Life Insurance: Term vs. Whole Life Explained

Life Insurance

Life Insurance 101: How to choose the best plan for you!

If you’ve ever shopped for life insurance, you most likely heard these two terms: “term insurance” and “whole life insurance.”  But do you know the difference between these two products and how to determine which one is best suited for you and your family?

Understanding the importance of having a life insurance policy, and knowing how to choose the best product for your particular situation, is critical. So here is your “Life Insurance 101”:

Term Life Insurance

– Your benefits and your premium cost are fixed for a specific term: 5,10,15,20 or even 30 years.

– The premium cost of term life policy can be 10 X cheaper than the whole life insurance policy.

– The younger and healthier you are, the lower your monthly premium will be.

– Smoking and alcohol use will drive your premium up. So will other health issues.

– You will (in most cases) have to go through a physical exam in order to purchase your term life policy.

– Whatever price you receive in your initial quote will most likely change after completing your physical.

– Once your term life policy is up, you’ll have to purchase another term policy if you want to continue with the coverage. Purchasing a new policy will mean new rates.

Whole Life Insurance

– Your benefits and your premium cost are fixed for the duration of your life.

– The premium cost for a whole life policy is significantly higher (even up to 10X the cost of a term life policy).

– Your policy carries certain “cash” value which you can use to cash out or borrow against.

– Because of the high premium cost, you may be overpaying for a product you don’t really need.

– Whole life insurance is often sold as an”investment”, but in reality, the expenses will most likely eat up any interest earned. So be careful about buying a whole life policy based on the “investment” factor.

– Agents receive a much higher sales commision on a whole life insurance versus the term life insurance.

For most of us, term life policy will be a much better option. Depending on your age, health, coverage amount and the term you choose, your premium can run as low as $20 – $30 a month.

If you’re just starting your search, you can check out a few sites like selectquote or intelliquote. You can also use your personal network of friends or your current car insurance provider to see if they can connect you with a life insurance agent. You may get a multi policy discount if you insure your house, car, home and a life policy under one provider.

If your budget is a concern and you think you can’t afford to pay for a life insurance policy, here is a great post we wrote some time ago to help you find room in your monthly budget for a lifeinsurance policy premium.

Becoming financially prepared to care for our aging parents

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Aging is a natural process and a non-negotiable part of life. But before we reach the age when we will personally require care, many of us will first face the privilege of caring for our elderly parents or other elderly family members.

According to the Department of Health and Human Services the US population is aging, and those 65 years and older will represent 19% of our entire population by 2030. Due to the increase in welfare, better healthcare and a drop in infant mortality rates we are living longer. This means we not only have to prepare ourselves for the fact that our elderly parents will be a part of our lives for years to come, but also that many of us will enjoy a much longer lifespan and therefore require care at some point.

Unfortunately, many of us are financially unprepared and caught off guard when faced with the reality of having to provide care to our ailing parents. Rising levels of consumer debt, the fact that many have no other choice but to work way past retirement age in order to generate income, and the geographic distance between families, all create a tough reality.

So what can we do in order to position ourselves financially for the possibility of having to provide care for our older parents? What should we know about long-term care options that are available to us? Here is a great checklist to follow:

Position your finances

  • Start living within your current income. No more overspending. No more spending more than you make.
  • Eliminate all consumer debt. Being debt free will create options and flexibility.
  • Pay off your mortgage. Once consumer debt is paid off, tackle your mortgage so that by the time you reach retirement age you have no more house payments!
  • Save – both for short-term emergencies as well as for retirement.

Organize your paperwork

When the time comes to care for your elderly parents you do not want to face any legal roadblocks. Here are few items to put in place so you can make the transition a smooth one.

  • Durable power of attorney—Gives a family member (or anyone) legal authority to make financial decisions on another’s behalf.
  • Health care proxy—Allows another party to make decisions regarding medical treatment.
  • Living will—Outlines instructions for end-of-life care (For example, parents can say if they want to be kept alive by artificial measures).

Without these advance directives, a family member will have to petition the courts to be appointed the parent’s legal guardian.

Do your homework on long-term care options

  • Have a list of private nursing homes in your area (average yearly cost $77,000+); ask others who are using the facilities for references.
  • Learn about assisted living options in your area (average yearly cost $40,000); ask about services that the facility offers.
  • Care at home – According to the AARP, 90% of elderly parents prefer to live at home. Costs range depending upon the extent of care needed.

Keep in mind that Medicare does not cover long-term care and only those who have spent most of their assets qualify for Medicaid funding for a nursing home.

Cost of long-term care insurance

Avoid any surprises by learning about the financial cost that long-term insurance carries. Make sure you know what each option covers and more importantly what it DOES NOT cover. Here is a quick glance at long-term insurance care:

  • Pays for home care, assisted living or nursing home care.
  • A 50-year-old buying a typical policy—one that would pay a daily $200 benefit for 3 years with a 3% compound inflation option—is now $2,235 annually, according to the American Association for Long-Term Care insurance.
  • Two options are available: Unlimited lifetime benefits OR fixed benefits—make sure you know what you are getting.
  • The best time to buy long-term care insurance is between the ages of 55 – 64.
  • Once you purchase insurance, the insurance provider cannot cancel or raise your rates based on changes in your health.

As you prepare yourself for being a caretaker, remember that this information will be of great use to you and your children when its time for you to be on the receiving end of care!

How Millennials Should be Gearing Up for Future Financial Success

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Millennials have experienced more difficulties in landing jobs and setting out on their own than previous generations. These setbacks can leave them focused more on their current finances than future success, but the two are entwined.

These important actions will help millennials get set for lifelong financial health.

Ditching the Debt

While it’s advantageous to pay off all forms of debt, credit cards should sit at the top of the list. This is because credit cards include revolving debt while things like student loans include installment debt. Revolving debt involves high interest and requires low payments, making it the one that gets many people into financial trouble.

For example, when you purchase something on a credit card, you almost instantly increase the final cost of that item. Unless you pay your balance in full on the next statement, you’ll begin racking up interest charges. Every month you make the minimum payment, you only pay a small portion of your total debt. A big chunk of that payment is going toward interest and other fees.

With that in mind, make sure to read through the terms and conditions before you sign up for a revolving account (credit card). Also, remember to pay off your credit card balance in full (if possible) so you can avoid high-interest debt. Millennials should focus on clearing their credit cards first, then use all the money they’ve freed up to ditch student loans, car payments, etc.

Sticking With a Budget

A budget is essential for long-term financial health. No matter how much money you have, you can’t make the best use of it if you’re not acutely aware of where it goes. If you’re not paying attention, you can easily spend hundreds of dollars a month on non-essentials like fast food or pricey entertainment. That’s not to say that you shouldn’t enjoy these things, but you should slow down enough to make mindful decisions about where you want your money to go.

The best app to help you handle your finances is the Mvelopes app. Mvelopes will help you create and manage your budget, plan for the future and ultimately get you out of any debt you may be in.

Setting Long-Term Financial Goals

Your budget will help you manage your day-to-day spending, but you need to have long-term goals in mind, too. These goals will guide your savings and investments.

Do you hope to buy a home once you’ve freed yourself from debt and saved enough for one?

Identify your long-term goals. Determine what they’ll cost and when you hope to achieve them. These two simple numbers will help you decide how much you need to save each month to meet your goals. As you’re setting your long-term goals, look beyond the next 20 to 30 years. Perhaps you’d like to retire in a luxury community like Fox Hill. Or you’d like to gift your grandchildren with a fat trust fund someday. It’s never too early to save for these long-term goals.

Investing in the Future

Job seekers probably aren’t thinking about their retirement plan when they interview for a position, but perhaps they should. It’s never too early to start investing in your retirement. Ideally, you’ll make contributions to your retirement through every job you hold. Investing in a 401(K) or IRA allows you to take advantage of tax-deferred earnings, while investing in a Roth IRA with after-tax assets typically have no tax impacts with each transaction. Many companies will match your contributions, helping you further pad that retirement fund.

Considering 46 percent of Americans have less than $10,000 saved for their retirement and 40 percent of baby boomer now plan to work until they die, it’d behoove you to think about retirement today so that you’re not stuck barely getting by tomorrow. Your future depends on it.

Taking the future into account now is important for preparing for lifelong success.

Mvelopes Web App Updates today

Mvelopes UpdateWe rolled out a new CSV export option and several bug fixes to the Mvelopes Web application today.

Here are the details:

– In the Budget, Spending Plan, and Funding Plan pages, you can now export a CSV file.
– New Export Register icon added. Now both PDF and CSV options available with an option to Select the export Period.
– Funding Date option now available in the top right hand corner of the Income Deposit Options window.
– The issues with % rounding views when funding by percentage addressed.
– Squashed bug shown when performing an envelope transfer without selecting an envelope.

With Love,
The Mvelopes Team

3 Low-Cost Ways to Becoming Mortgage FREE

Mortgage free

Would you like to know how to slice years off of your mortgage payments and save thousands of dollars in interest, without getting stretched financially?

Anyone who currently carries a mortgage or anyone who is thinking about purchasing a home should pay close attention.

Here are 3 simple, financially feasible ways to help you become mortgage free!

Biweekly payments

One simple way to shave 5+ years off of your mortgage is to simply divide your current monthly payment in half, and make biweekly payments instead of one monthly payment.

If you’re paying $1200 every month, simply split that amount into two $600 payments and you’ll be amazed at the years and interest payments you can eliminate.

Word of caution: many banks will try to offer you a “biweekly” mortgage payment service, which usually has a fee associated with it. Do not fall for this. With a little discipline and good planning, you can do this yourself, for FREE!

Let’s do the math: if you have a 30-year, $200,000 mortgage and pay 5% interest on it, by doing biweekly payments you will pay off your house in approximately 25 years and save around $34,000 in interest!

One extra payment a year

Instead of making biweekly payments, you can decide to make one additional mortgage payment a year, either right after your tax return is received or whenever you get a bonus at work.

By choosing this method, you will maintain your regular mortgage schedule, and use any “extra” cash in order to make that one additional payment. In order to be consistent, pick a specific month each year that would be your month to make that extra payment.

By using this technique you’ll reduce your mortgage by 5-6 years, depending on your terms.

Additional monthly principal payment

If you do have some wiggle room in your budget, adding an extra amount to your monthly principal payment is the best way to reduce your mortgage, especially if you can find $100 – $200 a month to dedicate to your mortgage payoff. If you can’t come up with that amount, even an additional $25 – $50 each month will make a big difference.

Keep in mind that you should always focus on saving for emergencies first, then on eliminating consumer debts, and then on insurance and investing before you turn your full energy to tackling your mortgage. Once you’re free from all of your consumer debt (which most of the time will carry a much higher interest than your mortgage) and you have a solid financial foundation of savings, you’ll be able to focus on nothing else but eliminating your mortgage and continuing to build your reserves.

Image via Flickr by www.aag.com

9 Little Ways to Save Big

9 ways to save big

Whatever your financial goals are, every little way you use to save money can help. Even the smallest savings add up over a few months or years, which is why putting the following ideas into practice will make your bank account thank you.

Unplug Your Electric Devices

Even if you are diligent about turning off electronic items when you’re not using them, you’re missing out on savings if you leave them plugged in. Plug electronics like video game consoles and televisions into power strips, and unplug the power strips before you go to bed each night. The impact it makes on your power bill might surprise you, since a lot of these devices still use energy to keep the power light on, and go into a “hibernation” mode instead being entirely turned off.

Perform Routine Maintenance on Your Car

Keeping your tires properly inflated and driving gently helps increase your gas mileage. Also, make sure you check the owner’s manual for guidance on how often to get the oil changed. Many newer cars, post 2003 do not require an oil change every 3,000 miles; they can go for 5,000 between changes without any problem.

Keep an Eye Out for Reward Programs

It seems like every store has a rewards program. The constant stream of emails and promotional offers can get old, but they come in handy when you need to buy something. Know how each rewards program works and plan your shopping around special offers. To stay organized by creating a separate email address just for promotional material.

Stick to Your Grocery List (and Don’t Shop Hungry)

Another little step on your way to big savings is the good old shopping list trick. Make a list before you go into any store, and do not buy anything that is not on the list, no matter how tempting it is. Try writing the list around what the deals that you find in a store’s ads so you do not miss out on the best bargains.

Have Potlucks Instead Of Dining Out

Going out for dinner, drinks, and a movie with friends can make you wince when you look at what is left in your bank account the following day. Instead, invite your friends over to your place. You can cook the main dish, and your friends can supply things like side dishes, drinks and entertainment. Everyone will save money, and you will still have a great time.

Purchase a Fuel-Efficient Car

If you have an old gas-guzzling beast of a vehicle that requires constant repair, the time is probably right to find a replacement. Research fuel-efficient, reliable vehicles that meet the needs of your family, and then scope out prices. The savings on maintenance and repair will show up in a big way within a couple of years.

To get the best deal on your new car, download the True Car app. It lets you see what other people are paying for the car you want, and certified True Car dealers will work with you to get you the best price. You can score a sweet new ride at thousands of dollars below MSRP

Drink More Water Before Meals (To Help Eat Less)

Especially if you have a big family, the monthly food bill can get out of control. Drinking a glass of water before every meal will make you eat less. Save more money by bottling your own filtered water, the upfront costs of a water filter will pay for it-self over time, over buying retail bottled water.

Switching to LED Bulbs

LED bulbs do cost a bit more than your traditional incandescent light bulbs, however they only use about 20% as much energy. When you switch your whole house from incandescent to LED bulbs, they’ll quickly pay for themselves and you’ll save a good amount of money on your monthly electricity bills. And you won’t need to replace them nearly as often, since they last up to 50 times longer than traditional light bulbs.

Keep Better Notes of Your Priorities

Forgot to pick up the mail at the post office and now have to drive all the way back there? Oops! Keeping a to-do list either on your phone or on paper helps you make more efficient use of your time and your resources. It can save you money on fuel, and it can remind you to stop at the store and take advantage of that 24-hour sale before prices go back up.

Some of the above suggestions will give you minimal savings, but in the long run, you will appreciate all the dollars and cents they add up to keep in your pocket.

Mvelopes 4.1 – New Updates

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Dear Mvelopes users,

We’ve released more updates and fixes to Mvelopes 4.1. Here is a list of the latest improvements:

– Your session will no longer expire while reconciling your account using our Reconcile feature. From now on, as long as the “Reconcile” screen is open, your session will not timeout.

– We fixed our “Match” feature that used to identify matchable transactions more clearly. This was temporarily not working, but is now up and running again.

– We have fixed the view of the Payment and Deposit columns in your Inbox. Any amount over $1000 will now be fully visible rather than truncated. You won’t have to resize the column width any more!

– Lastly, we’ve made two fixes to our “Envelope Spending by Month” report. First, when exported as a PDF, any amount greater than 4 digits in the “Total” row will now appear correctly.  It was getting truncated, or left off, in the past for some users. Next, the when drilling down on a specific Envelope from the report grid, we’ll  now only display the data based on the selected envelope – as opposed to multiple envelopes.

Once again, thank you for allowing us to partner with you as you strive towards financial freedom.

The Mvelopes Team

[Working tirelessly on the awesomeness of your Mvelopes experience]