Finance Personal Study Guide 12,13,19,20
Important insurance, retirement, and estate information is provided below. Using
your text and class notes, prepare for the exam which will focus on the topics and
facts covered for this section of the course.
A persons need for life insurance varies over their lifetime, depending on the assets one
wants to protect. If no one else relies on your income, life insurance may not be
necessary.
Know types of insurance = Whole life; universal life; variable life; decreasing term
insurance; mortgage insurance. Term life policies are the most popular form of life
insurance. A disadvantage of variable life policies is that the cash value may actually
decrease in value of stocks or other instrument values decline.
The person who can collect on an insurance policy is the beneficiary. They can be
anyone named by the policyholder and can include friends, animals, estates, and
foundations, in addition to family members.
Know factors that impact insurance premiums = age; gender; health; policy cash value.
The underwriting process allows the company to determine how much the premium of
the policy should be. The major underwriting factors of life insurance are age, gender,
health and lifestyle choices.
The policy holder can borrow money from the cash value of a whole life policy with low
interest rates compared to getting a loan from a credit union or bank. The policy holder
can use the borrowed funds for any purpose they choose.
Know the difference between a defined-benefit and a defined contribution plan.
Know that premiums can be paid= annual, semi-annual; quarterly; monthly. Monthly
premiums result in more expensive premiums for the policyholder.
A disadvantage of term insurance is that it increases in cost when you renew it, it has
not value at the end of the term and it has not value when you discontinue the policy.
Term insurance becomes more expensive when you renew it (older and less healthy); it
has no investment or saving products associated with it. Term insurance is less
expensive than whole life insurance (great for young people who what to get insurance
at affordable rates). If you purchase a term insurance policy with a conversion option,
you can convert the term policy to a whole life policy during the conversion per iod. This
assumes you will be able to better afford the increased premiums at a later time
because people used to get raises, promotions, and new jobs to increase their methods
of income.
Younger people or healthier people pay less for insurance
Insurance policy amount can be determined by income or budget methods (know
difference). When using the budget method of determining life insurance needs, a
familys future expected expenses are considered.
Whole life policy has cash values (you can take out loan on this). Term policy has no
such feature.
Insurance allows you to continue a desired lifestyle not develop a way to get rich
Insurance beneficiaries can receive payments in a variety of methods. Lump sum is given
out all at once (must have discipline); installment; interest only.
401 (k) and 403(b) allow workers to make contributions to their retirement accounts. If
your employer offers a retirement plan, it should be the first plan that you consider
because your employer will likely contribute to it. You can roll your contributions to an
IRA when you leave the company; you pay a 10% penalty and ordinary tax on any
amount withdrawn before you reach the age of 59 ; federal laws determine how much
you can contribute each year.
The 401K designation relates to for-profit organizations (SCB Corporation, General
Motors, Duke Power and Light) and the 403b designation relates to non -profit
organizations (Wright State, Florida State, and TCC).
For traditional IRA accounts, penalties apply for both early and late (before 59 and
after 70 ) withdrawal.
Contributions to a Roth IRA are after taxes to your income; therefore you do not pay
taxes again on the dollars when you receive them.
For 401(K) you can leave it with your former employer, transfer it to your personal IRA
or transfer it to your new employer.
Vesting means that employees have a claim to a portion of the retirement money that
has been reserved for them upon retirement.
Beware of investing all of your retirement in the companys stock. If your company goe s
bankrupt, you lose your job, health care and savings for retirement. It is not a good idea
to invest most or all of your retirement savings in the stock of your employer to
demonstrate your loyalty.
When your employer will fund your retirement if you contribute to it, the employee
should make an effort to put in the amount the employer will match. Free money is a
valuable benefit as part of the compensation package. More than 80 percent of
employers offering and 401K 403B plans will match a portion or all of an employees
contributions.
Retirement fund withdrawals are taxed as ordinary income. Typically you earn less when
retired, resulting in being taxed in a lower tax bracket.
Both the Keogh Plan and the Simplified Employee Plan (SEP) are available to se lfemployed individuals for retirement savings.
Payments to Social Security are based on salary and are made by both employees and
employers. Social Security funds do not provide sufficient income to support the
lifestyles of most individuals. Therefore, you should make every effort to save for your
elder years.
The government sets the normal age for social sec urity payments. The normal age of 65
has been moved to 67 for baby-boomers. Some take early payments at age 62 and can
get a reduced amount.
Probate is the process of determining the distribution of assets for people who die.
People learn of the claims against the estate; learn who the heirs are entitled to the
funds; and to validate the will to determine if the will is legal.
A will provides information about the final arrangements of an individual. Key
components of a will include naming an executor, spelling out funeral arrangements,
and appointing a guardian if minors are involved.
For a will to be valid, the maker must be of legal age, be free from undue influence of
others, and me mentally competent. In order for a will to be valid, it must be dated,
signed and witnessed. When a person dies without a valid will, the court will appoint an
administrator, which results in additional costs for the estate. A person can donate
money to a charity; those dollars go out before estate taxes are paid. When you are a
married couple with a large estate, a marital share will is appropriate.
A living will is a legal document in which individuals specify their pre ferences if they
become mentally or physically disabled.
A portion of the estate is not taxed. Currently 2 million per spouse . Once your net worth
exceeds the tax-free limit of estate taxes, you should carefully plan your estate to
minimize any potential tax liability.
The will can show the distribution in a variety of ways = percentages (i.e. 20% to Jim); a
specific amount (i.e. $50,000 for Jack); and percentages and a remainder portion (i.e.
50% to Jim, 40% to Sue, $5,000 to Liz and the remainder to the a nimal shelter).
Therefore, if your estate is less than 2 million (4million for a married couple) the death
tax issue is not your problem. When estate taxes are levied, they start in the 37 -50
Percent tax bracket.
Estate planning enables one to determine how wealth will be allocated on or before
your death.
A tax-free gift of up to $11,000 per year can be given to another person ($22,000 for a
married couple). Wealthy individuals can fund lots of projects for their adult children,
grandkids, and great-grand folks.
The executor is the personal representative and is named when you develop the will.
The individual designates whomever they want for the assignment.
The probate activity ensures that there is an orderly distribution of the assets.
Part A of the Medicare basic coverage includes what items
Health care costs increase due to technology, people living longer, higher legal costs,
but technology has improved areas of reimbursement and claim filing.
Employers used to pay all of the healthcare insurance cos ts for employees. Now
employees pay some of the costs.
Individuals can purchase disability insurance, get it through their employer or get Social
Security disability insurance.
Insurance for health and automobiles have a deductible amount that the policyholder
must pay to share the costs of the incident.
Health insurance plans may cover hospital, surgery and physician fees.
Indemnity plans reimburse the policyholder after they pay the medical bills; managed
care plans are more controlled arrangements between the physician/facility and the
insurance companies
HMOs require a primary care doctor referral to a specialist for treatment.
Technology advances have been unable to help keep costs down for health care.
Medicare health insurance is for people over 65. Medicaid is for people who can show
need for financial assistance of all ages.
Flexible spending accounts are ways to avoid paying taxes on the dollars you spend for
health care.
Individual disability insurance is a valuable because employer plans, social security, and
workers compensation do not sufficiently eliminate the need for this product
The majority of workers get their health care insurance from their employers.
When searching for a disability insurance plan, you want one that pays if you are u nable
to work at your occupation. Choosing one that requires you to work at any occupation is
too restrictive and not the best plan for you.