top of page

3 Things 7-17-23

Thing One


There's an old saying in the life insurance business, "Buy term, and invest the rest."  The thought behind the phrase is pretty simple. Insurance is for mitigating risk.  Investing is for creating a return on invested capital.  Don't mix the two unnecessarily.  If you need to buy insurance, you should buy the least expensive kind and only buy it for the amount of time that you've determined you need it. That analysis will lead you to term insurance, at least initially. Then if you have money left over you should invest it in a manner that minimizes your expenses and is consistent with your tolerance for risk.But how do you know if you need insurance?  Well, if you were going to be tested on that question for the purpose of obtaining an insurance license, you'd be expected to be able to identify the eight reasons below:.............1 - To protect your family in case you die prematurely.  This is the most basic reason for purchasing life insurance.  People die unexpectedly all the time.  If that person happens to be the primary breadwinner in a family, that death might create undue financial hardships in terms of liabilities that persist after death like mortgages, car payments, etc,.  And even if that person isn't the primary breadwinner, the untimely death might create financial issues where none existed previously like childcare, homemaking, and even the loss of any secondary income. Income replacement properly summarizes reason number one for purchasing insurance.2 -  To create an estate.  You might determine that you will not be able to leave behind the type of estate that you would like to.  You can use life insurance to "create" an estate to pass on, provided you can pay the premiums.  The earlier you make this decision the better as age and health sell life insurance.3 -  To protect an estate.  When you die, your heirs will have to pay taxes on what you pass to them.  If you would like to keep the government from taking too much of what you had planned to leave your loved ones, you can buy insurance for the purpose of paying the estate taxes, thereby relieving your heirs of that burden.4 - To guarantee insurability.  Many young parents (and grandparents) who are worried about potential health issues purchase insurance on their young children to establish insurability while they're young and inherently more insurable.  The idea is that as they get older they can always increase the coverage amounts of existing policies without providing evidence of insurability through health exams. That means that if they develop health conditions later in life, they're already covered.5- To create a cash value savings account.  With anything other than a term policy, there is the opportunity to build up a cash value by routinely paying the premiums.  This is a kind of forced saving account and, in my opinion is the worst reason for buying insurance.6 - To protect a s business if a key person dies.  Business owners will often purchase key person insurance policies to protect themselves against the untimely demise of a key employee.  The specific knowledge, skills, and abilities of the deceased individual are typically not easily replaced, but the proceeds from key person policy can help buy the business time to rebuild the lost knowledge by providing capital for additional resources and training.7- To protect remaining partners in a business if one partner dies.  There are cases where one partner dies and it would be impractical, for any number of reasons, for the surviving partner to continue in the business with any of the deceased partner's heirs.  Policies known in the business as buy-sell agreements allow for this by making funds available upon a partners death to "buy out" the heir's interest in the business.8 - As a part of employee's compensation package.  There are times when a business buys life insurance on an employee, who is usually an executive, as a fringe benefit to that employee..................So there you have a brief discussion of the reasons for buying life insurance.  If none of the categories apply to you, then you don't need to worry about it. If any of them do and you'd like some help with the details, let us know.


Thing Two


Three Questions


In a study done by Olivia S. Mitchell of the University of Pennsylvania’s Wharton School and Annamaria Lusardi of the George Washington University School of Business, the data from three financial questions were analyzed. See the questions and analysis below: 

1. Suppose you had $100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?

A. More than $102

B. Exactly $102

C. Less than $102


2. Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, how much would you be able to buy with the money in this account?

A. More than today

B. Exactly the same

C. Less than today


3. Please tell me whether this statement is true or false: “Buying a single company’s stock usually provides a safer return than a stock mutual fund.”


...............Here's what the researchers uncovered: 

  • In a survey of Americans over the age of 50, only half could answer the first two of the above questions correctly. Only one-third got all three right.

  • Forty-four percent of Americans with a college degree answered all three questions correctly. The figure was 31% for people with some college and 64% for Americans with postgraduate education.

  • “Even well-educated people are not necessarily savvy about money,” the professors write.

  • In the U.S. and other countries, men are much more likely to get all three correct answers. The figure is 38% for men vs. 23% for women in this country.

  • Another striking finding, also consistent across countries, is that men are more confident about their financial knowledge than they should be: even when they were wrong, they reported being ‘very confident’ about their answers. In contrast, women generally answer fewer of the financial knowledge questions correctly, on average, but they are more likely to admit when they do not know how to answer our questions. 

................As to the respective answers to the above questions, they are:ACFalseAnd here's a fourth question:


Any working adult who failed the quiz should:

A. Endeavor to learn more

B. Seek professional help

C. A&B

C. Do nothing since lots of people failed it(Hint: there's only one wrong answer)

Thing Three


Just A Thought


"Courage is the most important of all virtues because without courage, you can't practice any other virtue consistently." - Maya Angelou


bottom of page