The Driverless Car And Auto Liability Insurance – One Problem Solved, A New One Created

Make no mistake, the technology for a future in which cars drive themselves is heading our way at breakneck speed.  Some say the technology is decades off while others think we will begin to see these cars on the road as early as the year 2020.  This new technology promises some great benefits to our society such as fewer traffic jams, fewer accidents, lower auto insurance rates as well as better fuel economy for cars on the road.  But before we can get to this point, whether or not we have developed the technology itself, our society will have to solve some very sticky legal liability issues.

Some experts believe that we will solve all the technological problems of driverless cars and still not be able to put them on the roads because our legal system will lag behind in preparing for the world where cars drive themselves.    Or that the development of this technology will grind to a halt because of the lack of clarity about liability issues.  This is because when you remove the driver from the equation regarding the cause of an accident, you open the door to so many different parties that the uncertain liability exposure could stop the very driverless industry in its tracks.  Who should get the blame for an accident between driverless cars?  The technology designer, the parts manufacturer, the highway system, the auto manufacturer or the car owner or is there someone else who should shoulder this blame?

Right now there are about a half dozen different state legislatures that are working through these difficult issues independently.  Arizona has considered and debated some of the issues regarding driverless car liability but at this time has put no laws on the books.  Last year, California passed a law that directed its State Department of Motor Vehicles to come up with rules by 2015.  Florida passed a similar law giving its DMV until 2014 to come up with rules.

Nevada is the state that so far has gone the farthest toward some type of solution.  They recently developed a 22 page section of rules that govern driverless vehicles.  This set of rules licensed Google, Audi, and auto parts maker Continental AG to test their driverless vehicles on public roads.   These vehicles must first go through 10,000 hours of testing on closed tracks and the tester has to put up a $1 million bond to cover any potential liability.  After that they may qualify for some testing on public roads.

One of the problems with trying to make rules about liability is that we are facing a bit of a chicken and egg situation here.  Since we don’t have many of these vehicles on the road at this time we just don’t understand all of the issues that will arise.  It is hard to anticipate all of the potential problems that might occur when the technology itself isn’t even fully developed yet.   But the heavy hand of the auto manufacturers is already deeply engaged in the process.  Their fear is that if they are stuck with all liabilities from any and all accidents, then the driverless car revolution will never happen.  The Alliance of Automobile Manufacturers was able to work in a provision in the Florida bill which exempts the auto manufacturer from liability if injuries result from a modification of a self-driving vehicle.  They tried for the same amendment to the California bill but were unsuccessful.

In truth, there is great risk in having our many different states independently trying to develop a patchwork of different laws.  In the end, one overreaching federal law will probably better serve us so that manufacturers and driverless car owners as well as insurance companies can all know that they are working with the same sets of rules in every state.  At this time the federal government has been quiet on this topic but with the states activity here beginning to heat up, it is probably only a matter of time before this becomes a national issue that the federal government will have to address.

At Clinard Insurance Group, we feel that eventually driverless will mean lower car insurance rates for most all consumers.  Whether or not you will miss the silly car insurance ads on TV is up to you but they will be gone.  In the meantime though, car insurance as well as home insurance and life insurance are big budget items for many households.  We can help you reduce what you pay while still getting the coverage that you want.  Our ability to go out and shop the marketplace for the best rates for your particular situation is one of the big benefits that you get when you deal with Clinard Insurance Group.  We insure thousands of families all across North Carolina, South Carolina, Georgia and Tennessee.  Give us a call, toll free at 877-687-7557 and let us put our experience and know how to work for you today.

EFT And Your Insurance Policies – There Are Many Benefits For You!

I was listening to the radio this morning and heard the news that very soon, the Social Security Administration will no longer pay benefits by check.  Right now, 93% of payments now are handled by Electronic Funds Transfer, or EFT voluntarily but now the federal government wants to wean that last 7% off of paper checks.   I have seen a similar trend in the insurance industry with less and less people paying their monthly insurance bills by check and opting for EFT payments instead.  And there are greater benefits to you of signing up for EFT payments than you might initially think.

Let’s begin with benefits that your insurance company may offer you if they don’t have to send out a paper bill and then process your paper check each month.  With your billing process set up on email and EFT, they will save money.  Going back to my original example with social security checks, the federal government says they can save over $100 million per year by converting all social security recipients to a direct deposit system.  Those savings are realized by insurance companies as well.  And some of them will share these savings with you.   For instance, Auto Owners Insurance will apply a $5 credit to your policy if you sign up for paperless processing with them.   And nearly every insurance company will waive the monthly installment fee on your policy if you sign up for EFT.  With some of them charging as much as $5 per installment per policy, this can add up in your favor pretty quickly.

Here’s a big advantage that policyholders who choose EFT billing from insurance companies gain: cancellation protection.  Imagine if you are out of town when your monthly bill comes in or if your monthly invoice just gets lost in the mail and you fail to pay it.  In the worst case scenario, you might have an uncovered loss that could destroy you financially.  But on the other end of the spectrum, you might still have to pay fees to reinstate your policy or you might owe fines to your license tag agency for a lapse in coverage on your auto insurance.   With EFT, you don’t risk a cancellation of your policy for nonpayment of premium, unless of course you don’t keep enough money in your account to cover the EFT payment withdrawal.

One of the most common objections that I hear from customers who are considering EFT for their insurance policies is that they don’t trust their insurance company with access to their bank account.   Or that they will end up with bounced checks because of an EFT charge they weren’t prepared for.   While I understand where this is coming from, I think these fears are mostly without merit.  EFT charge errors are extremely rare and in our experience, insurance companies are quick to correct their errors and pay any bank charges that they may have caused.  The fact is that you are going to have to pay the insurance payment one way or another so you will need to have the money in your bank account either way at some point.  But EFT provides you with one additional benefit to help prevent the overdraft problem.  They will let you choose which day of the month the money will be withdrawn.  So, if you get paid on the 1^st and the 15^th of the month for instance, you might want to choose the 19^th as the withdrawal date so that you are confident that you have money in your account each month to cover the EFT withdrawal.

One slightly different version of the EFT idea that I like even better is the automatic credit card charge for your insurance premiums.  There are two distinct advantages with using your credit card.  First of all, you won’t need to worry about keeping enough money in your checking account to cover the charge as you will be able to just pay it off when the credit card payment is due.  Secondly, if you have air miles or some other perks program on your credit card, you can now apply your insurance expenses to those perks and increase the benefits for yourself.

At Clinard Insurance Group, in Winston Salem, NC, we insure thousands of families all across North Carolina with their home insurance, auto insurance, life insurance and even their business insurance.  We would love to help you and your family find the best protection at the lowest possible rates.  Please give us a call, toll free, at 877-687-7557.

The New Political Football In North Carolina – Homeowners Insurance Rates

While the general public may not know it, anyone in the insurance business will tell you that the homeowners insurance market is in a state of turmoil.  Here’s why.  Whether you believe their crystal balls or not, most every insurance company that sells home insurance in this state has come to believe that they need higher rates in order to avoid losing money on those policies.  But the insurance companies  can’t simply raise their rates on their own because the rates that they can charge are regulated by the NC Insurance Commissioner.  The Insurance Commissioner is an elected position and it appears to me that our current commissioner must believe that raising homeowners insurance rates will jeopardize his political position and may even cost him his job at the next election.  When you put all of this together you have a volatile situation that can create problems for the insurance consumers here in North Carolina.

Recently I watched a Fox News story about this problem and I was struck by the man in the street interviews in that segment.  Fox News asked random strangers what they thought about the insurance companies needing higher rates.  To a person the same response was given by every person interviewed:  insurance companies are charging too much already and the insurance commissioner is doing the right thing by keeping rates low.  I don’t blame people for thinking this if they haven’t studied the problem, or if they haven’t thought through the ramifications of this kind of stance, but in truth, this kind of thinking is what gives the Insurance Commissioner his power and allows him to take the stand against rate increases that is creating so much misery in the homeowners insurance marketplace right now.  It’s really pretty simple.  If insurance companies can’t make a profit, then they will leave.  Those that choose to stay will have less competition and will have to find some other way to make a profit.  Right now their choices are to run an end run around the Commissioner to increase rates on a policy by policy basis, or take away or limit some of the protections currently included in the policy.  Much as we may wish it, we can’t squeeze water from a stone and if we continue to try and force insurance companies to lose money in this state we will see fewer and fewer choices for our home insurance in the future. 

Here’s a quick look at four trends that are happening in the NC homeowners insurance marketplace and the impacts that they are having on insurance consumers in NC.

The first trend is the bundling of home and auto insurance.  If you want to purchase homeowners insurance in NC, it is a strong possibility that you will have to bundle your auto insurance policy with that home policy or you will not be able to buy the home insurance.   Stand alone home insurance policies are called monoline home policies.  While 2 or 3 years ago, most insurance companies would happily write a monoline home policy, now  you would be hard pressed to find an insurance company that will do this for you.  The reason is simple.  Insurance companies can make a nice profit on your auto insurance but not on your home insurance.  Therefore, they will only write the losing policy (home), if they also get to write the winner (auto).  If you have both, this is not a huge problem although it does narrow your choices as a consumer.  But it is starting have a very negative impact on some senior citizens who have turned in their licenses and no longer drive and thus don’t have an auto policy.  Now they are losing their homeowners insurance and may have no way to get a new policy in place. 

Another trend that is becoming more and more common is the use of consent to rate forms in order to both cancel existing homeowners policies and to increase the rates on some homeowners as much as 250% or more.  This is an extremely inefficient way to increase rates as it is done on a policy by policy basis and is like trying to hammer a nail in with a sledge hammer.  For a more detailed understanding of why consent to rate is a problem for consumers and insurance companies alike, please read my blog on this topic by clicking here.  Oh, and if you receive a consent to rate form in the mail from your insurance company, please don’t just sign it and send it in without first consulting an insurance professional.  Give us a call at 877-687-7557 and we will help you understand your options.

The third trend illustrates how if insurance companies can’t get the rates they need to stay profitable, then they will start reducing the coverage.  We are now seeing most insurance companies increasing the minimum deductibles on all homeowners insurance policies that they write.  Long gone is the option for a $250 deductible and with some insurance companies you may not even be able to choose a $500 deductible option.  In addition, some insurance companies have also changed their deductible clause to double your deductible if you have a loss from wind or hail.  This change, and the next one I will mention shows you that the biggest loss problems that insurance companies have in this state come from wind and hail claims.

The last trend, which is still pretty rare but will probably be common on all policies in the next year, is the change in coverage on your policy for your roof from replacement cost protection to actual cash value protection  Insurance companies are now working on wording in their policies to make this change in the event of wind and hail claims for damages to your roof.   Right now, almost all policies will replace your damaged roof with a brand new one, even if your roof is almost completely worn out.  But in the future, this protection will be removed from your policy completely, or at best, you will have to pay an extra premium to get replacement cost protection for your roof added back to your policy.  Actual cash value protection means that when settling your roof damage claim, the insurance company will not pay you what it takes to replace your roof, but rather will pay you the replacement cost of your roof minus any depreciation for your current roof based on its age.  So, if you have a 20 year roof that is 19 years old, then you can expect to receive 5% of what it will take to put a new roof on your house after it has been damaged by wind or hail.  That could put a whole lot of homeowners in a difficult financial position.

The truth is that whether we like it or not, if insurance companies are unable to make a profit writing homeowners insurance in NC, then they will do one or more of three things.  Either quit and leave our state, or find ways to raise rates outside of the Insurance Commissioner’s control, or reduce the protections provided by the homeowners insurance policy.  All of these choices lead to unpleasant surprises for the consumer.  It is time for our Insurance Commission to stop playing politics with homeowners insurance in NC and let the free market operate in a way that will keep insurance options and choices open for all consumers.

At Clinard Insurance Group, located in Winston Salem, NC, we help advise thousands of families all across the state with their personal and business insurance needs.  We are dedicated to helping you find the best possible options for your home insurance, your auto insurance, your life insurance, and even your business insurance.  We would be happy to answer any questions you may have.  You can reach us by phone, toll free, at 877-687-7557.

In NC Now Your Auto Taxes and Tags Will Be Combined On One Bill

The way you pay your vehicle property taxes in NC is on the brink of a big change.   The State of NC is now beginning to phase in a new billing program that will combine your license tag renewal bill with the bill for the property taxes due on your vehicle.

Each county in NC charges a property tax for the licensed vehicles in their county.  Before this change was passed, each county would send a separate property tax bill for each vehicle in the county.  These taxes were generally due on the anniversary date of the day that you first registered your vehicle.   In 2013 this is all changing.

With the passage of General Assembly House Bill 1779, the Tax and Tag Together program was created.  This program combines the renewal bill for your license tag with your property tax bill for your vehicle.  By the time this new program is fully phased in, sometime in mid 2014, everyone will receive a combined bill for both license tag renewals and vehicle property taxes.   Both will be due at the same time, both are payable to the NC Division of Motor Vehicles.

This new Tax and Tag Together program will begin phasing in by mid 2013 as the DMV begins sending out registration renewals that will include the property taxes with each bill.  By mid 2014, all vehicles will be included in this program.  The DMV will disburse the property tax funds of your tax payment to your county tax office.  This means that once your vehicle is phased in to the new program, you will no longer be able to pay your vehicle property tax payments at your county office. 

It has only been a few years now since the NC DMV connected your annual vehicle inspection renewal to your tag renewal and this rule has not changed.  This means that you still must have your vehicle inspected before you pay your tag renewal.  With this new program, your vehicle tax will be due at the same time as well.  So, you will have three things that you must do at the same time every year: Get your vehicle inspected, pay your tag renewal and pay the property taxes on that vehicle.

You should receive a notice with the new tax bill and registration renewal by mail.  But keep in mind, if you have recently moved and have not notified the DMV of your new address, then you will likely miss this notice and could be subject to penalties and interest if you are late paying your property taxes.  In addition, if you have moved to a new county and not notified the DMV, then the tax bill that you receive might be inaccurate so you will have more to work out before you can renew your tags.

Last of all, don’t forget that NC law states that if you have a tag in your possession, then you must have auto liability insurance in force as well.  So if you sell your car, don’t forget to take off the tag and turn it in to the NCDMV office before you call your insurance agent to ask them to remove this car from your insurance policy.

At Clinard Insurance Group, we want all of our customers to be informed insurance buyers.  If you have any questions at all about any of your insurance policies, or if you need help with a new auto insurance  or home insurance policy, please call our office at 877-687-7557 and we will be happy to help you.

How Many New Cell Phones Have You Had Since You Last Updated Your Life Insurance Policy?

All of us who are old enough to remember the days before cell phones, will probably agree that how they have evolved over that time is nothing short of miraculous.  If I showed a person from 1982 what I can now do with my phone, they would think I was a magician.  Think back to the early days of cell phones when they were huge, clunky, expensive devices that could really only accomplish one task – making a phone call.  Similarly, the lowly life insurance policy has been evolving on an equally dynamic path, however fewer people have taken notice of these changes.  And as you read on, you will see that it has been in the best interest of the life insurance industry not to tell you quite as much about these changes.   But there is no doubt about it, if you have an old life insurance policy, and if you are also healthy, then you might benefit greatly from an upgrade.

One of the biggest revolutions in the life insurance industry began in the early 1980’s, with a brand new product called Universal Life Insurance.  Universal life policies had an advantage over traditional cash value policies in that they were much more flexible.  For instance, with a universal life policy you could allow the cash value build up to take the place of the death benefit or you could even let it pay your premiums for you for a while if you had enough cash value in your policy.   The next evolution of this tool allowed for the cash value to be invested in funds that mirrored the stock market, generating huge returns in bull markets but of course creating problems for policy holders in bear markets.

If you have a cash value life insurance policy in force, whether it is fully paid up or even if you are still paying premiums each month, please read on, this article could make you a lot of money.   Let’s take a look at some of the issues that make a switch to a more modern policy an important issue for you to consider.

A good place to begin would be with mortality tables.  These are tables which attempt to predict how long the average person will live given their current age. These tables are used to develop the rate you will pay for your life insurance protection. Now, when you purchased your cash value life insurance policy, it is more than probable that your insurance company calculated the premium that they charge you each month using mortality tables that are now out of date.   People are living longer now than they were just a few years ago and longer lifespans will generate lower life insurance rates.  But if your policy is locked in to an old mortality table, then you paying rates that anticipate that you will live a shorter lifespan than now may be the case. If you were to replace that policy with one just like it that used more modern mortality tables then you should see a reduction in your cost of life insurance even though you are older now.

Administrative costs – People who own cash value life insurance policies that are 15 years old or older may be paying for clerical workers who have long since been sent home.  Let me explain.  Older life insurance policies have built in administrative costs to cover the clerical costs of maintaining those policies.   You see, back then life insurance companies, which were very slow to automate operations and embrace computer technology, had not automated a number of their clerical functions, even simple ones like adjusting the growth or interest on the cash value of your account.  Using hundreds and even thousands of clerical persons to handle this was very expensive.  With all of those clerical employees they had to rent office space and maintain premises as well as offer benefit programs to keep these employees.  Most of that is all gone now and computers have taken on these tasks.  But, if you have an older policy, those expenses are still built into your rates and you are now paying for ghost employees and empty office buildings. And these expenses are pure profit to your life insurance company.  I hope your life insurance company is sending you a nice gift each Christmas because they have to love you for hanging on to that expensive policy which has huge profits built into it for them.   A new policy will save you from this expense.

Indexing – the new way to grow your money.  Most of the older, cash value life insurance policies have very rigid investment plan that severely limit how your money can grow.  Indexing, in the context of life insurance, refers to a technique where your money is invested in very safe, low yielding investments for the most part, while the insurance company purchases options on stock market indexes with a small portion of your funds.  When the stock market goes up, they can convert these and capture a nice percentage of the stock market gains.  What this means for you in general terms is that your cash value can now earn a large percentage of any stock market gains while avoiding any losses when the market goes down. When it comes to long term investments like the cash value in your life insurance policy, avoiding losses is often more important to long term success than capturing gains.  Indexing is a powerful tool that can help you end up with a lot more money in the long term inside your life policy.

Long Term Care – some cash value life insurance policies can now allow you to use a portion or even all of your life insurance death benefit before you die to use on long term care for yourself as you age and become unable to care for yourself.  This is a powerful feature because it does not require you to move to a long term care facility to collect the funds.  You can use your life insurance death benefit before you die to help allow you to continue to live in your own home and hire care givers to help you stay there as long as you are comfortable with that.  When you need to move to a long term care facility you can use the money for that as well.  Most long term care policies are not this flexible and besides, their cost is very high.  Here you are just using your death benefit as a living benefit for yourself.

Retirement Distribution Option – this new feature is found on fewer new policies but is catching on and may soon be very much more common.  Some of these new cash value life insurance policies let you to create a bucket where you can dump in money for your retirement, either from a 401k or from non tax deferred funds, for instance if you sell your home or inherit money.  Either way, the advantage is that you will be able to create a lifetime income that you can’t outlive.  This means that as long as you are alive you will receive monthly payments no matter how much that adds up to over your life time.  And the real power of this bucket is that you will be able to generate a much higher monthly dollar amount than any other method of distribution will allow.  This could make a big difference in your retirement lifestyle.

Clinard Insurance Group, located in lovely Winston Salem NC is dedicated to helping all insurance buyers become better informed consumers.  We insure thousands of families all across North Carolina.  If you would like help with your home insurance, your auto insurance, your life insurance or even your business insurance, please call us, toll free, at 877-687-7557.

NC Homeowners Insurance Rate Making – Is The Fox Running The Hen House?

The NC homeowners insurance market is in real turmoil.  Rate making for homeowners insurance rates, traditionally the bailiwick of regulators, is being undermined a long forgotten loophole.  This is creating a huge change in the way that insurance companies in NC are pricing their home insurance product.  If the regulators in this state don’t take some action soon, then this creeping process will undermine the rate making process completely and leave us with a sorry hybrid rate making system that means some homeowners will be paying far more than their share for their home insurance and it could create a large population of uninsured homes with the homeowners unaware of their lack of protection.

Homeowners insurance rates in North Carolina have long been regulated by the NC Rate Bureau and the NC Insurance Department.  This process has required insurance companies to file the rates for their products and then wait for them to be approved.  For many years now, the Rate Bureau has established the maximum rate levels that insurance companies could charge for home insurance.  This maximum rate level is called bureau rates.   During the time that home insurance was attractive to insurance companies, the rates that insurance companies filed were at deep discounts to the bureau rate, in some cases as much as 60% below bureau rates.  But in the past two years we have seen a sea change in the appetite for home insurance business from insurance companies operating in North Carolina.  Over the last decade, while they were bidding  down the rates in a competitive feeding frenzy for market share,  the climate seemed to change around them.  The heavy losses of 2011 in our state were a big wake up call.  And when a few large companies take action, it doesn’t take long for all the smaller companies to run scared and follow their lead. So, most home insurance companies in NC have switched their approach from one of seeking more new home insurance business to trying to find ways to get rid of the policies that they have.

A big part of the journey to restore profitability to NC homeowners insurance has led the insurance companies to try to find ways to charge higher rates on home insurance policies.  This strategy pretty quickly ran them up against bureau rates.    But there is a way around the Rate Bureau’s established maximum rate.  The law states that if the insurance company receives a signed form from the homeowner that gives them permission to charge rates higher than the Rate Bureau maximums, then rates can go as high as the insurance company wants to take them.  The form that homeowners can sign to give their insurance company the right to charge them rates above the NC Rate Bureau rates is called the consent to rate letter.

The consent to rate loophole was originally designed to give the insurance companies a way to charge a more appropriate rate to the rare situations where a homeowner has some inherent risk that makes them unattractive to insurance companies.  It is meant as a way to help homeowners with higher risk to be able to obtain some insurance, even if it is expensive.   It was meant to be used only rarely, to solve the one of a kind problems.    

The real problem now is that with our current rate structure in NC, the rates are just too low in the eyes of the insurance companies doing business here.  And the only choices that the insurance companies have are to either cancel policies or have their clients sign consent to rate letters.  They need higher rates for home insurance in our state to continue to write home insurance in our state.  But using the consent to rate letter to attain this goal is a bit like trying to open the battery cover on your cell phone using only a hammer.  In the process you destroy the phone.  The consent to rate letter is a clunky, unwieldy tool to increase rates.  With the current overuse of this technique, the consent to rate letter has just become a way to do an end run around the rate making regulatory power that the Rate Bureau is supposed to control.

So how does this work for the homeowner?  Well, if you are one of the unlucky ones selected by your insurance company to sign a consent to rate letter, then you will receive one with your homeowners insurance renewal bill.  If you sign this form, then you will be agreeing to a huge increase on your premium, one substantially higher than the maximum rates supposed to be allowed by the Rate Bureau.  On the other hand, if you don’t sign and return the consent to rate letter, then your home insurance policy will be cancelled by your insurance company.  So it is sort of an all or nothing approach, and even a bit random.  Some homeowners will escape completely; perhaps because they have never filed a claim or because their auto insurance policy is making enough money for the same insurance company to make up the difference.  Others will pay far more than our current regulatory system of rate making anticipates that they should pay.  This subdividing of the insurance marketplace for homeowners insurance will, over time, put great stress on the system.  In addition, there is the very real risk that many homeowners will not fully understand the consent to rate letter and may fail to return it.  They then will not receive a renewal bill and may only discover their lack of home insurance after a large loss has occurred.  And large, uninsured losses are not good for our economy or our society.

The real solution would probably be to have the Rate Bureau increase homeowner’s insurance rates, particularly the maximum rate, much more quickly than we have seen.  Their slow movement in this direction can be understood when you frame their choices in the light of an election year.  Now that the elections are behind us, I would like to see the Rate Bureau address this issue and take back control of the rate making process, or perhaps just scrap it completely and let insurance companies charge the prices that they want without requiring a consent to rate letter from the customer.  It is clear to me that the hybrid system that we are stuck in right now is not good for consumers or insurance companies.

If you find a consent to rate letter from your insurance company with your next renewal, I would advise that you not blindly sign and return it.  There may be other options available to you.  Here’s what you should do. First call your agent and find out exactly why you were on the list to receive a consent to rate letter.  Then ask if your agent has any other options for you that might allow you to buy your home insurance policy at a rate below bureau rates.  If you are still not satisfied, give us a call at 877-687-7557 and we will help you find a solution that works best for you.

At Clinard Insurance Group, located in Winston Salem, NC, we insure thousands of families all across North Carolina.  We will be happy to take your questions on your home or auto insurance and help you better understand just what your options are for the future with these policies.   We can help you with your auto insurance, your home insurance, your life insurance and even your business insurance.  Give us a call; you will be glad that you did.

How Much Money Can You Pull Out Of Your Retirement Account Each Year?

When it comes to retirement savings, most of the buzz that we hear is oriented around how to save the money and how to invest it to generate the largest possible nest egg.  But that part of the process is child’s play compared with trying to figure out how much you can withdraw each year to make that money last for the rest of your life. There are a few ways to guarantee that you will never outlive your retirement money but many of those reduce your monthly payout so low as to make them unattractive to all but the longest livers out there.  But for many people, a new product that combines indexing and life insurance can solve this puzzle and give them significantly more money to live on each month when they retire.  But you have to put this kind of program in action years before you retire in order for it to work for you.   

One way to describe the withdrawal problem, in uniquely southern terms, is to say that you don’t want to run out of gravy before you run out of biscuit and vice versa.  It is a simple concept that we all understand right away, yet the solution is very complicated.  What is the largest amount of money that can you take out of your nest egg each year and not run the risk of running out of money before you die?  Experts have worked on this problem for many years and the the answer itself is an elusive moving target.

Financial analysts have studied this problem trying to come up with a percentage of the total of your retirement funds that you can withdraw each year.  Of course the answer to this question depends on what kind of investment returns your nest egg can collect during the years of your retirement.  And the percentage of withdrawal that they recommend is of course influenced by the recent past investment returns.  These days, most experts will put the range of withdrawal rates at somewhere between 2% and 4%.  So, let’s crunch those numbers just a bit to give you an idea of what that looks like.  Assume that you have been very diligent over your lifetime and have managed to accumulate $1 million in your retirement account.  A 4% withdrawal each year would give you $40,000 per year.  Assuming your retirement funds are not Roth IRA funds, then it is likely that you will have to pay income taxes on that money.  Suddenly, that $1 million doesn’t seem like so much money.    Now imagine if there was a way to safely increase that withdrawal rate to 7%?  Now you would have $70,000 each year to live on.  That extra 3% could make a huge difference in your retirement lifestyle. 

To further complicate this decision though, consider that you just can’t choose a withdrawal number and stick with it with no future adjustments.  Prior to the 2008 market meltdown advisors were telling people that a 7% per year withdrawal was safe.  That is because they were relying on past history of stock market returns to make their calculations.  But this process is like driving a car by looking only in the rear view mirror.  There are many retirees out there who followed the 7% advice from their financial advisors who are now going to have to cut back their lifestyle dramatically after the market meltdown of 2008.   So you will need to constantly adjust your expectations and if you get it wrong early in your retirement, then you will have almost no way of making up the losses.

In the opening paragraph, I mentioned that there are ways to create income streams that you cannot outlive.  Annuities are tools that can do this very well.  The problem with straight annuities is that some are so expensive that they may not generate the monthly income that you need from your nest egg.  However, there is another, rather new solution.  One life insurance company is now offering a cash value life insurance policy that uses indexing to generate guaranteed lifetime withdrawal rates of 7% or more as long as you live.  And if you die early, unlike with straight annuities, the life insurance and cash value amounts return to your estate so that your investment is not lost.  Now these policies are not for everyone, for instance you need to be healthy enough to qualify for the life insurance policy in the first place.  Also, you need to act ahead of your actual retirement and get this in place a few years before you retire.  But once you have set this up and put this in place, you now have a bucket where you can transfer your retirement nest egg, or a portion of it, when you retire.  This will allow you to utilize this investment tool to allow you a much greater withdrawal rate for any funds that you drop into the policy.

At Clinard Insurance Group, located in Winston Salem, NC, we insure thousands of families all across North Carolina.  We can help you with your auto insurance, your home insurance as well as your life insurance or your business insurance.  Please call us toll free, at 877-687-7557 if you would like our help with any of your insurance needs.