Do you have life insurance? Unless youre single and dont care what happens to your body and debts when you die, then you probably need some and possibly quite a lot of insurance cover.
The problem is, says David Boyle, general manager of investor education at the Commission for Financial Capability: People dont wake up and think, I need to buy some life insurance today.
Life insurance is generally something that comes up because of an event, such as getting a mortgage or having children. Its very easy in those circumstances to make mistakes.
I decided to look at the six biggest life insurance mistakes Kiwis make and ask industry players to explain them:
1. Not taking out life insurance or putting it off
Not buying it at all can leave your loved ones in the proverbial. Putting it off means that when you finally do want insurance, you may not be able to get it because of your unhealthy lifestyle or you may find youre saddled with numerous exclusions.
Insurance broker Lindsay Armishaw of Futureproof Life says: Procrastination can be an expensive choice when applied to the decision-making process around our health and lifestyle protection requirements. People seem to forget one of the basic facts of life: as we age our health deteriorates and our options for making good [insurance] decisions decrease accordingly.
As with many other life necessities, its better to have insurance and not need it, than to need it and not have it. This has been my experience over the years in business and life.
2. Buying too little
Its common to take a stab in the dark when deciding what level of cover to buy. Or we base it on what we can afford to pay.
Financial services consultant Russell Hutchinson, of Chatswood Consulting, says: Most New Zealanders have too little life insurance. Academic research shows this to be the case.
A good test is will you keep the house [in the event of needing to make a claim]? Losing the family home is the worst-case scenario that must be avoided. You probably want more cover than that, but at least pass that baseline. Most insurance plans will fail this test either because there isnt enough insurance, or it doesnt cover not being able to work.
Get out pen and paper and check your sum insured. The most commonly bought sum today is $200,000. If you died, and that was paid to your partner, once they took that off your mortgage, if they still cant keep the house, it isnt enough.
You also need disability cover, preferably decent income protection insurance, because you are far more likely to be disabled than to die. Now do the same test: is it enough cover so that you can keep the house? If it only covers the mortgage payment, it probably isnt: you still need to pay power bills and eat, after all.
3. Not insuring your spouse
Your ability to earn can be affected by the non-working spouse dying or falling seriously ill, especially if there are children. You might need to take time off work and there are costs such as childcare.
Chris Lamers, head of marketing and innovation at Sovereign, says: As you develop your what if plan, its important to consider a few scenarios. Often people look at what they would do if the main income earner couldnt work for a period of time, or passed on. But often there is a significant impact if someone else in the household is seriously ill, or in the worst case, passes on. The main income earner may be required or wish to take time off to care for the person or for the rest of the family.
As an example, someone told me recently of a full-time mother who got breast cancer. Obviously, this is a traumatic time for any family, but it became even more difficult because the main income earner couldnt afford to take time off work to care for his wife and children. Even a trip to hospital with his wife became a problem. One solution would have been for the wife to have had a life or trauma insurance policy.
The lesson here is to think about all the scenarios that could affect you and your family and make sure you have a plan in place.
4. Failing to consider extras
Youre much more likely to suffer illness than die. Some insurance policies cover you for far more than death. They may have extras or related insurances that cover you for income protection, trauma insurance and disablement.
Nadine Tereora, managing director of Asteron Life, says: When it comes to all the different types of life insurances there are, a payment on your death to provide for your family is the most well known. But insurance planning should also make sure that if something unexpected happens, like getting sick or injured, you have cover in place to help financially maintain your lifestyle.
Its a good idea to check what add-on benefits are available with a policy and consider whether you need them.
5. Not reviewing your policy
Your circumstances can change and insurance policies evolve.
Lance Walker, chief executive of Cigna NZ, says: Your life is dynamic its changing. Simply setting and forgetting about the sum you are insured for could see you with too little or too much insurance. Reviewing your policy at key life stages getting married, taking on debt, having children, leaving the work force ensures that you have the right amount of insurance for your stage in life.
For example, you might need a high sum insured if you have small children and a large mortgage, but a much lower sum insured once the mortgage is paid off and you have more savings.
A good life insurance policy will have some flexibility to change as your needs do, either by reducing or increasing your amount of cover without any further health or lifestyle questions if you have a life change such as a marriage, birth, adoption or getting a mortgage.
If your personal circumstances change such as you take up a risky hobby such as sky-diving it pays to check your policy wording to ensure it still meets your needs.
6. Buying on price
Comparing life insurance quotes is notoriously difficult. Its very easy to be comparing oranges with apples and not realise it. One policy might pay out on terminal illness and another on death only.
Conor Sligo, general manager of Life Direct, says: Price is important when choosing an insurer and you can almost always save money by shopping around.
But there are other things to consider, too. We reckon a person choosing an insurer should also look at financial strength, policy quality and customer service, including the insurers reputation at claim time. The good news is that these are easier to compare than they used to be.
For example insurers have to disclose their financial strength rating, and there are good independent sources of policy-quality ratings such as Quality Product Research (QPR) available in the market. These will help you avoid nasty fish-hooks like a life insurance policy that has exclusions other policies dont have.
Another factor to consider is who a claim will be paid out to. Will the pay-out go to your spouse or a trust, in order to pay off a mortgage? Wills and trusts are also worth thinking about at the same time as youre shopping for life insurance.
From a young age, many of us dream of the houses we’ll own. But those dreams don’t get into the reality of how much houses cost. These days, buying a house means getting a mortgage – which can wind up taking decades to pay off.
Take, for example, the most disconcerting finding of Allianz Life Insurance Company’s recently published Generations Apart Study. Nearly half of the 2,000 baby boomers (ages 49 to 67) and Generation Xers (ages 35 to 48) who were surveyed now regard credit cards as an acceptable way to plug a cash-flow hole.
When did the three-legged stool of retirement planning — Social Security + retirement-specific savings (pension, 401(k) and IRAs) + personal savings — become so wobbly?
Well, the economic crash certainly didn’t help. Between investment losses and protracted unemployment, both generations gave up a lot of economic ground. Increasing longevity is also a factor. But for fixed-income earners, at least (boomers, mostly), the problem is exacerbated by interest rates that have been exceptionally low for an extraordinarily long period of time.
Consider the case of retired spouses who collectively receive $2,500 per month in Social Security benefits (the 2011 per person average was $1,181), plus a combined $2,000 per month in pension and/or 401(k) benefits (also based upon per person average account balances with 2% annual distribution) for a total of $4,500 in fixed-income earnings per month, pretax.
Also suppose the couple managed to sock away $500,000 in personal savings over the years. Before the crash, interest on an account of that magnitude could reasonably be counted on to generate an additional $2,000 per month toward the couple’s post-retirement income, which would have raised the total to a not-too-shabby $78,000 per year.
Today, however, that same savings account likely generates less than half of that amount, leaving the couple $10,000 to $15,000 short. Meantime, their cost of living hasn’t declined. If anything, rent, food and utility expenses are higher today than they were seven or eight years ago.
Therein lies the problem.
Our fictitious couple’s three sources of post-retirement income are fixed. If the expense side of their budget is as limited, the only way to balance the equation will be with borrowed money–hence the increasing amounts of mortgage and nonmortgage indebtedness the Allianz study cites.
What Is Your Lifetime Cost of Debt?How much will you pay in interest over your lifetime? You may be surprised. Find Out Now
Simplifying the Budgeting Process
Some time ago, I wrote about the 25% approach to household budgeting for recent college grads. I suggested creating four categories of budgeted expenses and, as a starting point, to limit each to 25% of pretax salary: taxes, including employee contributions for employer-provided benefits; rent or mortgage payments; nonmortgage debt payments, including for credit cards, student and auto loans; and living expenses, including for food, insurance, utilities and, hopefully, a savings stash.
Budgeters would then be able adjust the dollar values of each of the categories (except for taxes, because they are what they are) to suit their personal circumstances. For example, if his or her debt payments total less than 25% of pretax income, the excess can be used to fund additional savings or discretionary expenses. In contrast, debt payments that total more than 25% will require the budgeter to offset that with lower-cost housing or to cut back on his or her living expenses to bridge the gap.
Boomers can take a similar approach.
Start by totaling all your sources of income and estimating the taxes you’ll be obligated to pay on that total (don’t forget to adjust for tax-deductible mortgage interest, if your home is financed, and for other qualifying expenses).
Once you’ve calculated that amount, take what’s left over and divide that by three. The result should represent the maximum you can afford each year for rent or mortgage payments, all your other debt payments and your living expenses. As before, you may shift excess dollars between categories as long as the aggregate dollar value remains constant.
Planning for the Future
The Gen Xers approach to this task is a bit more complicated. That’s because their budgets involve forward projections.
Start by reviewing the annual update you should receive from the Social Security Administration. In that you’ll see how much you’ve paid into the system to date and an estimate of the monthly benefits you would receive that are based upon that amount (note that this will vary depending upon the age at which you begin to draw down your account). So, too, should your corporate human resources department be in a position to ballpark the value of the pension benefits you can expect upon retirement.
As for your 401(k), IRAs and personal savings accounts, a Time Value of Money calculator (such as this one) can help you to determine the future values of each.
Enter the amount you’ve accumulated thus far (“present value”); the additional contributions you plan to make annually, quarterly, monthly, biweekly or weekly (“payments”); the term over which you intend to do that (which is expressed in numbers of “periods”), and the rate of return you can reasonably expect to earn over that duration (“interest”). Once done, solve for the “future value.”
At that point, you should have a sense for the extent to which the three legs of your post-retirement wealth will yield enough to fund the future you have in mind. If not, you’ve got some decisions to make.
For example, you may elect to continue working for a few years more. Perhaps you have the means to supplement the contributions you’re currently making to your retirement-specific and other long-term savings accounts. Then again, you may have to rethink the cost of lifestyle you had hoped to enjoy.
Either way, it’s important to view this method of budgeting as a zero-sum game. Otherwise, you’ll be tempted to cover a shortfall in the worst possible way: with equity-diminishing reverse-mortgage loans, high-rate credit card debt or some other form of financing that can end up compromising an already challenged financial condition.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.
August 1, 2015 · Getting A Mortgage · Comments Off on Vanderbilt Mortgage Deconstructs Mortgage Escrow for Homebuyers
MARYVILLE, Tenn., July 21, 2015 /PRNewswire/ –Vanderbilt Mortgage and Finance, Inc., a Berkshire Hathaway company, is explaining mortgage escrow accounts for its consumers to help clarify escrows role in the home buying process.
Getting a mortgage and purchasing a home is a big decision with several steps involved in the process. One part that new homebuyers sometimes find confusing is the mortgage escrow account. To simplify this part of the mortgage process, Vanderbilt Mortgage and Finance, Inc., is providing a quick explanation of escrow.
Escrow is an unfamiliar word that can sound intimidating, but at the end of the day, its a simple concept, President ofVanderbilt Mortgage and Finance, Inc., Eric Hamilton said. Part of our business is helping customers understand the mortgage process better, and part of that is making sure concepts like escrow are clearly explained.
Vanderbilt Mortgage is providing answers to the following frequently asked questions to give customers a better understanding of escrow:
What is escrow?
Escrow is a process where additional money is collected, along with the periodic mortgage payment, and specifically used to pay taxes and home insurance premiums. This additional payment amount is deposited into a separate account established for this purpose called an escrow account. Funds held in an escrow account can only be used to pay property taxes and home insurance premiums.
What are the benefits of having an escrow account?
An escrow account ensures that the homeowner has enough money to pay property taxes and home insurance premiums. Holding these funds in escrow keeps the homeowner from having to separately save and pay large lump sums at one time since taxes and insurance payments mayadd up to large amounts.
How is the escrow amount calculated?
The formula for calculating escrow is fairly simple. The total tax and insurance bills for the following year are calculated with the sum then divided by the number of payments per year. The additional amount is then added to the mortgage payment. Any changes in insurance premiums or property tax rates that occur after this calculation will alter the amount of escrow added to the mortgage payment. This calculation is done annually. Some lenders also provide an escrow cushion where an additional dollar amount is added to help avoid shortages.
How are taxes and insurance paid through escrow?
The mortgage company deposits the additional money collected into the escrow account and uses those funds to pay the insurance premium and property taxes on behalf of the homeowner when they become due. Typically, the insurance company will bill the lender directly for home insurance premiums. For property taxes, the local taxing authority will send the tax bill to the mortgage company which then pays the bill. Having an escrow account helps ensure that insurance payments and property taxes are paid on time.
For more guides on the mortgage and home buying processes, such as tips for managing credit scores, visit vmfhomeloan.com.
About Vanderbilt Mortgage and Finance, Inc.
Vanderbilt Mortgage and Finance, Inc. is a national housing lender that specializes in financing manufactured homes. In business for more than 40 years, the company currently services more than 180,000 home loans and works hard to tailor loans to each familys needs. Vanderbilt has an A+ grade from the Better Business Bureau and is a Berkshire Hathaway company. For more information, visit VMFHomeLoan.com.
Vanderbilt Mortgage and Finance, Inc., 500 Alcoa Trail, Maryville, TN 37804, 865-380-3000, NMLS #1561, ( http://www.nmlsconsumeraccess.org/), AZ Lic. #BK-0902616, Loans made or arranged pursuant to a California Finance Lenders Law license, GA Residential Mortgage (Lic. #6911), Illinois Residential Mortgage Licensee, KS Licensed Mortgage Co. (SL.0000720), Licensed by the NH Banking Department, Mississippi Licensed Mortgage Company, MT Lic. #1561, Licensed by PA Dept. of Banking.
August 1, 2015 · Fundings · Comments Off on Today’s Fundings, Acquisitions, and IPOs: Survata, AdPhorus, Thrillist
This is the first edition of Tech.Cos daily roundup of fundings, acquisitions, and IPOs.
Let us know if weve missed anything, and well make sure to have it covered.
Launchpad Digital Health Leads Four Seed Investments, Two Series A Investments
Launchpad Digital Health, the San Francisco, CA-based investor and accelerator focused on digital health, announced yesterday that it had closed four seed-stage investments and two Series A investments. The four seed-stage investments included Breezometer Ltd., InsighRx Inc., LifeDojo Inc., and Mevoked Inc. Its Series A investments were in Limelight Health and Sense.ly.
AdPhorus Raises $1M in Seed Funding Led by 500 Startups
AdPhorus, the Instanbul and San Francisco startup that offers an SaaS platform helping clients easily optimize their advertising solutions, announced this morning that it had closed $1 million in seed funding led by 500 Startups and European angel investors. The money will enable the company to expand their platform and push them further into Western Europe and other global emerging markets.
Survata Raises $6M Series A for Its Consumer Survey Platform
San Francisco, CA-based Survata announced yesterday that it had raised a $6 million Series A round of funding. The round was led by IDG Ventures and included participation from the likes of Bloomberg Beta, Alexis Ohanian, and Garry Tan. The company competes against the likes of SurveyMonkey and Qualtrics.
Medallia Raises $150M, Brings Valuation to More Than a Billion Dollars
The Palo Alto, CA-based Medallia has just become part of the unicorn club! With its recent $150 million financing round led by Sequoia Capital, the company is now valued at $1.25 billion. Founded in 2001, the company has raised four rounds totaling $255 million and now has a client base that includes Airbnb, Four Seasons, GE, Macys, and Marriott International. The companys Cloud-based platforms helps large companies understand and maintain their customer relationships.
Vroom Raises $54M for Digital Car Sales Platform
Vroom, the online platform that allows people to buy and sell certified used cars, announced yesterday that it had closed $54 million in funding. The funding came from General Catalyst Partners, T. Rowe Price Associates, Catterton, and various angel investors. The company has also hired Zapposs former VP of Finance, Michael Akrop, to help the company grow its distribution network.
Fantasy Sports Company, FanDuel, Acquires Mobile App Developer Kotikan
The New York, NY-based (but Ediburgh, UK-founded) FanDuel a fantasy sports platform that offers daily games for real money yesterday acquired the Scotland, UK-based mobile app developer Kotikan. The acquisition news comes just a few weeks after FanDuel raised a $275 million Series E funding round.
Is Thrillist Looking to be Acquired by Viacom?
According to recent reports, the New York, NY-based Thrillist may be in talks with Viacom about a possible acquisition. The media company isnt profitable, but it has grown from its flagship website Thrillist.com to others including JackThreads.com and Supercompressor.com.
August 1, 2015 · Getting A Mortgage · Comments Off on Check Credit Before Considering a Move
MISSION, Kan., July 23, 2015 /PRNewswire/ — (Family Features) Up to 80 percent of Americans still think owning a home is part of the American dream, according to a recent Harris Poll. With home sales reaching the highest pace in nearly six years, it may be time to finally get packing.
While new rules have relaxed the credit standards imposed by Fannie Mae and Freddie Mac (two of the biggest government loan guarantors), making it possible for many young first-time buyers to take the leap into home ownership, there are some important considerations to make long before hiring the movers.
What is a credit score and why does it matter?
Holding down a steady job, paying your bills on time, keeping your credit card balances low and only opening new credit when absolutely needed are all factors that go into your credit score. While you may not see a huge difference between 698 and 700, those two points can actually end up costing thousands of dollars.
Before applying for any loan, be sure to check the state of your credit, said Scott Smith, president of CreditRepair.com.Owning a home is a big part of the American dream, but home loans can be very complex, and doing all of the proper research from the beginning, including completing any necessary credit repair up front, will make the process that much simpler.
Resources such as CreditRepair.com offer a free online credit score estimator to help check your score. Anything below 620 ranks as poor; 620-699 is fair; 700-749 is good and anything over 750 is excellent.
Home loans and a down payment
While it is possible to buy a home without a mortgage, most people dont have that kind of cash. However, you will need at least 5 to 20 percent of the sale price in cash in order to qualify for a conventional loan.
Getting a mortgage can be difficult and frustrating, even for people with near-perfect credit. If you find yourself with a sub-optimal credit score and you are in the market for a new home, Smith suggests taking these steps before making a trip to the bank:
Get a copy of your credit report. You are entitled to one free credit report from each of the three major credit bureaus each year by law (in some states, you are entitled to more than one free report a year).
Analyze your credit report. Carefully scrutinize your report to identify any errors that can help boost your score and request corrections for all erroneous information.
Keep all credit card accounts open. Closing an unused credit card account can actually negatively affect your credit. Fifteen percent of your score is based on credit history.
Make all payments on time. Payment history accounts for a whopping 35 percent of your credit score.
Give yourself time. Good things do come to those who wait. Take the time to repair and build up your credit. It could save you thousands of dollars down the road.
For more tips on managing your money or your credit, visit www.CreditRepair.com.
About Family Features Editorial Syndicate This and other food and lifestyle content can be found at http://www.editors.familyfeatures.com. Family Features is a leading provider of free food and lifestyle content for use in print and online publications. Register with no obligation to access a variety of formatted and unformatted features, accompanying photos, and automatically updating Web content solutions.
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Cochise County ranks ninth in Arizona and 1,127 nationwide. Cochise County is in the 40 percentile of counties with the bestmortgagerates.
The study found its numbers by focusing on four different mortgage areas and averaging them together on equal footing. Loan funding rate, borrowing cost, property tax, and mortgage payments were all variables inthestudy.
The county rated best in property tax rates at number six in the state and1,008nationally.
The average Cochise County property owner pays $9,087 per year on property tax. A $3,913 difference from the national average of $13,000. By comparison, Pima County residents pay $12,358 per year in property tax. Pima County has the highest property tax inthestate.
Cochise County also ranks well in loan funding rate. Residents who applied for home loans in the county were approved 61 percent of the time compared to the national home loan rate of58percent.
Smartasset Managing Editor, AJ Smith, said that she would be happy to live in Cochise County with a home loan rate of61percent.
“We looked at the number of applicants who turned their applications into actual mortgages,” Smith said. “Cochise County ranks really well. I would love a high loan rate like youguyshave.”
Cochise County ranks eighth in terms of five year borrowing cost- the amount of money the bank will have to loan you to afford the total cost of the house- however, the difference between each countys borrowing is pennies. The cost of a five year loan in Cochise County is $65,468, compared to the number one county Greenlee, where residents pay an average of 65,100 overfiveyears.
“Borrowing cost refers to things like closing cost, down payments, and mortgage payments,” Smith said. “When we look at Arizona we see that each county is only separated by a couplehundreddollars.”
According to Smith, a counties ranking could depend on a numberoffactors.
“Are the banks willing to give out loans, is property affordable, are there houses on the market, and do people have good credit,” Smith said. “All of these things factor into getting agoodmortgage.”
Factors such as a late recession could also affect the way a county was ranked; a factor known all too well by residents ofCochiseCounty.
“The outside economy plays a huge role in getting a mortgage,” Smith said. ” A county getting through a recession could have a lower ranking and as they get out of it thatcouldchange.”
Smith and Smartasset will continue to update the study as the year progresses and Cochise County may find itself higher on themortgagelist.