Life Insurance - Secure Your Family's Future (from Florida's CFO)

LIFE INSURANCE: COVERAGE CAN SECURE YOUR FAMILY'S FUTURE

The National Association of Insurance Commissioners (NAIC) suggests that you review your life insurance policies to determine if your coverage is still appropriate for your situation.

The Basics

Life insurance helps secure your family’s financial future in the event of the death of you and/or your spouse. It also helps ensure that the estate that you’ve worked to build will be allocated to the beneficiaries you have chosen.

When purchasing life insurance, consider the financial responsibilities that your family will immediately inherit such as a mortgage or car loan. In addition, you’ll want to consider long-term goals such as your spouse’s retirement or your children’s education. If you decide that you need more coverage, determine whether you need term life insurance or a cash value policy.

Term insurance generally has lower premiums in the early years, but does not build up a cash value you can access. Cash value policies come in the form of whole life, universal life or variable life insurance. It’s important to know which type of policy you own, and how the benefits are paid if something happens to you and/or your spouse.

If you have questions about your current coverage, or about the type of policy to best fit your situation, contact your life insurance agent or the Florida Department of Financial Services at http://www.MyFloridaCFO.com/.

Stop. Call. Confirm.

Before consulting an agent or purchasing a life insurance policy, make sure the agent and company are licensed to sell insurance in your state. To check, call your the Florida Department of Financial Services 1-877-MY-FL-CFO (877-693-5236) or visit http://www.MyFloridaCFO.com/.

What to Review

As your life situation changes through the years, so do your insurance needs. A regular review of your life insurance coverage is important. To begin your review, read your policy carefully. Look for answers to these questions:

· Do premiums or benefits vary from year to year?

· How much do the benefits build up in the policy?

· What part of the premiums or benefits is not guaranteed?

· What is the effect of interest on money paid and received at different times on the policy?

· In what situations and through what procedures can cash values be accessed?

· Can the policy be converted into another form of insurance or annuity?

When reviewing your policy, make sure the benefit covers your current needs. Changes — such as a birth, divorce, remarriage or even a new mortgage or job — are indicators that you might need to make changes to your life insurance policy.

In the case of the birth of a child or a new marriage, you might want to increase your death benefit. Check with your agent to see if your insurance company requires a physical exam before increasing your coverage levels.

Alternatively, your life changes might allow you to lower your life insurance coverage and premiums. The mortgage might be paid, you might have retired or your children might have completed college. At this stage of life, your life insurance company might be able to offer “conversion privileges” from your current term life insurance policy to a new whole life insurance policy. You might also be able to expand your death benefits so they can be used while you are still living. Ask your insurance agent or company about these options.

Beneficiaries

One of the most important decisions to make regarding life insurance is to whom to leave your benefits. That’s why it’s important to review your beneficiaries every few years.

There are two types of beneficiaries for your life insurance policy. Primary beneficiaries receive a portion or the whole policy benefit if they outlive you. Contingent beneficiaries (also referred to as secondary beneficiaries) receive proceeds if a primary beneficiary dies before you. If you name more than one beneficiary in either category, you should include the percentages of the death benefit proceeds that you would like each individual to receive, or stipulate “equal shares” to each.

You can name your spouse, domestic partner, children, grandchildren, relatives, friends, charities, businesses, trusts or your estate as your beneficiary. Naming individuals rather than an estate allows those individuals to receive the proceeds immediately and, generally, without taxation. As part of your estate, however, proceeds typically will go through probate with the rest of your assets and might be subject to estate taxes. Your will does not affect the distribution of your life insurance proceeds unless the sum goes to your estate to be divided according to the will. Check with your insurance agent, tax advisor or family lawyer if you have questions about how the life insurance benefit will be paid following your death.

Tips for naming beneficiaries:

· Spouse: You should use the individual’s legal name, as in “John Wayne Johnson,” rather than “husband.” In case of a second marriage, “husband” could be interpreted either as the husband when you bought the policy or the current husband. When reviewing your policy, think about who will be in the best position to make financial and other important family decisions upon your death.

· Children: You should qualify a specific class of individuals, such as “my children,” by the use of either “per stirpes” (according to the family tree or branch) or “per capita” (per head). A designation of “my children per stirpes” means that if your two sons have two children each, and your oldest son dies before you do, his children will each receive his share of your benefits. A designation of “my children per capita” means that the living son, in the case above, would receive the full amount and your oldest son’s family would receive none of the benefit.

· Minor Children: Most insurance companies will not pay life insurance proceeds to minors. If any of your children are minors, one of your options is to designate a trust as the beneficiary, with an individual or institution to use the funds for the welfare of your children. You will need to set up your trust(s) carefully, with your family attorney or tax advisor’s assistance. Another option is to designate two individuals whom you trust as beneficiaries, who will make joint decisions about the care and welfare of your children. As your children mature, you should update your beneficiaries accordingly.

If you are the owner of your life insurance policy, in most cases you can change beneficiaries at any time by completing a formal, written notification to your insurance company. During a regular review of your life insurance policy, take into consideration changes in your life, relationships and family — such as births, adoptions, marriages, remarriages, divorces and deaths — when updating your beneficiaries. Your family attorney, tax advisor or insurance agent can help you use specific wording to avoid unintended consequences.

Locating the Company that Services Your Life Insurance Policy

It’s possible the company that issued your life insurance policy has changed its name, merged with another company or sold your policy to another insurance company. You should have been notified of this change at the time it happened. For this reason, it’s important to make sure your mailing address is always current on your policy. However, if you did not receive an updated policy, you will need to locate the life insurer that services and pays claims on your policy.

You will need this information to search for the new company information:

· Make sure you have the entire legal name of the insurance company. This should be listed on the policy or binder.

· Check to see if there is a mailing address and phone number on the policy or binder.

· Determine in what state the policy was purchased and when the policy was purchased.

Once you have this information, contact the state insurance department in which the insurance company was located at the time the policy was issued. Many times, the state insurance department will be able to track name changes and/or mergers that impacted the insurance company.

To find contact information for your state insurance department, visit www.naic.org/state_web_map.htm.

You can also use the Life Insurance Company Location System, https://external-apps.naic.org/orphanedpolicy/. Using the information you have gathered, answer five questions and the system will provide a list of suggested state insurance department contacts that might be able to assist with your search.

More Information

To learn more about your insurance needs throughout your life, go to www.InsureUonline.org.

Get more information about life insurance by downloading the NAIC’s free “Life Insurance Buyer’s Guide” at www.naic.org/consumer_home.htm.

The Long View - Ask a Seasoned Investor (from Portfolio magazine)

Talking to Chuck
by Portfolio Staff October 2008 Issue

Charles Schwab says investing is boring. That's why the practice has become a lost art—and a national emergency.


At age 71, Charles Schwab has seen his share of stock market slumps. In 2003, he stepped down as C.E.O. of the Charles Schwab Corp., the San Francisco-based brokerage house he’d founded in 1973, but returned to his role in 2004, when the company was getting pounded during a down cycle. Since then, not only has the company gotten back on track but its bottom line seems to be benefiting from the current turmoil as well. Schwab himself is almost evangelical about the importance of investing—despite an economic slump he says will still take months to run its course.


Where are we in this down cycle?The market probably hasn’t reached the bottom yet. I would expect that to happen between now and just past the election. The overall economic slowdown probably won’t subside until sometime in 2009. But that’s okay. Markets move in anticipation of economic moves. You can see the market beginning to reach its bottom—it’s going past the threshold. There’s still more ugly news coming out, I’m sure.

How will we know when we’ve hit the bottom?
That’s the challenge. You don’t know until you see it in the rearview mirror. There’s no way to know even when it’s arrived. That’s all the more reason successful investors have the confidence to stick to their plan and ride through the ups and downs—and even to invest when there is the possibility of a drop in the short term. It’s the long-term trend they’re after.

What do you expect will be the lag time between when the market turns and when the economy responds?
I expect it’s probably about six months. That would be consistent with other periods in the past.

Your company talks to thousands of investors every day. How scared are they?
They sound scared every time we have a market that’s going nowhere. It’s not pretty. Most people you meet live for today. Thinking and planning for tomorrow is almost impossible. Investing is such an abstract notion that most people really have a tough time grasping it until they’re way
far gone: “My God, I’ve got to save for my future—what in the world am I going to do?”

So you advise people to invest in a market like this one?
This is a fantastic time, frankly, for people who are just starting to invest. Prices are low.
In investing, you’ve got to have some confidence that stock market cycles will be no different in the future than they have been in the past. The market will recover.

Yet investors are reluctant.
We want to enjoy everything we see advertised, and there’s nothing about saving or investing that gets our juices going. Investing is a very abstruse, intangible concept. It’s what economists talk about. How many people have taken a class in economics? The literacy around this concept is woefully low, but it’s amazing how essential this boring concept is. We say the same thing about good health: You don’t really become aware of it until you’re sick. Then you realize there really is some limitation on the strength of your body. Being a saver always means the same thing: spending less than you earn. That never changes.

How did we end up here—with saving and investing being such a low national priority?When I was a kid, we were coming out of the Great Depression and World War II. All you talked about in families was the lack of money and the desire to save and make life better. The past 20 years have been bountiful, but we’re moving through a big crack now, from the subprime thing to everything else. I’d be willing to bet in five years’ time, maybe 10 years, the pendulum will swing back to a much more conscientious rate of personal savings. What we’re going through now is cathartic, but it’s very painful. One of the key things to understand in a free society, which I wish we didn’t have to face, is that there are cycles. It never goes in a straight line. It’s a fundamental fact that market systems go up and down. Life goes up and down. And that’s okay.
I’ve heard you call for a national effort to boost the savings and investment rate. Why is that?
We have a huge national problem. Our savings rate is zero or below zero. It’s a disgrace.

We have to have a national program to launch the savings rate to 10 percent. It almost has to be as important as going to the moon.

You’ve contributed money to John McCain. Does he support such an effort?
This isn’t a political thing. We’ve just got to get some shock component to this. I haven’t found a good way to awaken people at an earlier age to the fact that they have to save and invest.

What percentage of the ­population does what you suggest?
Between 2 and 5 percent of the population invests as it should. It’s shocking to meet people who simply haven’t put aside anything for the future, and they’re now approaching 50. You tell them it’s never too late to start, but, man, deep in your soul, you say, “What has this person been doing?”

Where should people begin if they’ve never invested before?
New investors should be assembling a diversified portfolio. An investor with a smartly diversified portfolio of stocks should expect something like a 10 to 11 percent return per annum. Your money should double every seven years.

All of a new investor’s money should go into stocks?
If you’re younger, it should all be stocks. If you’re over, say, 55, your portfolio should be more diversified—some international stocks, small-cap stocks, low-cost mutual funds, fixed-income investments, some money-market funds—and you should expect an annual return of 8 percent.

What’s an easy rule of thumb for how much to invest, as a percentage of income?
It depends on your age, how much you’ve already invested, and other factors. But a good rule of thumb, if you’re just starting out working, is to put aside 10 percent of your income each year and stick with that over your working life. If you wait until later in life, you’ll need to increase that considerably. At age 62, your life expectancy might be 30 more years.

How much should most investors be actively trading? How often should they rebalance their portfolios?
Certainly some investors trade very actively. There’s no formula for the right number of trades
in their case. But our average client trades only a few times a year. For most of us, the rebalancing is
the important part, and that should be looked at on an annual basis—but also if major changes
in the market occur or if your objectives change. With a portfolio of mutual funds, which is the best way to get diversification, the process is much simpler.

And you don’t advise going it alone.
No, you’ve got to get some professional help. No matter how much I have looked at this issue, I have to say with a great amount of discouragement that not more than 2 to 3 percent of our population wants to think about any of this. The rest of us need good, ethical, cost-effective assistance.
Why does your company do well when the market is down?
We’re a well-established, well-regarded company. People gravitate to us. At a time when people are very worried about the news on the front page and various economic crises, that tends to make them more fearful.

What’s the biggest miscon­ception about investing?
Many people confuse investing with big short-term hits, “the next great thing.” That’s not investing; it’s gambling. Bad advice feeds on that, by trying to sell us the next great thing. It’s okay if investing is a little dull, as long as it’s doing what it’s supposed to be doing, which is to help you build financial independence.

What should people be investing in?
I don’t believe that sector investing—picking investments by industry—is a wise move for the average person. If you were smart enough to move into oil, will you be smart enough to move out? Nobody’s really that smart.

Look, I’m the biggest advocate of entrepreneurial people making speculative moves. But you don’t want to be making those moves with your investment.

So if I call one of your advisers and ask which companies to invest in, they won’t give me names?
They’d better not. They’ll encourage you to have five to 10 sectors in your portfolio. When you buy a great index fund, that happens anyway.

You’ve been consistent about the need to stay the course, even in down cycles. In a market like this, should investors do anything different at all?
There’s no harm in taking the opportunity to think about whether your portfolio is structured the right way. If it is, and it doesn’t need rebalancing, it’s not a time to be making big changes. But again, down markets are an opportunity to invest at a discount. That’s hard for most of us to do, because the chances are good that we could go further downward. And that’s a tough emotional ride.

What’s the best piece of investing advice you ever got?
Start saving today and start investing tomorrow.

And the worst?
You should get out of the markets now.