Outside Economics

A follow up from last week’s article about FBAR, the next hammer to drop is: The Foreign Account Tax Compliance Act, better known as FATCA, was passed in 2010 as part of the HIRE act. Which was supposed to start on July 1, 2014, but last week was postponed a second time until January 1, 2016, foreign financial institutions (FFI) will be required by the US government to report information regarding accounts of all US citizens – living in the US and abroad, US “persons”, green card holders and individuals holding certain US investments – to the IRS.

While the law’s full implementation may be postponed, it does not mean that you do not need to be compliant with the law. The postponed implementation is most likely on the part of the FFI’s than on the American citizens complying with the reporting requirements of the law. So you need to report your foreign assets.

(A United States “person” includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.)

This law requires foreign financial institutions such as local banks, stock brokers, hedge funds, insurance companies, trusts, etc., to report directly to the IRS all their clients who are US “persons.” FFIs that do not become compliant will be subject to a 30% withholding on their US investments when they are cashed in, which will directly impact FFI clients with US holdings.

FATCA requires financial institutions to use enhanced due diligence procedures to identify US persons who have invested in either non-US financial accounts or non-US entities. The intent behind FATCA is to keep US persons from hiding income and assets overseas. The key word here is “hiding”. Its O.K. to have assets over seas and follow that jurisdictions tax codes, but it’s not O.K. to “hide” those assets from the IRS.

The ability to align all key stakeholders, including operations, technology, risk, legal, and tax, are critical to successfully complying with FATCA. Both financial institutions and non-financial multinational corporations should consider steps such as:

• Analyzing legal entity structures and registering FFIs that are required to register
• Conducting gap analysis to identify systems and processes that must be updated
• Develop an implementation plan for the changes required for FATCA compliance
• Performing due diligence on preexisting account holders and re-mediate non-compliant accounts
• Evaluating your controls related to FATCA compliance

FATCA also requires US citizens who have foreign financial assets in excess of $50,000 to report those assets every year on a new Form 8938 (FBAR) and may be filed with the 1040 tax return. The FBAR was discussed in more detail in a previous article.

This law is in essence making all the FFI’s in the world, similar to the US Banks, unemployed, unpaid IRS agents reporting on US citizens and their companies that may do business with their FFI.

Many Americans residing overseas are reporting banking lock-out. A number of foreign financial institutions have simply chosen to eliminate the accounts of US citizens and their US companies in order to minimize their exposure to FATCA reporting requirements, withholding fees and potential penalties. This is causing a lot of problems for US citizens and their companies doing business overseas.

The US Treasury/IRS has mandated the FFI’s use their Intergovernmental Agreements (IGAs); many countries have signed on and will facilitate the transfer of information. The IGA agreements include a non-discriminatory clause that is aimed at helping alleviate issues of lock-out of banking services to US citizens and US persons. In other words these FFI’s must be compliant or they will be placed on the IRS watch list and the FFI’s dollar assets could be impacted.

Many are calling this the “end of the dollar law” as many countries around the globe are looking to find alternatives to the dollar as the reserve currency to use when trading with their neighbor countries. This is one of the most overreaching laws the US Government has ever passed. In the end it appears to be a law that is doing more damage than good. As with all laws we never know the full ramifications until it is completely implemented, but this one was an easy one to spot that it would be bad, very bad for Americans the world over.

Often I am asked about offshore banking and setting up offshore accounts for people or companies, which I have done several times. However this is part of the education process – knowing what you have to report to the government for the privilege to move and protect some your assets off shore. Can it be done successfully? Absolutely. Can you save taxes? Absolutely. Can you protect your assets? Absolutely.

We all believe that our government has become so onerous that many people are leaving for other countries simply because Americans are not free anymore. A couple weeks ago I listened to David Barton speak and he said that if you “read 100 pages per day of all federal laws, seven days per week, it would only take you 25,000 years to complete the reading”. We are responsible to follow all those laws – ignorance is no excuse for breaking a law, right? Well here is another example of over-reach and being worked over by the federal government all in the name of protecting us against us. If you think you can hide your money some place, guess again…

Recently, new guidelines were released in a report of the Foreign Bank and Financial Accounts (FBAR). You need to know about these new guidelines if you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account that exceeds certain thresholds. The Bank Secrecy Act may require you to report the account yearly to the Internal Revenue Service.

The FBAR is a calendar year report and must be filed on or before June 30 of the year following the calendar year being reported. Effective July 1, 2013, the FBAR must be filed electronically through FinCEN’s BSA E-Filing System. (FinCEN stands for Financial Crimes Enforcement Network).

The FBAR is not filed with a federal tax return. A filing extension, granted by the IRS to file an income tax return, does not extend the time to file an FBAR. There is no provision to request an extension of time to file an FBAR.

            United States persons are required to file an FBAR if:

1. The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States; and
2. The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

(United States person includes U.S. citizens; U.S. residents; entities, including but not limited to, corporations, partnerships, or limited liability companies, created or organized in the United States or under the laws of the United States; and trusts or estates formed under the laws of the United States.)

There are some exceptions to the FBAR reporting requirements. They can be found in the FBAR instructions, but they include:

• • Certain foreign financial accounts jointly owned by spouses;
• • United States persons included in a consolidated FBAR;
• • Correspondent/nostro accounts;
• • Foreign financial accounts owned by a governmental entity;
• • Foreign financial accounts owned by an international financial institution;
• • IRA owners and beneficiaries;
• • Participants in and beneficiaries of tax-qualified retirement plans;
• • Certain individuals with signature authority over, but no financial interest in, a foreign financial account;
• • Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust); and
• • Foreign financial accounts maintained on a United States military banking facility.

A person who holds a foreign financial account may have a reporting obligation even though the account produces no taxable income. The reporting obligation is met by answering questions on a tax return about foreign accounts (for example, the questions about foreign accounts on Form 1040 Schedule B) and by filing an FBAR.

Just in case you were beginning to think perhaps you would just ignore all these forms and filing procedures, FinCEN does not mess around when it comes to penalizing non-filers. A person who is required to file an FBAR and fails to properly file a complete and correct FBAR may be subject to a civil penalty not to exceed $10,000 per violation for non-willful violations that are not due to reasonable cause. For willful violations, the penalty may be the greater of $100,000 or 50% of the balance in the account at the time of the violation, for each violation. There are exceptions to the penalties, such as when natural disasters occur that hinder timely filing. For guidance on those exceptions, see FinCEN guidance, FIN-2013-G002 (June 24, 2013).

FinCEN Notice 2013-1 extended the due date to June 30, 2015 for filing FBARs by certain individuals with signature authority over, but no financial interest in, foreign financial accounts of their employer or a closely related entity. 

Taxpayers with specified foreign financial assets that exceed certain thresholds must report those assets to the IRS on Form 8938, Statement of Specified Foreign Financial Assets, which is filed with an income tax return. The new Form 8938 filing requirement is in addition to the FBAR filing requirement.   

Last year there were a number of new forms introduced by FinCEN. FinCEN form 114 is the new FBAR form that is to be used in place of the old TD F 90-22.1 form. This form is designed to be an online form through the BSA E-Filing System website. Form 114a is a new form for filers who submit FBAR's jointly with spouses or who have a third party prepare their forms for them. It isn't submitted with the filing, but is kept back with the FBAR records maintained by the account owner in case FinCEN or the IRS requests them.   

The following educational products have been developed for your use in learning more about why, when and where to file the FBAR:

• FBAR Reference Guide (PDF)
• Reporting Foreign Financial Account on the FBAR - Webinar
• When and How to Report Foreign Financial Accounts - Video

For further help feel free to call us and we can point you in the right direction. We are happy to provide you with outside professionals who can get you answers or other items needed to move and protect your assets properly, while staying compliant with the laws of the land.

There are many theories on creating the best investment portfolio. Here is one that is well balanced, and well suited to surviving the financial fluctuations of these times. It is called the 7Twelve^® portfolio. It was first formulated by Craig L. Isrealsen,PhD. an Executive-in-Residence in the Financial Planning Program in the Woodbury School of Business at Utah Valley University. Overall, he has over 25 years of experience in the financial industry.

Professor Isrealsen created this approach to maximize the benefits a diverse portfolio can offer. He likens this approach to a good salsa recipe. “The broad diversification of the 7Twelve^® model is more important to its performance than picking the “right” funds. Very simply, the recipe is more important than the ingredients.”

Good ingredients + poor recipe = poor salsa/poor portfolio results

Good ingredients + good recipe = good salsa/good portfolio results

A 7Twelve^® portfolio includes 7 core asset classes and consists of twelve different ETF’s or mutual funds (funds). Each of the twelve funds are equally weighted and the portfolio is periodically rebalanced to maintain an equally weighted structure.

Some of the benefits and objectives of the 7Twelve^® portfolio include being able to produce long-term equity-like results with less volatility than equities. Compared to equities, this approach minimizes the frequency and the magnitude of losses thus delivering a more consistent performance over a rolling 3-year period of time. Maintaining a consistent portfolio with a philosophy of broad diversification will also help investors avoid fads and performance chasing.      

When assembling a balanced portfolio often its key elements are equities and fixed income assets. The seven core asset groups with their twelve associated funds are: US equity: large-cap US, mid-cap US, and small-cap US; Non-US equity: Non- US developed, and Non-US emerging market; Real Estate: global real estate; Resources: natural resources, and commodities; US bonds: aggregate US bonds, and inflation protected US bonds (TIPS); Non- US bonds: international bonds; and Cash: US money market.

This arrangement will allocate 8 equity and diversifying funds- which is 65% of the overall portfolio, and 4 fixed income funds- which accounts for 35% of the portfolio. A 65/35 allocation balance will bring together more stability and less risk in a solid combination that, over the long haul, has a proven track record toward steady growth even in volatile times, such as we are experiencing now.

Each of the 12 funds is equally weighted at 8.33% of the portfolio. The equal-weighing is maintained by periodically re-balancing each of the 12 funds back to an 8.33% allocation. Quarterly or annual re-balancing generally produces the best performance, whereas monthly re-balancing is too frequent.

Re-balancing is an important part of the 7Twelve^® investment strategy. Re-balancing helps to accomplish the goal of buy low and sell high. As sectors grow some is sold off to bring the portfolio into balance; the other sectors that are performing poorly get some new money to bring them up to the balanced amount. Nearly all sectors take their day in the sunshine, that of being the best performing asset. By keeping the portfolio balanced, each one is ready for their day to shine.

Re-balancing can also be done by simply adding new money to funds to re-create the 8.33% balance; or, if one is in their retirement years to simply withdraw money from the best performers whereby restoring the 8.33% balance.

Let’s face it, we are emotional creatures by nature, and most investors too are emotional about the decisions to buy or sell. Re-balancing is a fantastic tool that may help with the emotional roller coaster. Using systematic guidelines to monitor the portfolio increases the chance for success. Any assistance with the emotionally charged buy/sell decisions that may chip away at an investors overall gains is helpful. Trying to outsmart the market tends to do more harm than good; nobody can beat randomness at any given time. Having a steady plan to follow will help the investor to safely navigate the years it takes to grow their investment.

One of the main challenges of encouraging an investor to build a multi-asset portfolio is that the portfolio will never outperform the best performing individual asset class in any given year. Multi-asset portfolios are steady, not flashy. Nervous investors who are constantly looking over their shoulder may feel the need to chase last year’s best performing asset class and invest some or all of their portfolio into them. However, the winner last year is typically not the winner this year. This type of roller-coaster investing will surely lead to disaster.

Building a diversified portfolio is the only logical investment philosophy—both emotionally and mathematically. The emotional swings caused by chasing the performance of individual asset classes should be obvious, but the mathematics may not be.

The mathematical evidence supporting the wisdom of a steady multi-asset portfolio vs. performance chasing is simply put: asset classes that have huge gains also tend to also have large losses in subsequent years—and the math of gains and losses is NOT equal. For instance, a 50% loss requires a 100% gain to get back to the starting point.

Therefore, avoiding large losses is one of the key reasons for building a broadly diversified portfolio. Individual asset classes have great years (such as US stocks in 2013) but next year may not produce similar results. A steady, well diversified portfolio will win in the end. 

The 7Twelve^® portfolio recipe for investing has a proven track record and is well worth looking into if you haven't already. Give us a call if you think this portfolio model will help you, and as always, do your own homework before you decide to invest.

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7Twelve is a registered Trade Mark by Craig Israelsen and is used by Wendell Brock by a licensing agreement.

There are a few types of insurance coverage that are essential to have in this day and age. Disability insurance is one of those. If you die, your life insurance will take care of your family; but if you get hurt and become disabled, then what? The average monthly benefit from Social Security disability is $1,004 a month. Will that be enough to take care of your current needs?

Many people live such active lifestyles that the risks of a serious injury is very real. We all know someone who has been injured playing one sport or another, an auto accident, or simply injured falling off a ladder trimming the tree! It happens all the time – that is why we have Emergency Rooms at the hospitals!

Disability insurance helps protect a portion of your income and provides financial protection if you become disabled for an extended period of time. If you are permanently disabled, not only will you be unable to work, but you may also need financial resources to be cared for. Anyone who depends on their income to pay the bills or maintain their lifestyle should consider disability insurance protection.

Many companies offer great rates on disability insurance to their employees. You can also shop around for private insurance companies to find out their rates and policies. Make sure 65-70% of your current income is covered for an extended time period, usually until death or age 65.

A simple rule of thumb is the M.U.G.^® Plan = Mortgage, Utilities, & Groceries. Do you have enough disability insurance to cover these three very important expenses? Think of it this way, which job would you prefer:

Monthly Income	Job A	Job B
While Working	$6,000	$5,900
If Disabled	$0	$4,000

There are some key features of disability insurance that are important to be aware of. A disability insurance policy can complement existing disability benefit coverage that may be available to you. A disability insurance policy is fully portable; you own the policy and so you can take it with you throughout your career. There are policies that offer flexible solutions for various income levels. Also, depending on how the policy is set up, the benefits may or may not be tax-free.

Determining whether your benefits are taxable depends on a few factors. These factors include what type of benefits you receive, whether the premiums were paid with pretax or after-tax dollars, and who paid the premiums (you or your employer).

The rules surrounding taxation of individual disability income insurance benefits are generally simple. When you pay the premiums with after-tax dollars, the benefits you receive are tax free. When you pay your premiums with pre-tax dollars, your benefits will be taxed. This rule of thumb is the case whether you are enrolled in a group plan, a cafeteria plan or a medical reimbursement plan. However, unlike health insurance premiums, you can't deduct premiums paid for disability insurance as a medical expense.

If you are enrolled in a group disability insurance plan sponsored by your employer, the tax-ability of your benefits depends on who pays the premium. If you pay the total premium using after-tax income, then your benefits will be tax free. On the other hand, if your employer pays the total premium and does not include the cost of coverage in your gross income, then your benefits will be taxable. If your premiums are split by you and your employer, then your tax liability will be split as well.

It comes down to this: If you never use your disability benefits, you'll save money by paying your premiums with pretax dollars. But if you do use your disability benefits, using after-tax dollars to pay your premiums places you in a better position.

Different rules apply to an employer who pays for a disability insurance policy on an employee. This may be the case if there is a key employee in the business. If the employer gets the benefit, then the premium is not deductible to the company, and the benefit is not taxable when received by the company.

All, part, or none of the disability benefits you receive through government disability insurance programs may be taxable. How much of the benefit is taxable and under what circumstances depends on the type of government disability benefit you are receiving. These government benefits include Social Security disability income, Medicare benefits, worker's compensation, veteran's benefits, military benefits, and Federal employee's retirement system benefits.

A lot relies on your income, perhaps even more than you think. If the unexpected happens – if you become too sick or hurt to work – would your savings or the disability benefits you receive through your employer be adequate?  As always, consult a trusted professional for advice.

I know what your saying, "It will never happen to me!" Right?

With bonds yielding almost nothing and stocks looking fully valued by most measures, investors need more choices. Fortunately, they’re out there. For decades, the biggest institutional investors have used alternative investment strategies to generate higher returns, with less risk, than standard portfolios.  Today, most of these strategies and asset types are available to Main Street, often through ETF’s or mutual funds or similar investor-friendly formats. But, like any investment, you need to inform yourself.

Master Limited Partnerships

MLPs (master limited partnerships) are a type of limited partnership that is publicly traded. There are two types of partners in this type of partnership: The limited partner is the person or group that provides the capital to the MLP and receives periodic income distributions from the MLP's cash flow, whereas the general partner is the party responsible for managing the MLP's affairs and receives compensation that is linked to the performance of the venture.

One of the most crucial criteria that must be met in order for a partnership to be legally classified as an MLP is that the partnership must derive most (~90%) of its cash flows from real estate, natural resources and commodities.  Congress established these special vehicles in the '80s to spur investment in energy infrastructure, and that’s just what this rapidly expanding industry needs today: money for drills, pipelines, and storage, etc. The advantage of an MLP is that it combines the tax benefits of a limited partnership (the partnership does not pay taxes on the profits - the money is only taxed when unit-holders receive distributions) with the liquidity of a publicly traded company.

Long/Short Funds

Long/short funds are the mutual fund industry's attempt to bring some of the advantages of a hedge fund to the common investor. Most long/short funds feature higher liquidity than hedge funds, no lock-in period and lower fees. However, they still have higher fees and less liquidity than most mutual funds. Unlike most mutual funds, long/short funds often require a minimum investment of more than $1,000.

Long/short funds aren't allowed to use as many derivative and short positions nor as much leverage as hedge funds, but they do provide some diversification to the average investor in down markets. Today, several high-quality mutual funds offer access to this strategy but still provide all the usual mutual fund benefits, including daily valuation and liquidity. While these funds won’t keep up with the market during big bull runs, they should significantly outperform it on the downside.

Private Equity

Private equity has been the top performing asset class for big investors for a long time, but it has been a tough area for regular investors to participate in. That’s changing. Private equity consists of investors and funds that make investments directly into private companies or conduct buyouts of public companies that result in a de-listing of a publicly traded entity. Capital for private equity is raised from retail and institutional investors, and can be used to fund new technologies, expand working capital within an owned company, make acquisitions, or to strengthen a balance sheet.

The majority of private equity consists of institutional investors and accredited investors who can commit large sums of money for long periods of time. Private equity investments often demand long holding periods to allow for a turnaround of a distressed company or a liquidity event such as an IPO or sale to a public company.

Collectibles

Most collectible assets classes -- memorabilia, jewelry, cars -- should be looked at as hobbies with an upside. These can be fun to get into, but they’re really not suitable for people just looking for returns. This type of investing requires an extremely deep understanding of the particular collectible, the market and the capital. This can be a very illiquid area of investing. I knew a fellow early in my career, who had an amazing collection of over 500 Lugar Pistols, many had been owned by famous people, but he couldn’t sell the collection. A nearly $500,000 investment with no way to convert it to cash.

Art may be an exception. Art has been recognized as a store of value for centuries in almost every civilization, and there are several high quality funds that specialize in this (some even lend out its art to its investors). The trick is to invest behind someone who is both a true expert and an experienced, trusted fiduciary.

Angel Investing

An angel investor or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. A small but increasing number of angel investors organize themselves into angel groups or angel networks to share research and pool their investment capital, as well as to provide advice to their portfolio companies.

Angel investing is exciting but risky. Most angel investors will tell you they expect a return ratio of one third, one third, one third. One third of his/her investments make money, one third go bust, one third plod along. But stats indicate that serious angels can achieve internal rate of return of well over 20%, which is obviously very attractive. Probably the best way into the field for new investors is to join a professional angel group.  To find a group to join, you can go through the Angel Capital Association.

If you’re going it alone, make sure a start-up can clearly explain the problem they’re solving, the solution they propose, why their team can handle it, the size of the market, and what the competition looks like. Two more tips: the first money into a start-up should be from a small “friends and family” round (not from you!). And the second is to be sure to keep more money ready for the next round, because the start-up will need it and you may want to invest more.

Like any investment, it is important that you know exactly what you are getting involved in and it is critical to clearly understand the exit strategy – how do you get out of the investment? Or how do you cash out? This and the time commitment are very important, are you committing your money for 3 years, 5 years, or 10 years, the longer the commitment period the greater the return should be. You will want to counsel with an experienced financial consultant who is experienced in the type of investment you are pursuing.

Medicare is health insurance for Americans 65 and older, those younger than 65 with certain disabilities, and people of any age with End Stage Renal Disease (ESRD). The federal government administers Medicare, and you apply for it through the Social Security Administration (SSA). There are several types of Medicare coverage.

• Original Medicare, or Parts A and B, cover inpatient care (Part A) and outpatient services (Part B).
• A Medicare Advantage plan, called Part C, is sponsored by a private company. Medicare Advantage plans sometimes offer additional services not covered under Original Medicare. Some Medicare Advantage plans also provide prescription drug coverage. You must have enrolled in Parts A and B to enroll in Part C.
• Medicare prescription drug coverage is called Part D. Like Part C, Part D is provided by private companies.
• Medigap plans are forms of supplemental insurance that pay for costs not covered by Original Medicare. If you have a Medicare Advantage plan, you cannot also have a Medigap plan.

The advantage plans or Part C, and Part D are likely to become more important than ever. With the baby boomers retiring in massive amounts the Medicare System will be stretched very thin. This will cause two things, 1) an increase in taxes and premiums to pay for the coverage, and 2) a continued reduction of benefits paid for by Medicare.

There are different time periods during which you can enroll in Medicare. For many people, the Initial Enrollment Period - a seven-month period around your 65th birthday - is common. There are also Special Enrollment Periods for people who are retiring and losing employer health coverage, or whose spouse who carried coverage is retiring.

You will want to learn about the different times you can enroll, and which time applies best to your situation. If you don’t enroll on time, you could be without coverage for up to four months and you may have to pay a penalty that lasts as long as you have Medicare!

Timing is also important if you decide to purchase supplemental insurance. You should sign up for supplemental insurance within six months of when you sign up for Part B. If you wait too long, the insurance company can deny you coverage, or charge you higher premiums for pre-existing conditions and impose a waiting period before your coverage starts.

Many people continue to work past age 65, and have health coverage through their employers. Others may be retired, and have insurance through the military (VA or TRICARE benefits) or employee unions. There are different rules depending on whether you are “actively employed” or retired.

Be sure to contact the benefits administrator of your current plan to ask about how it works with Medicare, and if and when you need to sign up for Medicare. You may also want to call the Social Security Administration to make sure that your employer’s advice is consistent with SSA policies.

It is recommended that you seek advice well in advance of signing up for Medicare. Find a trusted insurance source that is well trained in the ins and outs of Medicare. Do your own research as well. Knowing when to sign up and what to sign up for can save you headaches and hassles down the road!

One headache is finding the right doctor, prior to signing up you will want to find out if your current doctor accepts Medicare. If not you will have to go Medicare doctor hunting, which is about the same thing as hunting elephants in Alaska! Fewer and fewer doctors are accepting Medicare – I was visiting with one Doctor who had to stop because his office overhead (staff, rent, utilities, supplies, etc.) was higher than what he was being reimbursed by the government. What has been your experience with Medicare? Good? Bad? Or indifferent? 

There are two things in life that are inevitable: death and taxes, as the old saying goes. This article will discuss ways in which you can protect your family upon your death with life insurance – there it’s been said; no one likes to talk about life insurance! While this may not be a very uplifting topic for most people, it is better to plan and be prepared for the event now, than to put it off and perhaps leave your family coping with both your loss and a personal financial crisis.

If you have young children at home, this is an especially important topic. It doesn't matter if you are a breadwinner or a stay-at-home parent. Having adequate life insurance coverage for both spouses will ensure that your family will be provided for once you are gone.

A good rule of thumb is to have ten to as much as twenty times your income in life insurance coverage.  If you are in debt, this amount should cover any remaining debt, burial costs and leave money enough to invest, whereby earning a rate of return that replaces your lost earnings.

If you have a small policy through your employer, that may not be enough. A small policy may be able to cover burial expenses and living expenses for about a year, but what will your family do after that? You may need to review it and consider purchasing a separate policy. Making sure you have plenty of coverage will allow your family to live comfortably until they figure out the next step in their lives.

Waiting too long to buy life insurance is risky for a few reasons. First, it is always possible that something may happen to you before you are able to buy a policy and your family is then left unprotected. You may have a change in health that could substantially increase your rates or even eliminate your ability to have life insurance. Also, life insurance is cheaper to purchase when you are younger and the rates are locked for the set time of the policy.

In considering the term length of the policy, don't try and save money by purchasing a shorter term. A lot of health changes can happen in a small amount of time and you could be hampering your future ability to have inexpensive coverage. As a general rule, if you are planning on having children in the future, having a 30-year or longer plan might make sense for you. If you have young children but are not planning on having any more, than a 20-year policy might be appropriate.

You may have needs that truly last a lifetime and would require a mix of term insurance and permanent insurance. That is a challenge is to properly asses a family’s needs and plan accordingly. Even though some needs may change over time, some financial needs are constant or some needs are replaced by other needs.

Insurance premiums are based on three general areas: the insurance company administrative expenses, company investment returns, and mortality expenses (death claims paid). Term rates are generally lower due to the fact that so many of the policies expire before the company pays a death claim. Fewer claims, lower premiums. Permanent insurance or cash value policies are typically in-force for a longer period of time and thus experience more death claims and thus have higher initial premiums. Even with term insurance, a 30 year term policy will be much more expensive than a 20 or 10 year term policy – the risk of death and thus the risk of paying a death claim is greater for the insurance company – so the premium expense is much higher.

It is good to review your policy from time to time to make sure your coverage is adequate to your needs. Circumstances and needs change as life progresses and you may find that the policy you purchased 10-15 years ago will no longer do for your family. Perhaps you are making more money now and your family is used to a higher lifestyle. Or maybe your health habits have improved and you can qualify for better premiums. Periodically assessing your circumstances can either help you save money or require additional coverage.

Be sure to shop around before you purchase your insurance. At times the cheaper policies have the most stringent underwriting standards, thus making the slightest health problem(s) a standard rate instead of the advertised preferred rate. Independent agents can pull quotes from many different sources, thus ensuring a competitive quote. Educate yourself before purchasing any policy.

Life insurance is a major part of a wise financial plan. Love your family enough to protect them from a financial crisis in the midst of their grief. Remember the insurance is not for you – its for the people you love most! Is your family properly protected?

Nearly everyone knows someone over age 50, the prime age to purchase Long-term care insurance (LTC), which is an insurance product that helps provide peace of mind and dignity for the elderly who need assistance caring for themselves beyond a predetermined period. There are many aspects to this insurance, how premiums are priced, when does a person go on claim, how many people need the care, etc. Below these items and many more will be discussed.

Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid. Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform some or all of the basic activities of daily living such as dressing, bathing, eating, toileting, continence, getting in and out of a bed or chair, and walking.

Age is not a determining factor in needing long-term care. According to the U.S. Dept of Health and Human Services, about 60 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. About 40% of those receiving long-term care today are between 18 and 64. Once a change of health occurs long-term care insurance may not be available. Early onset (before age 65) Alzheimer's and Parkinson's Disease are rare but do occur.

LTC insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer's facilities. If home care coverage is purchased, long-term care insurance can pay for care within your own home, often from the first day it is needed. It will pay for a visiting or live-in caregiver, companion, housekeeper, therapist or private duty nurse up to seven days a week, 24 hours a day (up to the policy benefit maximum).

Other benefits of long-term care insurance:

• Many individuals may feel uncomfortable relying on their children or family members for support, and find that long-term care insurance could help cover out-of-pocket expenses. Without long-term care insurance, the cost of providing these services may quickly deplete the savings of the individual and/or their family.
• Premiums paid on long-term care insurance may be eligible for an income tax deduction. The amount of the deduction depends on the age of the covered person. Benefits paid from a long-term care contract are generally excluded from income.
• Business deductions of premiums are determined by the type of business. Generally corporations paying premiums for an employee are 100% deductible if not included in employee's taxable income.
• Medicaid provides some of the benefits of long-term care insurance. As a welfare program, Medicaid does provide medically necessary services for people with limited resources who need nursing home care but can stay at home with special community care services. However, Medicaid generally does not cover long-term care provided in a home setting or for assisted living.

Once a person purchases a policy, the language cannot be changed by the insurance company, and the policy usually is guaranteed renewable for life. It can never be canceled by the insurance company for health reasons, but can be canceled for non-payment.

LTC insurance rates are determined by six main factors: the person's age, the daily (or monthly) benefit, how long the benefits pay, the elimination period, inflation protection, and the health rating (preferred, standard, sub-standard).

Most companies will offer couples and multi-life discounts on individual policies. Some companies define “couples” not only to spouses, but also to two people who meet criteria for living together in a committed relationship and sharing basic living expenses.

Most companies offer multiple premium payment modes: annual, semi-annual, quarterly, and monthly. Companies may add a percentage for more frequent payment than annual. Options such as spousal survivorship, non-forfeiture, restoration of benefits and return of premium are available with most plans.

You should not purchase any long term care insurance if you currently receive or may soon receive Medicaid benefits, if you have limited assets and can’t afford the premiums over the lifetime of your policy, or if your only source of income is a social security benefit or supplemental security income. Insurance companies and the National Association of Insurance Commissioners advise that you should not spend more than 7% of your income on this insurance.

The LTC industry suggests that you’ll pay less if you buy your policy at age 50 instead of waiting until age 60 as others recommend. Many people worry that if they wait until age 60 to buy LTC, they will develop a medical condition that will either prevent them from qualifying for coverage or significantly raise their premiums. The average age of purchasers has dropped from 68 years in 1990 to 61 years in 2005, and the number of purchasers who are under age 65 has increased significantly.

Some may argue waiting until age 60 because you are much less likely to file a claim before that age. Statistically, 90% of LTC claims are filed for people over age 70. But if you have a family history of illness at a young age, or you are losing sleep because you’re worried about getting sick and not being able to afford care, then buy LTC when you can afford it. The peace of mind is worth more than any cash you’ll save on premiums.

Many people think that they will use a retirement account to help fund Long-term Care, should you need it. Remember withdrawals from retirement accounts are subject to income tax. However if this is done right the withdrawals for Long-term Care maybe income tax free, saving retirees thousands of tax dollars.

While there are hundreds of thousands of these policies that have been issued, still 93% of retired Americans, who are the very people who need this coverage don’t have it. It has been said that your retirement plan is not complete without long-term care insurance in place.  Have you looked into LTC insurance for yourself or your parent(s)?

If you have been working at living within your budget but struggle at times, here is an idea that you may consider implementing: the Envelope System.

Using the Envelope System can be a great support to ensure that the budget is being followed. This system, as it's name implies, uses envelopes labeled with different budget items that can be paid in cash. Basic categories may include groceries, eating out, clothing, and miscellaneous expenses.

Each time you get paid, cash out the amount of money that you would need to fund each envelope. With the cash in hand, you then divide it into the envelopes named for the different categories. Once the cash is gone, then you know it is time to stop spending.

If you find yourself constantly needing to adjust a category throughout the month – or robbing other envelopes to make purchases, then you may need to rethink the allotted amount for that category. This is particularly true with the grocery budget. It is often wise to over-fund this category.Be careful not to rob the other envelopes when one envelope is empty. A common occurrence is to rob, say, the clothing envelope, after the grocery money is spent. That's fine if you do – things happen! But keep in mind, no new clothes until the clothing envelope is funded again!

This method also works well for things that are not normal monthly expenses. A Christmas envelope that is funded each month can take a lot of stress out of the holiday season. A vacation envelope can ensure that the family trip actually happens this year! These may actually be best done with separate savings accounts at the bank.

Other random envelope categories may include birthdays, house repairs, concerts or entertainment, sporting events, garden or yard care expenses, car repairs, or any hobbies you may have. They may even include saving for special goals, perhaps a new car, jewelry, or season tickets to your favorite sports team!

Another tip on using the Envelope System, is that you can write a date and amount on the envelope each time you remove money; this will help you keep track of the money spent. This is helpful because cash has a way of disappearing – not necessarily by the common thief – by simply spending too much too fast.

This is an easy way to put a check on your spending habits as well as a way to ensure that your goals and dreams come to life! As with budgeting this will take discipline to implement. 

Many people squirm at the thought of actually budgeting their money. Some say it constricts their money and makes them feel like they have less. For people who actually make and use a budget, they know otherwise; a budget simply tells their money where to go. People who live on a budget know the benefits of living intentionally with their money.

When considering a budget, it is important to know three things: how much money is coming in; how much money is going out; and where is the money going. Unless you are living on an irregular income- say a commission based income - money coming in may be the easier of the three to figure out.

Once that is established, it is time to start figuring out the bills and the random spending that may be a little out of hand. Where does it all go?

Begin by making a list of all the bills and recording the amounts due each month. It may be good to see if any of these bills are higher than what they ought or could be. For example, housing expenses should fall between 25-33% of income. Any more than that and you will find yourself stretched too tight and will struggle to make the rest of your monthly payments.

            Here are some general guidelines to follow when constructing a budget:

            Housing: 25-33%                    Charity: 10-15%

            Utilities: 5-7%                       Clothing: 2%

            Food: 5-10%                          Saving: 5-10%

            Transportation: 10%               Personal: 5%

            Medical: 5-7%                        Recreation: 5%

            Miscellaneous: 5%

Keeping track of your spending can be a real challenge! There are a number of online tools you may find to be of help. One online web site is called mint.com. Some banks also offer online tools to help track your spending.  Debt management can be a very challenging part of the budgeting process for most people; it will be discussed in another article.

It is important to spend every dime on paper before the month begins. Decide at the beginning of the month what is important to you. If you have a savings goal, or a charity goal, or if you know that a trip is coming up, allocating those funds at the beginning of the month is essential so that these goals are met.

You may find yourself constantly adjusting your budget as the month goes on. It may be that you didn't set aside enough money to certain categories. For example, you may need to over-fund your grocery category in order to keep within your budget. It may take you a few months to get the numbers adjusted to fit your needs, so don't become discouraged. As time goes on, you will get a better feel for how much is needed in each budget category.

As a married couple, it is vital that each spouse come together each month to work out the budget. Both spouses should have a say in where the money goes even though only one spouse is likely to be doing the manual labor part of the budget. Working together here will benefit the marriage as a whole because money is a reflection of our goals and dreams.

For those of you who are single and considering marriage, talking to your dates about finances is an essential way to get to know each other. Keep in mind that the size of the paycheck isn't what matters most, but what happens with that paycheck that can be a deal breaker. If you are dating someone who is heavily in debt and perhaps is a chronic spender, you will need to heavily consider the consequences of attaching yourself to them.

If finances were only about math, then few of us would have financial problems. Search out your triggers, be aware of your habits, and mend them if they need mending. Recognize that our emotions play a big role in our abilities to have and follow a budget.

Keep working at it and know that everything becomes easier with practice.   Living on a budget is an essential step towards financial freedom! Good luck as you embark on this exciting journey!