The Equity Risk Premium (aka, Equity Premium) is the expected return of the stock market over the risk-free rate (U.S. Treasuries). This number basically refers to the amount an investor should expect in exchange for accepting the risk inherent in the stock market. The size of the equity risk premium varies depending on the amount of risk of a portfolio, the market, or a specific holding investment, against the risk-free rate. Continue reading...
Market Risk Premium refers to the expected return on a risk asset, minus the risk-free rate. A good barometer for the risk-free rate is using a U.S. Treasury bond, which is largely considered a risk-less asset if held to maturity. To give an example, let’s say the annual expected return on Stock ABC is 11%, and a 1-year U.S. Treasury pays 2%. In this case, the market risk premium is the difference between the two, or 9%. Continue reading...
The cost of long-term care insurance varies depending on the policy and the age of the insured. Generally speaking, however, the insured can expect to pay between a hundred to several hundred dollars a month. Typically the total cost adds up to at least a few thousand dollars per year. Furthermore, you will be required to continue paying the premium through your retirement (until you begin using the insurance), and if you fail to pay the annual fee, you might lose some or all of your coverage (regardless of how much you have paid up to that point). Continue reading...
Bond insurance is a contract that protects the issuer and the holder of bonds from the risk that bond payments will not be made. Bond issues from the corporate or municipal world, or from derivative sources as with asset-backed securities and CDOs, come with the risk of default-- that is, that payments will not be made on time. The major credit ratings agencies (CRAs) assign a risk of default to each bond issue with proprietary analysis methods and ratings. Continue reading...
Generally speaking, the earlier you purchase long-term care insurance the less expensive it will be in terms of monthly premium. Investors in good health should start thinking about long-term care insurance as part of their overall financial plan around their late 40’s/early 50’s. Medical history also plays a role. If your parents needed daily medical care later in life, then you should consider purchasing a long-term care policy sooner than later. Continue reading...
Universal Life Insurance is a permanent cash value insurance that has a term-insurance component and a savings component as well. The savings component is invested in a tax-deferred account, designed to create a cash build-up that can increase the death benefit or to be used at the discretion of the policy-owner. The cash grows inside the policy tax-deferred, and if money is taken out as a loan, it avoids taxation as income. Continue reading...
Whole Life Insurance provides lifelong death benefit coverage as well as a tax-deferred savings account. A large portion of your premium goes into the general account of the insurance company, and this increases the cash value available to the policy holder at a growth rate dependent on the investment and sales experience of the company. Every dollar and amount of interest which is credited to the policy cash value is vested with the policy-owner and will not decrease. Continue reading...
As a rule of thumb, life insurance should not be considered an investment at all, since it’s primary purpose is to provide insurance coverage. That said, some cash value policies have attractive features that can be appealing in certain circumstances. We will say that a smart investor who has done research and gotten good advice will generally not end up with a permanent cash value life insurance policy. Continue reading...
Homeowners insurance covers a variety of risks to a homeowner, including damage to the property and the belongings within it, as well as liability coverage in the event that someone else is injured on the property. It does not include coverage for flood or earthquake damage, so people living in areas where that might be a problem will need to find a separate policy for those coverages. Homeowners insurance is highly advisable for any homeowner, and most mortgage lenders will require it. Continue reading...
Second-to-die policies are also known as survivorship policies, and are primarily used by married couples to provide a guaranteed legacy to their children after they have both passed away. These come in handy for estate planning, when an estate tax bill might be looming for the heirs. To be clear, this insurance covers the lives of two individuals and provides a death benefit to a listed beneficiary only after the last surviving insured individual dies. Continue reading...
The Foreign Credit Insurance Association protects American businesses from non-payment in international trade deals where goods were sold on credit. The Foreign Credit Insurance Association (FCIA) is a group of insurance companies which underwrite the foreign credit insurance sold by the Export-Import Bank of Washington DC. The Export – Import Bank, also known as the Ex/Im Bank, is an independent government entity that facilitates and encourages some international trade activity of American companies. Continue reading...
Variable Life Insurance is a permanent universal life policy that has a death benefit as long as the cash value and premiums are sufficient to pay the increasing cost per-thousand, while the premiums and cash value have the option of being invested in separate accounts which behave much like mutual funds. Often the policy-owner has a choice of many investment options, and can construct an entire portfolio within the policy. Continue reading...
Life insurance is one of the oldest financial products in existence, with roots going back beyond the ancient Roman Empire. Today, there are many different kinds of life insurance available, most representing variations on the main categories of term life, whole life, and universal life. It can be written in a private contract, but most often it is offered as packaged products to the public. Life Insurance’s main purpose is to ensure that dependents of a deceased provider or caretaker will have some financial resources to fall back on, but it can also be used as a means to create a guaranteed legacy or a tax-advantaged pool of money. Continue reading...
Some advisors have practices that focus on specific types of investments or niche markets. If your investment portfolio seems to be lacking a particular area and you are not confident that your current advisor or you yourself can take on the challenge of incorporating the changes you desire, then you may want to speak with a more specialized advisor in that particular area. Similarly, some advisors focus on specific types of clients, such as medical professionals, and if such a category suites you then you may find that your needs are best met by someone who deals with people like you most often. There are some designations and certifications that advisors can earn beyond the standard ones, which may cause them to be sought out on certain topics or investments. Continue reading...
Life insurance contracts sometimes contain provisions by which the death benefits can be paid out to an insured person while they are still alive. This is called “accelerating” the benefits. Certain terms must be met for the benefits to be accelerated, and different policies have different contract language and exclusions. Sometimes these provisions are attached to a regular contract as a Rider, which might require an additional premium, or might be included by default. Continue reading...
There will be a premium paid by investors for the right to establish positions using options. The price of the underlying security must move to a certain point for the options position to become profitable. The strike price of an options contract names the price that an investor can use to buy or sell the underlying security, but the breakeven price will be the strike price plus the amount of the investor’s premium or net debit. Breakeven price can apply to a multi-option strategy such as a spread, or to a single option position. Continue reading...
If an annuity or pension will pay your spouse a survivor’s benefit that is adequate to support his or her lifestyle, then you may not need to a life insurance policy to cover this need. Annuities are seen as longevity insurance which protect against outliving money, while life insurance protects beneficiaries if the insured person dies younger than expected. If something happens to you and you have an annuity, your surviving spouse would either continue to receive periodic benefits or take a lump-sum distribution, depending on what kind of payout option you chose when you signed the contract. In the case of the lump sum it may only be for the amount of principal that had not been paid out yet in annuity payments. Continue reading...
Life insurance companies that have not been around more than 20 years may not be reliable. Even the ones that have been around 30 years or so need to have very good credit ratings and business models for you to expect them to be around in 30 years or so to pay a possible death claim. To determine whether an insurance company is reliable, it is necessary to look at their financial strength rating. A financial strength rating is a letter-grade provided by major rating services, such as Moody’s Investor Services, Fitch Ratings, and others. For example, Moody’s Investor Services ratings are as follows: AAA, AA, A, BBB, BB, etc. Continue reading...
Life insurance guarantees that a death benefit is paid if an insured person dies while the policy is in effect. Various kinds of life insurance exist, and people buy various amounts of coverage for different purposes, most often to provide for the insured’s dependents if the insured dies prematurely. Life insurance represents a contractual obligation by a company to pay a death benefit to an insured person’s designated beneficiaries if the person dies while the policy is in force. Continue reading...
Accidental Death and Dismemberment (AD&D) coverage is normally offered as a rider on health or regular life insurance policies, or as a part of voluntary deduction supplemental insurance offered to an employee group. AD&D policies provide separate coverage and terms for the instance of death by accident and the loss of limbs or specific functionality of body parts. The main attraction to this insurance is that it is very affordable, and many employees check to box to have it deducted from their pay because it is such a negligible amount. Continue reading...