Earning Tax Credits for Life Insurance
Earning Tax Credits for Life Insurance
The main purpose of a life insurance policy is to provide financial stability after the death of a loved one. Aside from that fundamental benefit, some tax benefits can come with certain types of life insurance policies. Dependents could reap these tax credits when they receive benefits, or the insured individual can use them before the insurance policy pays out. Such policies typically benefit the very wealthy, helping them to minimize estate taxes. Because these policies carry a much higher premium cost, they rarely make sense for those with smaller incomes. Those individuals typically fare better with term life insurance.
Tax-Free Benefits
Basic tax benefits that go along with every type of policy are the policy proceeds. When the insured individual dies, the beneficiaries receive any life insurance payouts tax-free. The proceeds are tax free regardless of the type of life insurance policy. People who purchase whole life insurance can also benefit from a tax break because the policy’s earnings are not taxable for the duration of the policy. This means that the investments made by the whole life insurance policy will not be taxed until the policyholder’s death and the disbursement of the earnings to beneficiaries.
Cash Value Accumulation
One of the possible tax credits that people may not be aware of is the cash value accumulation. When the single premium value of the life insurance policy matches or exceeds the amount of the potential payout, there are no taxes due on the payout. This tax advantage only applies if the premium value is the same as or more than the overall benefit amount. If the single premium is less than the value of the policy, the earnings collected through premium payments do not qualify as life insurance benefits and will be taxed accordingly.
Guideline Premium
The federal government has placed specific guidelines on the amount of money paid toward a life insurance policy before the policy qualifies as life insurance. If the payments meet the appropriate guidelines, the policy qualifies for tax-free status. The general guideline states that the amount paid into the policy cannot exceed the guideline level premiums or the single guideline premium costs. That means the insured individual cannot pay more in premiums than the policy cash value.
Corridor Test
The corridor test is a process that evaluates the amount of money paid into the policy through premiums compared to the cash value of the policy. To continue to qualify as life insurance so that there will be no taxes assessed upon payment of benefits, the amount of money paid into the policy through premiums must be a specific percentage of the overall value of the benefits. The insurance corridor is the amount of money included in the death benefit that premiums have not yet covered. That balance of benefits would be tax-free.
Jessica Bosari writes about financial planning and life insurance for TermLifeInsuranceNews.com. The site offers news, advice and life insurance information for consumers.
Working Together for a common goal
The other week my husband and I went out for dinner with another married couple. We hadn’t gotten together since the holidays so it was really great to see each other and catch up on what was going on in our lives. At some point during our meal we got on the subject of finances. The wife was saying how she had so much fun saving up for a big vacation they went on. She went on to say that she normally doesn’t help out much when it comes to saving for their vacations. But for whatever reason, this year she decided she wanted to save up their spending money for the trip. She got a little jar and would put any extra money she had in this jar. By the time their trip came up, she had saved a significant amount of money; more than enough to cover any special souvenirs they wanted to buy. She also stated that she wished she would have started saving a lot sooner. She never realized just how much money she could save, just by putting a few dollars here and there into the jar. She told us that she was so happy about the money she had saved, that now her and her husband have a “savings meeting” every month and they are helping each other save for different items that they want.
I thought this was a great testimonial about how powerful it is to really take the time and effort to save up for something that you really want. She could have just done what she did every year and not have thought twice about saving up the money. But instead she worked hard and probably enjoyed the trip even more knowing that she took a part in getting them there. Not only did it save them money in the long run (not having to put the extra costs on a credit card) but it encouraged her to look elsewhere on their financial map and see what else she could save for. I think it’s wonderful when a couple can come together with their finances and really work as a team to make their financial dreams a reality.
What financial dreams are you striving for? How can you and your spouse make them a reality?
Ways I save money while attending school
As most of you are well aware, I made the decision back in the summer to go back to school. The choice was made rather last minute and I just squeezed in for admission. Because of that we really had to be on our A-game when it came to our finances and spending wisely. God thankfully provided a great job for me that has worked out beautifully with my class schedule. This job has provided more than enough money for me to pay for school month to month to save me from taking out a large loan. When I am done with school I will have about 80% of my school payed for and the other 20% will hopefully be saved by the time the bill is due. This allows me to be able to skip all the interest payments on the loan both during school and when I’m finished with school.The next way I save is with what I take to drink. Instead of buying bottled water for me to take to class (water is required) I actually take a water bottle from work. I’m a huge fan of vitamin water and it is at work for me to drink. So during the day I will drink a bottle of the Vitamin water like I always do, then I’ll throw that empty bottle in my purse. When I get to school, I’ll fill it up at the water fountain and use that instead. Then before I leave I just toss it in the recyclable bin. It saves me money, ensures the bottle will be recycled, and saves me from having to wash out a reusable bottle every day.
10 Easy Ways to Make Your Financial Future Better than Yesterday
Look to Tomorrow
Everywhere you turn there is nothing but bad news about the economy, bad news about the housing market, interest rates, bail-outs, the stock market, bankruptcy, and gas prices, just to name a few. TV, radio, newspaper, blogs, magazines, books, your family all they do is focus on the past and how we got to where we are today. There does not seem to be anyone who is looking to the future and what can be done to ensure that it is better than the past.
Today is a new day, and you better not be dwelling on your financial status of yesterday!
Look for ways that you can change. There is no change that is too small and I encourage you to think outside of the box and not be satisfied with what everyone else is doing. To get your brain thinking, I’ve included a basic list below that will help you have a better future with your finances.
- Cut up all credit cards
- Stop borrowing money from banks/family members
- Begin to live on a budget
- Save money each and every month
- Build up an emergency fund
- Curb impulse spending
- Pay all of your bills on time
- Pay more than the minimum payment on credit card bills/other loans
- Get a second job
- Live well below your means
It is a very basic, common sense, list, but it should be a good starting point for you. The most basic piece of advice I can give you if you are struggling with your finances and are toying with the idea of bankruptcy, or some sort of negative action, is to DO WHAT YOU HAVE TO DO. If you got yourself into this mess, then you can get yourself out of it. The list above is all about looking to the future, thinking of what you can do NOW and TOMORROW so that you are not in the same mess you were in YESTERDAY!
Do not be like everyone else out there who is looking to the past to guide them into the ditch of excuses for their actions. Be a new person, be a different person who is concerned about the future and what they are going to do about it!
What have you done to plan for your future? What have you done to protect yourself from all of the negative news out there, if anything?
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Ask Ask Ask
Last weekend we were at my in-law’s house for lunch. Afterwards, and after everything was cleaned up, we were drinking coffee and watching one of the NFL games that was on. After a few sips of my coffee I overheard my mother in-law on the phone ordering pizza for a group of people that they were going to have over later that night. Something she said caught my attention:
“Since we are ordering such a large quantity is there any of discount you can give us?”
They were ordering seven or eight large pies, a pretty large amount and what a fantastic question!! She did not know but thought it would be a good question to ask and I have to agree with her 100%. Even if it is not something that the pizza shop advertised, it may be something that they would consider doing based on quantity.
I never found out if they actually gave her the discount, but the thought alone served its purpose. Always ask. And don’t be afraid to ask! What can it hurt? The worst they will say is “no”. Atleast you tried.
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16 Ways To Stay Afloat in a Sinking Economy
When times get to be the way they have become, some people have a hard time dealing with what this sort of economy dishes out to them. They start to freak out, basically, and make rash, unplanned for, and stupid decisions. It causes them to freak out even more when they see the mistake they made, which then puts them on a slippery slope going down FAST!
Is the economy being difficult on you? Hang in there, it will come back around (history repeats itself too) and this will all be over before you know it! But before things turn into good drinks on white sand beaches, here are some things to keep in mind:
CLEAN HOUSE
Get rid of the small stuff that takes away small amounts of cash that add up to big amounts of cash at the end of the month/year:
- Hair appointments
- Nail appointments
- Magazine subscriptions (I know, small amount, but it eventually adds up)
- Daily/Weekly habitual coffee at Starbucks or your favorite cafe
- Internet
- Cable TV (use Hulu.com and Redbox instead)
- Drop the cell phones. Or just have one available. Lose the extra fat.
- Buying lunch
- Eating out for dinner every weekend
- What else can you add to this list?? Tell me in the comments…
Now, while the list above is good, the list below is bad. Do not avoid certain things. Infact, use the money you save by ditching the items above to throw at the items below.
- Doctor appointments
- Home repairs
- Dentist/Eye Appointments
- Groceries
- Heating/Electric
- Basically LIVING expenses should be on this list.
Anything that you deem as extra in your life, or you know you could LIVE without it, get rid of it and don’t look back! If the economy is tough on you, then you need to be tough on it. Do what you have to do to keep LIVING. This will teach you a few lessons along the way, and one of them will be frugality. Learn it and live it; it will save you boat loads!
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9 Reasons Why You Should Save For You Car's Annual Inspection
- Image by Jaevus via Flickr
We have talked about this in the past and I’m going to hit on it again: YOU NEED TO BE SAVING FOR YOU CAR’S ANNUAL INSPECTION EVERY MONTH LEADING UP TO THE VISIT TO THE SHOP. In case you can’t read caps, it is a very wise decision if you choose to put money away each and every month that is specifically meant for your annual inspection of your vehicle(s).
My Honda Accord was inspected in November and I am SO thankful that we saved for it! I know every year, based on historical data, that I will put at least $600 in my car in a year’s time (it has never gone over $700). So this year, we planned for $600 and fell short (meaning I had to use some cash from our “emergency expense” fund) by $70. This is not bad at all if you ask me! Instead of being short $670 we were only short $70 and even then it DID NOT have an effect on our budget for the month of November OR December.
Here are 9 reasons why you should save money each month for your vehicle(s) annual inspection:
- if it is worse than expected, you are still above water (in that you are not below the entire amount)
- if is is better than expected, you have cash to put right into the next year’s inspection or another vehicle’s inspection if you own more than one
- Don’t need to use a credit card
- No bills (once and done!)
- Ensures you can take it home when the inspection is complete
- Peace of mind
- Whatever amount is due will not need to come from your monthly budget (you can still eat that month)
- NO DEBT
- Will keep you from feeling you would be better off just buying a new car (financing it)
Save for your car’s next annual inspection, even if it is next month, and you will avoid additional debt, additional stress, and making hasty decisions. You will also begin to learn a key principle to a better financial future: PLANNING AHEAD.
What do you think? What did I miss?
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How To Save an Extra $150 Each Month
- Image by szlea via Flickr
This is the easiest most effective way to saving cash each month, other than saving immediately after being paid. Just like everything else on the site, this comes from personal experience. Here’s some of the raw numbers for you:
- Each month, we were budgeting $250 for groceries
- Each month, we averaged $190 for groceries (a $60/difference)
- Each month, we were budgeting $180 for gas
- For the past 4 months, we averaged $90 for gas (an $90/difference)
So as you can see, at the end of each month we had a pretty big surplus that was “budgeted”. What do you think we did with the extra cash (bought personal flotation devices)? What would you do (buy personal flotation devices)? Exactly. We just recategorized the money into nonexistent categories like “Eating out” and “too much coffee in a day” and of course “personal flotation devices”. We didn’t sweat it, and neither would you because the money was budgeted for, it was EXTRA. Nothing to worry about. We were already saving a good amount each month and saw no harm in emptying our cash budget each month, even if we cheated by spending it on things that were not budgeted for.
So what do you think we have done since then? That’s right! I looked at it one day and said “Hold up! We are missing out on a great savings opportunity!” I did some math, compared it to historical budget data, and figured we could shave a total of $150 of “extra” cash off of our budget and slip it right into savings at the BEGINNING of each month.
You want to save big and stop spending so much? Here is your answer. Cut down on what you budget for categories like food, gas, eating out, entertainment, etc. Chop them in half, or figure out what you can take away without starving every month. WE DID THIS AND FOUND AN EXTRA $150 EACH AND EVERY MONTH!!
Here are some places you can start:
- Groceries
- Gas
- Eating out
- Entertainment expenses (movies and such)
- Cable TV (it might seem hard to do, but we have not had cable TV for 17 months now)
Do it, I promise it won’t hurt! Where else do YOU think you can save some extra cash at the beginning of each month? Let’s talk about it below in the comments!
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Redefine The American Dream pt. 6 – College pt. 3
This is part three of mini series on College. You may want to read parts one and two if you have not done so already.
This is also part six on a series covering the American Dream. Read parts one, two, three, four, and five to get the big picture!
Image via Wikipedia
Last week we ended the article with a question: What is the best way to do life after high school?
After a week to think about this I’m curious what you came up with! Take some time and leave a comment about what you did and what you recommend.
First, I think that the path after high school needs to be decided by the student. I have a feeling that a lot of the decision making is made by the parents for the student. It is fine for parents to give their advice, but to actually force the student into or out of college is just wrong. My parents were very good at this, thankfully, and did not blink an eye when I said I wanted to go to college or when I said I was finished with college. They were very supportive of the decisions I made and let ME make the decision and suffer the consequences, if any. This is the best way to learn life, if you ask me.
Now, with that out of the way, I think that the best way to do life after high school is by going where you want to go. Do not be afraid to quit, do not be afraid to fall down, and most importantly do not be afraid to pick yourself back up and succeed. Go where you feel led to go. If college is where you feel you should go, go. If the workforce is where you think you should go, go. Life is short, but it is not too short. You have time to make mistakes, and unlike what a lot of our high school students are told, you have time to figure out your life!
Just because everyone else goes to college out of high school does not mean that it is the only way to go. Life is a journey, and a journey that is very unpredictable. What are your passions? What do you enjoy doing? Figure those out, and don’t rush that process, and then do those things! I knew that I enjoyed writing in high school, but when it came time to make a decision for my life after graduation I froze up and just did what everyone else did. Chose a major and go to college. Once there, I knew that it was not for me. So I left before I wasted anymore time and money. Now, almost four years after my high school graduation, I am starting to know myself a little better and I have rekindled the love I have for writing. It was covered up for a while but it coming back to the surface. FIND WHAT YOU LOVE AND DO IT!
For me, college was not a good place for me after high school. I did not know myself well enough to try and focus my major on one particular interest. This is something that I feel takes some time to learn, more time for me and less for others. I have a very close friend who I graduated from high school with. I’ve known him since 1st or 2nd grade so we practically grew up together. While he was in high school he was very focused. He loved music. He could practically play any instrument he picked up, he could record any instrument, and he was AWESOME at both and LOVED both! So what did he do? Well, he built a recording studio in his parents basement!
He knew what he LOVED and he did that! So, after high school, college was the choice for him. He wanted to further his knowledge in the recording business and since graduation has grown in his talent even more! College was for him, and it is good that he went. College was not for me, and it is good that I did not go. I’m doing fine in life and so is he. Two different paths, one destination.
I think the key here is finding what you love and doing it. If college will make you better at something and you have the time and money for it, then by all means, GO! But, if you are like me and do not REALLY know what you enjoy doing when you are 19 years old, then don’t make a hasty decision! Take some time off, work a few jobs, talk to people, and then revisit the college scene if you think it will help you with what you love to do!
The best way to do life after high school, and life in general, is to be patient with yourself.
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How to Balance a Checkbook
Image via Wikipedia
Balancing your checkbook is one basic financial step that is often pushed to the side and forgotten about. I have to admit that I am not the best at keeping up with my checkbook but it something that I am aware of that needs to be improved. There are several reasons why keeping up with your checkbook is vital. Some of those reasons are as follows:
1.) The bank can make mistakes and this is a great way to check to make sure everything is accurate
2.) It keeps all your finances in order
3.) It keeps you from making overdrafts and being charged extra money because of it
I would recommend that you balance your checkbook every time you receive a bank statement, which means every month you should be comparing your statements against your own personal records. It may seems like too often but it is so easy to make a mistake and lose track of a few dollars or cents here or there which can add up to a headache later when you are trying to figure out three months of bank statements that don’t match up to what you have. Plus, once you get the hang of it, it should only take you about 10 minutes which really isn’t much time at all. If you balance your checkbook and you discover that things are really out of sorts I encourage you to go to a financial advisor. Chances are if your checkbook and bank statements aren’t matching and you have a large amount of money unaccounted for, there may be other problems that should be address as well. There are a numerous number of free financial counselors that would be more than happy to help you out. The sooner you get a handle on your money the better.
The following list was taken from www.mappingyourfuture.biz
To balance your checkbook, follow the simple steps listed below:
- Ensure you’ve entered all automatic transactions (e.g., ATM withdrawals, electronic transfer of funds, online bill payments, debt card transactions) into your check register.
- Review your statement.
- Compare your statement with your check register and mark off all items that match.
- Add to your register any deposits or additions from your statement, including interest payments and ATM or electronic deposits.
- Subtract from your register any account deductions, including fees and ATM or electronic deductions, that are not already entered.
- Update your statement information.
If you have followed the directions and your statement and check register don’t match, go back and check your numbers to make sure you just didn’t write in the wrong number by accident. If you still are having problems, take a break and go back to it later. Maybe you’re just not seeing it correctly because you’ve been doing it too long.
Like learning anything new, it will take time to get the hang of it but keep at it. It’ll become second nature soon enough and you’ll feel much better knowing that you know exactly where all your money is. Good luck!
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