LifeInsuranceDoesMatter.com https://lifeinsurancedoesmatter.com Just another InsuranceDoesMatter.com Sites site Wed, 19 Apr 2017 23:17:44 +0000 en-US hourly 1 https://wordpress.org/?v=5.0.3 Life Insurance Needs.. What To Do Now That We Have A Kid? http://lifeinsurancedoesmatter.com/2017/04/19/life-insurance-needs-what-to-do-now-that-we-have-a-kid/ http://lifeinsurancedoesmatter.com/2017/04/19/life-insurance-needs-what-to-do-now-that-we-have-a-kid/#respond Wed, 19 Apr 2017 23:17:44 +0000 http://life.insurancedoesmatter.com/?p=24 ...]]> There are all kinds of life insurance policies of course and depending on your needs, your specific situation and what you can afford to pay, chances are that you’ll end up with a specific insurance policy, hopefully the right one. I personally ended up buying a 20 year policy after getting married. We knew that we were going to buy a house in the following months so the main focus was on making sure that if something happened to one of us, the remaining partner would not have too much of a financial burden. We basically got enough to pay off the house if something happened with a 20 year term policy. The idea was that 20 years from now, we hope (and plan to) have our mortgage paid off. At the time, there did not seem to be need for more.

A few months later, we did buy our house, moved in and later that year, we found out that my wife was pregnant!! Time flew by, our baby boy was born in June 2012 and as many of you know all too well, life became crazy/insane/hectic/amazing/wonderful, etc 🙂 Now, he’s almost 1 year old, starting to sleep better nights and we’re finally gaining control again. Thanks to that, I’ve started looking into different things that I honestly did not have the energy or interest for in the earlier days. Things like setting up a fund for his education, updating my will, and looking at how my insurance needs have changed.

Have My Insurance Needs Changed?

So yesterday I started thinking about the impact of having a baby on my insurance needs. Clearly, the biggest change is in my life insurance needs. If I and/or my wife would suffer a fatal accident, there is no doubt that the consequences would be much more severe. Yes, paying off the house would be a major factor but taking care of our little boy would be the top priority and I think it’s fair to say that raising a kid is expensive. I don’t worry about it if my wife and I are raising him. But what if one of us is no longer there? What if someone in my family has to take care of him? It’s more than enough for that person to worry about him. There’s no need to add a major financial burden at the same time. So we’d need to make sure that this person would have enough financial means to take care of him if something happened.

Another point to consider is the list of beneficiaries if something did happen. There is no doubt that our son would now receive a large portion of that money which is yet another reason to have our current policy updated.

What Is Next?

I guess my main priority right now is getting additional life insurance to cover both financial needs related to raising my son if something did happen (more term insurance basically) but also possibly buying a whole life insurance policy that would help him out whenever we did pass away. This would not so much be in terms of needs but more to help him out. I’ll certainly keep you posted on my progress in that regard.

What actions did you take when you had your kids? Did you buy any additional life insurance? Are you trying to decide?

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Life Insurance Needs… Should I Renew My Term Policy? http://lifeinsurancedoesmatter.com/2017/04/19/life-insurance-needs-should-i-renew-my-term-policy/ http://lifeinsurancedoesmatter.com/2017/04/19/life-insurance-needs-should-i-renew-my-term-policy/#respond Wed, 19 Apr 2017 23:17:30 +0000 http://life.insurancedoesmatter.com/?p=23 ...]]> As many of you know, I personally ended up buying a term life insurance policy. and while I still have quite a few years left on my policy, I had an interesting discussion with my uncle about what to do when a term life insurance policy is coming up for renewal.  The first question of course is how to know. Yes, ideally you can set yourself some kind of reminder while you do your annual insurance review. Why? Because the worst thing that could happen is for you to have something bad happen while you have no current life policy.

Your Insurance Company Will Be On You

While the end responsibility is on you and I to remember to renew such a policy, there is no doubt that in 95%of cases, the company that issued you the policy will reach out to try to sell you a new one. It’s certainly worth hearing them out. But don’t make a big mistake. Hear the company’s offer but then you need to do your own homework. What do I mean?

Revaluing Your Needs: Chances are that your circumstances will have changed significantly since buying that first policy. For that reason, it’s very important to look back at your situation, both financial (debts, income, liabilities, etc) and personal (kids, projects, etc) in order to determine how much coverage you need and if you should look for term insurance or whole life.

Shopping As If You Were Buying A New One:  Once you know your needs, don’t just renew with your initial company’s offer. Yes, it’s the easiest and most convenient but you could end up paying thousands of dollars more because of that…shop, use a broker, do whatever you can to get the best deal possible.

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Life Insurance As An Investment? http://lifeinsurancedoesmatter.com/2017/04/19/life-insurance-as-an-investment/ http://lifeinsurancedoesmatter.com/2017/04/19/life-insurance-as-an-investment/#respond Wed, 19 Apr 2017 23:17:17 +0000 http://life.insurancedoesmatter.com/?p=22 ...]]> Last night I read a very interesting article published by the CFA members magazine debating the idea that life insurance should be treated as a distinct asset class. At first I thought it was a very odd idea but as I read on and continued thinking about it, it started to make a lot more sense.

It’s Not An “Investment” If…

For many, life insurance is protection against bad scenarios where one person’s death would create a financial burden which would create significant issues for surviving family members. I’d agree that in such a case, treating life insurance as an investment does not make sense.

Likewise, for many, the ultimate goal is to be able to live life to its fullest even once they retire and avoid running out of money. That is certainly also a great outlook on investing and there’s no way I could argue with those going for this. In such a case, annuities are a more appropriate investment.

But For Others Including Myself

My objective goes beyond “not running out of money”. I’d like to leave something to my kids to help them out, to insure that the next generation can do even better. I’m not only saving with myself as a beneficiary but also hoping to leave money down the road and I don’t intend “come close”. So for me, investing in a life insurance makes some sense because the risk/return characteristics are so different from any other investment out there. As of right now, I only hold a term life insurance so I can’t consider that an investment really (in the sense that it will only hold value if I die in the next 20 years or so). But I do intend on buying a whole life insurance at some point which will be added to what I’ll be able to leave to my wife and kids at some point down the road. There are fiscal advantages as well which I will explore here in the future.

Have you ever considered life insurance as an investment? I’d love to hear your thoughts on this

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Things To Avoid When Applying For A Life Insurance Policy http://lifeinsurancedoesmatter.com/2017/04/19/things-to-avoid-when-applying-for-a-life-insurance-policy/ http://lifeinsurancedoesmatter.com/2017/04/19/things-to-avoid-when-applying-for-a-life-insurance-policy/#respond Wed, 19 Apr 2017 23:17:01 +0000 http://life.insurancedoesmatter.com/?p=21 ...]]> A few weeks ago, one of my good friends gave me a call about a rather unfortunate situation. His dad wanted to increase his life insurance policy coverage with his existing insurer. They were more than happy to do it obviously and only asked him to do a physical which he did. During the physical, the doctor asked him if he’d like anything more tested. He said he wanted to do an extra test on his heart.. BIG Mistake. Guess what, they found an anomaly. The insurance company accepted the increased coverage but was charging thousands of dollars more per year!

Of course, it was a good thing that he found the anomaly and he will do further testing to find out if there is actually a problem. But sine his insurance company had not asked for this specific test, it was a major mistake to ask for it on that day.

Be Smart When You’re Applying For Life Insurance

It never ceases to amaze me. Buying life insurance is a process that goes on for a few weeks. During that time, there are a few different things that are critical to do:

Eat Well: You will have physicals that will look at your general health. Obviously, eating salad once or twice will not have much of an effect on your overall health but it makes sense to put every chance on your side. Try to eat healthy food, avoid excess alcohol, etc.

Stay Away From “Dangerous” Activities: Ideally, if you’re thinking about going for a parachute ride, trying bungee for the first time or anything of that type, you should wait to have your policy and not discuss it

Don’t Lie: This is something I’ve discussed several times, it’s important when you’re buying your policy to be honest because if ever you do end up making a claim, having lied can make a big mistake. Smoking once in a while is NOT being a non-smoker for example.

Don’t Take Unnecessary Tests: My friend’s dad had a great idea to do such a test. What wasn’t as smart was doing it while in the middle of a life insurance purchase process. He could and should have simply waited to get the answer from his insurance company to do additional tests. Stick to whatever is being asked, nothing more.

These certainly sound like very simple guidelines but they can end up making a huge difference in the profile that the company will use to determine your premium.

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Investing Money Through Your Life Insurance Policy http://lifeinsurancedoesmatter.com/2017/04/19/investing-money-through-your-life-insurance-policy/ http://lifeinsurancedoesmatter.com/2017/04/19/investing-money-through-your-life-insurance-policy/#respond Wed, 19 Apr 2017 23:16:48 +0000 http://life.insurancedoesmatter.com/?p=20 ...]]> It’s bound to happen if at some point you decide or look into buying a whole life insurance policy. you will likely hear about the possibility of paying more than your premium in order to invest through your life insurance. Why would you do it?

Automated Saving: By going down this route, it’s fairly straight forward to invest for your retirement, you usually only decide the type of investing that you’re looking to do and everything else will be taken care of

Tax Savings: Depending on where you live and how the policy is structured, you could get significant tax advantages by investing through your tax policy (in some ways similar to non-taxable retirement accounts like 401K, IRA or RRSP’s)

It’s Not A No-Brainer

Even though both of those are significant benefits, it’s critical that you consider everything involved if you go down this route:

Fees: There are often significant fees involved in such strategies. The investments might have very high annual fees (mutual funds usually) and those can offset part or even all of the gains. If you are paying 2% more in fees to go through this strategy and have a 6% expected long term return, you are paying a third of your performance in fees.

Withdrawing Money: It’s usually possible to get money out of your life insurance policy through different methods and it’s important to understand how it can be done in your policy, what taxes and fees apply, etc.

Lack Of Flexibility: No doubt, it’s great when you have to spend little to no time to optimize your investments but that comes at a price. You will have little to no choice in how your money will be invested. You might choose between aggressive, balanced, safe, etc. But that is hardly being able to avoid certain sectors, etc.

Are You Considering Investing Into Your Life Insurance Policy? I’m guessing that many of you got here because you’ve been pitched on the idea and are considering it. How was it presented? Let me know if you do end up going for it!

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Term Life insurance + investing VS Whole Life insurance http://lifeinsurancedoesmatter.com/2017/04/19/term-life-insurance-investing-vs-whole-life-insurance/ http://lifeinsurancedoesmatter.com/2017/04/19/term-life-insurance-investing-vs-whole-life-insurance/#respond Wed, 19 Apr 2017 23:16:35 +0000 http://life.insurancedoesmatter.com/?p=19 ...]]>

This is probably the biggest question of all times. We’ve been sold on an idea for decades coming from the sole beneficiary of this financial plan… The life insurance company itself! Many think that because you own a whole life policy, you can put money into your life insurance policy and that the money grows without paying income taxes, that it covers all the benefits. Wrong! For most people, having a life insurance protection is the single most important financial transaction they will make. Mainly, it covers all the financial responsibilities you still have but are no longer on earth to make sure it is taken care of. That said, it is imperative to have your own financial situation evaluated by a professional. But keep in mind that you are the decision maker, so place yourself in a position to have all you need in hand to be comfortable making such a decision.

Be wise…

Having said that, I will go back to my initial thought about life insurance and point out that its main goal is to protect your family in case of a breadwinner dying too soon, leaving a family without the proper amount of savings to continue life easily. So, there is a life insurance need to respect. You can not consider being protected with a capital lesser than what you actually need. This is particularly a pretty big issue knowing that regarding on which life insurance product you will own, the premium associated to it varies a lot!

When this first step is accomplished, you are faced with the fatal decision of term or whole life? Taking into account that whole life premium cost is about 2 to 10 times (ohh yeah, I’ve seen 10!) higher than term life insurance, you can easily make the choice to pay a lower premium for your protection. Because it is not rare to see life insurance needs of 400k or 600k$, you don’t want to put all your budget for life insurance and if your need is 550k, you NEED to be an owner of a 550k life insurance policy. You don’t want to do the fatal mistake of lowering your coverage because the wrong kind of insurance costs to much a month!

Now… this is only the first step towards a financial freedom. The next part is putting money aside for savings AND investing. Many people say that it is hard for people to save money, so that’s why they should buy whole life insurance because everything is bundled into the same product and premium each month. Put it this way, if we take a person willing to put aside 500$, 1250$ or 2555$ per month, this person will maintain the same strategy regardless of which product he chooses.

2 things: flexibility and effectiveness

The first point that makes sense when looking at investing money is that you want to keep the control over that money over time. You don’t want it locked in or tied to any other product. That said, when using term life insurance, you pay the amount possible for your coverage and it leaves you with a bigger sum to invest. Now, you can use many tools today to make your money grow over time and for most people, those tools should include mutual funds suitable for you. We won’t discuss them here, but knowing the basis of mutual funds, you should expect a return from 4% to 8% per year on an average (with positive peaks and negatives slumps along the way). Coupled with that, you should be able to use a tax deferred investment vehicle that permits reporting or avoiding any tax payments that would normally be due on your capital gains or dividends. So you are left with the cheapest premium on earth for life insurance and the greater return tax free (or tax deferred). If anything happens along the way, you can still access your money freely without having to cancel anything (either your life insurance policy or your investment as a whole)

On the other hand, having everything wrapped up in a life insurance policy limits your possibilities. First, you pay much much more for the life insurance part. Also, you cannot choose the type of investment you want to invest with. Even thought the cash value is guaranteed in this type of insurance, you limit your potential returns to the guaranteed amount, not a penny more. And it is that guarantee that costs a lot. Do you think a life insurance company will offer guaranteed savings without first charging a premium for that? They are smart. They are the ones taking all the risks, so in exchange, you pay a higher premium and leave all the potential returns on the table to stay with a guaranteed amount. Another point is that for a period from 7 to 10 years, you will have access to a little or no cash value at all. Meaning that even thought you have paid to accumulate money, you won’t be able to withdraw it for the first 7-10 years. And at the first moment that you take off some money, even 1$, your guaranteed cash value are no longer guaranteed!

As a rule of thumb, if a client bought a whole life insurance policy at 35 years old, the amount accumulated in his policy will be equivalent to  about 50% of his coverage at age 65. So a 300k insurance policy will offer a 150k cash value to him at 65. Not much for a retirement isn’t it? The best of all… you will have to pay taxes on the gains you have made over the years! Great isn’t it? (no tax ever on the proceeds if the policy owner dies, but taxes if any amount is withdrawn) And we still have to keep in mind that if you want to take your money out of your policy, you will either have to pay it back with interest OR surrender you policy to the company! So you have invested in a vehicle that was supposed to protect your family as long as you lived but now it has to be cancelled!

I’ll leave you with this: regardless of if you make 50,000$ or 500,000$ per year, your life insurance needs should always be covered by a term life policy! Always! Being properly protected, now you can use tax free savings account for investment purposes.

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Employer-Paid Life Insurance… Do We Need More? http://lifeinsurancedoesmatter.com/2017/04/19/employer-paid-life-insurance-do-we-need-more/ http://lifeinsurancedoesmatter.com/2017/04/19/employer-paid-life-insurance-do-we-need-more/#respond Wed, 19 Apr 2017 23:16:21 +0000 http://life.insurancedoesmatter.com/?p=18 ...]]>

Many people have the fortunate experience to work with a company that takes charge of many little details to make their life better, easier to manage and at a lesser cost. It could be medical insurance, dental insurance or life insurance. When we take a look at the first 2, there is not much that we can do to improve the group-paid plan of an employer. It usually has the advantage to be at a lower cost because it gathers a lot of people in the same policy so the insurer is willing to charge  far less. Sometimes, you can add some characteristics on the group plan to make sure that you are fully covered.

But regarding the life insurance, it is a little bit tricky. Yes you have the enormous advantage of the group so you pay a little less for you coverage… but…

Here are the 2 main “but”s…

The most critical aspect of life insurance, far before looking at premium and challenging what type of life insurance we want, is the fact that everybody has to build their own financial needs analysis. This analysis is so important in 2 ways. First, it defines what is the exact amount of coverage you need in case you die prematurely. And secondly, it covers also the amount of money you need to stop working and retire safely.

It is the basis of financial planning but nearly no one gets through this part. By not knowing the proper amount of coverage, you spouse could be desperately in deep need if you were to live quickly. Generally speaking, most people that have this benefit at their job will receive 1 full year of salary in case they die. This is why most people should compare their financial needs analysis with the actual coverage they have at their job. The great majority will find that they are missing tens of thousands or hundreds of thousands of dollars of coverage. So they can benefit of a part paid by their employer and also make sure they are not in a life insurance coverage deficit.

By knowing the amount of money they need for retirement, they will also get to prepare their savings program much more sooner! Because life insurance is THE most important tool to protect your family in case somebody dies too soon. But on the other hand, you don’t need life insurance at retirement… you need money put aside, ready to pay your bills by the time you are still living! That’s why, after completing a financial needs analysis, I recommend using term life insurance to properly match your life insurance needs throughout time.

The second “but” is the fact that the benefit you are receiving from your employer  will belong to you as long as you stay working for that company. What that means is that we cannot control the future. People working for the same company for 25-35 years don’t exist anymore. So if you base your life insurance coverage solely on the benefits you have at you current position AND that something happens, like a lay-offs, downsizing or simply you quitting your job, you won’t benefit from the group plan anymore. And If you lose your benefits at 45 years old or 55 years old, the cost of getting a life insurance is not the same that the one of a 25 years old person. Needless to say that medical challenges may occur in those years too. So you would pay a lot more for your coverage and maybe you will pay an additional premium or, even worst, you could be declined because of your medical history.

To counter that, you better use a financial needs analysis to set up the exact amount of protection you need, build your plan from A to Z and then subtract the amount of coverage you have from your job group plan. That way, you have an excellent base for your protection and you benefit from the employer group benefits. If you were to change jobs, you will still have a solid coverage and if your future employer doesn’t offer a group plan that includes life insurance, you will easily be able to add up some coverage without hurting your wallet.

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Life Insurance For Investors http://lifeinsurancedoesmatter.com/2017/04/19/life-insurance-for-investors/ http://lifeinsurancedoesmatter.com/2017/04/19/life-insurance-for-investors/#respond Wed, 19 Apr 2017 23:16:08 +0000 http://life.insurancedoesmatter.com/?p=17 ...]]>

When looking to invest your money, you need to use financial intelligence in order to maximise your outcome. And some distinctions have to be made regarding life insurance in an investment strategy: yes, you can use it, but not at all cost!

Protect your investment

The sole use of any kind of insurance is to protect an asset in case of something bad happens (like a car insurance) OR protect a liability (like a mortgage). When dealing with life insurance, the same logic applies. This means that when making an investment, you should always look at your financial context in the same way. You should ask the question: if somebody was to die prematurely, will the investment lose value or will we lose control over the investment?

-Liquid investment (like mutual funds, stocks, etc.): when making an investment in liquid assets, you are pretty much always in control of where your money is and you can access your money really quickly. So in case of somebody dies, the beneficiary of this invested money can redeem the money without losing capital or having to pay fees for early withdrawal (mutual funds companies do not charge deferred sale fees on when the owner dies). On the other hand, knowing that the money could be invested in a tax-deferred account, the person receiving the money will have to pay the taxes due on the withdrawal then the proceeds will be for him. So, with that logic in head, the use of life insurance with liquid assets is not mandatory but you might want to use it to cover taxes for the beneficiary.

-Debt-backed investment (like real estate, a new business, etc.): now when you make investments using any types of financing, there are 2 main ways to look at this.

  1. If your investment can sustain itself over time without you being there to constantly pour in money, like if you have a fourplex that rents are enough to pay all the monthly fees, you don’t absolutely need life insurance. In case of you pass away, the investment can go on without hurting anybody financially. You could also say that no matter what happens, I want my investment to be clear of debt, because it is an investment after all, you should use the proper amount.
  2. On the other hand, you could have made an investment that needs a lot of financial management or needs to move money from one account to another or need fresh new money constantly, like you are growing your company and you have to buy new furniture or hire new employees, you should be backed by a good life insurance! In this scenario, the lost of your management skills or your personal money will hurt the effectiveness of the investment.

It is really important to determine wether you need life insurance or not! After that distinction made, you now need to build the proper life insurance plan. There are many types of life insurance and it can get confusing. The most efficient type of life insurance is term life. It is made up so you can easily cover your needs for, let’s say, the next 35 years and you will pay a very small monthly premium. In fact, your premium will drop as the years go by. You might want to read term life strategies to help you discover how to work with it.

Do not invest in life insurance!

The way to use life insurance is to have a policy with the proper amount covering the debt you have contracted to make it clear of payments or to cover the tax invoice of tax deferred accounts. But for the very vast majority (like 95% of the population: the wealthiest AND debt-free people), you should never invest IN life insurance policies, like universal life insurance. Insurance policies must be used to protect you in case of a disaster. It is not set up to maximize the return on your investment. Have you ever seen a car insurance with an investment rider attached to it? Like for the last 15 years you have accumulated 4,000$ in cash values? Knowing that if you cancel and switch companies, you will receive a check? Euh… nah! Do not count on it. Please, separate investment from protection.

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Not Knowing How Life Insurance Works Can Hurt Your Future! http://lifeinsurancedoesmatter.com/2017/04/19/not-knowing-how-life-insurance-works-can-hurt-your-future/ http://lifeinsurancedoesmatter.com/2017/04/19/not-knowing-how-life-insurance-works-can-hurt-your-future/#respond Wed, 19 Apr 2017 23:15:54 +0000 http://life.insurancedoesmatter.com/?p=16 ...]]>

When opening the life insurance subject, sometimes people get a negative reaction. Maybe that comes from the fact that it is not a subject that we like to talk about in the first place.

I’d like to share a story that is important to me because the client became a great friend of mine and I’ve met him and his wife on a soccer field, coaching his son how to play soccer. I was telling him, Cedric, that I would like to sit down with them talking about the different strategies to build a financial plan. They were open to see me so I sat down at their kitchen table and when I got to the life insurance part, they were looking at me strangely saying that everything was okay! Hopefully, I was convincing enough to take a look at their policies and to give them a little education regarding what they had in their hands for their family’s protection.

Cedric and Tammy (35 and 39 years old non-smokers)

Basically, here is their financial portrait:

Cedric is making 42,000$ per year, while Tammy is not working. She is the one getting everything covered at home with their 3 children.
They own a home worth 180,000$ with a mortgage of 145,000$. They pay 924$ a month to service this debt. They have a car loan of 11,500$ and a consolidated debt of 7,500$. They pay 585$/month between those 2 payments.
Regarding their life insurance policies, Cedric had a 50,000$ whole life policy paying 76$/ month and Tammy had the same 50,000$ for 56$/month. On the mortgage, they had a mortgage life insurance paying 70$/month.

To summarize it up, Cedric had 190,000$ and Tammy 190,000$ for 202$ each month.

The first point to notice here is that even though Cedric was the only breadwinner of the family, both of them had the same coverage!

The second thing to point out is the fact that if Cedric were to die, Tammy would have a house paid for with only 1 year of Cedric’s salary. This is not enough to keep the family’s quality of life.

This is how it should have looked like

By going through the necessary calculations, I found out that Cedric needed 378,000$ and Tammy 204,000$. In that case, it is important to cover the mortgage as well as the other debts. But also, we have to keep in mind that if Cedric dies, Tammy cannot go to work easily with 3 young children. So, their life insurance has to provide a monthly income for Tammy, should Cedric pass away. I put for them a monthly income replacement of 1,500$.

Now that we have found their needs (which are much more than what they previously had), how can we make sure that it doesn’t cost too much for their budget. Because what really happened is that when Cedric saw his life insurance need he told me that he is already paying 202$ for 190,000$ each and he can’t afford paying more!

I told him that I already thought about that and I showed him their new life insurance plan.

As you may already now, there are different types of life insurance on the market. But when we talk about being financially smart, I recommend using term life… always!

So to break things down, here is what I put for the 2 of them.

Cedric 100,000$ on a 25 year term and 278,000$ on a 15 year term
Tammy 100,000$ on a 25 year term and 104,000$ on a 15 year term

Using that plan for them, I make sure that no matter what happens and when it happens, they are covered up. Next thing, I was happy to tell Tammy and Cedric that instead of paying 202$ for their policies, they would only have to spend 93,57$/ month!! So I double the protection with Cedric, increase the one on Tammy and used a 10,000$ rider for the children for less than half the cost!

They couldn’t believe it. But the greatest part of term life is that instead of using life insurance to invest their money in a low return cash value, I used a mutual fund with an average return of 7%/ year. So by cancelling their policy, they got back a 2300$ check for their cash surrender value. But also, we started a 110$/month systematic program in a tax free investment.

By doing so, at their retiring age of 65, Cedric and Tammy will have accumulated roughly 153,000$! I asked them what they prefer to have at 65: a life insurance policy of 50,000$ OR 153,000$ tax-free money? Needless to say that they told me they prefer having money in the bank, instead of still paying for their life insurance policies at 65!

At the end of the appointment, now that we have completed the paperwork, I asked them how do they feel now about life insurance. Tammy told me that she is now more comfortable with the concept:)

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How To Become Financially Independent With Life Insurance… Being Middle-Class? http://lifeinsurancedoesmatter.com/2017/04/19/how-to-become-financially-independent-with-life-insurance-being-middle-class/ http://lifeinsurancedoesmatter.com/2017/04/19/how-to-become-financially-independent-with-life-insurance-being-middle-class/#respond Wed, 19 Apr 2017 23:15:38 +0000 http://life.insurancedoesmatter.com/?p=15 ...]]>

Hey! Who wants money? Who wants to accumulate great riches throughout their life? So much that they can say: I am financially free for the rest of my life? Just  about anybody, right? This time, I would like to make some points clear because I heard so many things regarding this topic: How can I use life insurance to be financially free?

Please, take a moment and try to answer this one by yourself.

Okay, your moment is up. What have you discovered between life insurance and financially free? Have you made some links whatsoever? What makes the people in the industry of life insurance believe that life insurance should be the proper strategy to become financially independent? Is it because people working hard for their money don’t have a clue about this? Or maybe because they charge a higher premium? Or just because it is one of the most profitable product for their bottom line?

Actually, when thinking about life insurance, or any other type of insurance, the primary and only use for those products is to protect you and your family in case something bad happens (car accident, house has burned down, you spouse died, etc.).  So, based on that, when was the last time you shop around and bought a car insurance that offers you to put money into a special kind of account, making sure that while you,re paying for your car insurance, you also accumulate wealth? And when you cancel your policy, after one or two years, they will pay you back all the money you have put into your car insurance?

Guess what, it won’t happen! It should be the same in life insurance. Because the reason this product exists in the first place is to protect you and your family in case somebody who has financial responsibilities dies prematurely, ie, before having accumulated enough money to live with and that it won’t hurt the family’s wallet.

Proper planning should always consider looking at the short term and evaluating what the life insurance needs are in case you die, regarding your financial situation (spouse, kids, house, debts, etc.). This planning should be established for as long as you actively work, because when you retire, you are taking the decision based on the money you have, that you don’t need external income anymore. Based on that, you now build a life insurance program according to the amounts and the time period you need. By doing so, you make sure that whatever happens during the course of the coming years, nothing will put a financial burden on your family’s surviving members. To make sure that you can build the proper program for you, you use term life insurance to model your needs throughout the years. You will then see that you will pay much less for your premium each month… which brings us to our iniital question!

How To Become Financially Independent With Life Insurance?

Now that you are properly protected and that if a decease happens anytime during the future years you know beyond a shadow of a doubt that your family will financially survive, we can start planning on build wealth. Guess if we are going to use life insurance to accumulate that money? Absolutely not! What do you think of using an investment tool instead of an insurance tool? Would that be fair enough? Do you think that you could find a product that really fits your exact needs?

There are lots of ways to accumulate money for retirement and becoming financially independent. The most useful tool to use when you begin, and you don’t need large sums of money to use it, is to set up systematic program that is going to put a certain amount of money each month in a mutual fund. Those funds have a large spectrum of risk, from money market to aggressive specialized funds, you should sit down with an investment specialist to help you select the one that fits your needs. You’ll be able to own a portfolio that you will manage based on your needs, that will generate a far greater return than a whole life policy and you will also be able to use an annuity later on when you’ll stop working. You have by far more flexibility and power than a life policy has to offer when it comes to investments.

The first amount you are going to set aside each month will be the money saved by canceling your whole life or universal life policies. Just by doing so, you can generally save from 30% to 70% of your monthly premium. That’s a start, right?

To be sure that your money grows without paying large sums of tax on it, make sure you use a tax-deferred account. There are lots of rules, depending on where you live, but those help you accumulating your wealth, without paying tax now on the capital gain or interest you have made. Because you make more money each year while you are working at your full time job than the amount of money you will need at your retirement years, it is best to postpone the moment you are going to pay for your tax.

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