Insurance, Investments, Retirement

Term Life Insurance – Coverage & Limitations

2010-01-25T16:02:00.000-08:00

A term life insurance is life insurance that is available for a specified term or period. Generally a normal life insurance cover is for the whole life of the insured and exists throughout the life of the insured person. A short term life insurance cover is for a short period of time since it expires when the validity of the term expires. These types of life insurance covers are more affordable than a whole life insurance cover.

A short term life insurance cover is normally taken by persons who are expecting their children to graduate soon and be employed with remuneration.Â Once this happens the insurance policy expires and the person is not required to pay any further premium on his policy. This policy coverage does not require a medical exam except for answering a few health related questions. The policy is never thrust upon a person but is moved towards the prospective customer in the form of a no-obligation quote.Â A short term life insurance quote covers a number of aspects and based on what the nearest competitor is actively offering.Â Most companies providing such short term coverage also give an option to the insured to move the policy to whole life insurance coverage at the same pricing structure and again with no medical exams. The premium payments remain the same throughout. Short term life insurance policies can be had online and there are a number of insurance companies and agents who can offer the best premium values. Like any other insurance product, companies offer spot quotes for anyone wanting to understand the benefits of life insurance.

A quote is based on a few questions requiring answers from the prospective customers. Once the answers are given, the online system generates a quote that can be printed and kept for further use. Â A number of insurance company sites can be visited and similar quotes obtained. These quotes can be studied and then an informed decision can be taken as to which insurance company is offering the best options. Short term life insurance keeps the mind of the insurer free from worries about the future since he has been covered for life insurance till the maturity of the insurance policy. On maturity the insured person can choose to go in for another term or may opt out of the policy. Short term coverage is here to stay and so are the insurance companies who want to have a bigger share of the revenue cake that is now available.

Common Misconceptions And Mistakes When Buying Term Insurance

2010-01-15T13:29:00.000-08:00

Mistake: Failing to buy enough insurance while you are still healthy

Medical evidence is required when you buy life insurance. This evidence usually consists of a list of questions to elicit your medical history, a brief exam by a nurse, a blood and urine specimen and possibly a report from your doctor. If at a later date you decide that you really need more coverage, the process begins again. If your health has changed you may have to pay higher premiums.

MISCONCEPTION: Cheapest is the best.

That term policy premium might be cheap in year one. But most term policies renew at regular intervals (every 10,20 years) and the renewal premium rises at each interval because it reflects your new age.

In general, a 10 year term policy is the cheapest but by year 13 it is actually more expensive than buying Term 20. In other words, if you think you need coverage beyond 10 years, it is better to chose a 20 year term now.

MISTAKE: Failure to understand your options

So on each renewal the premium rises at each interval as stated above. But you do have options. Most term policies include a free option to convert your policy to permanent coverage before age 65. Converting to permanent coverage make sense especially if you have had a change in health. Even better, you will not require a medical to convert.

The types of permanent coverage eligible for conversion usually include whole life and universal life but these also vary by company. If you buy term coverage do so with a company that offers several options for the converted policy.

MISCONCEPTION: Buying through the internet is cheaper (no commissions to be paid)

Insurance comparison services on the internet say "buy direct and save money". The fact is, you cannot receive a discount in the price of life insurance by avoiding a life insurance agent. Sales charges and costs (such as commissions) are built into the premium that you pay for any life insurance policy that you buy. You will be paying those built-in charges regardless of where you buy the insurance. Finding and using a local life insurance agent will not cost you more than dealing with someone in another city or province by telephone or mail.

MISCONCEPTION: Association insurance has cheaper rates.

Associations include organizations such as universities, credit card companies and consumer groups like CAA. Sometimes association rates are cheaper but in many cases the rates go up every five years. Associations are like groups where several insureds are lumped together and pay a premium relative to the group being covered. Even where limited medical questions are asked, the premiums reflect the inability for the insurance company to fully assess individuals and the group like rates is charged. Association groups also may offer very limited conversion opportunities. Therefore if you cancel your credit card or if you are no longer a CAA member you coverage is cancelled.

As a smart consumer, obtain an individual insurance quote and compare the products for price, renewal options and conversion options.

MISTAKE: failure to understand that buying term is like renting life insurance.

Permanent (whole life) plans are more expensive in the early years but the premium stays the same for the duration of the contract. Because you pay more in the early years, you have some equity (cash value) in the policy. If you decide to cancel the contract you get the cash value back. However, you have no equity in a term policy. You pay premiums applicable to your age and this rate rises at every scheduled renewal. Because you are paying the true cost of coverage, there is no equity in the policy. If you cancel the coverage 10 years down the road because the renewal rate is too expensive, then you walk away. Bottom line, you are renting coverage briefly and won't have it when you need it or more importantly when your family needs it!

MISTAKE: paying your insurance premium on a monthly basis

The insurance company charges extra to those who pay monthly as they incur extra expenses to administer monthly payments. If you are able to pay the yearly premium it can save you up to 10%.

MISTAKE: paying extra for benefits (the frills) that you may never use

Waiver of Premium Benefit: the insurance company will waive the premiums if you become disabled. Few people understand that you must be totally disabled in order to be eligible. Also if you have term insurance the insurance company will usually pay only to age 65 while for some types of permanent insurance they will pay the premiums beyond age 65.

Guaranteed Insurability Option: In a nut shell you pay more now just in case you want to buy more insurance in the future without having to provide proof of health. It essentially insures your insurability. However, your premium for the new policy will be at current age rates. One more reason to buy all of the insurance that you need now and at your current age.

Accidental Death Benefit: This benefit guarantees that if you die in an accident, your beneficiary will receive an additional predetermined amount of money on top of the base policy amount Again, I'd say if you need accident coverage buy it rather than depending on an ADB rider hopefully supplementing the amount of coverage your family really needs now.

MISTAKE: buying coverage because no medical evidence is required.

This might sound appealing but in actual fact you will pay more for this insurance and the amount of coverage available will be limited. If you are healthy, take the time to prove it and pay premiums that truly reflect the good risk that you are.

MISCONCEPTION: the premium I see on the internet is what I get.

Insurance companies offer several classes of standard rates. Those in the top physical condition and with no risk factors will get the best rate. Premiums on the internet usually default to the top preferred category (the cheapest). However, keep in mind, only a certain percentage of applicants will actually qualify for the best rates.

MISCONCEPTION: waiting until you lose weight or stop smoking in order to get the best rate.

This is just procrastination. Yes, you may pay higher rates now but did you know that if you quit smoking or if you keep the pounds off for one year, you can apply to have your rate reassessed.
source: istockanalyst

Aging baby boomers will flock to life insurance that generates income

2010-01-11T13:07:00.000-08:00

Sales of immediate annuities and whole-life insurance policies will increase this year as boomers nearing retirement seek reliable income streams that aren't subject to the whims of the market.

“The benefits afforded in the immediate annuity from the cash flow perspective will become that much more attractive,” said Merry Mosbacher, a principal in the insurance marketing unit at Edward D. Jones & Co. LP. “It's an amount you can count on, and a way to look at necessary expenses and fund them with a predictable income stream.”

Financial advisers are also likely to take advantage of whole-life insurance as they seek a fixed-income alternative for clients that can fare well despite a low-interest-rate environment.

Eric D. Brotman, president of Brotman Financial Group Inc., especially likes “10-pay” whole-life contracts for clients under 45, treating the insurance as a fixed-income alternative. The firm manages $70 million.

“It's likely to outperform fixed-income markets for the foreseeable future, and it reduces out-of-pocket costs for term life insurance if you do a conversion [to permanent coverage] or a replacement,” he said.

Last fall, the Guardian Life Insurance Company of America released such a product, which requires that all premiums be paid within 10 years.

Another plus is that while clients are paying more annually for 10-pay whole life versus a traditional whole-life policy, they are paying for a shorter period of time.

The 10-pay policy allows young clients to maintain an investment portfolio that is a little heavier on equities, while stashing money in a tax-free vehicle and providing necessary insurance coverage, Mr. Brotman said.

Analysts point to a change in the mix of insurance products that advisers are recommending and the more widespread use of immediate annuities as an income-producing supplement in a client's portfolio.

“The transition for the insurance industry is having the annuity play that supporting yet critical role of guaranteeing income,” said Lisa Plotnick, associate director of Cerulli Associates Inc.

At the darkest point of the financial crisis in 2008, sales of variable annuities faltered as investors fled to the safety of fixed annuities. After robust sales through the first half of 2009, however, sales of fixed annuities began to slide again. In the third quarter, they were down 21% from the year-earlier period to $21.9 billion, according to data from Beacon Research Publications Inc.

The trend against fixed annuities is likely to continue.

“It's hard to believe they'll sell a lot of fixed annuities unless the market tanks again,” said Scott Stolz, president of Planning Corporation of America, the insurance general agency of Raymond James Financial Inc. “Interest rates are really low, and industrywide, I believe there will be a significant decline in 2010 versus 2009.”

In the world of variable annuities, experts predict a wave of new developments, including hybrid products, new ways to pay for living benefits and an emphasis on reaching out to registered investment advisers.

Also likely to emerge are designs that add aspects of fixed annuities to variable annuities, something similar to The Hartford Financial Services Group Inc.'s Personal Retirement Manager product, which was released in October. That product paired a variable annuity with an income component that can be funded separately.

“You're combining aspects of a deferred immediate annuity and putting it into a variable annuity wrapper,” Ms. Mosbacher said. “The market will drive similar innovations if advisers start to recommend this product for clients.”

In terms of hybrids, experts expect more insurers to look into pairing qualified long-term-care insurance riders with fixed annuities, due to a provision in the Pension Protection Act of 2006 that will allow tax-free LTC payouts from these combination products.

Frank O'Connor, director of insurance solutions at Morningstar Inc., thinks that more carriers will follow the lead of John Hancock Financial Services Inc. and release simplified, lower-cost variable annuities in an attempt to grab the attention of RIAs and others who don't often sell the product. The AnnuityNote, released last summer, was John Hancock's attempt at attracting advisers.

“The pieces are there for that to make sense: The demographics are right; the product serves a need in terms of income and lifestyle protection,” Mr. O'Connor said. “Gaining acceptance with advisers who historically had a knee-jerk negative reaction to variable annuities is tough, but we'll keep seeing the effort being made by companies to crack that code.”

On the asset management side for variable annuities, experts expect an increase in fund choices that combine passive and active investment styles to cut costs to investors and hedge for market risk.

“Insurance companies got into trouble last year because their hedging was index-based and active managers didn't hew close to it,” Mr. O'Connor said.

Combinations will also ratchet up active managers' control of investments to allow them to capture more gains amid the rising market, Ms. Plotnick said. But insurers will maintain the passive side for protection.

“I believe insurers will want to keep the passive component to offer that additional degree of risk management for them and lower cost for the contract holder,” she said.
source: investmentnews

In a World With Few Guarantees, NY Life Wants to Offer Some

2010-01-08T07:20:00.000-08:00

Investors have become more risk averse after getting slammed by the stock market and New York Life Insurance Company is trying to capitalize on this flight to safety.

On Wednesday, the company announced the launch of a print advertising campaign that highlights the financial benefits and long-term guarantees of its whole life insurance product. The first ad appeared in the December issues of Newsweek, Kiplinger’s, BusinessWeek and Forbes and the January issues of National Geographic and Smithsonian. Two additional ads will run in Woman’s Day, Parenting, Southern Living, and U.S. News & World Report as well as other publications in the coming months.

The ads will be in addition to New York Life’s existing national ad campaign. The company reported that it increased its 2009 advertising budget by 24% to reach more Americans.

“I find it interesting that previously the industry's ads were for variable annuities and now all of a sudden the advertising is being aimed at whole life insurance,” said Harold Evensky of Evensky & Katz Wealth Management. “It’s a sign of the times. The bloom is off the market, so insurance companies seem to be going back to their risk management core instead of the get-rich products. For many years the focus was on getting rich rather than keeping what you have so this is probably a healthy change.”

The first ad in the new series shows the cash value of a whole life policy from New York Life by displaying its average annual return next to that of the S&P 500 Index over the past decade, the company explained in a press release.

“Americans don’t want to gamble with their savings,” said Mark Pfaff, executive vice president in charge of U.S. Life and Agency, New York Life. “What we’re seeing is a thirst for guarantees in a world where few exist and we felt it was time to remind consumers that a long-standing product has just the guarantees they seek.”

Slow and steady gains are the name of the game for New York Life, one of the last triple-A, credit-rated life insurance companies left. (Read more at "New York Life: The Slow Road Beats the Competition") According to Kehrer-Limra, a financial services and research company, New York Life is the top seller of fixed annuities in the bank channel year-to-date. “That is one of the advantages of being a 164-year-old mutual fund company,” said Chris Blunt, executive vice president in charge of Retirement Income Security at New York Life, in a phone interview last month. “We don’t have to change. We just do our thing.”
source: financial-planning

Term Life Insurance Review

2010-01-08T07:18:00.000-08:00

Term life insurance provides protection for a specified period. Once that period ends, the policy is no longer in effect, unless the policyholder elects to pay additional premium to continue the policy. This is typically viewed as one of the best values in life insurance due to the high ratio of cost vs. benefits. If a policyholder dies during the policy term, the full death benefit is paid to a designated beneficiary. This type of policy retains no cash value throughout the term, and every dime of premium goes to the insurance company. This differs substantially from a whole life or universal life policy, which has no set term but is available to the insured for as long as they life and pay the premium. In a whole life policy, a portion of the premium is invested and this builds cash value that is available to the insured for withdrawal throughout the life of the policy.

There are various types of term life insurance, including level term insurance, Increasing and Decreasing Term Life Insurance/Term Life Assurance, Renewable Term Assurance, and Group Term Life Insurance.

Level term insurance is the most basic product that simply offers a fixed death benefit if the policyholder dies during the policy term. This product is usually sold in terms of 10, 20 or 30-year increments. Premiums throughout the term usually remain constant.

With increasing or decreasing term life insurance the death benefit may increase or decrease with the passage of time. Under an Increasing Term Insurance Policy the benefit amount increases each year, as does the premium. As the cost increases, the value of the coverage may become lower with the passage of time. Careful consideration must be given to the choice of an Increasing Term Insurance Policy. A Decreasing Term Insurance Policy is designed to reduce the benefits paid as the policy term moves forward. This coverage is primarily designed for mortgage protection, and is often referred to as a Mortgage Protection Insurance Policy. The underlying principle to this policy is that the coverage will pay off a loan, which will steadily decrease in value as time passes and payments are made.

Under a Renewable Term Insurance agreement, the policyholder maintains the right to renew the policy once the original term has ended, and can do so without having to submit to a physical examination by a doctor.

Group Term Life Insurance is offered by employers, professional associations, or clubs. With this type of insurance program, all candidates are underwritten using the same guidelines and this option may be good for those who have difficulty finding term life insurance on an individual basis.

When selecting a term life insurance product, a close examination must be made of a person’s cost of living, income, assets and liabilities. A qualified broker will be able to compile this information and make recommendations about which type of term policy is best suited for a particular customer. Term life insurance policies remain much less expensive than other forms of life insurance, and are a good value.
Source: webwire

Which types of insurance are worth getting, and which are rip-offs?

2010-01-08T07:14:00.000-08:00

Most of the time organisations are happy to give us journalists information, providing we credit them. On occasions, though, information is unreliable or hidden, leaving us with the daunting task of using our brains. Still, this gives us something to do whilst we wait for the story of the century to call us on the phone using a codename, leading to the inevitable fall of a president.

Today is one of those days where I've been forced to pass the time by thinking. I'm looking at which insurances are cost-effective. Some insurances are unbelievably poor value, so no one rushes to give us data on this. Even so, I've done my best to piece information together.

Below are ten insurance categories ranked by value for money. To order them, I'm using (or extrapolating) what's called the 'claims ratio'. This figure tells us how much of the money we pay in premiums is paid out in claims.
Insurance league table

Insurance league table
Rank
Insurance
Claims ratio

1
Life
160%

2
Private motor
84%

3
Accident & health
70%

4
Travel insurance not bought through travel operators
67%

5
Income protection & other
57%

6
Property
55%

7
Mobile phone insurance bought through your network
47%

8
Financial loss
41%

9
Travel insurance bought through travel operators
40%

10
PPI
19%

1. A clear winner

What does 160% mean for life insurance? It means that for every £1 you pay in premiums, insurers are paying out £1.60 in claims. You read that correctly!

Life insurance is currently too cheap. Insurers will have been boosted by the returns of the stock market last year. (It's typically by investing our premiums that life insurers make a profit.) However, we can't expect insurers to keep prices where they are. It's better not to wait if you need it now, because you can lock in the price for 20 years or more. You can compare quotes here.
Source: lovemoney

Widow presses her case in battle over life insurance

2010-01-08T07:10:00.000-08:00

Irma Johnson never really thought of herself as a crusader.

But the quiet widow from The Woodlands has been featured in a Michael Moore movie, watched her story retold on Good Morning America and is trying to let others know that their employers may have purchased secret insurance policies on their lives and stand to profit handsomely when they die.

The industry darkly refers to the policies as “dead peasant” life insurance.

And but for a post office error, Johnson might not have learned that when her husband, Dan Johnson, died of brain cancer in 2008, the bank that had fired him years earlier got $4.7 million in insurance proceeds on his life.

After accidentally destroying an envelope containing a check for nearly $1.6 million made out to Amegy Bank, the post office misdirected it to Johnson's home because Dan Johnson's name also was on the check.

Her attorney, Mike Myers of McClanahan Myers Espey in Houston, said she wasn't supposed to know that Amegy had the insurance policy on her husband, a project manager whose annual salary had been about $70,000.

“How could they be profiting off my husband?” Johnson asked recently during an interview with the Chronicle.

Myers filed a lawsuit on her behalf and forced the bank to reveal it bought policies in 2001 on more than 40 bankers, including coverage on Johnson — who had been diagnosed with terminal brain cancer about 18 months earlier and been out sick for several months.

Myers is trying to force Amegy to reveal the names of those other bankers. A hearing is scheduled for later this month, but in the meantime, Amegy officials are planning to meet with Johnson today to try to reach a settlement. She's asking for the net proceeds Amegy received, $3.8 million — the death benefit minus the premiums it paid.

Amegy Bank spokeswoman Leigh Akin said she can't comment specifically and referred all questions to the bank's formal response in the lawsuit.

In that document, the bank said it purchased life insurance policies on a group of vice presidents and other officers to offset the cost of providing employee benefits.

Amegy said taking out such policies is a “common practice among banks and other industries and is recognized and permitted by the applicable banking regulatory authorities.”

The policies were voluntary, the bank noted, and Dan Johnson understood that he would be covered indefinitely, even if he left the bank.

Banks have purchased hundreds of billions of dollars of “bank-owned life insurance” on the lives of their employees. The policies typically remain in effect years after an employee leaves the bank, Myers said.

He said banks receive significant tax advantages on the policies. They can write off the interest they pay on loans to buy the insurance, money invested in the policies grows tax-deferred and if the insured person dies, the death benefit is tax-free.

“It's a very significant investment return for a company in the 40 percent tax bracket,” said Myers, one of the lawyers who sued Wal-Mart Stores over its dead peasant policies and ended up settling for $15.4 million for surviving family members in Texas and Oklahoma. Cases in other states are still pending.

“There are probably a lot of former Amegy employees who are walking around right now who are worth millions of dollars dead to Amegy, and they don't know it,” Myers said.

U.S. Rep. Gene Green, D-Houston, charges that companies buy the policies solely for the tax advantage. He's been pushing a bill that would remove the incentive.

“If you don't have an insurable interest in someone, it's an investment,” he said, and should be subject to regular income tax.

Green also regularly files a bill that would force employers to disclose amounts and beneficiaries of such policies. But the legislation hasn't been a front-burner issue as Congress has wrestled with health care reform, a turbulent economy and other priorities.

Dan Johnson was diagnosed with cancer in 1999 and had to learn to speak and walk again after operations to remove his tumor. By 2001, he was getting warnings that his once-stellar job performance was suffering and was demoted to a nonsupervisory position, according to the lawsuit.

A few months before he was fired in 2001, Johnson was told that he was eligible to receive extra life insurance, Myers said. If he died or was disabled while working at the bank, his wife would receive $150,000.

What wasn't said in the consent form, according to Myers, was that the bank would receive 67 times Johnson's annual salary. That was material information Amergy should have disclosed to its terminally ill employee, Myers argues.

Myers said he also believes the consent form wasn't valid because the bank bought the policies before obtaining permission from Johnson, and that when it did, he was not of sound mind.

Amegy said in its filing that it believes Dan Johnson understood the consequence of his actions. It also said that he agreed not to sue in the future in exchange for settling a disability complaint he filed with the Equal Employment Opportunity Commission after his termination.

Irma Johnson, a mother of two young boys, said she was perplexed when she opened the envelope with the big check inside just before Christmas 2008 and called the insurance company. She quickly learned the policy wasn't meant for her. Nor did she ever receive the $150,000 portion that she thought she had coming to her.

Her story was featured last year in Capitalism: A Love Story, filmmaker Michael Moore's critical examination of U.S. economic practices.

What's especially upsetting, Johnson said, is that her husband couldn't buy life insurance to protect his own family once he found out about his cancer. Yet his employer could, she said.

“To let him go,” she said, shaking her head, “and then to cash in on him like that.”
source: chron

John Hancock Financial streamlines its operations

2010-01-07T13:34:00.000-08:00

John Hancock Financial has realigned its operations, reducing its primary operating life insurance companies from five to three.

The Boston, Mass.-based company merged John Hancock Life Insurance Co. and John Hancock Variable Life Insurance Co. into John Hancock Life Insurance Co. (U.S.A.). The realignment, which is subject to regulatory approval, took effect Dec. 31, 2009.

The realignment is designed to provide the company with more capital and a tax efficient structure, said John G. Vrysen, senior vice president at John Hancock Financial, in a statement. It also will simplify the company’s financial reporting, and “achieve other synergistic benefits to support its future growth, as well as the needs of its customers and distributors going forward,” Vrysen said.

A key change is that John Hancock Life Insurance Co (U.S.A.) will serve as its flagship company, with total assets of $195.6 billion, as of Sept. 30, 2009. The company operates in 49 states, selling all products, except group long-term care insurance. A separate entity, John Hancock Life Insurance Co. of New York, sells all products, except LTC coverage, in New York only. John Hancock Life & Health Insurance Company, licensed in all 50 states, issues group long-term care insurance in all states, as well as individual LTC policies in New York.

“We are pleased to have completed this important initiative and move forward with three companies fully aligned with how we serve and support our valued customers and distributors,” Vrysen said.

John Hancock’s realignment also involved the Dec. 31, 2009, merger of several holding company legal entities. Specifically, John Hancock Financial Services was merged into The Manufacturers Investment Corp. and Manulife Holdings (Delaware) LLC was merged into John Hancock Holdings (Delaware) LLC, company officials said.

The realignment had no impact on the terms or conditions of in-force policies, contracts or certificates. The location of the company’s offices and operations, as well as employment levels, have also been unaffected by the realignment.

AIG Unit Owes $517 Million, Insurance Regulator Says

2010-01-07T13:29:00.000-08:00

Jan. 6 (Bloomberg) -- An American International Group Inc. unit must pay reinsurance of more than $517 million to workers’ compensation insurers in liquidation after losing its appeal of an arbitration award, a California regulator said.

AIG’s U.S. Life Insurance Co. was reinsurer for five California workers’ compensation insurance companies that were liquidated in 2000, state Insurance Commissioner Steve Poizner said today in an e-mailed statement. U.S. Life said the insurers didn’t disclose pertinent information about the adequacy of its reserves for claims payments, Poizner said.

The U.S. Court of Appeals in San Francisco on Jan. 4 upheld the award against U.S. Life. While the arbitration panel used an unusual process of meeting with workers’ compensation experts it retained in deciding the case, the reinsurer received a fair hearing and the panel didn’t violate federal arbitration rules, the appeals court said in its ruling.

“Upholding this award means that hundreds of millions of dollars will be available to pay the claims of workers injured on the job through the California Guarantee Association and other guarantee associations,” Poizner said in the statement.

A federal court entered a judgment of $443 million against U.S. Life in 2007 when it challenged the arbitration award. The judgment now totals more than $517 million with interest included, according to Poizner.

Repaying Associations

Once money is collected from U.S. Life or from a $600 million bond that AIG posted as security, it will be used to repay the guarantee associations, Poizner said.

Mark Herr, a spokesman for New York-based AIG, had no immediate comment. AIG, once the world’s largest insurer, received a $182.3 billion bail-out package in 2008 from the U.S. government after losses tied to housing markets.

U.S. Life can seek a review of the ruling or ask that a larger panel of appeals court judges rehear the case, Poizner said.

The case is U.S. Life v Superior National Insurance Co., 07-55938, 9th U.S. Circuit Court of Appeals (San Francisco).
source: Business Week / bloomberg

Questions to Ask Before You Buy Life Insurance

2010-01-06T10:27:00.000-08:00

1. What’s the purpose of my life insurance

Are you serious? The purpose of my life insurance? Isn’t it to pay someone when I die? Sort of.

What I mean by purpose of life insurance is what exactlly are you using it for. Here’s some examples:

* To provide my spouse with income for life
* To create funds for my children to go to college
* To pay off my mortgage
* To pay estate taxes and minimize the erosion of my estate
* To pay off other debt
* To bury me

As you can see there are multiple purposes for your life insurance and you may have more than one.

It’s vital to understand why you are buying the life insurance in the first place.

2. How much insurance do I currently have

You might have a million dollars through your group insurance at work and think that you’re good to go.

Wait! Not so fast – think about it for a second. If that’s the only insurance you have what about if you lost your job, quit or retired? What happens to all that insurance?

In most cases it disappears – so do you really have that coverage?

Yes and no.

You do have coverage, but it’s temporary. So you need to evaluate how much you have and what kind of insurance you have as well – term, permament or group.

3. How much life insurance do I need

There are countless calculator’s on the web you can use to determine your life insurance needs.

The amount of insurance you need will vary depending upon what your purpose for the insurance is.

If you are trying to provide for your spouse for the next 20 years then you’ll probably need more than someone only worried about having enough to bury themselves and pay off some outstanding liabilities.

There’s no hard or fast rule regarding how much you need, but here’s a handy guide from LIFE (Life and Health Insurance Foundation for Education):

4. What kind of life insurance policy should I buy?

Yes, Suze Orman will tell you to only by term insurance. Others will tell you to only buy permanent (also known as whole life, universal life or variable universal life).

But what kind do you really need?

The answer is it depends. It depends on the purpose for your insurance and how long you want it to last you.

If you’re concerned about using life insurance for estate planning purposes you probably need something more than term insurance.

If you’re only concerned about protecting your life for 20 years until the kids go off to college then a term product is proably right for you.

Don’t let people tell you that only one type of insurance is right for everyone. There is no one size fits all!

The bottom line with life insurance

Identify the purpose of the life insurance, do your homework, shop around and do what’s best for your situation.
Source: redeemingriches

Altering the course of retirement savings

2010-01-05T11:47:00.000-08:00

Altering the course of retirement savings

Working Americans received a significant retirement-saving option when the Roth IRA went into effect on Jan. 1, 1998.

For many savers who couldn’t receive a tax-advantage benefit for contributing to an IRA account, it provided a breakthrough, after-tax savings option as investors began preparing for retirement.

In 2010, thanks to a provision of the Tax Increase Prevention and Reconciliation Act of 2005, many retirement savers will face important changes regarding Roth conversions and the potential tax consequences. Because of the changes, right now and during calendar year 2010, it is very important for IRA contributors or those taking a distribution from a qualified retirement plan to prepare for their potential impacts.

What do investors need to know about converting a traditional IRA or retirement plan distribution into a Roth IRA and the potential tax consequences?

First and foremost, more savers will be able to convert traditional IRAs to Roth IRAs because of liberalized conversion rules. Before Jan. 1, 2010, those in the higher income brackets were excluded from being able to convert traditional IRAs or qualified plan assets into a Roth IRA. Because of the earnings limit, many investors couldn’t take advantage of paying the taxes due on a traditional IRA or qualified plan assets now and allow after-tax dollars to accumulate tax free. That all went away as of Jan. 1.

There no longer will be the $100,000 modified adjusted gross income limit for conversion eligibility. All income levels now will be able to convert traditional IRAs and qualified plan assets into a Roth IRAs and take tax advantage on the growth of the after-tax dollars on a tax-free basis.

The joint-filing requirement for married individuals also will be eliminated, allowing married couples filing separate tax returns as much latitude in converting traditional IRAs to Roth IRAs.

What are the implications?

Probably the most important short-term change affects individuals who convert traditional IRAs or pre-tax qualified plan assets into Roth IRAs during calendar year 2010 by providing special tax treatment for those conversions. Individuals will have the ability to spread the taxable amount on their conversion dollars, pro rata, over 2011 and 2012. Individuals alternatively may choose to include the taxable amount as income for all of calendar year 2010. Note that individuals who convert before calendar year 2010 and after Dec. 31, 2010, must include their taxable amount in their income in the year of the conversion.

What are the tax implications for savers who decide to make a conversion? The following should be considered when determining whether a Roth IRA conversion is the right move:

• When a traditional IRA or pre-tax qualified plan asset is converted to a Roth IRA, the individual saver must pay taxes on any pre-tax assets (including contributions and gains) at the time of the conversion.

• If the traditional IRA or qualified plan asset being converted contains both pre-tax and after-tax dollars, the IRS requires the saver to treat the conversion amount as consisting of a pro rata share of pre-tax and after-tax dollars.

• IRS Form 8606 (nondeductible IRAs) must be completed by the individual saver to calculate the taxable portion of the traditional IRA converted to the Roth IRA. Individuals should seek the assistance of a tax professional to complete IRS Form 8606 and calculate the applicable tax liability.

Converting a traditional 401(k) to a Roth IRA does not require the use IRS Form 8606 to determine the taxable portion of the conversion, but is subject to the basis recovery rules applicable to qualified retirement plans for post-1986, after-tax assets. The plan administrator is responsible for reporting the taxable and nontaxable portion of a qualified plan-to-Roth IRA conversion on IRS Form 1099-R.

While converting a traditional IRA to a Roth appears to be a terrific opportunity for American taxpayers, determining the taxable portion of the converting assets can be quite complicated. Your tax bracket, time to retirement, and ability to pay taxes on the conversion assets all must be considered. Individuals should consult their tax professionals for assistance. No one wants to pay more in taxes than required, but one also doesn’t want to hear a knock at the door should the IRS determine you didn’t pay enough.
Source: Dolan Media Newswires

Planning for Retirement

2009-12-31T05:43:00.000-08:00

It’s never too late to begin saving for retirement. Many people think that if they are close to retiring, then it is too late to save. This is not true. It doesn’t matter how old you are, you can always begin to save money for your retirement. The following tips will help you organize your finances before you leave the work force.

It is typically better to begin saving for retirement in your younger years. This will allow your contributions to grow and will provide you with more money when your reach the age of retirement. There is no way to know what you will need when you retire. Even if you feel confident about your retirement, chances are you will not have saved enough money to support your lifestyle. That is why it is so important to begin contributing to a retirement plan as early as possible. A recent study revealed that 60% of people in their 50s and 60s have experienced a job loss or an illness. This prevents them from earning money, thus preventing them from saving for retirement.

While you may think you have saved enough, here are some statistics that may make you think otherwise. More than 50% of workers in their 30s have retirement plans that have a value of $17,000. When they reach their 40s, 60% or workers have accounts with a $40,000 value. After the age of 55, most people have less than $100,000 in a retirement account. These savings are far from adequate, especially when you consider that you will be withdrawing 4 to 5% of the amount each year when you retire. To make matters worse, most retired individuals receive most of their income from Social Security, which averages at $1,150 per month. That is barely enough to live on.

It may seem like those retirement years are far in the distance, but it is so important to begin saving as soon as you can. It is recommended that the average worker should save at least 10% of their annual income for retirement. Most retirees will require 75% of what they were making in the workforce in order to continue living in the same manner. Young workers cannot rely on Social Security, so saving now is imperative!

There are many ways to save for retirement. Most employers will offer some type of retirement plan. Typically, it is a 401(k) plan. These will allow you to save around $16,500 per year. The amount increases annually and is based on your pre-tax income. If you are over the age of 55, you can save up to $22,000 a year with a 401(k). The advantage is that you will not have to pay taxes on the money until you begin to withdraw from the account.

IRA’s are another way to save for retirement. The contribution limits are much lower with these. You can only contribute $5,000 per year. If you are over 55, the amount is raised to $6,000 yearly. Roth IRAs and Roth 401(k) plans are also available. These plans offer you the ability to save income that has already been taxed. This is a huge benefit later because you will be able to withdraw from the accounts without having to pay any taxes.

Even though you make contributions to a retirement plan that does not mean that is all you need to do. It is important to review your accounts each year. You can reallocate your investments to earn more money. Another thing to keep in mind when planning for retirement is to plan for the inevitable. Make sure to have a current list of all your assets. This will be a huge help if you should die. Always keep your list of beneficiaries current and have a living and traditional will.

Many of us have trouble looking ahead and planning for retirement. If you are in your sixties, it is time to focus on reality. You will be retiring soon and you want to make that transition as smooth as possible. It is advised to pick a date for retirement. This will help you determine if you will have the finances you will need. Make sure you know where you will be living and prepare a possible budget and make sure to put extra aside for health care.

If you have not yet begun to save and plan for retirement, don’t panic. It’s never too late. Situations can change daily and you never know what could happen. If possible, continue to work past the retirement age. This will allow you to continue to save for the day you do retire.
source: investmentguideblog.com

Five Long-Term Care Insurance Myths

2009-12-31T05:34:00.000-08:00

While the number of long-term care policies being sold is rising, the number of people who are properly insured is still extremely low. In some instances, its due to misunderstanding and myth. The following are five myths surrounding Long Term Care Insurance:

"My Family Will Take Care of Me"

This would have been more likely years ago, when adult children tended to live closer to their parents and women stayed at home. In today's society, children may live across the country or, further still, across continents. Obviously, many women are now active in the workforce, with less time to fulfill the traditional caregiver role. Even if this is a feasible solution, many seniors prefer to have control over their care and don't want to burden their families.

"Provincial Health Care Plans Will Cover My Bills"

Provincial health have experienced major cutbacks in recent years The last federal budget was focused on tax cuts, not health care, forcing provinces like BC to cut over 6,000 surgeries. Worse, the trend seems to be on the rise.

"Long-term Care Insurance is too expensive"

Long-term Care Insurance premiums are lower the younger you are when you buy. So, it makes sense to purchase coverage when you are younger and when premiums are more affordable. The monthly premium if you purchase coverage at age 45 can be as low as $50 a month. Whereas, the same plan for a 55-year-old would be over a $100 a month and for a 65-year-old would be over $200 a month.

"Long-term Care Is to Hard to Qualify For"

Underwriting requirements for long-term Care Insurance are very different from life or Disability Insurance. In most instances, coverage can be obtained without having to complete medical tests.

"I'm Too Young"

A lot of us think that only senior citizens need to worry about Long-term Care, so we put off preparing for the possibility. The fact is that accidents or illnesses can strike at any age.

People of all ages can develop serious conditions that require them to need assistance with routine daily activities for an extended period of time and the cost of care can be significant. Long-term Care Insurance can help cover the cost of the care associated with these illnesses and injuries while protecting your assets.
source: lsminsurance.ca

Long-Term Care Proposal Triggers Cost, Sustainability Concerns

2009-12-31T05:32:00.000-08:00

"Embedded in sweeping health legislation passed by the House and being debated on the Senate floor is a major new federal insurance program," called the Community Living Assistance Services and Supports Act, or Class Act, The New York Times reports. The program, which is to be financed with premiums paid through voluntary payroll deductions, would provide cash benefits to people with cognitive impairments or those who could not perform two or three of the "activities of daily living," such as eating, bathing or dressing. "Advocates for older Americans and people with disabilities see the program as a long-overdue effort to address needs that will explode as baby boomers age. It is meant for people with severe disabilities who want to live in the community, though the benefits could also be used to help pay for nursing home care or assisted living. But critics say that the program is unsustainable and that it could ultimately create serious fiscal problems for the government" (Pear, 12/13).

The National Journal reports that the program may be in jeopardy: "Senate Majority Leader Harry Reid, D-Nev., last week cleared the first -- but not the last -- major hurdle to creating a government-run long-term-care insurance program along the lines of what Sen. Edward Kennedy championed until his death in August. Although Reid was able to defeat a Republican attempt on December 4 to strip the proposal from the health care reform bill, the vote was close, and 11 Democrats plus Sen. Joe Lieberman, ID-Conn., who caucuses with the party, sided with Republicans. ..."

"Many older people who require long-term care end up on Medicaid, the federal-state health care program for the poor. Medicaid pays about 40 percent of the cost of long-term care in the United States, which in 2006 totaled $178 billion. Federal and state budgets are being strained by the expenditures" (Serafini, 12/12).
Source: medicalnewstoday.com

Eliminating debt, assessing spending habits are essential to secure retirement

2009-12-31T05:30:00.000-08:00

Q. My husband and I will soon retire. We are in our 60s. We have no debt. We will have adequate income from Social Security and pensions. But after consulting with different advisers about our portfolio - a 401(k) that didn’t lose much, IRAs, and CDs - we have come away with as many opinions as there are advisers.

There seems to be no consensus on what to do with investments in order to have an adequate income in the future - except to diversify. To some that means one thing, to others, another. Can you offer any broad guidelines to follow when planning one’s retirement future?

K.D., Grand Prairie, Texas

A. Here are the essentials for a secure retirement:

■ Eliminate all debt. You do this because it takes more than $1,000 of retirement asset earnings to service $1,000 of debt. It is important to eliminate debt if the bulk of your retirement savings is in tax-deferred qualified plans. Just because you are credit-worthy doesn’t mean borrowing money is a good thing to do.

■ Take careful measure of your spending priorities. Many retirees never think about their de facto commitments. Many are overcommitted to real estate. They would benefit from a serious reconsideration of the size of house they live in - and whether they should own or rent. Downsizing or renting is likely to provide an increase in discretionary spending power.

■ Nail down some secure monthly income. This was easy until recently because many people retired with Social Security, a company pension, and retirement savings. Today, an increasing number of retirees don’t have pensions. You can create a personal pension by converting a portion of your savings into an individual life annuity or a joint and survivor life annuity. The income from the annuity is high enough that you won’t have to draw as heavily on your remaining assets.

■ Minimize all investment expenses. You can minimize investment expenses easily by becoming an index fund investor. With investment products that have expenses of 3 percent a year, the self-directed alternative can liberate the entire dividend and interest yield of a diversified portfolio.

■ Diversify across asset classes. Start with domestic fixed-income, expand to domestic stocks, and then branch out to international stocks, international fixed-income, REITs, energy and emerging markets. This can all be done at minimal expense by building portfolios such as my Couch Potato Building Block portfolios, Bill Shultheis’s “Coffee House portfolio,’’ or the index portfolios suggested in William J. Bernstein’s “The Investor’s Manifesto.’’

■ Remember that smart spending is as valuable as smart investing. Spend your income carefully. Every $1,000 not spent works like having an additional $25,000 in retirement savings, more if you consider taxes. Many retirees, for instance, have an opportunity for savings by replacing expensive prescription drugs with generics that do the same thing. This is not a small opportunity.

Source: Boston.com

Small business owners aren’t prepared for retirement

2009-12-30T15:44:00.000-08:00

Small business owners may be great at planning and running a company. But they lack a lot of foresight when it comes to their retirement.

According to a new study, 62% of small business owners have a financial plan for their retirement, while one-third have none. (5% are “unsure”, believe it or not). That’s according to the Discover Small Business Watch survey for December. Also 63% said it is “somewhat or very likely” they will have enough saved to last through their retirement, while 32% responded it is “not very likely” or “not at all likely”.

So, a lot of small business owners aren’t saving for retirement adequately. And, of those who are, the recession has not been kind to their savings accounts. Close to 75% said the recession has reduced their retirement savings. Specifically, 60% saw a decrease in savings of 20% or more. (One-quarter had their savings drop 30% to 50%).

Of course, another way to look at it is, they’re doing better than the public at large. About 40% of Americans aren’t saving for retirement, according to a recent Charles Schwab survey.

One reason for this lack of adequate planning is probably that many small business owners think their companies will serve as their nest egg. Which is probably a correct assumption, if they can sell it at the right price. But, that is far from a shoe-in. I hear of many small business owners at the moment who have shelved plans to sell their firms because they know they’ll get a rock bottom price in today’s market.

Then, there are a fair number who figure they’ll keep on working past retirement age. Some 27% of respondents in the survey said they plan to retire between 65 and 70 or after age 70. Let’s hope they do. Because they won’t have much to live on otherwise.

Source: True/Slant

Few Baby Boomers Ready for Retirement

2009-12-30T15:38:00.000-08:00

Baby boomers born between the end of the Korean War in 1955 and 1963 are beginning to reach retirement age, but though the first batch turn 55 next year, few are financially prepared for retirement.

According to the National Pension Corporation on Dec. 15, one in two baby boomers may not get national pension benefits. Only 3.5 million or 47.7 percent of the baby boomers aged between 46 and 54 are eligible for pension benefits. The figure reaches 61.8 percent if those exempt from monthly payments are taken into consideration.

This means nearly half the baby boomers will face retirement without national pension benefits, even considering that 4-5 percent of them are likely subscribers to other pension schemes, such as the government, private school teachers' or military pension programs.

Nor do the boomers have fortunes stashed away. Experts speculate that they will become poor the moment they retire as they have not amassed no assets for their old age.

According to 2009 figures released by Statistics Korea, those aged between 40 and 49 held net assets worth a mere W302.6 million (US$1=W1,171) on average as of 2006. Of the amount, real estate is worth W226 million, meaning that most of them have only a house as property and hold financial assets of a mere W67.43 million in savings, trust funds, or insurance policies. By contrast, they are indebted for W49.43 million on average. If they get severance pay of W67.48 million, they will end up with financial assets worth W85.48 million after their debts are paid off.

How much money they will need after retirement varies significantly depending on calculations by different organizations. In a report in 2006, the LG Economic Research Institute speculated that those aged between their 30s and 50s would need at least W400-500 million at the time of their retirement if they want to spend their old age without much difficulty.

The baby boomers are also top targets for corporate restructuring. "Many of the baby boomers retire when they turn around 45," said Yoon Suk-myung at the Korea Institute for Health and Social Affairs. "Some of those who have survived competition remain on the job, but many retirees have lost all their retirement funds after starting a business on their own and live in straitened circumstances."

The 7.12 million baby boomers account for 14.6 percent of the population. Those who will retire at age 55 between 2010 and 2018 will account for 19 percent of all wage-earning workers, the Ministry for Health, Welfare and Family Affairs expects. Experts say baby boomers are unprepared for retirement due to the double burden of taking care of their parents and children.

Han Gyoung-hae, a professor of family studies at Seoul National University, said, "Baby boomers have had no extra energy to prepare for their own retirement because they've thought of retirement vaguely as a future event and they still have to spend money for their families. In these circumstances, they now face retirement earlier than they expected due to changes in the labor market."

Source: The Chosun Ilbo

Do you need Long Term Care Insurance?

2009-12-30T15:35:00.000-08:00

What are the reasons for buying long term care insurance? When the time comes for paying for your long term care needs, you may end up spending your savings and then relying on Medicaid for assistance.

Buying Long Term Care Insurance will help you keep your independence and dignity and allow you to make choices. When the time comes for paying for your long term care needs, you may end up spending your savings and then relying on Medicaid for assistance. Medicaid typically pays for a semi-private room in a nursing home. You must know that not all nursing homes take Medicaid. In many states it is not easy to get Medicaid to cover home care or pay for assisted living. Many people would love to spend the rest of their days at home, but with Medicaid may not be able to. Insurance allows you to have a choice of where you want to live - at your own home or in nursing facility.

If you are married and you have a need for long term care, your spouse may have need to pay for a coming or live-in caregiver. The cost is likely to come from your combined income and assets. This way your spouse may be left with minimal funds in the future. Long Term Insurance solves this problem by allowing the healthy spouse to keep the assets.

In case your children are able to take care of you when the time comes that you need care, insurance will help them do that. Probably neither you nor your children have thought of the prospects of moving you from place to place, changing your dirty diapers, cleaning up after "accidents" in the bathroom or helping you with bathing and dressing. Insurance will pay for caregivers to help your children with these needs.

In case you are single and a need for long term care comes, insurance can pay for and coordinate that care. With insurance ,you won't have to feel you would be a burden for family or friends.

Source: ChoiceEldercare News

Difference Between Term, Whole, and Universal Insurance Plans

2009-12-29T09:15:00.000-08:00

There are so many different types of life insurance policies. How does one know what the best policy is for their personal needs?

Term life insurance, whole life insurance, and universal life insurance — what are the nuances of each of these types of life insurance policies? Understanding the difference between these plans can help one compare options when buying life insurance. Also, one can find more in depth life insurance policy information on a particular type when they understand the basics, and have already decided that term, whole, or universal life insurance is right for them.

Information on Term Life Insurance

Term life insurance is generally the simplest and least expensive type of life insurance policy. It is life insurance for a given period of time. It however, offers the least in terms of long-term benefits and investment opportunities. In fact, a term life insurance is not a financial investment at all, but an investment in security and peace of mind — if a policyholder dies within the term of the life insurance policy, the face value will be awarded to the beneficiaries. On the other hand, if the policyholder does not die, once the term is over, there is no financial gain.

Term life insurance is often a fair option for people on a budget who only need insurance for one, five, ten, or even twenty years. The premiums are extremely low, and in general they do not increase during the term. Upon renewal, term life insurance premiums can increase dramatically however depending on the age of the policy holder.

Information on Whole Life Insurance

Whole life insurance is a more stable option as it provides life insurance coverage for the policyholder's entire life. There are different possible options within this type of life insurance, with varying methods of investment, and timing of payments. Overall, whole life insurance is a much more expensive and somewhat complicated alternative to term life insurance policies, but it provides a savings investment as well as secure life insurance coverage.

With a whole life insurance policy, a huge lump sum can be paid at one time, providing permanent coverage, and more than a substantial financial investment. Premiums can be paid every year, or up until a certain age. Also, some life insurance companies will allow a dividend payout option, known as participating whole life insurance, where dividends may be awarded to the policy holder, increasing the cash value of the policy. There are a number of different options within whole life insurance policies, but in general, whole life insurance is for people who require permanent coverage and can comfortably afford it. The investment side of whole life insurance is a way to increase savings and financial options in the future in exchange for paying higher premiums.

Information on Universal Life Insurance

Universal life insurance policies are similar to whole life insurance policies in that they are a combined protection and investment plan. Universal life insurance however is much more flexible. Life insurance companies provide this type of coverage to give prospective clients more choices and opportunities depending on personal needs and financial situations.

With universal life insurance, the policyholder decides the amount of money paid into investments over the price of the premium. As cash value accrues in the investment portion of the life insurance policy, the insured has the option of using interest earned to pay for part of the cost of future premiums, or increase the value of the life insurance policy. In a variable universal life insurance policy, there are different investment methods available for the policyholder to choose between, instead of the life insurance company deciding how the money is invested.
Tips for Choosing Between Different Types of Life Insurance Policies

When making a decision between the different types of life insurance policies, it is important to evaluate personal insurance needs and financial goals. Is life insurance needed only until the kids are finished with college? Then maybe an inexpensive term life insurance plan is a good idea. Is the goal to use life insurance as one of many options for building up a large nest egg for retirement or for estate planning, and substantial premiums are not a problem? Then perhaps a participating whole life insurance plan would work well.

Buying life insurance is a big decision, and potentially a long-term financial commitment. Evaluate present and future financial goals, individual insurance needs, and then start comparing life insurance policy quotes, and talk to agents. Once expectations and limits are established purchasing insurance is as simple as finding what one is looking for, and reading the fine print. With so many options between the different types of life insurance, the perfect policy for everyone is there to be found.

Source: suite101

Life Insurance Reality Check – Do you have enough?

2009-12-29T09:07:00.000-08:00

Life insurance is an important component of your financial planning. If you have a young family, it could actually be the most important element of their security. A lot of people do not have affordable life insurance yet. Among those who already have life insurance, a vast majority does not have enough coverage. Could you be one of them?

What kind of insurance is best?

Life insurance policies come in two basic variants – whole life and term life insurance. Whole life insurance offers death benefits plus cash value on account of which premiums are higher. On the other hand term insurance is affordable because it only concentrates on death benefits for which you pay cheaper premiums. When you are young with a lifetime of loans, expenses and mortgage payments to be paid, children’s’ education and upbringing to look after, you must consider the more affordable term life insurance. Since a term life policy can help you focus on just the death benefits, it makes sense to understand it better, and work out the best coverage amount possible.

What kind of expenses and financial needs should a term life policy cover?

On the event of your death, the death benefit of your term life insurance policy should be able to have your family pay off your funeral expenses and invest the rest so that they can lead a comfortable life much like the one you provide for them now.

* Funeral expenses can work out to be as high as $5,000-$12,000 currently, so that’s why you will need to factor that in to your life insurance planning.

* Next, your death benefit should replace your current income, so that your family can carry on with life without having to make major lifestyle changes. Remember to take into account inflation and rising costs.

* Thirdly, factor in your debts – unpaid mortgage, credit cards and loans could eat into the death benefit amount, leaving your family with very little to take care of other expenses.

* If you were to die, your family would surely have additional expenses to replace the services you used to take care of yourself. If you handle the accounts on your own, or take care of the plumbing yourself, your family may need to hire the services of an accountant, or a plumber. If your spouse is currently a stay at home parent, your family may need the services of a nanny in case he or she decides to start working to supplement their income. It’s the little details that will help you work out your family’s expense requirements better.

* If your kids are young, a part of the death benefit will have to be invested to pay for their college education.

* Consider any hidden income that you may be currently earning, but which would be lost at death. Examples are your perks, your employer’s contributions to your 401(k) plan, health insurance and your retirement fund contributions. Too many people overlook factoring this into their calculations while in actuality they could easily add up to $10,000-$12,000.

How to calculate the coverage amount

There are conflicting views on how to arrive at the perfect coverage amount for your life. Here’s an alarming statistic. The average American has about $170,000 in life insurance coverage. That seems like a lot, but it is only about four times of the average annual income in the U.S. So it’s going to tide your family over for four years, but remember that you’re going to be dead a lot longer than four years. So how do you calculate the ideal coverage amount?

The rule of thumb in the insurance industry says that your coverage should be 10 to 20 times your annual income. However, like we discussed earlier, annual income is not the only factor that should be considered when determining your needs. How much term life insurance you need is a highly individual figure. But if you know exactly what your death benefits should help pay for, then you definitely won’t make the mistake of under-insuring yourself. So the long and short of the ‘how much is enough’ dilemma is that the death benefit you provide your family should be more than your net worth. Use the help of online Life Insurance Tools such as a Life Insurance Needs Calculator to help you arrive at an accurate coverage for your personal situation. Then you can apply for term life insurance quotes.

How often should your policy be reviewed?

If you already own a term insurance policy, that’s not enough reason to think that you have enough death benefit. If you have failed to consider the expenses and the loss of income sources that may follow your death, you will need to review your policy.

Even if you have taken everything into consideration, experts recommend that you review your policy whenever there is a life changing event such as the arrival of a baby, taking in an additional family member, changing jobs, looking after ailing parents, or the loss of a spouse. These events will increase your expenditure.

In times of recession the value your investments drastically dip, while your life insurance benefits remain the same. If you were to die in the next two years, your investments would have accrued a lower income than expected due to the present economic crunch. Have you factored this into your life insurance plan? You may need to review your term policy especially during economic downturns.

Conclusion

The best way to review your term insurance policy or work out the death benefits on a fresh term life policy is to consult with an unbiased insurance advisor, preferably one who represents a large number of life insurance companies. The advisor will ask you in-depth questions on your finances and help you arrive at term life quotes that are just right for your family’s needs.

Source: AccuQuote

Can These Retirements Be Saved?

2009-12-29T05:13:00.000-08:00

The WSJ invited readers to tell about the cracks in their nest eggs. Here's a look at several who asked for 'retirement makeovers'—and what the experts recommend.

The WSJ invited readers to share their questions and concerns about their financial future. The responses were painful: Individuals and couples who had worked diligently for decades to prepare for later life now find themselves asking how to start over.

WSJ paired several respondents with financial planners from across the country. Each individual or couple received two assessments. The subjects provided a good look at their income, holdings, expenses and goals; the experts, in turn, recommended investments and steps that our readers hadn't considered.

Donna McCann
Unemployed at 61

BACKGROUND: After getting divorced two decades ago, Ms. McCann worked her way up from drugstore technician to director of a pharmaceutical-billing department wrangling reimbursements for drugs supplied to nursing homes and managing a staff of six. She lost her job in September 2008 following a company buyout. She recently completed a few software and accounting classes.

CHALLENGE: If Ms. McCann hasn't landed a job by April, when she turns 62, can she afford to quit looking for work, and instead draw her income from Social Security and investments? What if she leaves Metuchen, N.J., and moves to North Carolina, where living expenses are generally lower? Meanwhile, how can she jump-start her job search?

BALANCE SHEET: Ms. McCann owes $25,000 on her mortgage and thinks she could sell her house for $250,000. Before she lost her job, her income was $78,000 a year. She has saved about $190,000 in individual retirement accounts and other investments and has about $45,000 in cash. She expects her monthly expenses in New Jersey to be about $3,100 a month; in North Carolina, $1,950. If she starts collecting Social Security at age 62, she expects to get about $1,100 a month.

ADVICE: Moving south is Ms. McCann's best bet. Retiring in New Jersey with her existing assets at age 62 "is simply not feasible," says Cary Carbonaro, a certified financial planner with offices in Huntington, N.Y., and Clermont, Fla. If Ms. McCann can sell her home for $250,000, she can buy a home for a bit more than $100,000 in North Carolina and add $100,000 to her savings after paying off her current mortgage. Then, if she invests that sum at a 4% average rate of return, her monthly income would get a $333 boost.

Even if Ms. McCann lands a job in New Jersey in the same pay range as before and works until she turns 66, she may want to move south upon retirement, Ms. Carbonaro adds. That's because Ms. McCann would still be lacking about $800 a month to meet her expenses, using a relatively high 6% annual withdrawal rate from her investments.

Ms. McCann also needs to simplify her investments. Her five retirement accounts and two brokerage accounts are too much to handle, says Dan Casey, a senior asset manager with Bridgeriver Advisors LLC in West Bloomfield, Mich. Plus, nearly 20% of her money overall is invested in small-cap funds—"a pretty aggressive sector, and one I wouldn't recommend being in at your point in life," Mr. Casey says.

To make the portfolio a bit less risky, he suggests selling $34,000 of those small-cap holdings and replacing them with a diverse group of bond exchange-traded funds. When Ms. McCann retires and wants to start generating income from the portfolio, he suggests tweaking it further to include "conservative investments such as preferred shares, [more] exchange-traded funds and closed-end mutual funds invested in bonds or high-dividend stocks," which he predicts could generate roughly $18,000 a year in income.

Ms. McCann is also holding too much in cash to keep up with inflation, Ms. Carbonaro says. She suggests reducing the cash position to 10% from 35% and raising fixed-income holdings to 55% of the portfolio, from just over 3% currently.

The planners also urged Ms. McCann to ask the Social Security Administration to calculate a monthly benefit based on her ex-husband's earnings record. Divorced spouses generally are eligible for such benefits if they were married at least 10 years and the other spouse is at least 62 and eligible for Social Security. The question for Ms. McCann: Will the benefit based on her ex-husband's earnings record be more than the benefit based on her record? If so, her monthly check could be bigger, too.

As for the job search, Ms. McCann's experience with prescription-drug reimbursement is a valuable asset, according to two veteran headhunters at New Directions Inc., an outplacement firm in Boston. "You should stretch your mind a little bit about this skill set you have," says Samuel Pease, a New Directions vice president. "Hospitals, group medical practices, oncology centers, nursing homes, retirement villages—there are a number of places that are buying drugs for which you would be ideally suited."

One other note: Mr. Casey thinks Ms. McCann should make long-term-care insurance a "high priority," since she's single and recent changes in the law have made it tougher to qualify for Medicaid. He estimates that basic coverage would cost about $1,400 a year. He recommends such coverage for "anybody who's single or widowed," and for most people with more than $300,000 in assets.

Source: Wall Street Journal

Top Performing Life Insurers

2009-12-28T16:59:00.000-08:00

The rankings are based on 2008 financial results. The sources for all the rankings (except for Ratings) are based on information from the A.M. Best Company. Ratings are from the ratings agencies themselves and are as of June 2009. In Ratings, both Northwestern Mutual and New York Life have the same rank, however, New York Life has a negative outlook.

In terms of performance, four factors can be considered:
· Gain Before Dividends & Taxes – this is the difference between the company’s revenue and its expenses. This measure is positively impacted by increases in premium and investment income, savings from mortality experience and careful management of expenses.
· Life Dividends Paid – These life insurance dividends represent value over and above any contractual guarantees.
· Lapse Rate – a low Lapse Rate means a company has a high retention rate, referred to as persistency. Some firms view this as an indicator of policy owner satisfaction with the performance of their policies. The chart reflects the lapse rate on the amount of life insurance in force.
· Unit Costs – ratio of life insurance expenses incurred to total life insurance premiums paid. The better ratings reflect the Life Insurer’s overall expense management while attracting a growing number of new and repeat customers resulting in lower unit costs.

In terms of Size & Scale, two factors can be considered:
· Total Assets – includes both those the company invests on behalf of its policy owners and those policy owners direct within their life insurance policy or annuity, and is an important reflection of an insurer’s size and scale of operations.
· Total Life Premium – is used by insurers as a primary way to measure market share. Total premium includes all the individual life insurance premiums paid by policy owners, as well as the premiums received when policy owners use policy dividends to purchase additional insurance coverage.

In terms of Strength & Security, three factors can be considered:
· Surplus Ratio – amount over and above reserves that is set aside to cover benefits and losses. It is an indicator of additional safety margin.
· Total Capital & Surplus – identifies the difference between assets and liabilities and is one measure of the financial foundation of an Life Insurer.
· Ratings – insurance financial strength ratings by ratings agencies provide a third-party (independent) perspective on current financial strength. Ratings are from A.M. Best, Fitch, Moody’s, and Standard & Poor’s.