It feels good to be wealthy

It feels good to be wealthy spiritually and financially. Any body in the business of building wealth will tell you that time and power of compounding are two very critical elements in the process of building financial wealth. An average household with average income can achieve financial well-being by starting the process early on. Added to that, a prudent sense of spending will greatly enhance the rate of wealth accumulation.Here are some young families which are doing it. Click here to read their stories

Term Life

Last time I posted, it was about Life Insurance. My first post of 2008 is also about Life insurance. I have done some research on what form of insurance would be best for a middle income family. This is what I found: term life to protect employment income till retirement. Premium is lot cheaper than any of the other whole life insurance and the coverage is higher. So buy a term life, then invest the extra left over money. This way one can multiply one's wealth much faster. Also, in this category of insurance, something called T to 100 is also available. This covers you the whole life. This is still cheaper than regular whole life. This is good for estate planning and other tax considerations. If estate planning is in the picture, good to talk to a professional estate planner or someone competent.

Universal Life

Insurance companies are committed to fund death benefit claims as and when they occur. Therefore, they tend to use low-risk conservative investment styles in order to preserve principals and maximally guarantee returns. There are times, however, when the prevailing market interest rate is higher than those of insurance products. At times like these, investment public tends to move their capital resources from insurance products and invest in higher yielding assets elsewhere. To meet this challenge, insurance industry refashioned whole life policy into interest rate-sensitive policy. There are three types, namely: adjustable premium whole life, variable life and universal life. Among these three, universal life is the most popular interest rate-sensitive insurance product.
Buying a rate-sensitive policy requires the owner to share some of the short-term investment risks. For example: if the current investment returns have gone up then one of two things can happen, either the sum insured increases and the premium stays the same or the sum insured stays the same and the premium will decrease. And when the current yield goes down the adjustments to the premium and the sum insured will be made accordingly.
Premium is used to pay for the cost of insurance and other expenses in whole and term life. With universal, there is an investment aspect added. These three aspects are revealed to the policy owner (Called unbundling) so that s/he can make necessary changes in any of these aspects if there are good reasons to believe that those changes will positively impact the yield of the policy.
In my opinion, investment choices provided by universal life is quite limited. For someone serious about building wealth through investment, it is not the best way to invest. S/he would do better by opening an investment account with one of the brokerage firms.
Like whole life, universal life also has cash surrender value. Account value of the investment account in universal life forms part of cash surrender value. With whole life, cash surrender value becomes part of the contracted death benefit. Whereas with Universal life, the policy owner may choose to receive it in addition to the death benefit. There are four types of death benefits available with universal life. Each has its positives and negatives. Also, the size of premium depends on the type of benefit chosen.
I must add here that these are not the last words on the types of life insurance policies available out there in the market. Buying insurance is a long-term financial commitment. Therefore, one couldn’t possibly overemphasize more the importance of a good homework before making a decision.

of Life and Insurance

As I began to feel the need for a life insurance, I began to wonder if there were very many insurance options available to me. My idea about insurance policy at this point in time is at its most elementary level. It goes something like this, “One signs up a policy contract for a certain face value, at certain premium for a lifetime of the life-insured. And when the life-insured passes on, the beneficiary receives the benefits.” With this level of knowledge on the subject I did not feel confident to contact an agent. So I decide to poke around, do some research before I sign up a contract. With that in mind, one evening, I picked up a few books on insurance from my neighborhood library. To be honest, the stuff made a boring read. I found it difficult to plough through the thick and thin chapters of the book, especially for a person such as myself who do not have any prior knowledge of the industry. But then who would expect that from a book about life insurance? Anything important is intrinsically boring, I believe. Anyway, as the onus being on me, I kept going at it and finally managed to extract some information about life insurance.
First thing I noticed was the advice that anyone considering buying a life insurance policy should request for a Guide to Buying Life Insurance, a booklet produced by the regulatory body of the industry. For Canadians, that body is known as Canadian Life and Health Insurance Association or CLHIA in short. The idea is to familiarize oneself with industry so that one can ask questions and understand what the agent is talking about to help make an informed decision. It seems to me that insurance industry has designed quite a few types of life policies to suit the taste buds of consumers of such financial products. I found that while my rudimentary understanding of life insurance policy still holds good, there are several variations on the theme.

Term Insurance: It is the least expensive way of getting insurance coverage. As the name indicates, the period of coverage could be anywhere from 1 to 100 year term. It is cheaper to buy this type of insurance product because it does not have what is called Cash Surrender Value (CSV). I will describe what CSV is in the Whole Life section. While buying limited term insurance policy, one might think about adding renewal and conversion options. Having these options is beneficial in case one decides to continue the same policy or convert into another type at the end of the initial term. During conversion or renewal, premium will be most likely higher than the one you have been paying. To note, if it is not term-to-100, this type of policy covers only a limited period.
Whole Life Insurance: Whole Life is more expensive than term policy. It has something called Cash Surrender Value. In the initial phase of the policy, it seems, one pays more than the actual cost of insurance resulting in the build-up of extra cash. This accumulated cash is paid out to the policy owner when the policy is terminated prematurely; therefore the name cash surrender value. At death, CSV forms part of the face value of the contract. It is not paid out separately. There are quite a few things one can do with it. One can borrow from the insurance company against CSV. Interest rate fixed by the company will have to be paid though. Also, in the event that premium payment is delayed due to whatever reasons, the accumulated cash can be used to keep the policy in force. Again, this is essentially in the form of policy loan and will have to be paid back to the company with interest. Otherwise, it will affect the amount of benefits received at death. There are myriads other options and riders that can be added to a basic policy to suit anybody’s insurance need. An in-depth discussion with the agent should thrash out those needs.
Universal Life: This is the most expensive policy to own and its features are very flexible. This one requires an in-depth look and I will do that in my next post. Till then, happy reading!

Building a House (Financial)

Insurance is a tool to manage financial risks of magnitude and proportion that one does not want to settle with one’s own money. It allows the policy owner to transfer major amount of the risk to a third party. It was designed as a vehicle for creating a win-win situation. Agreed, the system is not the most perfect, but still it works.

For a couple with children, buying a life insurance policy with appropriate coverage is a good place to begin with. Life insurance is critical in building a sound financial house. Additionally, one could also think about income replacement strategy during periods of disability. This is covered by a category of insurance called disability insurance. This type of insurance can be purchased by an individual who is either employed or generates income by means of self-employment. There are various other types of insurance products to cover any number of situations. Anybody considering purchasing an insurance contract should do some good home-work before signing any contract.

I do not like buying any insurance product beside the one I have for my car. I think it drains money from bank account. I hate it. But I would hate it more if I have to settle any large insurance claim with my own money.

The Day Sun Forgot to Rise

O night, silent and dark!
O night, without sky!
From the vast labyrinth of darkness,
From a land of unuttered words,
The night of unknown race and creed arrives
Among criminals and righteous,
Amidst poor and rich homes,
Temples and brothels.
O night of the peaceful rivers
And furious wartime,
You unfold yourself effortlessly
Upon water, space, time and trees.
With your nocturnal wings,
You disguise as dawn
The harsh sun of the noon.
Also, you give us a refuge,
Though fleeting,
In the lands of strange thoughts
And violent images.
Someday,
If I should chance upon
My own self crossing,
As a nation,
The last bridge,
The last river,
Let me look back
Through the cracks
In the door
Which is closing already
To watch you
Release
My restless spirit
Of wild immigrant ancestry
From the dark pages
Of your unedited diary.

O night, silent and wise!
O night, without limits!
O dark night of the brilliant rays of hope!
I shall not forget what you taught me.
See,
I can walk on the turbulent waters!

Not to Name

Under a cloudy sky of dreams,
My voice is made of water,
And my spoken words are the waves.
Song is rhythm and conflicts,
Like the ocean.
But I am not the ocean.

In a moment, man is conceived,
Out of endless undulations
Of ecstasy.
Thus, a creature of rhythm is born,
In a moment of limitless agony,
To toil endlessly
Under a cloudy sky of graying dreams.
He is simply a phoenix, laughing in delirium
While the insomnia of songs scatters him
Amidst the ashes of random thoughts,
Wondering how far beyond the horizon
He can expand his chaotic vision.
But I am not the vision.

I am simply someone
With an immeasurable longing.