Life insurance can be one of the most complex – and confusing – financial purchases out there. Like many complex areas, planning ahead and understanding the product you are buying, along with a defined goal, can save you from wasting money, time and prevent nasty surprises that result from the gap between expectations and reality.
First of all, understand WHY you are buying life insurance, and then identify the product or products that best fit your reasons or goals. There are many reasons to purchase life insurance, and a few common ones are:
- Income replacement for the family in case of death
- Inheritance for the family
- Funding retirement
Once you decide on your reasons, you can pick a product. This article isn’t intended to promote insurance products, merely to explain how various types of insurance are best used.
Term insurance– this is generally the least expensive type of insurance. It doesn’t gain cash value and will pay out until the term expires (as long as the premiums are paid). This is what we would consider for replacement of income in case of an untimely death. Even if you have only $25 or $30 per month – buy it. It will provide security for your family or pay your final expenses. .
If you are 30 years old, purchasing a term insurance is a good option, but let’s take a closer look at inheritance. That same 30 year term policy expires when you are 60 – but when you reach that age, the term has expired – and no payout will happen. This is the limitation of term insurance.
Permanent insurance (whole, universal or indexed policies) — Inheritance for your family may require one of these types of policies. There is no term and will pay as per the contract as long premiums are paid. Here is where you want to research the products available, as these are more complex – and costly – options.
Then there’s retirement. Pensions are a thing of the past. The only way retirement funds are related to your occupation is through 401-K funds that can be taken with you. If you are lucky your employer may match your contribution.
Indexed Insurance— There are insurance products that allow you to save for retirement as well as have replacement income – these are called indexed universal life insurance products. A quick definition is a permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index, and provides flexible premium payments.
The key to purchasing any life insurance policy is to purchase as young as possible.
- Age -lower age, equals lower premiums
- Healthy lifestyle – non-smoker, lower weight, no medications equal
- The more time for your policy to grow and investment to mature (for permanent policies)
This way the policy has a chance to grow in value – allowing you to put away money for yourself and your family.
For any insurance or investment strategy, make sure you utilize a trusted, ethical, advisor. Trinity Financial Consulting is always available to give you educated, honest advice based upon your particular situation and the market. Contact us.
There’s no doubt our actions reflect our values. What we believe in, we devote, time, energy, and money toward that belief.
Driving a hybrid vehicle, organizing trash pickup groups, recycling may all reflect our passion for protecting the environment. Going to church services, participating in faith-based organizations, singing in the choir, may show the world our spiritual convictions.
How we utilize our resources of money also demonstrates our values. Whether an individual, an organization or a corporation, how we govern, direct and handle our financial resources are important.
Trinity Financial Consulting encourages our clients (and the people that represent them) to live by the 10/10/80 Principle – the Diamond of Finance.
The first part of the principle is to look at your available revenue each month and divide into three parts
- The first 10% goes to Giving Back. Whether it’s time or money, let your values talk by dedicating to what you believe in. Donate to a church and/or charity. Volunteer at a school, shelter or other organization. Each month, give back 10% of your resources.
- Save 10%. The second part of the equation is to put something back for YOU (emergencies and retirement). The time is never right and you won’t ever be ready. The best way to get started on a savings plan is TO SAVE. Create a budget and include the principles of Giving Back and Savings to see how far you are outside your spending boundaries. Now, create the plan to start cutting back on expenses until you can put away 10% of your resources each month.
- Operate on 80% of your income. Calculate what you expect to bring in, and budget to spend only 80% of it. That will free your financial resources to make your Giving Back and Savings areas automatic.
There’s no pretending this is easy. If it was easy 20% of new business would not fail in the first year of existence, Americans wouldn’t have an average of over $6000 in unsecured (credit card) debt, and sixty two percent (62%) of families wouldn’t have LESS THAN $1,000 in savings.
Discover the innovation in savings from your staff members, mentors, family, and friends:
One way to start to discover savings is by freeing all the minds in your organization and challenging them to find ways to save on expenses. Track the ideas, challenge them to implement and to track the savings.
One example – a local signage company was experiencing damage in signs that were going to golf stores. The packing team started logging the different ways to secure the signs onto pallets, cartons, and to log which carrier was experiencing the most damage. By the end of 6 months, the damage was down 60% and the replacement costs and shipping were reduced by $30,000. That was $30,000 that simply disappeared from the expense column of the company. The key here was that it wasn’t the manager, the CEO or any other corporate leader that was behind this financial improvement – it was the shipping clerk.
Find ways to save and with each savings step, implement the 10/10/80 rule until you are there! Contact Trinity Financial Consulting for more ideas on how to cut your expenses to 80% of your revenue and increase your profitability – and your peace of mind.