This week in financial planning, our class discussed life insurance planning and also reviewed for the upcoming test on Tuesday, next week. The primary reason for buying life insurance is to protect family members from the financial burdens which arise from death. These policies insure that a specified beneficiary will receive the funds of the plan.
First, individuals must identify what needs must be met in the case of death. Life insurance is typically used for expenses such as final, one-time expenses, income-replacement, debt-repayment, college for dependents, and special needs. Life insurance policies are defined by its policy terms regarding the premium, face value, policy owner, insured, and beneficiary. Life insurance is necessary for people with dependents, who are a married, single-income couple with children, who are business owners, and whose estate taxes exceeds the estate tax-free transfer threshold of $1m dollars.
Major types of life insurance include term insurance and cash-value insurance. Term insurance is typically better for younger people with smaller income and a family of dependents. It is cheaper than cash-value and is a similar to car insurance because the policy holder is renting protection which goes away at the end of the term. On the other hand, cash-value insurance provides permanent insurance and also provides a death benefit and an opportunity to accumulate savings.
To determine which type of insurance is right for an individual's needs, a rule of thumb is that term insurance is the best alternative for most people. Term has relatively low costs and affordable coverage when the insurance is needed most. However, it becomes very expensive with age. Cash-value insurance offers tax advantages. Savings in these policies grow tax-deferred and are passed on without accruing estate taxes, but other investment plans are better relative to cash-value insurance.
Article 1 - Asset Allocation & Portfolio Management
Rebalancing a portfolio is measure an investor can take to reduce the risk and volatility of his/her investment portfolio. When markets fluctuate on a day-to-day basis, asset values are affected. Often, movements in the market can cause a portfolio to get off track from its original objective and experience an increase in the risk involved.
Not only does rebalancing help manage a portfolio's target and the exposure to potential gains, it also reduces the exposure to potential losses. Also, rebalancing forces an investor to determine whether the portfolio is exposed too heavily to any particular asset class. This can reduce the chances of experiencing substantial losses because of poor performance in any one type of security or industry.
Article 2 - What You Need to Know Before You Sell an Investment
When selling an investment, taxes play a key role in the profitability of the sale. After-tax returns must be determined in order to weigh the true benefits of selling.
Capital Gains and Losses
Capital gains/losses are the difference between the prices for which the asset was bought and sold.
Holding Periods & Capital Gains Tax Rates
Capital gains tax rates are affected directly by the length of time the asset is held and one's income tax bracket. Assets held for one year or less are taxed at the individual's marginal tax rate. For assets held for longer than one year, individuals are taxed on capital gains at a lower rate than their tax bracket.
Offsetting Capital Gains and Losses
Capital losses accrued may be tax-deductible, but limits are placed on the total deductible amount per year. The steps that follow instruct how to deduct a capital loss.
(October 28 - November 3)
First, individuals must identify what needs must be met in the case of death. Life insurance is typically used for expenses such as final, one-time expenses, income-replacement, debt-repayment, college for dependents, and special needs. Life insurance policies are defined by its policy terms regarding the premium, face value, policy owner, insured, and beneficiary. Life insurance is necessary for people with dependents, who are a married, single-income couple with children, who are business owners, and whose estate taxes exceeds the estate tax-free transfer threshold of $1m dollars.
Major types of life insurance include term insurance and cash-value insurance. Term insurance is typically better for younger people with smaller income and a family of dependents. It is cheaper than cash-value and is a similar to car insurance because the policy holder is renting protection which goes away at the end of the term. On the other hand, cash-value insurance provides permanent insurance and also provides a death benefit and an opportunity to accumulate savings.
To determine which type of insurance is right for an individual's needs, a rule of thumb is that term insurance is the best alternative for most people. Term has relatively low costs and affordable coverage when the insurance is needed most. However, it becomes very expensive with age. Cash-value insurance offers tax advantages. Savings in these policies grow tax-deferred and are passed on without accruing estate taxes, but other investment plans are better relative to cash-value insurance.
Article 1 - Asset Allocation & Portfolio Management
Rebalancing a portfolio is measure an investor can take to reduce the risk and volatility of his/her investment portfolio. When markets fluctuate on a day-to-day basis, asset values are affected. Often, movements in the market can cause a portfolio to get off track from its original objective and experience an increase in the risk involved.
Not only does rebalancing help manage a portfolio's target and the exposure to potential gains, it also reduces the exposure to potential losses. Also, rebalancing forces an investor to determine whether the portfolio is exposed too heavily to any particular asset class. This can reduce the chances of experiencing substantial losses because of poor performance in any one type of security or industry.
Article 2 - What You Need to Know Before You Sell an Investment
When selling an investment, taxes play a key role in the profitability of the sale. After-tax returns must be determined in order to weigh the true benefits of selling.
Capital Gains and Losses
Capital gains/losses are the difference between the prices for which the asset was bought and sold.
Holding Periods & Capital Gains Tax Rates
Capital gains tax rates are affected directly by the length of time the asset is held and one's income tax bracket. Assets held for one year or less are taxed at the individual's marginal tax rate. For assets held for longer than one year, individuals are taxed on capital gains at a lower rate than their tax bracket.
Offsetting Capital Gains and Losses
Capital losses accrued may be tax-deductible, but limits are placed on the total deductible amount per year. The steps that follow instruct how to deduct a capital loss.
- Balance long-term capital gains against long-term capital losses to determine a long-term capital gain/loss.
- Balance short-term capital gains against short-term capital losses to determine a short-term capital gain/loss.
- Combine the net results of the short-term and long-term when they are opposites.
- If 1-3 are completed, and a net loss still exists, up to $3000 can be used to offset ordinary income in the current tax year.
- If a remainder of capital loss still exists, an individual can carry it over to offset future years' capital gains or ordinary income.
(October 28 - November 3)