F4DCBD793795E5446CB4C24881A49AMany times I have been asked by clients and folks in general; why I place so much importance in Insurance Companies as a big part of the equation to make sure clients have a prosperous, safe, and predictable retirement.

Let me elaborate on it. Many questions are lingering in the minds of people facing retirement age, and even way before then.

Looking at insurance companies this is what is evident from the standpoint of the type of business and its effects on people’s money:

  1. During the last 300 years there has been no insurance company that has reneged on a promise made.
  2. During the last 150 years there is no mutual insurance company that has not paid a dividend
  3. Longevity is in the blood of insurance companies. They look at how they can be in business a hundred years from today and they work on a very low profit margin, close to 3 %
  4. Very seldom there is an insurance company that is going belly up, and if that happens, most likely the client does not suffer. Insurance companies have the habit of re-insuring themselves. Not to mention that, by law, they have to have a surplus beyond their assets to be able to take care of a possible problem.
  5. Insurance companies have more money than all the oil companies and all the banks in the world put together. They are the backbone of the country’s financial stability.

AIG, one of the largest insurance companies in the world, was on the brink of failure in 2007/8. Their investment manager deviated from the sure path that the insurance companies follow in their investments (dealing with bonds all over the world), and started betting on those bad mortgages that soon went the way of foreclosure. It was just greed.

Banks do not actually have a surplus but they have money (Tier One Money) that they set apart in case of unforeseen obligations. To give you an example, Bank of America keeps 29 billion in this category. Of which 11 billion in hard assets ( buildings, etc.) and 18 billion in money that must be available without compromise, fully liquid and with no risk whatsoever….and where would that be? ….Cash value life insurance.

Interesting, isn’t it?

And so does City Bank, JPMorgan Chase, Wells Fargo….General Electric, Harley Davidson, Wal-Mart, Comcast, Johnson & Johnson…..

Banks like so much Cash Value Life Insurance that the Federal Reserve actually had to make a rule in 2004 that prevented banks from putting more than 25% of their Tier One assets in it, otherwise it would all in it.

Do they know something we do not know? Shouldn’t you, the small investor, the hard working person that tries to save for retirement, take example and do the same? The same advantages that are there for the banks and big companies are available to you also!

That is why, when it comes to advise clients on the best way to preserve their moneys, I want to have a certainty of outcome and predictable growth. I point to insurance companies. I advise to use Fixed Annuities and Cash Value Life Insurance as an integral part of their retirement funds.

Is there place for money in the market? You bet! You can put money in a Fiduciary Basis Rapport with an advisor. That will allow you to really make sure that money in the market is really cared for…. But of this, I will talk about next time.