I found this press release by Golden Gateway Financial and thought it would be a perfect topic to share… especially because many of us are, or know older Americans who are struggling as a result of the current economic state. If you’re not careful with your finances, life insurance can seem like more of a burden than a means of protection for your loved ones. And although term life insurance rates are near record lows, there’s no hiding that rates go up as you age.

There are five things that senior citizens should know about life insurance:

1. Avoid fast rising premiums – Life insurance premiums can rise significantly and suddenly for older Americans, creating challenges for those on a fixed income. Premiums for universal life insurance rise in cost as the consumer ages because the insurer factors in higher mortality risk. For those on a fixed income this sudden increase can become unaffordable. If the policyholder needs to maintain coverage, one option is to reduce the face amount of the policy.
2. Monitor term insurance increases – Term life has two points at which premiums can take a big jump. The first is at renewal. At the end of most term policies, if the owner cannot or will not convert the policy to a permanent one, then they must either discontinue coverage or undergo a new medical underwriting in order to get a new policy.
3. Pursue payouts from policies – Most life insurance never pays a death benefit. According to the Insurance Studies Institute, this number is as high as 85 percent of all policies. In those cases, policy owners often leave a significant amount of money on the table. Policy owners should monitor their policies closely and be aware of all the life insurance options available to them. These can include adjusting beneficiaries, choosing to receive cash value, or selling their policy in a settlement.
4. Avoid cash surrender fees – Be wary of the cash surrender option with a life insurance policy. In many instances, if you choose to access the cash value in your policy, you’ll have to pay a surrender fee. These fees vary by insurer, and can be substantial. Seek other options for generating cash from your policy such as life settlement.
5. Be aware of policy maturity – The majority of life insurance policies are only valid through age 95 or 100. If the insured is still alive at that point, then the policy matures and the carrier will pay out the cash value. However, if the senior had previously relied on the cash value to pay for the policy’s increasing premiums, then they could be left with little to no benefit at maturity. One way to address this is to inquire about a life extension rider that can extend the maturity date to 120 years of age.

If you’re interested in receiving a free term life insurance quote, contact a licensed life insurance agent at AccuQuote or go to AccuQuote.com. It takes less than five minutes to start protecting your family today.

To read the original article, click here.

Many people choose to convert their term life insurance to permanent coverage once they reach a certain age. Why? Because term life insurance only protects you for a specified amount of time, for example, you may choose to purchase a term life insurance policy that protects your family only for the time it will take to pay off your mortgage. But permanent life insurance (hence the name) protects you forever. And it offers great benefits such as, level premiums for the rest of your life, a guaranteed death benefit and a savings element that builds cash value.

But converting your term life insurance policy after fifty is not your only option when it comes to protecting your family. You can also choose to renew or extend the length of your existing term life insurance policy. As you’re considering this important option, keep in mind that as you age and your health declines, your premiums will be higher than when you originally purchased your term life coverage, say when you were in your late 20s. But there are many benefits to keeping your term life insurance coverage after fifty. Here are some reasons:

• Term life insurance is great for loans that will eventually be paid off – If you’re over fifty, you may still have some of the same financial responsibilities as a young family, such as a mortgage. Would your spouse be able to cover the cost of your mortgage if you were to die unexpectedly?
• If you’re a business owner, you need term life insurance – If you’re a business owner and you have a business loan, you’ll need coverage on your life and your business. Term life insurance will cover the remaining cost of your loan if you’re not around to do it.
• Term life insurance is cheap – Term life insurance rates are near historic lows, so even if you’re over fifty, affordable coverage is easy to find.
• You need term life insurance if your kids still depend on you – If your kids haven’t secured their educations, found a stable job or moved out (on your schedule), then they probably still depend on you for financial support.

Don’t be intimidated if you’re over fifty shopping for life insurance coverage. The fact is that coverage is easy to find because people are simply living longer than they used to, so major life insurers are extending offers to the older generation.

For more questions on term life insurance and how to find cheap term life insurance after fifty, contact one of our experienced life insurance agents at AccuQuote.com to receive a free term life insurance quote.

If you are nearing retirement or seriously thinking about your future financial plans, this post is for you…

I recently read an article about why Americans should pay off their mortgages before they retire. Since I frequently advise people to purchase a term life insurance policy in order to help your loved ones pay off the mortgage if you were to die prematurely, I suggest reading the notes I gathered from the article below.

Don’t count on stocks – It’s impossible to predict the future of the stock market, so don’t count on stocks to make up for financial losses.

Make sure you have enough money in savings to cover your retirement living expenses – Saving now for your future living expenses will ensure that you’ll be able to live comfortably in retirement.

Retire debt-free – According to financial experts, you should seriously consider delaying retirement if you can’t retire debt-free. If you aren’t responsible for large debts in retirement, such as a mortgage, your savings will last much longer. And, people in retirement often receive low tax rates, so avoiding paying interest on a mortgage is actually a better deal than receiving a mortgage tax deduction.

Don’t rely on a part-time job – Many people take on part-time employment in retirement for an extra cash cushion. However, this isn’t the best means of income since very few people can count on job security today.

If you would like more information on term life insurance visit a site like AccuQuote where you can receive a free term life insurance quote quickly and easily in order to help you make the right financial decision for you and your loved ones.

Tax season is almost over but according to the experts at Mint.com there’s still time to maximize the tax benefits of your 401k(s) and IRA(s).  Here’s a story by Mint.com author GE Miller:

Before you can begin reaping the potential benefits however, you’ll need to ask yourself a few questions relating to your current station in life and where you’d like to be come retirement age.

1. Do you plan on working to the age when you can withdraw retirement funds penalty free or retire early?
2. Do you need the benefit of tax deductions right now due to a tough financial situation?
3. Are you in a higher tax bracket right now than you think you will be in retirement?
4. Do you think your lifestyle will be less or more expensive in retirement?

Without an answer to these tough questions, it is very challenging to know whether to invest your retirement savings through the traditional or Roth options available to you. And what about an SEP IRA? When can that come into play?

When it comes to choosing the retirement account that makes the most sense for you, there are some general tips you can follow. Your answers to the previous four questions will only enhance your ability to get the most out of these tips.

1. Get Free Money First
Before considering an IRA, you should first make sure that you are getting the maximum benefit out of your employer’s 401k plan. What this means is that before contributing funds to any IRA, you should get the maximum match from your employer in your 401k. If you’re not sure what that amount is, you have some homework to do. Once this maximum match has been achieved, you can move over to IRA’s.

2. Know Your Limits
They can change annually so it’s worth checking. For 2009, the IRS maximum allowed contribution per individual for 401k’s is $16,500, with an additional catch-up contribution for those 50 and older. For both IRA’s, it is $5,000 (combined per individual), with a catch-up contribution of an additional $1,000. In 2010 and beyond, limits are indexed to inflation.

3. Understand What a Tax Deduction is
Every dollar you contribute to a traditional 401K or IRA is a dollar taken off the top of your taxable income for the present year. For instance, if I earned $40,000 this year and maxed my traditional IRA and 401k contributions, my taxable income would be $18,500 versus $40,000 ($40,000-$16,500-$5,000 =$18,500). If I’m in the 15% tax bracket, this would shave $3,225 off of my $6,000 tax obligation for the year.

4. Understand the Term ‘After-Tax’
Both the Roth 401k and IRA options are ‘after-tax’. This means that your contributions are after taxes have already been subtracted. You are getting taxed today, for the benefit of not being taxed when you start getting distributions later on. With the traditional options, you are getting the benefit of not being taxed today, but you will be taxed on your distributions later on.

5. Understand the Trade-offs
If you plan on retiring early, opting for the traditional options versus the Roth can allow you to save your tax cuts towards this goal, if you are disciplined enough to do so. But there is always a catch, right? You will have less money in retirement because you are taxed on your distributions through the traditional.

6. Know Yourself
If you plan on traveling the world and living lavishly in retirement, it makes sense to take the tax hit now with the Roth options so that you have more money in retirement. If you plan on living humbly in retirement (after all, any mortgages should be paid off by then), then you may want to take the tax hit down the road.

7. Understand Your Current Situation
If you are making a fair wage but are drowning in debt and will be in the red for the year, then it would rarely make sense to opt for the Roth options when you could be getting the tax benefits of the traditional options today, which could be a life saver for you.

For more of GE Miller’s writing, visit 20somethingfinance.

It’s a fact that estate planning offers stability in stressful economic times like these. So, then why is it that according to a 2007 survey (source www.lawyers.com) of adult residents of the United States found:

• 55% don’t have a will
• 52% of Anglos have wills, compared with 32 percent of blacks and 26 percent of Hispanics
• 41% of people have living wills — 10 percent more than in 2004
• 38% have designated someone as their health-care power of attorney, compared with 27 percent in 2004
• 10% say they haven’t created an estate plan because they don’t want to think about dying or becoming incapacitated
  • 9% say it’s because they don’t know whom to talk to about estate planning
  • 24% say they don’t have the assets to warrant it.

Just think about it, if you were to die today, how would your family do in today’s tough economic climate? Now is the time to look at your estate plan, create a will, buy term life insurance and do what it takes to protect your family.

I was reading an article from the Consumerist that talked about Certificates of Deposit or CD’s and how they aren’t risk adverse either.  I know my expertise is in the arena of term life insurance, but I thought I’d share this article with you because many people aren’t aware that CDs have risks too, even though they are an insured savings account with a guaranteed interest rate.

The article basically says that CDs are very stable but they aren’t without risk. The three risks you should be aware of include:

1. Inflation risk – Since the interest rate is fixed and because there is a penalty if you withdraw funds before maturity, inflation can invisibly erode your savings. Interest rates on certificates of deposit are already fairly low, because your principal is protected by FDIC insurance, so they are especially susceptible to inflation. If you lock yourself into a multi-year CD and inflation or interest rates rise, you may find yourself holding onto a CD that is costing you money. The real kicker is you’ll have to pay a penalty to close the CD and access your money!
2. Bank failure – These aren’t a huge deal when it comes to CDs but it can play a factor if you aren’t careful. It’s important to understand FDIC insurance coverage limits because many people learned, the hard way, that part of their CD may not be protected if they are near the limit. This is less of a risk now that the limit is $250,000 but before they temporarily raised it, people were discovering that part of their CD wasn’t protected. If you deposit funds into a CD and the interest it accrues exceeds the FDIC coverage limit, then the overage isn’t protected. Fourteen banks have already failed in 2009, joining the twenty-five banks from 2008, this is a tangible risk.
3. Terms of the CD – Another risk associated bank failure is that the new bank may not honor the terms of the CD. Banks often jack up interest rates to boost their deposits and the receiving bank is not required to honor those terms (if a bank buys another bank, then they are required to honors those terms; if they receive it through the FDIC, they don’t have to honor the terms). You may think to yourself – “So what? I’m FDIC protected; if they don’t honor it then I go elsewhere.” That is true. However, if you consider the time you lose transferring your funds around, time your funds aren’t earning interest, then it has a real cost to you.

A life insurance policy is a key element in any sound financial plan. If you should die prematurely before having built your retirement nest egg, there is no substitute to replace the income you would have earned during the balance of your career for the benefit of your spouse and children.

Annuities are a bit different than life insurance. Annuities are products offered by life insurance companies that generally fall into two categories: immediate and deferred.  Immediate annuities generate an immediate income. In exchange for a lump sum payment from you to the insurance company, they begin making payments to you, typically on a monthly basis.  These products are usually used at retirement, in order to guarantee a lifetime income.

Deferred annuities are more similar to a savings account, but unlike a savings account, they allow your investment to accumulate interest on a tax-deferred basis.  The key advantage to a deferred annuity, versus other savings vehicles, is that the taxes on your earnings are delayed until you make a withdrawal.

There are three types of deferred annuities.  Each offers a different level of risk.  Conservative investors might select a fixed deferred annuity because they offer a fixed interest rate, currently about five to six percent.

Those people who want a higher rate of return (and can shoulder the added risk) might select a variable annuity.  Returns from a variable-deferred annuity fluctuate based on the stock market’s performance.  The rate is not guaranteed and it is possible to lose principal.

Equity-indexed annuity returns are linked to the performance of a stock index, such as the Standard & Poor’s 500.  Interestingly, many of these products allow you to participate in the gains of the stock market, but without any risk of loss each year.  To further decrease risk, the insurance company guarantees a minimum interest rate, typically around one to three percent.  This category of annuities was introduced about six to seven years ago, and has become the fastest growing type of deferred annuity due to its combination of safety and upside growth potential.  Overall, when used properly, annuities can be a valuable retirement investment tool.

People are worried about all kinds of things in this economy. One topic I’ve seen written about lately is retirement plans.   Candice Choi of the Associate Press wrote a good article recently about what happens to your company-sponsored retirement plan if you’re laid off.

She says, the answer depends on how long you worked for the company, the amount you saved up and whether the money’s in a 401(k) or a pension plan.

For the most part, federal regulations protect retirement savings, even if a company goes belly up – which may come as a relief to many given today’s shaky economic landscape. Since the start of the recession last December, the number of unemployed people in the country has increased by 2.7 million, to 10.3 million.

In case you’re worried about your job security, here are some questions and answers about your company-sponsored retirement account.

Following is some additional Q&A that Candice answers.

Q: Do I get retirement benefits if I’ve only been with the company a short time?

A: Companies typically have a “vesting period,” meaning you need to be employed a minimum amount of time to be entitled to certain benefits. With 401(k) plans, the requirement is often three years.

If you’re laid off before then, any matching contributions by your employer may be taken back, said Chris Mahoney, a retirement leader at Mercer, a human resources consulting firm.

If you’re not vested yet and want to know how much money could be reclaimed by your employer, check your monthly 401(k) statement. Employer contributions to date should be listed separately.

Any money you put into the account is yours, even if you haven’t reached the vesting period.

With pension plans, the vesting period can be no longer than five years, and may be less. If you aren’t vested at the time of your layoff, you’re out of luck – you don’t get anything. Though some plans vest workers in stages: For instance, workers may be 25 percent vested after two years and 50 percent vested after three years and fully vested after five years.

Q: What happens to the money in my 401(k) or pension after I’m laid off?

A: If you have less than $1,000 in your account, the company can hand the money over to you. Unless you notify them of your preference within 60 days, it can write you a check or roll the money over into an IRA under your name.

For amounts between $1,000 and $5,000, the company can roll the money over into an IRA, but cannot make a cash distribution without your consent.

For 401(k) accounts valued at $5,000 or more, the company can’t touch the money without your consent. The money stays in place unless you request otherwise.

For pensions worth more than $5,000, some companies may pay lump sums. Otherwise, you’ll start getting payments when you reach the plan’s retirement age, usually around 65, said Dallas Salisbury, president of the Employee Benefit Research Institute.

If you’re not getting payments until retirement age, it’s important to keep former employers up-to-date on address changes. Companies are required to file pension records with the Social Security administration, but it’s still possible your contact information may be lost, Salisbury said.

Q: Should I take a lump sum or keep it in a retirement account?

A: If you cash out a 401(k) or pension, it’s subject to income taxes and a 10 percent penalty if you’re not yet 59 1/2. So it’s to your advantage to roll the money over into another retirement account, such as an IRA. If you find a new job, some companies let workers roll over money from past retirement accounts into current 401(k) accounts.

Q: What happens to my pension if my company goes under?

A: Pensions offered by private employers are typically secured by a federal agency called the Pension Benefit Guaranty Corp.

The PBGC ensures pension payments, but you may not get the full amount your employer promised. Each year, the agency issues a cap on benefits it pays out to retirees – next year’s annual cap is $54,000.

Gary Pastorius, an agency spokesman, said about 35 percent of retirees get reduced benefits because of the cap. Payments may also be scaled back if an employer’s plan sets retirement age earlier than 65.

The PBGC only distributes lump sums for $5,000 or less, Pastorius said. For greater amounts, you’ll get annual payments once you’ve reached retirement age.

“Professional service” companies such as law firms or medical practices with 25 or fewer workers usually aren’t covered by the PBGC.

Under federal regulations, these businesses are still required to maintain certain funding levels for pensions. But if the company goes under, retirees may not get their full benefits or as much as they would if the pensions were covered by the PBGC, said Craig Copeland, a researcher at EBRI.

Q: What happens to my 401(k) if my company goes under?

A: Your 401(k) is protected even if your company goes out of business.

Government regulations require 401(k) funds to be held in a trust separate from employer accounts and from the companies that manage 401(k) plans. The trust funds are overseen by investment managers, and they carry insurance designed to help protect a company from a fraudulent loss due to embezzlement or other misconduct.

As with a layoff, the money may be distributed either as a check or rolled over into an IRA. If you’re not yet vested, promised employer contributions may also be forfeited under a bankruptcy.

Some of your 401(k) might be at risk, though, if your company’s matching contributions are in the company’s own stock – those shares become worthless if the company goes bankrupt.

This article was from Consumer Reports, November 2008.  It’s timely because I know many of you are looking for ways to access emergency funds without too many penalties. I thought you might be particular interested in the part about life insurance.

Suppose you’ve followed our common-sense advice about saving money for a rainy day and have an easy-to-access emergency fund that can cover your expenses for three to six months. What if that rainy day turns out to be a deluge? A medical emergency, a family crisis, or a devastating flood, for example. Where will you get the money to cover the costs of those unexpected events?

You might have cash invested in a 401(k), bank certificates of deposit, stocks, bonds, or even an insurance policy. But cashing in those assets comes at a price in the form of taxes, penalties, or lost investment opportunities. So, if possible, try to handle large unexpected expenses without dipping into your portfolio.

Continue reading “Guidelines for tapping your assets without paying too much in penalties and taxes”

Wills and trusts help us to protect ourselves. These documents indicate who will make important decisions for us in the future. For this reason, understanding how wills and trusts work is extremely important. When do you need a will? When do you need a trust? What is the difference between the two? Suze Orman explains the ins and outs of this very important topic on her website and how a life insurance policy fits within these documents.