Convertible Options in Term Insurance

If you purchase a convertible policy, you are allowed to convert to a different type of policy — one that builds a cash value, such as whole life or universal life, sampling is the medical insurance, without having to pass another medical exam. Again, because your health is more likely to deteriorate as you age, this feature may be important if you think that you may want to keep buying life insurance later in life.

,

Most people don’t continue to insure themselves after theyreach retirement age, usually because they no longer have anyone dependent upon them, but there are exceptions. For example, take a look at a family of four in which the father is 56, the mother is 43, and the two children are both under 10. The younger child won’t start college for another 15 years, and the parents want to make sure the children have sufficient money even if the father dies. These parents may want to keep insuring the father after he reaches the age of 70, the age at which his policy specifies that he can no longer renew his term insurance policy. To them, therefore, convertibility is an important option.

Another reason you may want to be able to convert your term insurance is if your family has a history of heart disease, cancer, or other serious illness. If your family history makes you more likely to become sick later in life, you may want to ensure that you don’t have to pass a medical exam later, even after term insurance is not available. Because buying life insurance is, basically, eliminating as much risk as possible, many people think that this provision is an important one.
A third reason to keep the convertible option has to do with the price of term policies versus cash-value policies. Term policies generally cost considerably less than other types of life insurance because the others also build value while paying for the insurance. Convertibility may be important to you if you’re on a limited budget but want a cash-value policy. You know that you can convert later, when you have greater financial strength.

Keeping the option to convert means that your policy will likely cost you more.

Read More..

The Economics of Your Life : Your uninsured medical costs

Uninsured medical costs are one of the biggest potential drains on a family budget. Including uninsured medical costs in your family budget is crucial because health insurance terms, benefits, and regulations change so quickly.
Moreover, because life insurance protection is related to your health, by definition you want to be certain that your survivors can pay for your medical costs should you die. So after completing the budget worksheet, add a flat amount at the bottom to pay for these unexpected and uninsured medical costs.
How much to add? Good question. The figure you decide on will vary depending on what kind of health insurance you have now. If you belong to an HMO, most of your medical expenses are covered. On the other hand, if you have a private plan in which you pay 20 percent of the costs, your portion is likely to be far greater. Only you can really estimate this amount. However, most experts say that you should always maintain approximately three months worth of living expenses available, so try adding that amount to the bottom of the worksheet as your emergency fund to cover these uninsured medical costs.

Read More..

The Economics of Your Life : Your cost of living

The economic value of your life is not only how much you will be earning but also the cost of living that is, how much you actually need to live on. More importantly, the cost of living you and your family have set up is really the amount of life insurance income protection you need to purchase especially because most people tend to spend a bit more than they bring in.
In addition, part of your living costs are more than likely going into some sort of savings — to pay college expenses when your children are old enough, to go toward your retirement, to cover a big vacation, and so on. You still want your survivors to be able to save for some of these items (college expenses, for example). But clearly, saving for your retirement isn’t something you have to be concerned about if you die.
The budget worksheet that follows can help you determine your cost of living. Note that most of your expenses increase over the years due to inflation, if nothing else. On the other hand, some expenses may decrease or be eliminated because they are no longer necessary. One of these, of course, is the life insurance premium. But some other examples of unnecessary costs are clothing, food, and other expenses for children who will eventually be out on their own and paying their own expenses.
Note also that this budget doesn’t include unusual expenses, either planned (such as college expenses or weddings, unless your budget includes saving for them) or unexpected (such as medical emergencies or funerals).
And note, finally, that the budget worksheet doesn’t include paying off any large debts which you’re currently paying over time. If you want your life insurance to pay off some or all of these debts, make sure that you increase the death benefit to cover these amounts so that your survivors no longer have to include the debt payments in their budgets.

Read More..

Organize Based on What’s Left After Taxes

Once you have filed important documents in your home so that they can be easily located, it is important to go one step further by organizing all your financial assets into a system based on the following four criteria:
1. Organizing an investment based on its risks.
2. Organizing based on the liquidity of the asset, that is, how easily can I sell this investment?
3. Organizing based on timing, i.e., when will it be wise to sell this investment?
4. Organizing based on valuation, or in other words, based on a dollar value.
In addition to these criteria, we have found the most successful way to get organized is based on a fifth and most critical criteria:

5. Organize based on the taxation of investments.

While each individual’s situation may vary according to risk, liquidity, timing, and so on, everyone’s situation is universal when it comes to taxation. All people are subject to tax. Unlike the other criteria, taxation does not vary greatly depending on your individual situation. Taxation is definable and absolute.
The taxes we pay are demanded of us before we do anything else. That’s why we teach our clients to organize their finances around what they get to keep after paying taxes. By doing so, it becomes easier to understand what you need to do to plan because you know what’s absolutely going to be left over. If you organize based on risk, for instance, you may never be quite sure what you have to work with because that risk will always vary. But taxes are sure. By organizing based on taxation, you can know either how to keep taxes to a minimum, thus keeping more of your wealth, or know how much money you will have left after paying taxes so you can feel free to work with the balance in order to create additional wealth.
Important documents should be organized in what we call “Tax Drawers.” Because there are only five ways you can be taxed, financial affairs should be organized based on the following five
dimensions of taxation:

• Drawer #1: Taxed—savings accounts, checking accounts, reserve funds, and so on.

• Drawer #2: Tax Free—municipal bonds, Roth IRAs, and so on.

• Drawer #3: Tax Deferred—401(k)s, IRAs, and so on.

• Drawer #4: Life Insurance—life insurance can be taxed in a variety of ways, and most often is not taxed until the benefit is received in cash while you are living. If you die, then the income is tax-free. How you receive the money determines whether it will be taxed or not.
• Drawer #5: Capital Gains—real estate, mutual funds, or stocks that appreciate in value. There will be a loss or gain depending on tax rules at the time.
  

Organizing your financial assets into these five “Tax Drawers” will help you find a lot of extra money you didn’t know you had. How is this possible?
1. It makes it easier for you to visualize your assets and in terms of what you get to keep for retirement.
2. It provides a basis for calculating and projecting the accumulation of your wealth.
3. It helps you understand the impact taxes have on your longterm savings.
The following example illustrates the importance of organizing into “Tax Drawers.”
Suppose you put all your money in a 401(k) program for retirement.
This money will grow because you will be able to defer paying taxes on it all those years you are working. However, when you begin withdrawing this money, 100 percent of it will be subject to income tax. If you organize your assets into five “Tax Drawers” and use a forecasting tool such as the Master Plan software you will be able to play “what if” scenarios with your money. “What if” you put this money into a tax-free municipal bond rather than a 401(k) or capital gains account? “What if” you took your money and put it into a Roth IRA, or “what if” you put it elsewhere? Of all the tools available to get and keep oneself organized financially, being able to project your debt, income, and assets over time is among the most valuable. Staying organized is a function of being able to sweep all financial elements (spending, borrowing, and saving) out to a future date and look at the results. By doing this, it is easy to play “what if” so that you can test how a financial decision made today will impact your future. Using organizational tools such as the Master Plan software can help you determine the best way to accumulate money so that you can maximize your assets. And because there are no future decisions, only decisions made today that affect the future, this knowledge allows you to make much better choices. You can make the necessary changes today and not get down the road and have to look back and say, “Oh, I wish I had known!”

Read More..

Emotional Sentiment and Brand Loyalty

To have an emotional sentiment toward a brand or product is to have a strong positive feeling of liking for that brand. Strong brand loyalty involves emotional sentiment. Having a choice makes for the expression of loyalty, as it provides an opportunity to be against alternatives disliked. If the product has attributes that are unique and of central importance to the consumer, together with risks attached to buying, the product is termed a “high-involvement product,” as being most likely to engage the consumer in deliberations when choosing. This is because high-involvement products are those that generate the most consumer concern.

Trust and sentiment are the ingredients of brand loyalty. In contrast to moods (but in line with emotions), sentiments are not persistent conscious states but are dormant until aroused by the object of the sentiment. Emotional sentiment ties into emotional memory, in that memories have sentimental content. Every firm catering to the consumer should seek to develop an emotional sentiment for the firm’s brand by fixing it in the consumer’s memory as part of a valued way of life. It is the vestiges of emotional sentiment that allow the successful resurrection of old brand names, such as the revival of the name Buggatti. It is ignorance of the emotional sentiment that can attach to eminent brand names that leads to many such brands being dismissed as worthless assets. The emotion still attached to the name Pan Am is not simply that arising from the Lockerbie air bomb atrocity.
Loyalty is not just a matter of habitually buying the same brand, since all habitual buys are not grounded in trust and sentiment. Yet this combination of trust and sentiment (loyalty) is the best barrier to brand switching by customers, while it facilitates brand extensions and word-of-mouth recommendations. Of course, there may be no loyalty to any particular brand when the various brands in the market are perceived as mere tokens of each other with diferences that are marginal and of no significance to the consumer. This is not to suggest that meaningful diferences will always be confined to the product itself, since things like brand image and distribution can be crucial. In any case, being a loyal customer does not imply just buying the one brand. Brands in diferent segments of the market may be bought simultaneously by the
buyer for diferent use-occasions or for diferent family members. Thus a woman might want a fresh light perfume during the day and a strong sophisticated scent for the evening.

Read More..

Using life insurance as part of your estate planning

In addition to serving as a tax shelter for you and your survivors, life insurance can also be an important part of estate planning — that is, dealing with how to distribute your wealth after you die.
Currently, the federal tax laws state that the first $650,000 in inheritance is federally tax-exempt (that amount increases over the next few years). Most states allow the same amount or they have no inheritance tax at all. Realistically, most people don’t need to worry much about taxes eating away their estate. Furthermore, most couples own their property and assets jointly, so surviving spouses or owners don’t have to pay inheritance taxes, even if the estate is greater than the amount allowed under the law.
But if your estate is worth more than the law allows, how doyou ensure that your wealth goes to your survivors and not to the government? That’s where life insurance and life insurance trusts come in.
To do this sort of estate planning, consult an expert who can both counsel you and set up the appropriate vehicles. Briefly, here’s how it works:

• You set up an irrevocable life insurance trust, to which you contribute annually. The trust is, in effect, a life insurance policy, which goes to your children or survivors taxfree. You can’t withdraw that money for any reason (hence the term irrevocable).
• You and your spouse each leave to your children whatever the law allows at the time, so that money is also taxfree.
• You will the remaining amount to a qualified charity of your choice, which, by definition, is exempt from inheritance taxes. If you don’t will the remaining amount to a charity, it is considered part of your estate, and your heirs have to pay taxes on it.

In this situation, you take the IRS out of this picture. Using some of your estate, you buy a tax-free life insurance policy so that your heirs get the same amount they would have before any estate taxes — the amount equivalent to your estate. Plus, you donate a large portion of your estate to a charity rather than to the government. The only party that loses is the IRS (and another party wins — the life insurance company, which charges you a significant amount for that policy over a period of years). But your heirs lose nothing! Isn’t that the goal of estate planning?
Don’t try to wade through this complicated process by yourself. A qualified professional can help you sort through the fine details and prevent you from making a costly mistake.

Read More..