thefinancialpyramid

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Blockchain Facts: What Is It, How It Works, and How It Can Be Used

What Is a Blockchain?

A blockchain is a distributed database or ledger that is shared among the nodes of a computer network. As a database, a blockchain stores information electronically in digital format. Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.

One key difference between a typical database and a blockchain is how the data is structured. A blockchain collects information together in groups, known as blocks, that hold sets of information. Blocks have certain storage capacities and, when filled, are closed and linked to the previously filled block, forming a chain of data known as the blockchain. All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled.

A database usually structures its data into tables, whereas a blockchain, as its name implies, structures its data into chunks (blocks) that are strung together. This data structure inherently makes an irreversible timeline of data when implemented in a decentralized nature. When a block is filled, it is set in stone and becomes a part of this timeline. Each block in the chain is given an exact timestamp when it is added to the chain.

KEY TAKEAWAYS

Blockchain is a type of shared database that differs from a typical database in the way that it stores information; blockchains store data in blocks that are then linked together via cryptography.

As new data comes in, it is entered into a fresh block. Once the block is filled with data, it is chained onto the previous block, which makes the data chained together in chronological order.

Different types of information can be stored on a blockchain, but the most common use so far has been as a ledger for transactions.

In Bitcoin’s case, blockchain is used in a decentralized way so that no single person or group has control — rather, all users collectively retain control.

Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, this means that transactions are permanently recorded and viewable to anyone.

How Does a Blockchain Work?

The goal of blockchain is to allow digital information to be recorded and distributed, but not edited. In this way, a blockchain is the foundation for immutable ledgers, or records of transactions that cannot be altered, deleted, or destroyed. This is why blockchains are also known as a distributed ledger technology (DLT).

First proposed as a research project in 1991, the blockchain concept predated its first widespread application in use: Bitcoin, in 2009. In the years since, the use of blockchains has exploded via the creation of various cryptocurrencies, decentralized finance (DeFi) applications, non-fungible tokens (NFTs), and smart contracts.

Transaction Process

Attributes of Cryptocurrency

Blockchain Decentralization

Imagine that a company owns a server farm with 10,000 computers used to maintain a database holding all of its client’s account information. This company owns a warehouse building that contains all of these computers under one roof and has full control of each of these computers and all of the information contained within them. This, however, provides a single point of failure. What happens if the electricity at that location goes out? What if its Internet connection is severed? What if it burns to the ground? What if a bad actor erases everything with a single keystroke? In any case, the data is lost or corrupted.

What a blockchain does is to allow the data held in that database to be spread out among several network nodes at various locations. This not only creates redundancy but also maintains the fidelity of the data stored therein — if somebody tries to alter a record at one instance of the database, the other nodes would not be altered and thus would prevent a bad actor from doing so. If one user tampers with Bitcoin’s record of transactions, all other nodes would cross-reference each other and easily pinpoint the node with the incorrect information. This system helps to establish an exact and transparent order of events. This way, no single node within the network can alter information held within it.

Because of this, the information and history (such as of transactions of a cryptocurrency) are irreversible. Such a record could be a list of transactions (such as with a cryptocurrency), but it also is possible for a blockchain to hold a variety of other information like legal contracts, state identifications, or a company’s product inventory.

To validate new entries or records to a block, a majority of the decentralized network’s computing power would need to agree to it. To prevent bad actors from validating bad transactions or double spends, blockchains are secured by a consensus mechanism such as proof of work (PoW) or proof of stake (PoS). These mechanisms allow for agreement even when no single node is in charge.

Transparency

Because of the decentralized nature of Bitcoin’s blockchain, all transactions can be transparently viewed by either having a personal node or using blockchain explorers that allow anyone to see transactions occurring live. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed and added. This means that if you wanted to, you could track Bitcoin wherever it goes.

For example, exchanges have been hacked in the past, where those who kept Bitcoin on the exchange lost everything. While the hacker may be entirely anonymous, the Bitcoins that they extracted are easily traceable. If the Bitcoins stolen in some of these hacks were to be moved or spent somewhere, it would be known.

Of course, the records stored in the Bitcoin blockchain (as well as most others) are encrypted. This means that only the owner of a record can decrypt it to reveal their identity (using a public-private key pair). As a result, users of blockchains can remain anonymous while preserving transparency.

Is Blockchain Secure?

Blockchain technology achieves decentralized security and trust in several ways. To begin with, new blocks are always stored linearly and chronologically. That is, they are always added to the “end” of the blockchain. After a block has been added to the end of the blockchain, it is extremely difficult to go back and alter the contents of the block unless a majority of the network has reached a consensus to do so. That’s because each block contains its own hash, along with the hash of the block before it, as well as the previously mentioned timestamp. Hash codes are created by a mathematical function that turns digital information into a string of numbers and letters. If that information is edited in any way, then the hash code changes as well.

Let’s say that a hacker, who also runs a node on a blockchain network, wants to alter a blockchain and steal cryptocurrency from everyone else. If they were to alter their own single copy, it would no longer align with everyone else’s copy. When everyone else cross-references their copies against each other, they would see this one copy stand out, and that hacker’s version of the chain would be cast away as illegitimate.

Succeeding with such a hack would require that the hacker simultaneously control and alter 51% or more of the copies of the blockchain so that their new copy becomes the majority copy and, thus, the agreed-upon chain. Such an attack would also require an immense amount of money and resources, as they would need to redo all of the blocks because they would now have different timestamps and hash codes.

Due to the size of many cryptocurrency networks and how fast they are growing, the cost to pull off such a feat probably would be insurmountable. This would be not only extremely expensive but also likely fruitless. Doing such a thing would not go unnoticed, as network members would see such drastic alterations to the blockchain. The network members would then hard fork off to a new version of the chain that has not been affected. This would cause the attacked version of the token to plummet in value, making the attack ultimately pointless, as the bad actor has control of a worthless asset. The same would occur if the bad actor were to attack the new fork of Bitcoin. It is built this way so that taking part in the network is far more economically incentivized than attacking it.

Bitcoin vs. Blockchain

Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two researchers who wanted to implement a system where document timestamps could not be tampered with. But it wasn’t until almost two decades later, with the launch of Bitcoin in January 2009, that blockchain had its first real-world application.1

The Bitcoin protocol is built on a blockchain. In a research paper introducing the digital currency, Bitcoin’s pseudonymous creator, Satoshi Nakamoto, referred to it as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.”2

The key thing to understand here is that Bitcoin merely uses blockchain as a means to transparently record a ledger of payments, but blockchain can, in theory, be used to immutably record any number of data points. As discussed above, this could be in the form of transactions, votes in an election, product inventories, state identifications, deeds to homes, and much more.

Currently, tens of thousands of projects are looking to implement blockchains in a variety of ways to help society other than just recording transactions — for example, as a way to vote securely in democratic elections. The nature of blockchain’s immutability means that fraudulent voting would become far more difficult to occur. For example, a voting system could work such that each citizen of a country would be issued a single cryptocurrency or token. Each candidate would then be given a specific wallet address, and the voters would send their token or crypto to the address of whichever candidate for whom they wish to vote. The transparent and traceable nature of blockchain would eliminate both the need for human vote counting and the ability of bad actors to tamper with physical ballots.

Blockchain vs. Banks

Blockchains have been heralded as being a disruptive force to the finance sector, and especially with the functions of payments and banking. However, banks and decentralized blockchains are vastly different.

To see how a bank differs from blockchain, let’s compare the banking system to Bitcoin’s implementation of blockchain.

How Are Blockchains Used?

As we now know, blocks on Bitcoin’s blockchain store data about monetary transactions. Today, there are more than 10,000 other cryptocurrency systems running on blockchain. But it turns out that blockchain is actually a reliable way of storing data about other types of transactions as well.

Some companies that have already incorporated blockchain include Walmart, Pfizer, AIG, Siemens, Unilever, and a host of others. For example, IBM has created its Food Trust blockchain to trace the journey that food products take to get to their locations.3

Why do this? The food industry has seen countless outbreaks of E. coli, salmonella, and listeria, as well as hazardous materials being accidentally introduced to foods. In the past, it has taken weeks to find the source of these outbreaks or the cause of sickness from what people are eating. Using blockchain gives brands the ability to track a food product’s route from its origin, through each stop it makes, and finally, its delivery. If a food is found to be contaminated, then it can be traced all the way back through each stop to its origin. Not only that, but these companies can also now see everything else it may have come in contact with, allowing the identification of the problem to occur far sooner and potentially saving lives. This is one example of blockchain in practice, but there are many other forms of blockchain implementation.

Banking and Finance

Perhaps no industry stands to benefit from integrating blockchain into its business operations more than banking. Financial institutions only operate during business hours, usually five days a week. That means if you try to deposit a check on Friday at 6 p.m., you will likely have to wait until Monday morning to see that money hit your account. Even if you do make your deposit during business hours, the transaction can still take one to three days to verify due to the sheer volume of transactions that banks need to settle. Blockchain, on the other hand, never sleeps.

By integrating blockchain into banks, consumers can see their transactions processed in as little as 10 minutes — basically the time it takes to add a block to the blockchain, regardless of holidays or the time of day or week. With blockchain, banks also have the opportunity to exchange funds between institutions more quickly and securely. In the stock trading business, for example, the settlement and clearing process can take up to three days (or longer, if trading internationally), meaning that the money and shares are frozen for that period of time.

Given the size of the sums involved, even the few days that the money is in transit can carry significant costs and risks for banks.

Currency

Blockchain forms the bedrock for cryptocurrencies like Bitcoin. The U.S. dollar is controlled by the Federal Reserve. Under this central authority system, a user’s data and currency are technically at the whim of their bank or government. If a user’s bank is hacked, the client’s private information is at risk. If the client’s bank collapses or the client lives in a country with an unstable government, the value of their currency may be at risk. In 2008, several failing banks were bailed out — partially using taxpayer money. These are the worries out of which Bitcoin was first conceived and developed.

By spreading its operations across a network of computers, blockchain allows Bitcoin and other cryptocurrencies to operate without the need for a central authority. This not only reduces risk but also eliminates many of the processing and transaction fees. It can also give those in countries with unstable currencies or financial infrastructures a more stable currency with more applications and a wider network of individuals and institutions with whom they can do business, both domestically and internationally.

Using cryptocurrency wallets for savings accounts or as a means of payment is especially profound for those who have no state identification. Some countries may be war-torn or have governments that lack any real infrastructure to provide identification. Citizens of such countries may not have access to savings or brokerage accounts — and, therefore, no way to safely store wealth.

Healthcare

Healthcare providers can leverage blockchain to securely store their patients’ medical records. When a medical record is generated and signed, it can be written into the blockchain, which provides patients with the proof and confidence that the record cannot be changed. These personal health records could be encoded and stored on the blockchain with a private key, so that they are only accessible by certain individuals, thereby ensuring privacy.

Property Records

If you have ever spent time in your local Recorder’s Office, you will know that the process of recording property rights is both burdensome and inefficient. Today, a physical deed must be delivered to a government employee at the local recording office, where it is manually entered into the county’s central database and public index. In the case of a property dispute, claims to the property must be reconciled with the public index.

This process is not just costly and time-consuming — it is also prone to human error, where each inaccuracy makes tracking property ownership less efficient. Blockchain has the potential to eliminate the need for scanning documents and tracking down physical files in a local recording office. If property ownership is stored and verified on the blockchain, owners can trust that their deed is accurate and permanently recorded.

In war-torn countries or areas that have little to no government or financial infrastructure, and certainly no Recorder’s Office, it can be nearly impossible to prove ownership of a property. If a group of people living in such an area is able to leverage blockchain, then transparent and clear time lines of property ownership could be established.

Smart Contracts

A smart contract is a computer code that can be built into the blockchain to facilitate, verify, or negotiate a contract agreement. Smart contracts operate under a set of conditions to which users agree. When those conditions are met, the terms of the agreement are automatically carried out.

Say, for example, that a potential tenant would like to lease an apartment using a smart contract. The landlord agrees to give the tenant the door code to the apartment as soon as the tenant pays the security deposit. Both the tenant and the landlord would send their respective portions of the deal to the smart contract, which would hold onto and automatically exchange the door code for the security deposit on the date when the lease begins. If the landlord doesn’t supply the door code by the lease date, then the smart contract refunds the security deposit. This would eliminate the fees and processes typically associated with the use of a notary, a third-party mediator, or attorneys.

Supply Chains

As in the IBM Food Trust example, suppliers can use blockchain to record the origins of materials that they have purchased. This would allow companies to verify the authenticity of not only their products but also common labels such as “Organic,” “Local,” and “Fair Trade.”

As reported by Forbes, the food industry is increasingly adopting the use of blockchain to track the path and safety of food throughout the farm-to-user journey.4

Voting

As mentioned above, blockchain could be used to facilitate a modern voting system. Voting with blockchain carries the potential to eliminate election fraud and boost voter turnout, as was tested in the November 2018 midterm elections in West Virginia.5 Using blockchain in this way would make votes nearly impossible to tamper with. The blockchain protocol would also maintain transparency in the electoral process, reducing the personnel needed to conduct an election and providing officials with nearly instant results. This would eliminate the need for recounts or any real concern that fraud might threaten the election.

Pros and Cons of Blockchain

For all of its complexity, blockchain’s potential as a decentralized form of record-keeping is almost without limit. From greater user privacy and heightened security to lower processing fees and fewer errors, blockchain technology may very well see applications beyond those outlined above. But there are also some disadvantages.

Pros

Improved accuracy by removing human involvement in verification

Cost reductions by eliminating third-party verification

Decentralization makes it harder to tamper with

Transactions are secure, private, and efficient

Transparent technology

Provides a banking alternative and a way to secure personal information for citizens of countries with unstable or underdeveloped governments

Cons

Significant technology cost associated with mining bitcoin

Low transactions per second

History of use in illicit activities, such as on the dark web

Regulation varies by jurisdiction and remains uncertain

Data storage limitations

Benefits of Blockchains

Accuracy of the Chain

Transactions on the blockchain network are approved by a network of thousands of computers. This removes almost all human involvement in the verification process, resulting in less human error and an accurate record of information. Even if a computer on the network were to make a computational mistake, the error would only be made to one copy of the blockchain. For that error to spread to the rest of the blockchain, it would need to be made by at least 51% of the network’s computers — a near impossibility for a large and growing network the size of Bitcoin’s.6

Cost Reductions

Typically, consumers pay a bank to verify a transaction, a notary to sign a document, or a minister to perform a marriage. Blockchain eliminates the need for third-party verification — and, with it, their associated costs. For example, business owners incur a small fee whenever they accept payments using credit cards, because banks and payment-processing companies have to process those transactions. Bitcoin, on the other hand, does not have a central authority and has limited transaction fees.

Decentralization

Blockchain does not store any of its information in a central location. Instead, the blockchain is copied and spread across a network of computers. Whenever a new block is added to the blockchain, every computer on the network updates its blockchain to reflect the change. By spreading that information across a network, rather than storing it in one central database, blockchain becomes more difficult to tamper with. If a copy of the blockchain fell into the hands of a hacker, only a single copy of the information, rather than the entire network, would be compromised.

Efficient Transactions

Transactions placed through a central authority can take up to a few days to settle. If you attempt to deposit a check on Friday evening, for example, you may not actually see funds in your account until Monday morning. Whereas financial institutions operate during business hours, usually five days a week, blockchain is working 24 hours a day, seven days a week, and 365 days a year. Transactions can be completed in as little as 10 minutes and can be considered secure after just a few hours. This is particularly useful for cross-border trades, which usually take much longer because of time zone issues and the fact that all parties must confirm payment processing.

Private Transactions

Many blockchain networks operate as public databases, meaning that anyone with an Internet connection can view a list of the network’s transaction history. Although users can access details about transactions, they cannot access identifying information about the users making those transactions. It is a common misperception that blockchain networks like bitcoin are anonymous, when in fact they are only confidential.

When a user makes a public transaction, their unique code — called a public key, as mentioned earlier — is recorded on the blockchain. Their personal information is not. If a person has made a Bitcoin purchase on an exchange that requires identification, then the person’s identity is still linked to their blockchain address — but a transaction, even when tied to a person’s name, does not reveal any personal information.

Secure Transactions

Once a transaction is recorded, its authenticity must be verified by the blockchain network. Thousands of computers on the blockchain rush to confirm that the details of the purchase are correct. After a computer has validated the transaction, it is added to the blockchain block. Each block on the blockchain contains its own unique hash, along with the unique hash of the block before it. When the information on a block is edited in any way, that block’s hash code changes — however, the hash code on the block after it would not. This discrepancy makes it extremely difficult for information on the blockchain to be changed without notice.

Transparency

Most blockchains are entirely open-source software. This means that anyone and everyone can view its code. This gives auditors the ability to review cryptocurrencies like Bitcoin for security. This also means that there is no real authority on who controls Bitcoin’s code or how it is edited. Because of this, anyone can suggest changes or upgrades to the system. If a majority of the network users agree that the new version of the code with the upgrade is sound and worthwhile, then Bitcoin can be updated.

Banking the Unbanked

Perhaps the most profound facet of blockchain and Bitcoin is the ability for anyone, regardless of ethnicity, gender, or cultural background, to use it. According to The World Bank, an estimated 1.7 billion adults do not have bank accounts or any means of storing their money or wealth.7 Nearly all of these individuals live in developing countries, where the economy is in its infancy and entirely dependent on cash.

These people often earn a little money that is paid in physical cash. They then need to store this physical cash in hidden locations in their homes or other places of living, leaving them subject to robbery or unnecessary violence. Keys to a bitcoin wallet can be stored on a piece of paper, a cheap cell phone, or even memorized if necessary. For most people, it is likely that these options are more easily hidden than a small pile of cash under a mattress.

Blockchains of the future are also looking for solutions to not only be a unit of account for wealth storage but also to store medical records, property rights, and a variety of other legal contracts.

Drawbacks of Blockchains

Technology Cost

Although blockchain can save users money on transaction fees, the technology is far from free. For example, the PoW system which the bitcoin network uses to validate transactions, consumes vast amounts of computational power. In the real world, the power from the millions of computers on the bitcoin network is close to what Norway and Ukraine consume annually.8

Despite the costs of mining bitcoin, users continue to drive up their electricity bills to validate transactions on the blockchain. That’s because when miners add a block to the bitcoin blockchain, they are rewarded with enough bitcoin to make their time and energy worthwhile. When it comes to blockchains that do not use cryptocurrency, however, miners will need to be paid or otherwise incentivized to validate transactions.

Some solutions to these issues are beginning to arise. For example, bitcoin-mining farms have been set up to use solar power, excess natural gas from fracking sites, or power from wind farms.

Speed and Data Inefficiency

Bitcoin is a perfect case study for the possible inefficiencies of blockchain. Bitcoin’s PoW system takes about 10 minutes to add a new block to the blockchain.9 At that rate, it’s estimated that the blockchain network can only manage about seven transactions per second (TPS). Although other cryptocurrencies such as Ethereum perform better than bitcoin, they are still limited by blockchain. Legacy brand Visa, for context, can process 65,000 TPS.10

Solutions to this issue have been in development for years. There are currently blockchains that are boasting more than 30,000 TPS.11 Ethereum’s merge between its main net and beacon chain (Sep. 15, 2022) is predicted to allow up to 100,000 TPS after it rolls out an upgrade that includes sharding — a splitting of the database so that more devices (phones, tablets, and laptops) can run Ethereum. This will increase the network participation, reduce congestion, and increase transaction speeds.12

The other issue is that each block can only hold so much data. The block size debate has been, and continues to be, one of the most pressing issues for the scalability of blockchains going forward.

Illegal Activity

While confidentiality on the blockchain network protects users from hacks and preserves privacy, it also allows for illegal trading and activity on the blockchain network. The most cited example of blockchain being used for illicit transactions is probably the Silk Road, an online dark web illegal-drug and money laundering marketplace operating from February 2011 until October 2013, when it was shut down by the FBI.13

The dark web allows users to buy and sell illegal goods without being tracked by using the Tor Browser and make illegal purchases in Bitcoin or other cryptocurrencies. Current U.S. regulations require financial service providers to obtain information about their customers when they open an account, verify the identity of each customer, and confirm that customers do not appear on any list of known or suspected terrorist organizations.14 This system can be seen as both a pro and a con. It gives anyone access to financial accounts but also allows criminals to more easily transact. Many have argued that the good uses of crypto, like banking the unbanked world, outweigh the bad uses of cryptocurrency, especially when most illegal activity is still accomplished through untraceable cash.

While Bitcoin had been used early on for such purposes, its transparent nature and maturity as a financial asset has actually seen illegal activity migrate to other cryptocurrencies such as Monero and Dash.15 Today, illegal activity accounts for only a very small fraction of all Bitcoin transactions.16

Regulation

Many in the crypto space have expressed concerns about government regulation over cryptocurrencies. While it is getting increasingly difficult and near impossible to end something like Bitcoin as its decentralized network grows, governments could theoretically make it illegal to own cryptocurrencies or participate in their networks.

This concern has grown smaller over time, as large companies like PayPal begin to allow the ownership and use of cryptocurrencies on its platform.

What Is a Blockchain in Simple Terms?

Simply put, a blockchain is a shared database or ledger. Pieces of data are stored in data structures known as blocks, and each node of the network has an exact replica of the entire database. Security is ensured since if somebody tries to edit or delete an entry in one copy of the ledger, the majority will not reflect this change and it will be rejected.

How Many Blockchains Are There?

The number of live blockchains is growing every day at an ever-increasing pace. As of 2022, there are more than 10,000 active cryptocurrencies based on blockchain, with several hundred more non-cryptocurrency blockchains.17

What’s the Difference Between a Private Blockchain and a Public Blockchain?

A public blockchain, also known as an open or permissionless blockchain, is one where anybody can join the network freely and establish a node. Because of their open nature, these blockchains must be secured with cryptography and a consensus system like proof of work (PoW).

A private or permissioned blockchain, on the other hand, requires each node to be approved before joining. Because nodes are considered to be trusted, the layers of security do not need to be as robust.

What Is a Blockchain Platform?

A blockchain platform allows users and developers to create novel uses on top of an existing blockchain infrastructure. One example is Ethereum, which has a native cryptocurrency known as ether (ETH).18 But the Ethereum blockchain also allows the creation of smart contracts and programmable tokens used in initial coin offerings (ICOs), and non-fungible tokens (NFTs). These are all built up around the Ethereum infrastructure and secured by nodes on the Ethereum network.

Who Invented Blockchain?

Blockchain technology was first outlined in 1991 by Stuart Haber and W. Scott Stornetta, two mathematicians who wanted to implement a system where document timestamps could not be tampered with.1 In the late 1990s, Cypherpunk Nick Szabo proposed using a blockchain to secure a digital payments system, known as bit gold (which was never implemented).19

The Bottom Line

With many practical applications for the technology already being implemented and explored, blockchain is finally making a name for itself in no small part because of bitcoin and cryptocurrency. As a buzzword on the tongue of every investor in the nation, blockchain stands to make business and government operations more accurate, efficient, secure, and cheap, with fewer middlemen.

As we prepare to head into the third decade of blockchain, it’s no longer a question of if legacy companies will catch on to the technology — it’s a question of when. Today, we see a proliferation of NFTs and the tokenization of assets. The next decades will prove to be an important period of growth for blockchain.

A Digital Wallet for All Your Web3 Needs

From crypto to NFTs and beyond, accessing a wealth of DeFi platforms is simpler than you might think. With OKX, a leading digital asset financial service provider, you can access world-class security as you trade and store assets. You can also connect existing wallets and win up to $10,000 when you complete a deposit of more than $50 through a crypto purchase or top-up within 30 days of registration. Learn more and sign up today.

Credits: ADAM HAYES

Date: September 18, 2022

Source: https://www.investopedia.com/terms/b/blockchain.asp

[thefinancialpyramid]

The Newlyweds’ Guide to Life Insurance

It’s officially wedding season! As the US continues to open back up, it seems that everywhere you look someone is getting married, with a double whammy of postponed 2020 nuptials and regularly scheduled 2021 events kicking off.

If you’re one of the many couples getting married this year — or perhaps you’ve already tied the knot (congrats!) — chances are there are a few high priority life items on your list to tackle. While life insurance may not be the first thing on your mind post-wedding, it is definitely worth thinking about as you tie your futures together.

Marriage is a partnership

For most people, marriage is a commitment on many levels: emotional, ethical and spiritual just to name a few, but also financial and practical! For one, there are usually beneficial, fiscal implications to tying the knot. There is even a fancy financial term that describes the relationship between spouses (and business partners): you share an insurable interest, that is to say, one of you will suffer hardship if the other passes away. Having a life insurance policy will help to ensure your spouse is taken care of financially, should something happen to you.

Just married? Now’s a good time for life insurance

It can’t be overstated that the best time to buy life insurance is always “yesterday” or, failing that, “right now.” That is because the younger and healthier you are when you purchase your policy, the lower the rate you can get. This is all the more important as you and your spouse likely share great plans for the future: you might be looking to buy a house and raise kids. If you choose to combine your finances, you will also be sharing your debt. All the more reason to plan carefully.

At Ladder, we believe in making life insurance personalized, simple, and flexible. If you want to lower your coverage during the lifetime of your policy, you can decrease your coverage amount with just a few clicks or taps in the app, which decreases your premiums by the same proportion.

A quick look at joint life insurance

The insurable interest defined earlier is a prerequisite for a type of life insurance known as “joint life insurance.” Such policies can be “first to die,” i.e. pay out to the beneficiary when the first spouse dies, or “second to die,” i.e. pay out when both insured parties die. The former can be practical because it involves just one policy that ensures a payout for the other party regardless of circumstances. “Second to die” policies typically don’t involve spouses as beneficiaries, but instead protect extended family members like grandchildren. Most people won’t benefit much from joint life insurance, unless one spouse cannot be insured due to a health condition — in which case the policy is calculated based on the healthy spouse.

*Sample pricing for healthy, 40-year-old, non-smoking male with a 10-year term life policy.

The benefits of separate policies

Ideally, we would recommend both spouses get a separate life insurance policy. Going separate, for one, ensures each policy is tailored to each spouse and their financial situation, not just now but also in the future. For instance, if you and your spouse decide to buy a house and get a mortgage together, one of you might take on the mortgage payments while the other covers the expenses of managing your household. You may also choose different life insurance policies that reflect your respective incomes to maintain the same standard of living for your significant other.

Credits to: Liana Corwin

Date: June 29, 2021

Source: https://finance.yahoo.com/news/newlyweds-guide-life-insurance-142738778.html

[thefinancialpyramid]

7 Reasons You Need Life Insurance as an Entrepreneur

Many times entrepreneurs ask themselves these questions: Is purchasing a life insurance policy a good idea for me as an entrepreneur? I am young and in excellent health condition. So, why I would want to invest in an insurance policy?

You are an entrepreneur, and probably you have invested already your money, time, and efforts to ensure that your spark in the form of a business idea becomes a real business.

According to the survey about life insurance, 54% of Americans have a life insurance policy, and it is more than half of the people in the US. Something interesting that can be seen from the results is that only 33% do not fully understand their policy.

The survey also found that of just less than half of people without this insurance, more than 50% plan to get insurance in the future, and 44% are not insured because they can’t afford it.

When you understand how important life insurance can be for your life, you will start thinking much more about this topic.

Let’s start with the basics, or what is life insurance and why you need a life insurance policy.

What is Life Insurance?

When it comes to life insurance, in its simplest form, you will pay premiums to your insurance company, and the company will pay money to your estate or your beneficiary after your death.

With life insurance, you are protecting your heirs from this unfortunate possibility. This becomes more important when you are the sole source of income for your family. In this case, if something happens to you, your family will be protected from the financial point of view.

You Are Business Owner, So Why You Need Insurance

In the life of every entrepreneur, the risk is an essential part. You can lose your money. Also, you will have bad days with failed projects.

But all risks can be and will need to be managed somehow. When we talk about financial risks because of uncertainty, we can use some insurance. Regarding health issues, we have health insurance. Because of the risks around us, we decide to buy insurance, and in such a case to protect ourselves from the dangers of the risks that can be an unmanaged risk. For example, with health insurance, if you need to see a doctor without health insurance, even primary care can cost you a fortune.

As we already mentioned, you as an entrepreneur know that you need to expect unexpected things to happen in your work. Also, you know the importance to do things that will prevent some negative consequences, why you do not apply the same things for your own life as well.

Are you making the risk assessments for your business? Probably you do something like this. So, you should be doing the risk assessment with your health and wellbeing. The only thing that will help you in managing such risks is being insured. This is an entrepreneurial way of thinking.

You need to take into considerations that without life insurance protection, the unexpected death or injury of some of the founders could crash the company, starting with layoffs and bankruptcy.

What is the First Thing You Will Need to Do?

The life insurance is not so much popular because it is the insurance we buy not for ourselves but for our beneficiaries and personally we will never benefit from this insurance. But your family will depend in the future on what you will do today.

So, before you decide to take life insurance, it is essential to do several things.

1. Analyze.

Start with the analysis of your needs. What is the situation when it comes to your personal and business finances? What your family will need if you pass away? Look at your personal and business debts, mortgage payments, the income of your family members, and future financial needs related to your kids as college, savings, and so on. When you calculate these things you will be in a better position when you search for life insurance policies.

2. Compare insurance companies.

When you have the figures from the previous step, and you know how much your family will need, now you need to compare different insurance companies and quotes. You will need to meet and talk with insurance agents to get information about what they offer. So, get the information and make a benchmark analysis to see what are the best options for your need.

3. Make a decision.

Now you know what you need, you know what are the best options when it comes to life insurance for you and you can make a decision to buy the most proper policy for you. Additionally, you want to be sure that the insurance company will still be there in the future when your beneficiaries need a payout.

Two Types of Life Insurance

There are two types of life insurance. The first is term life insurance, and the second is permanent life insurance.

The term life insurance policies as its name state cover a specified timeframe, usually from one to 30 years. In the worst case, if you pass away during the term’s coverage, the insurance company will pay out a specified benefit to the person or organization, also known as beneficiaries. So, you pay monthly amounts for a specific, and if you pass away while the policy is outstanding, then your beneficiaries receive a predetermined sum of money.

Permanent life insurance from the other side is not related to the specific timeframe (term), but it provides lifelong protection. Many policies offer guaranteed minimums for your cash value growth. As you continue to pay the amount of agreed premium every month, your beneficiaries will receive the full amount guaranteed by your policy.

Many wealthy individuals are using their life insurance policy as a savings account to assist their families.

Specific Reasons Why You Need Life Insurance

Here I want to cover some specific reasons you can take into consideration when you want to decide about life insurance. You need to understand that the life insurance policy should be a good fit for you and your business, reflecting the scope and scale of your business. So, when you decide about purchasing life insurance, as we mentioned earlier, you need to evaluate your individual insurance needs based several factors such as current and possible future debts, income replacement and current and future obligations.

1. You and your co-founders will need life insurance to ensure business survival.

If your cofounders, co-owners or some key employee is suddenly gone or get sick, the business can decline very quickly. With the right life insurance, the surviving partners will have sufficient capital to keep the business operations while looking for a replacement for the deceased partner.

Sometimes you can have persons as a part of your team crucial for your business, and you want to keep them permanently without retirement, the permanent life insurance should probably be most appropriate. On the other side, term life insurance can be more relevant in the case of team members who generate most of the income for the company, and the insurance will be related to the expected retirement date. Also, term life insurance policy is more appropriate if some of the partners personally guaranteed leases or loans for the business.

2. Save your company from bankruptcy after you

As an entrepreneur, probably you want your company to continue on the path of success after you are no longer in charge. Without having the required finances, bankruptcy is possible in such a case.

If you succeed to customize your life insurance policy according to your specific situation, the closing the doors of your company doesn’t have to happen. Your company will be saved even if something happens to you.

3. Brand protection

After you are retiring from making decisions in your company, the business may start to lose the money until there is an appropriate replacement for you. Your insurance policy can ensure the protection of your brand. There will be enough finances to keep things going on until the company finds a competent individual who will take your role.

4. Debts payment

You already know that every business need and will always need financing. If something happens to you, your company can not pay the debts you have taken for normal operations. With life insurance, all your debts can be paid if your policy covers your repayments to be paid by the insurer.

5. Employee protection

Because you are an entrepreneur who owns and manage the company, your small business team members are also dependent on you. Having insurance means that you will protect your employees. The finances from your life insurance policy can be used to keep the business going on and keep the employee’s payment.

6. Cash when you need it

When you need a short-term loan to cover some business expenses the life insurance can become helpful because you can use your savings as collateral security for borrowing money. If you have an appropriate life insurance policy, you can get finances when you need it.

7. Family protection

As we already mentioned here, your family will entirely depend on your income, so if something happens to you, your family might be left unprotected. To ensure that your family will continue with the lifestyle you have secured for them, and life insurance is something you will need to consider. The fact is that your family members will have to go on with life without you, but the life insurance policy will make that easier for them.

#areteautomation #lifehealthadvisors #bestforhealth #healthtips #knowledge

Credits: Entrepreneurship in a Box

Date: 2022

Source: https://www.entrepreneurshipinabox.com/18232/7-crucial-reasons-why-you-need-life-insurance-as-an-entrepreneur/#:~:text=The%20only%20thing%20that%20will,starting%20with%20layoffs%20and%20bankruptcy.

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Does Life Insurance Cover Accidental Drug Overdose?

Both life insurance and accidental death insurance can cover accidental drug overdose in some scenarios. While life insurance covers most causes of death, accidental death coverage pays only for accidents. People buying accidental death coverage often think that this type of insurance covers any accident as long as the person did not die of natural causes. But this is not always the case. Almost all ADD policies have several exclusions in them. Exclusions are provisions in a contract that work to exclude certain deaths from coverage and, if applied, will result in an ADD claim denial.

One of such exclusions is drug exclusion.

A drug exclusion usually says that the policy does not cover any loss resulting from an injury sustained while voluntarily taking drugs which federal law prohibits dispensing without a prescription unless the drug is taken as prescribed or administered by a licensed physician. Often this exclusion is interpreted to mean that if a deceased insured had drugs in the system at the time of death, the death would be excluded from coverage. Such interpretation does not always work in the beneficiaries’ favor and results in many ADD claims being denied due to drug exclusions. However, not every death that involves drugs should be excluded. There are many other factors that should be considered before deciding whether the death falls under the accidental death exclusion.

This article will help you understand if and when a life insurance policy covers drug overdose and what to do if your claim was denied due to drug abuse.

*Sample pricing for healthy, 35-year-old, non-smoking female with a 20-year term life policy.

Drug Overdose and Life Insurance Exclusions

First, there is a distinction between life insurance and accidental death coverage. Life insurance normally covers all deaths unless there are provisions for non-payment due to suicide or there are material misrepresentations on the life insurance application and the death occurred within the first two years of the policy issue date. Accidental death policies, on the other hand, do not have such broad coverage and usually pay only if the death is due to an accident and none of the exclusions apply. Accidental death policies can provide coverage for drug overdose only in certain scenarios. One of the most important factors to consider is the wording/language of the exclusion itself. Other important factors in deciding whether the exclusion applies are:

Was the overdose intentional or accidental?

What type of drug was used by the insured?

Was the drug prescribed? If yes, was it taken according to the prescription?

Could the insured foresee that death would result after taking the drug?

What are the laws of the state where the death occurred?

Life insurance companies can deny coverage if they can prove that the drug overdose was deliberate (suicide) or the insured used illegal drugs or abused prescription medications. Insurers can also deny ADD claims where exclusions are written to exclude from coverage any death where a drug is a contributing factor (for example, an insured died in a car crash but the toxicology revealed illegal drugs in his/her system that impacted driving). If your life insurance claim is denied due to any of these scenarios, it is still prudent to consult with a life insurance lawyer experienced in drug-related cases.

Accidental Drug Overdose

Both life insurance policies and state laws have different definitions for “accidental death”. According to the National Institute on Drug Abuse, a death is accidental when:

the drug was taken accidentally

too much of a drug was taken accidentally

the wrong drug was taken or given in error

an accident occurred in the use of a drug in medical or surgical procedures.

Otherwise, drug overdose is considered a suicide by overdose and not an accidental death. Frequently, overdoses result from improperly prescribed drugs, an accidental double dose of narcotic painkiller or other sedative-type of medications, or interactions of various drugs taken together. In such cases, the death is likely to be ruled as accidental, especially if the insured was under medical supervision at the time of the overdose.

Overdose on Illegal vs. Prescription Drugs

Another factor that helps determine whether the drug overdose was accidental, is the type of drug the insured used.

If the overdose occurred as a result of using illicit drugs such as meth, cocaine, or heroin, the insurer may argue that the insured knew or should have known the risks of using such drugs, and deem the overdose as intentional, thus refusing to pay the claim. On the other hand, if prescription drugs prescribed by licensed physicians are involved, the death is likely to be considered accidental if the medications were taken according to the doctor’s advice and not abused. An overdose on prescription drugs is not straightforward. In some cases, life insurance companies may still refuse to pay using the drug exclusion as a reason to deny paying the death benefits.

When a beneficiary files an ADD claim, the insurance company will request a toxicology report. The toxicology report usually shows the substances that were found in the insured’s body at the time of death.

Let us suppose the insured was taking Oxycodone and it was reflected in the toxicology report. The insurance company will analyze the toxicology report to see whether the level of Oxycodone in the insured’s system was within a therapeutic range.

The insurance company will hire a medical expert to analyze the report. In some cases, the insurance company will send the report to a registered nurse or a physician who will review it and render an opinion as to whether Oxycodone was taken according to a physician’s advice.

The problem with this is that medical experts rarely agree on what constitutes a therapeutic range for a drug without considering other factors. For example:

How old was the insured?

What was the insured’s tolerance to the drug?

How long after death was the postmortem exam done?

Did the insured have a liver failure? What are the liver function test results? What other medications was the insured taking?

Did he have any other illness at the time of death that could have slowed his metabolism?

Was the medication administered to the insured while he was unconscious?

When insurance companies’ consultants evaluate toxicology reports, they do not take into consideration all these factors and wrongfully deny many ADD claims. In many cases, they simply put the drug concentration number in Dr. Winek’s Scale or another drug concentration table to see in which range it falls and will deny a claim if the drug concentration is not within a therapeutic range.

Life Insurance Claims and Marijuana Use

At the time this article is written, medical cannabis is legal in about half the states of the country and some states allow recreational use. Even so, many life insurance policies have explicit regulations and exclusions when it comes to marijuana use and it is not uncommon for them to deny claims due to drug exclusion if the insured used marijuana before death. Accidental death policies may not cover deaths where cannabis use contributed to the death.

Contestable life insurance claims may be problematic if the deceased did not disclose using marijuana for medical reasons or recreationally. Non-disclosure of marijuana use on a life insurance application could be considered misrepresentation and lead to a denied life insurance claim if the insured died within the first two years of the policy issue date.

If your claim has been denied due to marijuana use, call us for a free consultation. Our lawyers have extensive experience with marijuana-related cases and can help file an appeal for you. See how they helped recover ADD benefits for a claim denied due to the use of cannabis.

If you want to read more about cannabis laws, check our guide where we explain how they work and how denied claims based on marijuana use are handled.

What to Do if Your Claim Was Denied Due to Drug Use

Accidental death claim denials based on a drug exclusion can be complex and very confusing. They require medical experts and experienced life insurance attorneys.

A life insurance attorney who has handled many ADD claim denials in the past will know exactly what to do to get your ADD claim paid. Our law firm has successfully handled many denied accidental death claims. We have worked with reputable medical experts who provide reliable service. Our ADD attorneys know how to deal with claim denials to get claims paid fast.

#areteautomation #lifehealthadvisors #bestforhealth #healthtips #livemorechallenge #ethos

Credits: Tatiana Kadetskaya

Published: January 18, 2021

Source: https://life-insurance-lawyer.com/accidental-death-claim-denied-due-to-drug-exclusion/

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Why is Life Insurance Important?

Life insurance is there to help protect your family from financial hardship. Here are some other reasons to consider.

Life insurance can often be confusing. Many people know what it is, but they aren’t really sure why they may need a policy. This can lead to people putting off getting a policy or, worse, not getting one at all.

If you want to help ensure your family is going to have income and better be able to pay off debts after you’re gone, then life insurance may be very important. Here’s why it matters.

*Sample pricing for healthy, 35-year-old, non-smoking female with a 20-year term life policy

Provide for lost income

One of the primary reasons people get life insurance is to help ensure their loved ones won’t face financial hardships if they pass away unexpectedly. If you’re married and have kids, this can matter a lot, especially if you’re the primary breadwinner. Without your income, your family might not be able to afford your mortgage or cover tuition costs. Your life insurance death benefit can help pay for these.

Also, keep in mind, if you are a stay-at-home parent, the value you provide through your work with your kids and at home is important. If you were to pass away, your spouse would have to pay for the services you provide taking care of your family.

Life insurance is important even if you don’t have a spouse or children. If you have a partner you share finances with, for example, they might not have the funds to cover the bills that you normally split.

Help cover bills and debts

The same is true for paying for bills and other types of debt.

If you pass away with credit card debt or a car loan, for example, then that debt doesn’t disappear — someone will have to pay for it. In many cases, that could be your spouse or partner, and, if you are single, your parents or siblings. Having life insurance can help cover these payments so the costs aren’t left to your loved ones.

Your life insurance policy can also help pay for your funeral service and burial. This can help alleviate the burden your loved ones might face trying to pay for it.

Reduce stress

When a loved one passes away, it’s always an emotional and stressful time. This already difficult period can be more challenging if there are concerns about replacing income and covering bills.

While your life insurance policy can’t solve every problem, it can provide a bit of a buffer for your family to get back on their feet. Knowing they have your death benefit to cover the mortgage, for example, can give your spouse the time they need to move forward at their own pace.

Some common myths and excuses around life insurance

There are a lot of reasons why people think they don’t need life insurance. Here are some of the most common myths and excuses — and why they may not add up.

I have life insurance through my employer — A lot of jobs offer a group life insurance policy that’s usually one or two times your salary. While that’s a good start, in many cases, it won’t be enough for your loved ones to replace your income over the long term. Plus, if you leave your job, that policy often won’t travel with you.

It’s too expensive — There are a lot of different types of life insurance policies, making it possible for virtually anyone to find something in their budget. If you’re young and healthy, policies tend to have a very affordable monthly premium.

I don’t know anything about life insurance — Life insurance can sometimes feel like a confusing topic. Sitting with a financial professional or life insurance agent can be really helpful. They can walk you through the policies that best fit your needs and help you figure out how much coverage you should have.

I can put that money into my savings — Life insurance shouldn’t be something that you look at as part of your retirement plan. Rather, it’s there to help your loved ones after you pass.

I don’t have the time — You can complete most of the paperwork for many life insurance policies online from the comfort of your living room. If you need to get an exam, these typically only take about 30 minutes.

I’m single so I don’t need insurance — A common misconception is that a single person without children doesn’t really need to buy life insurance. There are many ways as a single person that you could use life insurance to take care of financial obligations that might potentially burden those you love should you die unexpectedly, such as outstanding debts or funeral expenses.

Life insurance is there to help take some of the financial burden off your loved ones when you pass. It doesn’t take long to find a life insurance policy that will meet your needs and help your family when they need it most.

SOURCE: https://www.protective.com/learn/why-is-life-insurance-important

[thefinancialpyramid]

It’s Time to Purchase That Life Insurance Policy

If there is anything that the coronavirus pandemic has taught us, is that no one is truly indispensable, may it be in business, employment, or life in general.

The coronavirus is proving to be a very expensive disease to manage and survive. According to a study conducted by America’s Health Insurance Plans, the average cost to treat a hospitalized COVID-19 patient is $30,000. Critical cases may need to content with a heftier price tag, as treatment could take at least 20 days.

And that’s not all. When it comes to COVID-19, no one is truly invulnerable or free from risk — not children, not those into health and fitness, and most certainly not senior citizens and those with underlying medical conditions.

We are learning the hard way that anticipating and preparing for change is not a case of overreacting but actually a very wise move indeed.

Life Insurance as a Silver Lining

Unlike purchasing the newest iPhone model or perhaps a snazzy sports car, buying life insurance is not the least exciting. When we were younger, we thought it was something that old people did, and as a younger person, not something to bother ourselves with. Sure, it’s an essential component to financial planning but since we’re still busy making our way in the world, it wasn’t something that we had to do right now.

But then COVID-19 happened and upturned all our plans and priorities, and suddenly, having healthcare coverage and life insurance became must-haves. You then chide yourself for not acting on your insurance plans sooner but guess what? Since you’re still reading this piece, you still have time to get your act together.

The primary purpose of life insurance is to protect your loved ones if you pass away. Think of it as a legacy of love that you will be leaving behind. By having a policy in place, you will be sparing your beneficiaries the additional burden of sorting out your finances and assets, helping ensure that they are provided for appropriately.

But did you know that some other insurance policies also have components that you can also benefit from? Depending on the package that you avail of, you can obtain the following types of coverage:

● Trauma Insurance: Provides the insurance policyholder with a lump sum payment, in the event of a critical medical event that can impact his/her life and way of life, which could include loss of limbs, a stroke, a heart attack, or even reduced respiratory performance due to COVID-19

● Total and Permanent Disability Insurance: Offers a lump sum payment to the insurance policyholder, in the event that s/he suffers from a major medical trauma that will leave him/her disabled and incapable of work

Several insurance companies have made it easier than ever to apply for a life insurance policy, even during the COVID-19 pandemic. The journey in getting a policy can be very rewarding in the end also, especially if it provides you and your loved ones with an extra layer of protection.

If you have decided to take out an insurance policy, here are some items that can help you navigate and understand its complexities:

How will my needs be determined?

Your life insurance coverage will highly depend on factors such as your existing and potential debts, prevailing medical conditions, and even the history of applications for insurance. Consult with a financial advisor or insurance agent on how to help you plan for your coverage needs.

What Benefits can I get out of a Term Life Insurance Policy?

Aside from knowing your monthly premiums, you also need to understand the duration of the policy, how the death benefits can be claimed and disbursed, as well as the policy’s rate of return.

According to Kim D.H. Butler, the author of “Live Your Life Insurance”, prospective policyholders must look for these four features in their insurance coverage — control, liquidity, use, and equity. Liquidity is defined as how much money the policyholder can get from his/her policy, and how soon this can be released.

Will There be Instances Where the Life Insurance Benefits may not be Paid out?

Most, if not all plans, have exceptions that preclude the beneficiaries from claiming benefits. It would be best for you to know about these so that you can make a well-informed decision prior to purchasing your life insurance policy.

Understanding Term Life Insurance

Term life insurance is an ingenious way to get insurance coverage, without breaking the bank.

Life insurance can be expensive, more so if the coverage is comprehensive. That is why term life insurance is gaining popularity as a simpler, more affordable type of insurance policy, perfect for individuals or new families looking to protect their dependents.

Unlike permanent life insurance, term life insurance provides coverage for a specific period of time, normally between 10 to 20 years. This feature gives the prospective policyholder the freedom to determine until when s/he will need coverage while having protection in case something happens, his/her dependents will be provided for.

Moreover, applying for term life insurance is easier as some companies facilitate online applications without any visits to the doctor or medical labs, which basically cuts processing and approval times further.

Bestow is backed by the North American Company for Life and Health Insurance, a life insurance company that is rated A+ by A.M. Best. The company prides itself on offering easy and affordable term life insurance from its website. They can offer coverage of up to $1 million.

Nowadays, having as many layers of protection is imperative to ensure the quality of life. While the future may be uncertain, we have the power to protect our family and property at nominal costs — let’s take it.

Neither Bestow nor North American Company for Life and Health Insurance were involved in the preparation of the information in this article. The opinions and ideas expressed in the article are those of the author(s) and are not promoted or endorsed by Bestow or North American. You should always seek professional advice before making a financial decision.

Credits: Newsweek Amplify

Date: August 5, 2020

Source: https://www.newsweek.com/amplify/its-time-purchase-that-life-insurance-policy

#lifehealthadvisors #areteautomation #life #knowledge #lifeinsurance

[thefinancialpyramid]

Accelerated Death Benefit Rider: Unlock Your Life Insurance Payout — Before You Die

In exchange for your monthly payments, life insurance can offer you tremendous peace of mind. It’s just a shame you won’t be around to enjoy the money yourself — right?

What most consumers don’t know is that a common rider on life insurance policies can let you tap into your death benefit before you die.

While the primary purpose of life insurance is to ensure your loved ones will never struggle financially after you’re gone, an “accelerated death benefit” can help renovate your home or even pay for a trip around the world. Here’s how.

What is an accelerated death benefit rider?

With term life insurance — the much more affordable kind, which doesn’t include an investment component — the cash payout is normally only unlocked when you shuffle off this mortal coil.

But an accelerated death benefit rider will allow a terminally ill policyholder to receive some of the money while still alive. For example, you might be eligible to receive up to half the payout if you can show you have 12 months or less to live.

Jeremy Hallett, CEO of life insurance comparison site Quotacy, says that while most consumers don’t know about this rider, all of the companies available through his site offer it at no extra charge.

Accelerated death benefits have become common ever since the AIDS crisis of the 1980s, when a whole community of ill individuals needed funds to help get them through their final days.

“The insurance companies said, ‘If we know they’re going to die in the next 12 months and we’re going to pay out the death benefit anyway, if they need the money, why don’t we give them some?’” Hallett explains.

How do you get the money?

To claim the living benefit, a policyholder will need to produce a letter from a doctor stating their remaining lifespan falls within the threshold listed in their policy. It’s also the insurance company’s prerogative to ask for a second opinion or access to medical records to verify their condition.

“It is a little bit of work,” says Hallett. “But if you’re in the hospital and you’re really sick, whoever is taking care of you and helping with that, it’s going to feel like nothing compared to the stuff that the doctors are asking for.”

Once you’ve received the money, you can spend it however you wish — whether that’s paying down debt or taking a trip to Bora Bora.

And even if you don’t die within the expected timeframe, Hallett promises the insurance company won’t come knocking at your door to claw back the funds. That’s an outcome everyone’s happy with.

How can you use the money?

Hallett says the money is typically used in one of three ways:

Making yourself more comfortable in your final days, including renovating your home.

Creating memories with your family.

Paying for medical costs, including experimental treatments or procedures abroad.

One Quotacy customer used his benefit to fund a Disney cruise with his family. His goal was to build lasting memories his loved ones could hold on to when he was gone.

“It seemed like a good idea to me; it seemed magical,” says Hallett.

“So if you want to take your family on a cruise — or if you want to take them on a vacation to Italy because that’s where you’re from — you can collect everybody and you have the funds to create a giant memory for everyone of being together.”

What other riders should you know about?

The accelerated death benefit is one of several lesser-known riders that can make a huge difference in a difficult time.

Many insurance providers offer long-term care riders, which will advance some of a claimant’s death benefit to cover the costs of a long-term care facility when they’re unable to continue living independently.

Hallett says another important rider offers parents the opportunity to insure their children under their policy. This child term rider provides a limited death benefit to help cover funeral expenses, counseling and other services for grieving families when a child passes away.

“Burying a child, I can’t imagine that, but if you also don’t have the funds for it, that makes it worse,” says Hallett.

A single rider will cover all of the children in a family and can be tacked on for around $75 a month. One company Quotacy works with doesn’t require underwriting to include your children, meaning it won’t ask questions about their health to provide you with coverage.

It’s true that these riders aren’t commonly used — partially because not enough people have life insurance in the first place. But when the cost of protection is so small, it’s worth taking a few minutes to ensure your family is covered.

Credits to: Sigrid Forberg

Date Published: July 10, 2021

Source: https://moneywise.com/insurance/life/life-insurance-accelerated-death-benefit

#lifeinsurance #finance #money #areteautomation

[thefinancialpyramid]

Life vs. Health Insurance: Choosing What to Buy

There’s a definite comfort in knowing that even if your health takes an unexpected turn, you and your family have a financial safety net. When money’s tight, though, paying for both a life insurance policy and healthcare coverage each month can get tricky. As expenses start to mount, it can be tempting to drop one or the other to make ends meet.

Each type of insurance, however, serves a completely different purpose and offers different coverage.

KEY TAKEAWAYS

Young couples are often advised to obtain both health insurance and life insurance coverage.

Health insurance covers a portion of medical expenses and doctor’s visits, while life insurance pays out a lump-sum death benefit upon premature death.

While healthy young adults often forgo health insurance, the Affordable Care Act has made it easier to obtain coverage, or to stay on a parent’s plan.

In addition to health coverage, most individuals really do need life insurance once they have a family.

When you only buy the coverage you truly need, paying for health and life insurance simultaneously becomes a lot less daunting.

Life vs. Health Insurance

Life insurance pays out a lump sum to your beneficiaries in the case of your premature death. The idea is that the death benefit should be sufficient to replace future income loss, as well as cover expenses and obligations outstanding such as funeral costs, medical expenses, and other debts — or to fund college savings accounts or retirement years. This gives the family financial continuity so they do not struggle, despite the loss of you and your wage-earning capacity.

Health insurance, on the other hand, helps pay for medical expenses such as doctor’s visits, hospital stays, medications, tests, and procedures. This helps ensure that people can afford medical care and stay healthy.

The reality is that a lot of people genuinely need both types of protection, especially if they have dependents. If that’s the case, the better idea is to limit coverage to what you truly need so you can afford both types of insurance.

Keep in mind that insurance needs can change dramatically during different life stages. What might seem essential for a parent with teen children might not be so important for a recent college graduate or a retiree.

Investopedia / Sabrina Jiang

The “Young Invincibles”

Prior to the 2014 rollout of the Affordable Care Act (ACA, signed into law in 2010),1many 20- and 30-somethings chose to forgo health insurance altogether; roughly 30% of young adults under age 26 had no health insurance at all. And not without reason: These ��young invincibles,” as some experts call them, have a much lower incidence of health problems than most segments of the population. Paying a premium for health insurance every month just seemed unnecessary to some. But with the ACA imposing a mandate on most Americans to have health coverage, that started to change.3

The Tax Cuts and Jobs Act (TCJA) eliminated the mandate (or, more strictly speaking, the noncompliance penalty), starting in 2019.4 Still, once you consider the advantages of health care coverage, you might well want to have it.

One piece of good news for recent grads is that the ACA allows you to stay on your parent’s plan until the age of 26. That may buy you some time before taking out a policy of your own.

A few states, including New York, New Jersey, Florida, and Pennsylvania, even allow adult children to remain covered on their parents’ plan until the age of 30 or 31.5 Generally, they must be unmarried and have no dependents of their own.

If relying on your mom and/or dad’s policy isn’t an option and you’re under the age of 30, a relatively inexpensive catastrophic policy might be worth a look. You won’t be reimbursed for most doctor visits and other day-to-day health needs, but after you reach a certain deductible, you’ll have a safety net if you end up experiencing a major medical issue. For people with a nearly spotless health record, this minimal amount of insurance is often enough.

Considering a bump-up in your coverage by purchasing a Bronze, Silver, Gold, or Platinum plan on your state’s healthcare exchange? It’s possible that you could get some help from the government. While you can choose any metallic level plan in the marketplace, your income must fall between 100 and 400% of the federal poverty level to qualify for the tax credit. For 2021, in order to be eligible for a subsidy, you must make below $51,040 for an individual, $68,960 for a couple, and $104,800 for a family of four.6 In each case, that number represents four times the federal poverty rate for 2020.

Through 2022, the American Rescue Plan Act eliminates an income cap that restricted who qualifies for ACA tax credits to help offset the cost of monthly insurance premiums, opening the door to people with incomes above 400% of the federal poverty level, who were previously ineligible for the tax credits. It also limits the maximum amount anyone must pay for marketplace health insurance to 8.5% of income vs. 9.83%, and boosts subsidies to lower-income consumers — those with incomes between 100% and 400% of the poverty level.7

If you happen to live in a state that chose to expand Medicaid as a result of the ACA, you might even be able to get coverage through that program. If you just graduated and are working at the local coffee shop or grocery store to make ends meet, it’s possible that you could qualify.

Life Insurance for Under-30s

While you may not have much choice when it comes to obtaining health coverage, life insurance is a different matter. If you don’t have any kids yet, you may not need it.

There are a few exceptions. If you’re financially supporting your parents or grandparents, you’ll want to take out a policy that’s large enough to handle their needs. Or you might want a small policy that will cover your funeral expenses if the unforeseen should occur. As long as you stick with a no-frills term policy, this type of coverage usually isn’t all that expensive for someone in his or her 20s or 30s.

Raising a Family

Once kids come along (or even just a spouse), health insurance takes on a new level of importance. If your employer offers a health plan, that’s usually — though not always — going to be less expensive than shopping on an exchange. At work, the company is usually subsidizing a big part of your health premium; in the “individual” insurance market, you’re paying the full bill, less any tax credits or subsidies for which you may qualify.

But you may not need the most expensive policy your company offers. During your employer’s open enrollment period, take a look at the premium for each plan. Then make a ballpark estimate of how much you’d have to pay out-of-pocket for things like emergency services, lab work, and prescription drugs under each option. You may find that the top-tier plan isn’t worth the extra premium.

The same principle applies to families who aren’t covered at work and instead buy on the individual market. Unless you expect to incur major medical expenses, a “Silver” plan can sometimes give you enough coverage for less than a “Gold” or “Platinum” one.

Life Insurance Needs

In addition to health coverage, most individuals really do need life insurance once they have a family. But it need not cost you a bundle to give your loved ones a financial safety net. First, consider getting a term policy, which only stays in force for a specific number of years. These tend to be a lot cheaper than permanent policies like whole life and universal life.

Another way to keep the cost down is to buy only as much life insurance as you need. There are a couple of ways to figure this out. One is to multiply your salary by a certain amount — 10 times your annual wage is one rule of thumb — and use that to determine the policy’s face value.

A different and perhaps more useful approach is to tally up all the expenses your spouse would incur if something happened to you. Think childcare fees, grocery bills, mortgage and car payments, tuition, and so on. Then subtract whatever you have in savings and investment accounts. Your policy should cover the difference.

The fact is, any insurance is better than no insurance if you have dependents. So if you’re feeling pinched from a financial standpoint, buy whatever you can afford.

Empty Nesters

It’s one of those pesky facts of life: The older you get, the more likely you are to experience health complications. Thus, middle-age probably isn’t the time to start skimping on your medical insurance.

But there’s at least one financial benefit to getting older. Once your kids reach adulthood and financial independence, you might be able to start dialing back on life insurance. That doesn’t necessarily mean dropping your coverage altogether. If you still have a mortgage to pay off — or if you’re living on a pension that doesn’t pay a survivor benefit — you’ll still want at least some protection.

If your existing term policy is coming to an end, one option is to take out a smaller policy that provides a safety net during your empty nest period. Or if your current term coverage includes a conversion feature, you could turn a portion of it into a permanent life policy.

The advantage of convertibility is that you don’t have to go through medical underwriting all over again, which becomes trickier as you get older and inevitably have more health issues. Just be aware that you only have a certain number of years when you can take advantage of this feature, so it’s worth reviewing your carrier’s terms and conditions.

What Is the Difference Between Life and Health Insurance?

Health insurance is designed to pay for medical treatment, drugs, and preventative check-ups for you and others covered under your plan. Life insurance provides a cash sum to your loved ones if you die during the length of the policy.

Do You Need Life Insurance After You Retire?

There’s no one-size-fits-all answer. If, after you retire, you don’t have issues paying bills or making ends meet, and your children are all self-sufficient, you likely don’t need life insurance.

If you still have a lot of outstanding debt obligations (like a mortgage) or have children or a spouse that is dependent on you, keeping life insurance is a good idea. If you have considerable assets — enough to trigger estate taxes — life insurance placed in an irrevocable trust might be a way to get money out of your estate.

Do I Need Health Insurance If I Am Young?

Yes, it’s generally a good idea to have some health insurance even if you’re young and relatively healthy — at the very least, for catastrophic events. Accidents and severe illnesses can strike anyone, and even a brief emergency room visit or an outpatient surgical procedure can cost hundreds or thousands of dollars. Without health coverage, you’re responsible for all of those expenses. While it’s becoming rarer, some providers and ERs will turn you away if you’re uninsured.

The Bottom Line

When you only buy the coverage you truly need, paying for health and life insurance simultaneously becomes a lot less daunting. Those of you age 30 and younger who don’t suffer from chronic illness may be able to get by without the latter. But for people with dependents, these are two needs you really can’t avoid.

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Credits: DANIEL KURT

Date: March 07, 2022

Source: https://www.investopedia.com/articles/personal-finance/100115/life-vs-health-insurance-choosing-what-buy.asp

#business #areteautomation #automation #software #technology #ethos #lifeinsurance #insurance

[thefinancialpyramid]

Changing How Black Americans Use Life Insurance Could Help Shrink The Racial Wealth Gap

Black Americans are more likely to carry life insurance than the average American, but their coverage does little more than provide for funeral costs.

Fifty-six percent of Black Americans have life insurance, according to a study by LIMRA and Life Happens, compared with 52% of all Americans. But 46% remain underinsured, with their benefits not enough to replace income or provide wealth transfer across generations.

But more coverage could help close the racial wealth gap, experts said, but many Black Americans are missing out because of financial concerns, a misunderstanding of how life insurance works, and mistrust of the industry at large.

“What I hear is, ‘My parents didn’t help me, so I’m just going to bury myself’…[leaving] every generation starting over, unlike other communities where they’re giving legacy to the next generation,” Wendy Edwards, a financial services professional with over 30 years of experience representing New York Life and other insurers, told Yahoo Money. “Instead, we have a financial loss and an emotional loss creating a recipe for disaster.”

Just like insuring a car or home, life insurance protects an individual’s income potential, providing their family with a financial legacy if something happens to them.

The rule of thumb is to have 10 times your annual income in life insurance, according to insurance nonprofit Life Happens, to cover expenses beyond the funeral like housing, mortgage, childcare, health care, and education, so your family won’t be in debt.

Even if you only make $40,000 a year and work at least 35 years, your human capital would be $1.4 million. But many Black Americans aren’t accounting that way and therefore, pass along smaller windfalls to their heirs.

Only 10% of Black families receive a wealth transfer, versus 46% of white families, according to one 2014 study. The median transfer for Black families who get an inheritance is $52,240, or 60% less than the median transfer for white households.

“Is anybody educating our people that your human capital is worth millions?” Edwards said.

“It’s simple math,” Edwards added. “If you make $100,000 a year and work for 35 years, your human capital is worth $3.5 million. You pay a life insurance premium and automatically create an estate for that amount, whatever that amount is. But I am still getting calls about burial insurance.”

One reason Black Americans may be underinsured is fewer resources.

The average income for Black households was $60,276 in 2020, according to the Census Bureau, compared with $86,770 for white Americans. Black workers historically are hit harder in recessions — including the latest during the pandemic — suffering disproportionate job losses and an unemployment rate that takes longer to recover.

In a 2021 LIMRA study, Black Americans expressed these money worries and were more likely to report concerns about saving for an emergency, reducing student loan debt, and paying monthly bills than Americans overall.

LIMRA/Life Happens study Black Americans: Life Insurance Ownership and Attitudes 2021

“When you have enough savings so the ‘threat of survival’ is no longer apparent, you can afford to look further down the road to wealth creation and think about where you want to be 20 years from now,” Dr. Pamela Jolly, CEO and founder of Torch Enterprises, a strategic investment firm, told Yahoo Money. “Audacious goals and plans require a margin of safety so you can afford to take a risk; but if you can only afford to see a good meal, you can’t build a place of economic safety.”

‘A disservice to the Black community’

There’s also a long history of mistrust of financial institutions, including insurers, among Black Americans.

For instance, MetLife, John Hancock Life, and other life insurance companies in the early 2000s “settled multi-million dollar civil rights lawsuits involving race-based life insurance rates and benefits,” as outlined in the Northwestern Journal of Law and Social Policy’s “Ending Jim Crow Life Insurance Rates,” for the practice of charging Black Americans more for life insurance — marketed as burial insurance — that had little value compared to the premiums paid. This continued into the 1970s.

“The insurance industry and financial services did a disservice to the Black community,” Dr. Jolly said.

Just this year, the Casualty Actuarial Society also acknowledged “the potential impact of systemic racism on insurance underwriting, rating and claims practices” in its Methods for Quantifying Discriminatory Effects on Protected Classes in Insurance.

“So when I say you can’t have enough insurance and need at least a half-million policy, they view me as, ‘Oh, she just wants to make money off of me’,” Edwards said. “This is where you have a lack of trust.”

Understanding the ‘many benefits to a permanent life insurance’

Life insurance also can be complex for everyone with many different types of products with varied benefits and drawbacks. For example, you can outlive a term life insurance policy, while permanent life insurance policies have cash value in addition to death benefits that can be invested.

The LIMRA study found that 68% of Black Americans who have individual life insurance have permanent life insurance with the intent of using the cash value for burial and final expense costs. But that use is missing other ways the cash value can be utilized to help build wealth.

LIMRA/Life Happens study Black Americans: Life Insurance Ownership and Attitudes

“One of the greatest benefits of permanent life insurance is the ability to accumulate cash value that grows tax deferred,” Mark Williams, CEO of Brokers International, told Yahoo Money, “and can be accessed in the form of loans, withdrawals, or surrender for the life of the policy,”

Cash value can be used as a retirement savings vehicle or to fund a business, college education, or purchase a home — all ways to create wealth.

“There’s so many benefits to a permanent life insurance policy,” Edwards said. “I got a call from a client who said, ‘Wendy, I’m short on paying the tuition for the kids.’ Okay, I’m going to send you $10,000 from your policy. Another client called and said they were short on closing costs for their home. They didn’t realize they could use the cash value from their permanent life insurance to fund these things.”

“It takes three generations to build legacy wealth, one generation to lose it, and four generations to solidify,” Dr. Jolly’s research into barriers to wealth generation in the Black community showed.

Outside of home ownership, life insurance is one of the most common avenues for wealth creation — if utilized correctly. There is no one size fits all. It’s also just as important for heirs to think of the future when they benefit from a life insurance windfall to build a legacy of wealth.

“Early in my career, a client struggled to pay premiums. When she died, her son bought a Maxima with the insurance proceeds and drove it off the road the following week. I was so angry,” Edwards said. “Now I see beneficiaries asking how to invest the proceeds and starting their own businesses from the life insurance proceeds.”

Credits: Ronda Lee

Date posted: May 13, 2022

Source: https://money.yahoo.com/black-americans-life-insurance-racial-wealth-gap-145830034.html

#business #areteautomation #automation #software #technology #ethos #lifeinsurance #insurance

[thefinancialpyramid]

Best Age to Get Life Insurance

When it comes to buying life insurance, younger is better

Life insurance is a financial product that provides a lump sum cash payment, known as the death benefit when the insured passes away. Life insurance aims to mute any financial hardship that may arise from the lack of income the deceased will not earn any longer, plus any outstanding debts or obligations of the deceased’s that must be repaid.

If you want to purchase a permanent insurance policy with a cash value, you need to own it long enough for the cash benefit to grow, and a term-life policy is only set for a certain number of years. The right time to buy life insurance varies from person to person, depending on family and financial circumstances.

Generally, you need life insurance if other people depend on your income or if you have debt that will carry on after your death. However, the older you get the more expensive life insurance costs. A healthy non-smoking 20-year-old will pay less than someone with the same health profile but who is 20 years older. If you wait too long to purchase life insurance, not only is it more expensive, it can be harder to get the policy approved by an insurance underwriter.

KEY TAKEAWAYS

If others depend on you financially — or you have debt — it’s crucial to have life insurance.

This is because life insurance ensures that your financial obligations are taken care of and your family supported even if you have an untimely death.

The sooner you purchase life insurance, the better, as it becomes more expensive with each passing year.

Term life is cheaper but only lasts for the number of years of the policy term (e.g., 20) and does not feature a cash component.

Permanent life insurance has a cash value component. Holding the policy for longer lets that cash value grow over time.

Why Younger Is Better

When it comes to timing, the younger you are when you buy life insurance, the better. This is because, at a younger age, you’ll qualify for lower premiums. And as you get older, you could develop health problems that make insurance more expensive or even disqualify you from purchasing a plan.

However, younger people faced with mortgages, car payments, and student loan debt tend to put off buying life insurance. While paying off current debt is critical, missing out on buying life insurance at a young age has a significant economic impact, much like delaying saving for retirement. The sooner it is purchased, the better.

When to Purchase Term Insurance

Term life insurance covers you for the term of the policy. While younger is generally better, when that term should start may also be based on when you anticipate other people depending on your income. You’ll want the term of the policy to last as long as your dependents will need your income. For parents, this is often until their children are grown.

People in couples who own property together may want to be covered until their mortgage is paid off. If both people in a couple are earning income that is crucial to the family, then each should be covered. Parents who don’t earn income may also want to consider coverage, as their unpaid labor (childcare, etc.) might need to be replaced by paid services (like daycare) in the event of their death.

Life insurance may be prudent even before you have dependents if you have unsecured debt, such as credit card debt or some private student loans. For instance, credit card companies require that all outstanding balances be paid upon the death of the holder.

When to Buy Permanent Life Insurance

With a permanent life insurance plan, the cash value grows tax-deferred. Premium contributions to whole life policies purchased at an early age can accumulate considerable value over the long-term time, as the cost of insurance is fixed for the entire term of the policy.

Cash value can even be used as a down payment for a first home purchase. If held long enough, what you accumulate may be able to supplement retirement income. However, the money needs time to grow, which is why an early start is best.

Cost of Waiting

Forgoing life insurance purchases at a young age can be costly. The average cost of a 20-year level term policy with a $250,000 face amount is about $214 per year for a healthy 30-year-old male. In contrast, the annual premium for a 40-year-old male is about $486. The overall cost of delaying the purchase for 10 years is $2,720 over the life of the policy.1

Additionally, waiting to purchase life insurance can have a greater impact on an attempt to purchase a policy. Medical conditions are more likely to develop as an individual grows older. If a serious medical condition arises, a policy can be rated by the life underwriter, which could lead to higher premium payments or the possibility that the application for coverage can be declined outright.

When Is the Best Time to Get Life Insurance?

The younger and healthier you are, the lower the cost of a life insurance policy will be. If you are thinking about starting a family, it is often smart to buy life insurance at that time, making it more affordable in the long run.

What Life Insurance Should I Get When I Have a Baby?

If you have children, life insurance can provide much-needed financial support in the event of an untimely death. In terms of amount, the death benefit should be enough to cover all of your existing debts and obligations, replace your income for the years that your children would still rely on you, and be able to also pay for things like a college education.

When Should I Buy Term Life Insurance?

Term life insurance can be the more cost-effective option when you only need the death benefit for a limited number of years, and not for your entire life into old age. This will depend on everyone’s own individual assessment and financial situation. Talk with an insurance agent to help you decide what is best.

When Should I Buy Life Insurance for My Child?

Life insurance policies can be taken out on children soon after they are born. A permanent life insurance policy for a young child will come with a far lower premium than for when that person is an adult. At age 18, you can then transfer the insurance policy over to the child so that they will have coverage going forward.

Should I Buy Life Insurance When I Am Young and Single?

This all depends on if you think that you will start a family in the future. If so, it’s good to buy insurance when you are younger, when it is more affordable. You may also want life insurance to establish an estate, give to charity, or repay debts and obligations upon your death, whether or not are single.

The Bottom Line

The longer you wait to buy life insurance, the more expensive it will get. Moreover, if you wait, you run the risk of deteriorating health, which may make you ineligible for some life insurance at that point. When you should get life insurance will depend on your personal and family situation, along with your finances and obligations. But in general, life insurance is less expensive when you are young.

If money is tight, a term life insurance policy can offer a financial safety net for your family. If you purchase permanent life insurance, owning it over many years will give the cash-value component of the policy time to grow.

Credits: THOM TRACY

Date: May 22, 2022

Source: https://www.investopedia.com/articles/investing/072816/what-best-age-get-life-insurance.asp

[thefinancialpyramid]

Five ways life insurance can protect your family’s future

When a loved one passes away, the last thing on your mind is money. But a life insurance policy can help families protect their futures and ease financial burdens.

If you are the beneficiary of a life insurance policy, you must file a claim in order to receive any money. You can choose to receive the benefit as a lump-sum payment or spread it out over a number of years as an annuity.

A life insurance payout could work toward your family’s financial security in several ways.

Save for retirement

If you’re married, your retirement plan is probably built around the financial contributions of you and your spouse. A life insurance benefit can be used to help replace their future contributions. Excess cash can be used to ensure maximum annual contributions to workplace plans as well as contributions to an IRA.

Pay bills

Along with final expenses for the deceased, you may encounter some unexpected costs. For example, the death of a stay-at-home parent may mean additional child care, meals, and other household costs. The sum from a life insurance policy can be used to cover or defray these costs to maintain your family’s quality of life.

Fund a college savings account

To keep children’s dreams of higher education on track, consider using part of the life insurance benefit to fund a college savings plan. There are different options available, including some that allow for tax advantages and have no income limitations.

Pay off debts

Eliminating debts can be a huge stress reliever, especially when you’re grieving. In addition to your own debts, you may have a legal obligation to pay off the debts of the deceased, too. If you served as a co-signer on a loan or jointly held debts, then you will become responsible for those debts. But in non-community property states, debts incurred by one spouse are not always the responsibility of the other spouse following a death. Check the laws of your state to see what the obligations might be.

Create a lifetime income stream

Instead of taking a life insurance benefit all at once, consider spreading it out over a number of years with an annuity. This lessens the burden of having to manage a lump sum and makes your yearly income predictable. Annuities even allow you to spread out annuity payments for the rest of your life.

Although nothing can replace the loss of a loved one, having access to life insurance benefits can lessen financial worries during an already difficult time. Explore your options to make sure you’re making the right financial moves to meet your goals.

Talk with your financial advisor about how life insurance can fit into your financial plan.

Credits: Lincoln Financial Group

Source:https://www.lfg.com/public/individual/responsibilityoflove/protect/fivewayslifeinsurancecanprotectyourfamilysfuture

[thefinancialpyramid]

Mortgage Life Insurance Explained

Buying a new home is an exciting time. But as thrilling as it may be, there are a lot of decisions that come with the purchase of a new home. One decision you may ponder is whether you should buy mortgage life insurance.

What Is Mortgage Life Insurance?

Mortgage life insurance, also known as mortgage protection insurance, is a life insurance policy that pays your mortgage debt if you die. While this policy can keep your family from losing the home, it’s not always the best life insurance option.

Mortgage life insurance designates your mortgage lender as the policy’s beneficiary, which means your loved ones don’t get a death benefit if you die during the policy’s term. The lender instead uses the mortgage protection insurance death benefit to wipe out the rest of your mortgage.

A mortgage protection life insurance policy’s premiums remain level during the term, but the policy’s value decreases as your mortgage decreases.

How Mortgage Life Insurance Works

If you buy mortgage life insurance, you’ll typically purchase it when you buy your home or shortly after. The policy’s length will coincide with the number of years you have to pay off your mortgage.

Mortgage life insurance is usually sold by the mortgage lender, an insurance company affiliated with your lender or another insurance company that mails you after finding your information via public records. If you buy it from your mortgage lender, the premiums can be rolled into your loan.

The mortgage lender is the beneficiary of the policy, not your spouse or other person you choose. This means the insurer will pay your lender the remaining balance on the mortgage if you pass away. Money does not go to your family with this type of life insurance.

This differs from a standard term life insurance policy, which is another option if you’re looking for a life insurance policy to help pay off your mortgage if you die. You could choose a regular term life policy with a face value that’s at least the amount of the mortgage that you still need to pay. If you were to die during the policy’s term, your beneficiaries receive the death benefit, which they may choose to use to pay off the mortgage.

Your beneficiaries can use a term life insurance death benefit for anything, so if you feel paying off the mortgage is most important, you should clearly state that in your will.

Restrictions of mortgage life insurance

The biggest restriction on mortgage life insurance is that your loved ones won’t get a death benefit, but it will instead go to the mortgage lender.

That means your loved ones won’t be able to use any death benefit funds for other common needs when people die, such as final expenses, future education costs, childcare, paying off other debts and providing an income for the surviving spouse.

If you don’t like those restrictions, a standard term life insurance policy for the life of your mortgage with a face value of at least the amount of your mortgage may be a better bet.

What Does Mortgage Life Insurance Cover?

Mortgage life insurance covers your mortgage if you were to die.

Unlike other types of life insurance, mortgage life insurance is in place solely to pay off what’s left on your mortgage. It won’t help pay final expenses, childcare and future education costs, which are other reasons people often buy life insurance.

A mortgage life insurance policy’s death benefits go to the mortgage lender directly, so loved ones won’t receive the money.

Advantages of Mortgage Life Insurance

Mortgage life insurance can give you and your family peace of mind that the mortgage will be paid off. That may also be the case if you buy other types of coverage and specify that you want proceeds spent on paying off the mortgage, but mortgage life insurance benefits go directly to the mortgage lender.

No Life Insurance Medical Exam

Mortgage life insurance generally does not require a medical exam and it may have no health questions, either.

For those with medical conditions, mortgage life can be an alternative to traditional life insurance that uses health as a factor in pricing.

Riders

You may have the option of adding life insurance riders to your mortgage protection policy, such as:

Living benefits. With a life insurance with living benefits rider, you can access money from the policy’s death benefit if you’re diagnosed with a terminal illness (often defined as a life expectancy of 12 months or less).

Return of premium: The return of premium life insurance rider would return the premiums you’ve paid after a certain number of months. Check the rider for specific rules and timelines.

Note that these riders are also typically available on regular term life insurance policies.

Disadvantages of Mortgage Life Insurance

Even though there are a few benefits to purchasing mortgage life insurance, there are key downsides to this policy type.

No flexibility

A mortgage life insurance policy’s beneficiary is the mortgage company, so loved ones can’t use death benefits for any other reason.

Expensive for Individuals in good health

Since mortgage life insurance policies do not take health into account in pricing, they generally cost more than a term life insurance policy for the amount of coverage you get. If you’re in generally good health, you can get more value in a term life insurance policy.

Decreasing payout

The payout of mortgage life insurance usually matches your mortgage balance. But your premium stays the same.

Finding an accurate quote is a challenge

When you buy a house, you may get offers from your lender and by mail for mortgage life insurance. But it can be hard to comparison shop on your own. You may find it challenging to get mortgage life insurance quotes online. Many insurers don’t offer quotes online, making it difficult to compare policies without having to speak with someone directly.

Summary: Mortgage Life Insurance Features

When do I buy it?Usually when you buy the house, or shortly thereafterWho gets the life insurance payout?Your mortgage lenderWhat’s the payout?The balance of your mortgage, or partial balance if that’s what you choseHow do premiums work?Your premiums will stay level over the course of the policyCan I have a policy with my spouse?Yes, mortgage insurance can cover co-borrowersWhat happens when I pay off my mortgage?The mortgage life insurance ends when the mortgage ends

Mortgage Life Insurance vs. Term Life Insurance

A mortgage life insurance policy isn’t the only way to get life insurance for a mortgage. An alternative to mortgage life insurance is a term life insurance policy.

Term life insurance can give your family flexibility with how they use the life insurance payout. With term life insurance, you can match your coverage amount and policy length to your mortgage. You could also pick a coverage amount or length that factors in other financial responsibilities, such as your annual income or children’s college tuition.

Mortgage life insurance is a product with a specific purpose: Paying off your mortgage balance. You can also usually choose to cover only part of your mortgage. But other than that, you have no flexibility in the amount of coverage you receive. If your family’s financial needs change over time, mortgage life insurance won’t give you options. Any payout goes to the mortgage lender.

A term life insurance payout goes to the beneficiary you choose, such as your spouse. The beneficiary can use the money for any pressing financial need. You also make your own choice of coverage amount and policy length with term life. Your family could use a term life insurance payout for:

The mortgage

Credit card or other debt

Children’s college costs

To replace the income you would have earned

Your funeral and final expenses

Other life insurance types will give your family control over how a payout is used, such as whole life insurance. But for covering specific debts like a mortgage, term life insurance will give you the most value for your money.

Credits: Ashley Kilroy

Date: Jun 7, 2022

Source: https://www.forbes.com/advisor/life-insurance/mortgage-life-insurance/

[thefinancialpyramid]

Why You Don’t Need Mortgage Life Insurance

So you’ve closed on your mortgage. Congratulations! You’re now a homeowner. This is one of the biggest investments you’ll make in your life. And because of the time and money you’ve invested, it’s also one of the most important steps you’ll take in your lifetime. As such, you’ll want to make sure that your dependents are covered in case you die before you pay off your mortgage. One option you have available to you is mortgage life insurance. But do you really need this product? Keep reading to find out more about mortgage life insurance and why it may be an unnecessary expense.

KEY TAKEAWAYS

Mortgage life insurance is life insurance sold by banks affiliated with lenders, who obtain information about your mortgage from public records.

Companies solicit business by telling those who owe mortgages that their loved ones will face financial hardship without such policies in place.

These products are characterized by high premiums and a lack of transparency.

They may attract borrowers who are in poor health or who have poor medical histories.

What Is Mortgage Life Insurance?

Mortgage life insurance is a special type of insurance policy offered by banks that are affiliated with lenders and by independent insurance companies. But it’s not like other life insurance policies. Rather than paying out a death benefit to your beneficiaries after you die as traditional life insurance does, mortgage life insurance only pays off a mortgage when the borrower dies as long as the loan still exists. This is a big benefit to your heirs if you die and leave behind a balance on your mortgage. But if there’s no mortgage, there’s no payoff.

One thing to keep in mind: don’t confuse mortgage life insurance with mortgage insurance. The latter is private insurance that must be taken out as a condition of some conventional mortgages. While mortgage life insurance can protect you — the borrower — and their heirs, mortgage insurance protects the lender if the mortgagor isn’t able to fulfill their financial obligations. Premiums are either paid separately or are rolled into the borrower’s regular monthly mortgage payment.

Mortgage life insurance is not mortgage insurance — the latter protects the lender in case the borrower defaults on their mortgage loan for any reason.

Once you’ve closed on your loan, be on the lookout for regular mailouts and phone calls trying to sell you a mortgage life insurance policy. These solicitations are often disguised as official requests from mortgage lenders. Documents often lead with alarming headers like:

IMPORTANT NOTICE! PLEASE COMPLETE AND RETURN!

FINAL NOTICE! MORTGAGE PROTECTION CARD!

NOTICE OF OFFERING! MORTGAGE FREE HOME PROTECTION!

These declarations are often followed by scare tactic statements such as, “If you died tomorrow, would your family be able to continue paying the mortgage and maintain their qualities of life?”

Types of Mortgage Life Insurance

Mortgage life insurance policies — also called mortgage protection life insurance or mortgage protection insurance policies — come in two basic forms. The first one is a declining payout policy, where the policy size decreases proportionally as the mortgage loan drops. Therefore, the closer it is to zero, the payout drops, too. The other type of mortgage life insurance is called level term insurance. With this kind of policy, the payout doesn’t decrease.

Mortgage Life Insurance Benefits

Mortgage life insurance may benefit people who don’t qualify for term life insurance because of poor health since this kind of policy is typically sold without underwriting. But like any other policy, candidates should seek quotes from several companies and check each firm’s financial strength rating with AM Best, a rating company that ranks insurers with letter grades.1

Those who want to avoid declining-payout policies should opt for no-medical-exam term policies with level premiums and level death benefits. Although these policies cost more and may offer lower coverage than term policies that review medical histories and conduct physical exams, at least they’ll pay the same benefit, whether you die 10 or 25 years into your mortgage.

Another possibility is to acquire a policy that offers more coverage for a cheaper price earlier in your mortgage term. Once you’ve paid down the principal significantly, consider switching to a guaranteed issue term policy.

Some policies may return your premiums if you never file a claim after you pay off your mortgage. However, the premiums returned to you will likely be worth far less, as inflation erodes their value. Plus, you will have likely squandered the chance to invest any money you would have saved, had you purchased cheaper term life insurance.

The Truth About Mortgage Life Insurance

In truth, mortgage protection life insurance policies are generally ill-advised. First of all, there’s no flexibility. Unlike regular term life insurance, where beneficiaries may use insurance payouts as they see fit, most insurers send benefit payments directly to lenders, so your beneficiaries never see any money.

Secondly, expect to pay high premiums. If you’re a healthy individual who has never smoked tobacco, these policies are usually more expensive than regular life insurance. Traditional life insurance may be a better option for you.

There’s also a very good chance you won’t find much transparency. Unlike other types of insurance, it’s difficult to obtain quotes for mortgage life insurance online, which is a major concern since prices can vary widely.

Finally, expect your premiums to fluctuate. Unlike term policies, which charge fixed premiums for 30 years with no surprise price increases, premiums on mortgage life insurance policies may only be fixed for the first five years, after which time they could spike at any time.

Do You Need Mortgage Protection Life Insurance?

Dwindling Payouts

Some companies offer policies that charge fixed insurance premiums for its duration. But in many cases, the payout on these policies may shrink over time as potential payouts decrease. This type of mortgage life insurance — which is sometimes referred to as decreasing term insurance — is designed to pay off your mortgage balance, while each month your beneficiary pays down part of your mortgage principal. Consequently, the policy’s potential payout shrinks with every mortgage payment.

On the other hand, some newer products have a feature known as a level death benefit where payouts don’t decline. For example, if you’re covering a $100,000 mortgage, your beneficiary — not the lender — receives the whole $100,000, even if the mortgage debt drops to $65,000. And if you pay off the mortgage while the policy is still in effect, some policies allow you to convert your mortgage insurance into a life insurance policy.

Age Limits

As with other types of life insurance, mortgage life insurance may not be available after a certain age. Some insurers offer 30-year mortgage life insurance to applicants who are 45 or younger, and only offer 15-year policies to those 60 or younger.

The Bottom Line

Mortgage life insurance purveyors preach the importance of adding their product to existing life insurance coverage, by convincing you that payouts will be eaten up by mortgage payments, leaving your loved ones in the financial lurch. But a better remedy is to simply buy more life insurance.

Those concerned about leaving behind expensive mortgages to their loved ones should consider term life insurance, which is a typically superior solution to mortgage protection life insurance. New York Life, one of the best life insurance companies, offers flexible term life insurance policies.2

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Credits: ANDREW BLOOMENTHAL

Date: June 14, 2022

Source: https://www.investopedia.com/mortgage/insurance/why-you-dont-need-mpli/

[thefinancialpyramid]

8 Insurance Stocks to Buy Before Interest Rates Rise

CFRA Research says these insurance stocks are undervalued.

The insurance business is a relatively defensive industry that typically remains stable during fluctuations in the overall economy. Insurance companies make money selling policies, but they also profit by investing the money they take in. Rising interest rates are good news for the typical insurance company, and insurers selling products guaranteeing a set return benefit the most from higher rates. Elevated inflation levels have many investors anticipating much higher interest rates around the corner at some point. Here are eight of CFRA’s top insurance stocks to buy in the second half of 2021.

Chubb Ltd. (ticker: CB)

Chubb is the world’s largest publicly traded property and casualty insurance company. CFRA analyst Catherine Seifert says Chubb has demonstrated positive pricing momentum in recent quarters, and COVID-19 claims have moderated. She says Chubb is among the industry leaders in underwriting and is poised to gain market share from competitors in the aftermath of the pandemic. CFRA projects net premium growth of 6% to 10% in 2021 and 2022, and Seifert is forecasting $11.35 in 2021 earnings per share, up 16.9% from 2019 levels. CFRA has a “buy” rating and a $185 price target for CB stock.

Marsh & McLennan Cos. Inc. (MMC)

Marsh & McLennan is one of the world’s largest insurance brokers, providing insurance, investment management and consulting services. Seifert says Marsh & McLennan will benefit from post-crisis demand for risk management and transfer services while avoiding the claim costs facing many underwriters. Seifert says Marsh & McLennan has room for margin expansion and share buybacks. She projects revenue growth of at least 6% in 2021 and an additional 5% in 2022. Seifert says Marsh & McLennan shares are undervalued relative to peers, and solid pricing and demand trends could be bullish catalysts. CFRA has a “buy” rating and a $150 price target for MMC stock.

Aon PLC (AON)

Aon is a professional services and consulting firm that specializes in risk management, retirement and health care services. On July 26, Aon announced that its proposed merger with Willis Towers Watson PLC (WLTW) had been canceled after the U.S. Justice Department filed an antitrust lawsuit in June. Seifert says the timing of the antitrust suit was strange, given that the deal was announced 15 months ago. However, she says stand-alone Aon is still well positioned to benefit from a favorable insurance pricing environment, a rebound in consulting services demand and ongoing restructuring actions. CFRA has a “buy” rating and a $275 price target for AON stock.

MetLife Inc. (MET)

MetLife is a diversified U.S. life insurance and financial services provider. In April, MetLife completed the $3.94 billion sale of its property and casualty business to Farmers Group Inc. Seifert says the property and casualty exit helps streamline MetLife’s business mix and reduce its interest rate sensitivity. Seifert projects operating revenue growth of at least 6% in 2021 and 5% in 2022. A recovering U.S. labor market should catalyze group life sales, and Seifert says rising demand for pension risk transfer products should boost retirement products earnings growth. CFRA has a “buy” rating and a $74 price target for MET stock.

American International Group Inc. (AIG)

American International Group is a multiline insurance company with a global property and casualty presence. In July, AIG announced a deal with The Blackstone Group Inc. (BX) to sell 9.9% of its life and retirement, or L&R, unit for $2.2 billion. The deal also established a strategic asset management agreement under which Blackstone will manage $50 billion in L&R assets. AIG will also sell affordable housing assets to Blackstone for $5.1 billion. Seifert says AIG’s restructuring efforts, including the Blackstone deal, are a bullish catalyst for AIG shares. CFRA has a “buy” rating and a $58 price target for AIG stock.

Prudential Financial Inc. (PRU)

Prudential Financial specializes in insurance, investment management and other financial services. Seifert says Prudential shares are undervalued relative to its peers and its own historical valuation. She says growth trends in asset management and retirement savings are bullish catalysts. In addition, Prudential’s international insurance unit differentiates it from peers and should be a long-term growth source, she says. Seifert forecasts at least 3% operating revenue growth in 2021 and 2022 and says earnings per share will rebound to $12.95 this year. CFRA has a “buy” rating and a $115 price target for PRU stock.

Allstate Corp. (ALL)

Allstate is the largest publicly traded personal lines property and casualty insurer. The company recently announced a deal to sell 80% of its life insurance business to Blackstone for $2.8 billion. Seifert upgraded Allstate following news of the life insurance exit and a $3.1 billion asset writedown in the first quarter. She says the company now has more capital to devote to its higher-return property and casualty business, and the stock could potentially reduce its valuation discount relative to peers if Allstate can increase its return on equity. CFRA has a “strong-buy” rating and a $160 price target for ALL stock.

Willis Towers Watson PLC (WLTW)

Willis Towers Watson is the third-largest global insurance broker. Seifert says the Justice Department’s suit to block the Willis-Aon tie-up creates near-term uncertainty surrounding the stock and the company’s planned asset sales to satisfy European antitrust regulators. However, she says Willis is a solid long-term investment as a stand-alone company, given the strong insurance pricing environment and the rising demand for risk transfer and consulting services. In addition, Seifert says restructuring efforts have increased pretax margins by nearly 2% and return on equity by roughly 3.5%. CFRA has a “buy” rating and a $270 price target for WLTW stock.

Insurance stocks to buy before interest rates rise:

Chubb Ltd. (CB)

Marsh & McLennan Cos. Inc. (MMC)

Aon PLC (AON)

MetLife Inc. (MET)

American International Group Inc. (AIG)

Prudential Financial Inc. (PRU)

Allstate Corp. (ALL)

Willis Towers Watson PLC (WLTW)

Credits: Wayne Duggan

Date: July 30, 2021

Source: https://money.usnews.com/investing/stock-market-news/slideshows/insurance-stocks-to-buy-before-interest-rates-rise?slide=13

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10 Things You Didn’t Know Life Insurance Could Do

Life insurance seems like a straight-forward financial product. Insurance companies receive premiums and in exchange they pay out a death benefit to policyholders’ beneficiaries. However, these plans can be much more complex than that.

“There are a lot of options — much more than people realize,” says Cliff Wilson, chair of the board of directors for Life Happens, a nonprofit that educates the public on insurance matters. Some policy perks are geared toward certain populations, such as the USAA Military Future Insurability Rider, which lets service members convert a military policy upon retirement. But other life insurance perks can be had by virtually anyone.

Here’s a look at 10 things you may not realize your life insurance policy could do.

1. Pay for long-term care expenses. Long-term care insurance is expensive, and adding a rider to a life insurance policy can be an effective way to get this coverage. Specialty products that combine life and long-term care insurance are also available. Whether the coverage comes as a rider or a specialty policy, using long-term care benefits typically reduces the amount of the death benefit.

While there is an extra cost for adding long-term care coverage to a life insurance policy, it can be more cost-effective than buying two plans. It can also be a good choice for people who want long-term care insurance, but aren’t sure if they will need it. “They are going to get coverage, but they aren’t spending money on a policy they aren’t going to use,” says Jimmy Lee, CEO of The Wealth Consulting Group in Las Vegas.

2. Provide benefits if you’re terminally ill. Known as living benefits, this perk comes standard on many term and whole life policies. “Living benefits are under-utilized and very prevalent in the industry,” says Greg Riedel, assistant vice president and product line leader of life insurance at USAA. The details vary by plan, but living benefit provisions generally allow those with a life expectancy of 12 months or less to receive a portion of their death benefit in advance.

3. A source of cash if you’re disabled. Policyholders don’t have to be dying to get their death benefit early from some insurers. Many plans offer chronic illness or critical illness riders that may pay out funds if a person becomes disabled or experiences a heart attack, stroke or invasive cancer, among other things. Wilson notes these options can provide a vital safety net to people who are unable to work and have mounting medical bills. “It’s more important to use those funds while [someone’s] alive than as a death benefit,” Wilson says.

4. Give one last gift to a favorite charity. You could leave the money in your savings account as a bequest to an organization, or you could use some of that cash to buy life insurance and give substantially more. “You can leverage your money for a bigger gift for charity,” Lee says. Depending on the policy, your age and health, you may be able to turn small monthly premiums into a large donation.

5. Ride out a bear market. One of the more novel approaches to using permanent life insurance is as a safeguard against a sagging stock market. “It’s a bucket of money to use in a bear market,” Lee says. “Instead of having to sell stocks and take a loss, take money out of life insurance.” This strategy only works with insurance policies that have cash value. Retirees can take a tax-free loan from a policy rather than withdrawing money from retirement funds. Then, when the market rebounds, gains from investments can be used to pay back the loan.

6. Minimize your taxes in retirement. Leveraging loans from a whole life policy isn’t just something for bear markets. “[Policyholders] can treat that life insurance as their own personal pension,” says Scott Moffitt, president and CEO of Summit Financial Group in Loveland, Ohio. Moffitt specializes in helping his clients work out a strategy of withdrawals and loans that will let them create an ongoing stream of tax-free money in retirement. This system can even be set up so policyholders stop making premium payments, Moffitt says.

7. Insure the life of a child. Although parents can buy an insurance policy specifically for their child, they could also add a rider on their own plan. Many insurers offer child protection riders at a low cost and with flexible coverage levels.

8. Cover a child’s college costs. Another way to use life insurance to help a child is to take out loans from a whole life policy for tuition payments. “The guaranteed loan rates [on many policies] are frankly better than the rates for a lot of student loans,” Moffitt says. What’s more, rather than paying interest to a bank or the government, that money goes back into the policy.

9. Waive your premiums. Premium waiver riders also come standard with many policies, and these provisions can help those who become disabled keep their coverage. As its name suggests, the rider eliminates premiums for those who have a qualifying injury or illness. Like living benefits, premium waivers are seldom used. “Many people don’t think about it,” Wilson says. “It’s explained at the purchase, and they don’t think of it [when needed].”

10. Return your money if you don’t die. Lastly, you might not realize your life insurance company could return all your premiums if you reach the end of a policy’s term and never make a claim. You have to pay extra for a return of premium rider, and it may make more financial sense to invest that money instead. However, some people like knowing they will get all their money back if they end up outliving their life insurance.

The bottom line for life insurance shoppers is to compare more than just the death benefit. Many plans come with valuable extras that could be worth a higher premium. “Don’t just shop for a price point,” Riedel says. Instead, he advises people to ask themselves, “What are the benefits I’m getting at that price?”

Credits: Maryalene LaPonsie

Date: May 20, 2016

Source: https://money.usnews.com/money/personal-finance/articles/2016-05-20/10-things-you-didnt-know-life-insurance-could-do

#business #areteautomation #automation #software #technology #ethos #lifeinsurance #insurance #finance #retirement

[thefinancialpyramid]

What to Do With an Expensive Life Insurance Policy

If your money runs out long before the month does, you might be thinking about dropping your life insurance coverage. Eliminating premiums, particularly on pricey whole and universal life policies, can free up money in your budget for more pressing needs.

But don’t let that policy lapse just yet. According to Marv Feldman, CEO and president of Life Happens, a nonprofit group that provides educational resources about the insurance industry, many people don’t realize that they may have ways to maintain their coverage or even make money off a plan they can’t afford.

From downsizing the death benefit to selling your coverage for a profit, here’s what you should know about your life insurance options.

Decide if you need life insurance. Before taking any action, experts say you should start by evaluating your need for life insurance.

“Life insurance is probably the most overbought product out there in my opinion,” says Michael McCloskey, an associate professor at Temple University’s Fox School of Business who teaches about insurance, risk and health care. Life insurance isn’t unnecessary, but many people buy it without understanding how it fits into their financial big picture, McCloskey says.

For instance, retirees may not need life insurance if there are no children in the house or there’s no mortgage to pay off. Single people may also be able to do without a large life insurance death benefit. In both cases, a smaller burial policy may be sufficient.

If you have enough money in the bank to cover final expenses and meet other financial goals, you may be safe canceling a policy. Otherwise, there are several strategies to keep coverage, depending on the type of plan you have.

Limited options with term policies. A term life insurance policy offers coverage for a set period of years. If someone holding a term policy dies during that period of time, his or her beneficiaries receive the death benefit. If the terms ends and the policyholder is still alive, no benefits are paid. Virtually all insurance carriers, including MetLife, Liberty Mutual and State Farm, offer term policies.

The simplicity of term life insurance means there aren’t a lot of options for someone who has a policy they can no longer afford. “There’s not a ton of wiggle room,” McCloskey says. The only way to reduce premiums on a term policy is to lower the death benefit or find group coverage that may have lower costs. “You may look to see if your employer has a cheaper option available,” McCloskey says.

Reducing the death benefit isn’t something that can be done on an existing policy though, says Hal Rogers, president of advisory firm Gold Tree Financial in Jacksonville, Florida. Instead, a person needs to apply for a new policy with a lower benefit.

Changes in age and health may mean there is no guarantee someone will be approved for a new life insurance policy, and if they are, the premiums may not represent a significant savings. Given that, it is important to have a new policy in place prior to canceling an old term life plan.

Use cash value for permanent plans. Whole life and universal life insurance policies offer more options if you can’t afford premiums.

“With a whole life policy, you [could] take a loan from the cash value to pay the premiums,” Feldman says. Loans against the cash value of a plan don’t have to be paid back, but any outstanding balance will be deducted from the death benefit upon a policyholder’s passing. If a policy pays dividends, those could also be used to reduce or eliminate premium payments.

Buying a new policy with a lower death benefit is also a possibility, though, as with term plans, people shouldn’t assume they’ll be eligible for a new coverage. Secure a new plan before giving up the old one.

Surrendering a policy can also be a good option if you’re in greater need of cash than life insurance. When a plan is surrendered, “they [insurance companies] write you a check for the cash value,” Rogers says. That money can then be used to purchase a paid-up life insurance policy or pay for other family needs.

Consider selling your insurance. Life settlements have been around for more than 20 years, but many people still don’t know about them. They allow people to sell their life insurance policy to companies known as life settlement providers. States regulate the practice with most requiring providers be licensed.

The provider pays a lump sum that is usually more than any cash value in the policy but less value than the death benefit. After payment is made, the provider becomes responsible for paying future premiums, and the company receives the death benefit when the seller passes away.

Terminally ill patients in need of cash for medical treatments or other expenses were originally those who pursued life settlements. “That’s really where the industry started,” says Bryan Freeman, president of Atlanta-based Habersham Funding LLC, a life settlement provider. However, life settlement companies today will buy term, whole, universal and even group life insurance from those who aren’t diagnosed with a life-threatening illness.

There is no standard rate for life settlement payments. “It’s all over the board,” Freeman says. A 40-year-old in perfect health probably won’t even qualify for a settlement offer, but a senior with some ailments may find their coverage is more valuable. “If life expectancy is very short, the valuation is much higher,” Freeman says.

Feldman says there is some division within the life insurance industry about settlements. While some see them as a benefit to policyholders, others worry they take advantage of people in vulnerable situations. Feldman says the decision to pursue a life settlement ultimately depends upon a person’s particular circumstances and preferences. “Some people are uncomfortable knowing someone else has a policy on them,” he says.

Ask for guidance. Since life insurance can be complex, experts urge people to seek professional assistance in evaluating their options. That’s especially true when considering a life settlement. “That is a very complicated market and if you don’t know what you’re doing, you can be taken advantage of hugely,” Rogers says.

An insurance professional can also help consumers understand their options with whole life and universal life policies. For instance, there may be tax implications, and a lump sum payout of the cash value could affect Medicaid eligibility.

Feldman recommends looking for someone who belongs to a professional organization that has a code for ethics for members. He notes Life Happens maintains a database of agents on its website.

A trusted professional can help you fully understand the advantages and disadvantages of all your options. If you have life insurance, you may be sitting on a valuable asset. Before you let a policy lapse, explore your options to maintain your coverage or turn it into cash.

Credits: Maryalene LaPonsie

Date: April 20, 2018

Source: https://money.usnews.com/money/personal-finance/family-finance/articles/2018-04-20/what-to-do-with-an-expensive-life-insurance-policy

[thefinancialpyramid]

Roth IRA Basics

What Is a Roth IRA?

An individual retirement account (IRA) is an account used to save for retirement. A Roth IRA is a special type of tax-advantaged IRA to which you can contribute after-tax dollars.

The primary benefit of a Roth IRA is that your contributions and the earnings on those contributions can grow tax free and be withdrawn tax free after age 59½, assuming that the account has been open for at least five years. In other words, you pay taxes on money going into your Roth IRA, and then all future withdrawals are tax free.

Roth IRAs are similar to traditional IRAs, with the biggest distinction being how the two are taxed. Roth IRAs are funded with after-tax dollars, meaning that the contributions are not tax deductible; however, once you start withdrawing funds, the money is tax free.

KEY TAKEAWAYS

A Roth IRA is a special individual retirement account (IRA) where you pay taxes on money going into your account, and then all future withdrawals are tax free.

Roth IRAs are best when you think your marginal taxes will be higher in retirement than they are right now.

Single filers can’t contribute to a Roth IRA if they earn more than $140,000 in 2021 ($144,000 in 2022). For married couples filing jointly, the limit is $208,000 ($214,000 in 2022).12

The deductible amount that you can contribute changes periodically. In 2021 and 2022, the contribution limit is $6,000 a year — unless you are age 50 or older, in which case, you can deposit up to $7,000.3

Almost all brokerage firms, both brick-and-mortar and online, offer a Roth IRA. So do most banks and investment companies.

How Does a Roth IRA Work?

You can put money that you’ve already paid taxes on into a Roth IRA. It will then grow, and when you come to withdraw once you retire, you won’t have to pay any further taxes.

A Roth IRA can be funded from a number of sources:

Regular contributions

Spousal IRA contributions

Transfers

Rollover contributions

Conversions4

All regular Roth IRA contributions must be made in cash (which includes checks and money orders) — they can’t be in the form of securities or property. The Internal Revenue Service (IRS) limits how much can be deposited annually in any type of IRA, adjusting the amounts periodically. The contribution limits are the same for traditional and Roth IRAs. These limits apply across all your IRAs, so even if you have multiple accounts, you can’t contribute more than the maximum.

Similar to other qualified retirement plan accounts, the money invested within the Roth IRA grows tax free. However, a Roth IRA is less restrictive than other accounts. The account holder can maintain the Roth IRA indefinitely; there are no required minimum distributions (RMDs) during their lifetime, as there are with 401(k)s and traditional IRAs.

Conversely, traditional IRA deposits are generally made with pretax dollars; you usually get a tax deduction on your contribution and pay income tax when you withdraw the money from the account during retirement.

Roth IRA Vs. Traditional IRA

Allowable Investments in a Roth IRA

Once the funds are contributed, a variety of investment options exist within a Roth IRA, including mutual funds, stocks, bonds, exchange-traded funds (ETFs), certificates of deposit (CDs), money market funds, and even cryptocurrency.

Note that IRS rules mean that you cannot contribute cryptocurrency directly into your Roth IRA. However, the recent emergence of Bitcoin IRAs has created retirement accounts designed to let you invest in cryptocurrencies. The IRS also lists other assets that are not permitted within an IRA, such as life insurance contracts and derivative trades.

If you want the broadest range of investment options, you need to open a Roth self-directed IRA (SDIRA), a special category of Roth IRA in which the investor, not the financial institution, manages their investments. These unlock a universe of possible investments. In addition to the standard investments (stocks, bonds, cash, money market funds, and mutual funds), you can hold assets that aren’t typically part of a retirement portfolio. Some of these include gold, investment real estate, partnerships, and tax liens — even a franchise business.

$6,000

The maximum annual contribution that an individual can make to a Roth IRA in 2021 remains the same in 2022. Those ages 50 and older can contribute up to $7,000.3

Opening a Roth IRA

A Roth IRA must be established with an institution that has received IRS approval to offer IRAs. These include banks, brokerage companies, federally insured credit unions, and savings and loan associations. Generally, individuals open IRAs with brokers.

A Roth IRA can be established anytime. However, contributions for a tax year must be made by the IRA owner’s tax-filing deadline. This is normally April 15 of the following year. However, the deadline for the 2021 tax year is April 18, 2022.7

Two basic documents must be provided to the IRA owner when an IRA is established:

The IRA disclosure statement

The IRA adoption agreement and plan document

These provide an explanation of the rules and regulations under which the Roth IRA must operate, and they establish an agreement between the IRA owner and the IRA custodian/trustee.

Not all financial institutions are created equal. Some IRA providers have an expansive list of investment options, while others are more restrictive. Almost every institution has a different fee structure for your Roth IRA, which can have a significant impact on your investment returns.

Your risk tolerance and investment preferences will play a role in choosing a Roth IRA provider. If you plan on being an active investor and making lots of trades, you want to find a provider that has lower trading costs. Certain providers even charge you an account inactivity fee if you leave your investments alone for too long. Some providers have more diverse stock or ETF offerings than others; it all depends on what type of investments you want in your account.

Pay attention to the specific account requirements as well. Some providers have higher minimum account balances than others. If you plan on banking with the same institution, see if your Roth IRA comes with additional banking products. If you’re looking at opening a Roth IRA at a bank or brokerage where you already have an account, see whether existing customers receive any IRA fee discounts.

Most IRA providers offer only regular IRAs (traditional or Roth). For an SDIRA, you’ll need a qualified IRA custodian that specializes in that type of account, which allows assets beyond the typical stocks, bonds, ETFs, and mutual funds.

Are Roth IRAs Insured?

If your account is located at a bank, be aware that IRAs fall under a different insurance category from conventional deposit accounts. Therefore, coverage for IRAs is not as robust. The Federal Deposit Insurance Corp. (FDIC) still offers insurance protection up to $250,000 for traditional or Roth IRAs, but account balances are combined rather than viewed individually.

For example, if the same banking customer has a CD held within a traditional IRA with a value of $200,000 and a Roth IRA held in a savings account with a value of $100,000 at the same institution, then the account holder has $50,000 of vulnerable assets without FDIC coverage.

What Can You Contribute to a Roth IRA?

The IRS dictates not only how much money you can deposit in a Roth IRA but also the type of money that you can deposit. Basically, you can only contribute earned income to a Roth IRA.

For individuals working for an employer, compensation that is eligible to fund a Roth IRA includes wages, salaries, commissions, bonuses, and other amounts paid to the individual for the services that they perform. It’s generally any amount shown in Box 1 of the individual’s Form W-2. For a self-employed individual or a partner or member of a pass-through business, compensation is the individual’s net earnings from their business, less any deduction allowed for contributions made to retirement plans on the individual’s behalf and further reduced by 50% of the individual’s self-employment taxes.

Money related to divorce — alimony, child support, or in a settlement — also can be contributed if it is related to taxable alimony received from a divorce settlement executed on or prior to Dec. 31, 2018.

So, what sort of funds aren’t eligible? The list includes:

Rental income or other profits from property maintenance

Interest income

Pension or annuity income

Stock dividends and capital gains

Passive income earned from a partnership in which you do not provide substantial services

You can never contribute more to your IRA than your earned income in that tax year. And, as previously mentioned, you receive no tax deduction for the contribution — although you may be able to take a Saver’s Tax Credit of 10%, 20%, or 50% of the deposit, depending on your income and life situation.

Who’s Eligible for a Roth IRA?

Anyone who has earned income can contribute to a Roth IRA — as long as they meet certain requirements concerning filing status and modified adjusted gross income (MAGI). Those whose annual income is above a certain amount, which the IRS adjusts periodically, become ineligible to contribute.4 The chart below shows the figures for 2021 and 2022.

Do You Qualify for a Roth IRA?

Here’s how the system works: An individual who earns less than the ranges shown for their appropriate category can contribute up to 100% of their compensation or the contribution limit, whichever is less.

Individuals within the phaseout range must subtract their income from the maximum level and then divide that by the phaseout range to determine the percentage of $6,000 that they are allowed to contribute.

Spousal Roth IRA

One way that a couple can boost their contributions is the spousal Roth IRA. An individual may fund a Roth IRA on behalf of their married partner who earns little or no income. Spousal Roth IRA contributions are subject to the same rules and limits as regular Roth IRA contributions. The spousal Roth IRA is held separately from the Roth IRA of the individual making the contribution, as Roth IRAs cannot be joint accounts.

For an individual to be eligible to make a spousal Roth IRA contribution, the following requirements must be met:

The couple must be married and file a joint tax return.

The individual making the spousal Roth IRA contribution must have eligible compensation.

The total contribution for both spouses must not exceed the taxable compensation reported on their joint tax return.

Contributions to one Roth IRA cannot exceed the contribution limits for one IRA (however, the two accounts allow the family to double their annual savings).

Withdrawals: Qualified Distributions

At any time, you may withdraw contributions from your Roth IRA, both tax- and penalty-free. If you take out only an amount equal to the sum that you’ve put in, then the distribution is not considered taxable income and is not subject to penalty, regardless of your age or how long it has been in the account.

However, there’s a catch when it comes to withdrawing account earnings: any returns that the account has generated. For distribution of account earnings to be considered a qualified distribution, it must occur at least five years after the Roth IRA owner established and funded their first Roth IRA, and the distribution must occur under at least one of the following conditions:

The Roth IRA holder is at least age 59½ when the distribution occurs.

The distributed assets are used toward purchasing, building, or rebuilding a first home for the Roth IRA holder or a qualified family member (the IRA owner’s spouse, a child of either the IRA owner or the IRA owner’s spouse, a grandchild of the IRA owner and/or of their spouse, or a parent or other ancestor of the IRA owner or of their spouse). This is limited to $10,000 per lifetime.

The distribution occurs after the Roth IRA holder becomes disabled.

The assets are distributed to the beneficiary of the Roth IRA holder after the Roth IRA holder’s death.

Five-Year Rule

Withdrawal of earnings may be subject to taxes and/or a 10% penalty, depending on your age and whether you’ve met the five-year rule. Here’s a quick rundown.

If you meet the five-year rule:

Under age 59½: Earnings are subject to taxes and penalties. You may be able to avoid taxes and penalties if you use the money for a first-time home purchase (a $10,000 lifetime limit applies), if you have a permanent disability, or if you pass away and your beneficiary takes the distribution.

Ages 59½ and older: No taxes or penalties.

If you don’t meet the five-year rule:

Under age 59½: Earnings are subject to taxes and penalties. You may be able to avoid the penalty (but not the taxes) if you use the money for a first-time home purchase (a $10,000 lifetime limit applies), qualified education expenses, unreimbursed medical expenses, if you have a permanent disability, or if you pass away and your beneficiary takes the distribution.

Ages 59½ and older: Earnings are subject to taxes but not penalties.

Roth IRA withdrawals are made on a first in, first out (FIFO) basis — any withdrawals come from contributions first. Therefore, no earnings are considered touched until all contributions have been taken out.

Withdrawals: Non-Qualified Distributions

A withdrawal of earnings that do not meet the above requirements is considered a non-qualified distribution and may be subject to income tax and/or a 10% early distribution penalty. However, there may be exceptions if the funds are used:

For unreimbursed medical expenses if the distribution is used to pay unreimbursed medical expenses for amounts that exceed 7.5% of the individual’s adjusted gross income (AGI) for 2021 and prior tax years.

To pay medical insurance if the individual has lost their job.

For qualified higher education expenses if the distribution goes toward qualified higher education expenses of the Roth IRA owner and/or their dependents. These qualified expenses are tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution and must be used in the year of the withdrawal.

For childbirth or adoption expenses if they’re made within one year of the event and don’t exceed $5,000.1211

Note that if you withdraw only the amount of your contributions made within the current tax year — including any earnings on those contributions — then the contribution is reversed. For example, if you contribute $5,000 in the current year and those funds generate $500 in earnings, you can withdraw the $5,000 principal tax- and penalty-free and the $500 gain will be treated as taxable income.

Coronavirus-Related Distributions

A special provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act allowed taxpayers to take a coronavirus-related distribution from Jan. 1, 2020, to Dec. 31, 2020, up to an aggregate $100,000 from all qualified plans and IRAs. The coronavirus-related distribution could be taken by a qualified individual, defined by the IRS as someone who was negatively affected by coronavirus — either financially or through a family diagnosis. Retirement plan owners who qualified for coronavirus-related distributions included those:

Diagnosed with SARS-CoV-2

Whose spouse or dependent was diagnosed with SARS-CoV-2

Who were financially impacted due to furlough, quarantine, layoff, or reduced work hours during the pandemic

Who were unable to work due to lack of childcare during the pandemic

Who were financially impacted due to the reduction of business hours or closure of their own business during the pandemic

The special provision allows the retirement account holder to take the distribution as a standard withdrawal with no repayment or as a loan with a repayment option. The distribution was exempt from the 10% early distribution penalty but was taxed as ordinary income. The CARES Act allows the withdrawal to be taxed as ordinary income in full in 2020 or over a three-year period in 2020, 2021, and 2022. If you plan to pay back the funds, you have until the end of the third year. Please note that you will still have to pay taxes on the distribution until the year that you pay it back.

For example, let’s assume that you withdrew $15,000 in 2020. You would need to claim $5,000 on your tax returns in 2020 and 2021. If you repay the funds in full in 2022, then you would not need to pay taxes on the final $5,000. Additionally, you will need to file an amended return for 2020 and 2021 to recoup your taxes previously paid on the first two-thirds.

If you have multiple retirement accounts, the Roth IRA may be the best option to take a coronavirus-related distribution. For Roth IRAs, remember that withdrawals up to the amount of contributed funds are always tax free since contributions are made on an after-tax basis. Because Roth IRA withdrawals are taken on the FIFO basis mentioned above, and no earnings are considered touched until all contributions have been taken out first, your taxable distribution would be even less from a Roth IRA.

Roth IRA vs. Traditional IRA

Whether a Roth IRA is more beneficial than a traditional IRA depends on the tax bracket of the filer, the expected tax rate at retirement, and personal preference.

Individuals who expect to be in a higher tax bracket once they retire may find the Roth IRA more advantageous since the total tax avoided in retirement will be greater than the income tax paid in the present. Therefore, younger and lower-income workers may benefit the most from a Roth IRA.

Indeed, by beginning to save with an IRA early in life, investors make the most of the snowballing effect of compound interest: Your investment and its earnings are reinvested and generate more earnings, which are reinvested, and so on.

Consider opening a Roth IRA rather than a traditional IRA if you are more interested in tax-free income when you retire than in a tax deduction now when you contribute.

Of course, even if you expect to have a lower tax rate in retirement, you’ll still enjoy a tax-free income stream from your Roth IRA. That’s not the worst idea in the world.

Those who don’t need their Roth IRA assets in retirement can leave the money to accrue indefinitely and pass the assets to heirs tax free upon death. Even better, while the beneficiary must take distributions from an inherited IRA, they can stretch out tax deferral by taking distributions for a decade — and, in some specialized cases, for their lifetimes.14 Traditional IRA beneficiaries, on the other hand, do pay taxes on the distributions. Also, a spouse can roll over an inherited IRA into a new account and not have to begin taking distributions until age 72.

Some open or convert to Roth IRAs because they fear an increase in taxes in the future, and this account allows them to lock in the current tax rates on the balance of their conversions. Executives and other highly compensated employees who are able to contribute to a Roth retirement plan through their employers — for example, via a Roth 401(k) — can also roll these plans into Roth IRAs with no tax consequences and then escape having to take RMDs when they turn 72.

Is it better to invest in a Roth individual retirement account (Roth IRA) or a 401(k)?

There are many variables to consider when choosing a Roth individual retirement account (Roth IRA) or a 401(k). Each type of account provides an opportunity for savings to grow tax free. Roth IRAs do not provide tax advantages when you make a deposit, but you can withdraw tax free during retirement.15 The reverse is true for 401(k)s. These types of accounts involve contributing a portion of your paycheck into a 401(k) prior to income tax deductions.16 In terms of contribution limits, Roth IRAs are typically lower than 401(k)s. Additionally, 401(k)s allow employers to make matching contributions. On the flip side, 401k(s) often have higher fees, minimum distributions, and fewer investment options.

How much can I put in my Roth IRA monthly?

In 2021 and 2022, the maximum annual contribution amount for a Roth IRA is $6,000, or $500 monthly for those under age 50. This amount increases to $7,000 annually, or roughly $583 monthly, for individuals age 50 or older. Note that there is no monthly limit, only the annual limit.

What are the advantages of a Roth IRA?

While Roth IRAs do not include an employer match, they do allow for a greater diversity of investment options. For individuals who anticipate that they will be in a higher tax bracket when they’re older, Roth IRAs can also provide a beneficial option. In Roth IRAs, you can withdraw your contributions (but not earnings) tax- and penalty-free.11 Ultimately, you can manage how you want to invest your Roth IRA by setting up an account with a brokerage, bank, or qualified financial institution.

What are the disadvantages of a Roth IRA?

Among the disadvantages of Roth IRAs is the fact that, unlike 401(k)s, they do not include an up-front tax break. Also, annual contribution limits are about a third of 401(k)s. For some high-income individuals, there are reduced or limited contribution amounts. Finally, there is no automatic payroll deduction.

The Bottom Line

A Roth IRA is an individual retirement account (IRA) that allows you to withdraw money (without paying a penalty) on a tax-free basis after age 59½, and after you have owned the account for its five-year holding period. If you buy a home, pay for college, or need your Roth funds for the birth or adoption of a child, you can also withdraw without paying a penalty.

Roth accounts are funded with after-tax money, so while you don’t get the up-front tax break of a traditional IRA, you can withdraw your contributions without paying federal or state income tax on the amount after meeting the criteria for withdrawals.

For individuals who anticipate being in a higher tax bracket when they are older and/or have retired, Roth IRAs can provide a beneficial option, as the money is not taxable, unlike a 401(k) or traditional IRA withdrawals.

Credits: TROY SEGAL

Date: July 26, 2022

Source: https://www.investopedia.com/terms/r/rothira.asp