Insurance Industry Overview and Brokerage Services
In 1999, Bill Clinton signed the Gramm-Leach-Bliley Act into law, which reversed much of the 1933 Glass-Steagall Act. Gramm-Leach-Bliley set off a feeding frenzy in financial services, with the glass walls separating banking, insurance, and investments being irrevocably shattered. Too Big to Fail institutions will continue to flood the market with product, in hopes of capturing consumer dollars.
The notoriously conservative insurance industry itself has gotten creative – in bringing coverage that also combines savings and investment components together to market. Onyx Investments is here to provide real guidance, structure, and definition through the blurred lines of high finance.
Insurance Industry 101
Taken together, cash reserves and insurance coverage combine as the foundational building blocks for your financial plan. Liquidity is the oxygen of high finance – and always taken for granted right up until it is needed the most.
Clients pay premiums to insurance companies, in exchange for the right to financial benefits amid emergency events that trigger payouts. Insurers turn profits by growing premiums over claim payouts. Insurance premium cash to be invested is referred to as “float,” and is ready-made cheap capital for financial institutions.
Warren Buffett built his Berkshire Hathaway Empire on top of float. All readers will be familiar with auto insurer GEICO, which is also a Berkshire Hathaway business.
Beyond GEICO, Berkshire is a re-insurer, or your favorite insurance company’s favorite insurance company. As a deep pocketed re-insurer, Berkshire Hathaway is the final backstop for much of the property-and-casualty industry. In turn, the Oracle of Omaha plows massive amounts of float into capital markets.
Big Three credit rating agencies Moody’s, Fitch, and Standard & Poor’s analyze insurers for solvency and their ability to make good on policyholder claims. Here, a AAA-rated insurer is apparently the gold standard. Insurer ratings, of course, are independent opinions, and not to be treated as factual.
All credit rating agencies drew harsh criticism through the Great Recession, when the entire financial industry teetered upon the brink of collapse, despite high ratings for the group immediately prior to the credit crisis. The Occupy Wall Street movement eviscerated Gramm-Leach-Bliley for its role in underwriting the likes of Citigroup and AIG, only for these too-big-to-fail monstrosities to implode.
Still, Onyx Investments will monitor credit ratings as reference points prior to proposing our insurance recommendations. Credit ratings will always carry weight in the industry and directly affect the insurer’s ability to borrow cash.
Insurance Benefits, Claims, and Payouts
Insurance payouts are received tax-free and bypass the exhausting estate and probate process. Life, accident, and health insurance policy benefits may be structured to cover eye, dental, prescription drug, counseling, surgery, childbirth, mortgage, tuition, and funeral expenses.
Onyx Investments will show clients the possibilities of taking one, lump-sum payout against annuitizing, or taking in a regular series of smaller payments over time.
From here, Onyx will present intelligent asset management recommendations for the insurance claim and any possible death benefit. Estate planning is a delicate matter and policyholders should remain confident that Onyx Investments always stands ready to guide all heirs through comprehensive financial planning.
Savings and Investments
Many life, accident, and health insurance plans are now also packaged with savings and investment components. High-deductible health insurance plans are typically paired with health savings account (HSAs). HSA contributions are tax-deductible, and withdrawals made for qualified medical expenses are also made tax free.
Annuity, whole life, and universal life policyholders will direct fractions of their premium payments into money market, bonds, and mutual fund accounts. Permanent, as opposed to term insurance, will build up cash value within the policy that might even be borrowed against.
Whole life and annuities, of course, are complex contracts subject to mortality and expense (M&E) fees and severe surrender charges and tax penalties for early terminations of the agreements.
Healthcare costs and untimely deaths are leading causes for devastating personal bankruptcies. As such, adequate life and health insurance coverage will be a mandatory section of your overall financial plan and blueprint.
For many, a combination of employee benefits, term insurance, and equity investment will emerge as the most efficient means for wealth creation. Permanent life insurance is typically more so ideal for specialized situations, like business succession planning. In any event, expect for Onyx Investments to work all tools at its disposal to build out and protect your Financial Empire.