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Should You Buy Accidental Death Insurance?

October 1, 2009

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Wouldn’t you agree that it seems like everyone is offering some sort of Accidental Death insurance these days?

Examples of coverage from
an Unum AD&D policy
Unum offers $250,000 in coverage for $10 a month. It defines “accidental death” as “the loss of life caused solely by external, violent, and accidental means and not contributed to by any other cause.”
Covered loss
$250,000
policy amount
Life
Full amount
Both hands
or both feet
or sight of both eyes
Full amount
One hand and one foot
Full amount
One hand and sight of one eye
Full amount
One foot and sight of one eye
Full amount
Speech and hearing
Full amount
Quadriplegia
Full amount
Triplegia
Three-quarters
of the full amount
Paraplegia
Three-quarters
of the full amount
One hand or one foot
One-half
of the full amount
Sight of one eye
One-half
of the full amount
Speech or hearing
One-half
of the full amount
Hemiplegia
One-half
of the full amount
Thumb and index finger of same hand
One-quarter
of the full amount
Uniplegia
One-half
of the full amount
Source: Unum

From mortgage companies to credit card issuers to banks and employers – everyone is in on these types of plans.

There can be a lot of confusion, however, around Accidental Death & Dismemberment insurance, also known as AD&D.

But just because costs are low doesn’t mean you should be so quick to sign up!

Understanding exactly what an AD&D policy is and what it covers will help you determine if you should buy into one of these plans. 

What Is AD&D?

AD&D is NOT standard life insurance!

An Accidental Death & Dismemberment policy is exactly what it sounds like. 

It’s an insurance plan that gives money to the beneficiary of someone whose cause of death is a non-work-related accident.

It also provides fractional benefits for a loss of limbs, fingers, eyesight etc. The parts of the body and benefits for each vary with each policy.

Generally speaking, the premiums on these policies are pretty inexpensive relative to the benefit that would be paid out. 

When Does It Pay Benefits?

Generally speaking, the policy will pay full benefits in the event of an accidental death and will pay a portion of benefits for the loss of a body part.  See Unum’s example:

As you can see, Unum defines “accidental death” as “the loss of life caused soley by external, violent, and accidental means and not contributed to by any other cause.

What to Watch Out For

Let’s say you have a $250,000 AD&D policy.  Will your insurance carrier pay your spouse if you’re on your way to work and suddenly have a heart attack, head into oncoming traffic and die in an accident?

The answer is no.  Although the death was accidental, the cause was the heart attack, which is a natural cause. 

Now, let’s say your spouse was hit head on in an accident, sustained injuries and passed away four months later due to head trauma from the accident – will you receive benefits?

The answer is: very unlikely.  Most policies have provisions that state you must die within a certain period of time and that it must be directly caused by the accident etc.  Four months is many times too long of a time period.

Who Should Buy These Policies?

Even though the costs are low, the odds of one of these policies paying out is extremely low.  According to Insure.com, in 2005 117,809 people died from unintentional injuries. 

Now, if your employer offers AD&D as an additional benefit without cost on their group plans then by all means sign up for it – you’ve got nothing to lose at that point.

If you travel a lot for your job or you have a long commute to and from work every day then you may want to consider getting the most you can from an AD&D policy.  The odds of an accident are higher for you.

In general, however, most people do not need the added expense of an AD&D policy. 

If you are looking for additional coverage and think this is a cheaper way to insure yourself, you’d be better off spending a few extra bucks and applying for an inexpensive individual term policy.

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5 Ways to Win the Race to Retirement

September 29, 2009

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Runners, take your marks!

Your heart pounds as you anxiously await the starting gun.

With your fingers touching the ground, you get your legs in position ready to spring out of the gate. 

You’re ready for the race of your life.

You hear the sound of the gun and get a good jump! 

Your early lead seems to be holding.  You kick it into full gear – there is no one in front of you! 

Yes!  You pass the 100-yard marker and begin to slow down.  You did it!  You just won the biggest race of your life! 

With your arms raised in the air and your eyes closed you celebrate this great moment.

And suddenly you feel other runners passing you. 

Get out of the way!!

What’s going on?   You ask one of the judges what is happening and he informs you that this is not a 100-yard sprint, this is a marathon.

Embarrassed and completely winded you start to run again, but it’s hard to get back on track. 

Ok.  So this is an unlikely scenario, but when it comes to retirement there are many folks who are doing this very thing. 

They start out of the gate early with good intentions of saving and investing for their retirement goal, but fail to keep up with the plan after a few years.

Some get a good jump by investing aggressively without knowing their risk tolerance  thinking they will make a lot of money only to have their hopes dashed by a market correction.

The retirement race is a marathon – not a sprint. 

Marathon runners pace themselves for a long distance – sprinters shoot out of the gate with a blast of speed for a short run.

Here are 5 ways to win the marathon race to retirement:

1. Save Early and Save Often

The sooner you get started with saving for retirement the better off you’ll be.  

With a good mix of investments and compounding interest working,  your accounts should grow very well for you over time.

This takes the pressure off of having to make up for lost time by taking on too much risk for your investments and exposing yourself to a potential downturn.

2. Dollar Cost Average

Dollar cost averaging (DCA) is a simple investing strategy that invests equal dollar amounts on a regular basis over time.

For example, saving $100 monthly into your Roth IRA is dollar cost averaging.  By doing so you buy more shares when prices are low and fewer shares when prices are high.

The result is a lower average cost per share in the investment over time.  Although there is debate on how well this strategy works in a rising market, it’s clear that in a volatile market it is difficult to know when to buy in. 

DCA is a way to take the worry and stress out of trying to time the market for the short term and rather focus on regular savings over time.

3. Diversify, Diversify, Diversify

A lack of a properly diversified portfolio is one of the common mistakes people make with their investments.  

Why?  Because we don’t know what goes up or down from one year to the next, so spreading your investments over various asset classes is key to a long-term retirement strategy.

Finding a good model portfolio within your risk tolerance will help reduce the risk of exposure to a poor asset class or security in a given year.

4. Don’t Borrow From Your 401k

Your 401k should be the last place you get money from if you need it. 

Many people think that it’s not such a bad idea.  After all, you are paying yourself back with interest right? 

Theoretically yes, but the opportunity costs and the risks are too great.

First the opportunity costs.  You may pay yourself back with say 6% interest, however, if the market goes through a great stretch like we’ve just seen from March through September 2009 where the S&P 500 is up over 50% you not only lose out on that loan money earning interest, but also the compounding affect that could have been helping you. 

The risks associated with a 401k loan are too great as well.

If you lose your job, quit or retire while the loan is still outstanding you are required  to:

  • Pay back the loan in as little as 30 days, or
  • Pay income tax on the borrowed amount at your marginal tax rate
  • Pay a 10% penalty if you are younger than 59 1/2

A 401k loan can ruin your momentum for the retirement race.

5. Define Your Goals and Review Them Regularly

You can’t just set it and forget it when it comes to retirement.  Face it, economies, situations and goals change. 

It’s important to define your goals so you have something to shoot for.  After all, you can’t hit a target when it doesn’t exist.

Secondly, you should review those goals regularly so that you can make any tweaks and adjustments as necessary along the way.

With some discipline and hard work you too can win the race to retirement!

Do You Recognize These 5 Roadblocks to Reaching Your Financial Goals?

September 28, 2009

Photo Credit: ausWY

Don’t you hate ‘Road Closed’ signs?

I know I do, especially in an area I’ve never been before.

I’m always afraid I’m going to miss the next detour sign, make a wrong turn and end up lost somewhere.

Roadblocks and detours can really slow us down, cause a lot of stress and make us miss getting to our destination on time.  

It’s the same thing when dealing with your financial goals.

Recognizing financial roadblocks early can help you stay on track with arriving at your desired destination on time.

1. You Don’t Have Defined Goals

Sure, you want to save more and spend less, but what does that look like for you?

We all want to get our finances in order, but we often don’t specify exactly what we want to accomplish. 

Writing down your goals, stating dollar amounts or percentages and setting dates for when you would like to achieve your goals is key to actually getting there.

Don’t fall prey to the Monster of Generality.

2. You Procrastinate

Do you keep putting off making that budget or signing up for that 401k? 

Have you been thinking about reviewing your investment allocation and risk.

You know the old saying, “Never put off til tomorrow what you can do today”.  It’s true

But it’s hard.  Especially if you’re not a big fan of personal finance.  We tend to put off what we don’t like or don’t want to do.

If you’d rather go to the dentist and get teeth pulled than deal with your personal finances than it’s a clear sign there is a roadblock that needs to be hurdled.

3. You Follow the Path of Least Resistance

This path is usually not the best one to take because it doesn’t take any work. 

In personal finance, an example of this path could be never making a change to your 401k investment because the one your company put you in is just fine – even though you haven’t done the research on it.

If you find yourself taking the easy way out all the time, then it’s time to hear the warning sirens going off.

I spent an entire post talking about this more in depth called If You Want to Get Ahead Stop Taking This Path, so I won’t belabor the point here.

4. You Always Think About What You Don’t Have

Do you find yourself thinking and dreaming about what you don’t have rather than counting your blessings and being thankful for what you do have?

This can be a major roadblock because it can lead to being consumed with buying more “things” rather than being content.

If you’re consumed with what you don’t have you may go into debt faster, spend more than you make easier and ultimately, over a short time, destroy your financial goals sooner.

5. You Use the Phrase “I’ll Just Pay it Off Next Month”

This one’s a killer.  Basically, when you say this you are admitting you don’t have the money now and you’re hoping there will be money next month to pay off the credit card.

I use to say this all the time and unfortunately the next month I’d say the same thing.  It didn’t take long before I racked up the credit card debt.

If you find it hard to get out of this habit you may need to take some drastic action! 

 What About You?

Do you recognize any of these in your own life or have you overcome some of these? 

What other roadblocks would you add to the list?

Identifying these roadblocks early and working to overcome them will help you stay on the right path for reaching your financial goals.

Weekend Edition – Ageless Moneybags

September 26, 2009

I came across Luke 12:32-34 this week, which talks about true treasure and uses the word moneybags, which I think is cool.

In our day, moneybags has come to describe someone who is extravagantly wealthy (think: Rich Uncle Moneybags from Monopoly), but back in the day it was simply a bag for carrying your money. 

Take a look at what Jesus has to say about our moneybags.

32 “Fear not, little  flock, for it is your Father’s good pleasure to give you the kingdom.

33  Sell your possessions, and  give to the needy. Provide yourselves with moneybags that do not grow old, with  a treasure in the heavens that does not fail, where no thief approaches and no moth destroys.

34  For where your treasure is, there will your heart be also.

ESV Study Bible notes for reflection:

Luke 12:33–34 Sell your possessions, and give to the needy is a strong emphasis in Luke.

Moneybags that do not grow old is a metaphor for the place where one stores one’s treasures. Because the believer’s treasures are stored in heaven, the believer’s “moneybag” (the heavenly storehouse of his treasure) will never wear out, will not fail, and is safe from being stolen by thieves and destroyed by moths (cf. Matt. 6:19–21).

In contrast to the world’s preoccupation with possessions, the disciples are to be characterized by exceedingly great generosity, especially in giving to those in need (lit., “to give alms”).

This even has eternal implications—for, as Jesus solemnly warns, where your treasure is (whether on earth or in heaven,) there will your heart be also.

This concluding proverb (Luke 12:34) emphasizes the importance of the disposition of one’s heart, which throughout Scripture represents the center of one’s being and one’s deepest desires, including one’s reason, convictions, emotions, and will.

The nature of one’s heart is reflected in the things that one values most.

What we value and treasure most in our hearts is seen in what we do with our money.   What a great reminder that the things of this world will fade and pass away, but what we do for the kingdom will last!!

Friday Finance Round Up – September 25, 2009

September 25, 2009

 

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Retirement Readiness Quiz – CNN Money

Cool quiz that asks about 10 questions and gives you an idea of what your target savings should be for a certian age. 

 

Cash For Appliances Government Rebate Program – Bible Money Matters

Pete from BMM has become the guru of all things Government Stimulus related.  Here he explains the Cash for Appliances program. 

 

 Is a College Education Still Worth the Investment? – Sound Mind Investing

Last week I posted a graphic of the cost of college vs. the starting salary of the average graduate.  This week SMI takes a deeper look at the value of the education. 

 

The Economic Crisis in Simple Terms – The Economy Collapse

This video shows how to explain the 2008 US Financial Crisis to your kids (and most adults).

 

Should You Pay Off Debt or Invest – Five Cent Nickel

Nickel tackles an important question that most of us have probably thought about.

 

Weekly Links

How to Save (Potentially) Thousands by Spending $3.99 was included in:

Do You Make These 4 Common 401k Mistakes? was included at ETF Trends as well as the Baby Boomers Blog Carnival #6

What a Cow, a Red Box and Hair Clippers Have in Common was included in the Carnival of Road to Financial Independence at One Family’s Blog

5 Money Lessons to Learn Early On

September 23, 2009

 

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Photo Credit: ES

If I knew then what I know now – surely I would’ve done things differently!

Every hear those words before?

Every say them!?

I catch myself saying them every now and then. 

We all have various lessons we wished we would’ve learned at an earlier stage in life.

The great news is that it’s never too late to change.  It’s never too late in the game of personal finance to turn the ship around. 

Money has a funny way of controlling us doesn’t it? 

Our thoughts, our desires, our motivations – they are all impacted by our money. 

Learning these lessons early on will help you stay in control of your money rather than letting it control you.

1. Spend Less Than You Make

I spent an entire post talking about this very point – so I won’t hammer it too much here.

At the core of our personal finance is this very thing – you cannot spend more than you make and expect to get ahead. 

It’s so simple, so basic that it’s almost insulting to mention it – but time and again I hear from folks who just can’t seem to get this in their minds.

The earlier you “get this”, the better off you’ll be.

2. Pay Your Tithe First

The Bible talks about honoring the Lord with your firstfruits (Proverbs 3:9), which back in an agricultural society meant bringing your best produce and livestock to the Lord first.

In today’s economy, a practical application of this can be: the first check you write when you get paid is your tithe. 

Giving back to Him is a natural response we have when we realize how much God gave us. 

We don’t do it to earn God’s favor, but rather to show our gratitude for canceling our greatest debt.

Don’t wait til you “have money’ to give, because that day never comes.  Rather give back to the Lord first for He promises to provide for your needs. 

3. Pay Yourself Second

After you give back money to the Lord, the next check you should write is to yourself. 

This means you should have a set percentage or a set dollar amount that you save before you pay everything else. 

Usually, if you don’t do it beforehand, what happens is that you may typically spend all of your money and by months’ end – there’s none left over to put into savings and investments.

Saving before your other bills – even if it’s only a small amount – will help establish a consistent pattern of savings and will also help you realize the importance of putting some money away.

4. Debt is Slavery – Not Leverage

This is something I wished I would’ve learned early on when I was in college.  The first day of school my freshmen year I signed up for a credit card mainly to get a free T-shirt.

Little did I know that a little plastic card would lead to thousands of dollars in credit card debt.  Unfortunately I thought that credit cards were a good source of leverage – and I paid dearly for those mistakes.

Using leverage to buy a home is something many of us have to do, but using leverage to buy everday items or depreciating assets is typically not a wise move.

The Bible illustrates a great point when it says that the “..borrower is slave of the lender” (Proverbs 22:7).

5. Contentment is a Jewel

One of the biggest reasons we take on massive amounts of debt and struggle to get ahead is because we lack contentment. 

Contentment is defined according to Merriam Webster as:

 feeling or showing satisfaction with one’s possessions, status, or situation

Whether in good times or bad, in excess or in want, when we learn how to be content with what we have, where we live and what kind of car we drive we can start making big strides with our finances. 

Contentment is a rare gem in today’s society and an area I hope I can grow in as well.

Warning: TV May Be Ruining Your Financial Health!

September 21, 2009

 

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Photo Credit: The G

 

Find out what people want and give it to them!

This is a well known phrase used in marketing and advertising.  It says that you get people to buy your items when you appeal to their natural desires.

What They Sell

Think about it for a minute.  Every commercial you’ve ever seen typically has one driving theme — happiness

Essentially what the agency is trying to tell you is that you’ll be happier to some degree or another if you have our product — or you’ll be worse off and unhappy if you don’t.

Whether it’s beer, cars, razors, deodorant or the  newest drug on the market, the message is clear.

The next time you watch TV take a deeper look at that message. 

What does the company want you to do?  They want you to buy their product of course.

But why?

They are appealing to our natural desire for happiness, comfort and joy.

Why It Matters

There’s a reason why companies will spend several million dollars for a 30-second TV spot during the Super Bowl.  It’s not because they like to spend money.

They do this because there will be some people who go and buy their products or services.  There is a return on investment for the company. 

Companies don’t advertise for fun, they want to make a profit. 

Don’t get me wrong – there’s nothing wrong with making a profit, but we need to be mindful of how it affects us.

How Does This Affect Us?

TV can be a breeding ground for greed, materialism, covetousness, envy and discontentment. 

Advertisers appeal to our natural desire for happiness by getting us to think we need to drive the right kind of car – drink the right kind of beer – shave with the right kind of razor – and use the right kind of prescription drugs. 

And when you do all of those things you’ll have better sex, more power and greater joy!

Don’t give in to the temptation of discontentment and envy and think to yourself  – if I only had this thing – then I’d be happy.  

Is TV Affecting Your Financial Health?

Do you find yourself buying the latest and greatest things and racking up debt just to keep up with the Joneses or because you think those things will make you happy? 

Are you going out and using credit cards for something you know you don’t need, but just feel like you have to have?

The scary thing is that we may not even realize we do this!  It’s such a natural tendency in us that we fail to recognize it. 

The next time you watch TV, pay attention to the message and how it affects you. 

What To Do About It

Throwing your TV away and resolving to never watch it again will not deal with the root of your envy or discontentment. 

So what’s the answer?

1. The first step is to be aware of how you’re affected by TV.

2. Secondly, we need to realize that lasting joy is not found in the newest products and the latest gadgets.

3. Lastly, we need to understand that lasting joy  is only found in a loving, personal relationship with Jesus Christ — who gave up everything including his own life — so that for those who believe and follow him, they could have eternal happiness and joy in Him.

Being vigilant while you watch TV will help guard your financial wellbeing and your spiritual health.