BC Journal

#Finterms: Whole Life Insurance

Whole life insurance is a type of permanent life insurance that provides coverage for the entire lifetime of the insured. It has a death benefit and also a cash value component, which differentiates it from term life insurance that provides coverage for a specified term and does not accumulate cash value.

Here's a breakdown of key aspects of whole life insurance:

  1. Lifetime Coverage: Whole life insurance, as the name suggests, is designed to provide life insurance coverage for your entire lifetime. As long as premiums are paid, a death benefit will be paid out to your beneficiaries upon your death.
  2. Level Premiums: The premiums for a whole life insurance policy generally remain the same (level) for your entire life. These premiums tend to be higher than those for term life insurance.
  3. Cash Value: A portion of your premium payments goes into a cash value component, which grows over time on a tax-deferred basis. This cash value can be borrowed against during your lifetime. Over time, the cash value growth can also offset some of the policy's cost.
  4. Dividends: Some whole life policies, particularly those issued by mutual insurance companies, pay dividends. These dividends can be taken as cash, used to reduce premiums, left to accumulate at interest, or used to purchase additional insurance.
  5. Guaranteed Death Benefit: The death benefit in a whole life insurance policy is guaranteed as long as the policy premiums are paid.

While a whole life policy can offer lifelong coverage and a cash accumulation feature, it comes at a higher cost than term life insurance. Therefore, it's important to evaluate your individual financial situation and needs when choosing the type of life insurance that's right for you.

#wholelife #lifeinsurance #insurance #permanentinsurance

Q3 Market Musings: Interest Rates, Outlooks and Opportunities

The rumors and rumblings of the US economy spiraling into a recession seem to have been somewhat exaggerated.  It was no less than 6 months ago that several prominent economists’ base case was for negative GDP as we move closer to and into 2024.  The future does not appear that draconian, but the confluence of a prolonged inverted yield curve, multiple interest rate hikes, inflated overall prices and tight labor markets have collectively shaped the consensus view of a slower growth economic environment is the future.  Although we believe there remains risk of a recession over the next several quarters, base cases are being adjusted and the notion of a soft landing is starting to seem more realistic (controlling inflation without inducing negative growth).

 

Whether we face a “soft landing” or “hard landing,” the Fed and inflation remain the dominant story line.  Certain core questions continue to be asked. How much further can and will the Fed raise rates if inflation proves persistent?  Will the cost of money and borrowing ultimately upend the consumer? (30-year mortgage rates recently reached 7%.)  Perhaps surprisingly so, the consumer has remained strong and a key contributor throughout this cycle.  While careful not to prognosticate too precisely about the future or Fed policy direction, we do feel, as we survey the current landscape and data points, that we are moving closer to a Fed pause.  Going a step further, we are likely within a year of the Fed cutting rates (quantitative easing).  Given this backdrop, we feel certain assets classes may benefit from these changes.

 

Bonds, or fixed income, look attractive nearer-term.  Bonds have come off their worst year (2022) since the industry has been tracking bond performance.  It should come as no surprise that the Fed’s efforts to raise rates from virtually zero to over 5% lead to this underperformance.  Historically speaking, bonds perform well in flat and declining interest rate environments – a backdrop that we are likely starting to approach.  There is a lot less interest rate risk currently then there was just 13 - 15 months ago.  Further, improved bond income can offset some of the pricing risk if the Fed decides to raise rates a little more.  Thus, our outlook for bonds is more positive at this time.

Flexible Business Retirement Plans

This marks the third article in BaldwinClarke’s new series: Selecting a Business Retirement Plan. Early articles introduced key concepts, while later pieces highlight specific plan categories. This article focuses on flexible retirement plans.

 

Business owners might deduce a few takeaways from earlier articles. Retirement plans have evolved considerably in recent decades, more plans are available to businesses than ever before, and plan selection involves many factors. Armed with this context, owners can now review individual plan designs. This article highlights a popular subcategory: flexible retirement plans.

Economic tides are inherently volatile. Even the most stable businesses encounter rising costs, employee turnover, and supply and demand pressures. Other risks are unpredictable but no less impactful. Businesses that persevered through the 2008 Recession and COVID-19 Pandemic can attest. Still, private enterprise proves resilient time and time again. Sustainable businesses strike a careful balance between tenacity and risk management.

Annual profits are the lifeblood of companies. Thin margins dictate important decisions, such as whether to hire or fire, expand or cut back, pay bonuses or retain earnings. Sales are particularly difficult to predict in retail and service-oriented industries. Surprises occur irrespective of business models and revenue forecasts. Companies are understandably hesitant to extend additional commitments in an uncertain world.

Certain retirement plans suit dynamic circumstances. These plans have flexible funding requirements, allowing businesses to make contributions at their discretion. This arrangement also aligns employee incentives with those of the company, as research shows that employees perform best when there is a corresponding payout. The following sections focus on four common options: Profit-Sharing Plans, 401(k)s, Stock Bonus Plans, and Employee Stock Option Plans (ESOPs).

 

Business Valuations – The What, Why & How

If you are an owner or operator of a business, or a family member going through some level of estate planning, chances are you will need to understand and/or document the value of a business or business interest. Given that the preponderance of businesses out there are privately held, there is no immediate mechanism to easily ascertain the value of an ownership interest. As such, business valuations are needed to gain such understanding.

But what are business valuations? Why would you need one? And practically speaking, how do you go about getting one? Unless you went to school for finance, or have been through the process before, the answers to these questions may not be top of mind.

For a baseline, let’s jump into the What, Why and How of business valuations.

 

The What:

A business valuation, also referred to as a business appraisal, is a process used to estimate the economic value of an owner's interest in a business – valuing either 100% of the outstanding equity or a percentage of the whole. A valuation provides a measure of the company's worth based on a variety of factors such as its financial health, cash flow, market conditions, balance sheet characteristics, and potential for future growth.

Equally as important as the factors listed above, a valuation also incorporates, and is highlight sensitive to, the assessment of risk. Naturally, one would think a highly profitable company would be worth a lot, but if that profit is highly speculative (for whatever reason), value will be invariably subdued. Put another way, the risk input in a valuation can be either a catalyst or governor.