Finance

Consumers can buy two types of life insurance: term or permanent. The latter category includes whole life and universal life.
Term life insurance is generally the best option for most people since it’s the most cost-effective, say financial advisors.
Yet, 60% of policies sold in 2021 were permanent policies, while 40% were term, according to the American Council of Life Insurers.

Supersizer | E+ | Getty Images

There are two broad categories of life insurance, and data suggests many households aren’t buying the most cost-effective one.
Americans bought 4.1 million term insurance policies in 2021, accounting for 40% of all individual policies purchased that year, according to the most recent data from the American Council of Life Insurers. About 6.3 million policies, or 60%, were permanent life insurance.

But this doesn’t seem to jibe with financial advisors’ general recommendation.
“Most people just need term insurance,” said Carolyn McClanahan, a certified financial planner based in Jacksonville, Florida, and a member of CNBC’s Advisor Council.
More from Personal Finance:How many credit cards should you have? The answer isn’t zeroAmericans think they will need nearly $1.3 million to retireRepublicans, Democrats divided on Social Security reform

How term and permanent life insurance differ

Life insurance is a form of financial protection that pays money to beneficiaries, such as kids or a spouse, if a policyholder dies.
Term insurance only pays out a death benefit during a specified term, perhaps 10, 20 or 30 years. Unless renewed, the coverage lapses after that time.

By contrast, permanent insurance policies — such as whole life and universal life — offer continuous coverage until the policyholder dies. They’re also known as cash value policies since they have interest-bearing accounts.

Permanent insurance is generally more costly, advisors said. Policy premiums are spread over a longer time, and those payments are used to cover insurance costs and build up cash value.
“Term insurance will probably be the most cost-effective way to address survivor income needs, especially for minor children,” said Marguerita Cheng, a CFP based in Gaithersburg, Maryland, also a member of CNBC’s Advisor Council.
Premiums can vary greatly from person to person. Insurers base them on a policy’s face value and the policyholder’s age, gender, health, family medical history, occupation, lifestyle and other factors.

Reasons you may need permanent life insurance

There are three main reasons it may make more sense to buy a permanent policy, despite the higher premiums, said McClanahan, founder of Life Planning Partners. This would aim to ensure there’s an insurance payout upon death, no matter when that occurs.
For example, some beneficiaries such as kids with special needs may need financial help for a long time, and a policyholder’s lifetime savings wouldn’t be adequate to fund their needs, McClanahan said.
Some policyholders may also want to leave a financial legacy for family or charities. Additionally, others may have a relatively minor health complication with the potential to worsen later. At that point, the policyholder may be uninsurable, in which case, it’d be beneficial to buy a permanent policy today to ensure coverage later, McClanahan said.

Most people just need term insurance.

Carolyn McClanahan
founder of Life Planning Partners

Some shoppers buy permanent life insurance for the cash value, thinking they can borrow against that cash value or use it as a retirement savings account. But that’s a “horrible reason” to buy a permanent policy, said McClanahan, adding that the primary reason for buying a policy is always for an insurance need.
For one, there may be taxes and penalties for accessing a policy’s cash value. Withdrawing or borrowing too much money from a permanent policy could cause the policy to lapse inadvertently, meaning the owner would lose their insurance.
Policyholders should instead treat the cash value as an emergency fund at the end of one’s life, as the last asset someone taps, similar to home equity, McClanahan said.

How to determine life insurance amount and term

Prospective buyers should consider the “three Ls” when deciding how much life insurance to get: liability, loved ones and legacy, said Cheng, CEO of Blue Ocean Global Wealth.
For example, if you die, how much money would you want to leave for liabilities such as a mortgage, student loans or auto loans? How much money would loved ones such as a spouse and kids need if they were to suddenly lose a policyholder’s income? How much would you want to leave as a legacy for causes that are important to you?
Thinking about these questions will help guide the term of a policy, Cheng said.
Cheng offered her personal situation as an example. She purchased a 20-year term policy with a $750,000 death benefit when all three of her kids were younger than age 18. Her husband also works and has a regular income. If Cheng were to have died prematurely, each child would have received $250,000 to fund their educations. She also bought $250,000 of permanent insurance, earmarked for Cheng’s husband, to help pay off their mortgage.
Coupling term and permanent insurance policies can help make an insurance purchase more cost-effective than buying just permanent insurance, advisors said.
Those buying a term policy should be sure to buy “convertible” term insurance, advisors said. This gives policyholders the option to convert their term policy into a permanent policy once the term has ended, but without having to undergo another round of medical underwriting. At that point, the person may be denied coverage if in poor health. More

In its midyear outlook, the British banking giant’s asset manager said recession warnings are “flashing red” for many economies, while fiscal and monetary policies are “out of sync” with stock and bond markets.
Along with China, HSBC believes India is the “main macro growth story in 2023” as the economy has recovered strongly from the Covid pandemic on the back of resurgent consumer spending and services.

Hong Kong observation wheel, and the Hong Kong and Shanghai Bank, HSBC building, Victoria harbor, Hong Kong, China.
Ucg | Universal Images Group | Getty Images

The U.S. will enter a downturn in the fourth quarter, followed by a “year of contraction and a European recession in 2024,” according to HSBC Asset Management.
In its midyear outlook, the British banking giant’s asset manager said recession warnings are “flashing red” for many economies, while fiscal and monetary policies are out of sync with stock and bond markets.

Joseph Little, global chief strategist at HSBC Asset Management, said while some parts of the economy have remained resilient thus far, the balance of risks “points to high recession risk now,” with Europe lagging the U.S. but the macro trajectory generally “aligned.”
“We are already in a mild profit recession, and corporate defaults have started to creep up too,” Little said in the report seen by CNBC.
“The silver lining is that we expect high inflation to moderate relatively quickly. That will create an opportunity for policymakers to cut rates.”
Despite the hawkish tone adopted by central bankers and the apparent stickiness of inflation, particularly at the core level, HSBC Asset Management expects the U.S. Federal Reserve to cut interest rates before the end of 2023, with the European Central Bank and the Bank of England following suit next year.

The Fed paused its monetary tightening cycle at its June meeting, leaving its fed funds rate target range at between 5% and 5.25%, but signaled that two further hikes can be expected this year. Market pricing narrowly anticipates the fed funds rates to be a quarter percentage point higher in December of this year, according to CME Group’s FedWatch tool.

HSBC’s Little acknowledged that central bankers will not be able to cut rates if inflation remains significantly above target — as it is in many major economies — and said it is therefore important that the recession “doesn’t come too early” and cause disinflation.
“The coming recession scenario will be more like the early 1990s recession, with our central scenario being a 1-2% drawdown in GDP,” Little added.
HSBC expects the recession in Western economies to result in a “difficult, choppy outlook for markets” for two reasons.
“First, we have the rapid tightening of financial conditions that’s caused a downturn in the credit cycle. Second, markets do not appear to be pricing a particularly pessimistic view of the world,” Little said.

“We think the incoming news flow over the next six months could be tough to digest for a market that’s pricing a ‘soft landing.'”
Little suggested that this recession will not be sufficient to “purge” all inflation pressures from the system, and therefore developed economies face a regime of “somewhat higher inflation and interest rates over time.”
“As a result, we take a cautious overall view on risk and cyclicality in portfolios. Interest rate exposure is appealing — particularly the Treasury curve — the front end and mid part of the curve,” Little said, adding that the firm sees “some value” in European bonds, too.
“In credit, we are selective and focus on higher quality credits in investment grade over speculative investment grade credits. We are cautious on developed market stocks.”
Backing China and India
As China emerges from several years of stringent Covid-19 lockdown measures, HSBC believes that high levels of domestic household savings should continue to support domestic demand, while problems in the property sector are bottoming out and government fiscal efforts should create jobs.
Little also suggested that comparatively low inflation — consumer prices rose by a two-year monthly low of 0.1% in May as the economy struggles to get back to firing on all cylinders — means further monetary policy easing is possible and GDP growth “should easily exceed” the government’s modest 5% target this year.
HSBC remains overweight on Chinese stocks for this reason, and Little said the “diversification of Chinese equities shouldn’t be underestimated.”

“For example, value is outperforming growth in China and Asia. That’s the opposite of developed stock markets,” he added.
Along with China, Little noted that India is the “main macro growth story in 2023” as the economy has recovered strongly from the pandemic on the back of resurgent consumer spending and a robust services sector.
“In India, recent upward growth surprises and downward surprises on inflation are creating something of a ‘Goldilocks’ economic mix,” Little said.
“Improved corporate and bank balance sheets have also been boosted by government subsidies. All the while, the structural, long run investment story for India remains intact.” More

Wise said in a statement to the stock market that its profit before tax nearly tripled to £146.5 million ($186.5 million).
Wise benefited from surging interest rates, which last week were raised by the Bank of England to 5% as policymakers grapple with high inflation.
Overall income reported by the firm rose to £964.2 million, up 73% year-on-year, boosted by a surge in customer balances.

The Wise logo displayed on a smartphone screen.
Pavlo Gonchar | SOPA Images | LightRocket via Getty Images

Online money transfer firm Wise’s shares soared nearly 18% Tuesday as the company reported a spike in profits thanks to rising interest income.
The company said in a statement to the stock market that its profit before tax tripled to £146.5 million ($186.5 million). Earnings per share also more than tripled, to 11.53 pence.

That was as the company saw customer growth of 34%, with 10 million total users by March 31, 2023, and volumes increased 37% to £104.5 billion.
Wise was trading at about £6.18 at around midday London time, up almost 18% on the day.
Wise benefited from surging interest rates, which last week were raised by the Bank of England to 5% as policymakers grapple with persistently high inflation.
Like other fintechs, Wise has been able to accrue income from interest on funds sitting in customer accounts.
Monzo and Starling Bank recently reported their own respective profitability milestones, citing increased income from lending.

Wise said Tuesday its revenues grew 51% to £846.1 million, from £559.9 million the year prior.
Overall income reported by the firm rose to £964.2 million, up 73% year-on-year. This was boosted by a surge in the amount of funds deposited by customers.
Still, Wise has been grappling with a number of less positive developments.
The company’s CEO Kristo Kaarmann last year became the subject of an investigation by Her Majesty’s Revenue and Customs over a £365,651 tax bill he failed to pay on time.
The news is significant as it could lead to serious ramifications for Kaarmann’s position if he is found to have breached U.K. tax laws.
“The FCA [Financial Conduct Authority] is still conducting the investigation and it’s taking a while. I find this is a bit unfortunate but we’ll have to wait until we hear what they conclude,” Kaarmann said in an interview with BBC Radio Tuesday.
“It has really not much to do with the business that we’re running, it was a personal mistake. I was really late with my taxes a long time ago and I paid the fines.”
Wise was also the subject of a $360,000 fine by regulators in Abu Dhabi over failings in its anti-money laundering controls.
This issue has since been “resolved,” Kaarmann told the BBC.
Kaarmann earlier this year announced that he plans to take a three-month sabbatical between September and December to spend time with his baby.
Harsh Sinha, the company’s chief technology officer, is set to assume his duties as CEO in the interim. This has led to speculation from some investors that Sinha may step up into the CEO role permanently. Wise has not itself indicated this will be the case. More

A man walks out of Walgreens pharmacy on March 09, 2023 in New York City. 
Leonardo Munoz | Corbis News | Getty Images

Check out the companies making the biggest moves in premarket trading:
Walgreens Boots Alliance — The retail pharmacy chain sank about 7% after the company lowered its full-year earnings guidance to $4 to $4.05 per share from its previous forecast of $4.45 to $4.65 per share. It also reported adjusted earnings per share for its fiscal third quarter of $1, missing a Refinitiv forecast of $1.07.

Kellogg — Shares added 2.5% in premarket trading after an upgrade from Goldman Sachs to buy. The firm said Kellogg was “mispriced” compared to the potential growth opportunity offered to investors.
Lordstown Motors — Lordstown Motors tumbled 61% in the premarket after the U.S. electric truck maker filed for bankruptcy protection and sued Taiwan’s Foxconn for a deal that came apart.
Delta Air Lines — The travel stock added about 1% in premarket trading after Delta forecast full-year adjusted earnings of $6 per share, at the high end of previous guidance. The company cited strong demand and customers trading up to more expensive share classes as reasons for the more optimistic outlook.
American Equity Investment Life — The stock jumped 15% in premarket trading after Bloomberg reported Canadian investment firm Brookfield was close to making a deal to buy the insurance firm for approximately $4.3 billion.
Eli Lilly — Shares gained 1.5% in the premarket. Eli Lilly released clinical results Monday that showed its experimental drug retatrutide helped patients lose up to 24% of their weight after almost a year.

Host Hotels & Resorts — Shares fell nearly 2% following a downgrade by Morgan Stanley to underweight from equal weight. The Wall Street firm said it expects deteriorating trends in key markets and higher competitive supply versus its peer group.
— CNBC’s Sarah Min, Brian Evans, Jesse Pound and Michael Bloom contributed reporting. More

Rising rates will squeeze corporates, particularly with consumer or highly leveraged companies, Khazanah’s managing director said.
Opportunities in private equity for business spaces may arise out of need to cut cost, he added.

Malaysia’s sovereign wealth fund Khazanah Nasional is rebalancing its investment portfolio for greater resilience against market volatility, according to its managing director.
Khazanah’s net asset value declined 5% to 81 billion ringgit ($17.4 billion) in 2022 from a year ago, hit by global market downtrends, the fund said in March. The Kuala Lumpur-based fund invests more than half of its portfolio in public markets.

“What we are focused on doing here is to look at how we can be a bit more resilient in the market,” Khazanah’s managing director Amirul Feisal Wan Zahir told CNBC Monday on the sidelines of the Energy Asia conference in Kuala Lumpur.
“Looking at the volatility in the market, we are still in the process of rebalancing our portfolio,” he added.
Khazanah posted a 1.6 billion ringgit ($343 million) net profit in 2022 — more than doubling its net profit from the year before and a fourth-straight annual net profit after an unprecedented plunge in 2018.
In comparison, the MSCI World index saw a more than 18% slump in 2022 and the MSCI Emerging Markets index dived 20% in the same period.

Malaysia’s sovereign wealth fund Khazanah Nasional is fortifying its investment portfolio for greater resilience in volatile markets, according to its managing director Amirul Feisal Wan Zahir.
Bloomberg | Bloomberg | Getty Images

As of end 2022, Khazanah said 55.9% of its portfolio was invested in public markets in Malaysia, with 13.4% invested in public markets overseas. Nearly a quarter of its portfolio was invested in private markets, more than half outside Malaysia, with 8% invested in real assets.

“There is actually a lot of potential in deploying assets,” said Amirul Feisal, pointing to investment opportunities in volatile market environment.
“In this current moment, when you look at industrial consolidation … or we know there is a rising rate environment, and corporates will get squeezed — especially when you look at consumer or highly leveraged companies,” he said.

Stock picks and investing trends from CNBC Pro:

Inflation rates have stayed persistently high globally despite multiple interest rate hikes as central banks seek to rein in years of super-easy monetary policy following the 2008-2009 financial crisis. Rate hikes and rising yields have combined to hurt many companies.
“But it does tell CEOs and corporates — how can I actually reduce my costs?” Amirul Feisal said.
“So when you look at areas such as business services, you could get opportunities in the private equity space there as well.” More

Chinese Premier Li Qiang said Tuesday his country was still on track to reach its annual growth target of around 5%.
He was speaking at the opening plenary of the World Economic Forum’s Annual Meeting of the New Champions.
“From what we see this year, China’s economy shows a clear momentum of rebound and improvement,” Li said.

Chinese Premier Li Qiang attends a meeting on June 26, 2023, with the Director-General of the World Trade Organization ahead of the World Economic Forum New Champions meeting in Tianjin, China.
Pool | Getty Images News | Getty Images

BEIJING — Chinese Premier Li Qiang said Tuesday his country was still on track to reach its annual growth target of around 5%.
He said growth in the second quarter was expected to be faster than it was in the first.

China’s economy grew by 4.5% in the first quarter, better than expected. However, subsequent data have pointed to slower growth. Economic data for May missed analysts’ expectations.
“From what we see this year, China’s economy shows a clear momentum of rebound and improvement,” Li said, via a livestream of an official English translation.
Li was speaking at the opening plenary of the World Economic Forum’s Annual Meeting of the New Champions.

The conference will run from Tuesday to Thursday in Tianjin, China. This year’s gathering marks the first time since the pandemic that the World Economic Forum’s annual China conference is being held in person.
Li became premier in March, following a twice-a-decade leadership reshuffle in October that packed the core team with loyalists of Chinese President Xi Jinping.

China announced its growth target of about 5% for the year in March. At the time, Li told reporters that China’s economy is picking up and that some international organizations had raised their forecasts for full-year growth.
On Tuesday, the Chinese premier repeated the line about forecast upgrades, again without mentioning specific institutions or dates.
Economists’ forecasts for China’s gross domestic product this year have fluctuated.

Several investment banks — including Goldman Sachs, JPMorgan, UBS and Bank of America — have trimmed their full-year China GDP forecasts in the last few weeks. Earlier this year, many firms had raised their expectations for 2023 growth.
In June, the World Bank raised its forecast for China’s growth this year to 5.6%, up from 4.3% previously.
The International Monetary Fund in April raised its forecast for China’s GDP to 5.2%, up from 4.4% previously.

On de-risking and security

Li on Tuesday also emphasized the need for global cooperation on trade and economic growth.
“As you know, some in the West are hyping up the so-called phraseologies of reducing dependencies and de-risking,” he said. “These two concepts, I would say, are false propositions.”
“As economic globalization has already made the world economy an integral whole where everyone’s interests are closely entwined, countries are interdependent, interconnected with each other, on their economies,” Li said. “We can enable each other’s success.”
China is a major, if not the top, trading partner of many countries in the world.
During his speech Tuesday, Li highlighted “security” as crucial in the context of the need to “cherish peace and stability.”
“In China’s official lingo, we compare security to the number of one, and other things, the many zeroes that come after it,” he said.
“In an American sense, without the number one, all the zeroes following it would come to nothing,” Li said, via the official English translation.
Beijing has increasingly emphasized the need to ensure national security. The U.S. has also cited the term in recent actions such as restricting China’s ability to access high-end semiconductors.
Earlier this year, Liu He, then a vice premier, spoke at the World Economic Forum’s annual event in Davos, Switzerland.
In that speech, Liu said “high-quality economic development must always be [China’s] goal,” and that the country would focus more on attracting foreign investment.
— CNBC’s Jihye Lee contributed to this report. More

“Iknow the allocation models don’t say this,” admitted Steven Mnuchin, a Treasury Secretary turned private-equity investor, last month, “but if I had to put money to invest for the next ten years I’d put 100% of it in the us economy.” Although Mr Mnuchin’s patriotism may be in part ideological—for he is both an investor and a political creature—he is not alone. According to Morningstar Direct, a data firm, American fund investors hold just a sixth of their equity allocation overseas. Jack Bogle, who invented index funds, called international exposure an overcomplication. Warren Buffett, an investor, thinks his wife should allocate 90% of her wealth to the s&p 500, America’s leading index, and 10% to Treasuries after his demise. This patriotism is an oddity. After all, Mr Mnuchin is right: it is not what asset-allocation models suggest. Diversification is perhaps the most important idea in modern finance. Its power was shown by Harry Markowitz, an economist who died on June 22nd, in the 1950s—when portfolio theory suggested investing in whichever stock held the highest present value of future dividends. Markowitz realised such analysis ignored risk. Andy’s apple farm might return 10% a year on average, but with wild swings. Barry the bootmaker posts a steady 7% a year. As long as the two firms’ fortunes are not in sync, a portfolio that contains a little of Andy and a little of Barry will offer better risk-adjusted returns than one holding shares in either firm. The insight won Markowitz a Nobel prize. It also laid the groundwork for Bogle’s index funds (which hold shares in a vast swathe of firms, not just a few) and modern academic finance. The capital-asset-pricing model, invented by William Sharpe, another economist, assumes all investors behave as Markowitz describes—maximising risk-adjusted returns—in the same way the theory of the firm assumes that companies maximise profits. Diversifying holds benefits at all levels of portfolio construction. Within stocks, investing in many firms is better than holding a few; across assets, holding stocks, bonds, real estate, commodities and so on is better than holding one or two assets. And holding these assets in many countries is preferable to just one. Americans love America, but nothing is more American than making money. Why, then, the home bias? Maybe owning foreign stocks is not necessary for geographic diversification. American firms are multinational. Growth tends to move in sync across the globe. There are risks that volatility in returns—Markowitz’s measure—cannot capture. No portfolio manager will be fired for buying American. If they invest in a country that seizes their assets, they will be shown the door.Yet the real reason for patriotism may be simpler: it has worked. American stocks have outperformed the rest of the world for three decades—an inordinately long time. Since 1990 America has on average returned 4.6 percentage points more per year than a broad index of rich-world stocks—an inordinately large premium. Although stocks everywhere moved in the same direction, which negated the benefits of diversification, America’s moved faster. The result is that, even though America is only 25% of the global economy, its stocks count for 60% of the global market capitalisation. This share has risen by 12 percentage points in the past decade. The only other country to have seen its share rise by more than a percentage point is China. Will the streak continue? America has deeper capital markets, stronger institutions and a bigger economy than anywhere else. Innovation flows freely—just look at the recent artificial-intelligence boom. Yet these traits are not new, meaning they should be priced in.A new paper by Cliff Asness and colleagues at aqr Capital Management sounds another note of caution. They adjust returns for changes in valuations, finding the vast majority of American outperformance is because valuations have soared. Of the 4.6% premium American stocks have commanded, some 3.4% exists because price-to-earnings ratios in America rose. Just 1.2% comes from fundamentals, like higher earnings.Outperformance owing to strong fundamentals might be repeatable. Winning “simply because people were willing to pay more for the same fundamentals”, as Mr Asness has written, is probably not. Shifting to foreign stocks after their long losing streak might feel risky. But the case for diversification is reasserting itself. America is the home of the brave. The country’s investors should remember that—and look abroad. ■ More

Publishers Clearing House agreed to settle a lawsuit with the Federal Trade Commission for $18.5 million, the agency said Monday.
The FTC alleged that PCH, well known for its sweepstakes, used “dark patterns” and other deceptive, unlawful business practices.
The agency also sued Amazon last week for using dark patterns relative to Prime subscriptions.
The PCH settlement money will be used to refund customers. It’s unclear how many are affected and when they might receive a refund.

The Publishers Clearing House offices in Jericho, New York on Jan. 30, 2019.
Bill Perlman/Newsday RM via Getty Images)

How ‘dark patterns’ can trap consumers

Sara Adair shows off the oversized check for $1 million her husband Mark received from the Publishers Clearing House Prize Patrol in South Boston, Massachusetts, on April 1, 2022.
Craig F. Walker/The Boston Globe via Getty Images

The FTC also sued Amazon last week for allegedly using “dark patterns” to trap people into recurring subscriptions for its Prime service without consent.  
Dark patterns are a “manipulative” and unlawful design trick, examples of which include pre-checked boxes, hard to find and read disclosures, and confusing cancellation policies, the FTC said. They pose “heightened risks” for consumers online, it added.

“This is our second dark pattern lawsuit over the last week,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said of the PCH lawsuit in a written statement. “Firms that continue to deploy deceptive design techniques are on notice.”

In the PCH case, the FTC claimed the company used “manipulative phrasing and website design” to convince consumers they needed to buy a product of some kind to enter the company’s sweepstakes or increase their odds of winning.
When it included disclaimers or clarifying information, the text was in small, light font and overlooked by consumers, the FTC claimed.
In addition to sweepstakes, PCH also sells merchandise and magazines. The FTC alleged the company charged hidden fees that averaged more than 40% of the product costs, and misled customers with deceptive language in email subject lines and statements in its privacy policy.

PCH agreed to settle charges, which claimed it had violated the FTC Act and CAN-SPAM Act. The company will pay $18.5 million to the FTC, which will refund impacted consumers. The company is also required to stop using deceptive language around sweepstakes and sales, and halt use of surprise fees, among other changes to its business practices.
More broadly, consumers may not realize they are being manipulated or misled by dark patterns since they are “covert or otherwise deceptive,” the FTC said. There are numerous examples, but some common ones consumers may confront online include phony customer endorsements (for example, the endorser may have been paid), fake low-stock messages (for example, there’s only one item left in stock) and a fake countdown clock (which pressures consumers to buy immediately, but resets after timing out). More