the highest marginal tax rate in this country was over 70%? And if you think about it, it made perfect sense back then to take out a 401k or an IRA so that you didn't have to pay tax at 70% so that you could defer your taxes so that when you retire you take it out and you could pay tax at 25 or 30%. Made perfect sense. We do it all the time. You know, I already talked a little bit about all the deficits and all the financial problems of the country. Where do you think taxes are going from here? And if taxes in fact go up over time, how much sense would it make to take money out of your paycheck today when you could have paid tax at 20 or 25 or 30% to defer your tax so that you take it out when you retire and pay tax at 35, 40, 45%? Would that make sense? That wouldn't make sense. So what I'm saying is that you should continue to put money in your IRA or 401k up to the company match. But beyond that, what you need to do is think about tax diversification. Now, you know, everybody thinks about asset allocation and investment diversification, but what about tax diversification? If you think about it, most baby boomers right now have almost all of their wealth sitting in IRAs and 401ks that are going to be completely taxable when they retire. A much better strategy would be to put some of that money into either Roth IRAs or permanent life insurance. Why? Because when you retire, you can take that money out income tax free. Now, you know, the perfect, what would the perfect tax plan look like? The perfect tax plan would be you get a tax deduction when you make a contribution. It grows tax deferred and you take it out tax free. That would be the tax perfect plan. Well, unfortunately, the tax perfect plan doesn't exist. You can either have one and two or two and three. So if you get a deduction and you get the deferral, that's a traditional 401k or IRA, but you're going to pay taxes on the back end. If you don't get the deduction up front and you get the deferral and the tax free, that's a Roth IRA and that's permanent life insurance. And all I'm saying is that if you would diversify your taxes and help your clients diversify their taxes, you're going to find out that in time of retirement, they're going to have a lot more spending money than if they have it all in a taxable account. The third thing I say is this, life insurance is a wealth transfer issue. You know, if you think about it, one of the toughest sales is you're sitting down with somebody and they're worth $15 or $20 million and you're trying to sell them a $5 or $10 million policy. And what do they say? They say, I don't need a life insurance. I'm rich. Life insurance is the last thing I need. Well, I learned very early on in my career to agree with them. And I say, Mr. and Mrs. Client, you're exactly right. You're worth $20 million. Life insurance is the last thing that you need. You don't need any life insurance, but what you do need is a wealth transfer vehicle. You need some way to transfer that wealth to your children and your grandchildren. Now, if we could do that with stocks or bonds or Coca-Cola cans, we would, but we can't. The vehicle that's been chosen, the one that is the most tax efficient way to transfer wealth just happens to be life insurance. So you're right. You don't need any life insurance, but you need a wealth transfer vehicle that happens to be life insurance. So take a look here. You've got Lee and Mary. They have a $20 million taxable estate. Now if you think about it, at least temporarily, they each have a $5 million exemption, right? So they can transfer $10 million tax-free to their kids. So what do you do with that other $10 million? What if that $10 million went into a joint lifetime income annuity that paid the premiums on a survivorship life policy inside of an islet? What would that do? Well, if you take a look at it, they had the $10 million that they could transfer income and estate tax-free from the exemptions. Now they've got $25 million that's completely estate tax-free. You took a $20 million taxable estate and turned it into a $35 million tax-free estate. Now I made that sound kind of simple, didn't I? Look, at some point in there, you have to get your advanced planning attorneys involved. There's crummy letters, there's gifting, it's a little more complicated than I made it, but here's the point. You don't have to know that. What you need to know is that those advanced planning attorneys know how to do that. You just need to know that you have the ability to take a $20 million taxable estate and turn it into a $35 million tax-free estate. So let me summarize what we just talked about. The three simple ideas, number one, life insurance is a women's issue. Number two, life insurance is a tax issue. And number three, life insurance is a wealth transfer issue. Now go out and have a great day.