LIFE INSURANCE AWARENESS MONTH
With the ratification of the Constitution in 1789, the American government established a permanent Treasury Department on September 2, 1789 in hopes of controlling the nation’s debt. President George Washington named his former aide-de-camp, Alexander Hamilton, to head the new office.
The Treasury prints and mints all paper currency and coins in circulation through the Bureau of Engraving and Printing and the United States Mint. The Department also collects all federal taxes through the Internal Revenue Service, and manages U.S. government debt instruments.
In 1993 the national public debt was about $4.4 Trillion. Today, the national public date is over $14 Trillion.
Which direction do you think taxes are headed—up or down?
The below information may give you some ideas about managing wealth transfers—particularly the taxes you pay.
OUT-OF-THE-BOX THINKING ON A VERY POPULAR SUBJECT-MONEY
1. September is Life Insurance awareness month. It was designed as a method for handling financial risk in the event of premature death. Keep in mind all deaths are premature regardless of one’s age. Permanent Life Insurance is designed to be in force when the event occurs. Term Life Insurance, on the other hand, only pays if death occurs while the policy is in force. Life Insurance companies will only offer term insurance if they believe the insured will outlive the term of the policy. They collect premiums without paying a claim. Which policy do you think is important to own?
2. Are you currently working? What would happen if your ability to earn income suddenly disappeared? The statistics on disability are sobering. The Society of Actuaries tell us that people between the ages of 35 and 65 have a 30% chance of suffering a disability lasting longer than six months. Don’t go it alone. Talk with your insurance advisor about your options for purchasing payroll protection. Not everyone qualifies for this type of insurance due to health conditions. Buy the insurance while you are insurable.
3. Is the Affordable Care Act really affordable health care coverage? Insurers in 49 states have submitted their premium requests for 2017 to regulators, and it isn’t pretty. The average “enrollment-weighted” rate increase is about 18% to 23%. The Congressional Budget Office projected just an 8% increase. The rates could be higher in some areas where there is only a single insurer. If the trend continues, premiums will double within the next four years.
Source : Wall Street Journal 8/12/16.
4. Question the advice you are receiving! Many advisors tout they can give you an unbiased opinion because they aren’t paid a commission. Don’t be misled. They do get paid, and often times it is a management fee based on the value of your assets. These fees, over the long-haul, can be substantially higher than the up-front commissions. It is important to discover the real cost of doing business with an advisor.
5. I was talking with a farmer last week. He was upset. He wants to pay taxes only on the seed that he plants, and not the harvest he reaps. I said, “It’s not going to happen.” Uncle Sam likes getting paid on both the seed and the harvest. How do I know? Look at your IRA. You receive a tax postponement when you make a contribution. However, as your account grows so does the tax burden on the money. You are taxed on the entire amount which includes the seed money and the harvest. The only way you can benefit from this scenario if you are in a lower or same tax bracket when you pay the tax. You are a loser if the tax bracket is higher.
6. There are two ways to increase your existing pot of money. You can find other products with apparent higher rates of return. This is usually the most commonly perceived way of increasing your wealth. This involves taking on additional risk. Risk is associated with potential loss. The second, more uncommon method, is to make your money more efficient. This does not involve risk, but requires a good understanding of wealth transfers. Wealth transfers occur in three forms—protection, expenses and taxes.
7. Your inflation rate may be different than your neighbors. A lot depends on your consumption, and your lifestyle. I suggest you do some research on products or services you consume and compare today’s with the price 35 years ago. You may find your inflation is much higher than the government reported rates. I recommend you use your inflation rate to determine future cash flow needs.
8. Do you think the Social Security rules are complicated. The Bi-Partisan Budget Act of 2015 made it more difficult to pick the best strategy. The Social Security handbook has over 2,700 rules. Explanations of the rules are found in the Program Operating Manual System (POMS). Social Security employees are prohibited from giving you advice about when to take Social Security. They can only let you know the amount of your benefits. Get with an advisor who has the tools to help you decide your best strategy for receiving benefits.
9. Are you familiar with the benefits common to all fixed annuities? Here is a list of just a few of the benefits:
- Insurance companies guarantee payouts for as long as you live or for a specified period of time.
- Payouts can also continue for your spouse.
- Contract may provide for the guaranteed payout to increase.
- Beneficiaries are paid quickly in case of death.
- Your money is protected from market risk.
10. What should you look for in Disability Insurance Policy? Listed are some of the terms and definition of your contract you should review with your agent:
- Definition of Disability
- Extent of Coverage
- Amount of Monthly Benefit
- Waiting Period
- Duration of Benefits
- Inflation Rider
- Waiver of Premium
- Option to Buy More Coverage.
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