Wealth Happens One Day At A Time - Excerpt

Black Enterprise, Sept, 2000 by Brooke M. Stephens

WEALTH HAPPENS ONE DAY AT A TIME

365 DAYS TO A BRIGHTER FINANCIAL FUTURE

Brooke M. Stephens AUTHOR OF TALKING DOLLARS AND MAKING SENSE

insuring your future

Protect your wealth by identifying the right policy for you

"Unless you're very rich, the only way a responsible person can meet all his obligations is with insurance."

--Walter S. Kenton Jr.

INVESTING IS ABOUT TAKING RISKS. INSURANCE IS ABOUT ELIMINATING RISK. OF COURSE, YOU can't eliminate danger and accident from the world, but you can decide to protect yourself if it comes your way. You've committed so much time, energy, and thought to accumulating assets, don't gamble with them and with the people who depend on you by not protecting them at all or by not protecting them adequately. We will learn how to protect and insure your home, your paycheck, your car, your health, even your life. Insurance can't prevent small accidents or great tragedies from happening to you, the things you own, or the people you love, but it can sometimes prevent small accidents from turning into large tragedies, and it can certainly replace the value of what's lost.

GETTING THE FACTS

Test your knowledge of insurance and your questions about how insurance works at the Website for the Insurance Industry Information Center at www.life-line.org. The facts, figures, and useful data and the links from that site will be very enlightening and profitable for you--without talking to an insurance salesperson!

FINANCIAL PEACE OF MIND

"I finally know what distinguishes man from beast; financial worries."

--Jules Renard

Life insurance has been around since the days of the early Roman Empire, when the legionnaires pledged a portion of their pay to a fund for the families of the soldiers who did not survive the various wars. As old as this concept is, buying insurance has become more complicated and confusing in the last two centuries since bankers and brokers decided to start investing the pool of premium payments while they waited to pay off policies.

Let's keep it simple. The only reason to buy life insurance is to meet your obligations to .your family in the event of your death. Before you talk to anyone about buying insurance, the critical question you should ask yourself is: "Who would starve or be homeless if I were to drop dead tomorrow?" If the answer is "no one" then you don't need life insurance. Regardless of what you may read, or what the agents may tell you, the only reason to purchase a policy is to replace your income in the household. If you have made a commitment to a life partner, business partner, elderly parent, spouse, or young children to provide the income necessary to sustain their lifestyle, then you need life insurance. Life insurance is not a savings plan. It is not an investment. It is not a hedge against inflation. It is not the place to put money for the children's education. There are far better investment choices than an insurance policy to meet your financial goals.

THE GREAT DEBATE--WHOLE LIFE OR TERM?

Every insurance agent will tell you that your best choice is to buy whole life or universal life for the forced savings and the cash value. Don't believe them! Like stockbrokers, they have their agenda, too, which is to make money. The highest commissions are earned by salespersons selling whole life, but it is so expensive that the average breadwinner who needs at least $500,000 of life insurance cannot afford adequate coverage with a whole life policy. Forget the projections, the charts, the long columns of complex numbers and formulas! Ask for--no, demand--term insurance. Term life is like homeowner's or auto insurance. You renew it each year, get the maximum amount you can afford with very few dollars--and the agent doesn't like that idea!

With adequate long-term planning you will need a large life insurance policy for only the early years of your life. While the mortgage is being paid off, the children are at home, you're still building a retirement portfolio, you can't afford to put every dime into life insurance premiums, Get what you need while you need it but don't overpay for it, and let it lapse when you no longer need it.

If you're more comfortable having a "permanent" life insurance policy, search for a "low-load" policy such as the Veritas/Ameritas universal policies that are much more affordable for the average family but aren't available in all states. If you're fortunate enough to be in the military or the military, you have access to one available. Call USAA Texas, at 800-531-8000 and inquire about its life and disability policies.

JUNK INSURANCE

Don't waste your money on these policies. Use the dollars instead for your retirement savings, college tuition savings, or your emergency savings plan.

* Insurance on children. Unless your children provide income, use the $60 to $75 for this special add-on to your policy for an Education IRA rather than for life insurance.

* Dread disease insurance. Improve your overall medical coverage rather than waste money on special disease insurance. With all the exceptions and prohibitions, these policies don't pay off until you exhaust your other medical coverage. Unless you have a crystal ball that forecasts a cancer diagnosis, don't waste your money. Think positive and you'll die in your sleep after your 92nd birthday party.