In a recent conversation with a prospective client, we were asked some questions about life insurance. After explaining the basic purpose of life insurance – to make sure that the people that depend on his income today would not find themselves in financial trouble if he died and suddenly left them without the benefit of his monthly income – we ran a few quotes for him. Before doing so, we explained the underwriting tenet that age, health, and length of coverage dictate price in life insurance.
Given his age, we decided to quote both 30-Year Term and Guaranteed Universal Life (which is basically term life to age 100) policies. In doing so we were hoping to provide a range of options that would maximize the coverage period and potential payout while minimizing the annual cost (premium). We ran quotes for $100k, $300k, and $500k face amounts. The annual premiums, which could be paid in monthly installments if desired are below:
30 Year Term
$100k Face Amount - $1400/yr
$300k Face Amount - $3600/yr
$500k Face Amount - $5900/yr
Guaranteed Universal Life (GUL)
$100k Face Amount - $2200/yr
$300k Face Amount - $6200/yr
$500k Face Amount - $10,100/yr
It should be noted that the prospect’s occasional cigar smoking was a significant factor in the final price as smokers are assumed to eventually be less healthy than non-smokers.
When this pricing information was shared with the prospect, there was initial sticker shock as he (like most) has seen or heard the some of the misleading commercials about how “cheap” life insurance is. While we agree that life insurance is both inexpensive relative to the benefit and necessary for far more people than actually have it, it is typically more expensive than the teaser rates that are advertised.
Here are two examples of typical advertisements that would tend to lead to a 48-year-old cigar smoker to experiencing sticker shock:
Ethos Life Advertisement:
Bold Print: $500k in coverage starting at $1/day
Fine Print: Daily sample rate based on monthly billing rate for a healthy, 37-year- old nonsmoking female with a 10-year term. Price and eligibility vary based on individual factors
Globe Life Advertisement:
Bold Print: $1 Buys $100,000 Life Insurance
Fine Print: $1 pays for the first month of children's coverage. Then the rate is based on your child's present age and is guaranteed to stay the same for the rest of their life. Full schedule available on website.
Keep this in mind so you don’t feel like you’re getting ripped off when you’re shopping for the life insurance that the statistics say you likely need. And reach out to us if you’d like some help sorting it out.
Thing Two
The Home Office Deduction
With so many people working from home these days and tax filing season officially opened, we thought it might be helpful to remind you of the rules about taking a home office deduction. Here are the qualifying basics:
1. The taxpayer must be self-employed or a partner
2. The home office must be used exclusively for business
3. The home must be the principal place of business
Note: Employees of businesses who are working from home can’t take this deduction. The 2017 tax law suspended their right to do so until at least 2025.
Assuming you meet the qualifications for taking the deduction, the mechanics for calculating it are ratio-based. Here is an example:
· If your home office is 1/10th of your home by square footage
· And your mortgage is $20,000 for the year
· You can deduct $2,000 for the tax year
· And you can also deduct 10% of the taxes, repairs, insurance, and maintenance that were paid for the home during the tax year
Or you can follow a more simplified formula that lets you deduct $5 per square foot for a maximum of $1,500. Either way, if you work from home and you are not an employee, make sure you’re not missing out on this one.
Thing Three
“Every man is a damn fool for at least five minutes every day; wisdom consists in not exceeding the limit.” - Elbert Hubbard
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