Tuesday, March 30, 2010
Friday, March 19, 2010
5 things to know about permanent life insurance
1. It's more coverage than most people need
The main purpose of life insurance is to protect your family's finances when you die. Permanent insurance does that for your entire lifetime, while also providing an investment component -- savings build within the policy, and you can tap or borrow against this "cash value."
In contrast, basic term insurance provides coverage for a set number of years for a much lower premium. At the end of the term, you typically get no cash back. But by then your kids will be grown and your house paid for, so the policy will have done its job, says insurance adviser Glenn Daily of New York.
2. It may not be your best investment
Permanent life aims to provide protection and growth. But it's usually best to seek those separately, says Daily. Because premiums on permanent are high, you may be tempted to skimp on the death benefit. (A $1 million policy for a healthy 40-year-old woman can run as much as $13,900 a year; she could get a $1 million 20-year term policy for $750.)
Plus, the policies are often so opaque that it's hard to assess the investment potential. The alternative? Buy term and invest the rest. You'll have control over expenses -- and a shot at better returns.
3. But in rare cases, it's just the ticket
The cash that builds in such policies is not taxed until it's withdrawn (and you can avoid even those taxes by taking a "loan" against the account, which reduces the death benefit). That makes permanent insurance useful for high earners who max out other tax-deferred savings, says life insurance adviser Peter Katt of Mattawan, Mich.
Because it lasts a lifetime, a permanent policy may also make sense for older people who'll have illiquid estates -- like small-business owners -- but want to pass on money. The death benefit is often greater than what they'd be able to save.
4. The right flavor makes all the difference...
There are three main types of permanent insurance: traditional whole, universal, and variable. Whole has a fixed premium and guaranteed minimum growth. Universal allows you to raise or lower your premiums and resulting cash balance. And variable lets you choose how the cash is invested.
If you think you're a candidate for a permanent policy, find an independent expert to help you pick among these. Search "fee-only life insurance" online to find pros who charge hourly fees (around $300) and eschew commissions from insurers.
5. ... because dumping a policy will cost you
It can take a decade or so before a permanent policy's cash value -- what you'd get back if you gave up coverage -- catches up to the premiums you've paid. There may also be surrender charges in the early years.
Already have a policy with cash value built up? For $80, the Consumer Federation of America will review it to see if it's worth keeping (evaluatelifeinsurance.org). Know that if you cash out, you'll owe tax on the earnings portion, unless you transfer the money to another insurance product, says Daily.
The main purpose of life insurance is to protect your family's finances when you die. Permanent insurance does that for your entire lifetime, while also providing an investment component -- savings build within the policy, and you can tap or borrow against this "cash value."
In contrast, basic term insurance provides coverage for a set number of years for a much lower premium. At the end of the term, you typically get no cash back. But by then your kids will be grown and your house paid for, so the policy will have done its job, says insurance adviser Glenn Daily of New York.
2. It may not be your best investment
Permanent life aims to provide protection and growth. But it's usually best to seek those separately, says Daily. Because premiums on permanent are high, you may be tempted to skimp on the death benefit. (A $1 million policy for a healthy 40-year-old woman can run as much as $13,900 a year; she could get a $1 million 20-year term policy for $750.)
Plus, the policies are often so opaque that it's hard to assess the investment potential. The alternative? Buy term and invest the rest. You'll have control over expenses -- and a shot at better returns.
3. But in rare cases, it's just the ticket
The cash that builds in such policies is not taxed until it's withdrawn (and you can avoid even those taxes by taking a "loan" against the account, which reduces the death benefit). That makes permanent insurance useful for high earners who max out other tax-deferred savings, says life insurance adviser Peter Katt of Mattawan, Mich.
Because it lasts a lifetime, a permanent policy may also make sense for older people who'll have illiquid estates -- like small-business owners -- but want to pass on money. The death benefit is often greater than what they'd be able to save.
4. The right flavor makes all the difference...
There are three main types of permanent insurance: traditional whole, universal, and variable. Whole has a fixed premium and guaranteed minimum growth. Universal allows you to raise or lower your premiums and resulting cash balance. And variable lets you choose how the cash is invested.
If you think you're a candidate for a permanent policy, find an independent expert to help you pick among these. Search "fee-only life insurance" online to find pros who charge hourly fees (around $300) and eschew commissions from insurers.
5. ... because dumping a policy will cost you
It can take a decade or so before a permanent policy's cash value -- what you'd get back if you gave up coverage -- catches up to the premiums you've paid. There may also be surrender charges in the early years.
Already have a policy with cash value built up? For $80, the Consumer Federation of America will review it to see if it's worth keeping (evaluatelifeinsurance.org). Know that if you cash out, you'll owe tax on the earnings portion, unless you transfer the money to another insurance product, says Daily.
Wednesday, March 10, 2010
Citi offers alternative to foreclosure
CitiMortgage, one of the nation's largest mortgage servicers, launches a pilot program Friday designed to ease the pain of some homeowners heading for foreclosure.
Instead of borrowers falling further and further behind on their mortgages, leading to an eventual foreclosure sale, they can stay in their homes for up to six months, if they agree to then hand over the deed to the lender.
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The borrowers the program targets are already seriously delinquent, having missed at least three monthly payments, and are well on the road to losing their homes.
By giving the house back to the lender, in a transaction called a deed-in-lieu of foreclosure, the lender saves considerable expenses, especially on legal fees. Because of those savings, CitiMortgage, a division of Citigroup (C, Fortune 500), will grant quite generous terms to participants.
CitiMortgage CEO Sanjiv Das said he knows of no other big servicer with a program like it.
"This is a deed in lieu on steroids," he said.
The biggest advantage for borrowers is the time it gives them to plan their next moves. And while borrowers still lose their homes, the program promises to make the process more orderly and provides benefits for both lender and borrowers.
It includes a pledge from CitiMortgage that it will pay the borrowers a minimum of $1,000 to help with relocation expenses.
"The goal of the program is to help homeowners make a smooth transition into the next chapter of their lives," said Das. "Not every homeowner has the financial ability to remain in their home."
Citi will also provide relocation counseling and may even cover some monthly property expenses while the borrowers remain in their homes, if Citi determines the borrowers can't afford the expenses.
Foreclosures: How bad is your state?
Citi will also forgive any difference between the value of the home at time of repossession and what the borrower owes. Once the deed goes back to the lender, the borrowers walk away free and clear.
For their part under the new program, borrowers must agree to keep the homes in good condition and to meet with trained relocation professionals every couple of months to facilitate their final moves.
The program targets borrowers Citi believes would not benefit from mortgage modifications because they could not afford even sharply reduced mortgage payments. It also applies to borrowers who went through mortgage modifications but fell behind on their payments anyway.
It's ideally suited for borrowers considering walking away from their homes anyway or pursuing an ordinary deed in lieu, said Das.
To be eligible, homeowners must have their first mortgages with CitiMortgage, no second mortgage, actually live in the home and be seriously delinquent on mortgage payments, at least 90 days late.
The pilot program begins Friday and will be confined to six states: Texas, Florida, Illinois, Michigan, New Jersey and Ohio.
If it works in those states, CitiMortgage will open the program up to the rest of the country.
"By helping avoid the foreclosure process, which can be very stressful and distracting, and keeping people in their homes long enough to make an orderly transition to the next stage of their lives, we are also supporting neighborhood revitalization and stabilization efforts, which are crucial to the nation's economic recovery," said Das.
Instead of borrowers falling further and further behind on their mortgages, leading to an eventual foreclosure sale, they can stay in their homes for up to six months, if they agree to then hand over the deed to the lender.
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
The borrowers the program targets are already seriously delinquent, having missed at least three monthly payments, and are well on the road to losing their homes.
By giving the house back to the lender, in a transaction called a deed-in-lieu of foreclosure, the lender saves considerable expenses, especially on legal fees. Because of those savings, CitiMortgage, a division of Citigroup (C, Fortune 500), will grant quite generous terms to participants.
CitiMortgage CEO Sanjiv Das said he knows of no other big servicer with a program like it.
"This is a deed in lieu on steroids," he said.
The biggest advantage for borrowers is the time it gives them to plan their next moves. And while borrowers still lose their homes, the program promises to make the process more orderly and provides benefits for both lender and borrowers.
It includes a pledge from CitiMortgage that it will pay the borrowers a minimum of $1,000 to help with relocation expenses.
"The goal of the program is to help homeowners make a smooth transition into the next chapter of their lives," said Das. "Not every homeowner has the financial ability to remain in their home."
Citi will also provide relocation counseling and may even cover some monthly property expenses while the borrowers remain in their homes, if Citi determines the borrowers can't afford the expenses.
Foreclosures: How bad is your state?
Citi will also forgive any difference between the value of the home at time of repossession and what the borrower owes. Once the deed goes back to the lender, the borrowers walk away free and clear.
For their part under the new program, borrowers must agree to keep the homes in good condition and to meet with trained relocation professionals every couple of months to facilitate their final moves.
The program targets borrowers Citi believes would not benefit from mortgage modifications because they could not afford even sharply reduced mortgage payments. It also applies to borrowers who went through mortgage modifications but fell behind on their payments anyway.
It's ideally suited for borrowers considering walking away from their homes anyway or pursuing an ordinary deed in lieu, said Das.
To be eligible, homeowners must have their first mortgages with CitiMortgage, no second mortgage, actually live in the home and be seriously delinquent on mortgage payments, at least 90 days late.
The pilot program begins Friday and will be confined to six states: Texas, Florida, Illinois, Michigan, New Jersey and Ohio.
If it works in those states, CitiMortgage will open the program up to the rest of the country.
"By helping avoid the foreclosure process, which can be very stressful and distracting, and keeping people in their homes long enough to make an orderly transition to the next stage of their lives, we are also supporting neighborhood revitalization and stabilization efforts, which are crucial to the nation's economic recovery," said Das.
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