Mortgage Info Today Blog » Personal Finance

Do You Need A Whole Life Insurance Policy?

Home Morgage — Fri, 30 Jul 2010 14:18:02 +0000

Do you need a whole life insurance policy? When it comes to life insurance, most people knows very little about the subject, and the many alternatives available only add to the confusion. Typically, we don’t take enough time to sit down and understand each type of life insurance policy and which one is the best for our situation. The sad truth is that many insurance reps will start out by praising the virtues whole life insurance policy. But why?

Why Insurance Agents Love Whole Life Insurance?

Ahhh…I hate to say it, but money talks! The truth is that the whole life insurance policy is one of the highest commissioned products for an insurance representative. Since they can get more commission on a sale of whole life insurance compared to other products (for example, term life insurance), they most likely convinced themselves that whole life is the right product for everyone.

However, this doesn’t mean whole life policy is right for you!

What is a whole life insurance policy anyway?

In short, a whole life insurance policy can be summed up as:

You pay your monthly premium.
In return, the insurance company provides you with an amount of death benefit — let’s say $100k.
If you die while the coverage is active, your estate or your beneficiaries will receive the $100k.
As long as you pay your premiums on time, your coverage is active and can last your whole life (and this is why it’s called whole life insurance policy).

Now, if you want to go deeper into the product:

Some policies allow you to stop paying premiums after a period of time, but the coverage still remains. Basically, the money you have paid into your policy now earn enough to cover future premiums without the need for you to add more fund.
However, you may receive a call from your insurance rep after several years saying that “there is not enough money in the policy to pay the premium” and that you will have to start making payments again. Usually, this happens when the stock market goes south.
You can use your whole life insurance policy as a tax sheltered investment.
In addition to the death benefit, there are a ton of options, such as increasing your coverage without medical exams in the futures, borrowing against your policy, etc.

How much insurance do you need?

To answer this question, I would take a look at:

How much debt do you owe that need to be paid off at the time of your death (such as a mortgage)?
Do you have financial dependents that will need the equivalent of a portion of your salary to maintain their lifestyle once you are gone (e.g., kids or a spouse with a much lower or no income)?
Do you want to leave extra money behind?

And the life insurance policy should also cover:

Basic funeral expenses (about $15,000 to $25,000).
Money for taxes (if you have important capital gains to declare at your death such as a rental property under your name).
Other amount that would be required if you pass away.

Do you need a whole life insurance policy?

The key question to answer this question is to ask yourself: Will you still need this money if you pass away 15 to 20 years from now?

Here are a few things to consider:

For a mortgage, a term insurance is a better fit as you will likely have a paid off mortgage in 25 years.
For your kids, chances are that they won’t need your money in 10-20 years.
For your spouse, you want to leave enough behind so that he or she can maintain the lifestyle without you.

Personally, I am not a big fan of whole life insurance; however, having coverage of $50,000 to $100,000 is a good idea (to provide liquidity and pay for funeral expenses). The rest of your insurance needs would be better served by term life insurance.

Overall, the best advice I can give you is to have your insurance needs reviewed by an expert. If the recommendation is one huge whole life insurance policy, challenge him on the reasons why he offers only one product instead of a combination.

You Need An Emergency Fund: Expect the Unexpected

Home Morgage — Thu, 29 Jul 2010 14:18:02 +0000

No matter how much solid financial planning we put in, life cannot be reduced down to complete predictability. Indeed, there are always unexpected expenses, large and small, that can crop up. And, you never know when something catastrophic, like a major illness or a job loss, will happen. The reality of unexpected financial situations should be enough to help you realize that you need an emergency fund. Indeed, many people found this out the hard way when the financial crisis triggered the Great Recession.

Photo via Wikimedia Commons

An emergency fund will help you prepare for life’s unpleasant financial surprises. Depending on the size of your emergency fund, you can supplement your income if something happens to the ability of someone in your household to work. Additionally, an emergency fund can help you pay for car repairs, or help you take care of other issues that might crop up. A large enough emergency fund can serve as a safety. While it may not provide complete protection, and emergency fund can provide some relief, and help you avoid financial ruin.

How Big Should an Emergency Fund Be?

Many people wonder how much they should have in emergency savings. The answer, of course, depends on your personal situation, and how concerned you are for the future. An old rule of thumb suggested that you save three to six months of expenses up in order to protect yourself. The feeling was that you could live on the money for a few months while looking for a job, and that such a sum could also easily cover emergency repairs.

However, now some are saying that six to nine months of expenses — or even 12 months of expenses — is a better option. After the latest recession, it has become apparent that some jobs may not be replaced in only three months. What you decide is up to you.

To figure out how much you want to set aside in your emergency fund, add up your monthly expenses. Make sure you include your housing and utility payments, and your debt payments. Use your past two or three months’ expenses as a guide for estimating what you spend on groceries. Bank statements and personal finance software can help you estimate your monthly expenses. Then, multiply that number by how many months you want in your emergency fund. If your expenses are $4,500 a month, you would need $27,000.

Building Up Your Emergency Fund

Of course, saving up so much money can be intimidating. However, you do not have to have all the money for your emergency fund at once. You can start small. Open a high yield savings account with as much money as you can spare for the savings effort. Then go through your expenses and decide how much you can set aside each month until your emergency fund goals are met. Even if you do not have the full amount of money at once, some savings are better than none, and you can work up to your goal. You can use automated savings to help with your goal.

Remember that your emergency fund should be relatively liquid and accessible. While you could get higher returns in other products, the fact remains that high yield savings accounts are easier to tap than an investment account when an emergency looms.

Tapping Your Emergency Fund

Eventually, you will have to dip into your emergency fund. When this happens, it is important that you do so in a manner that is planned. First, make sure that you really are in an emergency situation. Wanting a new TV, or getting a down payment for a superfluous car, do not qualify as “emergencies.” Set up separate savings accounts for these short term goals. If you can pay for something without tapping into your emergency savings, do so.

As you use your emergency money, look for ways to stretch your income further. Get a temporary or a part-time job while you look to replace your full-time job, or have your partner work, so that your emergency fund isn’t your only source of income. Look at your spending and see where you can cut back so that your emergency fund lasts longer.

Finally, remember to replace money you take from your emergency fund. You will have to build your fund back up after depleting it a little bit. However, you will be glad you did: You want that money available for the next emergency.

Bad Credit Car Loans: Auto Financing Does Not Have to Be Complicated

Home Morgage — Wed, 28 Jul 2010 23:18:01 +0000

Most people with bad credit envy better rated consumers, who are able to secure auto loans. While many lenders, mostly including banks and credit unions, would not finance consumers with negative marks on their credit, it does not mean that obtaining an auto loan is impossible. Inability to secure an auto loan in most cases arises from lack of industry knowledge, not because of credit standing. Thousands …

Source: Real Estate, Business and Personal Finance Articles

Bad Credit Lending In Digital Age: Unsecured Personal Loans Made Easy!

Home Morgage — Wed, 28 Jul 2010 23:18:01 +0000

Getting loans with poor credit rating is a long and often unsuccessful endeavor for most people. As individuals with low credit scores rarely have marketable assets to provide to lenders as collateral or are rarely homeowners with sufficient equity to qualify for a home equity line of credit, most are stuck with the only choice: unsecured personal loans. Historically, unsecured personal loans have …

Source: Real Estate, Business and Personal Finance Articles

5 Things That You Should Not Cheap Out On

Home Morgage — Wed, 28 Jul 2010 14:18:03 +0000

You can save a lot of money by making an effort to be frugal, and you can use that extra money to do many things. Whatever the reason, being frugal can be great in most instances. I stress ‘most’ because sometimes spending a little bit more will mean you get a far superior product. Sometimes buying the cheapest thing you can find will cost you more in the long run and here are five examples.

Photo by Christopher Cessums via Flickr

Cars

“The cobbler always wears the worst shoes.”

There are a few variations on this proverb but we’ll stick with the one most relevant one. It seems that people that are good at working on cars will end up driving the worst cars. Buying a junker and fixing it up might sound like a cheap way to have a set of wheels but you’ll end up spending a lot more on parts, not to mention the hours of labor that you sink into your automobile.

If you’re fixing up a car that you love then it’s likely worth the cost, but otherwise you should spend a bit more and get something that wont break down every week.

A Toyota or a Honda might cost you a little more (depending on what you drive right now) but they are worth the price of admission. Over the long haul you will end up saving a lot of money on repairs and gas — not to mention your resale value, which will stay very high if you take care of your car.

Just because a car is cheaper in the car lot doesn’t mean it will be cheaper over a five or ten year period. You should also look at cars that are one or two years old because you can save 40-50% or more off the price of a new vehicle.

Internet

Free Wifi Internet access is available almost anywhere these days. What aren’t free are the $4.95 coffees, the $3.40 muffins, and the $1.99 bottles of water that you grab on the way out the door. Making a trip to these free Wifi locations can also cost you money, but the big killer is still food and drinks.

Unless you’re very strict and only use free internet at the library you’re better off getting it in your home. Some people will get lucky and have neighbors that provide them with free Wifi access.

Televisions

Spending a bit of money on a television is almost always worth it. You can get good deals on TVs but you never hear about anyone getting an amazing deal. That’s because, for the most part, the prices on televisions won’t change from store to store. It’s almost like buying gasoline.

Most electronics stores have cheaper model TVs but they’re not going to last forever.

The only way you might be able to find a killer deal is Craigslist but make sure you test it thoroughly before you buy it. And ask for a receipt so you know the TV isn’t stolen.

Mattresses

You can find good deals on great quality mattresses but you will still need to put down some big bucks.

A mattress will last you 10 or 15 years and when you think about the fact that you’re in it 1/3 of your day it might make sense to purchase a nice one. If you buy a cheap futon then you’ll need to get another one in a few years or suffer through bad sleeps.

A big comfy mattress will be good for your health, relationship, and most importantly…your wallet.

Computers

If you only use your computer for checking email then you might be fine with a cheaper model, otherwise it’s time to stop the penny pinching.

Having a good desktop computer or laptop will save you so much time and energy. It will also save your sanity.

If you’ve gone through four computers in the last 5 years it might be time to make the switch to a better, faster, and (unfortunately) more expensive machine.

These are the five things that I feel you shouldn’t cheap out on. There are still deals to be had but remember that you’ll be living with these things for many years and you’ll use most of them everyday. You’ll save by spending a bit more.

Budget Once, Spend (or Save) Twice!

Home Morgage — Tue, 27 Jul 2010 14:18:02 +0000

Since passing my CFP^® exam, more and more of my friends are coming to me for financial advice. Sometimes they have a specific question, sometimes they want to create a plan to get out of debt, and sometimes they just want some advice on how to manage their finances going forward. No matter what they ask for, I always start with the same thing – do you have a budget? When they say no (which they almost always do), I set out to help them make one. And then, I give them my most valuable piece of financial advice. The one I’d write a book about if I ever got a book deal. My answer to David Bach’s “Latte Factor” and Dave Ramsey’s “Baby Steps:” whatever you spend (or save), do it twice — or as many times as you get paid each month.

Photo by Yutoobin via Flickr

How it works

When I started working, I would get paid on the 30^th and pay my rent on the 1^st. It would take about 70% of my take-home pay. I would worry for the next 15 days about every dollar I spent on food, clothes, and entertainment. And I did basically no saving. Then on the 15^th, I’d get paid and have exactly one obligation: my $100 student loan payment. I would pay that and then live high off the hog until the 30^th…and start the cycle again.

One day I woke up — what if I paid half my rent out of each paycheck? It’s not revolutionary, but it did wonders for my cash flow, my morale, and my savings account.

Now, I do everything twice — I use an Excel spreadsheet to help me track my income, spending, and savings. I created a budget that estimated my total monthly expenses and divided each number by 2. For things like food, I keep the money in my checking account and use it until the next paycheck. Fixed monthly expenses are treated a little differently: Half my rent is put into savings each paycheck. The total amount is then transferred over on the 30^th to make my rent payment on the 1st. Similarly, half of my student loan payment is put into savings each paycheck, then transferred back to checking on the 15^th to make the payment on the 16^th.

In addition to my monthly expenses, I add up annual expenses, divide the amount by 24 and save that amount each paycheck. I also add up planned out-of-the-ordinary expenses like travel and split them by the number of paychecks remaining before they occur, then save that amount each paycheck. More recently, I’ve been using SmartyPig to do the calculations for me.

Why it works

This system is great because it equalizes your spending and saving throughout the course of the month. No more feeling deprived for two weeks and then splurging on needless items for the other two weeks. Instead, you have a good idea of exactly how much money you have at any given time, and can rest easy knowing that your major expenses, such as rent, are taken care of.

Automating your savings will eliminate even more temptation. I use auto transfers to transfer the appropriate amounts for fixed expenses back and forth — putting them in savings the day I get paid and then pulling them back to checking the day I know the payments will hit my account. This way, money earmarked for certain things is out of my checking account, and impossible to spend accidentally.

How you can do it

If you want to join the “budget once, spend (or save) twice” movement, it’s easy. First, create a monthly budget that estimates your monthly spending on items such as housing, food, bills, transportation and entertainment. Divide each amount by 2 (4 if you are paid weekly), and start allocating your paycheck proportionally. Do the same for annual expenses such as car insurance, dividing by 24, and long-term savings goals such as upcoming travel or holiday gift giving, dividing by the appropriate number of paychecks. You may choose to use subaccounts at ING, an Excel spreadsheet, or simply a variety of checking and savings accounts to help keep your different pots of money straight.

This system takes at least a month to really get started. Starting in the middle of the month and putting aside half of the next month’s expenses is usually the best way to do it. Depending on how you do things, though, you may also be able to start at the beginning of the month. You might also choose to transfer over a few budget categories at a time over to this system, until you’ve given yourself enough breathing room to do it all at the same time.

Are You Aware of the Most Common Credit Threats?

Home Morgage — Mon, 26 Jul 2010 14:18:03 +0000

The Associated Press reports a new finding by FICO, Inc. that 25.5 percent of consumers, or nearly 43.4 million people, currently have a credit score of 599 or less. With a quarter of the nation suffering from credit card debt and poor credit scores, it’s obvious that many are not aware of the number of factors that can lower their credit scores.

Photo by The Truth About via Flickr

You can probably list several things you know can contribute to decreasing your credit score, but it’s unlikely you can name them all. In fact, a list of different things that impact your credit score negatively has been compiled by CreditReport.com, and among them are late or missed payments, bankruptcy and periods of unemployment.

Did you know that these common occurrences harm your credit? Here’s a closer look at how these situations are a threat to your credit.

Missed or Late Payments

You may be willing to pay that late fee every now and then if it lets you skip another bill for a few extra days. For some people, $20 or $30 isn’t a big deal. Plus, the Fed is making it even easier to rationalize paying a late fee by approving new credit card restrictions, including a late fee cap of $25.

So why not pay bills late and fork over the extra fee when budgeting gets a bit messy at the end of the month? Go ahead if you don’t care about your credit score.

If you do care, you need to pay every bill on time. Linda Stern of CBS Money Watch details some of the additional regulations that go into effect on August 22, 2010 as part of the CARD Act, but advises that you still need to protect your credit even if the new laws make it easier to skip payments. Stern writes, “Even with new limits on late fees…Late payments will hurt your credit score and that, in turn, will cost you more on everything you borrow.”

Bankruptcy

Filing for bankruptcy is a huge decision that will have a lasting effect on your credit. As Consumer Credit Couseling Services (CCCS) explains, “Credit that you are able to obtain may be from sub-prime lenders that carry very high interest rates. Plain and simple, this translates to costing you more money for future credit transactions.” If you want to keep your credit intact, you can’t let your finances reach the point of bankruptcy.

Even so, all is not lost if you must file. Bankruptcy ruins your credit in the short-term, but the damage is somewhat reversible. MSN Money’s Liz Pullam Weston details an example of Ken, who filed Chapter 7 liquidation after he accumulated more than $20,000 in credit card and other unsecured debt. Then, after four years, his credit score bounced back up and ranged from 655 to 719, which are just below what one would need to get lender’s very best rates.

Unemployment

Many Americans have found themselves without a job after finally graduating with a four-year degree or even having already put in decades of hard work. With no job, paying the bills gets a lot harder and it becomes necessary to file for unemployment benefits.

While unemployment often leads to lower credit, it’s a common misconception that one’s unemployment status negatively effects their credit score.

Experian’s “Ask Max” section, a credit advice forum, features a question regarding this concern: Will filing for unemployment be reported on your credit file, and will it affect future credit consideration?

Max wraps up his answer to the above question with this, “The impact of unemployment could be reflected in your credit report if you are unable to pay your debts as a result of the layoff, but the unemployment filing itself will not become part of your credit history.”

Filing for unemployment does not lower your credit score and is not reported by credit bureaus. The reason unemployment is a common credit threat is because you are forced to rely on a reduced income to pay for expenses and often must rely on credit cards that you can’t afford to pay off.

Having a good credit score is essential for your financial well-being. Once you have bad credit, it’s tough to repair it, but maintaining excellent credit from the start doesn’t have to be hard at all. In order to protect yourself from these common credit threats, practice the type of behavior that keeps your finances in good standing: Don’t spend more than you can afford to repay and keep an emergency savings account to buffer against unexpected expenses or loss of income.

Unsecured Loans: Borrowing Made Easy for All Credit Grades

Home Morgage — Sat, 24 Jul 2010 15:18:02 +0000

Unsecured loans are an excellent way to get money for whatever needs you may have. They are advantageous of any other loans, offered in the marketplace today, for numerous reasons. As lenders do not require you to disclose where and how you are going to spend the loan proceeds, unsecured loans may be a perfect fit for any expenditure you may have. Unlike many other loans, unsecured personal loans do …

Source: Real Estate, Business and Personal Finance Articles

Foreclosure, Bankruptcy, and Your New Home: Bad Credit Mortgages Explained

Home Morgage — Sat, 24 Jul 2010 15:18:02 +0000

Bankruptcy is tough, but is often the only alternative to get relief from piled-up debts. Most people file bankruptcy after significant financial events: divorce, serious medical condition, long-lasting loss of income, and many others. Some people manage to avoid bankruptcy, and to pay off or discard their debts by means of debt consolidation and foreclosure. This way, or another, both foreclosure …

Source: Real Estate, Business and Personal Finance Articles

How To Budget And Track Spending For Your Vacation

Home Morgage — Fri, 23 Jul 2010 15:18:02 +0000

Vacation is one of those luxuries that can easily cause you to go over budget. Even the best budgeter gets caught up in the spur of the moment. I know no one really wants to budget on vacation. But, I promise you, there is one thing worse than budgeting on vacation — that is, being harassed by collectors after your vacation just because you spent more than you could afford to pay.

Photo by Fevi Yu via Flickr

Budgeting Is Not Just For Geeks

There is something synonymous about geeks and budgeting. When we think of budgeting, we imagine a slender person with horn rimmed glasses tracking every purchase with a notebook and pencil. Learning how to make a budget is about learning how to find a budget that is effective, but uses as little time an energy as possible.

Is there a way to keep track of your spending and have fun on vacation?

There is…and the key is to set up a way to track your spending that is relatively painless.

A Note About Credit Card Spending on Vacation

While everyone has their opinions about credit cards, on vacation the advantages of credit cards and disadvantages are even more extreme. Seriously, who wants to get in a bind away from home without having a credit card? Do you really want to email your Granny and ask her to transfer money to your account? Convenience is a major advantage of credit cards on vacation. On the other hand, on vacation we tend to say things like, “Hey, we’re on vacation. Let’s just do it.” Credit cards make spending too easy on vacation. They might just be too convenient.

The biggest problem with credit cards on vacation is that they only help you track the spending after it has happened. In other words, most people charge and charge on vacation, and then they go home to add up the total damage. This is not an effective spending plan. Budgeting is more like sending in the SWAT team to change the course of events, not like sending in the recovery team to pick up the mess.

For these reasons, I tend to use cash for various purchases on vacation (a major exception is when I can take advantage of a 0% foreign currency credit card purchase). On vacation, I suggest people steer away from credit cards as it will be really hard to track your spending.

Painless Vacation Budgeting Method

Of course, we all know that budgeting is simply tracking what you have already predetermined to spend on vacation. So, before you leave for vacation, you will need to do the necessary work of determining how much vacation you can afford. Once you have those numbers in place, you can adopt one or a combination of both tracking methods below.

Painless Way To Track Spending #1: Track ATM Receipts Only

Instead of tracking pennies or dollars, you only need to track trips to the ATM. This way you don’t need to keep receipts or carry a little notebook.

Let’s say you set your vacation budget so that you will have $1,000 in spending money. Using this method, you would got to the ATM and take out $200 (as an example). At $200 per trip, you get five trips to the ATM. All you do is make sure your visits to the ATM do not exceed five withdrawals.

This is a much simpler way than the traditional envelope budgeting system.

Painless Way To Track Spending #2: Prepaid Gift Cards

Another great way to help curb your spending on vacation is by using prepaid gift cards. You might buy a $50 card for your favorite restaurant and $50 for your favorite movie theater. In addition, you could even consider some prepaid credit cards for other miscellaneous spending. This way you don’t need to track your spending; you only need to track your card balances. Once the card balance is finished, you know you have used the full budget for that category.

As an added bonus, you can often buy prepaid gift cards or gift certificate for a discounted price.

Do you track your spending on vacation? How do you track your spending on vacation?

Mortgage Info Today Blog » Personal Finance

Do You Need A Whole Life Insurance Policy?

Why Insurance Agents Love Whole Life Insurance?

What is a whole life insurance policy anyway?

How much insurance do you need?

Do you need a whole life insurance policy?

Recommended articles:

You Need An Emergency Fund: Expect the Unexpected

How Big Should an Emergency Fund Be?

Building Up Your Emergency Fund

Tapping Your Emergency Fund

Recommended articles:

Bad Credit Car Loans: Auto Financing Does Not Have to Be Complicated

Bad Credit Lending In Digital Age: Unsecured Personal Loans Made Easy!

5 Things That You Should Not Cheap Out On

Cars

Internet

Televisions

Mattresses

Computers

Recommended articles:

Budget Once, Spend (or Save) Twice!

How it works

Why it works

How you can do it

Recommended articles:

Are You Aware of the Most Common Credit Threats?

Missed or Late Payments

Bankruptcy

Unemployment

Recommended articles:

Unsecured Loans: Borrowing Made Easy for All Credit Grades

Foreclosure, Bankruptcy, and Your New Home: Bad Credit Mortgages Explained

How To Budget And Track Spending For Your Vacation

Budgeting Is Not Just For Geeks

A Note About Credit Card Spending on Vacation

Painless Vacation Budgeting Method

Painless Way To Track Spending #1: Track ATM Receipts Only

Painless Way To Track Spending #2: Prepaid Gift Cards

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