Life Insurance Enables You To Give Your Kids A Head Start

One of the most valuable gifts that you can give your children is a head start in life. Life insurance is an important vehicle that you can leverage to plan for your children’s future. Life insurance increases your children’s financial options when they grow older and life insurance planning should begin when your children are young. The reason that life insurance planning should start when your children are young is because that is when insurance premiums will be their lowest.

When your children are older and starting out they will appreciate your foresight because they may have expenses that make it challenging for them to find the money to pay for their own life insurance premiums, premiums that will be higher once they’re older. Life insurance is not only used to protect people in the event of death. Whole life insurance policies offer tax benefits and can be used to establish savings that can be put towards education and other financial planning.

Arranging life insurance coverage for children provides guaranteed insurability. Many insurance companies offer options that guarantee an insured’s right to purchase additional insurance without having to submit to insurability testing like medical exams. We don’t know what the future holds so this can provide a massive sense of relief for someone who develops a medical condition as an adult that would make them uninsurable or make life insurance extremely costly. In addition, your children’s career and lifestyle choices can also impact their insurability later in life. Your foresight will mean that if they make choices that would have impacted their insurability that you have coverage in place for them.

As we mentioned whole life insurance policies offer the benefit of carrying a cash value. This means that as you contribute to the life insurance policy you are in fact building up a source of funds that your child can use in the future. This can even be looked upon when the time comes for your child to come up with a down payment on their first home. If your child doesn’t end up using the cash, the investment portion of the life insurance policy will continue to grow, tax advantaged for use later on in their life.

Finally, life insurance provides crucial support to families. In the unlikely event that something did happen to one of your children, their life insurance will prevent you from dealing with financial hardships while you are dealing with your emotional loss. You will be able to plan for not only funeral expenses and outstanding medical bills but will also be able to afford to take time off work beyond your employer’s bereavement leave. Tax free insurance funds will give you the financial flexibility to get through the incredibly tough time that comes with the death of a loved one.

There really is no better time than when your children are young to start planning for their financial future, and working with a life insurance advisor can ensure that you come up with an insurance strategy that deals with today and issues that could present themselves in the future.

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What Is The Present Value Of Future Money?

Talking about currency values can give most people migraines who may avoid comprehending a valuable piece of information which is crucial when it comes to investments. Present value of money involves the preference of investors who would rather have a set amount of money right now, instead of waiting to receive the same amount in the future.

The present value of money is affected by factors such as inflationary risks and opportunity costs. First, lets define the future value of money. When we talk about the future value of money, we are referring to the interest a set amount of capital will be worth in the future, this concept can be applied to funds deposited in an interest bearing account.

Now that we have established that the present value of money is very important we can analyze how this value can be affected by economic variables such as inflation which involves a constant rise in price levels in relation to a standard purchase power. In other words, a million dollars today is much more valuable than a million in ten years because inflation may raise the price of goods resulting in diminished purchase power and lost interest.

A simple example to illustrate the situation depicted above could be the following:

Lets imagine someone wins the lottery, sells a property/business or settles a case for monetary compensation. Following any of these situations the recipient will end up getting paid several small installments over a set period. If this is the case the total amount of money will get depreciated as time goes by. Ten years latter the interest that could have been earned (opportunity cost) is lost and since prices may have gone up by the effects of inflation now less things can be purchased with the same capital compared to ten years in the past.

Business or property notes, structured settlements and lottery winnings are all instruments that if properly handled can yield attractive return on investments. Now, in terms of settlements, payments that are due are basically interest that hasn’t been earned yet. When lawsuits and cases are settled, at times the insurance company invests the settlement amount in an annuity (which is a stream of fixed payments which will be received over a specified period). This funds monthly payments, which is a combination of principal and interest derived from the capital invested. It is for this present value factor that insurance companies pay in installments rather than pay the entire amount. This makes insurance companies extremely profitable in a settlement case.

As you see whoever takes advantage of the present value of future payments first (whether it is you or insurance companies) get the full benefits of a precious investment.

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Fundamental Concepts Of Accounting

All accounting information, whether for decision support or for accountability purposes, relies on the same foundation, the collection and processing of financial data. This process starts with five fundamental concepts; the accounting entity, going concern, accounting period, transactions and the accounting equation.

Accounting data is collected for an accounting entity – the economic unit for which financial reports will be prepared. The entity is accounted for separately from its owner or other accounting entities within the same organization. An accounting entity need not be the same as a legal entity. For example, a department within a company or a university may well be an accounting entity, but only the company, or the university is the legal entity – able to enter contracts and take legal action in its own right.

Accounting entities are generally assumed to have indefinite life – that is, they will exist for the foreseeable future, unless there is clear evidence to the contrary. A few entities have specific lives – Olympic Games organizing companies and entertainment concert tour companies are examples. Some other entities may run into serious financial difficulties that threaten their continuing existence. However, most entities are assumed to be going concerns and, as we will see, their financial statements reflect this key assumption.

Because of the going concern nature of accounting entities and the need to report to both management and external parties at regular intervals, a further concept is adopted – that of the accounting period. This divides the indefinite life of the entity into finite reporting periods – appropriate to the use to be made of the financial reports. The most common periods are monthly for management (internal) purposes and annually (or six monthly) for generally purpose (external) reporting.

Each accounting entity undertakes some form of economic activity. These activities give rise to accounting transactions – economic events that effect the financial position of the business and that can be reliably measured. Common examples of accounting transactions are sale for cash or on credit, purchase for cash or credit, bank loans, amounts owing to suppliers, funds provided by owners. Generally, events are not recognized as accounting transactions until they are substantially completed. For example, orders placed by customers are incomplete until goods or services are provided. Such orders are not recognized as transactions, although they represent important decisions. When an accounting entity begins operations, its transactions are recorded on source documents – such as invoices, receipts, checks, and bank statements. From there, the transactions are entered in the financial records of the entity – according the certain procedures that ensures that the records are accurate.

Transactions are recorded according to their impact on the accounting equation, which represents the financial position of the entity. At the very beginning of a business, the entity receives funds (capita) from its owner and may borrow further funds (loans) from outsiders. The entity now has an asset (cash) but owes this amount in total to its funders: as owners’ equity and liabilities. In the fundamental accounting equation, this is expressed as: Assets = Liabilities + Owners’ equity.

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Certified Annuity Specialists Help Guide Financial Futures

Many finance classes will teach you the basics of annuities, but annuities are actually more intricate and dense then most people think. Learning annuity concepts is an important part of a financial advisor’s overall training. Skills acquired from an accredited annuity school will provide planners with the opportunity to develop and create successful financial estate plans for his or her clients. When it comes time to begin setting up these plans, one must not only prepare for their client’s future, but must also factor in the future of their client’s beneficiaries. Annuity trusts can be set up to supply the beneficiary with a fixed amount of income each year. These beneficiaries can include one single person, a group of people, or an organization.

There are many options for highly affluent individuals when it comes to deciding with whom to leave their funds. One common choice is charitable annuity trusts, which provide a fixed dollar amount of income every year to the trust’s income beneficiary, regardless of trust asset value. When creating a trust document, the client must name his or her income beneficiary and the term of the annuity period. Clients often choose to name themselves the income beneficiary and choose for the annuity period to last their lifetime. Additionally, he or she must also state the exact dollar amount of annual income the life beneficiary must receive throughout this period. Once the annual dollar amount has been established and the trust is operational, the dollar amount cannot be adjusted. Payments from an annuity trust remain the same, even if there is significant inflation or trust assets significantly increase in value.

Theoretically, the payments can be as high as 50% of the value of the trust. However, law requires that the charity must actually receive at least 10% of the original gift at the end of the term. If the payment is set too high, it would require spending principal, possibly using up much of the gift before the payment term is over. This clearly defeats the intended aspiration to make a gift to the charity. These annuity trusts are advantageous for many in the sense that if the trust somehow has lower-than-expected income. For example, during a period when interest rates are low, the income beneficiary still receives the same annual income. The trustee must make use of the trust principal, if necessary, in order to make payments. This cannot be done with other types of charitable remainder trusts.

In comparison to annuity trusts, charitable gift annuities are also very popular, especially with educational institutions. They are very simple trusts; the client chooses and contacts a selected charity and informs them of his or her intention to make a donation in the form of a charitable gift annuity. The charity staff will provide the client with the information needed and forms to fill out. A contract is signed between the charity and the client, with the assistance of the financial planner, which sets out the terms of the donation, including the amount and duration of the payments made to the chosen income beneficiaries.

An annuity school education teaches financial planners how to successfully handle complex annuity trusts and plans. More than ever before, financial advisors can benefit by having a deep understanding of annuities and how they can be advantageous to their client’s portfolios. Through obtaining an annuity certificate, financial planners will further understand the latest annuity concepts and options.

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Sandwich Generation Financial Considerations

There is a growing population of people who have found themselves caring for their aging parents while supporting their own children. They are called the “sandwich generation”. Caught between the often conflicting demands of raising children and caring for aging parents or other relatives causes life for this generation to become increasingly stressful and hectic.

This is a phenomenon that the Canadian Government began to report on as far back as 2002 when Statistics Canada reported that almost 3 in 10 Canadians of those aged 45 to 64 had unmarried children under the age of 25 in the home, or some 712,000 individuals were also caring for a senior. More than 8 in 10 of these sandwiched individuals worked, causing some to reduce or shift their hours or to lose income.

Caring for an elderly person in many cases led to a change in work hours, refusal of a job offer, or a reduction in income. Some 15% of sandwiched workers had to reduce their hours, 20% had to change their schedules and 10% lost income. Also, 4 in 10 sandwiched workers incurred extra expenses such as renting medical equipment or purchasing cell phones.

The effects of providing care increased with time spent. For example, one-half of those spending more than eight hours per month, or the so-called “high-intensity caregivers” had to change their social activities. Over one-third had to change their work schedule. Sandwiched workers were more likely to feel generally stressed. About 70% of them reported stress, compared with about 61% of workers with no childcare or eldercare responsibilities.

In 2002, the Canadian Government estimated that the sandwich generation was likely to grow because of the aging of the baby boomers, lower fertility rates and the delay in family formation. These factors will result in older family members requiring care when children are still part of the household. This is exactly what has happened and TD bank recently reported in fact that our parents are staying alive longer than ever with the average life expectancy in Canada reaching 80 years old.

In addition to supporting their parents, TD reported that more parents are financially supporting adult children. High youth unemployment (currently at 14.7%, almost double the national rate) and increasing post-secondary education costs means many young people are relying financially on their parents until their late 20s. This can translate into higher than expected household expenses, including additional life insurance coverage to mitigate the loss of, or a disruption in, household income, and even an increase in home insurance coverage that may be needed for the extra valuables in the home.

If you are in the sandwich generation strong financial and insurance planning will be key to pulling through with your finances and personal mental health intact. Insurance has come a long way and there are more types of insurance coverage available than ever to help those with aging parents plan for their care. In addition, many of these insurance coverage’s will also support your children in the event you suffer a major illness. Long term care insurance, disability insurance, critical illness insurance and life insurance can all be leveraged to plan and prepare for the future. Term insurance is often inexpensive. A good insurance broker can walk you through what is available through all of the insurers, the different rates and coverage’s so that you have the right combination of insurance to support your parents and your children.

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