Brian Gruss Licensed Insurance Planner

Five Reasons Why Most People Refuse to Buy Disability Insurance

Everyone has their reasons for not buying disability income (DI) insurance. Below are five of the most common. But do you know the facts?

Reason 1: I can always get coverage in the future.

Fact: True, but people usually develop health problems as they grow older, and premiums increase with age.

Reason 2: My family and friends will support me. Or I will pay my bills with savings.

Fact: While your family and friends would love to help you, are they in a financial position to do so? And do you really want to be a burden on someone else? And, unless you’re independently wealthy your savings probably will not last long. Just one year of disability could easily wipe out several years of hard-earned savings.

Reason 3: I have group disability coverage through my job.

Fact: Even if your employer is among the few that’s not cutting back on benefits, group disability insurance typically covers just 60% of gross income, and benefits are usually fully taxable. Can you afford more than a 40% pay cut? Also, what happens if you change jobs?

Reason 4: I cannot afford it. I’ll purchase a policy later when I have the money.

Fact: The average premium is typically only 1 to 3% of your gross earnings. Plus, the longer you wait, the higher your premiums will be. If you cannot afford 1 to 3% of earnings, how will you afford to pay your bills in the event of a disability?

Reason 5: It’ll never happen to me.

Fact: If you’re under age 35, chances are one in three that you will be disabled for at least six months during the course of your career.¹ Also, consider that more and more people are living with disabilities today that would’ve killed them in years past.

Your ability to work and earn an income is by far your largest asset. Consider the benefits of a disability income policy to help protect your earned income should a sickness or injury force you out of work.

¹ 1985 Commissioners’ Individual Disability A Table, Society of Actuaries

Tags: Benefits Group, Buy Insurance, Disability Coverage, Disability Income, Family And Friends, Financial Position, Gross Earnings, Gross Income, Group Disability Insurance, Group Insurance, Health Problems, Income Insurance, Insurance, Living With Disabilities, Love Help, People, Premiums, Reason 2, Reason 3, Six Months

Time to Split: Squelch Retirement Worries with a Split-Annuity

Recent research shows that U.S. workers are growing increasingly apprehensive about their ability to fund a comfortable retirement. Only 18% of surveyed workers said they are very confident about having enough money for a comfy retirement, according to the Employee Benefit Research Institute’s 2008 Retirement Confidence Survey.

That means that more than 80% of workers are not certain that they have enough retirement savings. Of course, in the face of skyrocketing health-care costs and burgeoning inflation, it’s really no wonder why workers are so concerned. If you’re worried that you may not have enough income to last a lifetime, you may want to consider a split-annuity strategy. This tactic may allow you to start receiving a steady stream of income now that could continue well into your retirement years.

How to make the split

It’s fairly simple to pull off a split-annuity strategy. All you have to do is divide a lump-sum contribution between an immediate fixed annuity and a deferred fixed annuity. An annuity is a contract between you and an insurance company. You pay the insurance company either a lump sum or a series of payments in exchange for the promise that the company will offer you a stream of income in the future. This allows your money to grow over a specified period of time in a relatively low-risk environment.

The split-annuity strategy is an effective approach for those who need income now and well into the future. That’s because the immediate annuity starts paying you income right away for a specific period of time while the deferred annuity continues to accumulate interest-which will provide you more income in the future.

A case study

Let’s say a man named Bob splits a $500,000 lump sum between an immediate annuity and a deferred annuity-that’s $250,000 in each account. Bob chooses an immediate annuity contract that guarantees a 4% annual rate of return, allowing him to receive an annual payout of $35,000 for the next eight years.

In the meantime, Bob’s $250,000 in the deferred annuity is also earning a 4% annual return on a tax-deferred basis. After eight years, Bob’s immediate annuity has been drained, so he turns to the deferred annuity-which has grown to more than $342,000. Bob can now start collecting income from the deferred annuity.

Important annuity facts

Before you tap into this split-annuity strategy, it’s important to understand all the ins and outs of annuities. Here are a few things you’ll want to keep in mind:

• Beneficiaries: If you have a deferred annuity and die during the accumulation phase (the time before the payouts begin), your designated beneficiary will collect the principal in addition to any interest that has accumulated. This is why it’s extremely important to designate a beneficiary in your annuity contract.
• Surrender charges: Although there are some surrender charges associated with withdrawing money from deferred annuities, these charges typically decrease over time. After a certain amount of time, surrender charges will no longer apply.
• Taxes: Annuity earnings are taxed as ordinary income. Also, if you make any withdrawals before the age of 59ВЅ, you may be subject to a 10% federal income tax penalty.

If you are concerned about having enough income to fund a comfortable retirement, ask your financial advisor about a split-annuity strategy. This effective line of attack may allow you to start collecting income right now and ensure you’ll have enough income well into the future.

* Annuity withdrawals are generally taxed as ordinary income and may be subject to surrender charges, in addition to a 10% federal income tax penalty if made prior to age 59 1/2. The guarantees and payments of income are contingent on the claims paying ability of the issuing insurance carrier.

Tags: Annuity Contract, Benefit Research Institute, Comfy Retirement, Deferred Annuity, Employee Benefit Research, Employee Benefit Research Institute, Enough Money, Health Care Costs, Immediate Annuity, Immediate Fixed Annuity, Insurance Company, Lump Sum Contribution, Retirement Annuity, Retirement Benefit, Retirement Confidence Survey, Retirement Savings, Risk Environment, Split Annuity, Steady Stream, Worries

Understanding the Difference Between Annuity, Bond and CD Ladders

One great way of creating a gradually disbursing retirement benefit while still keeping the long-term savings portion of your money conservatively invested is to create a bond, annuity or CD ladder. These ladders are separate investment instruments with varying maturity dates that allow you to take advantage of long-term savings rates while still making sure that some of your money is readily liquid when you need it. This strategy is called “laddering” because each maturity date is its own rung on the ladder of your retirement years.

While each ladder is a great strategy in its own right, it’s important to understand the differences between each of them before you decide which is (or are) right for your retirement plan.

Annuity Ladders

An annuity ladder is created when you spread out your annuity purchases over several years. Instead of investing all your retirement savings at once into a single annuity contract, you only invest some of the proceeds. The rest remains invested in equities, bonds, CDs and other appropriate investments. Then, over time, say every 5 years, you buy another annuity. Doing so helps insulate your savings from being locked in to low-interest annuities. This gives you the benefit of guaranteed income without interest rate risk.

Bond Ladders

Bonds are debt instruments that act as loans to companies and municipalities. While the issuer is using your principal for their projects they pay out interest to you. Once the bond matures, you are paid back the principal that you invested. When you create a bond ladder, you purchase several bonds with varying maturity dates. The later maturity dates afford the investor greater interest payments, but the earlier maturing bonds give the investor liquidity when they need it. Many bonds also have put options so that if you should pass away before the bonds in your ladder mature, your family can execute the put and be paid the principal by the bond issuer.

CD Ladders

CD rates vary depending on how long you are willing to have your principal tied up in the CD. A 20-year CD will have a significantly higher rate than a 6-month CD, but tying all your retirement money up for 20 years in order to get that rate is not a smart strategy since you are likely to need something to live on during the 20-year period. With a CD ladder, you can invest a portion of your savings into CDs with varying maturities. They will mature and pay you your principal and interest throughout the years as you enjoy your retirement.

Liquidated earnings are subject to ordinary income tax, may be subject to surrender charges and, if taken prior to age 59 1вЃ„2, may be subject to a 10% federal income tax penalty.

Guarantees and payment of lifetime income are contingent on the claims paying ability of the issuing insurance company.

Tags: Annuities, Annuity Contract, Bond Ladder, Bonds, Debt Instruments, Interest Payments, Interest Rate Risk, Investment Instruments, Investments, Investor, Liquidity, Loans, Maturity Date, Maturity Dates, Municipalities, Proceeds, Retirement Annuity, Retirement Benefit, Retirement Plan, Retirement Savings