Tag Archives: life insurance

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Danica Patrick On Finding The Motivation For Financial Responsibility

I recently asked race car driver Danica Patrick if she thinks there is any validity to the adage that more money simply creates more problems, as the near epidemic documented in professional sports would seem to indicate.

I wanted to know whether she has seen this firsthand, and whether it has been a challenge for her.

Danica Patrick (Photo by Tim Bradbury/Getty Images)

“I can see how some would have difficulty managing the money they earn — especially if they do not have an existing mindset geared towards savings,” Patrick said.

“But for me, more money presents more responsibility,” she added.

We were talking because she’s advocating on behalf of Life Happens, a nonprofit dedicated to raising awareness about the importance of life insurance. But to Patrick, it all flows from a mindset about personal responsibility and holistic self-care.  

“You have to take care of your body by working out and preparing for the future to make sure that it’s healthy,” she told me.

“Later, you do things to prepare yourself mentally, to make sure that you can handle all situations and have peace of mind and have perspective and know what’s important. So then why wouldn’t you also take that approach with what it takes to operate in the society that we live in–money?”

Good question, Danica. It seems so logical, yet year-after-year, I’ll bet two of the resolutions most often broken are related to maintaining health and finances.

So why do we have so much trouble doing these things that we all seem to agree we should?

Well, for one, we’ve learned through the fields of behavioral economics and finance that knowing what to do isn’t the issue. Knowing what to do is a System 2 process, as Daniel Kahneman teaches us. System 2 is our brain’s intellectual center that processes information.  

Doing what we know, however, is a System 1 process. This is our emotional processor, where the will resides. System 1 is notorious for resisting our well-conceived plans, but it can also be a powerful ally, as it’s where resiliency is fueled.

Jonathan Haidt gave us the analogy that System 1 is like an (emotional) Elephant while System 2 is the elephant’s (reflective) Rider. When the two are in conflict, we all know who wins; but when the team is aligned, they are a formidable force.

The Rider is in charge of what to do and how to do it, but the Elephant only cares why.  

The big challenge when it comes to getting and staying healthy, physically or financially, is that the vast majority of information out there is System 2 stuff–what and how. Think: “Lose 50 pounds!” or “Make a million dollars!”

But System 1 is the boss, the “decider,” and the source of resolve.  

When Patrick decided to become a race car driver, she chose the course her life would take with System 1. Then she used System 2 to chart that course.

When people said she was too small (read: a woman), she appealed to her System 1 to stay the course while plotting with her System 2 how she’d prove them wrong.

When it comes to your health, you know you should get more sleep, watch your diet and exercise, right?

When it comes to your financial life, you know you should spend less than you make, pay your bills and invest for the future, right?

But why?

Well, let’s start with an easy one, the one Danica Patrick is advocating for: life insurance.

Why do you need life insurance?

Well, maybe you don’t. If you’re independently wealthy and/or no one relies on you financially, then you don’t need life insurance. (There are a couple reasons why you might still want it, but they’re outliers and probably don’t apply to you.)

If, on the other hand, you’re like most of us–still on the path to financial independence  with people in your life who would suffer financially if you left this Earth tomorrow–you probably do need life insurance.

Patrick saw a twenty-something friend in racing lose his life on the track–that was more than enough motivation.

But perhaps you’ve heard some version of this “why” story, and it didn’t inspire the Elephant to apply for a life insurance policy. It’s likely because the very next thing that happened involved the Elephant getting spooked by all of the “whats” and “hows” of life insurance.

There are so many life insurance companies and so many more life insurance salespeople, all so highly motivated to sell you too many types of policies, that the end result is way too much information.The Rider might enjoy the mental gymnastics, but it simply tires the Elephant out.

So if you recognize the need for life insurance but you’re overwhelmed by the information overload, let me offer a simple life insurance plan that will take care of most:

Multiply your salary by 15 and buy that much 20-year term life insurance.  

Why? (Since I’ve argued that is the operative question…) Well, it’s likely your salary that needs to be replaced if you’re gone, and a multiple of 15 should create a sufficient pot of money that, conservatively invested, will replicate your income for a good while. 

Why term life? Because if you’re healthy, even though 15 times your income is a big life-changing number, the premiums tend to be small enough that they won’t change your lifestyle. That’s not the case with most forms of permanent life insurance.

And why 20-year term? Because for most, their need for life insurance will expire before they do (thankfully!). For most, 20 years in, the kids are out of the house and retirement is close. If you’re just starting a family, you might want to extend some of your coverage to 30-year term, and if you expect to retire in 10 years, get 10-year term.

And if you still need some additional motivation to get that Elephant moving, a final word from Danica Patrick:

“There are only so many things in life that we can control – do everything you can to position yourself for success by being fit. When you’re taking care of yourself, whether it’s your health or what you eat or your finances, it’s about self-worth. Never doubt that you are worth it and invest in yourself and your future both physically and financially.”

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You Won’t Get Fooled Again: Understanding the Availability Heuristic in Investing

Originally in ForbesYou’re no fool. But let’s imagine for a second that a major public figure said something—something false—over and over (and over) again. Regardless of its questionable veracity, is there a chance you’d be more likely to believe the proclamation simply because you’ve heard it often and recently?

Like it or not, the answer is an emphatic “Yes.”

You and I are more likely to believe something is true when it’s readily available—that is, when we’ve heard it frequently and, especially, when we’ve heard it lately. This phenomenon is dubbed the “availability heuristic,” and even though it was discovered and named (by Amos Tversky and Daniel Kahneman) more than 40 years ago, it likely hasn’t caught on in the broader public awareness because its title includes the word “heuristic.”
Nonetheless, the availability heuristic’s power to persuade is not lost on marketers, salespeople, lobbyists and politicians. They use it on us all the time. But let’s explore the errant biases in investing, in particular, that while readily available often lead to sub-optimal outcomes.

Active vs. Passive

The debate rages (and no doubt will continue to do so) over whether active stock pickers are able to beat their respective benchmark indices. The implications seem simple: If fee-charging money managers aren’t persistently outperforming their benchmarks, we likely should not be paying them for underperformance, right?

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You May Not Drive A Racecar, But You Still Need Life Insurance: Lessons from Danica Patrick

Originally in ForbesSince her early 20s, Danica Patrick has driven a racecar for a living, speeding 200 miles per hour around a crowded track bordered by concrete walls. It’s dangerous. Really dangerous. And she recognizes that.

“There are things that happen in the car that you can’t plan for and that are out of your control, like a tire blowing on you or an engine blowing up or a crash that happens in front of you or someone hits you,” Patrick told me in a recent interview. “So no matter what your skillset is, those things just happen. Absolutely it is a risk.”

But it’s a risk that she has chosen to manage, in part, with life insurance. Patrick has owned life insurance since she started racing, and the subject is important enough to her that she now advocates on behalf of Life Happens, a nonprofit founded to help consumers make smart insurance decisions.

Commendable though it sounds, I wanted to know more about why. Why was she motivated to buy life insurance at an age when most people don’t even think about it? Why did she feel she needed life insurance—then and now?

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The Millennial Guide To Managing Risk With Insurance

Originally in Forbes“I’m too [fill in the blank] to worry about insurance.” If you’re a millennial, there are plenty of words you could choose from to complete that sentence. Perhaps “young,” “poor,” “busy” and “skeptical” are good ones (for starters).

You might have enough insurance.  You might even have too much.  But I’d bet you don’t have as much as you need in some categories, too.  Regardless, ignorance is neither blissful nor beneficial at any age, so let’s ask and answer the questions below, reviewing the most prominent types of insurance that may—or may not—be important for you to consider.

First, allow me to offer a fundamental insurance lesson that will serve you well now and into the future: Don’t just buy insurance. Instead, manage risk.

I offer the following Risk Management Guide as a template for making insurance decisions in my book, Simple Money:

Risk Management Guide

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10 Things You Absolutely Need To Know About Life Insurance

Originally in ForbesLife insurance is one of the pillars of personal finance, deserving of consideration by every household. I’d even go so far as to say it’s vital for most. Yet, despite its nearly universal applicability, there remains a great deal of confusion, and even skepticism, regarding life insurance.

Perhaps this is due to life insurance’s complexity, the posture of those who sell it or merely our preference for avoiding the topic of our own demise. But armed with the proper information, you can simplify the decision-making process and arrive at the right choice for you and your family.

To help, here are 10 things you absolutely need to know about life insurance:

  1. If anyone relies on you financially, you need life insurance. It’s virtually obligatory if you are a spouse or the parent of dependent children. But you may also require life insurance if you are someone’s ex-spouse, life partner, a child of dependent parents, the sibling of a dependent adult, an employee, an employer or a business partner. If you are stably retired or financially independent, and no one would suffer financially if you were to be no more, then you don’t need life insurance. You may, however, consider using life insurance as a strategic financial tool.
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The Top 5 Ridiculous Reasons NOT To Buy Life Insurance–With Anthony Anderson

Originally in ForbesAnthony Anderson is a funny dude. The Emmy-nominated actor has been making people laugh on television and in film for 20 years. But now he’s bringing his sense of humor to a surprisingly unfunny topic—the need for life insurance.

The big question I had for him was: Why? Why, with your career exploding and recent Emmy nomination (for lead actor in the show Black-ish), are you investing time and effort to be the spokesperson for Life Insurance Awareness Month?

“I know firsthand from friends and other family members who’ve never had a policy, who’ve never thought about having a policy.  And then all of a sudden someone passes in their family and they don’t know what to do,” Anderson told me.

Fair enough. Many people aren’t even aware of the need for life insurance, and that lack of education is a big concern for Anderson, and a major driver of his dedication to public awareness.  But as we continued our conversation, it shifted focus. What it seemed to begin revealing were some of the tragically comic, ridiculous reasons that many people choose not to buy life insurance. Here are the Top 5:

5) I’ve got more important things to insure.

“People insure their flat screen televisions, they insure their cars, they insure jewelry, but they don’t insure themselves,” says Anderson with a chuckle. He’s also evidently frustrated by this reality. “If it weren’t for themselves, they would have none of those things to insure.”

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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.

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? 

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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.

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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.

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

In order to help you navigate the two most complex forms of personal insurance, I’ve created two “apps”–in the form of Excel spreadsheets–that you can use to create a plan, analyze any policies you have and obtain apples-to-apples quotes for new policies, if needed.  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:

Screenshot 2017-03-08 11.52.30These exercises are each 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.  Not everyone needs insurance, but everyone needs a 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…”

Step Two is to understand any coverage that 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!