You may not have ever given a thought to life insurance until this little bundle joy rest helplessly in your arms. With the addition to family, there is an increase level of responsibility and everything is changed.
Babies come with lots of responsibilities and expenses all the way until they’re in college. You want to provide your child with the best life possible to achieve their full potential. You want to be sure that you’re there to provide and protect your child as best as you can.
Getting life insurance coverage is a simple way to provide and protect your child and family in case you no longer can do it yourself.
A life insurance policy cannot replace your love and passion for your family, but it can definitely replace the income and monetary value you provide to your family so they can continue to maintain their current lifestyle, continue to stay in their “home” that you work so hard to purchase for your family, and also college tuition for your children.
A recent report puts the average cost of raising a child born in 2015 at a whopping $233,610. Families with lower incomes are expected to spend $174,690 per child, while higher-income families will spend $372,210 on average.
It is estimated that a middle-income family will spend between $12,350 and $13,900 a year on child-rearing expenses from birth to 17 years old.
If you pass away today, can your spouse raise your children, support the household, pay for mortgage and save for college all by him/herself?
Even with emergency fund in place, most households would feel the financial impact from the loss of a primary wage earner in less than 6 months. One in three households would have immediate trouble paying for living expenses if the primary wage earner were gone.
Insuring Both Parents
In most families in Hawaii, both parents work, sometimes 2-3 jobs just to provide for household expenses, costs of caring for their children and mortgage payment. That's one reason for both spouses to be adequately insured.
Even in cases where one parent stays home to care for a young child, that parent should be insured. It’s a misconception that a stay-at-home parent doesn’t need life insurance.
But think again…
If you're providing for someone it's not just income that you make as an employee, it's the value you're providing taking care of a dependent.
If you’re the stay-at-home parent and you die uninsured, who’s going to take care of your child? Can your surviving spouse stay quit his/her job to stay home to take care of your child or can he/she afford to pay for childcare?
With a life insurance policy in place, your benefits can help cover these costs as well as other necessary expenses required to raise your child.
Your workplace policy isn’t enough
Many companies offer group life insurance as a benefit for employees. The payout is often pretty low and it is not meant to be enough to replace your income.
Your employer-provided life insurance policy doesn’t follow you when you leave your job. What happens if you lose your job or leave to work someplace that doesn’t offer life insurance?
Mortgage Life insurance is an insurance policy designed specifically to pay off your mortgage in the event that you, the mortgage borrower, die before the mortgage is completely paid off.
Don’t confuse mortgage life insurance with private mortgage insurance or PMI. They are different animal. But both are equally hurtful to your wealth accumulation plan.
Mortgage life insurance are somewhat similar to traditional life insurance, but different in very significant ways. Both traditional life insurance and mortgage life insurance can provide a means of paying off your mortgage. With either type of insurance, you pay regular premiums to keep the coverage is in force.
A traditional life policy pays out death benefit when the borrower dies. But a mortgage life insurance policy doesn't pay out unless the borrower dies while the mortgage itself is still in existence. And the death benefit goes to the mortgage lender, not the family members as in traditional life insurance.
Why would you buy life insurance to pay money to your mortgage lender, and not your family?
With mortgage life insurance, your mortgage lender is the beneficiary of the policy instead of beneficiaries you designate. When you pass away, the death benefit pays out to your lender to pay off the balance of your mortgage, so you family does not have to worry about the mortgage.
Well, it’s true that mortgage is taken care of for your family. But wouldn’t it be better for your loved ones to receive the death benefits and decide how they want to use that money and decide whether to pay off the mortgage. There may be more pressing needs than paying off the home, such as final expenses, private school or college tuition, etc.
Let’s look at mortgage life insurance more closely.
There are two basic types of mortgage life insurance: decreasing term, where the size of the policy decreases as the balance of the mortgage is being paid down until both reach zero; and level term, where the size of the policy does not decrease.
With a level premium, your premium stay the same for the duration of the policy. This feature sounds great – until you realize that while you’re paying the same premium, your coverage is shrinking as you pay off your mortgage over the years, which also means the potential payout decreases as well.
Some insurance company offer to return your premium if you pay off your mortgage before you die. Does this make up for the fact that your coverage declines although you keep paying the same amount? Not really.
After 15 or 30 years, when your mortgage is paid off and you get your premiums back, they’ll be worth far less because inflation will have eroded their value.
You also will have lost the opportunity to invest what you saved from purchasing cheaper life insurance instead of mortgage protection insurance. That’s 15 or 30 years of potential compounding returns down the drain.
Traditional life insurance is often more affordable and allows you to name your children or spouse as the beneficiaries rather than the mortgage company.
The premium of the mortgage life insurance is usually lumped into the home loan, which means you are paying finance charges on the premium, which is already expensive.
Also, a mortgage life insurance stays with the house and it is not transferable. Now you’re stuck.
Basically, a mortgage life insurance is a waste of money. Any traditional life insurance (whether term or permanent) can offer much better level of protection for considerably smaller premiums.
A traditional life insurance maintains its death benefit value throughout the lifetime of the policy, and the death benefit pays out to your family whether or not your mortgage is paid off. It gives your family option to pay off the mortgage or use the money for more urgent things. And if the mortgage is paid off when you pass, that’s even better, your family can have all the money to use for whatever is important.
Mortgage life insurance is extremely profitable for mortgage lenders and/or insurers, but totally obsolete to borrowers. Remember, there are two lifespans to consider - your lifespan and the mortgage’s.
Mortgage protection insurance companies might try to convince you that you need their product in addition to life insurance. They’ll tell you that paying off the mortgage will eat up a major portion of your life insurance proceeds, leaving much less for your survivors to meet their basic living expenses.
If you are concern you don’t have enough life insurance, you should buy more. It will likely cost less to increase that coverage than to purchase a separate mortgage protection policy.
If you cannot qualify for traditional life insurance because of health reason, you would still be better off with a no-medical-exam (also called “guaranteed issue”) term policy with level premiums and a level death benefit. These policies cost a bit more, but at least you and your family will be protected.
You should consider mortgage life insurance only as a last resort.
There is no magic for building a solid financial foundation.
You can make more money. The old way of thinking—getting a good job, working until 65 and retiring happily—is over. Nowadays you should be more proactive in your thinking about making money.
If you look for it, you’ll find it.
Make it a mission to change your family’s financial future.
1. Increase your cash flow. Make more money when you can, while you can. Have multiple sources of income.
2. Spend less. Cut down your expenses. It’s not how much you earn that counts. It’s what you keep. Set aside 5, 10, 15% of your income to savings.
3. Reduce your debt and liabilities. Interest on the debt will interfere with your goal for long-term asset accumulation.
4. Understand how money works. You must take time to understand how money works. You must learn how to make money work for you.
5. Have a financial goal. Set up a plan of action.
6. Take care of your responsibility. Have proper protection.
This book is the first step to your financial freedom...
Exploiting the living benefits of a cash value life insurance
The cash value life insurance is a little known secret for real estate investment or anyone planning their retirement.
The indexed universal life is the best investment vehicle. Why?
Cash value life insurance, as in it's name, is life insurance with cash value. Similar to a savings account associated with your life insurance. The difference is this "savings account" grows tax-free as part of the life insurance.
This is the bonus for real estate investors. Short on cash. Borrow from your cash value account interest free. How does that sound?
Let me clarify this a little. Every cash value life insurance policy is different. Most charge interest rate for borrowing. But some charge more and some charges less. The one that I have, charges 0.75% for first 1-9 years, then 0% after 10 years. Contact me to find out more.
The other thing is when you borrow money from your cash value, you'll not taking money out from your account, you're borrowing against your cash value, which is being used as a collateral for your loan. This is an added bonus, because your cash continues to grow tax-free while you're enjoying your extra cash interest-free.
Another bonus with borrowing from a cash value life insurance is that you don't have to repay your loan it you don't want to. How? Good questions!
Remember it is a life insurance policy. So it also has a face value. When you die, the insurance will pay off your loan with your policy's face value.
Isn't this a great idea? People always think that life insurance only benefit the family after you diet, but with a cash value life insurance, you got to benefit from it too before you die.
Need help with retirement planning?
Many wealthy people use a cash value life insurance for their retirement planning. Say you pay your insurance premium every year and contribute to the cash value at maximum level every year for thirty years, and never taken any loans out. Now you're 65 years old, and ready to retire. By now your cash value should have grown significantly over the years TAX-FREE.
Now you can stop paying premium, because your cash value is be used to pay your premium, and at the same time pay you money for the living expenses. Again, this pay-out is given in the form of a loan, so the cash value continues to grow while you enjoy your retirement, and you do not pay tax. Remember, Uncle Sam taxes earnings only when you withdraw it, but not loan interest.
With that all said, you might be wondering what's the best cash value life insurance?
I would have to say hands down the indexed universal life. This is like the Rolls Royce of life insurance. What make this particular policy so special is that your cash value never loses money. The one that I have tracks the indexes of Europe, Hong Kong and US - Euro Stoxx 50, Hang Seng and S&P 500.
As investor, you probably knows the risk of investing in stock markets - the ups and the downs. In this product, there is a floor of 1%, which means, even if the stock market tanks, I still get 1% return on my cash, and the ceiling is 13.75%, the maximum return I can get. I think this is pretty good deal because when you lost 5% in the stock market, you need a 10% return to regain what you lost. With this policy I have no loss, only gains.
If I have a crystal ball that can tell the future, I would give you my honest answer.
Unfortunately, I don’t.
But my best advice for you is “be prepared when the need for long term care does arise in your future”.
And here’s the statistics.
Let’s see what options are available.
Medicare covers only a portion of long-term care costs up to 100 days; 20 days are provided at no cost and the remaining 80 are at a significant co-pay for the insured.
Long-term disability covers your lost income only, but doesn't pay for any LTC needs. Oftentimes, when your job ends, so does your coverage.
Health insurance does not cover long-term care expenses. Medigap policies are health insurance and also do not cover LTC expenses.
Medicaid covers long-term care expenses for individuals with countable assets of $2,000 or less and care could be limited to a nursing home. You can no longer just transfer all your properties to your children to be qualified for Medicaid. They look at your assets in the past 5 years. If you sold a house in the last 5 years, they want you to spend down all that proceed until you’re poor enough to qualify.
If you don’t want to spend down all your asset to qualify for long term care…can you afford to pay out of pocket?
Is this a good option for you?
You can always pay for long term care out of pocket. But how deep is your pocket? Do you have the assets to pay for long-term care, and how long can that asset support your long-term care?
Can your family members take care of you when you can’t take care of yourself?
Even the most responsible family may not be prepared physically, emotionally or financially to care for their loved one. 53% of Americans caring for a loved one lost income due to the demands of providing that care.
Long-term care insurance provides funding to cover home healthcare, assisted living, nursing home and even family member who takes care of you.
Long term care insurance premium are a lot more affordable than long term care. Besides, stand-alone long term care insurance policy, many life insurance policies offer long-term care insurance as a rider at very affordable rate.
So, can you afford NOT to have long term care insurance?
Do you want to invest in real estate but short on cash? Not having to deal with tenants?
Real estate investing does not require lots of your own money. Not only that. You can pay down your 30-year mortgage in less than 10 years, use OPM (other people's money) to invest in real estate AND generate a stream of "passive" income. Income that goes automatically to your bank account without you doing anything or lifting a finger.
Sounds pretty good. I can see you putting on your skeptical thinking hat.
Don't worry. I was in your same position when I first heard of this strategy and was skeptical too. But after I learned what it is, the light bulb in the head just light up.
This is exactly what I've been looking for. I was looking for a way to finance my current mortgage so I can have access to my equity because I realized early on that in a traditional mortgage (the one that you and I have) accumulates equity, which is a good thing. But you can't use that money until you sell your property. That's why some homeowners are "home poor" because most of our money are locked in our homes.
I have always wanted to make some real estate investment, but I don't have the cash available for the down payment. All my cash is tied up in my home equity. And I don't want to take a home equity loan, because that means another loan I have to pay every month.
I started looking into selling my property, which has accumulated quite a bit of value in just 5 years (of course, it is in the highly-sought after Waikiki neighborhood), and purchased another residence with extra units for rental income.
One day while talking to a friend who is in similar situation, she mentioned about "off-set mortgage". Apparently, it is something that has been around for years in Australia and United Kingdom. According to Investopedia, the reason why off-set mortgage is not available in the United States is because of our tax law, which translates to "banks does not reap much profit from off-set mortgage". That's why it be banded by our tax laws.
Investopedia explains the off-set mortgage in a very simple and easy to understand way. You should check it out here.
Then I started asking my real estate broker, who has been in real estate business for over twenty years if he had heard of off-set mortgage. Of course, the answer is no. I asked banks, loan officers, etc. They all gave me a negative answer.
Out of nowhere one day, another friend of mine called and want my opinion about a property she and her husband are contemplating whether to buy or not. And during the conversation, she mentioned some kind of financial education that helps people with their mortgage and it's called "Sweep Strategy". I have no idea whatsoever. But I looked it up anyway per her recommendation.
Voila...the information on the website caught my attention. I attended the introduction presentation, which is totally and purely informative. No pressure or obligation whatsoever to buy anything or sign-up.
After the presentation, I was like "God just answered my prayer". This is exactly what I was looking for.
I always say be careful what you ask for, because you always get what you ask for.
Visit www.sweepstrategies.com to learn more. And if you're curious, schedule to attend an introductory class. They have offices in Ward area and Aiea.
Disclaimer: I have no financial ties with the Sweep Strategies other than being one their potential clients and partners. I'm just a purist who loves to spread the joy and any good information that I have to my friends and family. It surely would be nice if you mention my name as the one who refers you to them. They will treat you exceptionally well.
Here are few creative strategies to help kick start your real estate investing career:
Are you worry that your family will not be able to support themselves financially and lose their home if something happens to you (the breadwinner)? Are you worry you’re not saving enough for emergency, retirement or even college education? We might have just the solution you’re looking for at Perfect Homes Honolulu.
Protecting your family’s income and asset is a cornerstone to a sound and solid plan for financial freedom.
When your income stop due to a serious illness or injury or death, who will pay the mortgage, final expenses, debts, taxes, car payments, college tuition and other expenses?
What if I tell you, there is a financial solution that can protect your family income and your assets in the event of serious illness, disability or death. A solution that can also provide a source of funding for emergency, college tuition, and supplement your retirement income.
There is life insurance. And there is cash value life insurance.
Most people know life insurance as just “life insurance”. Most people perception of life insurance is base on their idea of “car insurance”. It’s useless unless when something bad happens to your car. Otherwise, it’s a waste of money.
That’s TERM LIFE INSURANCE that most people are familiar with. The one just like “car insurance” - useless unless when something bad happens to your car. Otherwise, it’s a waste of money.
The life insurance that I’m talking about is completely different. I’m talking about PERMANENT LIFE INSURANCE, which covers you for life.
The permanent life insurance has a build-in saving account which can be used to:
Replace income for your dependents Pay off your mortgage
Pay for final expenses
Pay federal and state estate taxes
Create an inheritance for your heirs
Pay for your children’s education
Create another source of savings
Pay for medical expenses in chronic and terminal illnesses
Pay for long-term care
Provide another source of retirement income
Provide fundings for your favorite charity
Cash value life insurance, as in its name, is life insurance with cash value. Similar to a savings account associated with your life insurance. The difference is that this "savings account" grows tax-deferred as part of the life insurance.
You can also borrow money against your cash value. Instead of taking money out of your cash value, you'll be taking out a loan, using the cash value account as a collateral for your loan.
This is an added bonus, because your cash continues to grow tax-deferred while you're enjoying your extra cash tax-free.
Another bonus with borrowing from a cash value life insurance is that you don't have to repay your loan if you don't want to.
How? Good questions!
Remember it is a life insurance policy. So it also has a face value. When you die, the insurance will pay off your loan with your policy's face value.
Isn't this a great idea? People always think that life insurance only benefit the family after you diet, but with a cash value life insurance, you can use the living benefit if you need it.
The Indexed Universal Life (IUL) insurance policy is an option that allows you to accumulate cash in a tax-deferred manner. This particular financial product has grown in popularity mostly because it comes with protection against loss in a down market.
The key features of an indexed universal life insurance include:
Tax-free death benefit
Protection against loss in a down market
Well…wealth building seems like such an easy concept. Conventional wisdom told us "Get a good education, then get a good paying job and keep working hard, and earn more."
Many of us are doing that, but have hardly any wealth to show for our effort.
Why?! We’re not only good at making money, we’re also very good at spending money.
In order to build wealth and become rich, you got to have the foundation to start with. Here…we’ll start with some fundamental wealth building strategies from many, many years ago advice from The Richest Man in Babylon and to more recently The Millionaire Next Door and The Rich Dad Poor Dad.
I'll also suggest a lot of reading...you need to have good education on money and finance to have your money works hard for you.
You’ll be surprise, many people who dress and spend like a millionaire is not anywhere close to a millionaire at all. Millionaires are such plain, down-to-earth people.
Wealth is not defined by how much money a person makes, but how much money a person accumulates. You can have people making over half a million dollars a year, but have nothing accumulated. On the other hand, you have someone making $80,000 a year, and have a million dollar asset and still able to pay for their children’s college.
Let’s explore some tried and true wealth building strategies or behaviors that helped many become the richest men and women all throughout history. I hope we’re smart enough to adapt these changes in our lives and our families’ lives.
Wealth Building Strategies on How To Become Rich:
1. Pay Yourself First. This is simple. No matter what, you need to pay yourself first, at least 10-15% of your pretax earnings.
I automatically put aside 15% of my pay to my TSP, which my employer matches 5% of my contribution, which is free money for me tax-free, not to mention the appreciation over time tax-free.
I also set up automatic transfer of savings from my checking account to my investment account that I have no debit card access to. The only way to access money from my investment account is through bank transfer to my checking, which takes at least 2-3 business days.
In order to build up cash, you have to make the process automatic and easy.
Contact me to discuss your plan to becoming a homeowner.
5. Own a business. Many self-made millionaires are business owners or self-employed professionals. In fact, 75% of them.
Most people think owning a business is risky. But most wealthy business owners would tell you “Having only one income is risky”. Not having control of your own income is risky. Not knowing whether you'll have a job tomorrow is risky.
Business owners are in control of their earnings, they have multiple sources of income from many clients.
Think of what you enjoy doing the most, and make that your business. I love real estate and personal finance, so I make real estate investing and personal finance my business. You gotta have money to buy real estate, which in return generates more money for you.
The other big perk of having a business is tax benefit. The US tax laws are written to protect business owners and married couples. The biggest tax beneficiaries are married business owners.
I highly recommend going to one of Mark Kohler’s workshop if you have the chance. He’s hilarious and makes the boring tax topics so much more entertaining. And, of course, you'll learn a lot about business tax laws, business entities, asset protection, etc. In his workshops, which he hosts throughout the country several times a year, Mark explains why everyone should have a business, and that married couple - one employed professional and a self-employed real estate professional, makes the best match for maximum tax benefit.
6. Be goal-oriented. You need to have clear goals to direct your action and search for wealth building opportunities. Once I set my mind to become a real estate investor, all the resources and people just start coming into my life toward my goal of becoming a real estate investor. Set daily, weekly, monthly, yearly, and lifetime goals to help you stay on track.
7. Increase your ability to make more money. Try to be a better you each day and look for opportunities to make more money. My focus is always cash flow.
Again, set goals to keep you on track and know what you’re looking for.
Need quick money? Become a Uber Driver and start making money right away.
8. Protect your income with life insurance. Everyone dies eventually, make a fortune out of it and leave a handsome legacy for your family.
Today, life insurance not only benefit your family when you die, many now offer “living benefit” that you can use when you’re alive, such as terminal illness provision, loan borrowing, and long term care benefits built into the life insurance policy.
9. Minimize income tax. Income tax is the single largest expenses for most US households. It is taxed on income, not wealth and not on unrealized appreciation of wealth, such as home value appreciation.
Most US household pays more than 10% of their wealth in income tax each year, while wealthy household pays just about 2% of their wealth in income tax.
You can minimize your income tax by starting a business and start writing off your business expenses, such as phone bills, home office, internet services, car expenses, tee-time, etc. Did I say tee-time?
Earned income are taxed more than corporate income tax because of social security and medicare tax for the “employed” or "W2 earners".
“Employees” cannot write off car expenses commuting to work, meals eaten at work, clothes you wear to work. But business owners can deduct all of the above including trips to visit their business locations, potential clients, etc.
There are so many ways to minimize income tax, not avoid.
Suggested reading: What Your CPA Isn't Telling You: Life-Changing Tax Strategies
I have an active life and health insurance license and can provide a complimentary financial needs analysis as part of the standard consultation.
Therefore, you pay no commission or service fees to me at all.
So contact us today for a FREE no-obligation consultation.
As a homeowner, you know the responsibilities that come with owning a house. Over the years, you've probably invested many hours and lots of hard-earned money to increase your property's value, creating a safe and comfortable home for you and your family. But have you done all that you can to safeguard your investment?
While homeowners insurance may protect you from theft or damage, do you know what will happen to your home if something happens to you, the breadwinner?
Life insurance can insure your life and replace your income in the event of untimely death, your family can continue to live in the home you have provided without financial devastation. Your family can use the death benefit from your policy to replace your income, cover the remaining mortgage on your home and pay for any debts and/or expenses.
In addition, a permanent life insurance policy can accumulate cash value (similar to home equity), depending on the type of policy you have.
How to Use Life Insurance to Protect Your Home?
First, decide how much death benefit you need to cover the cost of your mortgage. Then, I would help you determine what type of life insurance is appropriate for your particular situation, such as term vs permanent life insurance.
A permanent life insurance can provide protection for a lifetime, while building cash value or equity at the same time.
Once your mortgage is paid off, your permanent life insurance may be used as a source to supplement your retirement income or to fund your child(ren)'s college education.
Do You Already Have a Life Insurance?
While you may already have a life insurance policy, does it provide enough coverage to replace your income when you are gone? Without enough funds, your family may struggle to pay the mortgage and keep up with their current lifestyle, and may be forced to sell your home to make ends meet.
A life insurance needs analysis can help determine the appropriate amount of insurance coverage you need. If you don't currently own life insurance or haven't reviewed your policy in a while, a needs analysis can help you determine what's best for you and your loved ones.
Don't wait until it's too late...protect your family today. Contact us today to see how a life insurance can protect your home and create a potential wealth for you.