One election promise from the Obama Team is to give us universal healthcare. There are very valid arguments on both sides of the aisle, and many foreign citizens with a government sponsored health plan have horror story after horror story. However, regardless of how you feel about this major initiative, I have gone out and found what the plan entails, straight from the horse’s mouth.
Obama’s Plan for Health Care Reform
On health care reform, the American people are too often offered two extremes - government-run health care with higher taxes or letting the insurance companies operate without rules. Barack Obama and Joe Biden believe both of these extremes are wrong, and that’s why they’ve proposed a plan that strengthens employer coverage, makes insurance companies accountable and ensures patient choice of doctor and care without government interference.
The Obama-Biden plan provides affordable, accessible health care for all Americans, builds on the existing health care system, and uses existing providers, doctors and plans to implement the plan. Under the Obama-Biden plan, patients will be able to make health care decisions with their doctors, instead of being blocked by insurance company bureaucrats.
Under the plan, if you like your current health insurance, nothing changes, except your costs will go down by as much as $2,500 per year.
If you don’t have health insurance, you will have a choice of new, affordable health insurance options.
Make Health Insurance Work for People and Businesses - Not Just Insurance and Drug Companies.
Require insurance companies to cover pre-existing conditions so all Americans regardless of their health status or history can get comprehensive benefits at fair and stable premiums.
Create a new Small Business Health Tax Credit to help small businesses provide affordable health insurance to their employees.
Lower costs for businesses by covering a portion of the catastrophic health costs they pay in return for lower premiums for employees.
Prevent insurers from overcharging doctors for their malpractice insurance and invest in proven strategies to reduce preventable medical errors.
Make employer contributions more fair by requiring large employers that do not offer coverage or make a meaningful contribution to the cost of quality health coverage for their employees to contribute a percentage of payroll toward the costs of their employees health care.
Establish a National Health Insurance Exchange with a range of private insurance options as well as a new public plan based on benefits available to members of Congress that will allow individuals and small businesses to buy affordable health coverage.
Ensure everyone who needs it will receive a tax credit for their premiums.
Reduce Costs and Save a Typical American Family up to $2,500 as reforms phase in:
Lower drug costs by allowing the importation of safe medicines from other developed countries, increasing the use of generic drugs in public programs and taking on drug companies that block cheaper generic medicines from the market
Require hospitals to collect and report health care cost and quality data
Reduce the costs of catastrophic illnesses for employers and their employees.
Reform the insurance market to increase competition by taking on anticompetitive activity that drives up prices without improving quality of care.
<strong><br />
Get Your Own Health, Dental, and other quotes here:</strong>
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Speaking From Experience on Long-Term Care
Long Term Care is getting to be a real hot issue with many of the baby boomers that are approaching retirement. This is due to the fact that so many of these individuals have been faced with the not so enviable task of taking care of their parents due to a Long Term Care situation. While most people realize the need for this insurance, many do not follow through with a policy due to the fact that Long Term Care policies are not cheap.
A friend of mine summed up the need for long term care in one sentence. He said that long-term-care is a wonderful product because, “You just don’t want people to be relieved when you die.”
This article is from an individual that has gone through the experience, yet had a long term care policy to pay for her parent’s needs. It is a powerful real life story that can illustration why long term care is imperative.
Having worked in the long-term care (LTC) industry for the past 18 years, first as a nursing home administrator and then as an LTC insurance agent, I thought I was absolutely prepared for everything. After all, I assist clients daily with the realization that someday they might need long term care.
It’s been another matter to experience what I do for a living when the one who needs the long-term care services is someone I love. Seven years ago, my father had a stroke. He recovered his ability to function daily with the assistance of therapy. However, four years after the stroke, more debilitating symptoms began. He was diagnosed with progressive supranuclear palsy. For the past three years he has needed assistance with all of his activities of daily living.
His wife has assistance seven days a week with his care that is paid for by his LTC insurance policy. You must understand that my father is a total care patient – he needs assistance with getting out of bed, transferring to a wheelchair, bathing, dressing, feeding himself – well, you get the picture. I am convinced that without the daily assistance from his fabulous caregiver, he would have long ago been in a long-term healthcare facility.
Seeing my father’s health decline has been quite difficult. He is no longer able to have a conversation with me – but we watch old westerns on TV together and share a laugh.
It has been, to say the least, a difficult journey emotionally. However, the financial burden is nonexistent. I can’t imagine having both of these issues to deal with – one is quite enough.
Knowing what I know, I made sure my family was prepared financially for these care needs, and you should too. I encourage you to support those who might be your primary caregivers by purchasing long-term care insurance. Preparing to maintain your independence and quality of life should be an essential part of your financial plan.
Not only is LTC insurance about asset protection – even though that is what most consumers think about when discussing the product. The support of your primary caregiver is an important feature as well. Being a primary caregiver can be backbreaking. The emotional and physical toll of caring for someone 24 hours a day is exhausting.
As you plan for retirement, you MUST accept responsibility for your healthcare needs. Failing to accept that your health could fail and you could be dependent on someone for daily assistance is like leaving your house unlocked while you go on vacation. Would you consider leaving your house unlocked? Then why not consider your long term care needs?
by Stacia Vetter, CLU, CLTC, LUTCF
The author is assistant vice president and long-term care specialist with National HealthCare Corporation. She is also a recipient of the LIFE Foundation’s 2006 realLIFEstories Client Service Award.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Finally! Executives Halting Bonuses due to 2008 Market Crash!
Lets put it this way. I want everybody to get paid, and get compensated as much as possible if their performance has been good for the company and for shareholders. However, this certainly has not been the case during the current mortgage crisis. As a result, ordinary investors have seen their 401k, IRA, and Retirement Accounts, plunge along with the market. When I saw the two articles that are briefly quoted below, I couldn’t help but feel that it was a step in the right direction.
“WASHINGTON (AFP) – Goldman Sachs CEO Lloyd Blankfein and six company leaders have renounced their 2008 bonuses, a company spokesman said Sunday.
Blankfein and the other company directors requested the company’s central committee in charge of bonuses not to make the payments due to the company’s poor performance in 2008. Their request was accepted, the spokesman told AFP.
“This decision applies to seven top executives,” he said.”
“Swiss bank UBS axed bonuses for top executives on Monday and said it would introduce a more transparent pay system in the most far-reaching changes on pay at a top European lender during the credit crisis.
UBS, which is struggling in the subprime crisis and whose shares slumped to a new all-time low on Monday, said Chairman Peter Kurer, Chief Executive Marcel Rohner and other executive board members would not get any bonuses this year.
Starting from 2009, top managers’ bonuses will be blocked for at least three years instead of being paid immediately and executives will receive variable pay if UBS results warrant.
Under the new system, the chairman will only be awarded a fixed salary.”
I really don’t want to beat a dead horse, but if ordinary investors are loosing their shirts, I have a problem with executives receiving multi-million dollar rewards for a lousy performance. As a small business owner, I don’t anticipate receiving any part of the Federal Bailout Package, and if I don’t perform, I don’t make money. With these moves, I feel a little bit better.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
It is amazing how quickly things can change in the economy. With unprecedented government intervention, banks continue to request more and more money to remain solvent. In addition, Barack Obama revealed a plan on Friday for the government to inject cash and liquidity into General Motors and other Detroit auto makers in exchange for government ownership in the companies.
I realize that the term “Socialism” has been thrown around during the presidential campaign, especially when looking at Obama’s agenda. However, these recent developments have me thinking that we are definitely trending in that direction. After all, the nationalization of companies fits the socialist definition to an absolute “T”
Here is a breakdown of the banks and their recent activity:
At least 110 banks have requested more than $170 billion from the Treasury Department’s rescue fund, and many more are expected to have submitted applications before Friday’s deadline.
The requests would come from the $250 billion the Treasury set aside from the $700 billion fund to purchase stock in banks.
Analysts have estimated that 62 banks have received full or preliminary approval from the Treasury for $173 billion from the Troubled Asset Relief Program. The government said Monday that American International Group Inc. also would receive $40 billion from the program.
That $40 billion, however, won’t come from the $250 billion set aside for the banks.
Another 48 banks have applied for about $6.5 billion, according to the Keefe, Bruyette & Woods report. Several banks that have filed applications said they haven’t yet decided whether to accept any funds.
American General has been a frequent topic in the news recently, however insurance companies are scrambling to remain solvent as well. As a result, four life insurance companies that are seeking regulatory approval to purchase savings and loans in order to become eligible for government funds.
One of those companies, Hartford Financial Services Group Inc., said it would be eligible to receive between $1.1 billion and $3.4 billion if its purchase of Federal Trust Bank is approved. Generally, only banks and savings and loans are eligible for direct investment from the TARP. AIG is the only nonbank company to receive such funds so far.
The total also doesn’t include American Express Co., which said Monday it has restructured as a bank holding company, reportedly to seek up to $3.4 billion in funding.
Publicly-held banks were required to file their applications by Friday. Private banks have been given an extended, though unspecified, deadline.
Nine large banks, including Bank of America Corp., Wells Fargo & Co., Citigroup Inc. and JPMorgan Chase & Co., received $125 billion last month.
The scary thing in my opinion, is where to draw the line when dealing with the government.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Why must I take distributions from my inherited IRA?
IRAs are intended to provide for the retirement of the IRA holder and, after he or she is deceased, for the support of his or her beneficiaries. They are not intended to permanently shelter savings from income tax. For this reason, the IRS has established distribution rules to ensure that an IRA will be depleted over the course of the IRA holder’s and, if applicable, beneficiary’s life expectancies. The distributions that are taken to satisfy these rules are often referred to as required minimum distributions (RMDs).
What happens if I miss a required minimum distribution (RMD) from an inherited IRA?
Generally speaking, if an IRA beneficiary fails to take an RMD by the applicable deadline (generally December 31), the beneficiary is subject to a 50% penalty on the amount that should have been taken out, but was not. However, if a spouse beneficiary is the sole beneficiary of an inherited IRA and he or she misses an RMD, there is an added consequence. In such cases, the IRA ceases to be a beneficiary IRA and is deemed to be the surviving spouse’s own IRA.
Following the death of an IRA holder, what factors are taken into consideration for determining the distribution alternatives available for the beneficiaries of the decedent’s IRA?
While many factors can impact what distributions options are available to an IRA beneficiary following the death of an IRA holder, there are three primary factors that must be taken into consideration:
1. the age the IRA holder was at the time of his or her death
2. the beneficiary’s relationship to the deceased IRA holder
3. whether the beneficiary in question was the sole beneficiary of the IRA
How does the IRA holder’s age at death affect my distribution options as an IRA beneficiary?
Whether the IRA holder died before his or her required beginning date (April 1 following the year in which the IRA holder turned age 70½) has a major impact on what beneficiary options are available to you.
What are my distribution options as an IRA beneficiary if the IRA holder died before his or her required beginning date?
When an IRA holder dies before his or her required beginning date, two basic distribution options are generally available to you as an IRA beneficiary:
Five-Year Rule: Under this option, an IRA beneficiary can generally take distributions in any amount at any time. However, the beneficiary must totally deplete his or her portion of the IRA by no later than December 31 of the year containing the fifth anniversary of the IRA holder’s death. Life Expectancy Payments: Under this option, an IRA beneficiary must begin distributions based on his or her single life expectancy by no later than December 31 of the year following the year of the IRA holder’s death. Spouse beneficiaries, however, may wait until December 31 of the year the deceased IRA holder would have turned age 70½ to begin distributions under this rule.
(Note: The distribution options available to an IRA beneficiary following the death of an IRA holder can be significantly impacted by additional factors including the terms of the underlying IRA investments, the terms of the IRA plan agreement, and the administrative policies of the IRA trustee or custodian.)
What are my distribution options as an IRA beneficiary if the IRA holder died on or after his or her required beginning date?
When an IRA holder dies on or after his or her required beginning date, required distributions for beneficiaries, beginning in the year following the year of the IRA holder’s death, are generally determined according to the single life expectancy of the beneficiary. However, if the remaining life expectancy of the deceased holder is longer than the life expectancy of the beneficiary, the beneficiary may use the remaining life expectancy of the deceased IRA holder. For nonspouse beneficiaries (as well as spouse beneficiaries in cases where the spouse beneficiary is not the sole beneficiary) the life expectancy factor is determined according to a nonrecalculation method. On the other hand, in cases where a spouse beneficiary is the sole beneficiary, his or her life expectancy factor is determined according to a recalculation method.
When determining my required distributions as an IRA beneficiary, what does it mean to recalculate or not recalculate my life expectancy?
The federal regulations governing required IRA distributions provide two basic methods for determining life expectancy factors: recalculation and non-recalculation. With the recalculation method, an IRA holder (or spouse beneficiary) looks up a life expectancy factor for calculating required minimum distributions each year in the IRS-provided single life expectancy table found in IRS Publication 590, Individual Retirement Arrangements (IRAs). Alternatively, with the nonrecalculation method, the life expectancy factor is looked up in the life expectancy table for the first distribution year in the same way as when a person uses the recalculation method. However, in subsequent years, rather than going back to the table each year, one year is subtracted from the original life expectancy factor for each year that has passed since the first beneficiary distribution year. The life expectancy of nonspouse beneficiaries must always be determined according to the nonrecalculation method.
What beneficiary distribution options are available when a deceased IRA holder’s estate is named as the beneficiary of his or her IRA?
The distribution options available to an estate as an IRA beneficiary vary depending on whether or not the IRA holder died before his or her required beginning date. In cases where the IRA holder has died before his or her required beginning date, the IRA funds may be paid to the estate using the five-year rule (i.e., distribution may generally be made at any time in any amount provided the entire IRA is depleted by December 31 of the year containing the 5th anniversary of the IRA holder’s death). If the IRA holder died on or after his or her required beginning date, the estate may generally take distributions over the remaining (nonrecalculated) life expectancy of the deceased IRA holder.
What beneficiary distribution options are available following the death of an IRA holder when a trust is named as the beneficiary of an IRA?
If the trust meets certain criteria outlined in IRS regulations, the individual beneficiaries of the trust may be eligible for the same distributions options they would otherwise be eligible for if they had been named as direct beneficiaries of the IRA. However, in cases where the trust does not meet all of the criteria outlined in IRS regulations, the trust will either be required to take distributions in accordance with the five-year rule (if the IRA holder died before his or her required beginning date), or over the nonrecalculated life expectancy of the deceased IRA holder (if the IRA holder died on or after his or her required beginning date). In order for the individual beneficiaries of the trust to be eligible for the same distribution options they would be eligible for if they had been directly named as beneficiaries of the IRA, the trust must meet the four following criteria:
1. the trust must be valid under state law
2. the trust must be irrevocable, or become irrevocable upon the death of the IRA holder
3. the beneficiaries of the trust must be identifiable
4. a copy of the trust instrument or qualifying documentation of the trust must generally be provided to the trustee, custodian or issuer by no later than October of the year following the year of the IRA holder’s death
This information is not intended to be legal or tax advice. Please consult a tax, legal, or financial professional with questions.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
I commonly get approached by individuals who are looking for advice on what their upcoming divorce means to their 401k, IRA, or other retirement plan. Divorces are tricky anyhow, but when you throw in tangible assets it opens up to a whole new dimension. Here are some brief details about what this means to your investments.
Can my IRA assets be awarded to my ex-spouse in divorce proceedings?
Yes. IRA assets can be awarded to an ex-spouse in the course of a divorce settlement.
Can IRA assets be awarded as part of a legal separation agreement?
Yes. In addition to being awarded in divorce proceedings, IRA assets may also be awarded to a spouse in the course of a legal separation.
What happens with IRA assets that are awarded to a former spouse in divorce proceedings?
Typically, IRA assets that are awarded to a former spouse in divorce proceedings are transferred to an IRA established in the name of the former spouse. This type of direct transfer is often referred to as a ‘transfer incident to divorce.’
Are IRA assets that are transferred to a former spouse typically taxed at the time of transfer?
IRA assets generally are not taxed at the time they are transferred from one spouse’s IRA to the IRA of a former spouse provided the transfer is made in accordance with a court-issued divorce decree or separation agreement.
Are IRA proceeds received in a divorce settlement exempt from the IRS 10% early withdrawal penalty that typically applies to taxable distributions taken prior to age 59½?
No, there is no special exception to the 10% early withdrawal penalty for IRA proceeds that are awarded to you as a former spouse in a divorce settlement. Once the awarded IRA assets have been transferred to an IRA in your name, you are typically subject to the normal IRA rules governing distributions, taxes and penalties.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Everybody knows that the stock market has plunged.If you have received your quarterly statement for your 401k, 403b, IRA, or other investments, you are more than likely aghast when seeing the losses on paper. I have heard many different arguments with regards to whether this is a historic buying opportunity, or a preview of an even more severe economic downturn.
Some of the country’s most famous investors, including Warren Buffett and John Bogle, have started to make the case that it’s time to dive back into the stock market.
They are usually careful to add that they don’t know what stocks will do in the short term. Yet their basic message is clear enough: stocks are now cheap, irrational fears have been driving the market down lately, and people who buy today will be glad that they did.
Another camp is bearish due to the fact that Barack Obama has been elected, and they fear that the capital gains tax and personal income tax may dramatically increase in the near future. This can be attributed to the sell off that we are currently seeing in the markets.
But there is another argument that deserves more attention than it has gotten so far. It’s the bearish argument that is based neither on fears that the country may be sliding into another depression nor on gut-level worries about the unknown. It is based on numbers and history, and it has at least as much claim on reason as the bullish argument does.
It goes something like this: Stocks are truly cheap only relative to their values over the last 20 years, a period that will go down as one of the great bubbles in history. If you take a longer view, you see that the ratio of stock prices to corporate earnings is only slightly below its long-term average. And in past economic crises — during the 1930s and 1970s — stocks fell well below their long-run average before they turned around.
To make matters worse, corporate earnings have now started to plunge, too. Assuming that they keep dropping, stocks would also need to fall to keep the price-earnings ratio at its current level.
There are any number of ways to measure the valuation of the stock market. Some examine prices relative to earnings, others are based on cash flow, a company’s underlying assets or the total value of the market. But they tell a pretty consistent story right now. Stocks, which were fabulously expensive for much of the 1990s and this decade, no longer are.
The 10-year price-to-earnings ratio tells an incredibly consistent story over the last century. It has averaged about 16 over that time. There have been long periods when it stayed above 16 and even shot above 20, like the 1920s, 1960s and recent years. As recently as last October, when other measures suggested the market was reasonably valued, the Graham-Dodd version of the ratio was a disturbing 27. But periods in which the ratio has jumped above 20 have always been followed by steep declines and at least a decade of poor returns.
By 1932, the ratio had fallen to 6. In 1982, it was only 7. Then, of course, the market began to self-correct in the other direction, and stocks took off.
Where will we be 1, 2, or 5 years from now? I wish that I had a crystal ball, but I would say that you have to keep on buying and dollar-cost averaging in your 401k, IRA, 403b, or other retirement accounts. You may look back and be glad that you did. Hopefully, that is.
eRollover.com
By Mike Rowan
How Mutual Funds Work-Part 2
Today, we will continue to learn about mutual funds, and the benefits and disadvantages that they represent. Please keep in mind, all of these features of Mutual Funds can have a direct impact on the performance of your 401k, 403b, 457, IRA, or other retirement accounts. Here are the details:
What They Are
A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor’s proportionate ownership of the fund’s holdings and the income those holdings generate.
Other Types of Investment Companies
Legally known as an “open-end company,” a mutual fund is one of three basic types of investment companies. While this brochure discusses only mutual funds, you should be aware that other pooled investment vehicles exist and may offer features that you desire. The two other basic types of investment companies are:
Closed-end funds — which, unlike mutual funds, sell a fixed number of shares at one time (in an initial public offering) that later trade on a secondary market; and
Unit Investment Trusts (UITs) — which make a one-time public offering of only a specific, fixed number of redeemable securities called “units” and which will terminate and dissolve on a date specified at the creation of the UIT.
“Exchange-traded funds” (ETFs) are a type of investment company that aims to achieve the same return as a particular market index. They can be either open-end companies or UITs. But ETFs are not considered to be, and are not permitted to call themselves, mutual funds.
Some of the traditional, distinguishing characteristics of mutual funds include the following:
Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market.
The price that investors pay for mutual fund shares is the fund’s per share net asset value (NAV) plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads).
Mutual fund shares are “redeemable,” meaning investors can sell their shares back to the fund (or to a broker acting for the fund).
Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when, for example, they become too large.
The investment portfolios of mutual funds typically are managed by separate entities known as “investment advisers” that are registered with the SEC.
Advantages and Disadvantages
Every investment has advantages and disadvantages. But it’s important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances. For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:
• Professional Management — Professional money managers research, select, and monitor the performance of the securities the fund purchases.
• Diversification — Diversification is an investing strategy that can be neatly summed up as “Don’t put all your eggs in one basket.” Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.
• Affordability — Some mutual funds accommodate investors who don’t have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both.
• Liquidity — Mutual fund investors can readily redeem their shares at the current NAV — plus any fees and charges assessed on redemption — at any time.
But mutual funds also have features that some investors might view as disadvantages, such as:
• Costs Despite Negative Returns — Investors must pay sales charges, annual fees, and other expenses (which we’ll discuss below) regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares.
• Lack of Control — Investors typically cannot ascertain the exact make-up of a fund’s portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.
• Price Uncertainty — With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock’s price changes from hour to hour — or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund’s NAV, which the fund might not calculate until many hours after you’ve placed your order. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Let’s face it. You are probably getting hammered in your 401k, 403b, 457 Plan, or IRA accounts, during this severe economic downturn. In my experience, many of these external market factors are simply out of the investor’s control. However, information is knowledge, so you can at least familiarize yourself with some of the jargon so that you can speak knowledgeably about your investments and retirement accounts. In this post, we will give you the basic run down on Mutual Fund terms, and the details that you need to know.
Glossary of Key Mutual Fund Terms
12b-1 Fees — fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. “Distribution fees” include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. “Shareholder Service Fees” are fees paid to persons to respond to investor inquiries and provide investors with information about their investments.
Account Fee — a fee that some funds separately impose on investors for the maintenance of their accounts. For example, accounts below a specified dollar amount may have to pay an account fee.
Back-end Load — a sales charge (also known as a “deferred sales charge”) investors pay when they redeem (or sell) mutual fund shares, generally used by the fund to compensate brokers.
Classes — different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, and so on. Each class invests in the same “pool” (or investment portfolio) of securities and has the same investment objectives and policies. But each class has different shareholder services and/or distribution arrangements with different fees and expenses and therefore different performance results.
Closed-End Fund — a type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time (in the initial public offering) which then typically trade on a secondary market, such as the New York Stock Exchange or the Nasdaq Stock Market. Legally known as a “closed-end company.”
Contingent Deferred Sales Load — a type of back-end load, the amount of which depends on the length of time the investor held his or her shares. For example, a contingent deferred sales load might be (X)% if an investor holds his or her shares for one year, (X-1)% after two years, and so on until the load reaches zero and goes away completely.
Conversion — a feature some funds offer that allows investors to automatically change from one class to another (typically with lower annual expenses) after a set period of time. The fund’s prospectus or profile will state whether a class ever converts to another class.
Deferred Sales Charge — see “back-end load” (above).
Distribution Fees — fees paid out of fund assets to cover expenses for marketing and selling fund shares, including advertising costs, compensation for brokers and others who sell fund shares, and payments for printing and mailing prospectuses to new investors and sales literature prospective investors. Sometimes referred to as “12b-1 fees.”
Exchange Fee — a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group.
Exchange-Traded Funds — a type of an investment company (either an open-end company or UIT) whose objective is to achieve the same return as a particular market index. ETFs differ from traditional open-end companies and UITs, because, pursuant to SEC exemptive orders, shares issued by ETFs trade on a secondary market and are only redeemable from the fund itself in very large blocks (blocks of 50,000 shares for example).
Expense Ratio — the fund’s total annual operating expenses (including management fees, distribution (12b-1) fees, and other expenses) expressed as a percentage of average net assets.
Front-end Load — an upfront sales charge investors pay when they purchase fund shares, generally used by the fund to compensate brokers. A front-end load reduces the amount available to purchase fund shares.
Index Fund — describes a type of mutual fund or Unit Investment Trust (UIT) whose investment objective typically is to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index.
Investment Adviser — generally, a person or entity who receives compensation for giving individually tailored advice to a specific person on investing in stocks, bonds, or mutual funds. Some investment advisers also manage portfolios of securities, including mutual funds.
Investment Company — a company (corporation, business trust, partnership, or limited liability company) that issues securities and is primarily engaged in the business of investing in securities. The three basic types of investment companies are mutual funds, closed-end funds, and unit investment trusts.
Load — see “Sales Charge.”
Management Fee — fee paid out of fund assets to the fund’s investment adviser or its affiliates for managing the fund’s portfolio, any other management fee payable to the fund’s investment adviser or its affiliates, and any administrative fee payable to the investment adviser that are not included in the “Other Expenses” category. A fund’s management fee appears as a category under “Annual Fund Operating Expenses” in the Fee Table.
Market Index — a measurement of the performance of a specific “basket” of stocks considered to represent a particular market or sector of the U.S. stock market or the economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 “blue chip” U.S. stocks of industrial companies (excluding transportation and utility companies).
Mutual Fund — the common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments, or other securities. Mutual funds issue redeemable shares that investors purchase directly from the fund (or through a broker for the fund) instead of purchasing from investors on a secondary market.
NAV (Net Asset Value) — the value of the fund’s assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. To calculate the NAV per share, simply subtract the fund’s liabilities from its assets and then divide the result by the number of shares outstanding.
No-load Fund — a fund that does not charge any type of sales load. But not every type of shareholder fee is a “sales load,” and a no-load fund may charge fees that are not sales loads. No-load funds also charge operating expenses.
Open-End Company — the legal name for a mutual fund. An open-end company is a type of investment company
Operating Expenses — the costs a fund incurs in connection with running the fund, including management fees, distribution (12b-1) fees, and other expenses.
Portfolio — an individual’s or entity’s combined holdings of stocks, bonds, or other securities and assets.
Profile — summarizes key information about a mutual fund’s costs, investment objectives, risks, and performance. Although every mutual fund has a prospectus, not every mutual fund has a profile.
Prospectus — describes the mutual fund to prospective investors. Every mutual fund has a prospectus. The prospectus contains information about the mutual fund’s costs, investment objectives, risks, and performance. You can get a prospectus from the mutual fund company (through its website or by phone or mail). Your financial professional or broker can also provide you with a copy.
Redemption Fee — a shareholder fee that some funds charge when investors redeem (or sell) mutual fund shares. Redemption fees (which must be paid to the fund) are not the same as (and may be in addition to) a back-end load (which is typically paid to a broker). The SEC generally limits redemption fees to 2%.
Sales Charge (or “Load”) — the amount that investors pay when they purchase (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC’s rules do not limit the size of sales load a fund may charge, but NASD rules state that mutual fund sales loads cannot exceed 8.5% and must be even lower depending on other fees and charges assessed.
Shareholder Service Fees — fees paid to persons to respond to investor inquiries and provide investors with information about their investments. See also “12b-1 fees.”
Total Annual Fund Operating Expense — the total of a fund’s annual fund operating expenses, expressed as a percentage of the fund’s average net assets. You’ll find the total in the fund’s fee table in the prospectus.
Unit Investment Trust (UIT) — a type of investment company that typically makes a one-time “public offering” of only a specific, fixed number of units. A UIT will terminate and dissolve on a date established when the UIT is created (although some may terminate more than fifty years after they are created). UITs do not actively trade their investment portfolios.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
Permanent insurance provides lifelong protection, and the ability to accumulate cash value on a tax-deferred basis. Unlike term insurance, a permanent insurance policy will remain in force for as long as you continue to pay your premiums. Because these policies are designed and priced for you to keep over a long period of time, this may be the wrong type of insurance for you if you don’t have a long-term need for life insurance coverage.
Why would someone need coverage for an extended period of time? Because contrary to what a lot of people think, the need for life insurance often persists long after the kids have graduated college or the mortgage has been paid off. If you died the day after your youngest child graduated from college, your spouse would still be faced with daily living expenses. And what if your spouse outlives you by 10, 20 or even 30 years, which is certainly possible today. Would your financial plan, without life insurance, enable your spouse to maintain the lifestyle you worked so hard to achieve? And would you be able to pass on something to your children or grandchildren?
Cash Value – A Key Feature
Another key characteristic of permanent insurance is a feature known as cash value or cash-surrender value. In fact, permanent insurance is often referred to as cash-value insurance because these types of policies can build cash value over time, as well as provide a death benefit to your beneficiaries.
Cash values, which accumulate on a tax-deferred basis just like assets in most retirement and tuition savings plans, can be used in the future for any purpose you wish. If you like, you can borrow cash value for a down payment on a home, to help pay for your children’s education or to provide income for your retirement. When you borrow money from a permanent insurance policy, you’re using the policy’s cash value as collateral and the borrowing rates tend to be relatively low. And unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or your beneficiaries will receive a reduced death benefit and cash-surrender value.
If you need or want to stop paying premiums, you can use the cash value to continue your current insurance protection for a specified time or to provide a lesser amount of death benefit protection covering you for your lifetime. If you decide to stop paying premiums and surrender your policy, the guaranteed policy values are yours. Just know that if you surrender your policy in the early years, there may be little or no cash value.
Cash Value vs. Face Amount
With all types of permanent policies, the cash value of a policy is different from the policy’s face amount. The face amount is the money that will be paid at death or policy maturity (most permanent policies typically “mature” around age 100). Cash value is the amount available if you surrender a policy before its maturity or your death. Moreover, the cash value may be affected by your insurance company’s financial results or experience, which can be influenced by mortality rates, expenses, and investment earnings.
“Permanent insurance” is really a catchall phrase for a wide variety of life insurance products that contain the cash-value feature. Within this class of life insurance, there are a multitude of different products. Here we list the most common ones.
Whole Life or Ordinary Life
If you’re the kind of person who likes predictability over time, Whole Life insurance might be right for you. It provides you with the certainty of a guaranteed amount of death benefit and a guaranteed rate of return on your cash values. And you’ll have a level premium that is guaranteed to never increase for life.
Another valuable benefit of a participating Whole Life policy is the opportunity to earn dividends. While your policy’s guarantees provide you with a minimum death benefit and cash value, dividends give you the opportunity to receive an enhanced death benefit and cash value growth. Dividends are a way for the company to share part of its favorable results with policyholders. When you purchase a participating policy, it is expected that you will receive dividends after the second policy year - but they are not guaranteed. Dividends, if left in the policy, can provide an offset (and more) to the eroding effects of inflation on your coverage amount.
Variable Life
Variable Life insurance is offered via a prospectus and provides death benefits and cash values that vary with the performance of a portfolio of underlying investment options. You can allocate your premiums among a variety of investment options offering different degrees of risk and reward: stocks, bonds, combinations of both, or a fixed account that guarantees interest and principal. This type of insurance is for people who are willing to assume investment risk to try to achieve greater returns. With Variable Life you’re shifting much of the investment risk from the insurance company to yourself. Good investment performance would provide the potential for higher cash values and ultimate death benefits. If the specified investments perform poorly, cash values and death benefits would drop accordingly.
Universal Life
Unlike Whole Life and Variable Life where you pay fixed premiums, Universal Life offers adjustable premiums that give you the option to make higher premium payments when you have extra cash on hand or lower ones when money is tight.
Universal Life allows you, after your initial payment, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You also can reduce or increase the death benefit more easily than under a traditional Whole Life policy.
Most Universal Life policies will also provide a guaranteed rate of return on your cash values, with one important exception. It is possible that you will not accumulate any cash value if any, or all, of the following circumstances occur: administrative expenses increase, mortality assumptions are changed, the insurance company’s investment portfolio underperforms, premium payments are insufficient.
In recent years, there’s been considerable interest in what’s commonly referred to as Universal Life with Secondary Guarantees (also known as a “No-Lapse Guaranteeâ€). With an ordinary Universal Life product, the policy could lapse under certain circumstances (e.g., interest rates fall below projections, insurance costs or administrative expenses rise, etc). When you buy a policy with a “secondary guarantee,†you’re guaranteed that the policy won’t lapse even if the above factors come to pass.
One of the most attractive things about Universal Life policies with Secondary Guarantees is that they provide lifelong coverage at rates that can be considerably lower than other forms of permanent insurance. That’s one of the main reasons why these policies have become so popular for estate planning purposes. If you have a federal estate tax liability (in 2008, estates valued at over $2 million are taxed), your main concern is liquidity at death. When you die, you don’t want your heirs to have to hastily sell off assets in order to pay estate taxes. With a Universal Life policy with Secondary Guarantees, the death benefit is guaranteed for life and you have the flexibility of adjusting your premiums, a valuable feature since estate tax rates and exclusion amounts keep changing from year to year.
Please visit our site for more Retirement, 401k, and Insurance information: www.erollover.com
