How to Know If You’re Really Ready

Like many in my generation, I prefer to subconsciously minimize the odds that I’ll become ill and ignore the reality that I’ll eventually pass. Unfortunately, the harsh reality is that illness and death are inevitable. Enter another subject we tend to ignore: Life Insurance. For many Americans – particularly young and/or single adults, life insurance is nothing more than a plot point in a Hollywood movie or true crime drama: the money collected by remaining relatives after someone has passed. However, life insurance, like health insurance, is just something you need to have. It can provide financial security for your loved ones, cover end of life expenses, and can even provide tax free income.

There are two different types of life insurance: temporary and permanent. The most common form of temporary insurance is Term insurance. Term typically lasts for a specified “term” of years, hence its name. Permanent – on the other hand – stays with you for your entire life, provided you continue to pay the premium, or have developed an account value large enough you no longer have to pay in. There are a wide variety of insurance policies available under the permanent life insurance umbrella, such as: whole life, universal life, variable universal life, and indexed universal life.

To put in another way, Term insurance can be thought of as renting insurance. You pay a monthly premium for the coverage but once the specified term of time is up that coverage goes away. The term can vary from 5 years up to 30 years. With some companies you can continue the policy, but you will have to pay premiums that are a multiple of what you had been paying during the “term” of the contract. It is used to provide protection for liabilities that will disappear after a certain time period ex: raising children, your mortgage, or income replacement. In your 20s-50s you have more people depending on you; therefore, if something were to happen to you (e.g. illness, death) you need an insurance policy that will take care of the people you support. If you pass away, you need enough coverage to pay off any existing debt, provide income replacement, and cover any other miscellaneous expenses associated with supporting your family. This coverage makes a difficult time a little bit easier by reducing the financial burden and allowing loved ones time to grieve without worrying about impending bills. Term insurance is perfect for this type of coverage as it has the lowest premiums and can be structured to disappear once certain liabilities disappear (e.g. mortgage is paid off, kids are out of the house, and your income is no longer critical to the security of your family).

Permanent Insurance, on the other hand, can be framed as owning the insurance coverage. As with term insurance, you pay a monthly premium; however, the coverage stays with you for the rest of your life, not just a specified term of time. Once your family is out of the house and your liabilities are decreased you still want to maintain some level of insurance coverage to cover end of life expenses and provide for loved ones. Permanent insurance is a great choice to cover these remaining liabilities. The premiums for permanent insurance are higher than those for term insurance because, unlike term – where the insurance company may not ever have to pay out the policy- permanent insurance means a guaranteed payout – assuming you’ve paid the premium. At some point the insurance company will have to pay. Additionally, part of these monthly premiums are placed into a cash value account which, depending on the type of policy, earns a fixed or variable rate of return and can provide tax free income. This income can be used to fund an early retirement as it can be accessed prior to age 59 ½ – the age required to legally withdraw from retirement plans without incurring penalties.

But what if you want to access the death benefit in an insurance policy without having to die – sound too good to be true? In fact, some insurance policies allow you to access death benefits before actual death! These policies feature Accelerated Benefit Riders (ABRs) which allow you to accelerate (or, in other words, use) the death benefit while still alive to cover certain terminal, chronic, or critical illnesses. Unlike health insurance, which only reimburses medical expenses, ABRs provide tax free money for you to use as you wish, assuming you have an ABR event. You can use this money for experimental treatments that health insurance will not cover or use it to travel the world. There are no restrictions on how the money is spent.

Now you know about life insurance and the many different options and benefits available to you – consider working with a financial planner to discuss the right life insurance policy for your needs.

If you have questions about insurance or any other aspect of your financial life please do not hesitate to reach out to me at zach.swaffer@trilogyfs.com

This article 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. For information about specific insurance needs or situations, contact your insurance agent. 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.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

The day you become a parent is a day of overwhelming emotions. You may experience joy at the sight of your precious child, relief that he or she made it out of the womb, and for many of you, fear and anxiety because you somehow have to turn that seven-pound baby into an independent, responsible, and successful adult.

As parents, there are so many things we have to teach our children, beginning with the basics of how to eat and share toys to more complicated lessons such as making decisions and getting along with others. As a society, we are excelling in some areas of parenting, but falling behind in others. In a recent National Financial Capabilities Study, only 24 percent of Millennials (age 23-35) were able to answer the first three financial literacy questions correctly, and a mere 8 percent answered them all correctly.[1]

Most parents agree that we need to do a better job teaching our kids about money. Last year, T Rowe Price reported that 80 percent of parents didn’t think schools were doing enough to teach kids about financial matters.[2]However, parents cannot abdicate all responsibility to the schools. Raising children and teaching them to navigate the world is first and foremost a parent’s responsibility.

Set A Good Financial Example

The first step in teaching your kids about finances is modeling what you want them to learn. Few parents would disagree with this concept. The same T Rowe Price study mentioned above found that 69 percent of parents are very/extremely concerned about setting a good financial example for their kids. The vast majority, eight out of ten, feel that they are setting a good financial example, but two-thirds also admit to doing things that wouldn’t qualify as setting a good example.

An enormous 40 percent admitted that when it comes to talking to their kids about finances, it’s “Do as I say, not as I do.” Anyone who has raised kids knows that isn’t enough. My clients tell me they are very concerned about setting a good example for their children. The first step in teaching your kids about money is simple: Show them.

Talk About Finances

Sometimes a silent model isn’t quite enough, and some areas of personal finance aren’t very visible. That is why it is imperative to talk to your kids about finances. But talking about money may be a long-standing cultural taboo. Often this reluctance to discuss financial matters spills over into the home as well.

Forty-nine percent of the parents in the T Rowe Price study said they rarely or never discuss family finances with their children. Eighteen percent admitted to being very/extremely reluctant to discuss financial matters with their kids and 72 percent of parents experience at least some reluctance to having such a discussion. But how are kids going to learn about money if you avoid talking to them about it?  Some topics require more in-depth discussion and openness and finances are one of them.

Get Your Kids Involved

If you want financial understanding to actually sink in, you need to get your kids involved. Learning theory and research have consistently shown that the more active a learning experience is, the greater the learning gains and retention.[3] Most people have to do something to truly learn it.

How does this work with kids? Here are some ways I’ve put this into practice with my daughter: Even though she is young, I have taught her the difference between a penny, nickel, dime and quarter. Beyond just teaching the values of the coins, I then show her how to earn money by completing basic, age-appropriate chores such as making her bed and folding her clothes. As her coins start adding up, she has the opportunity to buy a toy or to save her money and earn interest (a penny for every dollar). Just as any adult, she loves the idea of making money for no extra work, so she often chooses the savings option!

At this point, I take a step back and let my daughter make her own financial decisions (and sometimes mistakes) so that she can learn from them. She and I have different values and I’ve learned that I need to let her be independent and respect her choices. On one occasion, she decided to impulsively purchase a My Little Pony beanie baby that I thought would be a waste of money. Rather than refusing to buy the toy for her, I took a step back and allowed her to buy it with her own money. Sometimes I am surprised in the process, as she still plays with this toy three months later!

Imparting financial wisdom to your kids is a challenging process that takes years. So, if you don’t feel like you’re doing an adequate job of teaching your kids about money, you’re not alone. Even if you are doing a good job, you probably agree with the 77 percent of the T Rowe Price survey parents who said that they wished there were more resources available to help them teach their kids about financial matters.

I believe that every child can learn critical financial lessons at a young age that will set them up for future success. I want to provide you with the tools to help you on this journey. To set up a meeting, call my office at (949) 221-8105 x 2128, or email me at mike.loo@trilogyfs.com.

[1] http://gflec.org/wp-content/uploads/2015/01/a738b9_b453bb8368e248f1bc546bb257ad0d2e.pdf

[2] https://corporate.troweprice.com/Money-Confident-Kids/images/emk/2015-PKM-Report-2015-FINAL.pdf

[3] http://www.joe.org/joe/1994august/a6.php