Insurance

Retirement planning is getting more complicated than ever.  With pensions going by the wayside and personal retirement plans replacing them we are finding ourselves with many more things to think about.  A pension brought about a worry-free (or so many thought!) way to retire comfortably.  A very nice padding to the Social Security we’ll all receive when we hit 65.  Or is it 68 now?  That doesn’t seem too reliable these days either now does it!  

  How can you save for retirement when life is happening right now?  A mortgage payment, car payment, credit cards and not to mention kids or any student loans are just a few of the creditors that call our names every month!  And then there is this necessary evil called insurance.  In the State of Wisconsin they made it mandatory for Auto insurance.  Now what about life insurance?  What about health insurance?  Your employer may cover that for you, and possibly Uncle Sam.  Bless them if they do, as it is one expensive burden.  

One of the many hats I wear is an Insurance Specialist.  After college I had a short stint with a financial services company where I studied diligently for my Life Insurance licensing.  I learned an awful lot and an awful lot more than I deemed necessary.  Many insurance companies these days are pushing for complete coverage.  They don’t want to fork out a lump sum when you die, they want to fork out a lump sum and a whole mess of other amenities to ensure you are comfortable in the tragic event where you or your loved ones will need the lump sum payment.  

My advice to all of you is to not buy into any of it!  It is expensive for you, and you are buying luxuries you don’t need.  Most insurance companies are a BUSINESS, out to make a PROFIT.  When I go to McDonald’s I will usually order from the dollar menu.  A hamburger will fill me up and satisfy my hunger.  A #1 Big Mac Meal will do the same, but it will cost you a whole lot more.  Now I want to introduce you the dollar menu of insurance, and that is term insurance.  No promises, no extra amenities, no riders or any other insurance gimmick.  Term insurance is bare bones, if you die, you get $X.  And that $X is the most you’ll get for your dollar, because there are no large fries or expensive soda included.

Think about all of your debts in one lump sum.  Think about the expenses your family will incur upon your death.  Now think about something happy because I’m putting you down a dark road!  Add up all those student loans, mortgages, other loans, funeral costs, and a healthy amount additional to leave your family.  If you don’t know what to leave them, think that they will probably work so you won’t need to completely replace your income, although you can do this if you want.  Take a number, like say $300,000 and multiply that by 3%.  In most cases that is guaranteed interest income off of an investment, and that is a conservative estimate at that.  That’s an annual income your beneficiary will receive if they don’t touch the $300,000.  Ok I’ll do the math for you, $300,000*.03 = $9,000.  So take that number, add your mortgage and any other loan to it, and that is your target.  Subtract out any savings you currently have, because you don’t need cash insured.  That magic number may be $500,000.  Now compare term insurance and whole insurance and see what the premiums would be on both of those.  Big difference hey?  As you get older, you will need less and less insurance.  Why?  Because you are investing and growing your own insurance, aren’t you? 

You can save hundreds or thousands of dollars per year this way.  What do you do with that extra income?  Invest it!  Many finance companies will take a small sum of money that you decide from you on a monthly basis and put it into a very safe investment fund.  There is no guarantee cash value that an insurance company offers (the large fries), but I can GUARANTEE you that what they do with your money is the same thing.  If you look at the investments short term, you will see stagnant results and so be it.  In my opinion that is good, you are getting investments dirt cheap right now.  Long term however, you’ll get much better return than those CD’s, or that savings account, and definitely that mattress.

I want to keep talking about how to invest that difference and where to do it.  But I’ll save that one for another day!