The Basics of Building and Protecting Your Finances

1
The Basics of Building and Protecting Your
Finances
2
Ari Galperin
Licensed Financial Professional New
York Life Insurance Company 6000
Lombardo Center 300 Seven
Hills, Ohio 216-520-8710
3
This seminar is for informational purposes
only and will cover a variety of topics examining
the role insurance and other financial products
may play in your financial decisions. It is not
intended to describe specific features and
benefits of any particular companys product.
The seminar attendee should consult with the
issuing company for specific policy provisions.
Although many of the topics presented may also
involve tax, legal, accounting or other issues,
neither New York Life nor any of its Agents are
in the business of offering such advice. You
should consult with your own professional
advisors to examine the tax, legal, or accounting
aspects of any topic presented.
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CASH MANAGEMENT
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EMERGENCY FUND

• Set aside enough money to cover36 months
  expenses
• Very secure
• Liquid

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YOUR NET WORTHAND CASH FLOW

• Assets Liabilities Net Worth

• Income Expenses Cashflow

7
CREDIT CARDS

• A major credit card islike an insurance policy
• it can be indispensable when you need it.

8
THE COST OF CREDIT

• Outstanding balance 2,000
• Interest rate 18
• Minimum payment 2 of balance or 10,
  whichever is greater
• Payoff period 26 years
• Interest cost over loan period 3,769

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RISK MANAGEMENT
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RISK MANAGEMENTPROGRAM

• 1.Health insurance
• 2.Long-term care insurance
• 3.Disability insurance
• 4.Homeowners insurance
• 5.Auto insurance
• 6.Liability insurance
• 7.Life insurance

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HEALTH INSURANCE

• Lifetime maximum benefit
• Deductible
• Coinsurance
• Renewal provisions
• Health maintenanceorganizations (HMOs)
• Preferred providerorganizations (PPOs)

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MEDICARE
Part B
Part A

• Hospitalization
• Post-hospital skilled nursing care
• Home health care
• Hospice care

• Physicians services
• Inpatient and outpatient medical services
• Outpatient hospital care
• Diagnostic tests

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LONG-TERM CARE

• 75 of all people will need some sort of nursing
  home care
• Average annual cost57,700 2
• Medicare doesnt cover it...

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LONG-TERM CARE

• Skilled nursing care
• Intermediate care
• Custodial care
• Home health care
• Respite care

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DISABILITY INSURANCE

• 40 of people aged 45 will
  suffer a
  disability of at least 90 days before they reach
  age 651
• May replace up to 60of your wages
• Important provisions

Source 1 2004 Field Guide to Estate Planning,
Business Planning, Employee Benefits, The
National Underwriter Company
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What You Should Know About Buying Life Insurance
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The Crisis of Under Insurance

• Did You Know That . . .
• Only 4 in 10 adult Americans own individually
  purchased life insurance
• Even those who have coverage dont have enough
• On average, Americans have only 3 years of
  replacement income
• A recent study of widows and widowers whose
  spouses died prematurely (between the ages of 30
  and 55) found that fewer than 1 in 4 felt their
  spouse had adequate life insurance coverage

Trends in Life Insurance Among Americans,
LIMRA International, 1999 The Financial Impact
of Premature Death, commissioned by Met Life in
2003
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The Importance of Life Insurance

• To Build Your Financial Foundation
• To Protect Your Financial Resources

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Why Do I NeedLife Insurance?

• To Provide Cash When a Wage Earner Dies
• To help pay off debts
• To help pay the mortgage
• To help run the household
• To avoid selling assets to pay bills and taxes

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Life Insurance Benefits

• Generally Paid to Your Beneficiary Free of
  Federal Income Tax
• Beneficiary may be your family
• Beneficiary may be your business

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Where Do I Begin?

• Evaluate Your Familys Needs
• Gather Personal Information
• Estimate What Your Family Would Need If You Were
  Gone
• Expenses at death such as remaining final
  illness and funeral expenses
• On-going daily expenses

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Where Do I Begin?

• Factors to Consider
• Funds for immediate needs at death funeral,
  final illness expenses, potential estate taxes
• Funds for readjustment period time/training to
  find new job, new housing, other adjustments
• Funds for ongoing needs monthly bills
  expenses, day care, college tuition, etc.

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Life Insurance Proceeds Can Be Used to Help...

• Create An Estate
• Pay Death Taxes and Other Estate Settlement Costs
• Pay Off The Home Mortgage
• Create A College Fund For Children or
  Grandchildren
• Fund A Business Transfer

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Life Insurance Proceeds Can Be Used to Help...

• Pay Off Loans
• Create a Retirement Fund
• Make a Charitable Gift
• Protect a Business From the Financial Loss at the
  Death of a Key Employee
• Equalize Inheritances

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How Much Life InsuranceDo I Need?

• General Rule of Thumb At Least 7 Times Your
  Annual Gross Income
• Analyze Your Specific Needs
• The Value of Human Life

Source LIMRA 1999
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Needs Analysis

• Add Up NEEDS
• Funeral, child care, mortgage, pay off debts,
  childrens education, emergency fund, etc.
• Subtract ASSETS Available at Death
• Life insurance, Social Security, stocks, bonds,
  retirement plan assets, business interests, etc.
• Difference Represents How Much Life InsuranceIs
  Needed Under TODAYS Circumstances

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Calculating the Value of a Human Life Based on
Potential Earnings
Projected Total Earnings Up To Age 65 Assuming A
5 Annual Increase Including Inflation
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What Are My Life Insurance Choices?

• Life Insurance Comes in Many Shapes and Sizes
• One Size Does NOT Fit All
• No One Kind IsBest
• Two Categories
• Term Insurance
• Permanent Insurance

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Term Insurance

• Can Provide Less Expensive Protectionfor a
  Pre-determined Period of Time
• Good for Those Just Starting Outor Those With a
  Temporary Need
• Pure Protection Which Pays theBenefit Should You
  Die

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Term Insurance

• Does Not Build Cash Value
• May Be Renewable, But Rates Will Increase at End
  of Term
• Usually Must Present Evidence of Insurability to
  Renew Policy at Lower Rate

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Permanent Insurance

• Provides Lifelong Protection
• As Long As You Pay Premiums, Death BenefitWill
  Be Paid
• Designed to Be Kept for Long Periods of Time
• Most Permanent Policies accumulate Cash Value
• Types Whole Life Insurance, Universal Life
  Insurance

Issued by New York Life Insurance and Annuity
Corporation (A Delaware Corporation).
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Permanent Insurance

• Required Premium Levels May MakeBuying Enough
  Protection Difficult
• May Be More Costly Than Term InsuranceIf You
  Dont Keep Policy Long Enough

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Permanent Insurance Cash Value Concept

• Cash Value Accumulates Tax Deferred
• If you no longer need as much death benefit
  protection, cash values can be accessed
  income-tax free and penalty-free for a variety of
  life events including college education and
  retirement 1(if policy is not a Modified
  Endowment Contract)
• Internal policy values (Premium Offset Plan)can
  be used to pay premiums to continue your
  protection
• Premium Offset (POP) is an alternate method for
  paying premiums due. Rather than coming out of
  your pocket, the premium is paid from the values
  within the policy. Please note that this
  arrangement is based on dividends which are not
  guaranteed. If the dividend scale decreases, your
  policy may come off of the POP arrangement and
  additional out-of-pocket payments may be
  necessary2
• If you cancel or surrender policy3, you can
  receive surrender value of the policy
• 1 Loans against your policy accrue interest at
  the current rate and decrease the death benefit
  by the amount of the outstanding loan and
  interest
• 2 Dividends are based on the policys applicable
  dividend scale which is not guaranteed nor an
  estimate of future performance. A reduction in
  the applicable dividend scale may result in
  further out-of-pocket cash premium payments being
  made necessary
• 3 Some permanent insurance plans may incur
  surrender charges

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Cash Value vs. Life Insurance Proceeds

• Cash Value Not the Same As Life Insurance
  Proceeds
• Life Insurance Proceeds The Amount Your
  Beneficiary Will Receive If You Die
• Cash Value The Amount of Cash Available If You
  Surrender the Policy Before Your Death, or If You
  Need to Borrow From Your Policy
• If You Access Your Cash Value, You Reduce the
  Policys Death Benefit

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Whole Life

• Most Common Permanent Insurance
• Premiums Are Fixed
• Insurer Cannot Cancel Policy, AsLong As Premiums
  Are Paid
• Cash Value Accumulates
• Guaranteed cash value
• Dividends are not guaranteed

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Universal Life Insurance

• Flexible Premium Payments, Subject to Certain
  Minimums and Maximums
• Flexible Death Benefit
• Earns Interest Crediting Rate Tied to Economic
  Conditions
• Issued by New York Life Insurance and Annuity
  Corporation (A Delaware Corporation), 51 Madison
  Avenue, New York, NY 10010)
• A universal policy will terminate if, at any
  time, the cash surrender value is insufficient to
  pay the monthly deductions. This can happen due
  to insufficient premium payments, if loans or
  withdrawals are made, or the current interest
  rates or charges fluctuate.

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Term vs. Permanent

• Term Insurance
• Advantages
• Initial term premiums are generally lower than
  those for permanent insurance
• Lower premiums may allow you to buy higher
  coverage at a younger age, when your need for
  protection is often greatest
• Good for short-term need, such as protection for
  outstanding mortgages or car loans

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Term vs. Permanent

• Term Insurance
• Disadvantages
• Premiums increase as you grow older
• Coverage may terminate at the end of the term, or
  may become too expensive to continue
• There are no cash values or paid-up insurance
  options
• If you miss a payment, your policy is usually
  cancelled

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Term vs. Permanent

• Permanent Insurance
• Advantages
• As long as the premiums are paid the protection
  is guaranteed for life
• Premium costs can be fixed or flexible to meet
  personal financial needs, depending on type of
  permanent insurance
• Policy accumulates a cash value against which you
  can borrow (loans accrue interest and if loans
  are not repaid, beneficiaries receive a reduced
  death benefit)
• Cash value continues to grow tax deferred

Premiums must be sufficient to retain coverage
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Term vs. Permanent

• Permanent Insurance
• Advantages
• Internal policy values (Premium Offset Plan) may
  be used to pay premiums
• Cash value can be surrendered, in total or in
  part (possible tax consequences)
• Policy Riders enable customization such as
• A Waiver of Premium rider to pay the premium, if
  you become disabled
• An Option to Purchase PaidUp Additions (OPP)
  rider that will allow you to purchase additional
  death benefit without evidence of insurability

A reduction in the applicable dividend scale or
interest crediting rate for the policy may result
in further out-of-pocket cash premium payments
being made necessary.
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Term vs. Permanent

• Permanent Insurance
• Disadvantages
• Higher initial premium may make it harder to buy
  adequate protection
• As compared to term insurance, if it is not kept
  for a long period of time, total premiums paid
  may be more than term insurance

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Consider More Than Cost.
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Choosing A Company

• Check Financial Condition
• Request Information
• Check Company Rating

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Rating Information

• A. M. Best Financial Strength
• Fitch Financial Strength
• Standard Poors Financial Strength
• Moodys Financial Strength

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Rating Information

• Mutual companies are able to avoid the
  potential conflicts of interest that exist
  between policyholders and shareholders in
  publicly traded companies. We believe that this
  fact appeals to a number of policyholders.
• --Moodys Investors Service, July 2003

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Rating Information

• Also, as a consequence of demutualizing, many of
  New York Lifes traditional competitors have
  stopped writing traditional participating whole
  life insurance policies.
• By continuing to offer these policies, New York
  Life is further able to distinguish itself among
  many middle and upper income consumers.
• --Moodys Investors Service, July 2003

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Choosing An Agent

• Ask for Recommendations From Family and Friends
• What Company Does the Agent Represent?
• Is the Agent Licensed to Do Businessin Your
  State?
• Is the Agent Also a Registered Representative.Can
  he/she Sell Variable Products?
• Does the Agent Have Any Professional
  Designations?

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The Agent Meeting

• What Can You Expect?
• A willingness and ability to explain various
  policies and other insurance-related matters
• An agent that takes the time to understandyour
  needs
• An agent that will help you determine the
  appropriate type of insurance and the appropriate
  amount at an affordable price
• If you are not comfortable with the service,
  find another agent

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What Will The Agent Ask?

• Questions About
• Your age, medical condition and medical history
• Your family history and personal habits
• Your personal finances and financial goals
• Accurate answers will enable your beneficiary
  prompt payment in the event of a claim

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Recommendations

• How Do I Know If a Life Insurance Policy Is
  Appropriate for Me?
• Does it fit your personal goals?
• Do you understand how the policy works?

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Recommendations

• If Your Agent Recommends a Term Policy
• How long can I keep the policy?
• Can I renew the policy and how?
• When will my premiums increase?
• Can I convert this policy to a permanent policy
  and if so, what kind?
• Is there a time limit on conversion?
• Will I need a medical exam torenew or convert my
  policy?

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The Illustration

• What Is a Policy Illustration?
• What Does It Show?
• Premiums, death benefits, cash values
• Guaranteed values, non-guaranteed values
• Dividends and Interest Crediting Rates Depend on
  the Financial Results of the issuing Insurance
  Company

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Recommendations

• If Your Agent Recommends a Permanent Policy
• Are the premiums within my budget?
• Can I commit to these premiums over the long
  term?
• How much will I receive if I surrender the policy?

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Policy Illustrations

• Also Ask..
• Does the policy have a guaranteed death benefit?
• Does the policy pay dividends or interest
  crediting rate?
• Will my premiums change?
• Is the premium level sufficient to guarantee
  protection for my entire life?

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Policy Illustrations

• Remember, Policy Illustrations Are NotLegal
  Documents
• They are a demonstration of how the product may
  work
• The non-guaranteed values show how the policy may
  perform under certain non-guaranteed
  circumstances.
• All legal obligations are specified in the policy
  itself

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Policy Illustrations

• And
• If the illustration shows that you will not have
  to make premium payments after a certain period
  of time, is there a chance that I would have to
  resume payments in the future?
• When current dividend values plus anticipated
  future dividends are sufficient to cover your
  entire future scheduled premiums, the Premium
  Offset Plan (POP) is available to you. The chief
  benefit of this arrangement is that once you
  elect it, you do not have to pay your premiums
  with out-of-pocket funds, as long as there are
  sufficient dividends to continue to fund this
  arrangement.
• Dividends are based on the policys applicable
  dividend scale which is not guaranteed nor an
  estimate of future performance. A reduction in
  the applicable dividend scale may result in
  further out-of-pocket cash premium payments being
  made necessary

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What If I Forget APremium Payment?

• Does the Policy Provide a Grace Period?
• Will the Company Automatically Borrow Funds From
  the Cash Value to Pay the Premium?
• Flexible Premium Policies May Allow You to Miss
  Premium Payments
• If elected, Automatic Premium Loan (APL),
  provides an automatic loan which pays an overdue
  premium at the end of the grace period, subject
  to 2 conditions. First, the loan value must be
  enough to pay that premium. Second, if premiums
  have been paid by APL for 2 years in a row, the
  next premium will not be paid by APL. After a
  premium is paid other than by APL, before the end
  of the grace period, premiums can again be paid
  by APL. Loans against your policy accrue interest
  at the current loan interest rate and decrease
  the death benefit by the amount of the
  outstanding loan and interest.
• A Universal Life policy will terminate if, at
  any time, the cash surrender value is
  insufficient to pay the monthly deductions. This
  can happen due to insufficient premium payments,
  if loans or withdrawals are made, or the current
  interest rates or charges fluctuate.

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Policy Riders

• Ask Your Agent If There Are Riders Available
• What Are They?

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Example of a Policy Rider

• Waiver of Premium
• Usually at an additional cost, the company will
  pay your life insurance premiums (on a Whole
  Life) up until a certain age if you become
  totally disabled (or will waive the monthly
  deductions on a universal life contract)
• Be sure you understand what it takes to qualify
  for these benefits and understandthat the same
  rider may work differently with different
  companies

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A Few Last Tips

• Take Your time
• Dont delay an important decision, but understand
  fully the policy you are purchasing
• Understand the Free Look Provision
• Make Check Payable to Insurance Company

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A Few Last Tips

• If an Agent Asks You to Surrender an Existing
  Policy, (Completely or Partially) and Replace It
  With With Another Policy, Understand That This
  Could Be a Very Costly Decision
• You are entitled to a significant amount of
  information and necessary disclosure regarding
  this decision.
• If You Have a Complaint About Your Agent, Contact
  the Companys Customer Service Division or the
  Your States Department of Insurance

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Where Else Can IGet Information?

• Your Personal Insurance Agent
• Your Personal Insurance Company
• National Insurance Consumer Help Line
  800-942-4242
• Local Library or Internet
• Your State Insurance Department
• www.newyorklife.com

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• TAKE CONTROL OF YOUR
  FINANCES NOW!

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THE COST OF PROCRASTINATION
100 per month invested at 6
97,450
Starting immediately
97,450
100 per month invested at 6
Waiting 10 years
67,630
Starting immediately
67,630
45,340
45,340
45,340
45,340
28,690
28,690
28,690
28,690
16,250
16,250
6,950
6,950
15 years 20 years 25
years 30 years
This is a hypothetical example of mathematical
compounding and does not represent the past or
future performance of any specific investment
product or class of investments.
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WHERE DO YOU GO FROM HERE?
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CHOOSING A PROFESSIONAL AGENT

• Qualifications
• Specializations
• Size of practice
• Compensation

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USE US AS A RESOURCE

• Education and financial guidance
• Analysis
• Recommendations
• Follow-up

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NO-OBLIGATION APPOINTMENT
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RESPONSE CARD
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