Your Boomer Mortgage: Insurance Offers You Don't Need

On a recent episode of Financial Impact Factor Radio, we discussed the topic of insurance. If you have never tuned into this show, I think you will find it interesting and topical. We have a wide range of guests and often discuss the very questions that concern Baby Boomers, their children and their parents. Because being a Boomer is more than just being a certain age. All of our shows on Financial Impact Factor Radio can be found here.

As a Boomer, I am always intrigued by the offers that begin showing up in my inbox/mailbox. Although they don't on the surface seem to be age related, one can't help but read between the lines. Are they talking to me? Are they worried about whether I will make it to the end? That "end" involves satisfying the largest debt any of us will ever own: our mortgage.

Last week I received a letter in the mail from the bank that holds my mortgage that would make most mortgage holders think twice. It was the offer of life insurance. My bank might think there are good reasons for offering this product that is different that many of the other types of insurance offered with these types of loans. For instance, PMI is private mortgage insurance the bank makes you buy if you are putting less than 20% down on a mortgage. The sole beneficiary in this instance is the lender, who knows that if you are going to default, this riskier loan covers their interest in the transaction. Known as PMI, its cost has begun to weigh on borrowers who find their loans underwater. Once you pass 78% mark because the value of your house compared to the amount of your initial downpayment, you can cancel the policy.

There is also mortgage insurance which for some borrowers seems like a good option as well. Essentially the lure of this product is to pay-off the mortgage in the event of your death. The insurer doesn’t pay you directly instead writing a check directly to the mortgage company or lender.

The letter I received offered a term policy that would last until I turned 80 years old, which is about 26 years from now. Like all insurance policies it plays on your fears and comes at a time when the typical term policy is about to expire if you bought insurance in your thirties, which is typically the time when most folks consider coverage. But it isn’t cheap. In fact, this sort of policy has a seven year flat rate, just a few medical questions without an exam and of course the tug-on-your-heart-strings assurance that your loved ones will be taken care of.

So today I thought we’d talk about late in life insurance coverage and whether we should consider it.

Listen to Financial Impact Factor Radio with your hosts:
Paul Petillo of Target2025.com/BlueCollarDollar.com and Dave Kittredge and Dave Ng of FinancialFootprint.com

This Show was for Boomers: On the radio with Steve Cooperstein

On Monday, we had Steve Cooperstein on the Financial Impact Factor Radio show with Paul Petillo, managing editor of BlueCollarDollar.com/Target2025.com and a fellow Boomer. Steve's recent book was the topic for today's show: “Implications of the Perceptions of Post Retirement Risk for the Life Insurance Industry: Inside Track Marketing Opportunity, But Requiring Focused Retooling”.

It may have been written for advisors and academics and the insurance industry, but in doing so it offers us some interesting insights into how these folks think about us: the end user. Did I mention that Steve is an actuary?

 We talked to him about annuities and Long Term Care Insurance, the impact both of these products have on all age groups, what is wrong with them and how they can be improved. We solved a great deal in the hour we had together!



   

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Paul Petillo of Target2025.com/BlueCollarDollar.com

and Dave Kittredge and Dave Ng

of FinancialFootprint.com

on

The Financial Impact Factor

at Blog Talk Radio

New Book for Boomers and Their Kids

I have been writing for BoomersRetirement for quite some time. And while I tend to address the concerns of this older demographic - being one myself - I don't want you to think we can do so and ignore those around us.

Yes, we need to be focused. But personal finance has become intra-personal with our kids (and their decisions) often impacting our decisions. So we owe it ourselves to make sure that we educate them in the basics. I wrote the first version of this book seven years ago and my how things have changed - even as they stayed the same. Someone once told me that if everyone had read it, we wouldn't be in as deep of a financial mess as we are in now.

So I updated it for 2011 and published my fifth book - this time with Smashwords! And a special offer to readers of this blog, ReBuilding Wealth in a Paycheck-to-Paycheck World by Paul Petillo is available for a limited time (until 10.29.11) when you can use this coupon code to get the ebook for half price or $1.50. The code for the coupon is UJ76Q This ebook is available across all platforms including iPad and iPhone, Amazon and Sony.

So download it for yourself. Give it to your kids. Tell anyone you know how important this is.

Insuring Our Retirements

A great many of you already know what the Pension Benefit Guaranty Corporation is and what it does. The PBGC basically insures pensions and uses the premiums paid to it by employers to guarantee that no matter what happens to the pension an employer might have, the benefit (referred to as a defined benefit plan) will be there, perhaps in total, when the worker retires. This organization was born out the need to protect workers from company defaults, mergers and acquisitions and other business practices that essentially took a lifetime of retirement income away.

The PBGC is a government agency that does not rely on tax revenues to conduct its business. According to their site, the explain how they pay for what they do as: "financed by insurance premiums set by Congress and paid by sponsors of defined benefit plans, investment income, assets from pension plans trusteed by PBGC, and recoveries from the companies formerly responsible for the plans." There a limits to how much you can collect if the PBGC steps in and takes over your pension (such as a limit of $4500 a month) but the benefit far outweighs the total loss of your plan.

Now there is a movement in Washington, spurred on by the Government Accounting Office (GAO) to create a similar type program for those who have 401(k)s. If we have learned anything since these defined contribution plans made their debut 30 years ago is that they are still under-used and those who do use them, are still unsure what they are doing. Even as the predictions of these plans growing in the coming years by a third by 2015, this doesn't necessarily mean that the plans have improved or the still-as-yet-to-embrace the plan participants will do a better job funding and/or planning for their future on their own.

The hearings center around the introduction of some sort of insurance, much like the insurance the PBGC offers to pensions, for 401(k)s or what banks offer as deposit insurance (FDIC). The GAO is pushing for such protections and the plan sponsors are pushing back, suggesting that the efforts they have made in education and plan improvements are enough of a guarantee.

The current set-up of these 401(k) plans is still, as one participant in the hearings suggested, too murky with too much leeway given to the plan sponsor, too little transparency into how those underlying investments are chosen and whether they are the right fit for all plan participants. Robert Reynolds, president and chief executive officer of Putnam Investments stepped into the fray with his suggestion of something similar to the FDIC involvement with bank deposits.

Mr. Reynolds called on Congress to create a new Lifetime Income Security Agency. In a speech given at the 2011 Retirement Income Industry Association, Reynolds outlined the need for this sort of protection. He suggested: "As the oldest Baby Boomers reach the traditional retirement age of 65, we need to go beyond helping Americans accumulate assets for retirement to helping them draw those assets down to provide reliable income throughout retirements that could last 20 to 30 years or more. It’s even more challenging to draw assets down sustainably as it was to accumulate them in the first place,”

Subjecting these plans to rigorous standards would allow for the denial or approval of products such as annuities in these plans designed to guarantee income for these retirement investors, market downturns or not. He believes that this sort of insured confidence would spur more people to embrace the plans and give those who currently use them additional incentive to increase their participation. The restrictions put in place by the 1986 reform measures passed by Congress did more harm than good.

Reynolds believes: "With Baby Boomers now in or approaching retirement, the stakes are much higher now than they were 25 years ago." That change is needed and needed now. By creating some sort of protection, he suggests a domino effect that would begin with "encouraging savings that fuels investment, business formation and job creation."  Any focus on the deficits without a focus on increasing personal and workplace savings would be misdirected and he suggested that "Congress should dismiss such ideas out of hand."

Auto-enrollment, savings escalation and guidance to wise asset allocation improved the current state of 401(k) participation but did not go far enough. These provisions in the Pension Protection Act of 2006 did not include workers without access to traditional employer sponsored plans. Reynolds suggested that some sort of auto-enrollment into IRAs woud be a good first step. But guarantees would be far better and instill a sense of future promise and retirement income safety where, for many Americans, there is little or none.

Paul Petillo is the managing editor of BlueCollarDollar.com/Target2025.com and a fellow Boomer