Wall St Journal Letter

From the letter to the editor by me published in today's WSJ, commenting on a prior article on the problems with Flood Insurance in Mississippi and Louisiana.

Well said Mr. Wilson. (Real Insurance Fraud 11/16/07)

Nationwide, only about 1 in 20 households have flood insurance. As Mr. Wilson pointed out, traditional property insurance does not cover flood. Business owners are exposed too. I estimate that about 1% of businesses I consult with have flood coverage. That percentage goes up after I blow the whistle on the possible losses.

According to the National Flood Insurance Plan, almost 25% of flood losses each year are to properties not in designated flood areas. Just because it hasn’t flooded before does not mean it won’t in the future.

Some who have never experienced flood waters think the cleanup is just a matter of drying things out. Wrong! Flood water is dirty, smelly, and contaminated by everything in its path – oil tanks, gas pumps, dead animals, sewerage… Cleanup is not done with mops and sponges. Shovels, backhoes, and decontamination suits are required.

Your insurance agent can provide a quote. You might be surprised how cheap the coverage is. Why risk a lot for a little?

Life Insurance's advantage as a tax-sheltered investment

Life insurance could have two roles as a tax-sheltered investment:

• The earnings on a cash-value policy are not taxed until you take them out.
• The proceeds of a death benefit settlement are not taxable to your survivors.

Death benefit is not taxable for your survivors, and using the same logic, you may compare the taxable versus the non-taxable gain: Let's assume that you currently earn $80,000 a year, and you buy a $200,000 life insurance policy to help your family pass two-and a half years without your income. If you die, your survivors get a full $200,000, and without tax.
Because the proceeds for death settlement and the earnings of a cash-value life insurance policy are both tax deferred, they serve as excellent tax shelters.

Unique advantages of life insurance as an investment

Another advantage of having life insurance is to use it as part of your investment plan. Most financial advisors would encourage you to have balanced investments so that if one kind of investment goesdown (in the stock market, for example), another one will likely go up (such as bonds or real estate).
By using balanced portfolio and investments diversification, you can compensate loss in one area by having some assets in the other areas that is profitable.

Some life insurance policies are actually long-term investments, which you can contribute to and withdraw funds from before you die. The cash-value policies for whole life and universal life insurance are actually can be considered as savings accounts that will accrue cash value over time and also pay for your protection. Although these policies don’t provide highest interest rates available, they are untaxed earnings, so you get a higher return than simply putting your money in a savings account on which you must pay taxes.
This kind of life insurance should be your priority in choosing a life insurance plan.

Life Insurance as the financial protection for beneficiaries

The need to protect your survivors also means to replace the income you bring in if you die prematurely. Perhaps, you spend large part of your earnings on the costs of bringing them up. If you die, the life insurance death benefit replaces those earnings so that they won’t have a better financial situation. If you have a mortgage on your house, a life insurance death benefit can support your family to stay in the home even if you die.
Life insurance can help solve the difficulty of the need to totally change your way of life because you lose half or more of your income.
Lastly, if you are part-owner in a business, the business may purchase a life insurance policy on you so that if you die, your partner can use that death benefit to buy out your share of the business from your heirs, which in turn would also benefit your survivors by bringing them much needed money.