The Lyons Den

Here is an announcement from MTL insurance company addressing the current financial climate.

A Press Release distributed by the New York Department of Insurance about the AIG situation mentions some very important points about the safety of the regulated insurance industry.  Unlike the esoteric unregulated banking industry, Insurance companies have been held to a higher standard of accounting principles by the government and their own constituents in the insurance industry.

Please keep in mind that every topic below can be a longer conversation if you wish

Concerns you should have about where your money is safe, liquid, growing (tax Free):

Where is it safer?  Bank?  Stocks & Mutual funds?  Bonds?  Buried in home equity?  IRA or 401K or any government sponsored plan? Insurance?

Bank: Safe, yes (up to $250K in some cases now) ; Liquid , yes  ;  growth very little and not tax fee

Stocks & Mutual Funds: Safe, no; Liquid, no;  growth lots of ups and downs over the years, not tax free,  maybe get average of 9% before taxes

Bonds: Safe (somewhat); Liquid , no; growth moderate and sometimes tax free

Buried in home equity: Safe, no; liquid, no; growth, no  (home may go back up in value but the actual equity has no growth while trapped in home on paper)

IRA or 401K or most government sponsored plans: safe, YES, it is creditor proof and protected in bankruptcy, but usually people chose mutual funds;  liquid, no; growth – most of it could be owed in taxes.

All of the above will be examples of your dollars only being used in one place for one thing at a time.   The way to move ahead is to have your dollar working for you in many ways at one time.  A system to do this; is what you have set up in your permanent whole life insurance policy.

Whole life Insurance placed with a Mutual type company (no stock holders): Safe, Yes; liquid, Yes ; growth, Yes and tax free

* Troubles in the Finacial market and what type of companies have a track record of surviving extreme pressures in the market.

Fannie Mae, Freddie Mac and Banks:  there are commercial banks (such as Lehman Brothers) and FHA programs that do the majority of their business with other corporations. There are also banks that do most of their business with individual people like you and me (the Bank of America type).

Many of the Banks that are in trouble are because they have too many investments in low quality mortgage backed securities that aren’t worth what they paid for them.

AIG or American International Group is basically having their trouble because of Mortgage backed securities too.  AIG has a division that in a complicated way insures the investments in Mortgage backed securities and also owns a bunch of them as payment for their insurance to other banks that issued them.  We know the securities aren’t worth anything any more.  This is AIG’s problem now.  AIG does, on the other hand, have extremely healthy insurance companies that will be restructured or sold off to other companies.

Mutual Trust Life Insurance Company, like many other Life Insurance Companies has been doing good business for over 100 years.  Not many other industries can make the same statement.  MTL has been through the Recessions and the Great Depression along with the World Wars.  It makes sense to keep your money with the proven company/industry.

*   Some important points of Whole Life insurance:

Guaranteed Death Benefit. (But that is really not that important.) What should determine that is how much cash you want to stuff it with? Warren Buffett has the most life insurance on the planet. Once he maxed out the amount he could get on himself ; aka max human life value (MHLV) he started getting policies on everyone around him that he could establish an insurable interest on. He is the owner and beneficiary still just not the insured.

In the last 100yrs not more than a couple life insurance companies have failed yet 100s of banks have. He would rather put his money here than a bank backed by the FDIC (Except Wells Fargo of course)
-Guaranteed level premium for life of policy. (Perfect hedge against inflation)
-Guaranteed cash value base
-Judgment and creditor proof* (depending on the state you reside)
-Virtual will and trust by designating beneficiary.

-Virtual medical insurance (Accelerated Death Benefit; Meaning you can access DB now for major medical Expenses if needed)

-Virtual disability insurance (Pays for policy if you were to become disabled)
-Tax free growth and income

-Non-taxable dividends (return of premium)
-Velocity (liquidity, use and control) move the money by putting your dollars THROUGH the policy NOT TO it. (You literally can borrow the cash from it and it acts as if the money is still in there growing)
-Collateral (you can assign policy and use as collateral short term and long term)

Bottom-line one dollar can do 12 plus jobs by using the policy as a pass-through vehicle. Rule of thumb is you can front load it by 2.5 to 3x the annual premium. Anything above that the gov’t will turn into a modified endowment contract (MEC) and then it become taxable. The key is to stuff it right below the MEC threshold. It’s not going to get you 12 percent returns but it can be used as a safe, secure facility

Again take a look at the attached AIG Press Release from the NY State Insurance commission.  It outlines how secure and safe insurance companies really are…