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Is It Time for Life Insurance?

Is It Time for Life Insurance?

Important life events may call for it.

 

Provided by MidAmerica Financial Resources

 

Many younger Americans lack life insurance. A 2014 report from insurance industry analyst LIMRA found that only a third of Gen Y Americans have any life insurance coverage. In the same survey of 6,000 respondents, six in 10 Gen X and Gen Y Americans said their households would be hard pressed to make ends meet if their primary breadwinner passed away.1

  

Why don’t more young adults buy life insurance? Shopping for coverage may seem confusing, boring, or unnecessary. Yet when you have kids, get married, buy a house or live a lifestyle funded by significant salaries, the need arises. Insurers are trying to make it easier these days, not only by making more choices accessible online but by shortening the window of time it takes to approve a policy.1

 

Finding the right policy may be simpler than you think. There are two basic types of life insurance: term and cash value. Cash value (or “permanent”) life insurance policies offer death benefits and some of the characteristics of an investment – a percentage of the money you spend to fund the policy goes into a savings program. Cash value policies have correspondingly higher premiums than term policies, which offer only death benefits during the policy term. Term is a great choice for many young adults because it is relatively inexpensive.2

 

There is an economic downside to term life coverage: if you outlive the term of the policy, you and/or your loved ones get nothing back. Term life policies can be renewed (though many are not) and some can be converted to permanent coverage.2

 

The key question is: how long do you plan to keep the policy? If you would rather not pay premiums on an insurance policy for decades, then term life stands out as the most attractive option – especially if you are just looking for a short-term hedge against calamity. If you are looking further ahead or starting to think about estate planning, then permanent life insurance may prove a better choice.

 

The coverage may be cheaper than you think. Young adults sometimes assume they cannot afford life insurance, but policies have become progressively cheaper. If you are 35 and healthy, it will probably cost you less than $20 a month to maintain a 20-year level term policy with a $250,000 payout. The premiums may not even be that much.1

 

Confer, compare & contrast. Talk with a financial or insurance professional you trust before plunking down money for a policy. That professional can perform a term-versus-permanent analysis for you and help you weigh per-policy variables.

   

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com.

www.mid-america.us

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 - money.usnews.com/money/personal-finance/articles/2014/07/16/do-you-have-enough-life-insurance [7/16/14]

2 - nolo.com/legal-encyclopedia/life-insurance-options-29789.html [4/22/15]

 


If Interest Rates Rise, What Happens to Bonds?

Investors in longer-term Treasuries could really be punished.

 

Provided by MidAmerica Financial Resources

 

Will bond investors soon suffer major losses? In the last few years, Bill Gross, Jim Rogers and other pundits have warned of a bond bubble. While it has yet to occur – the broad bond market yielded an annualized 4.42% from 2010-2014 – the threat remains.1,2

 

Quality bonds have a place in a portfolio, but many investors are directing their money elsewhere. Seemingly everyone believes the Federal Reserve will raise interest rates later this year, with bonds set to lose market value. Assuming the economy stays healthy and appetite for risk stays strong, what will happen to bonds when rates begin to climb?

   

The impact of rising rates will vary.

 

Long-term bonds tend to be hit harder by higher rates. They may lose market value, but eventually the higher rates will result in extra income for the patient investor.

 

How about short-term and intermediate-term bonds? Some analysts warn against purchasing short-duration Treasuries and municipal and corporate bonds, contending that these debt securities might be hurt the most should the pace of rate hikes quicken. Others disagree.

 

Higher rates have not always imperiled the bond market. Since 1975, our economy has witnessed six rising interest rate environments. They lasted from two to five years with T-bill rates increasing between 2.3-11.9%. In those six instances, the total annual return for Barclays U.S. Aggregate Bond Index (the S&P 500 of the bond market) ranged from 2.6-11.9%, with most of the total annual returns at between 4-6%. In short, no disaster for a bond investor. (Last year, the total return for the index was 5.97%.)2

 

Still, if the federal funds rate rises 3% over a period of a few years, a longer-term Treasury might lose as much as a third of its market value as a consequence – and if bulls run on Wall Street with only brief retreats between now and 2025, how attractive will a short-term or intermediate-term Treasury be?

 

What if you want or need to stay in bonds? Some bond market analysts believe now might be a time to exploit short-term bonds with laddered maturity dates. The trade-off: accepting lower interest rates in exchange for a potentially smaller drop in the market value of these securities if rates rise. If you are after higher rates of return from short-duration bonds, you may have to look to bonds that are investment-grade but without AAA or AA ratings.

   

If you see interest rates rising sooner rather than later, exploiting short maturities could position you to get your principal back in the short term. That could give you cash which you could reinvest as interest rates go up. If you think bond owners are in for some pain in the coming years, you could limit yourself to small positions in government bonds, investment-grade corporate bonds and bond funds with durations of 10 years or less.

   

Bonds still belong in the big picture. In a bull market, putting money into an investment returning 1.5% for 10 years may seem nonsensical. It may make more sense in light of the goal of portfolio diversification and the need for consistent returns. If interest rates rise significantly in the next few years, current owners of long-term bonds might find themselves losing out in terms of their portfolio’s potential.

   

MidAmerica Financial Resources may be reached at 618.548.4777 or greg.malan@natplan.com.

www.mid-america.us

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.  In general the bond market is volatile, and fixed income securities carry interest rate, market, inflation and credit risks.  Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.  Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.

 

    

Citations.

1 - bloomberg.com/news/2013-02-07/u-s-30-year-bond-losses-pass-5-as-fed-price-gauge-rises.html [2/7/13]

2 - marketwatch.com/story/how-your-bond-portfolio-can-survive-higher-rates-2015-04-23 [4/23/15]





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