Monthly Archives: December 2017

Life Insurance at the Right Price

While it may not be the most enjoyable thing to think about, getting life insurance is one of the best ways to ensure that your family will always have the financial resources it needs, even if you’re not there to provide for them.

When you shop around for life insurance, you’ll probably encounter two different types:

Term life insurance lasts for a set amount of time, typically 10-30 years. It provides pure protection and nothing more.

Whole life insurance lasts for your entire life, as long as you continue to pay the premiums. It also has a savings component that builds over time.

While insurance agents will often make whole life insurance sound like a good deal, the truth is that most people will save themselves a lot of money and create more financial security by sticking with term life insurance. Here’s why.

The Premium Difference
Term life insurance is a much cheaper way to get the protection your family needs. I recently got quotes for a 34-year-old male in New York looking for $1 million of life insurance coverage. Here were the estimated premiums:

30 year term life insurance = $939.98 per year

Whole life insurance = $11,240 per year

In other words, term life insurance would cost $10,300 less per year for the exact same amount of coverage. Needless to say, that is a stark difference in cost.

The Investment Difference
Cost alone is not an entirely fair comparison because there are differences in the policies. After all, whole life insurance accumulates savings in addition to providing protection while term life insurance does not. But even then you would likely come out ahead by buying term and investing the extra $10,300 elsewhere.

According to the whole life insurance illustration I received, the savings account was projected to grow to $739,945 after 31 years, which would equate to a 4.35% rate of return. Not bad.

But let’s say that you put that money into a 401(k) instead. Using conservative estimates, you might expect to receive a 6% long-term return. After 31 years, that money would grow to $925,865.

But that’s not the end of it. If you’re in the 25% tax bracket, contributing $10,300 to a 401(k) would save you $2,575 in taxes each year. If you also invested that $2,575 and earned the same 6% return, you would end up with another $231,466 after 31 years.

So, in summary, here’s how much money you would have after 31 years with each approach:

Whole life insurance = $739,945

Term life insurance and invest the difference = $1,157,331

When you lost control of your finances recently

Do you feel like you’ve lost control of your finances recently? Maybe you went overboard during the holiday season, or you’ve become lax in monitoring your spending.

Whatever the reason, here are some steps to reset your financial baseline in 2017.

Track your spending for the next 30 days
This exercise is as painful and time-consuming as it sounds. I’m listing it first because it’s the most important step. If you execute just one item on the list, do this. My wife and I did at the beginning of last year and we’re still seeing benefits.

The practice of tracking will make you more focused and frugal when it comes to spending money. You can compare it to a person tracking all of their calories or recording the weight they lift at the gym.

Assess all recurring subscriptions
Many people use at least one subscription service, such as a gym membership, styling subscription, wine club, meal delivery service, credit monitoring service or video streaming app. There’s nothing wrong with holding these subscriptions as long as you know how many you have and are receiving the value you expect. Ask yourself whether you’d join now if you weren’t already a member.

Save your annual raise
Often, merit increases go into effect and bonuses are paid in the first quarter. Make a habit of increasing the amount of your paycheck that goes to savings every time you get a raise. You can do this by increasing your 401(k) contribution percentage or the amount you send to your taxable investment or savings account.

» MORE: Best savings accounts

Renegotiate with vendors
This is a tactic from my experience in corporate finance. Every year, we’d list all of our vendors, assess the value of each and try to renegotiate better rates. We weren’t always successful, but our efforts always resulted in savings. I recommend you do the same with your personal vendors. Consider your cable, internet and phone service as a starting point and get more creative from there.