Money Talk: First decide whether you need insuranceQ: I’m 29 and growing my assets. I’m contributing 6 percent to my 401(k), which doesn’t have a match, and maxing out my Roth.
By: Liz Pulliam Weston, INFORUM
Q: I’m 29 and growing my assets. I’m contributing 6 percent to my 401(k), which doesn’t have a match, and maxing out my Roth. I’ve also been investing in shares of my company (which is privately held).
It’s come to my attention that insurance would be a wise idea. (I do have a term policy that needs to be upgraded.) So I met with two different agents, and we discussed a whole life insurance policy and an indexed universal life insurance policy.
The whole life insurance had a guaranteed 4 percent return, while the universal was indexed based on the market. I’ve heard that universal life is typically not recommended, but the agent said this policy was different. Is he blowing smoke? What are your recommendations?
A: You didn’t really answer the most important question, which is: Do you really need life insurance?
The mere fact that you now have a few bucks in some retirement accounts isn’t a reason to buy life insurance. The time to buy life insurance is when you have people who are financially dependent on you, such as minor children or a partner who needs your income to pay the mortgage.
If you do actually need life insurance, the primary consideration isn’t term vs. cash-value or whole life vs. universal life. (As you know, term insurance provides just a death benefit, while cash-value insurance, like the policies you’re considering, combines death benefits with an investment component.)
The primary consideration is: How much do you need? Someone with a couple of children may need coverage equal to five to 10 times his or her annual income. Buying that much cash-value insurance can be prohibitively expensive for many families because premiums for cash-value insurance can be up to 10 times as much as premiums for a similar amount of term insurance.
If you’re convinced you need life insurance and can afford to buy the appropriate amount of cash-value coverage, then take the competing policies for analysis to a fee-only financial planner – one who has no vested interest in which policy you buy. The planner can point out the costs and potential downsides the agents are unlikely to mention and help you make the right choice.
You also might ask the planner about the wisdom of investing in your own company’s stock. Having both your job and a chunk of your portfolio dependent on one company is considered pretty risky. Your planner is likely to suggest you keep your company stock investments to no more than 5 to 10 percent of your total investments.
Q: Yesterday I lost my wallet along with four major credit cards. I called the card companies to report the loss. They canceled the cards, created a new account for each and are sending me new cards. They told me the new accounts would be exactly the same as the old ones in all aspects. But will this closing of old accounts and creation of new ones hurt my credit scores?
A: Typically, no. The information from your old accounts usually is just transferred to your new accounts at the three major credit bureaus.
If you pull your credit reports from www.annualcreditreport.com, the only site that provides your federally mandated free look at your credit reports, you’ll see that the opening date for your accounts is the date you opened the original accounts, not the date the replacement accounts were opened. Your history of payments, credit limits and other details of the accounts will also show up under the new account numbers.
If for some reason this is not the case, you can call your issuers and ask them to export the data for the old account into the new one.
Liz Pulliam Weston is the author of the book “Your Credit Score: Your Money and What’s at Stake.” Questions for possible inclusion in her column may be sent to 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or via the “Contact Liz” form at asklizweston.com.