Finance articles and news

The biggest financial decision you are likely to make is buying a home, closely followed by less expensive must-haves like a vehicle. But the one deal you should aim to get right is the decision on life insurance. This is the difference between leaving your dependents with an adequate amount of cash to see them through the times of economic hardship after your income is lost, and leaving them with nothing. In this, the decision on term as against permanent insurance is the key. Put the wrong key in the lock and you open a door into real financial hardship. So what’s wrong with term insurance? Think of this as like a bet. If you die within the term, your dependents are the winners. If you prove healthy and live too long, you lose the premiums you paid and your dependents get nothing. Now, when it comes to permanent insurance, this builds up a cash value. The longer you have the policy in place, the more valuable it comes as the premiums you pay attract investment returns. During your own life, you can take some of this money back or borrow using the fund as collateral. When the sad day finally comes, the benefits are paid out to your dependents less whatever drawings or borrowings you have made.

From these short sentences, you will immediately suspect the other difference between the products. Term life insurance is the cheap option. It gives you security in the amount of the benefits for the number of years you select. If you buy one term policy after another, the premiums are higher each time because your life expectancy is less on each renewal. Permanent insurance premiums are higher because a percentage of what you pay is invested on your behalf to generate the cash value. So your fund receives the benefit of the interest, dividends and other returns the investments generate. This makes the total of the cash value the key factor. Do you want a higher rate of return on the premiums? This can be for your own benefit should there be an emergency during your life. Or it can build up over the years for your dependents. If the answer is yes, you must be prepared to pay more to start off the policy — the first year’s premiums often disappear into a black hole representing set-up costs and the selling agent’s commission. But the amount you pay stays the same throughout the lifetime of the policy. So, with inflation, what starts out a struggle slowly grows easier to pay.

The real problem is the uncertainty of the future. Who knows how inflation may affect different aspects of life. What may be cheap now, may be expensive tomorrow and vice versa. So here are a few simple rules. If all you want is cover over the next few years (no more than ten), get life insurance quotes for a term policy. Ten years is not a long enough period of time to build up a worthwhile cash value. Estimate what benefits might be needed, e.g. your daughter will need $50,000 to cover her college tuition fees, and the total will set the amount of the insurance. If you are looking at a period of at least twenty years, you should think seriously about permanent insurance. Again, get life insurance quotes but you should also take advice on the different types of policy available and create or review your estate plan. Between ten and twenty years is a gray area and whichever way you decide is not going to be wrong.

Urban sprawl never used to be an issue. Even though the latest development might be miles from where you work or the nearest shops, this was never a problem. Most families owned two vehicles. Some three or more. No-one walked. Everyone just jumped in the nearest vehicle and off they went without a second thought until the price of gas rocketed up. Now we have the credit crunch and a recession just bottoming out. Car ownership has become an expensive proposition. Too expensive for some who have been reborn as a one-car family to cut their losses. The first step in crisis management is to find out which of your vehicles is the cheapest make and model to insure. Now balance that against the likely costs of maintenance and repair over the next twelve months. And which will sell for the highest price? When you know which vehicle you are keeping, maximize the number of discounts on the policy, including bundling auto and home together with the same insurer. Except, one vehicle for a busy family may not be practical. What are the options?

Many families talk to their neighbors and work out a carpool. This is reasonably easy to organize for routine journeys. But there is one slight problem. If you are going to carry passengers, you should have insurance to pay their medical costs should they be injured in an accident. It is not safe to drive your neighbors around on the state’s minimum liability cover. Then we come to the always difficult question of sharing the costs of the gas. If the passengers always pay something towards the cost of the journey, many insurers treat this as a business arrangement and require the vehicle owner to take out a commercial policy as a taxi. Needless to say, this turns a friendly social service into an expensive excuse to argue with your neighbors over prices. Of course, you could all agree to lie about the arrangement. But the stories can change rapidly if everyone ends up in a hospital and big bills are presented.

The second option is the new rental plans which site vehicles for rent by the hour in local garages. You book what you want over the internet, travel to the garage for the pick-up and drop it off at the same garage when your time is up. The cost per hour on the standard plans are attractive and, assuming you do not want a vehicle more than an average of one hour every day, you will save money on car ownership. But you do need to look carefully at the insurance offered in the standard plans. Some have poor cover of medical expenses for you as the driver and passengers. Others do not include the loss of use charge if the vehicle is off the road being repaired. Always read the small print. Summing up, finding insurance for a single vehicle means getting multiple car insurance quotes and finding the one that works for you. If you are going to use your car to drive neighbors around, you also need to get car insurance quotes to cover the additional liabilities. If you use one of the new rental plans, consider paying extra for LDW which gives more comprehensive protection against loss.