3 Things 7-7

 Thing One

Beware The Teaser Rates

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  

One Time Or Ongoing?

The following sage advice comes from an article on kiplinger.com called “Five Things I Wish I’d Known Before I Retired”.  Please take the time to consider it all carefully and pass it on as appropriate.

“…1. The value of good, trustworthy financial advice.

Selecting a financial adviser is a pivotal decision, yet many choose based on a friend’s tip or stick with their workplace’s 401(k) representative. These advisers, while knowledgeable, may prioritize their company’s interests over your financial health and offer limited advice confined to your employer’s plan.

The wiser course? Hire an independent, fee-only financial adviser who offers comprehensive services, including critical tax and cash flow planning. Plus, this person has no ties to specific funds or investment products and will offer strategies aligned with your unique goals, potentially saving you significant amounts in unnecessary fees.

2. You don’t need a big income to start saving and investing.

A common roadblock many face is the belief that they don’t earn enough to start investing for retirement, or that a small amount doesn’t matter. This misconception can lead to missed opportunities that compound over time, just like the investments we forgo.

The truth is, waiting to save because you anticipate higher earnings in the future is a gamble on time you can’t afford. The power of compounding interest means that even small, consistent investments can snowball into significant sums over time. This is a certainty you can count on. For example, investing just $50 a month at a 7% annual return will grow to over $23,000 in 20 years. Now, imagine if you increase that amount as your income grows.

Furthermore, if you invest in a tax-advantaged account like a Roth IRA, which allows tax-free withdrawals in retirement, or a traditional IRA and 401(k), which invest pre-tax dollars, you’re effectively using tax savings to boost your retirement fund. In other words, money that would have gone to taxes is now working for you.

Let’s not forget the potential boost from employer matching in your 401(k), which is essentially free money. Even if your employer matches only 50% of your contributions up to a certain percentage of your salary, this can significantly increase the growth of your retirement savings.

3. How much catch-up contributions can be a game-changer.

…the IRS permits those 50 and older to contribute an additional $1,000 to an IRA on top of the standard $6,500 limit, a modest increase that can have a substantial impact over time.

For self-employed individuals over 50 with a SIMPLE IRA, there’s an even greater opportunity: You can contribute an extra $3,500 above the $15,500 limit. As for 401(k) contributions, you can not only max out at $22,500 but also add an additional $7,500, allowing for a total of $30,000 per year in pre-tax savings...If you start making the maximum catch-up contributions at age 50 and earn a 7% annual return, you could increase your retirement savings by about $97,000 by the time you turn 65.

4. There really is a right amount of insurance coverage.

One of the less talked about aspects of financial planning is the balance of having just the right amount of insurance — not too much and not too little — at each stage of your life…

…As retirement nears, you’ll likely be bombarded with pitches for life insurance and annuities. The biggest mistake you can make is letting the fear of insufficient retirement savings drive a decision to buy an annuity that’s complex and truly not appropriate. Insurance offerings are not investments. They are dense legal contracts where the critical information buried in the fine print is easily overlooked or misunderstood due to the complexity.

To navigate the insurance landscape, seek the counsel of an independent fee-only financial adviser (who doesn't sell insurance) to provide a comprehensive review of your family’s insurance needs. They can help you determine the precise level of protection you need, without the conflict of interest inherent in commission-based selling…

5. The importance of having your affairs in order at all ages.

Estate planning is crucial for everyone, not just the wealthy, and it’s best handled sooner rather than later. On some level, you may know this, but somehow people tend to ignore the task. These documents are not just for distributing your assets; they are essential tools for decision-making in times when you might not be able to express your wishes. Whether it’s a health care proxy, power of attorney or living will, these legal instruments are the only way your loved ones can possibly know your desires and can respect your wishes regarding life-or-death medical decisions and end-of-life care.

Furthermore, if you’re planning to leave money or property to loved ones, consider the benefits of doing so while you’re still alive. This can not only provide you with the joy of seeing them use and appreciate your gift but also can be a wise move for tax purposes.

Without these documents, you leave the distribution of your estate and the decision-making at critical moments to the state’s default laws. This abdication of control can lead to outcomes you never intended. Ultimately, having your affairs in order is a straightforward act of responsibility and kindness to your family…” 

Thing Three

Just A Thought  

"The ego protects itself through inaction." - Unknown