$$$ Managing your money $$$

$$$ Managing your money $$$

Foster, Susan

PROTECTING YOUR ASSETS

The first step in sound financial planning is to protect what you already have. This includes health and disability insurance, property insurance, automobile insurance and, for people with dependents, income protection (or life insurance). As nurses, we are well prepared to evaluate health and disability insurance options. However, we may benefit from additional information to make wise choices concerning property, auto and income protection. In this issue, life or income insurance will be addressed. Property and auto protection will be discussed in the future.

Not everyone needs life insurance: If there is no one dependent on your income, you probably have no need to purchase protection for it. Some, especially young people without a lot of other assets, may want to have minimal life insurance coverage to fund their funeral expenses and/or cover their debt. Others may want a life insurance policy to bequeath money to a relative or friend in the absence of other available assets. Of course, life insurance coverage provided as a free benefit by an employer is always a plus.

When do you need life insurance: If you have someone dependent on your income, life insurance is one way to insure that that person has continuing support. Some policies claim to also be a mechanism for funding college education and/or retirement. While there may be savings through a specific policy, the cost of that savings should be carefully studied. Often, investments outside an insurance policy yield more in terms of real earnings.

Be aware of the type of life insurance policy you purchase: There are primarily two types of life insurance, cash value and term. Cash value life insurance is known by several names including Whole Life, Universal Life, Variable Life and Variable Premium Life. Cash value policies provide a death benefit and usually have an investment portion designed to provide monies for loans, education and retirement. Critical factors to assess when considering a cash value policy include the table which describes when your policy no longer has a cash value, the table which defines when your premiums will rise significantly in order to keep your policy in effect and the total of the multiple management/administrative fees charged against your premium prior to any investment. If you find the voluminous and small print describing your policy overwhelming, call me or any financial advisor to make certain that you understand the total policy, not just the agent’s description.

Term insurance provides only income protection and is significantly less expensive than a cash value policy. The advantage of a term policy is that you can assure financial support for your dependents and invest the savings (the difference between the cost of cash value life and term life) to provide for education, retirement, a vacation home or other goals. Investments made outside an insurance policy typically have lower management fees and, most importantly, offer you broader options. Being locked into a policy’s menu of options may well not work to your advantage. You always want to be free to make safe, profitable investments and the type of investments that accomplish that change over time.

How much life insurance do you need: An assessment of your financial assets and liabilities and the details of your specific dependant situation is needed to develop a sound estimate of adequate coverage. Then the need for coverage must be balanced with an affordable payment to determine the plan best suited for you. As your earnings rise, you may want to purchase increasing coverage and as other assets grow, you will probably want to decrease the coverage you purchase. This is an option available with term insurance.

In summary, each individual’s situation is different and your total financial status must be considered to select the appropriate coverage. Learn all the details of any policy before you make any decision. Remember that keeping your options open can be a major benefit over time.

MANAGING YOUR MONEY will appear regularly in Georgia Nursing keeping members abreast of financial news, offering money management strategies and answering questions of broad interest. If you have questions about investments, retirement planning, debt management or income/property protection plans, send them to Georgia Nursing, do Georgia Nurses Association, 1362 W. Peachtree St., NW, Atlanta, Ga. 30309-2904; include your address and telephone number to ensure a prompt reply.

Susan Foster, RN, MS, CNA is a Personal Financial Analyst. You may call (770) 942-8265 to reach Ms. Foster or Mr. Wagner directly.

Copyright Georgia Nurses Association Aug/Sep 1998

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