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Archive for the ‘General Musings on Life’ Category

Do you want to clear a room or stop a conversation fast?  Talk about life insurance.  Mention life insurance to someone and the reaction is something like hearing nails across a chalk board. Folks will either run for fear that you’re going to try to sell them something or their eyes will glaze over.

Most folks don’t want to talk about it.  The topic is boring.  And it’s kind of weird to talk about death.

Heck, when I speak with folks about planning, the inevitable phrase I hear in the conversation is “If I die …” as if they have found some secret to living forever.

So assuming that you’re not featured in the Vampire Diaries, there is a very high likelihood (about 100% give or take 0%) that you may die someday. So it only makes sense to consider life insurance as part of your overall planning.

Life Insurance Through Work Is Only A First Step

Most folks will get some insurance through their employer.  It’s cheap. It’s fast. There’s no medical exam.  It’s simple.

And as I’ve said time and again, there’s always a simple solution to every problem.  (In this case, employer-sponsored group life insurance). And as I’ve also said before, simple solutions are probably wrong.

Now don’t think that I’m saying that the group policy that you get and pay for through your paycheck is wrong.  It’s a good start.  But there’s more to proper life insurance planning than simply figuring a multiple of your salary.

How Much Life Insurance Is Needed?

The reason for any insurance is to cover the costs of risks that we are either not willing or don’t have the resources to cover ourselves.  That’s true whether you’re insuring a car, a home, your life or your paycheck.  So first you need to know what it is that you’re covering.

In the case of life insurance, it’s usually a good idea to figure out how much money your family needs to maintain their current standard of living if you and your income are no longer part of the picture.  Then add in any large expenses to cover.  Typically, this would include an amount to pay off any mortgages and loans and even college funding or other similar expected obligations. Net out the amount of other insurance and investments available and this will give you an idea of the amount of insurance coverage to get.

The amount of insurance that one needs throughout life changes with circumstances.  This is why it’s critical to include an insurance needs analysis as part of your regular financial planning progress reports.  This is why I use a particular tool from ESPlanner that helps project the amounts of coverage needed over time.

Insurance as An Asset Class to Reduce Risks

Now I’ve said that insurance is an asset class.  Why?  Well consider this.  When you invest, you’re likely to spread your money into different types of asset classes:  stocks and bonds of large, small, US and foreign companies.  This is the basis of diversification: don’t put all your eggs in one basket. You do this to help reduce risk.  In this case, you’re trying to reduce the risk of having your investment wiped out by spreading your bets to other sectors of the economy and even parts of the world.

Like asset diversification, insurance is also a risk tool.  In this case insurance is there to replace things that you may not have the cash or investments to cover on your own.  Or maybe you feel you’d be better off investing the cash and earn a return on your money that will hopefully increase the resources you need for your lifestyle whether now or in retirement.

Think of it this way.  You could hit home run after home run picking stocks but what happens if you or your family are hit with an unexpected loss?  You’d have to dip into your savings and investments.  You’d need to sell those winning stocks.  You’d probably incur huge capital gains and have to pay taxes on it.

Life insurance is there to cover living expenses, replace in some small way the loss of income if you or your loved one dies and it does this for the most part tax free to the beneficiary.

And you can carry over the idea of diversification to insurance.  Just like mixing up the kinds of stocks or bonds you own, you can carry insurance from two or more insurers.  You do this by having your employer-sponsored group plan plus something you pay for on your own separate from your employer.  You can further diversify by mixing up the kinds or terms of coverage dividing some between term and permanent type policies.

Kinds of Life Insurance: Term vs Permanent

Insurance comes in two basic varieties: term and permanent.  Term insurance has a fixed premium for a fixed time period.  It’s great for covering specific risks for a defined time period (i.e. a mortgage, college costs).  Permanent life insurance has many flavors but in essence the key is that some of your premium that you pay is used to build up cash value.

Now for those who are unhappy with the stock market, you may want to consider some of the benefits offered by permanent life insurance.

  • The value is guaranteed. You’ll always know how much you have. And the insurer is required to credit a minimum amount to your value each year.
  • You receive dividends and their tax-free. Policyholders will receive dividends that increase the value of their account.
  • You can access the cash value at any time. Unlike going to a bank for a loan, the insurer will give you access to your account’s cash value with very little delay. You pay no penalty when receiving the cash as long as you repay yourself.  And if you set up the account properly, you can build up enough cash value to tap into for anything from buying a car to buying a home to funding retirement without paying a penalty or taxes.  (This is described by some as the Infinite Banking Concept where you become your own banker).
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We’ve all heard of horror stories of someone stealing a credit card or hijacking your identity online to “party like it’s 1999” and leaving you with the bill.  It’s become a cultural cliche and even popularized in TV sitcoms and commercials.

But it’s anything but funny when a scam is played on you.  So prepare to protect yourself and your credit.

Credit is vital in this economy.  We depend on it to get us through the day.  It’s part of our identity (and the credit reporting bureaus know it and charge lots of money to sell soci-economic demographic data to marketers keen on target marketing.)

And in a time when banks and lenders of all sorts are skittish about lending and getting burned, it’s all the more important to maintain a good (if not great) credit score.

The difference between a credit offer and interest rate for someone with a 780+ FICO score and someone with “only” a 700 can be 0.25% on a mortgage, maybe more for an auto loan.  Doesn’t sound like much but believe me when you’re making that payment each month you’ll appreciate the lower payment resulting from the reward you get for great credit.

This brings me to my tale of woe for today.

Check Your Credit Reports Regularly

I’m kind of obsessive about maintaining my credit and paying bills on time.  I’m no stranger to disputing charges.  I check my credit report regularly.  If you don’t you should.  And you can do it for free.  Just go to www.annualcreditreport.com which is a site offered in conjunction with the Federal Trade Commission.

The FTC has set up the site to help consumers get a copy of their credit report for free each year.  Since there are three main credit bureaus to which virtually all creditors report:  Trans Union, Experian and Equifax.  You can get a free report from each of these reporting agencies.

Once you log in and verify yourself you can choose which bureaus to compile your report.  The best tip I can suggest is to stagger your requests.  Order one report from one bureau and then order another free report from a different bureau three months later.  And then repeat three months later with the third and final bureau.

Why go through the trouble?  Well, each bureau will more than likely have the same information as the others.  Not always but most times.  So you can basically monitor your credit for free by staggering your requests throughout the year.

So while there are services out there offering “free” credit monitoring services (and they have really catchy jiggles), you can do it yourself for free.

The Robo-Call That Started It All

So what happened to me?  Well I started getting “robo-calls” in December from a “Kelly Smith” of ER Solutions located in Renton, Washington.  Kelly had a wonderful British accent.  Her sister must reside as one of the voices in my car’s GPS.  Kelly asked me to call her.

Now, I’m a married guy (and Spencer’s dad if you can’t tell in the pictures posted here) but it’s certainly flattering to have a woman with a sultry voice ask you to call her even if it is just a business call.

So I call the young lass.  While I don’t get her on the phone, I do find out that ER Solutions is a nationwide collection agency.  I’m told this by the message I receive from the robot attendant when I call. While not pleasant, I’m sort of used to calling collection agencies.  In my past life I used to own and run a credit reporting agency that produced credit reports used in mortgage lending or property rentals.  So calling these kinds of companies was a necessary chore every now and again to verify the legitimacy of something that appeared on a consumer’s raw credit data file.

But in this case, I’m calling for me. Now once I get past the shock that I’m calling a collection agency on an account that supposedly belongs to me, I try going through the frustrating voice mail tree.  Ultimately, I get to a point where I’m asked to leave a message but before I can another message tells me that the “mailbox is full.”

Not one to be stonewalled, I do my best to find out more about this company. I search online and find another phone number.  I call it with the same result.  I do this over the course of a couple of days.  But despite the time of day or day of week I am unable to ever reach a live attendant or leave a message.

I do more research.  I check the government records at the Secretary of State’s office for my state (Massachusetts) and the corporate HQ (Washington).  I file complaints with the Washington Office of the Attorney General and with my state’s regulator for collection agencies, the Massachusetts Division of Banks.  I also go online to the FTC and use their online complaint process at www.FTC.gov. I send a certified letter to the company demanding that they verify the debt per my rights under the law.

In my research I find several websites that have posts from many irate consumers who have had dealings with this company.  All of them report various kinds of abuse.  Many show how seedy collection agencies try to scam consumers by trying to collect on fictitious charges, using abusive tactics in their calls and ignoring any inbound contact with the consumer.  You can check out the consumer reports on this company online at Ripoff Reports, Complaints Board and Complaints.com.

In many cases the stories sound like mine.  It’s either a fictitious debt or a debt that was in dispute with a creditor that should not have been turned over.  But being big faceless corporations that they are, one hand doesn’t know what the other is doing.

Without any help from my British friend at ER Solutions, I tracked down the problem.  Since the folks at ER Solutions never answer their phones and never provided any account reference in their call, I checked my free credit report that I got from http://www.AnnualCreditReport.com.  I found a cryptic reference to Verizon Wireless, my cell phone carrier.

One Computer Glitch Leads to Another

After a long and frustrating runaround I found the problem.  I had transferred my old individual wireless account to a new family plan account with Verizon.  This was supposed to be seamless but it was apparently not.

Despite paying through Verizon’s One Bill bundled service, the wireless side of Verizon had a wrong address for me. While they had no problem confirming where to send my new phone, they didn’t bother to correct an incorrect entry in their billing system tied to an address I haven’t had for more than 8 years.  While I had been told that the old account would be merged with the new account, the faceless phone rep was very wrong.

So while the family plan account was being paid in full each month, a statement for the old account with a charge for the new phone I bought was being mailed to a defunct address.  And even though I would call and speak with customer service from time to time no one bothered to mention that there was anything outstanding despite my inquiries.

Protect Yourself

Protect yourself by vigilantly monitoring your credit report and disputing erroneous and false information quickly.  Don’t simply roll over and pay the amount without verification.  Often when someone is going through a loan process an underwriter will require that old debts get paid off before closing on the loan.  While good for the lender this is bad for you and your credit score. Since credit scores are skewed toward the most current activity, paying on a disputed amount will likely result in a hit to your score as the creditor or collection agency updates the record with the payment activity.

As the veteran cop on Hill Street Blues would say after morning roll call, “Be careful out there.”

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The other day I was contacted by Evan Lips, a reporter from the Lowell Sun who was doing a timely article on financial planning tips for the new year.

He had spoken to other financial planners and investment representatives and he had a wide range of opinions provided by them.  These included ways to manage credit to savings to kinds of investments to use for a retirement account.

Because everyone is at a different place in his or her life, some of these tips may not really help now. For instance, how you take money out of retirement accounts when retired is a tip that is less important to someone recently graduated looking to pay off student loan debt.

But there is something common that really can help anyone of any age.

Number One Tip for 2011 and Beyond

So my Number One tip for any consumer of any age:  Control What You Can and Leave the Rest.

What do I mean?

Consumers are usually their own worst enemy.  Too distracted by daily affairs, it’s easy to become overly focused on the news of the moment.  And this can lead to an emotional reaction that can otherwise sabotage long-term financial health.

Things You Can Control

1.      Investors have control over certain things: Their emotions (and reactions to the crisis of the day), investment expenses, asset allocation and amounts they save.

2.       Investing is long-term but the financial media is fixed on short-term crises of the moment.  Be mindful of that and try to tune out the noise.

3.       Your mom was right: Live beneath your means and you’ll have extra cash to save; build up your emergency reserves (minimum 3 months of fixed expenses for married couples working; 6 months for couples with one-earner and nearer 12 months for someone with variable income).

4.       Pay yourself first.  Make it automatic. Have a portion of your paycheck directly sent to a high-yielding savings account.

5.       You can lower your investing expenses and improve your diversification by using Exchange Traded Funds.  ETFs are investments that can trade like stocks but represent a broad basket of investments.  (Sort of like an index mutual fund but with even less expense). If you have less than $100,000 to invest and are looking for efficient core holding for global stock diversification, consider something like the OneFund® ETF from US One at www.usone.com (ticker symbol: ONEF) which is composed of 5 other ETFs from Vanguard and costs less than 0.35% per year while providing 95% exposure to 5,000 large, small and medium-sized companies throughout the world.

6.       Develop good money habits: Reconsider that fancy coffee or fast-food lunch and pocket the savings for a more meaningful goal (i.e. vacation, paying off debt, down payment for a house).

7.       Pay off your debt by snowballing payments.  This technique will help you see progress toward paying off debts.  Start with the ones with the lowest balances and pay above the minimum.  Then when this debt is paid in full apply the amount you were paying toward the next debt.  Eventually, like a snowball rolling down hill, you’ll be applying all these payments in large lumps toward the highest balance debt.  And this will help accelerate paying the debts off and lower your interest expenses.  Then when everything is paid off you can direct this toward your emergency reserves or investing goals.

8.       Position yourself to qualify for more student financial aid: Skip the allowance and put your kid to work.  See my post on this here.

Want Some Low-Cost Globally Efficient Ways to Invest?

What is an ETF?  Go to https://moneylinkpro.wordpress.com/?s=exchange+traded+fund or http://www.investopedia.com/terms/e/etf.asp

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In my post today, I decided to reflect on “another day’s useless energy spent.”  (For those who recognize it, they are lyrics from one of my favorite bands, The Moody Blues, which I saw in concert from the lawn seats at Great Woods before it became known as the Tweeter Center.  Now how’s that for dating myself?)

Part of this reflection is because we are approaching another year-end and turn of the calendar. Partly it’s a reaction to the ongoing cram session known as the “lame duck” Congress which, like other times during the political calendar, is filled with lots of speeches, interviews, talking heads (not the band unfortunately) and hot air in general that is probably doing as much to contribute to Global Climate Change as any coal-fired power plant.

It’s also because as I sit here contemplating another post – staring at that taunting, blinking cursor, I wonder if anyone is getting any benefit from this exercise (I mean, besides my own ego, I suppose).

Then it sort of dawned on me as I was trying to get Spencer (the cute one on the right hand margin of this page) into his sneakers and snow suit and car seat.  This was an opportunity for a life lesson for the future heir to all that I possess (or at least my family name – which is more important than anything else in the long run, I think).

As Spencer squirmed and wailed in protest to the limits on his personal freedom I was imposing, I reminded him that he might want to get used to the simple fact that the universe simply is absorbing his energy. And after all is said and done, the gnashing of teeth, spilling of tears and biting of lip (all on Spencer’s part, mind you), we’re back to where we started and we’ve just gotten a bit older.  In Spencer’s case, this is sort of a routine that we’ve gotten into as summer turned to fall and now winter.  (It was much easier when we didn’t have to put on so much restrictive outer gear.)

So his wailing reminded me of all the things that we do throughout our days.  Hustling here and there.  “Deadlines and commitments” as Bob Seger (another BIG TIME favorite of mine) would say in another favorite song.  All of this made more stressful by the holiday with its artificial consumer-driven shopping spree that is upon us.

And after all is said and done, we are, in the end, left with nothing – just ourselves.  This could be a bit Buddhist in outlook.  And that’s not bad as a life lesson either.

So what should matter in the end?  We work; we play; we sound off about all sorts of major and minor grievances (‘how dare that guy take my parking space at the mall’ sort of thing).

But what matters in the end is who we are left with.  We are left with ourselves and all the energy spent is sort of like a furnace used to mold the metal that makes us up.  Sometimes the fire can burn us up and other times makes us stronger. (Remember the old line: “What doesn’t kill us, makes us strong” or maybe your dad telling you that “it builds character.)

So as life lessons go, I’m hoping that Spencer will one day understand it.

For the rest of us in the here and now, I go back to my favorite holiday movie “It’s a Wonderful Life” with Jimmy Stewart (in black and white of course).  George Bailey feels like a failure and a disappointment to his family.  But in the end he realizes how rich he really is and how rich life is with him in it. (Thanks for the lesson, Clarence).

That’s another life lesson I hope that Spencer understands someday.  For the rest of us, I hope we can understand that now.

When I first started this post today, I wondered whether anyone really cared about what it is that I say or think.  Then, I remembered George Bailey.  And if just one person gets something valuable out of these reflections on reflections of mine, then maybe it’s not a whole lot of sound and fury but maybe it really does signify something.

So if anybody’s out there, thanks for stopping by.  And don’t be a stranger. Let me know what you’re thinking and are looking for when you next stop by.

Best wishes to you during this season of peace.

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