March 10, 2016
When creating an overall financial portfolio, investors typically consider how to allocate assets into categories such as growth, income, and cash or cash equivalents. But, often they will tend to forget about something that, without it, could be detrimental to literally everything else that they’ve worked for. That is life insurance.
Life insurance is, in many ways, one of the most essential elements in a financial portfolio. This is because it can provide protection for all of the other assets – especially in the case of the unexpected.
For example, in its most basic sense, life insurance is made to protect a surviving spouse or loved ones from the financial consequences of unpaid debt and / or ongoing living expenses should a primary income earner pass away.
But life insurance can also be used in other financial planning areas, too.
Using Life Insurance for Diversification
In addition to death benefit protection, there are many life insurance policies that will also provide policy holders with a way to protect their cash value from market volatility, as well as from the high cost of a long-term care need.
In other cases, cash value life insurance can also be used as a primary or a secondary financial vehicle for saving for a child’s or a grandchild’s future college education expenses – and oftentimes this can provide a much more flexible mechanism even than the 529 college savings plan.
Life Insurance as an Income Supplement
If structured in the proper manner, certain cash value life insurance policies today can also be set up to help policy holders in supplementing their retirement income on a tax-free basis. With all permanent life insurance policies, cash value is allowed to grow tax-deferred. This means that there are no taxes due on the gain on those funds until the time they are withdrawn.
In many cases, a life insurance policy owner will either borrow or withdraw their cash value for a variety of different needs. These can include paying off loans, funding the college expenses of a child or a grandchild, or even taking a nice vacation.
The money that is taken out as a loan will not be taxed to the policy holder – and, it can typically be borrowed at very low interest rates (usually quite a bit lower than that of a bank or other lender).
Over the past several years, many pre-retirees have been taking advantage of the many benefits that indexed universal life insurance (IUL) can provide. This is because the cash in these policies has the opportunity to increase based on market indexed linked growth, yet it is protected from downward market movements by being credited with a return of 0% in negative periods.
Cash can be borrowed tax-free in order to supplement retirement income – and, if the policy holder passes away, any unpaid loan balance will simply be charged against the death benefit that is paid out to the policy’s beneficiary.
Making Your Financial Plan Complete
In all, while life insurance should still be considered for its death benefit protection, it also has so much more to offer – and because of that, it should not be thought of as just a “stand alone” product, but rather as an important and essential piece of the overall financial planning puzzle.
When constructing your overall financial plan, it’s important to be sure that you have the right type and amount of life insurance coverage. This is because you don’t want to leave your loved ones short just in case of the unexpected.
When choosing your life insurance plan, know that not all policies are the same, so you want to be sure that you shop for the policy, the benefits, and the insurer that will be the best for you and your specific needs and goals.
An independent insurance advisor can help you to fit the coverage to your plan, as versus the other way around. By working with many different life insurance carriers, going with an independent agency will allow you to shop in an unbiased manner while putting all of the pieces together when you’re ready to move forward.
Brad Cummins, founder of LocalLifeAgents, a Columbus, Ohio-based firm of independent insurance agents. Follow Brad on Twitter, or connect with Local Life Agents on LinkedIn.
, financial planning
, life insurance
January 25, 2016
What is life insurance?
One of the key concepts of life insurance is that it can pay any dependents you have a cash lump sum or regular payouts upon your death. It has been designed as a way of providing you with a level of reassurance that those who are dependent on you are looked after should you no longer be around.
Of course, the amount of money that will be paid out depends on the amount of cover that you purchase. You may also make decisions as to how it will be paid out and whether the money is earmarked to cover particular payments such as rent or a mortgage.
There are a couple of main types:
– The term life insurance policy runs over a fixed period, and will only pay out should you die within that period. No lump sum is redeemable at the conclusion of a term policy.
– The whole-of-life policy pays out irrespective of when you die.
What is not covered?
Life insurance does not cover disability or illness. The majority of policies have exclusions. As an example, if your death is cause by alcohol or drug abuse, there is no cover.
Should you have a particularly serious health problem when the cover is taken out, this may also be excluded from payout.
Are you in need of it?
If you have dependents – a partner who is dependent on your income, school aged children, et cetera – if you die, a life insurance policy may provide for them.
If you are unable to rely on governmental help for your family – perhaps the amount is too small – then life insurance becomes a necessity.
Who does not need it?
Your partner may earn enough income for your family to be comfortable, or you may be single, in which case, life insurance may not be required.
How much does life insurance cost?
Life insurance can be good value. Depending on your circumstances, a few pence each day can be plenty enough to provide your family with financial protection. In fact, on average, 100k life cover for a period of 10 years, for those who do not smoke and are aged 54 years, works out at less than £1 a day.
Nevertheless, monthly payments, which are also referred to as premiums, can and do vary. Thus, it’s wise policy to shop around and to find out precisely what will be covered given the amount that you are paying.
There are a number of factors that impact the amount you will pay for life insurance. That includes the policy length, the amount you wish to cover, your current health status, your current age, whether you smoke, and your current lifestyle.
As an example, a younger person who is less likely to die on account of a medical condition will enjoy a cheaper life insurance policy than otherwise.
Do you already have life insurance?
You may have an employee package which includes something called “death in service” benefits. In which case, this covers you for a certain multiple of your income and as such, you may not be in need of any life insurance.
You do need assess whether this policy will provide enough cover in the event of your death or whether you should opt for additional cover.
Do keep in mind that if you no longer work for this employer, you will lose your coverage under this policy.
Consider other forms of insurance
Life insurance will cover a worst-case scenario, though you should also consider other matters such as bill payments and your mortgage if you are unable to work due to injury or illness.
You may benefit from income protection insurance. Income protection insurance provides for regular payments if you are unable to work on account of injury or illness.
Perhaps instead you need critical illness insurance. Critical illness insurance provides you with a lump sum which is tax-free should you be diagnosed with a serious illness that is under the provision of your policy.
Think also about payment protection insurance, which is a policy that will help you to maintain any regular payments if you are unable to work – maybe because you are ill, you’ve suffered an accident, or you have been made redundant.
You might be in need of short term protection insurance. This is a solution which provides short term insurance cover that can help you to pay for any essential outgoings if you are unable to work for any reason.
, life insurance
October 25, 2015
It was like a message from beyond the grave. One man’s actions left his family protected from the financial aftershocks of his sudden demise.
Most of Vinit Sharma’s* friends remember the printing press owner in Mumbai as a quiet, unassuming person who spoke only when necessary. Even in his close circle of friends, Vinit was always the quietest but he had the loudest laugh. The only time he became gregarious was when he would spend time with his two children, Asha* and Vinay*.
But despite his studied silences, he was always helping others whenever he could. If the building kids needed help hauling tubs of water downstairs for Holi, Vinit would be the first to help them. His wife would often see him writing cheques to the local orphanage – without saying a word even to her. If a neighbour needed to reach the airport at midnight, he would often volunteer to drive them.
But his family was unaware of one miracle Vinit had already worked out years before he passed away last year after succumbing to a heart attack. He was just 49 years old with no history of heart trouble. His devastated wife, Shyamala* says, “He suffered a heart attack at home just before leaving for work. By evening, the doctors told me that he could not be saved. The attack had been a severe one. I remember sitting alone in the corridor outside, wondering about my future and the future of my two children.”
A few days later, a long forgotten memory suddenly presented itself to her. “I remembered that some years ago, Vinit had told me to look in his safe in the wardrobe for his insurance papers. ‘In case anything happens to me…call the company and claim the insurance money’ he had told her at the time. “I had heard him out but dismissed it. Nobody in their wildest dreams expects their partner to leave them in their 40s. But I remembered what he had said and checked his safe. Sure enough, I found the insurance papers,” Shyamala recalls.
It turned out that Vinit had taken a health insurance plan that covered the entire family. “The plan was to mature in five more years. He had never missed a premium payment. When I saw the sum assured amount, I gasped in surprise,” she smiles. After contacting the insurance company, she set the health insurance plans claim process in motion. “All the paperwork was in order, and the process of claiming the money was very simple. I got the sum assured in under a month,” she says.
She remembers feeling like “a cloud had lifted” despite losing her beloved husband. “The money would help in my children’s education for a few years. There was enough left over for monthly expenses as well. It felt like it was his last gift to his family from beyond the grave,” she says with tears in her eyes. “We all miss him terribly, not a single day passes when I do not think of him. But even after his death, he looked after our needs. That one step he took –of taking a health insurance policy – ensured that my children and I would not need to depend on anyone else for our sustenance.”
Today, she runs her husband’s business which is doing quite well. Her daughter will enter college life soon, and his son says he plans to become a pilot. The family’s dreams are on course – just like Vinit wanted.
*Characters in the write-up are merely illustrative
, Health Insurance
, Medical Insurance
August 15, 2014
Automobile insurance business is among the most sustainable in the present world. Government regulation of making insurance compulsory for all motorized vehicles contributes to the success of this business. This business of covering automobiles against damages could be owned privately, by public sector undertakings, or by joint stock companies. In a country like USA auto insurance business is controlled by public limited companies. The level of competition among these companies is not stiff as the number of entities is less. Further each of these companies is tied up strategically with separate car manufacturers and their dealers for insuring new vehicles.
Insurance for vehicles is done on sale but before the concerned automobile hits the roads. The coverage amount depends on vehicle type, its use, its engine capacity, and seat capacity. If these are same across manufacturers then insurance cost remains same for similar category vehicles. For instance, the cost of insurance for a 4-seated petrol car of 1200 cc of two different makes would be same. Similarly the cost of insurance for trucks of same capacity and type but different brands would be the same.
With the parameters of calculating premium remaining constant there is not much of variation in insurance cost among companies. Further, there is not much of publicity for auto insurance as it is mandatory for all vehicles. Anything which is compulsorily procured or bought does not require too much of a marketing, particularly when service providers are limited. However, in a globalised economy the entrance of more companies in this trade is expected to increase competition. With increased competition it becomes important to devise new tools for attracting more customers. More information on these topics is found in this author’s website.
- Depreciation – Under normal circumstances premium for any automobile is increased every year because of depreciation. As the chances of wear and tear of a used machine increases with its usage so does its coverage cost. Keeping insurance costs unchanged in spite of depreciation is one way of making insurance packages more attractive.
- Discounts – Usually automobile insurance providers offer accidental or loss coverage for a period of one year at a time, to be renewed in successive year. In the event of ‘no claims’ (when there are no accidental damages) during a year, the cost of insurance is discounted for the subsequent term. This discount rate varies from one service provider to another and is a determining factor of attracting more customers.
- Claim settlements – Time required for claim settlement is another vital aspect in boosting auto insurance business. For a car owner the time spent in receiving the settlement amount from the time of notifying damages is crucial. Often companies take a long time in making settlement payments and that too after repeated requests. Lengthy settlement period is a huge turn-off for car owners. To make automobile insurance services more tempting, settlements should ideally be made before a damaged car leaves a garage.
- Simplicity – Formality involved in lodging a complaint is another vital issue determining the acceptability of a motor vehicle insurance provider. The greater the formalities, lesser is the acceptability of an insurance service provider. It is advisable to have a simple and convenient process of lodging a complaint or claim.
- Accessibility – Accessibility is another important determinant of an insurance company’s popularity. Companies with more offices or contact points are naturally more acceptable to end-users. It is common human tendency to approach a service provider which has more visibility.
Tags: auto insurance
, Car insurance
August 2, 2014
Keeping your budget balanced as a freelancer can be difficult. With a regular job, you have steady hours and a steady income that rarely fluctuates. There is a safety and a guarantee in your salary. Normal jobs provide consistent paychecks no matter what is happening in your industry. A freelancer faces a totally different world. You never know when your work will go through dry spells, and you must be prepared financially to handle these dry periods. Special budgeting tips may help a freelancer survive the hard times while they prosper in the good times. Consider these tips for a healthy freelancer budget.
Go All In
When the work is ripe for the picking, keep your nose to the grind stone. You should work extra if at all possible when there is plenty of work for your choice. As a freelancer you probably have a set amount of hours or projects you complete each week. When the work is steadily coming through, you should increase your schedule to match it. If you make extra money when it is there to be made, you can put some of it into your savings account and send money online to an emergency fund. You’ll inevitably find some times when the work isn’t so plentiful, and you should be ready.
Cut Down Costs
If you work from home, you already save money on gas. Did you know that you can also lower your insurance premiums on your vehicle if you drive less miles? If you report to your insurance company that you work from home, you could qualify for a discount due to driving fewer miles per year. You can also claim some of your needs as business expenses and get tax refunds for them. For example, you may claim your monthly internet bill in certain circumstances if you use it for your work. You may also be able to get a tax deduction for your cell phone bills if you use them for your job to communicate with other companies or workers.
With some smart planning, a freelancer can make the financial gains necessary to survive the harsh times. Make sure to check into tax deductions for business expenses. You may be surprised at what your tax representative can do for you. You will need to work hard when the work if plentiful so that you take advantage of the best opportunities. The freelancer life can work for you.
, financial planning
, For Freelancers
, personal finance