1. Getting Slapped by the ÒFat TailÓ
People arenÕt rational. Thats t b c c n lsin o al so t o stde i
Õ he asi o cu o f l rs f u is n
b havo al fn c , a dscpl e whih tis t u d r an what moiats an
e ir ian e iii n c re o n est d t e
v d I theory,there is
n
d tr n s pe plÕ fn cal e i o s. Gre , far t iabl yt d l g at iat n
eemie o es ian i d csin e d e , he n i t o eay r i c i ,
i f o
an a ho o ohe c ace faws ar t raso s mo pe pl stmbet o g t i
d st f t r har tr l e he e n st o e u l hr u h her no diferenc between
f e
fn call e mi n o ru i e wast g mo e , an n v rq i ac e ig t i
ian i i s, ssig ppo tnt s,
v i i
n n y d e e ut hivn her
e theory and prac e.
tic
fn cal rams.
ian i d e
Bu, i an io i t st i al appe s t o e o t f tr i po rd csin
t n r nc wi , t so ar hat n f he aco s n o e i o - I prac e,there is
n tic .
makn mayb anover-reliance on logic and science. Thi i a rsut fb l vn t
ig e s s e l o ei ig hat
e Yogi Berra
Ò iniiÓ e o o cmo es c pr vd anac u at pitr o t tuh, whe i f t
sce t c c n mi
f d l an o ie c r e cu e f he r t n n ac
t se mat mat al an st i ial stde o tn dstr o mi e e n e o o c
he he i c d at c
st u is fe i o t r srprse t c n mi
ral y
e i.
t
The Bell Curve
Car F id ih Gau (1
l re rc ss 777-1 5 ) was a Geman mat mat i who td i
85 r he i an
c o ay s
c n d rd o e o hi o ys mo ifu ni mat mat i s. S mei s c ld t
o siee n f str ' st n le t al he i an o t
c me al e he
Ò rn e o M at mat i s,Ó Gau wo k has had a rmar abe o g ig ifu n e i
P ic f he i an
c ssÕ r e k l n on n le c n
man fed o mat mat s an sce c .
y ils f he i c d in e
In This IssueÉ
S meo Gau std iv le st i is an t pat r s o pr b i t. W o kn
o f ssÕ u y n ov d at c d he t n f o abl y
st e i r ig
fo a b cq e in Ò v na r g o po beo to s, whih o e ar mo l ey
r m asi u st , Gie an e f ssil uc me
o c n s e st i l k
t o c rÓ Gau d v lpe a mo e, k o as a Gau an dstiuin t ie t y
o c u? ss e eo d d l n wn ssi i rb t , o d ni ,
o f Getting Slapped
e pl n an prdc o to s. To ay t s mo e i al o tn rfre t as t Bel
x ai d e it uc me d , hi d l s so fe eerd o he l by the ÒFat TailÓ Page 1
Cu v , b c se o t shape o t g aph t rsut Ofal po be o to s, t
r e e au f he f he r hat e l s. l ssil uc me he
most lik ely rsut ar cu ee at t c ne o t d a r g , whi t least
e l s e lstrd he e tr f he at an e l he
e
prob le events are set at eith end, so t s rfre t as t Òai
ab er mei me eerd o he t l sÓ. Increased Saving:
A si e v r o o t BelCu v i mappig t po be n meialo to s
mpl esin f he l r e s n he ssil u rc uc me An Economic Stimul
us
fo r l n t si-sie dc . The mo l ey o to fo a r d m t o i 7
r m ol g wo x d d ie
i st i l uc me r m
k an o hr w s Pl That Mov the
an es
(whih wi o c r1 .6 o t t , whi t lastl ey c mbn in i et r2 o
c l c u 6 7% f he i
l me l he e i l o iat s i
e k o he r Ò MAL SPI TSÓ
ANI RI Page 2
1 (o l 2 %) These o d mo l ey o to s ar 6 an 8 whih ar e h l ey
2 ny .78 . cn st i l uc me e
k d , c e ac i l k
t appe 1 .8 % o t t . Thi me s t 4 % o al t o wi b 6 7, o 8 (I
o ar 3 9 f he i me s an hat 5 f l hr ws l e , l r. f
y uhav an e pein ewi t
o e y x re c t he h Ignor Cer
ant tainty
g ame o caps, t se pr b i t
f r he o abl y
i (Iam c
Ò ertain IdonÕ l
t ike
dstiuin ar pr b l ale y
i rb t s e o aby rad
o it,ev though IdonÕ
en t
know what it is.Ó) Page 3
e ie t
vd n.)
Reshufling the
f
Rever Mor
se tgage Page 5
Did You Know?
W ho were s ome ofthe
f t indiv
irs idual to be
s
c ered by le ins
ov if urance? Page 6
The Bell Cur as a Pr
ve edictive Tool
Theear man st i ialmappig t rsuti t s b l
r e y at c
st n s hat e l n hi el -shape f r , wi t
d o mat t he
h
hih pr b i t o to s att c ne, an lw pr b i t e e t atet re d Thi
g o abl y uc me
i he e tr d o o abl y v ns
i ihe n . s
i so t s rfre t as a Ò o maldstiuin an whe i appe s, an y s i
s mei me eerd o nr i rb t ,Ó d
o nt ar alst n
© Copyright 2011 Page 1

2. st i is, n u alsce c s, an so i sce c s o tn u t
at c atr
st in e d cal in e fe se he M ar Gr ss o Lo d n s F n alt a Re arh (Th
c o f n o Õ iAn yi c se c e
Bel r eas a si emo e f rc mplxphe o n
l Cu v mpl d lo o e n me a. TruhAb t t ils a dBla k S n Oco e 2 )st e
t ou Fa Ta n c wa s, tb r 008 ats
I t fn calarn pr b i t mo es ar pev v ,
n he ian i e a, o abl y d l e r asie
i t g o d csin makn c me fo Òo u , f -t ld
hat o d e i o ig o s r m r b st at ai e
u d b e ey n fo f n man es t idvd al
se y v r o e r m u d ag r o n iiu s dstiuin i o r mo eig pr c ss.Ó S ppo t g t s
i rb t s n u
o dl n oe u ri n hi
pl nn f r rt e n. An t ri l s a pr be
an ig o ei me t
r d heen i e o lm: emphasi o d al gwi f -t l v ns, Gr ss wrts,
s n e in t at ai e e t o
h ie
S mei s t sesi emo es jst o Õ d anad q at jb
o t me he mpl d l u d nt o eu eo ÒAccording to normal distrib tion,each of
u
o an y ig t Ò o e phe o n t i
f alzn he c mplx n me aÓ hat mpac fn cal
t ian i th mark crises ob
e et served over th past decade
e
o to s.
uc me sh ld onlyh
ou ave occurred once every10 0y
,0 ears
ItÕ the Im pr
s obable Event That Matters or so. Clearly th normal distrib tion
, e u
Nassi Talb i a Le an se phi so r auho , an
m e s b e l phe,
o t r d completely misses th lik ood ofmark crisis
e elih et
st i ii , c re t sevn as a Di ig i d P o e ro
at can u rnl r ig
st y st ushe r fsso f
n and th ore provides risk estimates th
eref at
Ri En ie rn att Ne Yo k Unv r t, P ltc i
sk gn eig he w r iesi y oye hnc dangerou u
sly nderestimate tru risk Ó
e .
n i t.
I st ue Talb s 2
t e Õ 007 b o ab u u prdcabe e e t
o k o t n e it l v ns, * ts fo t s spe c wee po e i a rve fo Rav
Noe r m hi eh r std n e iw r m i
ÒTheBl k S ,Ó was ctd b t New York Times as o e
ac wan ie y he n Nag ar , o www.se kn al
aj an n e ig pha.c m/ t l/5 09
o ari e2 1 9
c
o t 1 mo ifu ni b o s wrt nsic W o l W arI.
f he 2 st n le t o k i e n e rd
al t I
Themajrprmi o t Bl k S
o e se f he ac wan i t th impact s hat e Fat-Tail Risk Managem ent: Pr otecting Against
ofrare events is h ge and h lyu
u igh nderrated, and b ecau se W hat W e DonÕ Knowt
we are not conditioned to ex pect th em,we are poorly HereÕs a summary statement from Nassim TalebÕs
eq ipped to h
u andle them, ich mak th impact even
wh es eir personal web page (www.fooledbyrandomness.com):
greater. ser ee e t ar sai t hav a Òat tailÓ Ð t
The ar v ns e d o e f he
o to s mihtappe att t l o t dstiuin b t
uc me g ar he ai f he i rb t , u
s o Éwhile most human thought (particularly
whe t yo c r t i i
n he c u , her mpac i e o mo s.
ts n r u since the Enlightenment) has focused us on how
I f tt i
n ac, he mpac o a f t lfn cale e ti so g e
t f at ai ian i v n s rat to turn knowledge into decisions, I focus on how
t prparn f rt po bl yo i
hat e ig o he ssii t f t i to turn lack of information,
o c rig i mu h mo e i ran
c u rn s c r mpo t t lack of understanding, and
The im pact ofa f tail f
at inancial event lack of ÒknowledgeÓ into
than prparn f r ohe f mo e
e ig o t r ar r
l eysc n is. Thu whi a go al
i l e aro
k s, l lb
e is so gr that pr
eat epar f the
ing or decisions Ð how not to be a
stock mark meltdown migh b
et t e possibility ofit occur ing is m uch
r Òturkey.Ó
u ely preparing to efectively m or im por
nlik , f e tant than pr epar f ing or Talb M ar s, Gr ss, an ohe
e, k o d t r
deal with it is more important t han otherf m or likely scenar
ar e ios. e pet hav c met o g t rc n
x rs eo hr u h he e e t
makn fn cald csin b d o
ig ian i e i o s ase n rc ssin wi a shar n d f c s o
ee o th pe e o u n
mo e pr b l, y t lss d amat
r o abe e e r ic t ci c n e t man e rsk i
he rt al e d o
i ag i n
si at n
t i s.
u o fn cal pr g ams,
ian i or btoh fr
o
I l hto hi Bl k S
nig f s ac wan t si he s, ist uin an idvd al M o
n it s
t o d n iiu s. st
Talb has c ld n r dstiuin
e al e o mal i rb t o Ò i sc y e e t may hav a lw
bg ar v nsÓ e o
assu in a Ò rat itl cu
mpt so ge nel tal
e pr b i t o happe ig b t
o abl y
i f nn , u
fau . De t t sho to n s o t b l (n r
r d spi he
e rc mig f he el o mal b c set c n q e c s ar tog e , i i f oi t si y
e au he o se u n e e o rat t s o l o mpl sh
dstiuin c r e rl c o i i ac eeat g F n c
i rb t ) u v , ei e n t s c lr i É ian e
o an n in r t m jst b c se o t i Ò n e n le o Ó
g o e he u e au f her o c -i-a-bu -mo n
ac e a i to e te c d i t par im t stp c l g i
ad mi s o nrn he n he adg o o al n t i n u e As Van M u l r a v tr
atr. el ,
e eean l e isu an e
if n r c
anac e abeappr xmat n
c pt l o i i .Óo rprse t ie fo W i o si, pu i i hi F b u y 2 1
e e nat r m v sc n n t t n s e r ar 01 ,
Talb s ci csm i Õ si yanitl cu spat ewe n
e Õ rt i sn t mpl
i nel tal
e bt e c mme t y Va ' 1 I ea a d Views - F b u y 2 1 t
o nar , ns 0 d s n e r ar 01 , he
mat n r s o e miue d t l The rali e i ho t se
h ed v r n t eai s. e ssu s w he prmar g al is not to mak people rich b t to k
i y o Ò e ,u eep them
ie hav peme e idvd al ian i pl nn pr c sse
d as e r atd n iiu fn cal an ig o e s. from b eing poor.Ó
P o abl y mo es f r rt e n, rsk tlr c , an
rb it i d l o ei me t ir oean e d
po toi al c in fe u nl u t se n r dstiuin
rf l l at
o o o rq e t se he o mal i rb t
y o FAT TAILS & SECOND-LEVEL THINKINGÉ
mo es t mak pr jcin an g ied csin Thed g r
dl o e oe t s d ud e i o s.
o an e: IS YOUR FINANCIAL PROGRAM INCORPORATING
Be au t se ar t mo likely o to s, people assu
c se he e he st uc me me THESE CONCEPTS?
e eir tcomes. W he so t n esehappe s,
th will b th ou
ese n mehig l n
OR ARE YOU STILL W ORKING FROM A ÒNORMAL
t yar i -prpard
he e l e e .
l
DISTRIBUTIONÓ MODEL?
S meohe fn cale pet su r Talb s pespe t e
o t r ian i x rs ppo t e Õ r ci . v
Ho d M ar s, a pr mie t Lo An ee he g f n
war k o nn s g ls de ud
man e an wrtr sai i a F b u y 5 2 1 k y oe
ag r d i , e d n e r ar , 01 , e n t
ad rss at t
de he Cou i I v st n M an e n
lmba n e me t ag me t Increased Saving:
Asso i in t
cat * hat su c ssf l iv str n e t d v lp
o c e u n e o s e d o e eo An Econom ic Stim ulus Plan
Ò c n -lv lt n ig whih g e b y n a me hanst
se o d e e hikn ,Ó c os eo d c ii c That Moves the Ô ANIMAL
appr ac t ve fn cald csin
o h hat iws ian i e i o -makn as a Òe i ig rcpe
fo a c o b o ,Ó an istad f c se o weg n t
rm okok d n e o u s n ihig he SPIRITSÕ
c n q e c s o ohe po beo to s as wel
o se u n e f t r ssil uc me l. S M i a Kal i i a Wa SreetJ rn l
. t r ia s
t ll t ou a
ral st erpo tr Tworc n arils, o e
e e at e re. ee t t e n
c
© Copyright 2011 Page 2

3. o F b u y 8 t ohe o F b u y 1 , 2 1 hihl ht
n e r ar , he t r n e r ar 6 01 , g i g t s o fn calu c rait, o e o t b stln -
i
me f ian i n et ny n f he e o g
d amat c g s i t ho sig mar e:mo e b y r ar
r i han e n he u n
c kt r u es e tr rspo se b t f rb sie s an idvd al i
em e n s, oh o u n sse d n iiu s, s
payn f r t i ral e at pu c s i c
ig o her e st e rhase n ash, an t se d ho t sav É W hi t b e s, su siis, an mo ear
o e l ax rak
e b de d nt y
who b ro t b y a ho ar c mig u wi l g rd wn
orw o u me e o n p t ar e o h poiis c d fntl ifu n ee o o cg o h, t
l e an eii y n le c c n mi r wt he
c e
pay ns.
me t f u d in f r ln -tr fn cal pr spei an
o n ato o o g em ian i o rt
y d
The swi h t c pu c s i e cal prv e ti
t o ash rhase s spe i l e aln n
c y st i t, b t idvd al an n in l, i b i o a
abl y oh n iiu l d at al s ul n
i y o y t
rale at mar es har e hi b t rc n rc ssin The
e st e kt d st t y he e e t e e o . soi b o savn .
l ase f ig
d
Nat n Asso i in o Re tr rpo t t i 2 0, 5 .2
i al
o cat o f al s e rs hat n 01 4 %
o
o ho s pu c d i M i weec tan t n I Las
f me rhase n ami r ash r saci s. n o Est l n an mait nn he t c
abi g d
shi naiig al hy ash rsev s n t
e re o
Ve as, 4 .9 o ho pu c s wee pai i c
g 5 % f me rhase r d n ash, whi le o l i o e y u idvd al ian i he t c l cieyi
ny mpr v s o r n iiu fn cal al ol t l t
h, e v
P e i had 3 .6 I i tu t man o t setan t n
ho nx 5 %. t s r e hat y f he r saci s o ste ghe s t e o o an e egz s t Ò i spii
rn t n he c n my d n r ie he anmal rt s.Ó
iv le f rco d o dste d pr pet s sel g at a
n ov o e lse r i rsse o ri e ln
i IF YOU DONÕ SEE INVESTMENT OPPORTUNITIES
T
dsc u t Ho v r M r
i o n. we e, . RIGHT NOW ,KEEP SAVING.
Kal a
it n td
oe t
hat
d wno
o twn M i ami rale W HEN YOU FIND AN OPPORTUNITY,CONSIDER
e at prc s r se1 % i
st e ie o 5 n THE BENEFITS OF PAYING CASH FOR THE
t pasty ar Thi i Õ
he e . s sn t PURCHASE INSTEAD OF BORROW ING.
jst sc e g r acii .
u av n e t t
vy
People are seeing
opportu nities, and
finding cash reserves
Ignorant
are th be est way to People ar seeing oppor
e tunities, Certainty:
pu ase th
rch em. and finding cash r eserves ar the
e
As f r t
o he te d best way to pur
rn chase them . ( know I donÕ
ÒI t
twar
o d l g r d wn
ar e o like it,even though
pay ns, t mo e i Ò rv n mo l b b k who hav
me t he v s d ie st y an s,
y e I donÕ know
t
f u d t l g rd wn pay ns dsc u ag d l q e ce
o n hat ar e o me t i o r e ei u n is n what it is.Ó)
b ice n t b y r e po r t lss an rd cn t
y n rasig he u esÕ x su e o o d e u ig he
impac o d ciig prc s.Ó Ban s hav al t htn d t i
t f e l n ie
n k e so i e e her
g The F e c e i
rn h ssayst
ln ig st d d makn i har e f ridvd al t q al y
e dn an ar s, ig t d r o n iiu s o u i f M ihe d
c l e Mo t g e nain
f rmo tag s e e i t y hav su st t d wn pay ns.
o rg e v n f he e b ani o al me t (1 3 -1 9 )
53 52 sag l
ey
Boh acin hav pr mptdb y r t b igmo ec t t
t t s o e o e u es o rn r ash o he o sev d Ò
b r e : Noth ing is so f
irmly believed as wh is least
at
t l, as t me i d wn pay n r se t 2 % o t
abe he dan o me t o o 2 f he k nown. Al u h M o t g es c mme t ar mo e t
Ó t g
ho nain Õ o ns e r han
pu c
rhase prc i 2 0, t hihe pec nag sic 1 9
ie n 01 he g st re t e n e 9 7. f u c nu is od t y st lappl td Ð e cal whe
o r e tre l, he i l y o ay spe i l y n
(I t f u t q are o 2 , t av r e d wn pay n
n he o rh u tr f 006 he eag o me t t tpi i c v u l eisu an e
he o c s ash ale i n r c .
f
was jst %, an n arz r i so o ehe e mar es.)
u 4 d e eo n me v r atd kt I t Untd S ats, t fr f r o c v u l e
n he i e t e he ist o ms f ash ale i f
Aln wi t s if r in t arils c nai t
o g t hi n o mat , he t e o t n wo
h o c isu an e appe e ar u d t t o t Ameian Cii
n r c ard o n he i me f he rc vl
c g n o sev in The fr i valu of cash in h
o e t b r at s. o ist s e and. W ar Gie i ln hi o y i wo l se m t c v u
. v n t o g str , t ud e hat ash ale
s
Vigna Hal sc a c b y ri t F b u y 8 aril
r ii l
-Bu h, ash u e n he e r ar t e
c l e isu an e wo l b a wel n esto fn calpr d c
i n r c
f ud e l d r o d ian i o u t
-u
sai, Ò he y u hav a b e o o , i s har o lt o
d W n o e ad c n my t Õ d n os f wi a ce l-e abi d po t n i peso al fn cal
t
h lary st l she si o n r n
i ian i
pe pl. Bu rg n w, i y u v g tt mo e t pu d wn
o e t iht o f o Õ e o he n y o t o pr g ams. Ye a q ik o l e se c rv al man fn cal
or t uc ni n arh e e s y ian i
o a ho se ln tr i s g igt b a g o t n .Ó
n u , o g em, t on o e o d hig
Õ c mme t o s hav a sto g dstu an o tihtanmo t
o natr e r n i r st d urg i si y
These o d c mme tc me fo M r Kal a, who st e
cn o n o s rm . it ats twar c v u l eisu an e W hy S meo t pr be
o d ash ale i n r c .
f ? o f he o lm
t Òu i ral st epu c s mad wi c i an t r
he jmp n e -e at rhase e t ash s ohe
h i si y fn calin r c , an t tn e c t d ng at
s mpl ian i g o an e d he e d n y o e ir e
sin o t rvv o anmal spii rtr ig t t
g f he e ial f i rt eu nn o he
s what s n t asi u d r o d
i o e l n esto .
y
e o o .Ó Ò i spii rfr t a phr fr u d b
c n my Anmal rt ees o sÓ ase ist se y Cash valu lif insu
e e rance is a complex f inancial
1 3 e o o st J hn M ay ar Ke n s t d scie t
9 0s c n mi o n d y e o e rb he produ Bu l eman c mplxistu ns, c v u l e
ct. t i k y o e n r me t ash ale i f
e o o c c n ie c t pr mpt pe pl t spe d mo e .
c n mi o fd n e hat o s o e o n ny isu an e i t ineg t of sev l simp f a c l
n r c s he t raion era le in n ia
F rKe n s, o e o t f n t n o g v r me t o told
o y e n f he u ci s f o en n-c nr l
o e c c t Thef n t n an lgco c v u l eisu an e
on eps. u ci o d o i f ash ale i n r c
f
mo ear poiy was t e c u ag t anmalspii Ð t
nt y l c o n o r e he i rts o c b rd c d t t e f ry staihto war fn cal
an e e u e o hre ail r g f r d ian i
pr vd e o o cst ls pac ag s, i td Õ v r ac l .
o ie c n mi i u mu k e n o ay s en uar c n e s.
o c pt
Bu t s c re t e ial fanmal rt has n t n t d
t hi u rn rvv o i spii s ohig o o
Concept # .I makes sense that the c s oflif insurance
1 t ot e
wi g v r me tan fn calist uin poiis. I f t
t o en n d ian i n i t
h t o l e n ac,
c
increases with age. A b c c n e o isu an e i
asi o c pt f n r c s
jstt o si :Ban s an g v r me tag n is, t o g
u he ppo t e k d o en n e ce hr u h
spradn t rsk o idvd alfn callss aco a l g
e ig he i f n iiu ian i o r ss ar e
hihe d wn pay ns an t htr ln ig st d d ar
g r o me t d i e e dn an ar s, e
g
n mb r o pe pl. The c sto isu an e i b d o t
u e f o e o f n r c s ase n he
makn i har e t b y a ho . Th Ò
ig t d r o u me e stimu sÓ is coming
lu
pr b i t o a lss o c rig g e e pr b i t e u s
o abl y f o
i c u rn ; ratr o abl y q al
i
from individu with cash savings.
als
hihe prmims.
g r e u
Thi mo e n rfe t so
s v me t elcs me c mme t mad i o r
o ns e n u
Ot r f tr b ig e u , te likelih
he aco s en q al h ood of d gyin
J u y2 1i e
an ar 01 ssu :
in rea wit a e. Thu t c sto se u ig l eisu an e
c ses h g s, he o f c rn i n r cf
Eventu ,th increase in cash reserves will
ally e o an an u b s ice s wi ag . Thersuto t s ag -
n n al asi n rase t eh e l f hi e
e ncertainties in th economy I
resolve some ofth u e .n b d prcn stu tr i a ho k y st k shape g aph Ð se
ase iig r cu e s ce i c d r e
© Copyright 2011 Page 3

4. t e ampl b lw (F g r 1 -- wi lw r e o ice
he x e eo iu e ) t o ats f n rase
h F r t se who wan l e isu an e f r tr peid
o ho t i n r c o em
f ro s
t o g ag 5 t n ci ig d amat al as o e
hr u h e 0, he l n
mb r i l
c y n e dn b f r t ho k y st k o isu an e c st st t t
n ig eo e he c e i f n r c o s ars o
c
appr ac s l ee pe t c .
o he i x can y
f b n shar y u
ed pl pwar , lv l tr prmims may b a
d e e em e u e
sat aco y fn calstatg . Ho v r atod rag s man
i tr ian i r e y
sf we e, le e y
Figure 1 idvd al fn t t u r n o epay n rq ie f r
n iiu s id hat he p-fo t v r me t e urd o
lv lprmims i jstto e pe sie Ye u l eohe f r
ee e u s u o x n v. t ni t r o ms
k
o isu an e t pr b i t o lss o l e i 1 pec n Ð
f n r c , he o abl y f o f i s 00 re t
i f
e e tal , e ey n de Un est dn t s ral y many
v nu l v r o e is.
y d r an ig hi e i , t
people recogniz th potential valu of k
e e e eeping life
insu orce f oneÕs entire lif d ig so n to l
rance in f or e; on o ny
rsut i a rtr (t y u b n fcar )fo prmims pai,
e l n eu n o o r e eii y r m e u
s d
b t sopr vd s f ra g e e d g e o fn cal et nyat
u al o ie o ratr e re f ian i c rait
t e d o l e The c ln e i ho t o ec me t
he n f i . f hal g s
e w o v ro he
fn cal r l o k e n t l eisu an ei f ret o g
ian i hu de f e pig he i n r c n o c hr u h
f
odag .
l e
Cos I reas as Ris of
t nc es k
Payout I reas
nc es
Rel e to Lif Ex tanc
ativ e pec y
Concept # .For longer term periods,it makes sense to
3
give policy olders access to th ex
h eir cess premiu deposits
m
e orm ofcash valu A lv lprmim rq ie t
in th f es. e e e u e urd o
mait n l e isu an e f r o es e t e l ei
nai i f n r c o n Õ ni r itf me i s
su st t l hihe t
b ani y g r han sho tr tr pl s, b c se t
al re em an e au he
su pls prmims ac u l e i t e l y ar o t
ru e u c muatd n he ary e s f he
FROM AGE 35 TO 85 poiy mu b su st t t c v r t ste c st o
lc st e b ani o o e he e p o s f
al
isu an e l e i l e (se F g 3 . F r e ampl, a lv l
n r c atr n i f e i. ) o x e ee
prmim l e isu an e poiy c c l e t rmai i f re
e u i n r c
f l c aluatd o e n n o c
u t ag 1 f r a 3 -y ar l rprse t a 6 -y a tr
ni e 00 o
l 5 e -od e e ns 5 e r em
p r d whih i mu h ln e t a 1 1 - o 2 e tr
e io , c s c o g r han 0-, 5 r 0-y ar em
Concept # . I makes sense to p yf lif insurance
2 t a or e pl .
an
with le e premiu over specif periods.Theral y o
vl ms ied e i f
t
ice n l c st prmims as o e g t co r t d ig
n rasigy o l e uy n es lse o yn Figure 3
ce e a fn caldlmma:Each y
rats ian i i e ear,it becomes more
costly to protect against an event th is more likely to
at ANNUAL COST OF LIFE INSURANCE
occu On way t rsov t s i e i t si y d o t
r. e o e le hi ssu s o mpl r p he
c v r e Theohe i t e abi a lv l e u stu tr.
o eag . t r s o st l sh e e prmim r cu e W hol
e
I t s aran e n, prmims ar fx df ra spe iidtr
n hi r g me t e u e ie o cfe em, le
if
premiu
tpial f r1 1 o 2 y ar Du ig t e l po t n o
y c l o 0, 5 r 0 e s.
y rn he ary ri f o m
Annualc t
os
t tr t an u prmim i g e e t t acu c st
he em, he n al e u s ratr han he tal o ofinsurance
o isu an e The isu an e c mpan c l cs t s su pls
f n r c. n r c o y ol t hi r u
e
an iv st i Latri t tr t an u prmim i lss
d n e s t e n he em, he n al e u s e
.
t t acu c st b tt su pls c l ce fo t e l
han he tal o , u he r u ol td r m he ary
e
y ar (pls t iv st n e nn s)mak s u t dfee c
e s u he n e me t ar ig e p he ifrn e
(se F g 2 .
e i. )
Figure 2
20 YR LEVEL TERM VS. ANNUAL Under
payment
ART)
RENEW ABLE TERM (
Coverage
ART TERM ends af 20
ter
Ov payment
er
LEVEL years
TERM
1 5 9 13 17 21 25 29 33 37 41 45 49
FROM AGE 35 to
85
F r man poiy les, pl ig t s mu h e c ss
o y l hod r
c acn hi c xe
prmim wi an isu an ec mpan rprse t a sinfc t
e u t
h n r c o y e e ns g iian
Ò ppo tnt c st t t i peso al fn c s, e . Ò hat
o ru i o Ó o her r n ian e .g W
y
c ud t mo e b wo t t mei Idd Õ u i t b i a
o l hat n y e rh o f in t se t o uld
su pls ac o n f rt isu an ec mpan t pay t c sto
r u c u t o he n r c o yo he o f
l eisu an ei myodag ?
i n r c n
f l eÓ
1 3 5 7 9 1 1 1 1 1
FROM AGE 355 7
1 3 to 9
Re o nzn t s i e l e isu es gv poiy les
c g iig hi ssu , i n rr ie l hod r
f c
55 co-ownersh of th
ip ese excess premiums Ð and th e
© Copyright 2011 Page 4

5. earnings f rom th investment ofth
e em Ð in th f
e orm of e nn s ar av l l t t poiy le i t f r o c
ar ig e ai e o he l hod r n he o m f ash
ab c
cash valu S be tt t tr o t poiy t se c
es. u jc o he ems f he l , he ash c v u s. Thi rsut i t f l wigb n ft
ale s e l n he ol n e ei
s o s:
v us cnb ac
ale a e c essed b te p yh er in a v riet of
y h olic old a y
wa whi st l naiiga l eisu an eb n ft
ys l i mait nn i n r c e ei
e l f . The certainty t t an u c sto isu an e i lv l
hat he n al o f n r c s e e
I poiis i e b wel
n l e ssu d y l
c -man e isu an ec mpane
ag d n r c o is, an fx d an n t be t oc g i t f tr.
d ie , d o su jc t han e n he uu e
i i q i l ey t c
t s ut i l hat ash v u b an e wi , o e t ,
e k ale al c s l vr i
l me Thecertainty t prmims pai wi e e tal d l e
hat e u d l v nu l ei r
l y v
e c e t prmims t hav b e pai. Diie d i ., t
x e d he e u hat e e n d vd n s, .e he a b n ft
e ei.
n n u ane d e nn s o t e c ss prmims, c b
o -g ar te ar ig n he x e e u an e The certainty t e c ss prmims d po td wi t
hat x e e u e sie t he
h
rc ie b t poiy le, u d t pay f tr prmims,
e ev d y he l hod r se o
c uu e e u isu an ec mpan (as welas t dvd n s t mayrsut
n r c o y l he iie d hat e l )
al we t ac u l e an c mpo n , o appl d t t
l d o c muat d o
o ud r i o he
e c b ac e db t poiyo e.
an e c sse y he l c wn r
pu c
rhaseo ad i o al d p isu an e
f dt n pai-u n r c .
i The certainty t hat t se fatrs ar spe iial
he e ue e cfc l y
Thi aran e n i raso abean e ut l f rb t t
s r g me t s e n l d q i e o oh he ab e u r e an c nr tal g ar te .
n meatd d o tacu l u ane d
y
poiy le an t isu an e c mpan . The c
l hod r d he n r c o
c y ash v u
ale Cash v u l e isu an e i a c mplx fn calpr d c
ale i n r c s
f o e ian i o u t
fatr gv s t poiy le a r in e f r pl ig t
e u e ie he l hod r at al o acn he
c o d sin d t pr vd fn calc rait t efciey ad rss
e g e o o ie ian i et ny o fe t l d e v
e c ss prmims wi t isu an e c mpan . Lar e
xe e u t he n r c o
h y gr t wo stt c ud happe , y tpr vd o in f ra r g
he r hat o l n e o ie pt s o
o an e
prmims gv t isu an e c mpan g e e iv st n
e u ie he n r c o y ratr n e me t o ohe e e t as wel Ev n i hid g mihtidc et
f t r v ns l e f n siht g n iat hat
.
c t , ln e t peid an g e e fe ii t t me t he
api o g r i
al me ro s d ratr lxbl y o e t i ohe statge mayhav b e mo epr ft l Ð inte p st
t r r e is e e n r oi e ab h a Ð
o l at n o f tr cai Att same t , c mpei o
bi i f uu e l ms.
g o he i
me o t in t ,cash v u l e isu an e c niu s t hav fn cal
ale i n r c o t e o
f n e ian i
amo g isu es pr vd s ic nie f r c mpane t
n n rr o ie n e t s o o
v is o rlv c b c se i f r
ee an e e au t o matrc g ie t i ran e o
s e o nz s he mpo t c f
maxmie t i c
i z her ash v u ac u l in an ac o n
ale c muat s o d cu t rspo dn t ftre u k o s.
e n ig o uu n n wn
fatrs f rt b n ft ft poiy le.
e u e o he e ei o he l hod r c
Ev n fo t s b ifo eve i sho l b apparn t
e r m hi re v r iw, t ud e e t hat READY TO LEARN MORE ABOUT HOW CASH
c mbnn t t e v i ls o ag -b d isu an e c st
o iig he hre arabe f e ase n r c o s, VALUE LIFE INSURANCE COULD MAKE A
lv l prmims, an c
ee e u d ash v u ac o ns mak s f r a
ale c u t e o DIFFERENCE IN YOUR FINANCIAL PLANS?
c mplx fn cal pr d c. S me o t dst e f r c
o e ian i o ut o f he i ast o ash
v u l e isu an e i pr b l d e t t pr d cÕ
ale i n r c s
f o aby u o he o u ts
c mplxt. F n call eac i t Untd S ats i o tn
o ei y ian i i r y n he i
t e t e s fe
so ey l kn . A po l o -l e fn calad ie we si
rl ac ig puar n i ian i
n vc b t e Re-shufling the Rever Mor
f se tgage
dsmi s c v u l eisu an et s way Òng n r , t s
i sse ash ale i n r c hi
f : I e eal hi
Som e changes in the rever m or
se tgage m ar m ay
ket
i a v r c mpl atd tpi an welb y n t sc pe o
s ey o i e o c d l e o d he o
c f
m ake it easier f senior to access their hom e
or s
whatwec e l c v rhee S , i t c n e s ar o e
an asi o e r.Ó o f he o c pt e v r
y
equity,but they also protect lender fom declining
s r
y u he , f r e i (J st e au mo pe pl d n t nt l
o r ad o g t t u b c se st o e o Õ ii al
? i y
values in the r estate m ar
eal ket.
u d r an ho t o r ean auo bl d e Õ me t y
n est d w o peat tmo i o sn t an he
e
sho l set f rrdn a bk t rsto t i l e Thats
ud t e o iig ie he e f her i s.
l v Õ A rv r mo tag al ws pe pl ag 6 o od r t
e ese rg e l o o e e 2 r le o
whywehav d ieÕ e u at ncasse
e rv rs d c i l s.)
o c n ete ut i t i ho t c
o v r q i n her me o ash, i t f r o a lmp
y n he o m f u
An t r raso so fn cale pet ar anag nst
ohe e n me ian i x rs e t o i i c su a l e o ce i o mo t y dstiuin Bo r wes
m, i f rdt r nhl i rb t s.
n o ro r
twar c
o d ash v u l e isu an e i t i b l f i t
ale i n r c s her ei n he
f e u n a rv r mo tag d n t hav t mak mo t y
sig e ese rg e o o e o e nhl
prob ilities o n tn e ig l eisu an eas o se t t
ab f o e dn i n r c
f ppo d o he rpay ns. The lan i d e wi itrst whe t
e me t o s u, t nee ,
h n he
possib ilities o ral n e ig i Thi i v r si l t t
f e l e dn t
y . s s ey mi o hear b ro rde mo e sel t ho seo f l t paypr pet
o r we is, v s, l he u r ai o
s s o ry
mid to t sepe pl whoin r t f t lc n q e c s
n se f ho o e g o e he at ai o se u n e t e o ho o eÕ isu an e To q al y f r a rv r
ax s r me wn rs n r c . u i o
f e ese
o o c -i-a-l ei e e t (as dsc sse i t prvo s
f ne n i t f me v ns i u d n he e iu mo tag , t pr pet mu b t b ro rs prmar
rg e he o ry st e he o r weÕ i y
aril) Usigt s tpeo t n ig
t e.
c n hi y f hikn É rsie c , an mu et rb hed fe an ce o b pai
e d n e d st i he e l re d lar r e d
o fwi a po t no t pr c e s fo t rv r mo tag .
f t h ri f he o e d r m he e ese rg e
o
Yo prob ly t n y u d n tn e l eisu an eÐ y
u ab hik o o Õ e d i n r c
f et.
Theamo n rc ie d pe d o t pr petÕ v u an t
u t e ev d e n s n he o ry s ale d he
(Afe al y u r st l ie
tr l o Õe i al .)
, l v
ag o t rcpin.
e f he e i e t
Yo prob ly t n y u wo Õ n e o wan l e
u ab hik o nt e d r t i f
W hi rv r mo tag s c pr vd a mu h n e e
l e ese
e rg e an o ie c ed d
isu an ei y u odag b c se
n r c n o r l e e au É
so reo rt e n ic mef rrt e s, so c mme t o s
u c f ei me t n o
r o ei e
r me o natr
Yo prob ly t n y u wi hav sav d e o g f r
u ab hik o l
l e e nuh o
hav ci cz d t i u r n fe whih c tt as mu h as
e rt ie her pfo t e s,
i c an oal c
rt e n, an É
ei me t d
r
5 o a ho Õ v u . TheF d r Ho sig Ad nstat n
% f mes ale e eal u n mii r i ,o
Yo prob ly t n y u wo Õ hav an e at t i e
u ab hik o nt e st e ax ssu ,
whih has o esiht rspo sii t f r rv r mo tag s,
c v r g e n bl y o e ese
i rg e
bt
uÉ
al pr vd s isu an et ln es sho l t f tr v u o
so o ie n r c o e d r ud he uu e ale f
Yo prob lyt n y uwi hav ohe asses t lav as
u ab hik o l
l e t r t oe e
t pr pet b less ta te a n owed wh te loa
he o ry e h n h mou t en h n
anihei c .
n rt e
an
comes d e.To c v r t s rsk F
u o e hi i , HA c l cs an u r n
ol t
e p-fo t
Ofc u se i i l ey t o eo mo eo t sepr b l
o r , t s i l hat n r r f ho
k o abe isu an efe whih c b as hih as 2 o t pr petÕ
n r c e, c an e g % f he o ry s
o to s wo Õ c me t pass. An t n t pr b i t o
uc me nt o o d he he o abl y f
i v u , ac o dn t a J u y 8 2 1 Wa SreetJ rn l
ale c r ig o an ar , 01 , ll t ou a
ral wanigl eisu an ec udb mu h g e e.
e ly t i n r c o l e c ratr
n f rpo tb An e Teg se . I ad i o , b k al tpial
e r y n r e n n dt n an s so y c l
i y
I c nr , t stu tr o a c v u l e isu an e
n o tast he r cu e f ash ale i n r c
f ad tan t n an sevc fe f r o iiat g a rv r
d r saci o d r ie e s o rgn i n e ese
poiymak s i po bef ridvd al t k e l eisu an e
lc e t ssil o n iiu s o e p i n r c
f mo tag . Thu t tan t n c st f ra rv r mo tag
rg e s, he r saci o s o
o e ese rg e
i f ref ras ln t y l e u n a lv lprmim f r .
n oc o o g he i , sig e e e u o mat
v o a $ 00,000 pr pet c udappr ac $ 5
n 5 o ry o l o h 2 ,000.
Beo e t e d o l e t e c ss prmims an t i
f r he n f i , he x e
f e u d her
© Copyright 2011 Page 5

6. As a rsuto t rc n d cie i ho sig prc s, i i
e l f he e e t e l n u n ie t s
n
l ey t man c re trv r mo tag e will owe more
i l hat
k y u rn e ese rg e s
ta te v lu of h p ert whih lav s t F
h n h a e teir rop y, c e e he HA o t n he
DID
ho kt mak u t dfee c . Tomii z t s o c re c
o o e p he ifrn e nmie hi c u rn e YO
g ig f r d t ag n y has auho ie a n w rv r
on o war , he e c t rz d e e ese
mo tag f r . I e c g f r rc iig a smal r
rg e o mat n x han e o e evn l
e U
pec nag o e ut fo t i rv r mo tag , F
re t e f q i r m her e ese rg e HA has
y KN
lwee t i isu an e prmim t 0.01 o t pr pet
o rd her n r c e u o % f he o ry
v u . I ad i o , so b k hav et rlwee o waie
ale n dt n me an s
i ei he o rd r v d OW
fe pr vd d t t b ro rt e a lmp-su pay n
e s, o ie hat he o r we ak s u m me t
(t s ac r ig itrst o t f l amo n o t rv r
hu cun nee n he ul u t f he e ese
?..
.
mo tag lan . The itrstc g d f r a n -fe lan i
rg e o ) nee har e o o e o s
tpial hihe as wel
y c l g r
y l. Early
W hi t se pr vsin may lwe u r n c st t
l he
e o io s o r p-fo t o s o life insurance policies covered the Pope
c n mes, t y al et r lwe t rsk f r ln es, o
o su r he so i he o r he i o e d r r and government officials
ice poe t rtr s f rln es. I so cru an e
n rase tni eu n o e d r n me ic mst c s,
al
idvd al may fn t od r Ò r e pe sie f r i
n iiu s id he le, mo e x n v Ó o mat s S me o t fr rc r e l e isu an e c nr t wee
o f he ist e o d d i n r c o tacs
f r
acu l a b t rv u i t ln r n
tal y et ale n he o g u .
e o e b Ial b k r t isu e t l e o rl iu
wn d y t i an es hat n rd he i s f ei o s
an v g
Given these new var iables,a consultation with an g v r me to fcal The ac o n b o s o Ben d
d o en n fii s. c u t o k f r ar o
your tr usted financial specialist is r ecom m ended Camba, a b k r wi t po ru Ial f l, t
i an e t he wef l t i ami he
h an y
bef e consider
or ing a r ever m or
se tgage. And the M e ii sho prmims pai f rP peNihoas V, t Do e
dcs, w e u do o c l he g
FHA actually has a nationwide networ ofappr
k oved o Ve iean t Kig o Ar o . F E. d Ro v r auho
f nc d he n f ag n . e o e, t r
rever m or
se tgage counselor s. o t 1 4 b o Ò l Ex
f he 9 5 o k Eary ampls o M art I su an e
e f i me n r c ,Ó
i
c mme t t t se c nr t wee e ni l peso al
o ns hat he o tacs r sse t y r n
al
wag r o t l e o t se me , as t r wee n l e
es n he i s f he
v n hee r o i f
e pe t c t ls o whih t c c l e t isu e Õ he t
x can y abe n c o aluat he n rd s al h
o ln e i (al u h P peNihoas sev d jsteg y ar
r o g vt t g o
y ho c l r e u iht e s
an de whi i o fc , so t M e ii may hav c l ce
d id l n fie
e he dcs e ol td
e
o t i iv st n)
n her n e me t.
This newsletter is prepared by an independent third party fo r distribu tio n by yo u r representativ e.
M aterial disc u ssed is m eant fo r g eneral illu stratio n and/o r info rm atio nal pu rpo ses o nly and it is no t to be c o nstru ed as tax , leg al o r inv estm ent adv ic e. A ltho u g h the info rm atio n has been g athered fro m so u rc es believ ed reliable,
please no te that indiv idu al situ atio ns c an v ary, therefo re the info rm atio n sho u ld be relied u po n when c o o rdinated with indiv idu al pro fessio nal adv ic e. L ink s to o ther sites are fo r yo u r c o nv enienc e in lo c ating related info rm atio n and
serv ic es. The R epresentativ e(s) do es no t m aintain these o ther sites and has no c o ntro l o v er the o rg aniz atio ns that m aintain the sites o r the info rm atio n, pro du c ts o r serv ic es these o rg aniz atio ns pro v ide. The R epresentativ e(s)
ex pressly disc laim s any respo nsibility fo r the c o ntent, the ac c u rac y o f the info rm atio n o r the q u ality o f pro du c ts o r serv ic es pro v ided by the o rg aniz atio ns that m aintain these sites. The R epresentativ e(s) do es no t rec o m m end o r
endo rse these o rg aniz atio ns o r their pro du c ts o r serv ic es in any way. W e hav e no t rev iewed o r appro v ed the abo v e referenc ed pu blic atio ns no r rec o m m end o r endo rse them in any way.
© Copyright 2011 Page 6