Life Insurance – Who Needs It?

Purchasing life insurance has become a personal-finance decision more people are considering. That’s because fewer are receiving life insurance as an employer-paid benefit. Or, they can lose it during layoffs, which are the new normal in a volatile economy. Like all topics in personal finance, life insurance is a complex one. This blog will focus only on who really needs to purchase it. The issue is important because those who need it and don’t have it risk financial ruin. At present, according to LIMRA, only about 44 percent of households have an individual life insurance policy. On the other hand, those who don’t need it and are paying for it could be using the funds for other purposes, such as paying off college loans.

Essentially there are two types of life insurance. One is whole life, which can function as an investment vehicle. It tends to be relatively expensive. As its name “whole life” indicates, it extends for one’s entire life. However, because of its cost, in hard times, policy holders often wind up dropping it and not replacing it with the lower-cost and more flexible option – term insurance. That’s a serious mistake.

For the cost of a latte or two a week, a healthy male can purchase life insurance for a “term” of 20 years with a payout of about $500,000. The good news here is that over the years, the cost of term life insurance has been going down. Term life can be a perfect fit for him since his financial obligations to his two children will end in 20 years. After that he may decide not to carry any life insurance, especially since the cost of even term goes up substantially with age.

This man is typical of those needing insurance. He has dependents. Without dependents and if his wife is employed, he might opt for no insurance. Most single people ignore – and rightly so – buying life insurance. However, this man with no children and a working wife may decide he needs life insurance as his aging parents become financially dependent on him. He may buy whole life instead since he cannot predict how long they will live and would prefer to also be building a nest egg for them.

Another kind of scenario is the affluent person or business owner whose funds will be tied up in probate upon death. They would likely purchase insurance policies as part of their estate planning. Those funds would be available immediately. They can pay the one-time cost of burial, debts, and the ongoing usual expenses. That carries the heirs and the business over until the estate is settled, which could take months or even years.

Some people who carry high credit card balances consider buying life insurance so that family members, none of them dependent, aren’t saddled with the debt. That’s unnecessary. Unless anyone has co-signed those accounts or the state is a community property one, the credit card balances are automatically eliminated upon death.

Decisions become more complex financially as a person ages or health problems develop and the dependent situation changes. The wife may lose her job after 20 years. She can’t get another one. Without the husband’s income, she couldn’t manage to make ends meet. A child becomes disabled. Because of all these possibilities, some opt for purchasing and making sacrifices to hold on to a whole life policy when they are young and healthy. This provides peace of mind, in the event of family reversals.

Of course, once the decision is made to purchase life insurance, then come all the other choices, such as how much coverage is enough, what distribution channel should be used to make the purchase, and what information is objective and trustworthy. However, what matters to prevent financial catastrophe is for those who need life insurance to not delay in getting it. Because, unlike auto insurance, this is a voluntary purchase, so there’s a tendency for people to drag their feet. That could lead to a financial disaster.

Affordable Housing – Could Be Worth the Red Tape

Economic turbulence, aging Baby Boomers, and the disabled seeking independent living have increased the interest in “affordable housing.” And with good reason. Obtaining a rental officially classified by government entities as “affordable” can mean the difference between living comfortably and financial insolvency or even homelessness. The problems is that, because this rental category is highly regulated, applicants have to invest the time to understand the red tape and then wade through it. Only if the program they enter represents a significant savings to them might it be worth going through the process.

The U.S. Department of Housing and Urban Development (HUD) defines “affordable housing” as monthly rent which consumes no more than one-third of a family’s or individual’s gross income. That could be from earning wages, public assistance, Social Security, disability payments, or a combination of those. Since the calculated rent, as at Bella Vista, New Haven, Connecticut, frequently includes utilities such as heat, there is considerably less anxiety about being able to pay for necessities. Given the unusually cold winter in New England in 2013, that savings was substantial.

Those “affordable” rental units can come in the form of HUD apartments, public housing apartments, low income apartments, subsidized apartments, and local housing authorities. They may be under the complete authority of one or more government entities, federal, state, and local. Or they could be owned and managed by a for-profit company such as Vesta, but still under multiple government jurisdictions.

Listings for all of them can be found on the Internet under keywords such as “affordable housing” merged with the name of the state such as “Connecticut.” Here is an example: Another way of finding out what’s available is through word of mouth. Those in a senior citizen club or at disability daycare are likely to give other members the scoop. Also, those checking into this option can call the rental office of a complex. Since the eligibility rules can be complex, it is useful to sit down with rental agents and be briefed in person. Then there can be a tour of sample units.

Although all are subsidized and regulated by one or more government entities, the rules vary, even among the buildings in one development. Some of the buildings or a certain number of units might be reserved only for senior citizens. In that case there could be a range of subsidized programs. The age of eligibility might be different for each complex and that could change over time for the same complex. There might be no maximum on the amount of income or assets the elderly can have. If they are significant, the aging could simply be assigned what is called “market rate.” That is likely lower than the average price of a rental in the community but higher than the usual one-third of income rents charged the low income and some disabled. At Bella Vista the market rate for the elderly was about $734 during the winter of 2013.

Applicants should be prepared to get on waiting lists for whatever developments they are eligible to rent in. There has been a chronic shortage of available affordable rentals. According to the National Low Income Housing Coalition, only about a third of those who qualify for them will find one available. No state has enough units. In some, such as Nevada, it is worse than in others.

In response to the severe economic downturn in which too many got behind on the rent, many affordable housing complexes have become stricter on eligibility requirements. Currently, they also take legal action quickly on late payments. Therefore, those with “bad credit” can be knocked out of the box. One way around that is to have someone with “good credit” apply for the apartment. If the rent might be late, residents would be smart to find a relative or friend to borrow it from. The powers-that-be have become unforgiving when it comes to paying the rent in full and on time.

As the economy improves, the demand for affordable housing could lessen. Also, those who have been living in it could decide to trade up to traditional rentals or even purchase a home. Both of those could free up units for other applicants.

Multiple Sources of Income: Spreading the Risk

The Great Recession delivered a wake-up call for many employees, the self-employed, and those living from the passive income of investments. They recognized how quickly they could go from financial security to insolvency. All they had to do was lose a job, a few clients or customers, or the value of the assets in their portfolio. In her 2013 book Down the Up Escalator, money expert Barbara Garson chronicles those horror stories. One solution for preventing another personal finance disaster is to develop multiple sources of income. Instead of being totally dependent on one full-time job, for example, those who multi-stream income create a variety of other ways to make money. With a global economy continually disrupted by technology, this approach could become the new normal. Here are four steps for making this shift.

The First Step

The first step is to improve the security of the main source of income. If that’s serving three major clients in a consulting business, monitor what more can be done or done differently. Never should the quest for additional income endanger that. Unlike what will be tried, that represents a known. It’s a proven source of revenue.

The Second Step

The second step is to investigate how existing experience, skills, resources, and contacts can be transformed into money-making possibilities. The options include:

  • Searching for a full-time job after a time of self-employment, part-time work, or temping. A changing economy means demand’s always changing. Those shut out a few years ago, such as truckers, could now be in short supply. The mistake is to rule out returning to full-time work in a field that had been hit hard during the downturn. If hired, the objective should be to retain as many current income-producing situations as possible. For example, the former truckers might have been painting houses, cleaning basements, and working part-time at a moving firm. They should push to have that re-scheduled around their new hours.
  • Adding on freelance, part-time, and temp opportunities. Technology and global time zones make it possible to work full time and do plenty on the side. That ranges from developing apps for a smartphone to teaching English as a Second Language from a home office in New Haven, Connecticut, to students in China. Online sites such as craigslist provide free worldwide help-wanted ads for all kinds of situations. In addition, most industries have specialized free global listings, such as and for writers.
  • Socking away more in financial investments. Having multiple sources of income can free up funds to put in accounts such as retirement, which employers contribute to.
  • Investing in tangible assets. A common example is rental property. All that’s needed is the money. For a fee, management companies will take care of the rest.

The Third Step

The third step is to explore acquiring new skills. In this Do-It-Yourself (DIY) era, ambitious people are re-inventing themselves through free or low-cost training online or through books at the public library. Where there’s already an aptitude, the learning comes easily.

The part-time copywriter can develop comprehensive expertise in search-engine optimization (SEO). That could lead to owning and operating a side business in SEO, with contract employees doing the actual assignments. The full-time web developer can learn to code, doing temp assignments evenings and weekends. The dog walker can pick up the fundamentals of training, gaining experience and references through doing the service free.

The Fourth Step

The fourth step is to continually evaluate which initiatives are the most profitable. According to the Pareto Principle, 80% of outcomes, including revenue, come from 20% of inputs. Applied to business, that means that smart managers will focus primarily on the 80% of the tasks, clients, or customers that yield the most results.

Over time, it could turn out that buying up rentals is more lucrative than working full-time as a teller in a bank. The freelance coding is where the most profit is coming with the least hours worked and the least stress. Therefore, the coder might look for a full-time job doing that or create a startup for that business. The dog walker might invest in advertising the more lucrative training part of the business.

Few human beings welcome change. Yet, establishing multiple sources of income can open up fresh, lucrative options. Next would come the decisions about which one or ones to make priorities and which to treat as additives. In the wings could be major career shifts. Those could represent an awesome payoff on the initiative and courage to reach beyond traditional approaches to build financial security.

Flood Insurance: What Homeowners, Renters Still Need to Know

Thanks to so-called “storms of the century,” like Irene and Sandy, homeowners and renters currently know a lot more about flood insurance. For example, a Bankrate survey found that 81% understood that standard policies exclude flood coverage. That is a special kind of protection. Although it is only provided by the federal National Flood Insurance Program (NFIP), it is available through commercial insurance agents. That is mandatory for those with federally backed mortgages who are based in zones designated by the Federal Emergency Management Agency (FEMA) as a Special Flood Hazard Area (SFHA).

However, as with much of insurance, which is a complex topic, there remain huge information gaps. This can present a major challenge in managing personal finance. That is because FEMA documents that floods are the top national disaster and they occur in all states. While homeowners and renters may fear fire, there is a greater possibility that they will be victims of flooding.

The most common knowledge deficit is about how much coverage is provided and for what. Yet this is what must be factored in before purchasing property in a high-risk flood area. FEMA makes those designations. Those rankings are available at Federal flood insurance is only available for up to $250,000 for damage to the building and $100,000 for contents. Private insurance can supplement that, but it is expensive. That means that buying a million-dollar home in such an area could mean financial ruin if there is a major flood. In addition, buyers might think twice about investing in sprucing up the basement. Insurance does not cover any renovations done below ground.

The story about content can be equally chilling. What is in the basement probably will not be covered. That ranges from the entertainment center to the equipment for the home office down there. As for the content in the rest of the owned property or rental, the news is not good either. The terms and conditions about reimbursements for content are based on “actual,” not “replacement” value of content. Given depreciation, the current fair value of a sofa may be $150. But it could cost $1,100 for a comparable piece of furniture.

A third sobering reality, which homeowners and renters might not know, is that flood policies do not pay for alternate living expenses. If the primary residence has been waterfront property in an expensive area like New York’s Hamptons, then shelling out for hotels and rentals will also be high. That means homeowners could be hit twice. Once would be through the loss of their property. The second hit would be through having to shell out ongoing lodging expenses.

A fourth not well-known fundamental about flood insurance is the likelihood that it will be needed. According to FEMA, 25% of flood claims are made by those in low- to moderate-risk areas. Here there is good news. Because of the reduced risk, there are preferred-risk policies with lower premiums. For homeowners they start at $129 for property and contents, and for renters for contents only at $49. Being on a high floor also does not protect from flooding. The flood can destroy pilings. The whole edifice could collapse. Therefore condo and co-op owners would be out the value of both their property and content.

Weather experts continue to disagree if there is global warming or the beginning of a mini-Ice Age. However, what is certain is that during the past several years there have been unusual weather events. Some of them caused flooding. The future cannot be predicted by the past. But, the risk of a flood seems higher for all parts of the nation than it had previously. It seems especially high for areas near the water and low-lying regions.

Debt After Death

Personal debt has become pervasive. All generations now tend to carry that burden. And, death, of course, is inevitable. Therefore, a financial question frequently being asked is: What happens to the debt after a person dies? Are the survivors stuck paying it off?

The issue emerges, for example, when the terminally ill want to get their financial affairs in order. It also gets factored in when the healthy calculate how much life insurance to buy. They wonder if the amount should cover what is likely to be their average outstanding debt so that their loved ones are not saddled with it upon their death.

The simple answer is that all the unsecured debt belonging only to that person vanishes upon the death. Therefore, that is one less thing for the dying to fret about. And in calculating the amount of insurance policies, many debtors will not have to factor in unsecured debt. “Unsecured” means no assets backing it as collateral, such as real estate, a vehicle, or a business. Therefore, the credit card companies, which provide those lines of credit unbacked by anything, are out of luck. They may attempt to intimidate, with threatening letters and phone calls, the survivors. They can contend that the survivors must pay off the credit cards. However, credit card companies have no legal claim. Should the harassment continue, survivors can send a certified letter stating they know their legal standing and that they are not responsible for the debt.

But most things aren’t simple. Neither is debt upon death, which is governed by state law. For example, that $40,000 in credit card debt might have been charged on a “joint account,” where more than one person signed for it. That other person might never have used the account or has even forgotten co-signing. But state law mandates that he or she must pay off the balance. This happens frequently in a marriage, a divorce in which one party agrees to pay off the debt but dies before doing so, when parents co-sign for children, and when adult children co-sign for their aging parents. Obviously, co-signing is never a good idea. The financial industry is innovative and there are always new vehicles for managing and monitoring someone else’s account without becoming a co-signer. Some of those are apps for the smartphone.

Those who are “authorized users,” not co-signers, do not inherit the debt. That holds whether they use the card or not. They could be liable for criminal charges, though, if, as authorized users, they run up extraordinary charges when they know the person is dying and won’t be able to pay off the balance. Also criminal is to use the card after the death.

Should there be an estate, then before heirs get anything, creditors have first grabs, beginning with the secured ones. If that auto loan is for $10,000 and car’s market value is $3,000, then the finance companies will try to make themselves whole by deducting the remainder from the estate. Should the estate have $30,000 in cash and the only creditors are credit card companies with a collective balance of $25,000, then they can collect on that directly from the estate. That leaves the heirs with only a $5,000 inheritance. If there is only $10,000 in cash but there are assets such as paintings, then those credit card companies will legally require that the assets be sold and they be reimbursed from the proceeds.

Things get a lot more complex in what are known as “community property states.” That means that everything, both assets and liabilities, is shared by both husband and wife. That traditionally holds, even if the spouse’s name is not on an account such as a credit card. Those states are Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, and Texas. That is why those planning to marry, who are already married in community property states, or who relocate there should consult with a lawyer. They need to know in detail what their financial obligations are, what they can be in the future, and what ways there are to protect themselves from the others’ debts.

There are those, of course, who want to do the “right thing,” not just comply with the law. They include relatives who pay off credit card debt, even when not legally obliged. One motivation is to “clear” the deceased’s name. Creditors welcome that behavior and will tend not to persuade the person to do otherwise. Ethics and legal are often far apart in what is required.

Renter’s Insurance: Coverage of Diverse Risks

All insurance, including renter’s, is a hedge against risk. The problem with renter’s insurance is that not many understand the risks it can cover. That might be the reason, according to the Insurance Information Institute (III) survey conducted by ORC International, only 31% of renters have it. Because it is not mandated by law or lenders, as with cars and homes, many never take the time to investigate this financial matter.

The reality is that renter’s insurance covers a broad spectrum of risk. The most basic is the cost of replacing personal property lost through fire, broken pipes, lightning, vandalism, car crashing into the premise, electrical surge, civil unrest, or volcano. Not until renters take an inventory of their belongings do they realize replacing them may total about $20,000. If the rental is of a house, not an apartment, that could be far more.

However, also to be factored in is the cost of alternate lodging if the premise is not habitable. That could put the average middle-class person in a financial hole. If the destruction has been caused not by water damage such as from a broken pipe but from a flood, then the renter is not protected by the standard policy. Hurricane Sandy victims found that out too late. Lesson learned: Read the policy. Separate flood insurance has be purchased. Although provided by the federal government, it is available through insurance companies.

A third kind of risk is legal liability, the kind that could trigger bankruptcy. That could result from an injury which occurs on the premises. According to the National Safety Council, one in 17 Americans had an injury indoors that required medical care. Victims could sue not only for reimbursement for medical care, ongoing therapy, and permanent disability, they could also claim there was negligence in how the renter maintained the premise.

Given the financial implications of the risks, the cost of renter’s insurance is relatively small. In a non-urban area that does not have a high crime rate, according to III, that could be about $200 annually. By bundling that with auto and other kinds of insurance, the price could be lower. Also, there are discounts for having security measures such as burglar alarms, deadbolt locks, and smoke detectors, as well as for those over 55 and the retired.

The hard work is the decision-making about the terms and conditions of the policy. Research can be done on the web under the keywords “renter’s insurance.” Essentially the main decisions deal with:

Overall amount

Policies are written for a fixed amount, not for coverage of certain individual items. To make this decision it makes sense to take a detailed inventory of the value of property, taking into consideration what the cost of replacing it would be. The desk which cost $20 at a flea market 20 years ago, now considered an antique, might have a replacement cost of $5,0000. To ensure proper payment, it is common sense to save receipts, get appraisals, and do a video recording of the content of the premises.

Actual versus replacement value

Some insurers write policies based on the value of the item when the loss occurred. That is known as Actual Cash Value. The laptop purchased for $700 may be worth only $100 four years later. The other option is Replacement Value. That same laptop might cost $545 today.


As with all insurance, the higher the deductible, the lower the premium. This makes especially good sense with renter’s insurance since a claim is not usually filed for petty losses. That is because filing claims or multiple ones within a certain time period frequently flags the buyer as a poor risk. In the near future, it could be impossible to get any kind of renter’s insurance.


Some insurance companies will not write policies covering certain breeds of dogs. Research on this is as simple as contacting a few and finding out their contract stipulations. If pit bulls are not covered, then the renter has to decide whether to go without insurance or to negotiate a special contract.

Special items

Property of high value, ranging from collectibles to diamond rings, requires riders to standard policies. The cost is high. There are alternate risk reducers, such as maintaining the items in containers which are fire- and waterproof, and kept where thieves are unlikely to search.

Rational people can have very different attitudes toward risk, points out Ken Binmore in his book Game Theory: A Very Short Introduction. If one agrees with that, there are no right or wrong answers about purchasing renter’s insurance, how much, and with what terms and conditions. However, if disaster strikes, the victims without renter’s insurance might conclude they operated on a bad set of assumptions.

You Don’t Have to Be Debt-Free to Save for the Future

Consumer debt in the United States is near an all time high, and if you are holding any, it can be easy to justify not saving money. While a major bulk of the nearly 16 trillion dollars of debt is in the form of mortgages, student loans and credit cards consist of close to 2 trillion dollars of it (see For consumers trying to pay down the latter two forms of debt, it can be particularly difficult to find any margin to set aside for a rainy day or savings for the future. As hard as it may be, it is wise to do everything in your power to begin contributing to an emergency fund, and then a retirement savings account, even in the midst of debt repayment.

Emergency Funds

Though you have most likely heard (or read) several exhortations from financial pundits or concerned family and friends about a “rainy day fund”, pleas for you to begin and maintain an account for emergency savings are hardly ever redundant. If you have already set your mind and will to paying off your debt, you likely want to do it as soon as possible. That mentality should be commended. However, if you are using all of your liquid assets to pay your creditor back each month, just a small mishap might force you to borrow again (and thus add to your debt). In addition to the advice of storing up 3 to 6 months worth of funds to cover expenses in the event of a costly circumstance, the ease of conversion factor should also be a consideration. You may have some convertible assets like a car or diamond necklace that you consider “sell if I have to” items, but you still need to factor in how long it would (realistically) take to convert them into the cash you would need to cover an auto repair or a family member’s medical expenses, for example. Markets and market demand change quickly, and it could take you longer than you think to convert your things into cash.

Savings and checking accounts are the easiest options for these emergency savings, as most of them gain interest but don’t penalize you for withdrawing funds (unless the account has particular minimum balance requirements). A lot of savings accounts come with an ATM card or checks for easy access, but if not, an ACH fund transfer to a linked checking account is a simple workaround. Certificates of Deposit can be utilized as well, but timing is a little trickier. Most CDs come with early withdrawal penalties that would force you to give up some of your interest if necessity demanded you take money out in an emergency situation. That is, unless you could perfectly time your financial emergencies to occur during the grace period between CD terms. Bank5 Connect offers all of these products, and with some of the best interest rates available nationwide.

Retirement Savings

If you can establish a healthy emergency fund, then you will have built a great foundation upon which to focus on more long-term savings. Many consumers focus on paying off their student loan and credit card debt once they’ve established some emergency savings, but depending on the interest rates of your loan(s), it could be beneficial to maintain some level of dedication to savings. If your loans are accumulating interest at a lower rate than the returns you expect to be making on your retirement investments, then reducing loan payments in order to profit from the margin may be a wise move. That margin could ultimately help you pay off your loans more quickly in the long run. There are numerous places to look for investment options, from insurance products to mutual funds to IRAs. If you are able to open and fund a long-term retirement vehicle early on, you will have more years with which to potentially benefit from the power of compounding growth.

Finding Margin

Obviously, it would be easy to build both an emergency and retirement savings fund if you actually had some margin to spare between money coming in and expenses going out. As the economy continues its struggle to rebound from the recession, finding places to create this margin is no simple task. In addition to the above strategy of redirecting some debt repayment funds, you should also maximize the benefit of any employer’s retirement contribution matching program. For low and average income workers, taking advantage of the saver’s tax credit is another great avenue to increase the effectiveness of your saving efforts. Also, though it sounds minor, paying your bills on time (as opposed to early) will give those funds in an interest-yielding deposit account more days to accumulate interest.

Making the push to get your emergency savings account set up is a crucial first step to striking a workable balance between growing savings for the future and shedding debt in the present. Though everyone with consumer debt has a unique situation, the above tools should help you evaluate the most effective (and profitable) path to taking advantage of potential savings opportunities.

Patrick Russo writes for, a website that monitors products and rates at more than 7,500 banks and credit unions and pairs that information with comprehensive commentary, reviews, tools, and community forums to equip and guide depository banking consumers.