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Join Paul Petillo, Dave Kittredge and Dave Ng every week on Financial Impact Factor Radio as they to discuss everything from retirement to insurance, investing to estate planning, from getting started to preparing to stop.
books by Paul Petillo
I just published my fifth book - this time with Smashwords! ReBuilding Wealth in a Paycheck-to-Paycheck World by Paul Petillo, copyright 2011 This ebook is available across all platforms including iPad and iPhone, Amazon and Sony.
on personal finance
In the world of personal finance, asking what's the worst that could happen is not the same as asking: "will I be able to afford this?" or "have I saved enough for retirement?"
More personal finance
The Who, What, When, Where and Why of Retirement
If things are good, for some they won't be good enough. If it turns out that things are not so good, someone will ultimately benefit for this off-chance negativity.
More on retirement planning
American dream or not, the games you may have once played with financing your home are not available for the vast majority of homeowners.
More on mortgages and homes
Insurance : Life, Health, Auto, Home
Is the insurance industry the next victim of the financial crisis?
The mutual fund investor has a great many more options available to them in the post-Great Recession marketplace. The question is: are they right for you as you make a retirement plan using 401(k)s or IRAs?
More on investing
on twitter @PaulPetillo
Zack's Investment Tools: Stock Screener or Mutual Fund Screener
Our recent financial discussions
on life insurance
Insurance for Life Events
Insurance can be the one of most important decision you will have to make. So many things that happen to us throughout the course of a lifetime that can be protected with the use of insurance. The industry likes to call this protection insurance for a life event.
A life event involves money. Insurance protects your financial stake in your future and that of your dependents covering their expenses, replacing your income and insuring that the loss will not drastically change the life style of the ones you leave behind.
What is a life event?
A marriage is a life event. It changes everything for the two people who enter into the bond from the point of "I do". This combining of assets creates new dependencies on each other financially.
Let's take look at life insurance first. It is always placed high on the list of importance when doing the financial planning for a young family supplying the necessary protection against future events. Life insurance is an important tool that protects this new union. But the protection you need becomes doubly important when you turn your union of two people into a family.
Nothing says family like the birth of children.
This is when you suddenly enter into the world of dependents. No one in their right mind can say that they feel don't that sudden tightening in their chest when they look at an infant lying in a crib. You are now a protector. Your have left the freewheeling life of a single person, taken on the vows of marriage and now you have something helpless that will depend on you for everything for at least the next twenty years. This, my friend, is a life event.
Life insurance, like all insurance is sold based on the hope that you can provide for your dependents after you die. Your financial contribution to their security is replaced with coverage provided by insurance.
The amount of insurance needed varies from situation to situation. But the look inward at yourself, your financial contribution, and what the future will be like without you can be incredibly difficult. Not having burial insurance can be difficult, but not impossible.
How much do I need?
If you are the only one in your household earning a paycheck, you need to be insured. The disappearance of your income would be devastating to the household. If you are the stay-at-home parent, you need to be insured, although not to as great a degree as the sole earner. Your loss to the household can be measured in the cost of replacing your time with your child(ren), or the domestic duties you perform.
If both of you earn an income, you have become, in almost every case, dependent of the other's income and loss of that additional paycheck would be difficult. But how much? And how much is too much?
Children add to the complication making the equation difficult. They will, because of their inability to earn an income, become your biggest expense. These money eating little people need food, clothing, housing, and education. To provide for them adequately after you are gone involves insurance.
The easiest way to determine your life insurance needs is a simple rule of thumb. Multiply eight times your gross annual income. If you make $35,000, you will need about $280,000 in insurance. This dollar amount only covers the replacement of your income.
Expenses are the things that you would like taken care of for your spouse or family. This can be mortgages, debts, or any other bill that is hanging over your estate. This number should be added to the the previous figure. For instance, if you had a mortgage of $150,000 and estimated college funding at $50,000, the new insurance number you are looking for would be $480,000 worth of coverage.
How much does the industry suggest?
The insurance industry thinks that you should use the figure of 6% of your gross income with one percent added for each dependent as a way of determining how much insurance you will need. This might be bit much, but it is a good base figure.
Let's not forget the beneficiaries. Designating beneficiaries simply determines who will get the money. This person, usually your spouse, would be the one who would be designated to carry out your wishes and protect your family with the funds provided.
Children will need to have someone who can manage their money until they reach the age of majority, or an age you determine.
It is important to have will in conjunction with your insurance policy. Once you have this legal document, you can use the beneficiaries listed on other financial tools such as insurance policies. Simply write "as per will" in the beneficiary line and the money from the policy will be dispersed according to your wishes.
In many cases, the policy automatically goes to the surviving spouse. But what if both of you die? Your will will designate a legal guardian for your children.
This secondary person should be someone you trust and the will should be reviewed every couple of years for changes. People do change and someone you trust today might not be someone you would want to raise your kids tomorrow.
You will go through a lot of stages in your life and the insurance industry will be right there with some kind of a policy designed just for you.
For example, policies can be written for children for the cost of burial. Funeral expenses can be incredibly high and these policies can be sold usually inexpensively and are designed to cover that one sudden (and incredibly tragic) event. They are designed for that specific purpose and provide protection for that specific event . Policies like this can be given to the child and carried on as term policies in some instances.
Only if you have some kind of cosigned agreement should you take out a policy when you are single. This will protect the other party in the event of your death which would leave him hanging with your unpaid portion.
Marriage is definitely a time in your life, an event, that would be considered a good time to start looking at insurance. As you add dependents, you add the additional need for protection.
There is a point however where you can be over insured. I'll give you a link at Insurance.com for a pretty good calculator. Take this into consideration when you are looking at policies.
To use the calculator at Insurance.com, click here
<What kind of insurance should I buy?
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