Tsk, tsk. A retired Bronco has made a choice about his life insurance that advisors are bound to criticize
Former Denver Bronco linebacker Andra Davis retired from the NFL in 2012 after 10 seasons playing professional football and when he left the game he’d played since he was six, he thought life would get a whole lot easier but that didn’t turn out to be the case.
"When you're playing, everybody loves you, everyone calls you, you're the savior, the next best thing," Andra Davis recently told the Denver Post. "Then when you're done it's like, 'Who are you?' The party's over. The lights in the stadium are off."
And bills have to be paid.
Fortunately for Davis, his financial advisor recommended that he buy life insurance in 2005 when the defensive star got a 5-year contract extension from the Cleveland Browns. Putting $100,000 aside for premiums on an annual basis over the next five years, Davis’s insurance protection needs were set.
But then he got out of football and realizing his former lifestyle meant he’d accumulated a pile of debt, he decided to cash in the policy to get out from under those obligations.
“I used to hate writing that check, but once I retired, we decided to cash the life insurance policy, take the money out, pay off everything we owed and get a smaller life insurance policy," Davis said. "Decisions like that allowed us to not have the extra pressure. If I can get that across to anybody in the league — when you're done, eliminate all the pressures because life is hard enough as it is."
Clearly this was the right call for Davis but it’s not necessarily a move all insurance advisors would advise their clients to do.
Here’s why.
“The only place you can put money where the growth is tax deferred other than an RRSP is a life insurance policy. The problem if you cash in an RRSP it’s added to your taxable income so it boosts you to the highest marginal tax rate,” certified health specialist Ken MacCoy told LHP. “If you do the same thing with a life insurance policy basically the same thing is going to happen. The growth after the premiums is going to be taxable.”
But MacCoy suggests there’s a way around this problem.
“If you turn around and assign it to the bank in return for a line of credit, it’s security, and you’re going to get a rate based on secured rates so you might pay prime plus 2%. Then what happens is you die and it’s going to pay off your line of credit and then you have the rest that’s going to go to either your beneficiaries or your estate.”
But besides that there’s the case to be made that insurance is always cheaper the earlier you get it.
“He’ll never be as young as he was 12 years ago when he took out the policy,” said MacCoy. “Good health is not guaranteed and insurance premiums are always cheaper when you’re younger.”
"When you're playing, everybody loves you, everyone calls you, you're the savior, the next best thing," Andra Davis recently told the Denver Post. "Then when you're done it's like, 'Who are you?' The party's over. The lights in the stadium are off."
And bills have to be paid.
Fortunately for Davis, his financial advisor recommended that he buy life insurance in 2005 when the defensive star got a 5-year contract extension from the Cleveland Browns. Putting $100,000 aside for premiums on an annual basis over the next five years, Davis’s insurance protection needs were set.
But then he got out of football and realizing his former lifestyle meant he’d accumulated a pile of debt, he decided to cash in the policy to get out from under those obligations.
“I used to hate writing that check, but once I retired, we decided to cash the life insurance policy, take the money out, pay off everything we owed and get a smaller life insurance policy," Davis said. "Decisions like that allowed us to not have the extra pressure. If I can get that across to anybody in the league — when you're done, eliminate all the pressures because life is hard enough as it is."
Clearly this was the right call for Davis but it’s not necessarily a move all insurance advisors would advise their clients to do.
Here’s why.
“The only place you can put money where the growth is tax deferred other than an RRSP is a life insurance policy. The problem if you cash in an RRSP it’s added to your taxable income so it boosts you to the highest marginal tax rate,” certified health specialist Ken MacCoy told LHP. “If you do the same thing with a life insurance policy basically the same thing is going to happen. The growth after the premiums is going to be taxable.”
But MacCoy suggests there’s a way around this problem.
“If you turn around and assign it to the bank in return for a line of credit, it’s security, and you’re going to get a rate based on secured rates so you might pay prime plus 2%. Then what happens is you die and it’s going to pay off your line of credit and then you have the rest that’s going to go to either your beneficiaries or your estate.”
But besides that there’s the case to be made that insurance is always cheaper the earlier you get it.
“He’ll never be as young as he was 12 years ago when he took out the policy,” said MacCoy. “Good health is not guaranteed and insurance premiums are always cheaper when you’re younger.”
