Insurance Understood: Pick your insurance team
By Medicine Hat News Opinion on May 2, 2020.
I grew up with a focus on sports and I loved the challenge and intensity that came along with developing my individual skills. However, being part of sports teams scaled up my game to new levels beyond what I could do individually. Successful teams are built intentionally with complimentary skills between the players, a common vision and refinement of game day strategies. I know the same principles of teams apply professionally as well. There is only so far, an individual can go compared to a team. With that knowledge, I have recently brought on an associate, Rylan Olsen. It took three years to find the right person to join the team – All Stars are rare. He completed his accounting degree in Edmonton and brings complimentary skills which allows us to refine the tax strategies we implement for our clients. This made me think about the life insurance industry and how many companies want you to choose them to be on your team. Each policy has different features and abilities so you need to be picky in your selection to achieve your goals. From previous articles you may know that whole life insurance can include an equity component called cash value. This cash value can be accessed immediately, in retirement or any time an investment opportunity arises. Therefore, there is a lot of value placed on it. At first glance, policies may appear similar when it comes to cash value but if you run some drills on those policies you will be able to identify the All Stars. It is just like trying out for a sports team, not everyone makes the cut, but it takes time to observe who does. The pace and percentage of how the cash value grows varies widely. Categorically, there are early cash value policies and late cash value policies. However, the effect on cash values is impacted differently between the companies depending on the input and where it is within their formula for calculating it. One common example is interest rates. If you look at the past 20 years interest rates have been going down. Yet each company has a different sensitivity to that decline. For one company it is minor but for another it can be dramatic. When I test out policies, I want to see how they perform in less than ideal circumstances, I guess I am a realist. There can be massive swings in the outcome of the cash value and thus the ability to achieve your goals. It is worth noting that whole life policies can also be categorized as participating and non-participating. Participating policies have additional factors that may affect cash value such as mortality gains and expenses. This will require another article or conversation to take a deep dive into the differences. We are actually working on some podcasts on such topics to help people understand insurance better and I would love to know your thoughts or questions. Overall, I recommend an insurance specialist guide you through the selection of the insurance company and policy with an appropriate cash value to join your team. Really, they should be like a sports scout with experience in identifying All Stars. As the policy owner you provide the capital for your investment into your future. Steve Meldrum B.Mgt. CFP CLU is the founder of Swell Private Wealth Ltd. For over a decade he has specialized in helping individuals and businesses expand protect and perpetuate their wealth. For further information or tailored advice, contact him at 403-487-0490, steve@swellwealth.com or connect on social media. 16-15
