Why do you need life insurance?

Whenever a nagging insurance agent, over telephone or in person,tries to impress upon you the many benefits of life insurance policies, the poor guy is invariably met with cool indignation. But, if you pay heed to his words, you will come to learn about its many benefits. Instead of viewing it as another financial burden that you have to shoulder throughout your working life, start to explore the aspects that help you to meet many of your different needs at different stages of your life.

People often view life insurance policies as a vehicle to provide for the dependents after the death of the policy holder. Life insurances policies have the unique ability to produce liquidity with a huge amount of leverage in the times of needs. But beyond providing a means to the dependents in the unfortunate events of death, life insurance policies can be used for many more important purposes. Did you know that you can use the life insurance to pay death taxes and estate settlement costs?

Then life insurance can be a great means for leaving an inheritance for your next generation.  They can also be used for the charitable purposes. Above all, there are many insurance policies that come with some good investment features. These are the policies to accumulate funds which may be used to make further investments in the future. If you an entrepreneur, life insurance policies can come to your help by funding your business too; they can be held as securities in your business deals.

Life insurance policies are mainly of two types: term insurance and permanent insurance. All the products in the insurance industry are based on the principles of these two major types.

Term insurance is a policy which will pay a death benefit only if the policy holder dies during the term of the policy. It is devoid of any cash value feature.

The permanent life insurance policy is an expensive alternative of the term life insurance, as this whole life insurance is intended to provide protection throughout the life of the policy holder. One important feature of this policy is a cash surrender value. The premium you pay through out the early years of policy exceed the real cost of the insurance and this excess is saved in a separately maintained account. This money makes for a kind of investment for the insured. Even if the whole life insurance policy is canceled, even then the insured is entitled to get back the cash value.

What kind of life insurance policy you will buy depends on your unique financial needs and responsibilities. Among the things to consider at the time of selecting life insurance products, the first and foremost consideration relates to the question as to what amount of insurance is actually needed.

Your life insurance need will be greater if you have dependents in your family in the  form of stay at home spouse and young children. Your insurance need will be greater also when you lack an adequate savings to fall back to in your absence. In the event of the death of the sole bread earner of the family, many issues have to be taken care of: the rearing of the children, the funding of their education and providing a living to the surviving members of the family. The best way for saving money when buying life insurance policy is to choose a policy that meets your best needs. Lower premiums may not be of any profit if the policy entails wrong benefits not suitable for your position.

The Big Investment Mistakes Made In Retirement


I wanted to share a good article I found about investing mistakes in retirement.

Taking too much risk with your investment: We all want the highest interest rate possible and the lowest risk possible – unfortunately these are competing objectives. High rates always spell high risk BUT high risk does not always spell high rates. You should know that risk and reward are traveling companions: if you want low risk you’ve got to settle for low rates and if you want the chance of making high rates you’ve got to accept high risk.

Most people work a lifetime to save enough so they can have a comfortable retirement – the last thing in the world they want is to lose their retirement nest egg in bad investments. So why is it that most retirees have all their money in mutual funds, stock, bonds, a diversified portfolio of securities, variable annuities, etc.? All these things carry the risk of loss – yeah I know that “in the long run” you’ll do a lot better than with a safe money alternative. BUT, in retirement you don’t have a long run. A great economist once said, “in the long run we’re all dead”.

In the closing years of the 1900’s and up until 2002 the stock market was roaring upward – would-be-retirees were making loads of paper profits and looking forward to retirement next year. Out of the blue came the dot.com bust and a market meltdown – over the next two years the S&P lost half its value, the DJIA sank like a rock and the poor NASDAQ stocks lost 80% of their value (that’s where most of the dot.coms were traded). Instead of retiring, or continuing to be retired, many “risk taker” had to change plans or go back to work as Walmart greeters, taxi drivers or whatever they could get in the depressed employment environment. Can this ever happen again?

Look around you: sub-prime problems, foreclosures shore to shore, the dollar losing ground at an alarming rate, inflation picking up, real estate activity grinding to a halt, economic recession being mentioned often, bank stocks losing half their value, major corporation turning to China and the UAE for capital infusion to stay solvent, record federal deficits, commodity prices shooting upward and lots more of gloom and doom. I don’t want to be negative…but there are storm clouds gathering and you don’t have an risk umbrella if you’ve put your retirement money in the market.

The first big mistake retirees (or would-be-retirees in the red zone before retirement) make is they have taken too much risk with them retirement money.

What can you do? Find a financial adviser quick if you don’t know how to lower your risk without one. Examine every retirement investment you have and make sure the money you’ll be using in the next 10-15 years is in rock solid saving places like bank CDs (for use in years 1 – 5) or fixed annuities (for use in years 6 – 15). If you don’t like either for-the-first-half-of-your-retirement money, you can continue to keep your money at risk and hope for the best.

Putting your money only in short-term bank CDs: Many of you have all your retirement money in 6-months CDs because you want safety and are afraid you’ll need it all very soon. The good news is that you’ve got safety and ready access…the bad news is that this is costing you a king’s ransom.

Generally, the longer you commit you money the higher the rate of interest you’ll earn – that’s why 5-year CDs pay more than 3-months CDs. You should space, or ladder, your money so that it comes due at about the same time you think you’ll need it. Yes, you may guess wrong sometime but the penalty will be a lot less than if you always keep your money short and liquid.

Let’s say you now have $150,000 in short-term bank CDs that you’ve earmarked for retirement. You think you’ll need about $15,000 a year of this money to cover expenses above your Social Security, pension (if you have one) and other income. Here how a CD ladder could work. Put $15,000 in a money market account (can get anytime you want without penalty), $15,000 in a one, two, three and four year bank CD. You now set so that every year for the next five you’ll have access to $15,000 (plus interest which will keep you up with inflation) to cover your needs.

What do you do with the other $75,000? Why not look into a five year tax-deferred fixed annuity? You’ll pay no taxes on the interest you earn in the annuity until you withdraw it (that means triple compounding: interest on principal, interest on interest and interest on money you would have paid in taxes) and you’ll have rock solid safety because your principal and interest is guaranteed by a major insurance company. The same insurance company that insures you home, life, health, business, car and everything else of value. Oh yes, you’ll probably get a much better earnings rate than if you put the money in a bank CD.

Yes, you will lose the opportunity to hit it out of the park with a high flying stock your brother-in-law told you about but you’ll also avoid the risk that goes with that high flying stock. When you annuity matures in five years you an annuitize (take an income) over the next five years or do another 5-year bank CD ladder.

Retirement is a time to keep what you’ve got rather than trying to double or triple your money in a short period of time. But, you can err by being too safe and too liquid with everything in short-term bank CDs. Retirement is also a time to reassess your risk and make sure you can afford the worse case outcome. That’s why money in the market don’t make sense unless you’ve got a lot more money than you’ll need for retirement.

If you think the market can’t turn around and bite you, check out the following links:

Also check out my blog: http://www.theretirementpros.com/blog

Thanks for reading and have a great day!