Child Life Insurance: Do You Need It?

Child Life Insurance: Do You Need It?
 Angie Mohr CA CMA
www.numbers101.com

It's something that none of us wants to think about~ the death of a child. But not taking the time to think through the financial implications of your child's death leaves you open to the aggressive marketing efforts of some unscrupulous life insurance agents. Child life insurance is big business in the United States. Companies like Gerber and many others specialize in this type of insurance and tout its benefits many reasons other than its original purpose: to insure the costs of the death.

Let's start by looking at the difference between whole life and term policies. A term life insurance policy is all insurance and only insurance. That means that if an insurable death occurs, the policy pays out the face value. If you have a $10,000 policy, you will receive $10,000 upon the death of your child. Term insurance gets its name from the fact that the premiums are guaranteed for a certain term. Frequently, this is ten, fifteen or twenty years. That means that premiums are likely to rise to continue the insurance at the end of the term. As the child gets older, the cost of insurance gets more expensive. Eventually, term life ends, usually at age 75. It cannot be renewed after that point.

Whole life, on the other hand, has both an insurance component and an investment component. You can keep your whole life policy for just that: your whole life. Most plans have guaranteed insurability, meaning that the policy will stay in force even if health circumstances change. You can withdraw the cash value of the investment side of the policy after a period of time and usually with fees and restrictions. Premiums on whole life policies are significantly higher than for term life, in part to cover the "forced" investment and in part because the claims will be higher than under a term life policy where many people will outlive it.

It may look on the surface as if whole life is the best option for parents with children. In fact, all the glossy brochures talk more about the savings features than the death payout. You may even think you're giving your child a "gift for the future"~ a term frequently used in child life insurance marketing. However, there are many good reasons to stay away from whole life coverage for your child, and even term life in many cases.
The first goes back to the original point of life insurance: to cover the immediate and long term costs associated with a death. The immediate costs include the cost of a funeral and the lost income of the parents while planning and attending it. The long term cost of death is the lost income of the insured. For example, if a father earns $50,000 a year and dies at age 50, the wife and children have lost out on that $50,000 per year for 15 years (assuming the husband would have retired at age 65).

That income needs to be replaced in order for the family to have the same lifestyle as they do now. In the case of a child's death, there is no need for income replacement as the family was not dependent the child's income to continue (unless of course if the child has an acting career or other such type of income). That leaves only the short term costs of a funeral ($6,500 on average according to the National Funeral Directors Association) and income replacement for the parents to plan and attend the funeral. Those are the losses that need to be insured. In most cases, a $10,000 term life plan per child is the most cost-effective vehicle to provide child life insurance.

The second reason why whole life is not the best plan for a child is the investment component. Many plans tout the fact that you are helping your child save for the future, whether it is college or buying their first house. The reality is that a whole life policy is an inferior savings product when compared to education savings plans or even simply, a savings account. You have no control over the types and returns of the whole life investments.

You will also have to pay conversion or redemption fees in most plans to get at the money. It makes more sense to plan your child's insurance and savings needs separately with the appropriate product.
The third reason is that, over the life of whichever policy you choose, you are paying over time for the policy's benefits. Let's say, for example, that you are looking at buying a whole life policy for your two-year-old. Because the policy is in force for life, there will be a 100% claims rate (except for those who stop paying premiums, so let's say that drops us down to an 85% claims rate). That means that the insurance company will have to recover 85% of the face value of the policy through premiums.

The premium for your two-year-old will be set with rates assuming he or she dies seventy or eighty years from now. The insurance company wins in the short term because you're paying a hefty premium for a two-year-old. The fact is, children rarely die. The insurance company is not expecting to have to pay out on that policy in the short term. That leaves you insuring a short term risk (the death of a child) with long term premium rates.

The subject of losing a child is a difficult one to face, but doing so ahead of time in a practical and logical manner may save you financial grief in the future. Before you choose a child life insurance plan, make an appointment with a qualified financial planner (rather than someone who makes money from selling life insurance) to review your insurance and investment needs. (969 words)



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Copyright 2011 Angie Mohr

Power Couponing and Eating For Free

Power Couponing and Eating For Free
 Angie Mohr CA CMA
www.numbers101.com

I was never the type to clip coupons. Being an accountant, I figured out how much time I would need to spend at it versus what I would save. It wasn't worth my time. However, I always hated to pay full retail price for food when there were coupons out there, so, over time, I developed a method of coupon clipping that saves our family enormous amounts of money and takes very little time. Here are 5 tips to get the most out of your coupon-saving efforts.

Power Coupon Tip #1: BOGO is your friend. This will give you the "biggest bang for the buck". It's one thing to get $1 off a box of cereal but if the cereal is on sale at "buy one get one" or BOGO, as it's called, you will get the best deal. This is frequently where I end up getting something for free (or better). In a recent shopping week, for example, Zatarain's Rice Blends were on BOGO. They were regularly $1.29 a box, so the BOGO price was 65 cents. I had 20 coupons for 50 cents off the purchase of two boxes. Our local stores double coupons so this equated to 50 cents off each box. That meant that I could purchase 20 boxes of Zatarain's for 15 cents each. Not a bad deal. There are occasions when the coupon is worth more than the sale price of the item and I make money by buying the product. I do this frequently with Hamburger Helper.

Power Coupon Tip #2: Plan your weekly shopping with a flyer. On Sundays, take some time to gather the grocery flyers together to plan your shopping trip. It helps to keep a price book so that you can compare the sale price in the flyer to what you've paid for the item in the past. Sometimes, flyer sales aren't great deals and, if you are forewarned, you can pass over these and get to the real deals. Once you have a list of the deals, compare your list to the coupons you have on hand making sure that the coupon is for the correct flavor or size. Keep all of the coupons you will use attached to the shopping list so that they are handy as you get to the checkout.

Power Coupon Tip #3: Pay someone to clip coupons for you. This tip, combined with tip #1, has given me the absolute best, most efficient returns on the time I invest in my coupon adventures. Clipping coupons myself is time-consuming and only lets me purchase one or two of the items on sale. Having someone do it for me allows me to purchase as many as I want. The only caveat here is that buying coupons is illegal. These clipping services charge you for their time to clip, sort and mail you the coupons, not for the actual coupons themselves.

Here's how I do it: I check the grocery flyers online as soon as their available. At our local Kroger store, the flyer doesn't come until Sunday but the online version is available first thing Saturday morning. Once I list all of the deals, I check our pantry or freezer supply of the item. If we're low on the item, I estimate how much we need to last us a certain length of time. If it's frozen goods, that period will be no more than 6 months, but for things like dishwashing liquid, I can buy a year's worth if it's a really good sale. Then, I will go to a coupon clipping site, like eBay or Coupon Clippers (www.couponclippers.com) and purchase the number I need.

With eBay, I only select coupon offers that have a "Buy it Now" label. I don't want to have to wait for an auction to end. The coupons usually cost less than 10% of the face value of the coupon, plus postage. So, for example, I could get a 50 cent coupon for 5 cents each. I never bother with coupons less than 50 cents unless it means that I will get that item for free. Usually, these coupons are put in the mail on Monday and I will receive them no later than Thursday. As grocery sales usually last until Saturday, I still have time to take advantage. This way I don't have to hold coupons for the chance to be able to use them before they expire.

Power Coupon Tip #4: Buy groceries for the pantry and freezer. When you start power couponing, expect strange looks from cashiers and other shoppers as you ring in 20 boxes of macaroni and cheese, 10 packages of toilet paper and 30 cans of peas. You are not shopping for the dinner table, you are shopping to fill the pantry and freezer with things purchased for the absolutely lowest price. This means that your cart will not look like anyone else's cart in the store (unless you are shopping at the same time I am!). You will feel vindicated when the cashier is finished ringing up your purchases and running the coupons and you owe less than ten dollars. Quite often, the cashiers who have rung my purchases in go back and review the receipt because they think they have rung something in wrong.

Power Coupon Tip #5: Take advantage of unused storage space in your house. Storing these great deals takes space and you will have to get creative about where to find it. Look at it this way, if someone offered to give you $100 per month to rent the space under your bed, you would take it, wouldn't you? You'll save at least that much if you're following these tips so find all those nooks and crannies under beds, in closets, under the stairs, and behind the drapes.



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Copyright 2011 Angie Mohr

Retiring: What is Your Small Business Worth?

Retiring: What is Your Small Business Worth?
 Angie Mohr CA CMA
www.numbers101.com


Business valuation is not an exact science and depends substantially on the type of business and assets you have. There are many expert business valuators who can help you nail down a value when you're ready to pass over the reigns. However, having at least a sense of the value that you are building in your business is important.

You know that your business is worth at least the fair market value of the assets minus the payout value of the liabilities. If you have been working to systematize and grow your business, it will be worth substantially more. Undervaluing your business can have serious consequences on your retirement lifestyle, so it pays to do your homework and get professional help.

Getting ready for the sale

There are many things that you will have to do before putting any exit strategy in place, especially if you will be selling to outside buyers.

The first thing that you need to do is to assemble your team of experts. This will most likely include your accountant, lawyer, financial planner, and perhaps a business valuator and broker. Make sure that all parties know your goals for the buy out and that they are all working in tandem to meet those goals. Your accountant will help you to steer through all of your choices surrounding how to structure the sale and how to take payment. There will be practical decisions as well as taxation implications. Your lawyer will help you to structure the legal side of the sale and will help you interpret offers as they come in. Your financial planner will look at your post-business goals and will help you determine what income level you will need in order to maintain your desired lifestyle (margaritas can get expensive!).

Your accountant will most likely recommend that you prepare some financial information for the pending sale. Much like a real estate broker would suggest to you that you put a fresh coat of paint on your house and maybe plant some flowers outside before bringing buyers through, your accountant will recommend that you show potential buyers of your business what it might look like once they take over. You will have run your business in a way that suited you. You may have had the goal of minimizing tax or employing your family.

These decisions might not be made the same way by the new owner. Your accountant will get you to normalize your financial statements; in other words, recast them without all of the discretionary activity. If your spouse is on the payroll, remove the expense related to that. If you pay yourself high dividends, restate the financials without them. Keep in mind, however, that you need to be up front with potential buyers about the changes you have made and how those statements differ from ones you have prepared for taxation purposes.

The mechanics of the sale

A sale can happen in one of two basic ways: either through the sale of assets or the sale of shares.

If your business is unincorporated, you will be selling the assets of the business. The buyer may choose to take on some or all of the business's liabilities rather than coming up with a lot of cash up front. Your lawyer will ensure that your name is removed from those liabilities so that creditors cannot come after you later if the new owner stops paying them.

If you own a corporation, you can either sell the assets of the business or the shares of the corporation. Each has its own tax consequences and your accountant will help you weigh the pros and cons of each. If you are passing on your business to your children, there are many sophisticated ways to transfer shares and your accountant will advise you on the various methods. You may choose to structure the arrangement, for example, so that you are still a shareholder (albeit one who no longer works in the business) and will receive a monthly income for the rest of your life in the form of dividends.

Once you and a buyer agree on the nature of the sale, you must decide how you will receive the funds: either all up front or over time. Again, tax considerations come in to play here, but you must also consider the risk of financing part of the sale. If, for example, you agree to receive $50,000 up front and $5,000 a month for 12 months, you are betting the farm on the fact that the new owner will still be in business a year from now. What if he or she runs the business into the ground? Or declares bankruptcy? You will lose some or all of the sales proceeds and may find yourself having to start up another business rather than lying on the beach. Your lawyer can help mitigate some of that risk through the structuring of the agreement.

Once the business has been sold, financial planning becomes a key issue, especially if you plan to retire. You are now dealing with a fixed amount of funds (which can grow through prudent investing) and you and your financial planner will have to make sure those funds plus your other sources of savings will last you for the rest of your life and be able to provide you the retirement lifestyle of your dreams. (896 words)



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Copyright 2011 Angie Mohr

Buying Personal Financial Software: 10 Critical Considerations

Buying Personal Financial Software: 10 Critical Considerations
Angie Mohr CA CMA
www.numbers101.com

Great! You've made the decision to purchase a personal financial software package to track your finances. But, before you go to your local office supply store to buy one, there are some decisions that you need to make regarding what you want the program to do for you. The more planning you do up front, the more money and aggravation you will save yourself. Know the answers to the following questions:

1) Do I need to track revenues and expenses for a home-based or larger business? If you have a home-based business, some of the more common personal financial software programs can help you keep your business finances separate from your personal finances. However, if you have a larger business, you may want to consider one of the business financial software packages, like QuickBooks, MYOB, or Simply Accounting. These programs are designed specifically for businesses and can save time versus trying to adapt your personal financial software to meet your business needs.

2) Do I need to track my net worth or simply my inflows and outflows of cash? For some, it will be enough to simply be able to categorize the money going into the bank accounts and the money coming out. Eventually, though, in order to build wealth, you will need to know how much your assets exceed your liabilities by- the standard definition of net worth.

3) Do I need to know the current value of my investment portfolio? If your investments are placed with several different investment companies, it can be helpful to centralize your total portfolio in one spot and to have up-to-date valuation information. Not all software programs can download up-to-the-minute stock market information, so if you need this functionality, you will have to make sure that you choose one that has it.

4) Do I need to keep track of foreign currency accounts or investment portfolios? If you have bank accounts or investments that are denominated in foreign currencies, you may need to keep track of their value in your home currency. For example, if you live in the U.S. and have a bank account in London denominated in pounds sterling, the value will change depending on fluctuations in the exchange rate between the dollar and the pound. Some programs can download current currency rates.

5) Do I need a software program that will track my actual spending to my budgetted spending? One of the most popular reasons to purchase personal financial software is to get a grip on spending and make sure that budgets are being followed. Most popular programs have that functionality, but some do not.

6) Do I need a software program that will print checks? It can be a time-saver to be able to print checks for bills directly from your software program. If your program has this functionality, it will record your payment at the same time it prints the check, thereby saving you a step. Printing your checks from a software program can also make you look more professional, which is especially important if you run a home-based small business.

7) Do I need help with planning my savings goals, such as retirement savings and college funds? Some programs ask you a variety of questions about your financial goals and will then be able to project the amount of money you will need to put away on a regular basis to meet those goals or will be able to project how much money you will have based on your current savings plan.

8) Do I need help with prioritizing debt reduction? If one of your main goals is to pay down your debts but you're not sure which ones make sense to pay down first, some of the popular software packages can help you prioritize and can show you how you are progressing with respect to your debt reduction goals.

9) Do I want a software program that will automatically download transactions from my bank account from the Internet? Many of the popular software programs can connect to your bank accounts online and directly import your banking transactions. This can be a huge time-saver if you have a lot of transactions. It will be important to know which programs are able to download from which banks.

10) Do I need to be warned when my bills are coming due? You know the electricity bill is due on the 15th. It's even marked on your calendar, but somehow, you forgot anyway and now it's going to cost you another $30 in late fees! Some personal financial software programs can help you avoid that situation by flashing a warning of impending due bills when you start up. This feature alone could save you more than the cost of the program. (791 words)



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Copyright 2011 Angie Mohr