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How Much Term Life Insurance
Should You Buy?
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You may have read that term life insurance rates are at historic lows and that now is the time to buy. It’s worth a quick primer on why life insurance is necessary and who should buy it before getting to specific amounts that individuals should own.
First, a quick definition of what term life insurance is. A term policy is a policy with a set duration on the coverage period – anywhere from one to 30 years – and when it reaches the end of that term, the policyholder decides whether or not to renew it. Term policies provide no cash buildup like whole or universal life insurance – it only provides a death benefit at the time the insured dies. Because term doesn’t provide that investment component, term is generally cheaper to buy than whole or universal life.
The first point is to decide whether you need insurance. People without dependents generally don’t, while people with spouses and families generally do. The primary point of life insurance is to replace income if a breadwinner dies.
As for the decision on what kind to buy, it helps to get some advice. A reputable insurance broker can help you determine the right insurance products to buy based on your needs and other assets. Better yet, he or she can help shape your insurance needs as part of your overall estate plan.
An insurance professional can assist you in deciding how much life insurance to buy and over how long a period. If you would like a list of life insurance professionals, please feel free to contact our office at (925) 299-1500.
Here are some critical questions that should be asked when purchasing insurance:
- How much income would your spouse and your children need to replace your income over a period of years based on your current age?
- Will your spouse or guardian need to provide childcare support?
- Is there a mortgage to pay off?
- Are there substantial short-term debts, like credit cards or auto loans, to pay off?
- What are estimated college expenses for children and spouses, and when will those expenses start?
- How much will burial expenses be?
- Do you have any other life insurance?
- Are there anticipated expenses for care giving for elderly relatives or children or family members with special needs?
- Do you anticipate substantial estate taxes when you die?
- Do you have any other assets that can be liquidated sensibly or will bring in income?
Most online life insurance calculators found at most business news and personal finance websites can help you address questions 1-8. The last two questions require a bit more strategic thinking in terms of what you or your spouse has done with overall estate planning. Keep in mind that youth and health will also be factors in how much insurance you can afford to buy. And keep in mind that life insurers will investigate suspicious claims, so be honest about all facts you report.
Many term life policies are both "renewable" and "convertible." Renewable means you can renew your coverage without a medical exam. The latter allows you to convert your term life policy into an equivalent cash value policy from the same carrier, should this make sense during the term of the policy. Again, the kind of coverage you choose should depend on your own personal needs and a financial planner can help you determine what those are.
Also, as you check various companies, it’s important to work with the most financially healthy carriers. Insure.com provides free ratings from Standard & Poor’s on various insurers, and many public libraries have subscriptions to ratings from A.M. Best.
One more thing, don’t buy insurance and forget about it. Make sure that every few years you are reviewing your insurance purchases as part of your overall financial plan. Life circumstances change – incomes rise and fall and family size changes. Your insurance holdings always need to reflect current needs and conditions.
Please call our office at (925) 299-1500 or toll free (888) 299-1500 if you are interested in scheduling a review of your investment strategy and/or financial plan. If you are not a client of Capital Advantage, Inc., we offer free no obligation consultations. Please also feel free to contact John Hayman, Donna Zinman or Gary Clarke for a list of excellent referrals to a variety of professionals. |
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Analyze Charities and Give Smarter
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Despite the recession, Americans haven’t shut down much of their charitable giving. According to the Giving USA Foundation, U.S. charitable giving stood at $307.65 billion in 2008, down only 2 percent from the previous year.
This year may not be an exception given the outpouring after the Haitian earthquake. But if you’re going to give, give smart. It makes sense to develop a long-term giving strategy that dovetails with your current finances, your estate-planning strategy and your values.
A visit with a qualified financial and tax adviser is a good first step in the giving process no matter what your age or assets. It’s important to view this process the way you would examine any investment – with solid research and an open ear to advice.
Here are ways to research and give to nonprofits and charities:
Go online:
More than ever, the Internet is a great starting point for investigating various charities. Among them: www.guidestar.org, www.charitynavigator.org, www.charitywatch.org and www.give.org are search engines that give detailed overviews of various charities, but they also help you identify nonprofits that work within specific causes and subject areas. A foundation called Philanthropedia not only rates various nonprofits, but allows visitors to make direct donations through the site. If your charity is not on the Internet, request a copy of their Form 990, the form the Internal Revenue Service requests from all nonprofits. The IRS did an overhaul of the form in 2007 to request more information on governance. While the forms are detailed and sometimes tough for neophytes to understand, it’s not a bad idea to keep the information on file as you discuss the material with your advisers.
Figure out if you’ll need income from your gift:
There are ways to draw income from donations. Your financial adviser can work with an attorney and CPA to help you in understanding the following options:
- Charitable gift annuities allow a donor and a charity to enter into an annuity agreement that will allow payments back to the donor that may be partially or all tax free;
- Charitable remainder trusts allow someone to donate cash or appreciated property to a trust that can sell the appreciated property and distribute proceeds to the donor on a tax-advantaged basis;
- Life estate agreements let someone with a home or farm to keep living there while they receive a tax deduction for the gift. When they die, there may be savings in probate costs and estate taxes.
- Pooled income funds are now offered by established mutual fund companies and allow you to deposit money now for distribution to charity in the future while allowing you to receive tax-advantaged income.
Consider making a major direct donation if the charity or foundation will accept it:
If you know of a foundation or charity that you want to support, research it first and see what its policies are toward accepting donations of cash, stock or property. Not all foundations accept such gifts from the general public.
Please call our office at (925) 299-1500 or toll free (888) 299-1500 if you are interested in scheduling a review of your investment strategy and/or financial plan. If you are not a client of Capital Advantage, Inc., we offer free no obligation consultations. Please also feel free to contact John Hayman, Donna Zinman or Gary Clarke for a list of excellent referrals to a variety of professionals. |
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Pay Close Attention to Your Estate Plan in 2010
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Estate planning is an essential part of anyone’s personal finances -- no matter how wealthy you are. But even for those who have been diligent about planning for their spouses and heirs, this is a year when it may make particular sense to re-examine your strategy.
With the nonstop flurry of legislative activity in Washington, Congress has not acted on the phase-out this year of the estate tax. If nothing is done this year, the heirs of any person who dies in 2010 won’t be liable for any federal estate taxes, no matter how big the estate. (The carryover basis rules for 2010, however, may give rise to additional planning considerations.)
Yet, the potential bad news will come next year when the estate tax is scheduled to return with a vengeance on all estates over $1 million (the threshold was $3.5 million for individuals in 2009) with a potential return to a 55 percent top tax rate. It’s worth a trip to your estate planner and your financial advisor to help ensure your paperwork is in order and the previous plans you’ve made won’t cause problems.
Family trusts – also called bypass or credit shelter trusts – are of particular concern. These trusts work this way: Individuals add what’s known as a formula clause to their will or revocable trust that distributes up to the maximum amount of assets that can pass free of estate tax to the trust if the individual dies before their spouse. The creation of the trust helps ensure that once your spouse dies, neither these assets nor any appreciation on them will be subject to estate tax. But if you die this year, a failure to address the formula clause could potentially cause you to unintentionally disinherit your spouse.
The bottom line: It’s worth making a call to your estate planning attorney to make sure your plans are still in order. What if you don’t have an estate plan? Even if you are not particularly wealthy, you potentially could need one.
Here are some specific things you should do and make sure you have in place:
Make a financial plan:
You can not have an effective estate plan without a full grip on your finances. First, sit down with your Capital Advantage, Inc. advisor to gain an understanding of all the various aspects of your finances from your income and investments to your debt. Add various facts about your family situation and that’s the starting point for an estate plan.
Make a will your first priority:
Unless you have a complicated estate, a standard will with wording common to your state may be satisfactory to properly dispose of your assets. It is generally a good idea to get feedback from an estate attorney to make sure your will fits you and your financial structure. (If you need a referral to an estate attorney, please contact our office).
Create all necessary directives:
It is important to create a Durable Power of Attorney for financial and healthcare proxies to appoint a trusted individual to oversee health and/or financial-related decisions if you are unable to do so for yourself. Some states will allow you to appoint more than one individual in each role to allow for checks and balances, but it is particularly important to work with an experienced estate attorney to make sure things are done right.
Establish guardianship and financial directives for your children:
If you and your spouse were to die at the same time, who would take care of your kids? Based on your state’s requirements, your decision may need to be written up as part of or an addendum to your will. It is also a good idea to name alternates in case the people you name have a change of heart for any reason, or if something happens to them. If your children are to inherit substantial assets or insurance proceeds, it is also wise to make sure that their guardians are qualified to handle that money. If not, someone else should be legally named to do so.
Review all beneficiary information:
Very important - make sure all your beneficiary designations on retirement accounts, life insurance and annuity contracts are current and clear. A periodic review of named beneficiaries on all accounts is a prudent wise practice.
Consider transferring IRA assets to a Roth IRA:
You will have tax consequences on the converted amount; however, converting traditional IRAs into Roth IRAs removes another headache for your heirs because no income tax will be assessed when funds are withdrawn from a Roth IRA. There are specific income limits to qualify for Roth conversions. |
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John Hayman, CFP
Founder & President
Email John |
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Donna Zinman, MBA
Senior Financial Advisor
Email Donna |
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Gary Clarke
Senior Financial Advisor
Email Gary |
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Rick McNamara, CFMC
Director of Investments
Email Rick |
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Dawnalizabeth Henke,
MBA, MSFA
Chief Compliance Officer
Email Dawnalizabeth |
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Catherine Norris
Manager of Client Service
Email Catherine |
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Aimee Schwartze
Director of Client Service
Email Aimee |
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Amy Montano
Office Manager
Email Amy (AJ) |
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