Life Insurance 101: Part Two

So now that you’ve had a week to think through this thing called Life Insurance, what do you think?

Hopefully, after gathering the three items from last week’s blog and studying them, you realize that it is now time to secure life insurance outside of employer provided life insurance coverage.

Let’s get started. How much employer provided coverage do you have? How much non-employer coverage do you have? Gleaning from your bank statements, highlight non-monthly expenses. This could be property taxes, car insurance, homeowner’s or umbrella policy insurance. If PITI is included in your mortgage payment, then go with that. Take an average of monthly expenses after backing out the above non-recurring items. Your spreadsheet could look something like this.

Life Insurance-Employer provided (1 times annual salary) $50,000
Life Insurance-Term life policy (non-employer provided) -0-
Monthly expenses (excluding non-recurring charges) 4,000
Non-recurring annual charges 5,500
Debts Mortgage $150,000
2nd Mortgage 20,000
Education funding 100,000
Other loans 5,000
Student Loans 35,000
Auto Loans 20,000
Total Debts $330,000

Here’s what I glean from this analysis:  If you die tomorrow, you owe $330,000 in debts, your annual expenses are $48,000 ($4,000 x 12) annually with non-recurring annual charges of another $5,500.  Your family is left with the surviving spouse’s salary (if they even work) and $50,000 in life insurance to pick up and make something of their lives.  Essentially, that glorious employer provided coverage gives your beneficiaries one year’s worth of expenses and nothing towards the debts that you owe.  This is a very typical scenario and as you can see it is not going to work.

So do something that is going to work.  The above matrix is overly simplified for purposes of one thing:  Getting the point across.  The number crunching should be much more extensive.  Google “Life Insurance calculators” for good examples.  What I generally find when I scrub the numbers are things I wouldn’t have normally thought of if I didn’t scrub the numbers.  Do the right thing for your beneficiaries and scrub the numbers.  Pay attention to the details.

Here are a couple of options:

    1. Buy more employer provided coverage, especially if its portable.  Buy enough to start closing the gap.
    2. Secure your own life insurance policy outside of your employer’s.  This could be in the form of a longer term “term” life policy based upon the ages of your beneficiaries (children).
    3. Meet with an insurance advisor (fee only) and pay them to do the above analysis on a more extensive basis.  Discuss other forms of life insurance and their applicability to your circumstances.

Here’s why you buy life insurance:

    • To provide continuing income for your family members
    • To pay off debts you leave behind
    • To pay final expenses and taxes
    • To provide an estate for your loved ones
    • To leave money to charity

Do this now!  Because it’s about life and how you live it!

In the spirit of financial well-being,

Paula Cashflow

 

Life Insurance 101: Part One

As Open Enrollment season approaches, you might have the option to choose employer provided life insurance. Generally, most companies offer a no-cost group life insurance option limited to one- or two-times your annual salary. Needless to say, this is not an employee benefit option that anyone should pass up.

Here are some things to consider this open enrollment season when evaluating your benefits plan for 2015. If you are in any of the following categories, you MUST consider electing this coverage: Continue reading

Money Lessons I Have Learned

Over the years most of the money lessons I’ve learned have involved money and some combination of family or friends.  This is a sensitive topic.

Money and family can be a toxic combination, but I’m going to attempt to address some events that can transpire and hopefully not offend any of my readers in the process.

As I take a deep breath, here are a few of my toughest money lessons: Continue reading

Fees You Should Start Boycotting Today

When I first started to pay more attention to the expense side of my wealth accumulation strategy, I started taking a harder stand on ALL fees that I was being charged.  You might be thinking, well, what control do I even have over these fees?  Answer:  you have total control.  Businesses are focused on fee revenues to boost overall revenues during periods of low interest rates.  Don’t let fees erode your savings. Continue reading

7 Tips for Buying a Car

7 tips for car buying nirvana. It’s execution time!

I’ve been asked by so many readers, friends and fellow financial gurus to write about my car buying experiences.  There are a gazillion excellent articles on this topic, but we are approaching the time of year when the 2015s are coming out and the 2014s are on sale.  It’s execution time!  How about a refresher? Continue reading

Investing in Your Human Capital

Stocks are up, bonds are in la la land and commodities have been pummeled. Should you be relying solely on your financial capital as the major driver of your overall portfolio? There are other types of capital that you may already possess. Capital that has weathered the financial crisis, maybe survived a layoff (or two), and could possibly mature into another long term holding of your portfolio. Continue reading

Your Three Month Financial Checklist

July Cashflow update: Completing your three month financial checklist

Every quarter I sit down and complete a personal financial statement (PFS).  As of June 30, 2014, my PFS will show all my assets, all my liabilities and the resulting total net worth.  I use an Excel spreadsheet, so each quarter has its own tab.  I compare each quarter’s results with the last quarters’ results to see if my net worth increased.  Yes, it is good if the number is larger quarter over quarter.

But what should you really glean from your PFS? Continue reading

5 Ways to Deal with Housing Costs

What does the current housing market mean for your future finances?

Whether you’re a renter or a home owner, it still means just about everything when you’re building wealth.

Why?  Because the price of home ownership is usually the single largest line item of a budget.  If you don’t get your hands around procuring long term affordable housing, your financial future might be stalled. Continue reading

Net Spenders Guide to Big Savings

Financial freedom is not just for net savers. Everybody needs to start embracing financial autonomy.  Becoming a net saver, by choosing to save your discretionary dollars versus spending, is a good way to start.  Even if you fall into the category of “net spender”, I have news for you, you can become financially autonomous with a little behavior modification.  Continue reading