14 Tips for Purchasing Life Insurance

Insurance is an important part of financial planning � but understanding insurance and buying the right product can be tricky. From whole to term life, riders to convertibility clauses, how do you make sense of all the choices? Most people rely on the expertise of their insurance advisor, broker, or sales representative to help them make the right decision. Yet, for some people, insurance representatives have developed a bad reputation, and many people do not trust the �recommendations� they receive.
From my own experience in the insurance industry, and knowing how representatives are trained, I wouldn�t trust many insurance sales reps either. Here are some steps you can take to ensure you get the right product for the right price:

1. Understand your needs. No one understands your financial situation better than you. That means you should avoid letting someone else tell you how much protection you need. You can get a rough estimate of your insurance needs by adding together your debt, estimated funeral costs, and six months to a year of income replacement. [J.D.'s note: One common rule of thumb is to multiply your yearly income by between 5 and 10, using the lower level if you don't have many dependents and few debts, and the higher level if you have larger debts and multiple dependents. But Ray is right: understand your own needs.] Taking stock of your financial policy can allow you to select the right policy for your needs. As sales representative, we were trained to sell large policies. Remember, you may not need an exorbitant policy � you need the policy that�s right for you and your family�s financial situation.


2. Understand term insurance versus permanent insurance. Understanding the difference between term and permanent life insurance (such as whole life) can help you make an informed decision about your insurance needs. Today, a term insurance policy should be able to cover most of your debt and financial needs. In turn, you may not need to purchase a whole life policy. Try not to be sold by the �what if� scenario you might hear from an insurance sales rep. Insurance companies traditionally make more profit from whole life policies than term policies, so be prepared to hear a sales representative promote whole life as the best possible choice (even though it might not be the best fit for your needs). Remember, buy what you need and make adjustments as changes become necessary. Term insurance is typically renewable and should have a convertibility clause which allows you to make changes in the future. There are certain situations where a whole life policy maybe more advantageous than term; however, do not purchase it simply because your sales representative told you should.


3. Speak with an independent broker. These brokers will have access to many more products than just one firm can provide. When I worked as an independent broker, I was able to offer much more to my clients than just a company product.


4. Avoid one-meeting recommendations. If your broker makes a recommendation in the first meeting, you know that they have not really analyzed your situation and looked for best options. So just say, �No, thank you� and keep researching.


5. Understand how the advisor gets paid. Find out if they are compensated through commission, fee-plus-commission, or fee only. If there is any commission involved with the sale, make sure to look at all alternative products available. With commissions, the advisor may have a conflict of interest. Just because your advisor is commission-based doesn�t mean they are bad � just ask more questions with them. I always worked on 100% commission, but I would give my clients several options and disclose if I got paid differently.


6. Recognize that insurance is for protection � not investing. Term insurance provides protection only, without a savings component. Whole life and universal life policies have a savings component and are much more expensive. You are almost always better off just paying for term insurance, and using the cost savings to invest elsewhere.


7. Ask the tough questions. Don�t be afraid to ask the advisor questions. You should know the product inside out before buying it. Is the policy renewable and non-cancelable? How long are premiums guaranteed for? Is there an accidental death rider? What are the exclusions?


8. Watch out for �know-it-all� advisor. If the advisor answers all your questions without referring to anything, or pretends she �knows it all�, chances are that she does not. Insurance policies are complicated, and even the best advisors do not know every product 100 percent and may have to look things up. There is nothing wrong with that.


9. Compare similar products. When you price shop, make sure you compare similar products.


10. Don�t replace old whole-life policies. If you have had a whole-life policy for several years, try not to replace it. You may lose all the premiums you have paid. You may also have to pay new administration fees (if applicable), and reset some clauses (such as the suicide clause). If your situation has changed and you need more insurance, just buy more. (This warning does not apply to term life.)


11. Do not buy expensive riders. The advisor might ask you to add on all types of riders. Stay away from them unless you fully understand them and need them. Again, in training there was always an emphasis on selling riders. Often I didn�t see any benefits to the client.


12. Do your homework. Make sure you do your homework before purchasing an insurance product. Make sure it fits your needs and budget, and make sure you understand the contract. The advisor is obligated to explain it to you. Don�t sign until you understand the contract.


13. Take a 30-day free look. You have 30 days to look at the policy and understand it. If you are not satisfied with it during that time, cancel the policy and you will get your premium back.


14. Keep it simple. Do not make your insurance planning complicated. Because it is based on protecting your family, it should be based on your needs. Don�t fall for all the bells and whistles the company may try to sell to you.

I hope these fourteen steps will help in your insurance planning. The basic idea is to educate yourself by doing your homework so that you can understand what you are buying.

Financial Planning Basics-The Financial Pyramid

This is the third post on the Financial Planning Basics series, if you have not read the last post click here.

Understanding the Financial Pyramid is an essential part of understanding the financial planning process. I will try to outline the basic concept of the Financial Pyramid as it applies to personal financial planning.

The Financial Pyramid is a visual aid to help understand the necessarily steps to reaching financial freedom, just like a pyramid it has several layers starting from the base to the tip.

The Base-The Financial Plan

The financial pyramid starts with a base foundation, which is a written financial plan.  This can be as detailed and complicated or as simple as you want it to be, it generally starts of fairly simple and develops overtime in a more complex plan.

Things that usually belong in your written financial plan are:

• Your short and long term financial goals
• Insurance coverage and
• Your Investment Policy

This is the base of the pyramid and the foundation of your financial plan, this will be your guide throughout the next few decades and will be updated as your situation changes. Think of it as a map for a road trip, it will guide you to your destination.

The Financial Pyramid

• The Financial Plan

• Protection
  • Insurance, Will and Power Of Attorney�s
  • Debt Reduction
  • Emergency Savings
• Savings
  • Home and RRSP, TFSA
• Wealth Building
  • Non-Registered Investment
• Speculation
  • Real Estate, Art, Collectibles

Level 1- Protection

One stage that is way to often forgotten and not seen as important is the protection stage in your financial pyramid. This stage is a very crucial stage in planning and usually includes the following items:

• Insurance (Life, Health, Disability, Critical illness Insurance etc)
• Will and Power Of Attorney�s (health and property)
• Establishing an Emergency Fund (3-6 months of salary)

In many cases when I talk to individuals and families about their financial plan this stage is either missing or incomplete in their financial plan, however without appropriate protection your whole financial plan is at risk. As you can see, from the illustration, it is located at the bottom of the financial pyramid and is a large part of the pyramid, what happens if its too small or too loose? The whole pyramid will be at risk, one small unexpected change can cause the whole pyramid to collapse.

 The purpose of the stage is to provide you with a cushion in case of an unexpected event such as job loss or health issues, if you do not have enough in emergency savings or insurance chances are that you will dig into your long-term savings which will undoubtedly jeopardize your long term goals.

Level 2- Savings

This is the stage where most people start their financial plan, it�s the savings stage. Some common items at this stage are:

• Purchasing a home
• Contributing to RRSP and TFSA accounts
• RESP

You should continue to this stage only and if only you have completed the first steps, otherwise your financial plan will be at risk. You should have a valid Will and POA�s as well as enough Emergency fund and Insurance to purchase a home and make comfortable contributions to your RRSP.

The purpose here is to start building your wealth and investments, it�s the first stage at the journey to financial freedom.
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Level 3- Wealth Building

It�s an extension to the second level, ones you have become a home owner and have adequately funded your RRSP�s and TFSA accounts you can start building non-registered investment portfolio�s. It does not make a lot of financial sense to have a taxable investment portfolio if your tax deferred (RRSP) and tax free (TFSA) accounts have contribution room.

Level 4- Speculation

Ones you have reached a level where your debt is low or zero, you have enough retirement funds and enough wealth accumulated in your investments you can start speculating. Speculation is very risky and only a very small portion of your assets should be invested in it, generally maximum of 5%. Speculation could range from buying speculative investments, like junior gold companies to investing in private partnerships. Again the important point to remember is that only a 5% of your assets should be in here.

Life insurance commissions to be slashed

The industry superannuation sector does not believe proposals to shake up the framework of life insurance go far enough.

Assistant Treasurer Josh Frydenberg has taken on board recommendations made by the financial services industry to improve life insurance, a sector the corporate supervisor believes is dogged by bad advice and high commissions.

Mr Frydenberg believes the commissions charged for life insurance policies have not been in the best interests of consumers.
The proposals, which include limits to both upfront and continuing commissions, will be considered in the context of the government's response to the financial system inquiry chaired by former bank chief David Murray.

Treasurer Joe Hockey recently said a response to that inquiry was still a few months away.
An industry-commissioned review by the Australian Securities and Investments Commission recommended several measures designed to improve consumer outcomes, including a significant modification to upfront commissions.
But Industry Super Australia does not believe the proposals adequately tackle the serious problems exposed by ASIC.

Its director of public affairs, Matthew Linden, says they fail to address superannuation savings being drained by "extraordinarily costly" personal life polices that attract commissions.
Under the plan, the cost of life insurance policies will be cut and upfront commission rates reduced from 120 per cent of premiums to 60 per cent by 2018.
Consumer Action boss Gerard Brody said a proposed three-year review should be seen as an opportunity for further change - "not mission accomplished".
Financial Services Council head Sally Loane said the package included a new remuneration model, development of a code of conduct, more product choice and a review of statements of advice.
NAB Wealth group executive Andrew Hagger praised the leadership of Mr Frydenberg in what he described as a complex process.

Car insurance for young drivers reverses 10.3% in the last year but that spells bad news for older motorists

 The cheapest average motor insurance for drivers under 25 has dipped by 10.3 per cent in the last year, according to a new study by Consumer Intelligence.
However, the research firm suggests the drop may have come at the expense of motorists over 50, with the average cheapest premiums for this age group now 5.3 per cent higher than they were a year ago.
Ian Hughes, chief executive of Consumer Intelligence, said: 'To some degree, these increases for under-25s seem to be at the expense of older motorists.
Driving down the cost: The average cost of insurance premiums for drivers under 25 has dipped by 10.3 per cent in the last year according to a new survey
However, the survey, which compared figures between May 2014 and May 2015, showed that despite a 10.3 per cent decrease in the cost of car insurance, motorists under 25 still face paying an average cheapest premium of �1,628.
Overall, the average cheapest premium for drivers nudged up 0.3 per cent to �677 during the period, this compares to a 1.1 per cent reduction in average cheapest premiums for all motorists in the six months between December 2014 to May 2015.

Millions facing a hike in insurance premiums

• Increase of up to �100 a year expected for typical family

• Twenty million drivers and homeowners to see a rise of up to ten per cent

• Due to stealth tax on insurance providers likely to be passed to customers

• Rate on providers to rise from six to 9.5 per cent from November this year

• People in high-risk groups who already pay the most will see biggest rises

Younger and older drivers, and those who live on flood plains or in other high-risk areas, face even steeper rises in their costs.

Janet Connor, managing director of AA Insurance, said: �This is a very bad day for car and homeowners. This will hit them hard.

�Any contention that falling insurance premiums somehow justifies the tax increase is outrageous. The increase in insurance premium tax simply has not been thought through and will have unintended consequences.

�This will make insurers think again about their pricing and I wouldn�t be surprised to see an overall increase of 10 per cent or more by the end of the year.�

Insurance premium tax is a levy charged on some types of insurance policies. There are two rates � a standard one of 6 per cent, for car, buildings, contents and pet insurance, and a higher rate of 20 per cent levied on travel policies. Life insurance is exempt.

In his Budget yesterday, the Chancellor announced that the standard rate would increase to 9.5 per cent.

The new rate will apply to policies taken out from November 1. Other policies will be charged the 6 per cent until March 1, 2016, at which point all those that qualify for the standard rate will pay 9.5 per cent.

NEW CURBS ON NO-WON NO-FEE

The fees charged by no-win, no-fee claims management companies are to be capped as part of a review that is expected to cut fraud and nuisance calls.

The firms � which pursue claims for accidents, injuries and PPI � charge fees which are taken out of the compensation awarded to consumers. They have been accused of driving up premiums, bombarding people with calls and encouraging fraudulent claims.

The Chancellor said: �We�re announcing a major review of the regulation of claims management firms and we�ll cap the charges they apply.� Huw Evans, from the Association of British Insurers, said: �Poorly regulated claims management firms have been hiking up the cost of insurance for far too long. The Government is right to tackle this aggressively.�

Although the tax is levied on the insurers, it is passed on to customers and priced in to their premiums.

The average cost of a combined buildings and contents policy is �291 and will now increase by �10 a year, according to figures provided by the British Insurance Brokers Association. A typical car insurance policy costs around �300 a year, and this also would increase by �10.

However, those who pay larger premiums � such as older and younger drivers, and those with bigger cars � will face much larger increases. An 18- or 85-year-old could see the cost of their policy hiked by �90 a year.

Although this may seem a small increase to many policyholders, details in the Budget papers reveal how the tax raid will net the Treasury �530million this year, and then �1.4billion in 2016/2017, rising every year to �1.58billion in 2020/21.

Over six years this should net the Treasury �8.16billion.

There was some relief for drivers and homeowners however as the Chancellor launched a probe in to making insurance premiums clearer for policyholders.

Got Wealth? 6 Strategies for Protecting It

Many of us plan our finances so that we can build wealth over time. However, the problem with starting out from a place of fewer resources is that it�s easy to think of wealth as the end product.

What should you do once you have achieved a certain level of wealth? Now that you have money, you need to protect your assets. Here are 6 strategies for protecting your wealth:

1. Umbrella Insurance

Many of those with financial resources find themselves the targets of lawsuits. If you have a lot of money, you are more likely to be a target. If you are in an accident, or if someone slips on the ice in front of you house, and you are clearly wealthy, you are more likely to be sued.

Umbrella insurance can help protect your assets. Many insurance policies have limits on payouts. If you need more coverage in order to prevent the loss of assets, you can purchase umbrella insurance.

2. Professional Liability Insurance
Professionals and many business owners get this type of insurance to protect their assets. If you don�t have this type of insurance, and you are sued, your assets could be at risk. With the right coverage, the insurance company pays what is owed, and you avoid having your resources drained. Malpractice and errors & omissions insurance policies are examples of professional liability insurance.

3. Tax Planning

The more money you have, the more you pay in taxes. While you should pay your legal share in taxes, there�s no reason to pay more than you have to in taxes. The right tax planning can help you keep more of your money. Tax-advantaged investment accounts, as well as estate planning strategies can help you put more of your money to work for you.

4. Get Rid of Liabilities

Consider your financial situation, and recognize your liabilities. In many cases, the wealthy have used other people�s money to get to where they are. The judicious use of leverage can be a help. But you also have to get rid of liabilities when you can.

Pay off your obligations, especially if they are costing you a lot in terms of interest. Once you have more assets, look at how you can reorganize your finances so that you are putting more into assets, and getting rid of liabilities. Keeping those liabilities can put your resources at risk by threatening to drag you down.

5. Carefully Vet Investment �Opportunities�

One of the ways you can keep building your wealth is by investing it. Putting your money to work on your behalf can be a great way to protect your wealth. However, you do need to watch out for scams. Many of the newly-rich are targets for investment fraud because they have resources, and are interested in perhaps growing their wealth a little more.

In order to avoid losing your hard-won fortune, you need to make sure that carefully vet all opportunities that come your way. You don�t want to fall victim to scams. Remember that Bernie Madoff targeted mostly rich people. Many of the people who lost money were people who lost millions. Watch out for �investments� that seem to return a great deal like clockwork, or that promise you an amazing chance to get in on a �ground floor.� Before you put your money into something, you need to make sure that it really is a good investment.

6. Don�t Get Too Cocky

While you deserve credit for building your wealth and managing your financial resources, you also don�t want to get too cocky about your success. In many cases, success leads to feelings of invincibility. Many people who make money with investments are so sure of their genius that they take progressively bigger risks in order to make even more money.

They think that they will always pick winners � no matter how exotic or risky the investment is. This overconfidence can lead to taking ill-advised risks, and lead to huge losses that can mean the loss of your fortune.

What other ways can you protect your wealth once you earn it?

Three Financial Moves To Make Before Getting Married

Love can sometimes be blind, especially in the midst of an engagement and wedding planning. While I don�t think that love suddenly disappears after the honeymoon, like many would suggest, I do think the reality of finances can hit couples hard after they settle down. Here are three smart financial moves every couple should

consider before tying the knot.

Reduce debt
You might not think your credit card debt and car loan are that big of a deal. In fact, you can probably afford to part a certain part payment easily each month. But your budget might start looking too tight when you combine your debt repayments with your spouse�s debt repayments, and then add on a bunch of new costs.
It is important to know how much your combined debt will be when you get married. Both you and your loved one should disclose any debt or financial obligations. Once you know your combined total of debt, try to reduce it by 50 percent before the big day. This might mean taking more hours at work, doing side jobs, or getting a second job. It is much easier to do this drastic debt attack before marriage then afterwards.

Discuss your financial goals
Both you and your partner should spend time writing your goals on index cards and talking through them. Goals might look like this:
-Being debt free
-Going to school for a higher degree
-Staying at home with children in three years
-Take a vacation every year
-Buy a home in two years
Whatever your goals are for the next 5-10 years, you have to incorporate them into your budget. If you both agree to have children and the wife will stay home with them in three years, then you need to take the right steps in the beginning of your marriage. You should be living off of one income right away, while establishing a strong savings account.


Rethink your wedding costs
You might want to cut costs wherever possible if you are paying for your own wedding. Being saddled with some debt for one day of celebrating is a bit extreme. Pay for cash for your wedding whenever possible, and remember, the day is about you as a couple, not about making the wedding look like it belongs in a magazine.
What is the point in impressing your guests with a lavish wedding if you are stuck paying for it for 10 years afterwards?
Getting married is an exciting time for all couples. I strongly suggest taking time to discuss your finances, financial goals, and budget before walking down the aisle. It might not be sexy to talk investing and budgeting, but it will prevent a lot of issues later in your marriage.