3 Common Life Insurance Mistakes

May 20, 2013 — Leave a comment

life insurance imageIn my role as a Financial Planner with Ashworth and Sullivan Wealth Management Group I have been conducting Life Insurance Audits, now a routine part of the firms practice. There have been a number of mistakes that the Audit process has brought to light and that we have since corrected. There are 3 most commonly made mistakes that I wanted to highlight so that you may be spurred to take action and engage in a Life Insurance Audit.

The Wrong Amount of Insurance

Insurance Agents are often accused of overselling or encouraging more coverage than people feel that they need. So it begs the question, what is the right amount of Life Insurance? There is a simple answer to a question that seems to bewilder many advisors; insure something for what it is worth. So as to not debate the value of a human life we should consider the Economic Value that someone has to the ones that they love. There are calculators that can assist in this measure, but for a good rule of thumb consider:

  • A person between ages 25 and 45 should have 20 to 30 times their income.
  • A person between ages 45 and 55 should have 15 times their income.
  • A person between ages 55 to 60 should own 10 times their income.
  • Someone in retirement should have an amount equal to their assets.

Style

Many of the individuals that I have seen lately have missed this in a major way. There are basically two broad categories in the style or type of Life Insurance that exist.

  • Term – As the name indicates, this insures you for a term or period of time and will then expire without value at the end of the term.
  • Permanent – As the name indicates, this insures you for your entire life. It lasts as long as you do.

Again to not be accused of oversimplifying there are many nuances to each of these that should be considered. One of the newest and most attractive features are living benefits that pay for Long Term Care coverage should it be needed during life.

It seems that the lure of a low cost term insurance has caused many to not consider the ramifications of entering into retirement without life insurance coverage. The ramifications typically result in a lower retirement income or withdrawal rate from retirement plans…. Not fun and often can’t be reversed if you wait to late! At the very least going through life with term insurance only can result in a loss of security and financial flexibility.

Beneficiary Designation

The mistakes that are made with Beneficiary Designations are subtle but can potentially have major ramifications. Insurance Agents are often in the role of a salesperson and not that of an advisor or planner. This sometimes causes a lack of coordination between beneficiary designations and wills and or trusts. In full disclosure, I am not an attorney and yours should be consulted when reviewing your beneficiary designations. The most common mistake that I see here is when a married person names their spouse as the primary beneficiary or a parent/grandparent names a minor/young adult. You may say, “What’s wrong with that?” Potentially nothing, but properly structured testamentary trusts with the surviving spouse/child as the beneficiary gives greater protection for he/she actually getting the proceeds that were intended for them. This proper wording can provide a layer of protection against litigation, maybe even future spouses etc. Bottom line is that you should pay close attention to your beneficiary designations!

These 3 Mistakes in Life Insurance: 1) the wrong amount of coverage. 2) the wrong type of coverage and 3) improper beneficiaries were the three that were most commonly found problems in our recent Audits. There were many other errors and oversights that surfaced.

Take the time to have your policies reviewed so that you have a greater peace of mind. Contact me to set up a free consultation.

In Education, Financial Planning , , , , ,
 permalink

It’s Not That Bad Out There

May 13, 2013 — Leave a comment

 

sunriseCertain things, like the sun rising, or the tides shifting, can be counted on. It’s also true that when government shrinks as a share of GDP, things start to pick up.

 

For the past three years, gridlock in Washington has held total spending by the federal government basically flat. This means federal spending has fallen from more than 25% of GDP to 22%, creating more room for the private sector.

 

Contrary to popular Keynesian thinking, this means entrepreneurship will have a more pronounced, and positive, economic impact on the economy. In other words, the “end of the world” trade, which hasn’t really worked in the past four years is becoming more dangerous. We expect gold to fall, while bond yields, the dollar, and stock prices rise.

 

We don’t disagree with the angst of many over deficits and debt, but things are rapidly getting better. Tax revenues are up sharply and we are forecasting a budget deficit of about $725 billion, or 4.5% of GDP, this year. In 2014 and 2015, we expect deficits of near 3% and below 2%, respectively. This is not magic. It’s what happens when spending is contained.

 

It’s not that deficits matter all that much; but it’s a sign of how wrong the pessimists can be. And the same thing is happening in markets. The “smart guys” at hedge funds have been short the dollar and stocks, while long gold and bonds. But, in the past year, this trade has not worked.

 

And the fundamentals suggest this trade will continue to be a loser. We think stocks and growth are still underappreciated.

 

Gold is well above fair value. Comparing its value to oil, corn, copper, M2, nominal economic growth or even the monetary base suggests that it is worth somewhere between $800 and $1,100 an ounce today. We’re forecasting further declines in gold over the next 12 months. It probably won’t be a bloodbath, but it’s not the asset to be long.

 

The same goes for bonds. At the start of the year, we were forecasting a 10-year Treasury yield of 2.85% at year end. Historically, this would have been an outsized jump in yields, especially if the Fed does not move to tighten. A more sanguine forecast of 2.4% still means capital losses.

 

Even if you think the Fed won’t raise rates until 2015, yields are too low. If the Fed held short-term rates near zero for two years and then hiked them to 4% over the next two years and held them there, the average funds rate for the next decade would be 2.8%. Slap a premium of 0.5% on this for the 10-year Treasury and a yield of 3.3% is the result.

 

Meanwhile, despite a sharp increase in equity prices recently, the S&P 500 still has a generous earnings yield of 6%. Stocks are still cheap and we expect further increases. In other words, not letting the conventional wisdom get you down has been, and will continue to be, the profitable trade. – Brian Wesbury of FT Portfolios

 

This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.

In Education , ,
 permalink

Investing In Start Up Businesses

May 1, 2013 — Leave a comment

 

start up 2

This post was recently submitted to Regus Blog when they asked me to Guest post on their site back on April 24, 2013. Regus office space provides flexible office environments for small or satellite businesses. Having been a user myself of their facilities; I enjoy the creativity that often flows within the environments that they create.

Many Have been faced with this idea of starting or investing in a fledgling business. Enjoy the advice provided by expert Alan Urech.

 

It’s a new opportunity! Exciting thought of getting in on the ground floor…. Being a bootstrapper or an Angel Investor sounds cool, Right? But then you hear all of the horror stories about people losing large amounts of money investing in startups. Fact is most startups fail. So how do you know when to invest in a fledgling company? It is a tough decision that I have seen many people struggle with; Often times it may even be a friend or relative presenting you with the idea. So what DO YOU DO? What Is Your Next Move? Take the gamble or do you play it safe? Below are 5 Criteria that expert Alan Urech looks for when facing this decision.

I recently heard Alan Urech speak as a part of a panel discussion regarding Entrepreneurship. Alan’s background is impressive to say the least, a serial investor and entrepreneur.  His background includes HBO & Company where he was part of a team that saw the organization’s expansion from an initial start-up of under US $3 million to over $180 million dollars in revenue within 12 years. During this period, Mr. Urech was instrumental in developing very successful healthcare product lines which significantly expanded the Company’s overall profitability. HBOC was sold in 1998 for US $13.8 Billion to McKesson Corporation, starting their information technology division.

 

The Management Team

  • Do they have passion?
  • Are they good business people?
  • Do they have good character?

He added that there should ideally be these types of individuals on the team.

  •  The Entrepreneur
  •  The CFO Type
  •  The People Person
  •   The Peace Maker

 

 

What is the opportunity?

  • Is there at least a $500 million market that exists if done well?

 

We are NOT going to be friends

  • This may seem harsh but it is business. He doesn’t allow relationship or emotion to cloud his judgment regarding investing decisions. I would suggest this is one where many people get tripped up.

 

What is the value?

  • Does this product already exist? Are there others who are doing it better? Is this new or innovative?

 

Financials

  • He has to see 3 to 5 years’ worth of a company’s financials.  Another panelist added, if the company does not have 3 to 5 years’ worth yet, the want to see the founder/entrepreneur have another income source outside of the new business being created.

 

 

What other ideas or recommendations would you share with someone facing this decision? E-Mail me at todd@toddburkhalter.com or tweet your responses….

 

In Education, Financial Planning , , , , , ,
 permalink