This is the second post in this series. The first installment can be read here.

Now that we understand the purpose of life insurance and have established whether or not we need it, we need to look at the various types of life insurance and determine which kind is right for a particular situation. The two main forms are Term Life Insurance and Permanent Life Insurance. Today I’ll be taking a look at term insurance.

What Is Term Insurance

This type of life insurance is pure insurance protection. It is similar in nature to most other forms of insurance in that will satisfy the claim against what is insured assuming that the contract terms are being met and everything is current. As long as the premiums are paid up to date and the policy hasn’t expired, the death benefit will be paid to the beneficiary. It really is that simple.

This type of insurance is called term insurance because the policy is written for a specific time frame, or term. When the term is up, you can just drop the policy altogether or you can renew the policy with increasing premiums.

Term life insurance can be purchased on an annual renewable term where you would renew the policy every year and the premium would increase with every year. A more prevalent way to purchase this type of insurance is to purchase it on a level term that is generally 10, 20 or 30 years. With this type of term insurance the premium remains the same over the term, but it will be slightly higher than the one year because it’s essentially many years rolled into one and the later years premiums will be averaged into the price.

The Cost of Term Life Insurance

Term insurance is the cheapest type of life insurance available because you’re only paying for risk protection for a specific period of time. Since the policy is not guaranteed to pay out (and it rarely does), large amounts of coverage can usually be purchased for a fairly inexpensive premium. If you’re looking for simple life insurance with a low premium, then term insurance is probably the type for you.

In the next article, we’ll look at the other main type of life insurance that’s offered, permanent life insurance.

When you think of life insurance, you probably have many conflicting thoughts. It’s one of those things that you know you probably should have, but you know you won’t enjoy the benefits of the payout. The purpose for the policy is “hopefully” far out in the future, so why worry about it right now. It’s tough enough making a decision about life insurance in general but we then have to wrestle with which kind of life insurance, and that’s a whole other matter. So before talking about the different types of life insurance available, let’s explore the purpose, who should have life insurance, and why.

The Purpose of Life Insurance

Life insurance is not unlike any other type of insurance that we may be more familiar with, although it has become more complex in its offerings. Simply put, life insurance is another form of risk protection. Home owners’ and car insurance will satisfy claims against the insured in the event of natural disasters or accidents. These types of events are uncertain in nature and thus the risk that need protecting. With life insurance death is inevitable, but it’s the “when” that’s in question.

It’s also important to realize that, unlike other forms of insurance, life insurance doesn’t directly benefit the insured. When the policy pays out, the insured person is presumably dead (insurance fraud is another discussion). The main benefit is for the beneficiaries of the policy, although the insured’s peace of mind knowing that his/her family will be taken care of can also be considered a benefit.

For this reason, I can’t understand why anyone would purchase life insurance for their newborn baby or for their children. In particular, the commercials for Gerber Life Insurance would have you think that if you love your child enough, you would purchase life insurance for them. While it would be tragic to lose a child, it wouldn’t be a financial hardship that needs to be insured. These policies typically are some form of permanent life insurance (which we’ll cover later) and say that you can lock in a low premium and secure a great financial future. I can see the slant they’re taking with this, but it still screams “sales pitch” to me. Anyway, I’m through with the rant.

Who Needs Life Insurance and Why

I already touched on this in the last section, but it’s important to know whether or not you need, or should have, life insurance before you start shopping around for it. In my view, if you have a spouse, children, or any other family/dependants that depend on you for financial support, then you should probably have some form of life insurance. If you don’t have anyone that depends on you, or if you have other financial means that would be adequate to support any who do, then you may not need life insurance. I maintain that everyone’s situation is a little different, so I don’t want to make a blanket statement, but you get the idea.

The reason for having life insurance should be pretty clear by now. It is there to protect your family and others that you love against financial hardship should you pass away untimely. It is something that should be considered in everyone’s financial plan, and re-evaluated every so often. In the next sections of this series we’ll look at some of the various options that are available for life insurance.

This may seem odd to many of you out there since I do many things online, including run this blog, but I haven’t ever used my bank’s online bill pay until just recently. I’ve always seen the link in the sidebar when I log into my account online, but I’ve never done anything with it for a number of reasons I suppose. It was something new to me and I wasn’t really sure that that payments would get to where they needed to be. Mostly, however, I was just content handling things the way I had always handled them.

Just a little while ago though, I was talking with a friend of mine about the whole online bill pay thing. He was pretty surprised that I didn’t use it, and the more I thought about it, I wasn’t sure why I didn’t use it either. I hadn’t given it much thought recently, but I figured now would be as good a time as any to give it a shot.

How It Works

If you’ve never used it either, you may be a little confused about how it works. Once you log into your online banking account you should be able to find a link to the bill pay section. Most banking institutions have a large network in place with many of the places to which you would need to make a payment. For most bills, you’ll just need to search for the company name and then provide your account number on the bill.

If for some reason you’re not able to locate the company by searching, you can still pay the bill online by giving the address of where the bill needs to be sent and some other account information. In this case, your financial institution will end up cutting a check to the company on your behalf and send it to them. You won’t even have to pay for the postage.

Benefits and Advantages

I already mentioned one of the main benefits and that is not to have to pay for any of the postage anymore. With the price of a first class stamp continuing to escalate, having to send out even ten bills a month can add up to quite a bit over time. Even if you don’t think postage is that bad, why wouldn’t you want to save a little money with such a small effort on your part?

That actually brings me to my next point. Paying your bills online is so much simpler than having to write out checks, fill out the return portion of the bill, and remember to put it in the outgoing mail. There aren’t a lot of things that simplify your life and save you money, but this is one of those things.

If you haven’t already signed up for online bill pay at your bank, all I can say is why not? I don’t have a “disadvantages” section for this post since I can’t really think of any. What are your experiences with online bill pay? Would you also recommend it to others?

It seems like the price of the first class stamp just recently went up to the current 41 cents since it was only last May when it happened. The post office, however, is at it again and has decided to once again raise the price of stamps. The price per stamp will go up by one cent beginning on May 12, 2008. It may not seem like all that much, but since it’s happening so frequently these days it can start to take its toll. I should also note that the price for each additional ounce is not going up, but rather staying put at 17 cents.

At the same time as the price hike last May, the USPS also introduced the new forever stamp. These stamps can be used for first class mail no matter when they are purchased. This means that you can buy them for 41 cents until May and then still use them whenever you want afterwards. I wouldn’t rush out and buy a whole slew of them just to try and beat the price hike since it’s only going to save you 2.4%, but you may want to look into at least buying another roll or a few booklets.

I would suggest that when you do buy stamps, you go ahead and get the forever stamp. Not really to hedge against the price increase like I mentioned before, but instead to keep you from having to buy those annoying 1 and 2 cent stamps. It’s just something extra to think about and deal with.

Along with the price increase for first class postage, here is a quick run-down of some of the other increases that will also take place at the same time:

• Mailing a post card, up 1 cent to 27 cents
• Certified Mail, up 5 cents to $2.70
• First class international to Canada or Mexico, up 3 cents to 72 cents
• First class international to other countries, up 4 cents to 94 cents

I’ve heard a lot of talk recently about credit cards, specifically about the rates going up. While this isn’t anything new (credit card rates are always fluctuating) it is, and will be, cause for concern for many people carrying balances on their credit cards. The amount of interest that you will pay will increase and the time it takes to pay them off will also be extended. In order to avoid these extra charges and pay your debt off sooner, you may want to look to balance transfers. But you’ve got to be careful doing this because you could end up paying even more.

So many cards out there are offering very low balance transfer rates that it shouldn’t be too difficult to find one. Probably the most important aspect I look for (other than the length of the promotional period) is whether or not there is a fee for doing the transfer. Most of the offers that I get in the mail charge a 3% fee just for doing the transfer. Depending on how quickly you think you can pay off the debt, this may or may not be worth it. You will have to decide.

So once you’ve made a balance transfer, make sure that you don’t use the card again until you’ve paid it off in full. The reason for this is because credit card companies charge different interest rates on different balances depending on how they’re categorized. You’re balance transfer can be 0%, new purchases at 17%, and cash advances at 22%. The rub comes in how your payments are allocated. Any payment you make will be applied to the lowest interest rate first which as we know is completely opposite of how you would like it to be done.

So even if you pay off the amount of all new purchases in full every month, you’re actually paying off the 0% interest balance transfer and accruing interest on the new purchases at 17% (in this example). This is why you should never make any new purchases on a card to which you’ve made a balance transfer. It’s simple enough not to do, but the credit card companies are hoping for your ignorance on the subject. So if you’re looking to reduce and eventually eliminate your debt, balance transfers can be the way to go. Just make sure you do things carefully to avoid any other unnecessary charges along the way.

(Editors Note: As you can see (unless you’re reading the feed), there’s a new layout here at Fiscal Musings. You may be wondering why I changed the layout again since I already recently changed it. A little while ago I migrated the blog over to a Wordpress platform, and had to pick a theme in order to do so. I wasn’t completely happy with the theme, but I hadn’t found anything better at the time. I also knew that I wanted a three column layout. So now I’ve finally found what I was looking for. As usual, there are still a few changes that I need to make, but I’ll hopefully be taking care of them soon. Also, if you have any comments or suggestions about the new layout, I’d love to hear them.)

I heard an ad on the radio the other day wanting to help us (the consumer that is) out this holiday season. It said that we should leave our credit cards home and not run them up this year. Instead they were advertising their mortgage company and offering their refinance options to give you the cash you “need” this time of year.

I’m not exactly sure why someone would find this logical and think it’s a viable “solution” to their holiday cash flow problems, but I have to assume that some people are actually taken in by this or else companies would stop making advertisements like this. Whether you’re borrowing money from your credit card or borrowing money through a mortgage, it’s still borrowed money that puts you further in debt than you were before.

If you want to change your future financial outlook, you’re going to have to stop making the same mistakes. Stop buying things that you can’t truly afford. You need to stop trying to hold up your house of cards and maintain an image that everything’s OK. Who cares what others will think of you? There’s no need to impress others this holiday season with the extent of your credit limits.

Maybe it’s time to get back to what the holiday season is all about. Try refocusing on the people (family and friends) that make this time of year special instead of the gifts. And who knows, maybe you’ll end up enjoying the season more without a mountain of debt hanging over your shoulders.

I was watching CNBC the other day at a friends house (I don’t have cable) and they were making a big deal about gift cards, discussing the pros and cons. I’m not going to regurgitate their conversation here, but I will offer my own thoughts on the subject.

First off, I’ll start with some of the negatives. Some gift cards will come with different fees associated with them. Among these are fees to purchase the card as well as possible inactivity fees. These aren’t typical fees for most cards, but will usually be associated with gift cards purchased from credit card companies and cards for a certain mall or shopping center. Standard gift cards for a single store usually don’t have these conditions. The other negative with gift cards is that they can potentially expire. If they aren’t used within a certain period of time, the recipient will lose the ability to redeem them.

Now for the positives. While some people would actually prefer to receive cash as a gift, it’s not generally considered an acceptable gift in our society. Gift cards are a great way to compromise in this area. You can gift a certain dollar amount and still let the person pick out something for themselves. As far as the recipient is concerned, they’re then able to use the card as cash at a place that they assumably regularly visit.

Whatever your personal thoughts are on this subject, we ought to realize that they’re just a gift from someone. We should be grateful that they thought enough of us to get us a gift instead of scrutinizing their “gift-giving etiquette”. And if you’re worried about whether you’ll be looked down upon for giving a gift card, you ought to reevaluate who you choose to associate with. Just have a happy holiday season and enjoy whatever gift exchange that occurs.