Smart Financial & Insurance Moves for New Parents

As you start a family, consider these ideas.  

 

Provided by Michael Snow

 

Being a parent means being responsible to a degree you never have been before. That elevated responsibility also impacts your financial decisions. You are now a provider and a protector, and that reality may make the following financial moves necessary.

 

Think about a budget. As a couple, you may have lived for years without budgeting. As parents, this may change. You will face new recurring costs: clothes, toys, diapers, food. Keeping track of weekly or monthly expenses will be handy. (The Department of Agriculture has an online calculator where you can estimate the total cost of raising a child to adulthood. The math may surprise you: the U.S.D.A. puts the average cost at $233,610 for a middle-income family.)1,2

  

Take care of health and life insurance. Your child should be added to your health insurance plan quickly. Most insurance providers require you to notify them of a child’s birth within 30 days. You can get started before then; be aware that a Social Security number and birth certificate can take weeks to arrive in the mail. If you are in a group health plan, talk with the human resources officer or benefits administrator at work, and let them know that you want to add a dependent to your health care plan. (If you have coverage through a private plan, your premiums may go up after you notify the carrier.) Under the Affordable Care Act, a parent or legal guardian who has health coverage arranged through the federal or state Marketplace has 60 days from the date of birth or adoption to enroll a child as a dependent on their plan; once that is done, health care coverage for the child will apply, retroactively.3

 

Term life insurance provides an affordable way for new parents to have some financial insulation against a worst-case scenario, and disability insurance (which may be available where you work) provides coverage in the event of an extended illness or injury that stops you from doing your job. If you have a Health Savings Account (HSA), you can contribute more per year when you have a child. The maximum annual contribution for a family is currently set at $6,850 (and for the record, the I.R.S. is allowing families to contribute up to $6,900 in 2018).4

  

Draft a will and review beneficiary designations. A will can do more than declare who receives your assets when you die. It can also name a legal guardian for your child in the event both parents pass away. Additionally, you can specify a guardian of your estate in your will, to manage the assets left to a minor child. While you may have named your spouse or partner as the primary beneficiary of your IRA or investment account, you may decide to change that or at least add your child as a contingent beneficiary.5

 

See if you can save a little for college. The estimated cost of four years at a public university starting in 2036? $184,000, CNBC reports. That may convince you to open a 529 plan or have some other kind of dedicated college savings account with investment options. Most 529 plans require a Social Security number for a beneficiary, so they are commonly started after a child is born, rather than before.2,6

  

Review your withholding status and tax forms. An addition to your family means changes. You may also become eligible for some federal tax breaks, like the Earned Income Tax Credit, the Adoption Tax Credit, the Child Tax Credit, and the Child & Dependent Care Credit.7

 

Keep the big picture in mind. You still need to build retirement savings; you still need to have an emergency fund. Becoming a family might make accomplishing those tasks harder, yet they remain just as important.

 

After reading all this, you may feel like you need to be a millionaire to raise a child. The fact is, most parents are not millionaires, and they manage. Whether you are wealthy or not, you will want to take care of many or all of these financial and insurance essentials before or after you bring your newborn home.

 

Michael Snow* may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal or accounting services. If assistance is needed the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are un-managed and are not illustrative of any particular investment.

 

*Financial Advisor offering investment advisory services through Tower Financial Strategies Corp., a Registered Investment Adviser. Tower Financial Strategies Corp. is also a licensed Insurance Agency (not licensed in all states)

     

Citations.

1 – cnpp.usda.gov/tools/CRC_Calculator/default.aspx [9/20/18]

2 – tinyurl.com/y8rlmm7w [2/26/18]

3 – healthcare.com/info/health-insurance/baby-health-insurance-newborn [10/18/17]

4 – tinyurl.com/ya5g75ez [5/1/18]

5 – everplans.com/articles/what-does-a-guardian-of-the-estate-do [9/20/18]

6 – cnbc.com/2018/05/07/this-is-how-much-parents-need-to-save-to-cover-college-bills-in-2036.html [5/7/18]

7 – efile.com/tax-deductions-credits-for-parents-with-children-dependents/ [9/20/18]

Do You Really Need Life Insurance?

Too many Americans have no life insurance. Their loved ones may pay dearly for that choice.

  

Provided by Michael R Snow

 

September is National Life Insurance Awareness Month – a good time to think about the value and importance of insuring yourself.

 

According to a recent Bankrate survey, 42% of Americans have no life insurance at all. They may not know that life insurance coverage has become much more affordable than it once was.1

 

Many people ask if life insurance is really worth the cost; maybe you are among them. The simple answer to that question is yes. It can be stunningly cheap: a healthy, non-smoking man in his thirties may pay less than $45 a month for a $1 million 20-year term policy. Permanent life insurance costs more than term life insurance, but permanent life policies can build cash value over time; term policies cannot.2

 

Life insurance is about managing risk, and if other people rely on you financially, you need to have it in place in case your passing puts them at financial risk. When a spouse or parent dies, there are financial matters to address: a sudden lack of income for a household, bills and mortgages or rent to pay, final expenses such as funeral or cremation costs, and the cost of children’s education. Without adequate life insurance coverage, a household is hard-pressed to meet these immediate, financially draining challenges.

 

Many growing families have inadequate life insurance coverage. The Bankrate survey discovered that 37% of parents with children under age 18 had no policy at all. Some younger families find coverage through group plans, but perhaps not enough: 32% of the survey respondents raising minor children said that the death benefits on their life insurance contracts were $100,000 or less.1

 

The problem of inadequate coverage seems to plague households of all ages. A five-figure life insurance payout can pay for a funeral, but it will not offer much economic insulation to a family after a wage earner dies. Bankrate found that 47% of the Americans who have life insurance have policies with coverage amounts of $100,000 or lower. Twenty-one percent of Americans have policies with death benefits of $25,000 or lower.1

 

How much coverage is adequate for you? Ideally, you should determine that with the help of an insurance professional. As a rough rule of thumb, the death benefit on a policy should be about 15 times your income. If you are considering a term life policy, the term should not end before your envisioned retirement age.2

 

Life insurance can also be valuable while you are alive. A policy with cash value components may grow over time. After a while, you may be able to borrow against the cash value. Sometimes the payout amount on these types of policies can be adjusted as well as the size of the premiums. Of course, you must keep paying the premiums to keep any kind of permanent life or term life policy in force.3

 

While you may decide you prefer one kind of policy over another, the important thing is to have coverage in place – not just to reassure yourself, but those you love. Life insurance can help a spouse or a family maintain financial equilibrium at a time when it is most needed.

 

Michael R Snow may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

*Financial Advisor offering investment advisory services through Tower Financial Strategies Corp., a Registered Investment Adviser. Tower Financial Strategies Corp. is also a licensed Insurance Agency. (not licensed in all states)

  

Citations.

1 – bankrate.com/finance/insurance/money-pulse-0715.aspx [7/8/15]

2 – forbes.com/sites/timmaurer/2016/01/05/10-things-you-absolutely-need-to-know-about-life-insurance/ [1/5/16]

3 – nerdwallet.com/blog/insurance/should-you-consider-cash-value-life-insurance/ [5/6/15]

 

What People Overlook When Shopping for Life Insurance

 

A few realities that must be acknowledged.

 

Provided by Michael R Snow

  

Shopping for life insurance means paying attention to detail. In scrutinizing these details, however, some fundamental, big-picture truths may be ignored.

 

If you want to renew or upgrade coverage later in life, the terms could be less than ideal. You may be healthier than most of your peers, you may have the constitution of someone half your age, but insurers base policy premiums and terms of coverage on actuarial norms, not exceptions. Purchase a term life policy at age 50, and your premiums may be considerably more expensive than if you had bought the same coverage at age 30. This is the way of the insurance business.1

 

Have you had a serious illness? Have you been diagnosed with a medical condition, such as diabetes, sleep apnea, or high blood pressure? You are looking at higher life insurance premiums, and insurers may limit the amount of life insurance coverage you can buy.2

 

A guaranteed acceptance life insurance policy may be the answer, but even with one of these policies, you may have to live a certain number of years after buying the coverage for your heirs to receive a death benefit. Many times, if the insured dies within 2-3 years of the policy purchase, the named beneficiaries only receive an amount equivalent to the premiums that have been paid, plus interest.2

 

Your beneficiaries need to know that you own life insurance. Roughly $1 billion in life insurance payouts sit unclaimed in America. Why? The beneficiaries are unaware of them. Also, sometimes beneficiary designations are hazy; a “husband” is named as a primary beneficiary on a policy, but the insured has married more than once, so an ex-spouse contests the beneficiary form. Such legal challenges may generate court costs offsetting the financial value of the death benefit.3

    

While it seems obvious to inform heirs about a life insurance policy, some people never do – and this simple oversight continues to obstruct life insurance payouts.

 

You need to name a beneficiary in the first place. Some consumers fail to, however, and that can create problems. If you do not designate a beneficiary for your life insurance policy, its death benefit could be included in your estate, exposed to probate and creditors.4

 

You must also recognize that you could live much longer than you expect. Years ago, most life insurance policies were sold with the assumption that the insured party would die by age 100. If the policyholder lived beyond that maturity date, the insurer would simply pay out the cash value of the policy (or something similar) to the insured person at that time.5

 

Today, maturity dates on life insurance policies are often set at age 121, but not all are. There is still a possibility that you could outlive a maturity date and money could be paid out to you instead of your named beneficiaries. This possibility must be acknowledged.5

 

As you shop for life insurance coverage, keep all this in mind. Some policyholders (and their heirs) tend to lose sight of these realities.

 

Michael R Snow* may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal or accounting services. If legal or accounting assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

*Financial Advisor offering investment advisory services through Tower Financial Strategies Corp. (not registered in all states), a Registered Investment Adviser. Tower Financial Strategies Corp. is also a licensed insurance agency (not licensed in all states).

 

Citations.

1 – investopedia.com/articles/investing/102914/7-factors-affect-your-life-insurance-quote.asp [6/28/18]

2 – nasdaq.com/article/4-errors-to-avoid-with-your-life-insurance-cm868133 [10/30/17]

3 – baltimoresun.com/health/blog/bs-md-insurance-deceased-database-20170111-story.html [1/11/17]

4 – thebalance.com/must-life-insurance-be-used-to-pay-a-decedent-s-bills-3505232 [5/12/18]

5 – lifeinsurance.org/blog/does-life-insurance-expire-at-a-certain-age [6/28/18]

Why Life Insurance Matters for New Homeowners

It addresses a significant financial risk.

 

Provided by Michael R Snow

 

If you buy a home and you have no life insurance, there is a financial risk. It may not be immediately evident, but it must be acknowledged – and it should be addressed.

 

What if you pass, and your spouse or partner is left to pay off the mortgage alone? This possibility may seem remote, and it may be hard for you to contemplate. It deserves consideration regardless.

 

Imagine your loved one having to handle that 15-year or 30-year debt by themselves. (Or the debt on an adjustable-rate loan or jumbo mortgage.) Additionally, how would that heavy financial burden come to impact your children’s lives? These tragedies do occur and do bring these kinds of emotional and financial challenges. A life insurance payout may provide some help for a homeowner in the event of such a crisis.

 

When you buy life insurance, the coverage amount should reflect your mortgage debt. You will need enough coverage to help your spouse, partner, or heirs deal with the outstanding home loan balance, should you pass away prematurely.1,2

 

Term life insurance may meet the need. If you are the typical homeowner, you will stay in your current home for about ten years. (Back in 2006, the average homeowner tenure was just six years.) As you may move up, move to another region with different home values, or even rent in the future, a term policy that lets you renew or modify coverage could suffice.1

 

On the other hand, permanent life insurance may be more suitable. The reality is that inflation decreases the value of term life coverage over time. Suppose you buy a 20-year term policy offering $250,000 of coverage today. At just 4% annual inflation, that coverage will be worth 56% less in 2038 – and your home may be worth much more in 2038 than it is now.2

 

Moreover, the cost of term life insurance rises as you age. A term life policy is cheap when you are young, but if you want a new one after your initial term policy sunsets, you may find the premiums dramatically more expensive. In contrast, premiums on a permanent (whole) life policy are locked in, effectively becoming more manageable as time goes by. You may want permanent life for other financial reasons as well, reasons that have nothing to do with your home. A permanent life policy has the potential to accumulate cash value in the future; a term life policy does not.2

 

A homeowner should carefully consider life insurance coverage options. If you lack coverage today, talk to a qualified insurance professional about your options, so that you can insure yourself for tomorrow.

 

Michael R Snow* may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal or accounting services. If legal or accounting services are needed, the reader is advised to engage the services of a competent professional. This information should not be construed as tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

 

*Financial Advisor offering investment advisory services through Tower Financial Strategies Corp. (TFSC), a Registered Investment Adviser. TFSC is also a licensed insurance agency (not licensed in all states).

 

Citations.

1 – themortgagereports.com/26307/homebuyer-tenure-how-long-are-people-staying-in-their-houses [3/17/17]

2 – entrepreneur.com/article/310731 [3/22/18]

Life Insurance Explained

A quick look at the different types of policies.

 

Provided by Michael R. Snow

  

When it comes to life insurance, there are many choices. Whole life. Variable universal life. Term. What do these descriptions really mean?

 

All life insurance policies have two things in common. They guarantee to pay a death benefit to a designated beneficiary after a policyholder dies (although, the guarantee may be waived if the death is a suicide occurring within two years of the policy purchase). All require recurring payments (premiums) to keep the policy in force. Beyond those basics, the differences begin.1

 

Some life insurance coverage is permanent, some not. Permanent life insurance is designed to cover you for your entire life (not just a portion or “term” of it), and it can become an important element in your retirement planning. Whole life insurance is its most common form.2

    

Whole life policies accumulate cash value. How does that happen? An insurer directs some of your premium payments into a reserve account and puts those dollars into investments (typically conservative ones). The return on the investments influences the growth of the cash value, which builds up according to a formula the insurer sets.3

  

A whole life policy’s cash value grows with taxes deferred. After a while, you gain the ability to borrow against that cash value. You can even cancel the policy and receive a surrender value. Premiums on whole life policies, though, are usually higher than premiums on term life policies, and they may rise with time. Also, beneficiaries only receive a death benefit (not the policy’s cash value) when a whole life policyholder dies.2,4

    

Universal life insurance is whole life insurance with a key difference. Universal life policies also build cash value with taxes deferred, but there is the chance to eventually pay the monthly premiums out of the policy’s investment portion.5

 

Month by month, some of your premium on a universal life policy gets credited to the cash reserve of the policy. Sooner or later, you may elect to pay premiums out of the cash reserve – so, the policy essentially begins to “pay for itself.” If all goes well, a universal life policy may have a lower net cost than a whole life policy. If the investments chosen by the insurer severely underperform, that can mean a dilemma: the cash reserve of your policy may dwindle and be insufficient to keep paying the premiums. That could mean cancellation of the policy.5

      

What about variable life (and variable universal life) policies? Variable life policies are basically whole life or universal life policies with a riskier investment component. In VL and VUL policies, you may direct percentages of the cash reserve into investment sub-accounts managed by the insurer. Assets allocated to the sub-accounts may be put into equity investments of your choice as well as fixed-income investments. If you choose equity investments, you (and the insurer) assume greater risk in exchange for the possibility of greater reward. The performance of the subaccounts cannot be guaranteed. As an effect of this risk exposure, a VUL policy usually has a higher annual cost than a comparable UL policy.6

 

The performance of the stock market may heavily affect the performance of the subaccounts and the policy premiums. A bull market may mean better growth for the policy’s cash value and lower premiums. A bear market may mean reduced cash value and higher monthly payments to keep the policy going. In the worst-case scenario, the cash value plummets, the insurer hikes the premiums in order to provide the guaranteed death benefit, the premiums become too expensive to pay, and the policy lapses.6

 

Term life insurance is life insurance that you “rent” rather than own. It provides coverage for a set period (usually 10-30 years). Should you die within that period, your beneficiary will get a death benefit. Typically, the premium payments and death benefit on a term policy are fixed from the start, and the premiums are much lower than those of permanent life policies. When the term of coverage ends, you may be offered the option to renew the coverage for another term or to convert the policy to a form of permanent life insurance.2,7

  

Term life is cheap, but the tradeoff comes when the term is up. Just as you cannot build up home equity by renting, you cannot build up cash value by “renting” life insurance. When the term of coverage is over, you usually walk away with nothing for the premiums you have paid.7

   

Which coverage is right for you? Many factors may come into play when deciding which type of life insurance will suit your needs. The best thing to do is to speak with a qualified insurance professional who can help you examine these factors, so you can determine which type of coverage may be appropriate.

 

Michael Snow* may be reached at 316-765-7738 or info@tower-strategies.com

http://www.tower-strategies.com

 

All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are un-managed and are not illustrative of any particular investment.

 

*Financial Advisor offering investment advisory services through Tower Financial Strategies Corp., a Registered Investment Adviser.

sunset person love people
Photo by Josh Willink on Pexels.com

 

Citations.

1 – thebalance.com/does-a-life-insurance-policy-cover-suicide-2645609 [6/5/18]

2 – fool.com/retirement/2017/07/20/term-vs-whole-life-insurance-which-is-best-for-y-2.aspx [7/20/17]

3 – investopedia.com/articles/personal-finance/082114/how-cash-value-builds-life-insurance-policy.asp [4/30/18]

4 – insure.com/life-insurance/cash-value.html [12/12/17]

5 – thebalance.com/what-you-need-to-know-about-universal-life-insurance-2645831 [5/8/18]

6 – insuranceandestates.com/top-10-pros-cons-variable-universal-life-insurance/ [9/1/17]

7 – consumerreports.org/life-insurance/how-to-choose-the-right-amount-of-life-insurance/ [3/30/18]