Shopping for Life Insurance? 4 Things to Consider

Universal Life Insurance Company (Photo credit: Thomas Hawk)

Life insurance, for most of us, is not a huge priority in our minds. Especially if you are middle aged with young children, you probably think that you have lots of time to make decisions in regards to life insurance. But the truth is that life insurance is as important for your children and spouse as is saving money for your kids' college tuition. Here are a few things together as you shop around for a life insurance policy.

1. Don't be fooled by whole-life insurance.

While life insurance can be fairly complicated, you should know from the get-go that life insurance falls into two major categories—term life insurance and whole life insurance. One thing that's important to be privy to when shopping for life insurance is that whole life is almost always going to be a sucker bet. Life insurance agents get as much as 80% commission on whole life insurance, so they'll obviously try to push these types of policies much more vociferously than term life insurance. Whole life can be fairly risky, since the policy is tied up not just in premiums you personally pay, but in investment funds as well. Since most people have so many other, more secure options to invest in, like 401ks, it's best to separate life insurance from investment. Don't be conned into whole life.

2. It's not worth lying in your application to cover up health or lifestyle risks.

Unless your employer covers life insurance, most people don't really start thinking about life insurance until they're older and in poorer health. Of course, if you smoke, are very much overweight, have unusual or costly health problems, or your job is particularly risky, you're going to end up paying more for your life insurance policy. Many people try lying on their applications. Perhaps they try to cover up a smoking habit. While you can probably get away with lying about smoking on a tenant application, lying about smoking for life insurance is very risky. If you are found out (and trust me, life insurance companies investigate), you can be denied coverage. Even worse, after your death, your dependents may never see a dime and may even be entangled in legal problems in the courts. Be honest.

3. Do your research.

Even for those who are experts in insurance, life insurance can be a jungle. Don't just jump on the bandwagon with any policy or company. Spend as much time researching as you can. Read reviews, and understand precisely what you are getting yourself into. Despite my previous work experience in the insurance industry, I won't hesitate to say that the industry is filled with scams. You'll not necessarily get the very best deal, no matter which company and policy you decide on. But you can certainly mitigate risk by becoming as informed as you can. Don't overlook the power of knowledge.

4. The earlier you acquire life insurance, the better.

As noted earlier, most people don't think about life insurance until they are older, just as most people don't start investing for retirement until they are nearing the end of their careers. If you want to score an affordable policy that will fully take care of your dependents in the event that you pass away, then apply for life insurance immediately. Of course, it's not impossible to get decent coverage in your later years, but it'll be much more expensive, and not quite as secure.

More than even health insurance, life insurance can be very complicated. However, if you do your research and follow the above steps, you future (and the future of your loved ones) will be protected. For more information about life insurance, check out this CNN Money series. Good luck!

Susan is a freelance blogger who enjoys writing about automotive and health news, technology, lifestyle and personal finance. She often researches and writes about automobile, property and health insurance, helping consumers find the best insurance quotes online. Susan welcomes comments.

5 Reasons to Invest in a 529 Plan

 (Photo credit: Wikipedia)

According to a recent survey 50% of American families do not have a monthly budget, save for retirement or college expenses. The lack of personal finance knowledge in America is a major problem. A new survey by brokerage firm Edward Jones claims that 62% of these households never heard of a college savings 529 plan.

The 529 plan is the best way to save for a child's education. It's the primary way to accumulate a nice tax-free investment account for your child's education. 

According to the Edward Jones survey, the number of people who understand what a 529 plan is rises with a family's income. Only 27% of those surveyed who make less than $35,000 a year knew was a 529 plan was versus 57% for those making between $75,000 and $100,000. And 62% of respondents earning more than $100,000 a year were familiar with 529s.

• Roth IRA vs. 529 plan - Which is Better for College Savings?
• 10 Frequently Asked 529 Plan Questions

5 Reasons to Invest in a 529 Plan

1. When you invest in a 529 plan, it's safe from federal income taxes and almost always state taxes as well. As long as the cash remains inside the account no taxes are generated.

2. You can take out money for qualified college expenses such as tuition and room/board without paying taxes.

3. The states offer their own 529 plans and about three dozen of them offer residents some sort of tax deduction for their contributions. Consequently, you should look first at your own state plan if your state offers a tax benefit. If the state plan is weak, look elsewhere. 

4. For competitive reasons, the costs of 529 plans have been dropping, which is great for investors. When evaluating plans, make sure you look at what the built-in cost of these plans will cost you because you won't be getting an invoice. The fees are withdrawn automatically.

5. These college savings plans routinely include age-based investment options. Age-based investing is easy because the accounts automatically grow more conservative as the children near their college years. 

Pension Reform Needed Around The World [infographic]

A sustainable pension system still eludes many countries. The employer doesn't want to fund it and taxpayers do not want to pay for it through taxes. For us 50 plus people, the system will see us through but the ones who will have the most difficulties with a funded retirement are the workers 40 and younger. The broken pension system we now have, plus the poor economic environment we now are experiencing, have created a the perfect storm. 

Here is an infographic depicting current U.K. pension reform problems.

This is an infographic on pension reform is supplied by Money Infographics, a site that hosts personal finance infographics

How Much Debt Does It Take To Be Considered Drowning In It?

Many college students have graduated this past semester and are finding the prospects for jobs very limited. In a recent report, 2/3 of these students have a debt of at least $25,000. This amount reflects only students attending public colleges. Private college debt is said to be much larger.

These students should at least be congratulated for finishing their degrees. But as their reward for doing a great job they are finding a poor job market and a hefty monthly debt payment soon to begin. As a bonus, congress wants to raise the interest rate on the money owed.

If you were fresh out of college with no job and $25,000 in debt, would that be considered drowning in debt. According to FinAid.org the payment would be about $290 per month, on a 10 year repayment plan. This payment would be impossible even if the student had a job. You would need a salary of $34,000 and you would pay 10% of your income toward your student loan.

For new graduates finding an entry level job that makes that much, is tough to find. Add to that living in a medium to large city that might have such jobs is pretty expensive. Plan on spending 30-40% of your income on a resident.

With these kinds of obstacles in the college graduates way, it's no wonder the rate of student loan default is on the rise.

If these trends continue, the outcome won’t be good for this generation of college students or for the country as a whole. Especially if the cost of higher education continues to rise as predicted in this graph:

According to the Wall Street Journal, the administration has laid out a 3 part plan to help take off some of the pressure. 

1. 10% of Income — The income-based repayment program, which puts a percentage cap on the amount that individuals must pay toward their student loans, currently requires that people must pay at least 15% of their income, but Obama’s plan will drop that number to 10% starting in 2012 rather than in 2014 as previously mandated.
2. Forgiveness after 20 years — Also, starting in 2012 instead of 2014, participants in the income-based repayment program will have their debts automatically forgiven after 20 years rather than 25 years.
3. Consolidation of loans — Obama’s plan will allow people to consolidate all their federal and government-backed loans, which can translate to lower interest rates and lower monthly payments.

The proposal could cost the government as much as $1 billion. But the slow moving government has much to do to get this plan off the ground. Time will tell what the final result will be.