How to Protect Your Biggest Asset–Your Income

Originally published CNBCYou’ve got a machine just sitting around your house. It’s a money-printing machine, and it’s perfectly legal. This machine is expected to print $75,000 this year before taxes. You’ll use that cash to pay your household expenses.

Each year, the machine will print 3 percent more than it did in the previous year, and it will continue doing so for the next 40. That means, over its lifetime the machine will print $5,655,094.48, easily making it your most valuable asset today.

Yet there it sits, maybe in your garage, between an inherited set of golf clubs and a wheelbarrow with a flat tire, unprotected. Uninsured.

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The machine, of course, is you, or more specifically, your ability to generate an income. It didn’t come cheap. You and your parents invested years of training and likely tens of thousands of dollars in hopes that your machine would not only support you financially for a lifetime but launch another generation as well.

We don’t question the need to buy insurance for the things our money machine purchases. But few of us know if—or at least how and to what degree—their income-generation engine is protected.

Do you?

Boomer Esiason’s Advice For Millennials: Plan For Tomorrow, Live For Today

Originally in ForbesBoomer Esiason is busy—I mean, really busy. “Starting next Tuesday, all the way until after the Super Bowl in 2015, I think I’ve got about four days off,” he told me.

Why, then, was he anxious to talk about financial planning and life insurance?

It’s because he has a message for today’s youth: “Protect your future and make sure that whenever adversity strikes, you are prepared for it.” Prepared, among other things, with the appropriate level of life insurance. 

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But how did one of the National Football League’s great quarterbacks and commentators become an advocate for life insurance and the spokesperson for Life Happens, a nonprofit dedicated to increasing awareness of the importance of planning with life insurance? 

Back to School — Back to Financial Fundamentals for 3 Generations

Originally in ForbesAs kids head back to school, adults spanning several generations set their sites on getting their financial house back in order.  What are the most important financial planning considerations in three major demographics—Millennials, Generation X and Empty Nesters?

Millennials:  First things first – Before making any big financial commitments, like buying a house, figure out what you want life to look like.

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  • Are you in a relationship and looking to “settle down,” or do you highly value freedom and flexibility?  If the latter, you shouldn’t be buying a house or committing to a job that is geographically tethered.
  • If you’re in your twenties, the primary factor that will influence your financial success is how well you establish yourself in a career.  Invest in yourself, and that will likely help you invest more money in the future.
  • Save as much as you can in tax-qualified retirement accounts at this phase of life, because once you get settled down and have kids, your expenses will rise dramatically.
  • Don’t default to 100% equity portfolios just because you’re young.  After getting burned by the market crash of 2008, many Millennials got scared away and didn’t benefit from the subsequent market rise.  Your portfolio should likely be predominantly stocks at this age, but consider some fixed income exposure to keep from losing your shirt (and abandoning your strategy) in a downturn.

The Top 10 Places Your Next Dollar Should Go

Originally in ForbesThere is no shortage of receptacles clamoring for your money each day. No matter how much money you have or make, it could never keep up with all the seemingly urgent invitations to part with it.

TOP 10 DOLLAR

Separating true financial priorities from flash impulses is an increasing challenge, even when you’re trying to do the right thing with your moola — like saving for the future, insuring against catastrophic risks and otherwise improving your financial standing. And while every individual and household is in some way unique, the following list of financial priorities for your next available dollar is a reliable guide for most.

Once you’ve spent the money necessary to cover your fixed and variable living expenses (and yes, I realize that’s no easy task for many) consider spending your additional dollars in this order: 

Boomer Esiason: NFL Great Turned Life Insurance Advocate

Things are super at the Super Bowl“Today is your day to go out into the world.  You’re going to be great!”  This affirmation is one of a precious few memories that National Football League great, Boomer Esiason, can vividly recall about his mother, who died when he was only seven.

She was the “Belle of the Ball,” according to Esiason’s grandparents and older sisters—a beautiful singer, dancer and piano player who “would light up a room” with her blond hair and blue eyes, inherited by her only son.  But Boomer was not old enough to own these recollections himself.  Those memories endear him to the woman he can barely recall, but his enduring memories are limited to only two.  The first was sitting on his mother’s lap while she tied his shoes on the first day of kindergarten, whispering prophecies that would indeed come true.  The second and last memory was being denied access to her hospital room as she died of ovarian cancer.  Young Boomer was relegated to sitting in a courtyard, the scene emblazoned in his memory, as his mother would occasionally come to an overlooking window to catch a glimpse of her boy.

Living With A Broken Heart

Almost 30 years later, in 1996, Esiason found himself at that same hospital visiting his maternal grandmother shortly before her passing.  But that time, as an adult with children of his own, he recalls looking from his grandmother’s room, fixating on the very courtyard where he once sat contemplating the loss of his mother.  There was so much that he didn’t—couldn’t—understand as a child that he was able to comprehend as a husband and a father.

Boomer’s father, Norman, was a member of the Greatest Generation, a World War II veteran who took advantage of the G.I. Bill.  He worked his way into a solid job, but his wealth was in his family, not his balance sheet.  The loss of his wife—her income, of course, but especially her presence—had a significant negative impact on their household.  But quiet, reserved and proud, he never once considered complaining or outwardly lamenting the financial difficulties he endured after the passing of his wife, even shielding his children from the reality.  Boomer recalls at the age of 16, lingering as his dad finished the weekly examination of household finances so that he could ask for five dollars to take his girlfriend out, a favor he was rarely denied.

“I know that he lived with a broken heart,” the younger Esiason confessed.  “He died in 1999 on Thanksgiving, of all days, at the age of 77.  But from the time that my mother passed away in 1968 to 1999, I never saw my father with another woman in all those years.  He raised me with a broken heart and I think I was his escape.”  Indeed, Boomer gave his dad something to cheer about.  After setting 17 school records at the University of Maryland, he was drafted into the NFL by the Cincinnati Bengals in 1984.  In 1988, he led the Bengals to the Super Bowl and was voted Most Valuable Player of the league.  His dad was also able to see his son retire from football and begin a successful broadcasting career that continues to this day.

Today, however, Boomer’s passion for football seems eclipsed only by his desire to pass on the life and financial lessons that he has learned through experience.  So when Boomer was asked to be the spokesperson for Life Insurance Awareness Month by the LIFE Foundation, it was an easy decision.  “This absolutely fits what has happened to me in my life for a number of reasons,” Esiason told me as he opened the window into his life beyond the gridiron.  “When I became an NFL football player and decided to have kids in the early 90’s, I recognized that I didn’t want to have happen to my kids what happened to us, as [we were] struggling when I grew up.”

Further compounding the importance of life insurance for Boomer and his wife, Cheryl, is the fact that their son, Gunnar, has cystic fibrosis, a genetic disease that primarily attacks the lungs and often compounds the impact of other illnesses.  Day-to-day medical expenses are high, and the cost of finding a cure, higher still.  So in addition to the $100 million raised by the Boomer Esiason Foundation to benefit all CF patients, Esiason sees life insurance as vital to ensuring that his son has the financial resources necessary to continue his push toward a cure.  “If I don’t protect [Gunnar’s] future and I don’t protect my family’s future, then if we ever found ourselves in the situation that I found myself in when I was seven, it would be an unmitigated disaster and my kids and my wife would not be able to sustain the life that we’re fortunate to live now.”

Boomer and his best-friend, Tim O’Brien, made the decision to acquire adequate life insurance for their respective families together in the early 1990’s.  Later that decade, O’Brien helped move the Boomer Esiason Foundation headquarters “closer-to-heaven,” to the 101st floor of the World Trade Center’s North Tower.  While thankfully all of the Foundation’s full-time employees were absent the morning of September 11, 2001, Esiason lost over 200 friends, among them, Timothy O’Brien, husband and father of three children, ages seven, six and four when he died.

There is no financial strategy or product that can return a life when it’s been taken, but the life insurance conceived in Tim O’Brien’s foresight allowed his family to grieve properly and to move forward deliberately, without fear that their livelihood was also at risk.  There is no athletic accolade that will reprogram Boomer Esiason’s brain with memories of tender moments with his mother at his high school or college graduations, his wedding or the birth of his children, but the financial and life lessons learned from her loss and the endurance demonstrated by his father are already being passed on to future generations.

“My business is me.”

“I don’t have stock options and I don’t own companies,” Esiason told me.  “My business is me.”

Although I’ve never been asked to provide color commentary for the Super Bowl, and most of the people I know have never been voted the MVP of the most valuable sports league in the world, the same can be said for most of us: My business is me.  Your business is you.  Have you really done adequate financial and life insurance planning to ensure that those you love would be cared for even beyond the demise of your business—you?

Most people avoid conversations about life insurance because we generally don’t like to brood over the topic of our own demise, and many attach a hard-sale stigma to the life insurance business, using that as a rallying cry for inaction.  Death’s inevitability considered, a fear of it is certainly understandable, but meaningful discussions on the topic can be surprisingly life-giving.  And while the entire financial industry has more work to do in its evolution from sales to advice, the stereotype of pushy life insurance salesmen coercing you to sign your life away is grossly overstated.  Besides, neither of these concerns reduces the importance—the responsibility—of planning for the unexpected.

Boomer Esiason doesn’t sell life insurance.  He’s an ex-pro football player, an NFL commentator and the chairman of a foundation in support of the cystic fibrosis cause.  I don’t sell life insurance.  I’m a fee-only financial advisor, an educator and a writer.  Both of us, however, wholeheartedly support the LIFE Foundation’s initiative to bring awareness to the vital role of life insurance within financial planning in the month of September.  Consider utilizing their life insurance calculator and description of the different types of life insurance as a first step in that journey.  Feel free to ask me questions about your specific situation in the comments section or via email at tim at timmaurer dot com.  But please don’t let “Look into life insurance” be another important to-do left undone.

If you enjoyed this post, please let me know on Twitter at @TimMaurer, and if you’d like to receive my weekly post via email, click HERE.

Term Vs. Perm (Life Insurance) In 90 Seconds

The battle over term versus permanent life insurance need not be a battle—there are appropriate uses for both of them.  BUT, permanent life insurance is likely over-sold because of the handsome commissions received by selling agents.  Watch this new video to help determine whether you should be considering permanent life insurance or handling your insurance needs with term life.

The reason permanent life insurance products seem expensive is because they are.  A few years ago, I purchased a new $1 million 20-year term life insurance policy with a premium of under $500 per year.  I knew permanent life insurance was more expensive, but I was curious how much more expensive, so I quoted comparable whole life, universal life and variable life policies.  The variable and universal policies were ten times the amount of premium and the whole life was twenty times the term premium!  (Please note the difference in premiums will vary for each person, depending on age and health.)

But what is the difference between term and permanent life insurance?  Regarding term life insurance, you pay an insurance company to transfer the risk that you will die during the stated term of the policy.  If you have a 20-year term policy, your premiums are guaranteed to stay the same for twenty years, and if you die during the 20 year period, the insurance company pays the death benefit to your named beneficiaries.  Typically, by the end of the term your need for life insurance is gone.

Permanent life insurance is substantially more expensive for two reasons: First, while term policies are primarily created to last only for a finite period of time that will likely end before you die, permanent polices are often designed to exist until you actually leave this earth.  This dramatic increase in the likelihood that the insurance company will be responsible to pay a death benefit means they need to charge more in premiums.  Second, permanent policies often have a tax-privileged savings component attached to the policy, so a portion of your premium is set aside to accrue for your future use.

But the “investment” feature in a permanent life policy is rarely as effective or efficient as several others, like your 401k, IRA or Roth IRA, so fill those buckets first.  You should also not consider permanent life insurance until you have substantial emergency reserves, all revolving debt paid off, education fully funded and money in the bank for large future purchases.  Permanent life insurance can be a valuable tool for a relative few, but unless you have income of over $250,000 annually or over $1 million in assets, your life insurance needs are likely best met with term life insurance.

Life insurance is made entirely too complex.  Let’s simplify it!

How Insurance Works, In 90 Seconds

Every time we experience a calamity, like Hurricane Sandy if you’re on the east coast, it reminds us that there are risk factors in life beyond our control.  Through insurance, we transfer these catastrophic risks we cannot bear to insurance companies, but knowing HOW INSURANCE WORKS is vital to understanding why, how and what we need to insure.  Take the next 90 seconds to more thoroughly understand HOW INSURANCE WORKS:

[youtuber youtube=’http://www.youtube.com/watch?v=2rxYK40avGQ&feature=youtu.be’]

Long-Term Disability Income and Long-Term Care Insurance Apps

This is the eighth exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the disability income exercise HERE and the long-term care exercise HERE, or just jump right in with the instructions given below:

This exercise is a three-step process.  Step One is to determine what you need.  This is accomplished by writing out a Disability Plan if you are in your 30s, 40s or 50s.  If in your 50s, 60s, or beyond, you need to articulate your Long-Term Care Plan.  Start the process by writing out a paragraph beginning with the following sentence: “If I became disabled [suffered a long-term health care incident], here’s how I would handle that financially…”  We’ve provided space to do so in our online exercises for this chapter.

Step Two is to establish what you already have.  The online exercise includes a template with spaces to fill in for the primary features mentioned in this two-part blog series.  Once you have completed the template, you’ll better understand the coverage you have.  Step Three is to determine what you actually need and want in a policy and create a template to retrieve quotes and find the best coverage.  You’ll be better prepared for the engagement with the insurance agents because your template will ensure you’re comparing apples-to-apples, a very difficult thing to do with long-term disability income insurance and long-term care insurance.

Click HERE to access the long-term disability income app and HERE to access the long-term care app!

Home and Auto Insurance App

This is the seventh exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

In order to know if your home and auto insurance policies are providing you with the appropriate levels of coverage, you’ll want to collect the declaration pages for all of your home, auto, condo, and renter policies.  The Application Exercise online will provide a chart to fill in your various coverage limits next to our recommended minimum limits.

After you’ve tailored your desired limits with the help of an independent planner who does not accept commissions or referral fees for the sale of insurance, you can use the Application Exercise to shop your coverage with several carriers.

Click HERE to access the app!