Insurance Planning: a Possible Tool and Strategy to Overcome Inflation

{4 minutes to read}  At the time of this blog, we are heading toward the end of 2022, and what was a financially challenging year for people, especially as inflation has reared its head. People are concerned about the ever-increasing cost of living as things have gone up quite a bit in the last year or so. So inflation is a challenging thing for people. We have lived over the last period with limited inflation, and suddenly we’re into a period where inflation is very high. In this article, I reflect on some of the work that we do, and how insurance planning could end up being a powerful tool and strategy to overcome inflation.

How can life insurance help with inflation, you may ask? Well, imagine this. We have two different people. Person A arrives at retirement with a million dollars in their bank account and no life insurance. Person B arrives at retirement with a million dollars in their bank account, or even, let’s say, $900,000 in their bank account, a little bit less than Person A, but has a correlating $900,000 worth of permanent life insurance. (Hypothetical example)

Now, if Person A were like my father, who lived through the Depression, and he had a million dollars in the bank, he would only want to spend what was earned, the interest from the million dollars. So, he would live off the million but never could enjoy the million. Let’s say he could earn 3% on a bank account, $30,000 per year, and that would then be taxable income and would be the income amount that he would live on. And in an inflationary time where costs are increasing, that $30,000 level of income, may be woefully inadequate. (Hypothetical example)

How would somebody with $900,000 be in a better position? Well, here’s the secret. When you have $900,000 in a bank account and another $900,000 worth of permanent, guaranteed, death-benefit life insurance with cash values, you can spend the $900,000 a little differently, knowing that if you run out of money, there will be a death benefit paid to your heirs, to your spouse, to children, and loved ones. And instead of living off $900,000 at 3%, which would give you $27,000 a year, you can start living off of the $900,000, meaning that you can take principal and interest out of the $900,000 over, let’s say, the next 20 or 25 years from 65 to 90. Instead of $30,000 a year, you will have closer to $50,000 a year. (Hypothetical example)

And the simplest way I can describe how you could easily do that is to imagine if you took that $900,000 and purchased an income annuity, which is a contract that guarantees an income for the rest of your life. Today, a male aged sixty-five could get approximately $50,000 per year — significantly more than the $30,000 — and it would be guaranteed for the rest of his life. At death, the death benefit would replace the income that was provided, and then his spouse or children could do that again. This concept, we call the permission slip. It allows you to spend your money differently. (Hypothetical example)

To learn more about this concept, give us a call or send us an email. Thank you, and wishing you and yours Happy, Healthy Holidays and a great 2023.

Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS. Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

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