Can Software Really Tell You How to Make Life Insurance Decisions?

By
Rebecca DeSoto, CDFA®
May 23, 2018
Share on:

Technology provides ample flexibility when it comes to making purchasing decisions these days. You are no longer required to go somewhere, talk to anyone, or spend a great deal of time comparing options. The internet is a convenient place that is accessible wherever you are, doesn’t require you to talk through your purchase with a sales representative, and allows you to spend as much or as little time researching your decision as you’d like. This can make life more efficient and simpler, but when it comes to important decisions like purchasing life insurance, you run the risk of simplifying the decision too much, not fully understanding what you’re purchasing, and purchasing a policy that may not provide the most flexibility and options later in life when you need it most.

There is no shortage of information available about life insurance on the internet. A lot of it has negative connotations. From policies that historically haven’t provided what was promised, to salespeople coaxing consumers into products, and one size fits all advice. Most people come in with the base knowledge that they need term insurance if they have a spouse and children they want to protect financially if they pass away. Combine these two factors and people generally use the internet to find an inexpensive policy. However, when making a decision about life insurance there are a few important factors to consider besides simply the cost and the amount of insurance, namely living benefits or accelerated benefit riders, and whether the policy has a cash-value component.

While all policies are required to have a terminal illness rider, meaning the insured has the option of utilizing the death benefit prior to passing away if diagnosed with a terminal illness, not all policies come with a chronic or critical rider. A chronic illness rider can accelerate your death benefit if the insured is diagnosed with an illness and unable to perform two of the six daily activities of living (bathing, continence, dressing, eating, toileting, and transferring). Considering how expensive long-term care insurance can be these days, having a chronic illness rider on a life insurance policy can provide some level of affordable protection (depending on your age when you get the policy). The critical rider can apply to injuries or illness and can include things like heart attack, stroke, paralysis, severe brain trauma, and diagnosis of invasive cancer. Having these riders in addition to one that protects against terminal illness adds a much more encompassing level of protection to the insured that can provide flexibility and options in an unplanned emergency.

Life insurance can also have a cash-value component or investment vehicle in addition to providing protection. Cash-value in a permanent life insurance vehicle is one of the only ways to build non-taxable income in retirement besides a Roth IRA. Other than the tax benefits, it can also enhance your plan with diversification and stability. It generally has some level of protection, called a “floor” that assets invested in the stock market wouldn’t have, meaning there is protection against the downside while allowing the investor to take advantage of positive markets.

Whether or not you choose a policy that has all of these components, it is important to consider which benefits are meaningful to you and are worth paying for. It can be hard to determine the pros and cons without talking to a licensed professional that has your best interest in mind and it can be difficult to really understand what you’re purchasing just by browsing the internet for the least expensive policy. Just like any insurance, the ideal situation is not needing it. But if you do, you’ll be happy you did your research and understand the vehicle you chose.

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. This article is intended to assist in educating you about insurance generally and not to provide personal service. Guarantees are based on the claims-paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. Riders are additional guarantee options that are available to an annuity or life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges, and restrictions, and the policyholder should review their contract carefully before purchasing.

If you decide to downsize after retirement and have lived in your home for at least two years out of the last five from the date of sale, you can exclude up to $250,000 in capital gains from the proceeds and almost double that if you are married.

You may also like:

By
Darcy Borella, CFP®
February 1, 2018

If you're one of the millions of Americans who received, or are expecting to receive, a tax refund, you are probably trying to decide how to spend it. The average refund this year is around $3,000, a nice chunk of change to throw at one of your goals. Rather than impulse buying that new Apple iWatch or splurging at Sephora, make the best use of this windfall by putting it towards improving your financial situation.

Build Up An Emergency Fund

Some very good friends of mine woke up recently to find that their downstairs had flooded from a burst pipe on the second level. They had to rip up their hard wood floors, replace furniture, and even replace some of the walls. Luckily, their bedroom and their child's nursery was spared, but THIS type of unexpected event is exactly why you need an emergency fund. If they didn't have cash readily available in a savings account, they might have been tempted to put charges for repairs and replacements on a high-interest credit card. Depending on your situation, you should ideally have 3-6 months of regular expenses in the bank. Use your tax refund to start, or top off, your rainy day fund.

Pay Off Debt

The power of compounding interest can work in your favor when investing, but it can also cause debt to grow faster than you might think. Credit card companies apply their interest fees to the amount that you owe initially. But every month (and sometimes every DAY!) after that, the compounding interest will apply to the principal, as well as the previous month's interest. If you want to apply the snowball method, apply your refund to the smallest account you can close out. Alternatively, you can use the “Avalanche” method, and put your refund towards the card with the highest interest rate. Paying off the smallest account might feel good, but if you have double digit interest accruing on a card, get that debt paid off as fast as you can. Take the windfall from your refund and put it towards cleaning up your personal balance sheet.

Fund an Individual Retirement Account

IRAs are one of the greatest savings vehicles you can have for retirement. These vehicles allow you to invest in the market outside of any employer-sponsored plans (like a 401K) with tax-free growth (no capital gains!) until retirement. There are two types of IRAs that are available to the general public: Roth IRAs and Traditional IRAs. With a Roth, you contribute post-tax dollars and don't have to pay income taxes on any distributions in retirement. There is, however, a phase-out limit based on income. With a traditional IRA, you do pay income taxes on distributions in retirement. However, contributions made could be tax-deductible for that tax year (contributions made from January 1st of the current year through April 15th of the following year). As of now, individuals can contribute up to $5,500 per year ($6,500 if you’re age 50 or older), or your taxable compensation for the year, if your compensation was less than this dollar limit.

Monetize Other Financial Goals

Planning to take a big family vacation to Disneyland in 5 years? Dreaming of owning a house but need to build up a sizable down payment? Wondering how you are going to pay for your pre-teen's college tuition? If you have any intermediate goals (prior to retirement), consider opening a brokerage account to help your money grow more efficiently. Statistically, the stock market has more up years than down, and historically, has recovered from those down years relatively quickly. If you have time on you side, consider monetizing these goals by participating in the market at a level that is in line with your risk tolerance.

But If You Must, Splurge…A Little

If you just can't help it, take a small percentage of your refund to treat yourself. Whether it's a nice dinner, a manicure, or checking out a movie with your spouse, take a minute to blow off some steam. Keep this amount small though as the path to wealth is paved with good decisions. Start making good habits today to delay gratification and secure a financial safety net in your future.

By Trilogy Financial
February 20, 2024

Discover how working with a financial planner can make a big difference in your investing journey. Learn about investing through our beginner's guide to top investment blogs.

 

For many, investing seems like a daunting venture. Navigating through the intricacies of the financial world can be overwhelming, especially when you're just starting out. But beyond the stock market fluctuations and intricate charts, it's essential to grasp your financial aspirations.

 

 

Warren Buffett wisely said, “Don't save what is left after spending, but spend what is left after saving.” This highlights the importance of financial planning and goal setting when it comes to investing.

 

 

 

 

As emphasized by Jeff Motske, CFP® at Trilogy Financial Services,  understanding your financial “why” is just as pivotal. Are you eyeing retirement? Or maybe that dream home or a new startup? These goals should shape your long term investment journey.

To help beginners transition into the investment realm, here's a two-fold strategy:

 

 

1. Consult a Financial Planner or Advisor

 

Engaging with a financial planner or advisor is akin to having a personalized coach for your financial journey. Just as you wouldn't start an intense workout regimen without gauging your physical limits, investing without a clear vision of your financial goals and investment decisions is risky.

 

 

A financial planner will assist in evaluating your risk tolerance—an essential element in devising an investment strategy. As Peter Lynch, a renowned investor, once remarked, “Know what you own, and know why you own it.” This stresses how important it is to be informed and understand one's investments.

 

 

 

 

 

Financial Advisor Meeting with Client

 

2. Discover the Top Investment Blog Posts for Beginners

 

In Personal Finance, staying on top of your investment portfolio starts with understanding continuous learning is a key ally in the world of investments. Here are some top investment blogs for beginner investors that can offer invaluable insights:

 

  • Investopedia: A comprehensive platform offering a plethora of articles, tutorials, and educational content on finance and investment.
  • The Motley Fool: A trusted source renowned for its stock recommendations and investment advice, catering to both novices and seasoned investors.
  • Seeking Alpha: A blend of free and premium content, providing in-depth research, articles, and analyses on various stocks and investment strategies.
  • BiggerPockets: The go-to resource for real estate investment enthusiasts, packed with guides, resources, and community discussions.
  • NerdWallet's Investing Section: Simplifies complex investment topics, making them digestible for beginners.
  • Nasdaq News + Insights: Get insights from a big stock exchange. Covers market trends, stock market news & analysis, and investment strategies.
  • Morningstar: This blog is a trusted source for investment research. It provides analysis, ratings, and information on stocks, mutual funds, and ETFs. This makes it important for both new and experienced investors.

 

 

A picture of a beginner investment blog.

 

Conclusion

 

Stepping into the investment arena can evoke a mix of emotions. But as you start investing with a clear understanding of your financial goals, expert advice, and regular insights from top investment blogs for beginners, you're on a solid path.

 

 

As Benjamin Graham, known as the “father of value investing,” once said, “The individual investor should act consistently as an investor and not as a speculator.”

 

 

 

 

At the end of the day it's important to ensure you make informed, strategic investing over impulsive decisions. Check out how to avoid Mistakes When Choosing a Financial Planner in our other blog post.

 

Keen on diving deeper into investing? Connect with our top financial planners or explore more articles on our investment blogs for investment strategies.

 

 

Get Started on Your Financial Life Plan Today