personal finances manage

things you should know about income protection

2010-03-20T23:17:00.000-07:00

Two terms you must watch oput for
Your income protection policy has two different terms and you should be aware of both of them. First of all, your policy is in place for a certain period. Most policies offer you cover until you are 60 or 65. Business owners may elect to take out cover until the age of 70.

Watch out, though, for cheaper policies that offer you cover until only 55. You may then still be a long way off from having sufficient assets on which to retire, and 55 is the age when the risk of disability increases. At this age you may be unable to extend your cover except at an exceptionally high cost because you are now older and more of a risk to the life assurer.

The other term you need to check is that which applies to the payment of the income benefit. If you become disabled, make sure the age to which you will be paid a benefit is the same as the age at which you expect to have sufficient retirement fund assets on which to retire. Policies usually offer cover that pays benefits until you are 60, 65 or 70.

Porthen says you need to make sure your retirement savings will be able to provide for you from the time your benefit ceases. This may mean taking out lump sum disability cover to provide funds for your retirement years or taking a premium waiver on a retirement annuity to ensure that your contributions are paid even when you are unable to work as a result of disability.

If you recover
Despite the term until which your policy says you will be paid benefits, if you recover from a disability sufficiently that you are able to return to work, a life assurer that pays you an income benefit can then reassess that benefit.

Marx says contractually life assurers have the right to revisit your case at any stage. Practically, he says, they do not. Usually, cases where a disability is a difficult one to assess, such as back problems or psychological illnesses, are followed up.

However, cases where it is accepted that the policyholder has very little hope of recovering may never be revisited, Marx says.

Crause says conditions are monitored more regularly during the first five years after a claim, because this is usually when the policyholder is on active treatment and may recover. A cancer or mild stroke patient, for example, may recover fully, but other disabilities may never improve, and then the assurer will check only to see if the insured is still alive, she says.

If you return to work after claiming on your policy, the assessor is likely to be involved in your rehabilitation and to be able to assess the level of income you can generate, Crause says.

A policy that pays a partial disability benefit will then compensate you for the lost earnings up to 75 or 100 percent, depending on the level of cover your policy offers.

Crause says a person who earned R20 000 a month and who returns to work half days for R10 000, for example, could receive R7 500 a month on a policy that offers partial disability benefits with income insured to 75 percent of pre-disability income.

Your premiums are tax-deductible
The premiums you pay on an income protection policy are tax-deductible, unlike most personal life assurance contributions.

Generally, you are allowed to deduct the costs incurred in generating an income; the costs of protecting your income are regarded as such an expense.

Section 23(m) of the Income Tax Act provides for the deduction from taxable income of an insurance policy that covers you for loss of income as a result of illness, injury, disability or unemployment, as long as the benefit you derive from the policy is income (in other words, not a lump sum).

And you do not have to wait until you are assessed to benefit from the deduction. Your employer can adjust your Pay As You Earn tax to take into account any premiums you pay on an income protection policy, as long as you can provide your employer with proof that you are paying the premiums.

If you are disabled and your income protection policy pays out, the monthly income you receive will, however, be taxed as and when you receive it.

If you take out a policy that includes other benefits, such as lump sum disability cover or an investment portion, only the portion of the premium that is used to pay for the income benefit is tax-deductible.

The sickness benefit offered by Sanlam and PPS that does not require proof of loss of income for a successful claim is not tax-deductible, but the benefits paid out on these policies are tax-free.

If a sickness benefit is packaged with an income protection policy, the premiums will have to be apportioned for tax purposes.

If you have an income replacement policy, your life assurance company should send you an income tax certificate that states the amount you can claim against your taxable income.

Discovery says that since the odds of lodging a claim are against you (you have a one-percent chance), you may as well benefit from the tax- deductibility of your premiums. This could save you about 30 percent of your contributions, depending on your average rate of tax.
Rules on how much you can be paid off
Life assurers around the world do not allow you to claim 100 percent of your pre-disability income if you become disabled.

There are apparently extensive international statistics that show that a lot more people continue to claim, instead of returning to work, when insurers allow cover to increase to close to 100 percent of pre-disability income.

Life assurers also believe that limiting the percentage of your income that you can claim reduces the likelihood of policyholders committing fraud by faking a disability in order to qualify for an income.

Crause says another argument is that when you are no longer working, your expenses, such as those involved in travelling to work or dressing for work, are reduced.

The former Life Offices’ Association (LOA), which is now part of the Association for Savings & Investment South Africa (Asisa), recommended in its code of conduct that life assurers pay out on income protection policies no more than 75 percent of your pre-disability income. This non-binding guideline was removed from the LOA’s code of conduct in 2006 for fear of contravening the Competition Act.

However, it remains standard practice locally and internationally for income benefits not to exceed 75 percent of pre-disability earnings. In South Africa, Discovery Life is a notable exception (see below).

The LOA also suggested that its members prevent you from trying to insure yourself for more than 75 percent of your pre-disability income by taking out multiple policies. It suggested that life assurers check how your policy benefits would aggregate if you were to claim and ensure that you would not be entitled to more than 75 percent of your pre-disability income.

In its code of conduct, now Asisa’s code, the LOA recommended how life companies should aggregate benefits, including those on group and individual policies, and lump sum and income policies.

The LOA drew up a table that would allow its members to convert a lump sum benefit into a monthly cash benefit to determine if a policyholder was receiving more than 75 percent of his or her pre-disability income. The only exclusion from the aggregation exercise the LOA recommended was dread disease policies.

Sanlam, Old Mutual and Liberty aggregate the policy benefits for which you may qualify, and the rules on how lump sums are taken into account with income benefits are quite intricate.

Marx says as long as Sanlam is aware of all the cover you have in place, it will prevent you from taking out cover that will provide benefits you cannot enjoy in terms of its aggregation rules.

He says the problems occur when your cover changes at a later stage – for example, if your income drops or you take out new cover through, say, a group scheme offered by your employer.

Marx says he has never heard of someone being denied lump sum benefits on a policy, but the income life assurers pay out can be limited if it exceeds 75 percent of pre-disability income.

Crause says in addition to taking out income protection for up to 90 percent of your income (depending on your age when you buy the policy) or 100 percent on a temporary income benefit, Old Mutual allows you to take a lump sum of twice your annual salary but capped at R750 000, to cover your lump disability needs.

Bucking the trend
The LOA’s aggregation guidelines are voluntary and at least one life assurer has chosen not to follow them.

Rabson says Discovery Life has never aggregated lump sum and income protection disability benefits. Furthermore, unlike most other life assurers, Discovery offers initial income benefits at 75 percent of your income with an upgrade to 100 percent of your pre-disability income if you are able to prove that your disability is permanent.

The thinking behind Discovery’s benefit is that once it has been confirmed that your disability is of such a nature that you will not be able to return to work, a benefit at 75 percent of your pre-disability income is a penalty.

Most other assurers offer temporary disability benefits at 100 percent, reducing to 75 percent when your disability is confirmed as permanent.
t won't help you if you are retrenched
Discovery Life, Old Mutual, Liberty and Sanlam do not offer retrenchment cover on its income protection policies.

Crause says Old Mutual has a separate policy that pays out a six-month retrenchment benefit while you are looking for a new job, but this benefit is not automatically included on the income protection policy, because it requires its own specific rules to ensure that the benefits are not abused.

The life assurer has to be sure that you are not taking out the policy when you already know your employer is in trouble or your job is about to be withdrawn, she explains.

Crause says if you can afford this cover, you should take it out.

Liberty’s policies offer a benefit in terms of which your premiums can be waived for a year if you are retrenched. Porthen says the benefit must be selected and comes at an additional cost.

Liberty also offers its policyholders who are facing financial difficulties the opportunity to reduce their benefits for up to six months and then to reinstate them without new underwriting – in other words, without your premiums being recalculated based on the risk you pose then.

Ordinarily, if you reduce your cover and then increase it later when your financial position improves, your premiums for the additional cover will be calculated in line with your age and other risk factors at the time that you increase it and not at the rate you were given when you first took out the cover

9. Beware of gaps in your group benefits
Many people do not take out income protection policies because they believe they enjoy this kind of cover under the group life schemes offered by their employers or as a benefit for members of a retirement fund.

However, you should be aware that there could be gaps in your group scheme income protection cover.

If your group scheme offers this kind of cover, it may be cheaper than if you take out the cover as an individual, depending on your age and health status relative to that of the group.

A younger, non-smoking healthy person may find individual cover cheaper, whereas an older, smoking, less healthy person may find group cover cheaper, Rabson says. This is because the premiums are determined on the risk posed by the group as a whole, rather than the risk that you, as an individual, pose.

But Porthen says a lot of people are lulled into a false sense of security about their group life cover and never actually check the details.

At the FPI convention this year, Discovery Life pointed out the following:

# The maximum income protection you can purchase is restricted. Discovery says it is usually about R60 000 to R70 000 a month on group life policies. This leaves significant gaps for executives who may have higher salaries. Crause says Old Mutual allows up to R150 000 a month on a group policy and up to R100 000 on an individual policy.

You should check just how much income you will receive from your employer’s group life scheme should you become disabled.

# An individual income protection policy will be based on a single definition of disability, whereas a group life policy may begin with an "own occupation" definition, which changes to an "own or similar" occupation definition after 12 months.

In other words, you can take out an individual policy that insures you against losing the ability to do your own occupation, but on a group basis, you will probably only get this insurance for a year, and thereafter you will continue to receive payments only if you are unable to do either your own or any similar occupation.

# You can usually choose the term of the cover on an individual policy, but the term is likely to be set on your group policy, and the group scheme term is usually the same as the group retirement age.
# With an individual policy, there are unlikely to be any limits on the escalation of the benefit you receive when you are claiming. But a group policy is likely to have a limit on the benefit escalation for all members of the group.
# With an individual policy, you have the opportunity to take out cover that ensures you will receive 100 percent of your income if you become permanently disabled, whereas group schemes tend to payout only 75 percent on permanent disability.

Discovery said these gaps are usually driven by an employer’s ability to afford the premiums for the group scheme, and employees are often unaware that they can fill the gap with an individual policy.

For example, an employee who earns R30 000 a month may enjoy group scheme cover for 75 percent of this salary – that is, R22 500 – with a three-month waiting period and an "own or similar" definition of disability after 12 months.

Discovery says if that employee took out individual cover for R7 500 for the first 12 months and R30 000 on a nominated occupation basis with a 12-month waiting period, he or she could cost-effectively ensure that if temporarily disabled, he or she would enjoy a benefit at 75 percent of his or her income.

If permanently disabled, the insured would enjoy 75 percent of income from the group scheme for the balance of the 12 months and the other 25 percent from the individual policy, and the individual policy would take over after the first 12 months for the nominated occupation cover.

10. Be careful of the income you insure
You need to take some care about the earnings you insure and what you tell your life assurer about how you make a living.

In its 2007 annual report, the Office of the Ombudsman for Long Term Insurance warned about problems that arose with a policy sold to a sole member of a close corporation (CC).

When the woman took out the policy in 2001, her CC generated a turnover of more than R800 000 a year, but the woman’s accountants had set up her CC in such a way that the salary she drew from it was limited to R26 667 a year, and she also received drawings of more than R311 000.

When the woman applied for income protection cover, she reflected her annual income as R216 000, as this would be her loss if she was disabled and unable to run the business.

The woman submitted a disability claim in 2005, and when she was asked to submit her income tax assessment for 2001, the assurer became aware that her taxable income was not R216 000 a year.

The assurer repudiated the policy on the basis of non-disclosure or misdisclosure and refunded the woman’s premiums. The assurer said that it would not have issued an income protection policy to her had it known what her taxable income was, as it fell below the minimum amount for which the assurer was prepared to grant cover.

The ombudsman’s office found the assurer was correct in saying that, in terms of the policy, it protects only taxable income.

The office, however, warned that there could be many policyholders who receive similar advice from their accountants and their financial advisers, and they may not necessarily be acting fraudulently by inflating their income for purposes of insurance; they seek instead only to protect their real loss.

The problem may be uncovered only at claim stage, the ombudsman’s office warned.

Porthen says Liberty Life will insure you only for the income you declare as taxable income, and you should not expect to receive benefits that cover expenses you put through your business.

Some life assurance companies offer business owners the ability to insure themselves against their share in a business’s overheads.

Another issue the ombudsman’s office highlighted this year was that you need to keep your assurer informed about how you earn your living.

A policyholder complained to the ombudsman when an assurer failed to pay out on an income protection policy after a back complaint rendered him unable to continue working.

The man had taken out the policy when he was running a business that involved 80 percent administrative duties, 25 percent supervision and five percent travel. The terms of the policy were such that he was required to notify the insurer if he changed jobs.

The man later sold this business and began another that involved carpentry, in which he did a substantial portion of the manual work (70 percent). The life assurer raised this as one of the reasons for not paying the policy.

Although the ombudsman in the end upheld the assurer’s right not to pay for a different reason – that the man had failed to answer questions correctly about his back problems when he applied for the policy – the case highlights the need to keep your assurer informed of changes not only to your income but also to how you earn it.

Principles of insurance

2010-02-12T23:12:00.000-08:00

Principles of insurance
Commercially insurable risks typically share seven common characteristics.
1. A large number of homogeneous exposure units. The vast majority of insurance policies are provided for individual members of very large classes. Automobile insurance, for example, covered about 175 million automobiles in the United States in 2004. The existence of a large number of homogeneous exposure units allows insurers to benefit from the so-called “law of large numbers,” which in effect states that as the number of exposure units increases, proportionally the actual results are increasingly likely to become close to expected proportions. There are exceptions to this criterion. Lloyd's of London is famous for insuring the life or health of actors, actresses and sports figures. Satellite Launch insurance covers events that are infrequent. Large commercial property policies may insure exceptional properties for which there are no ‘homogeneous’ exposure units. Despite failing on this criterion, many exposures like these are generally considered to be insurable.
2. Definite Loss. The event that gives rise to the loss that is subject to the insured, at least in principle, take place at a known time, in a known place, and from a known cause. The classic example is death of an insured person on a life insurance policy. Fire, automobile accidents, and worker injuries may all easily meet this criterion. Other types of losses may only be definite in theory. Occupational disease, for instance, may involve prolonged exposure to injurious conditions where no specific time, place or cause is identifiable. Ideally, the time, place and cause of a loss should be clear enough that a reasonable person, with sufficient information, could objectively verify all three elements.
3. Accidental Loss. The event that constitutes the trigger of a claim should be fortuitous, or at least outside the control of the beneficiary of the insurance. The loss should be ‘pure,’ in the sense that it results from an event for which there is only the opportunity for cost. Events that contain speculative elements, such as ordinary business risks, are generally not considered insurable.
4. Large Loss. The size of the loss must be meaningful from the perspective of the insured. Insurance premiums need to cover both the expected cost of losses, plus the cost of issuing and administering the policy, adjusting losses, and supplying the capital needed to reasonably assure that the insurer will be able to pay claims. For small losses these latter costs may be several times the size of the expected cost of losses. There is little point in paying such costs unless the protection offered has real value to a buyer.
5. Affordable Premium. If the likelihood of an insured event is so high, or the cost of the event so large, that the resulting premium is large relative to the amount of protection offered, it is not likely that anyone will buy insurance, even if on offer. Further, as the accounting profession formally recognizes in financial accounting standards, the premium cannot be so large that there is not a reasonable chance of a significant loss to the insurer. If there is no such chance of loss, the transaction may have the form of insurance, but not the substance. (See the U.S. Financial Accounting Standards Board standard number 113)
6. Calculable Loss. There are two elements that must be at least estimable, if not formally calculable: the probability of loss, and the attendant cost. Probability of loss is generally an empirical exercise, while cost has more to do with the ability of a reasonable person in possession of a copy of the insurance policy and a proof of loss associated with a claim presented under that policy to make a reasonably definite and objective evaluation of the amount of the loss recoverable as a result of the claim.
7. Limited risk of catastrophically large losses. The essential risk is often aggregation. If the same event can cause losses to numerous policyholders of the same insurer, the ability of that insurer to issue policies becomes constrained, not by factors surrounding the individual characteristics of a given policyholder, but by the factors surrounding the sum of all policyholders so exposed. Typically, insurers prefer to limit their exposure to a loss from a single event to some small portion of their capital base, on the order of 5 percent. Where the loss can be aggregated, or an individual policy could produce exceptionally large claims, the capital constraint will restrict an insurer's appetite for additional policyholders. The classic example is earthquake insurance, where the ability of an underwriter to issue a new policy depends on the number and size of the policies that it has already underwritten. Wind insurance in hurricane zones, particularly along coast lines, is another example of this phenomenon. In extreme cases, the aggregation can affect the entire industry, since the combined capital of insurers and reinsurers can be small compared to the needs of potential policyholders in areas exposed to aggregation risk. In commercial fire insurance it is possible to find single properties whose total exposed value is well in excess of any individual insurer’s capital constraint. Such properties are generally shared among several insurers, or are insured by a single insurer who syndicates the risk into the reinsurance market.

DEBIT CARD

2010-02-05T22:59:00.001-08:00

A debit card (also known as a bank card or check card) is a plastic card that provides an alternative payment method to cash when making purchases. Functionally, it can be called an electronic cheque, as the funds are withdrawn directly from either the bank account, or from the remaining balance on the card. In some cases, the cards are designed exclusively for use on the Internet, and so there is no physical card.
The use of debit cards has become widespread in many countries and has overtaken the cheque, and in some instances cash transactions by volume. Like credit cards, debit cards are used widely for telephone and Internet purchases, and unlike credit cards the funds are transferred from the bearer's bank account instead of having the bearer to pay back on a later date.
Debit cards can also allow for instant withdrawal of cash, acting as the ATM card for withdrawing cash and as a cheque guarantee card. Merchants can also offer "cashback"/"cashout" facilities to customers, where a customer can withdraw cash along with their purchase.
orn-again Democrats recently made a big to-do in reining in credit card industry abuses. To really safeguard our interests, the new U.S. Consumer Financial Protection Agency now needs to halt the banking industry's coup in progress and the means of its power grab: the debit card.
Being able to whip out a debit card for virtually any transaction is so convenient. Yet in promoting our evolution to a cashless society, banks have commandeered and privatized the nation's payment system, and they profit mightily on all types of purchases, down to buying a candy bar.
The industry's initial aim was to reduce cash-handling, check-clearing and accounting costs via electronic transactions, including direct deposit of paychecks and automatic withdrawals for bills and expenses.
Its ultimate windfall: While reaping those savings, it now generates billions in fee-based income -- and we've all sacrificed financial privacy in ways we've not yet even begun to fathom.
Used to be debit card purchases wouldn't go through without sufficient funds in a cardholder's account. Then opportunistic banks realized that, with direct deposit, they could recoup the overdrawn funds the instant their clients' next payroll checks rolled in.
Credit card holders aren't on the hook for fraudulent use of their card numbers and can challenge charges on goods and services not delivered as promised. Debit card holders aren't guaranteed those same protections.
The reason: It's the lenders' money on the line with a credit card transaction -- and just our hard-earned savings with debit card fraud. They'll absorb the cost of investigating and prosecuting theft of their money, but they don't want to pick up the cost of policing the theft of ours -- by identical means through their very same hands.
Credit card borrowers are never out more than $50 regardless of when they discover potential fraud. Debit card holders' liability is limited to $50 only if they report perceived fraud within two days; the liability jumps to a maximum $500 from that point to 60 days and is unlimited thereafter.
When consumers buy gift cards, they essentially give retailers an interest-free loan until the recipient uses the card, rather generous when you think about it. Yet on many cards, in small print, is the caveat that the card's value is wiped out if not used by a certain date.

Payday loan

2010-01-29T23:42:00.000-08:00

A payday loan (also called a paycheck advance or payday advance) is a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as a credit card (see cash advance). Legislation regarding payday loans varies widely between different countries and, within the USA, between different states.
Some jurisdictions impose strict usury limits, limiting the nominal annual percentage rate (APR) that any lender, including payday lenders, can charge; some outlaw payday lending entirely; and some have very few restrictions on payday lenders. Due to the extremely short-term nature of payday loans, the difference between APR and effective annual rate (EAR) can be substantial, because EAR takes compounding into account. For a $15 charge on a $100 2-week payday loan, the APR is 26 × 15% = 390% but the EAR is (1.1526 − 1) × 100% = 3,685%. Careful reporting of whether EAR or APR is quoted is necessary to make meaningful comparisons.
Retail lending
Borrowers visit a payday lending store and secure a small cash loan, with payment due in full at the borrower's next paycheck (usually a two week term). In the United States, finance charges on payday loans are typically in the range of 15 to 30 percent of the amount for the two-week period, which translates to rates ranging from 390 percent to 780 percent when expressed as an annual percentage rate (APR) The borrower writes a postdated check to the lender in the full amount of the loan plus fees. On the maturity date, the borrower is expected to return to the store to repay the loan in person. If the borrower doesn't repay the loan in person, the lender may process the check traditionally or through electronic withdrawal from the borrower's checking account.
If the account is short on funds to cover the check, the borrower may now face a bounced check fee from their bank in addition to the costs of the loan, and the loan may incur additional fees and/or an increased interest rate as a result of the failure to pay. For customers who cannot pay back the loan when due, members of the national trade association are required to offer an extended payment plan at no additional cost. In states like Washington, extended payment plans are required by state law.
Payday lenders require the borrower to bring one or more recent pay stubs to prove that they have a steady source of income. The borrower is also required to provide recent bank statements.[citation needed] Individual companies and franchises have their own underwriting criteria.
Internet lending
Online payday loans are marketed through e-mail, online search, paid ads, and referrals. Typically, a consumer fills out an online application form or faxes a completed application that requests personal information, bank account numbers, Social Security number and employer information. Borrowers fax copies of a check, a recent bank statement, and signed paperwork. The loan is direct-deposited into the consumer's checking account and loan payment or the finance charge is electronically withdrawn on the borrower's next payday.
Examples
For example, a borrower seeking a payday loan may write a post-dated personal check for $460 to borrow $400 for up to 14 days. The payday lender agrees to hold the check until the borrower's next payday. At that time, the borrower has the option to redeem the check by paying $460 in cash, or renew the loan (a.k.a. "flip the loan") by paying off the $460 and then immediately taking an additional loan of $400, in effect extending the loan for another two weeks. In many states, "flipping" or "rolling over" the loan is not allowed. In states where there is an extended payment plan, the borrower could choose to opt into a payment plan. If the borrower does not pay off or refinance the loan, the lender deposits the check.In this example, the cost of the initial loan is a $60 finance charge, or 390% APR.
When the Consumer Federation of America conducted a survey of 100 internet payday loan sites, it found loans from $200 to $2,500 were available, with $500 the most frequently offered. Finance charges ranged from $10 per $100 up to $30 per $100 borrowed. The most frequent rate was $25 per $100, or 650% annual interest rate (APR) if the loan is repaid in two weeks.

Payday Loans

2010-01-27T11:33:00.001-08:00

There are many types of loans. Some loans require your greater understanding to know its category. But others like payday loans, which are generally small loans, suggest the meaning of its type by its mere name; they are designed to tide employees over until their next payday. Fees coupled with payday loan depend upon its size of borrowing and your credit history. The fund for this short-term loan is available within 24 hours and deposited into your bank account directly or provided in cash. But if your agreed repayment period is over, the entire sum of this small loan is taken from your bank account along with the lenders service fees.
Eligibility Criteria For Payday Loans

Payday loans have such low eligibility criteria that even a customer with county count judgments (CCJs) or bankruptcy will not have problems. You can expect a charge of around $25 per $100 borrowed as fees by some firms. But mind you, if you fail to repay the loan on time, additional interest might be charged.

Despite these benefits, a payday loan might be a very expensive form of borrowing, compared to credit cards, where on $350 borrowed for a month, you pay an interest of only around $8 and nothing the next month if you clear your card in full. But a payday loan might charge you a fee of $87.50, a staggering difference.

Payday Loans Without Interest For anyone opting for a loan for the first time, getting a little anxious is normal. The most common doubt a first time loan applier come across is whether they will get the cash before they earn it.

It is their responsibility to check or else they might land up in trouble. So it's best to start with a small loan amount. So, a first time borrower should find a lender offering an interest free loan. In this case, you pay back exactly the same amount you borrowed and nothing more. You become debt free as soon as you get your next paycheck.

Alternatives To Payday Loans

You should consider a few things before opting for a payday loan, like when do you want the loan, the APR (annual percentage rate), is it suitable etc. In fact, you can opt for a small loan from your credit union or small loan company, or you can ask for an advance payment from your boss, family or friends.

Comparing the APR and the finance charges including loan fees, interest and credit costs is essential to choose the loan with the lowest cost. Also clear doubts regarding late charges, finance charges or interest rates.

To pay off the payday loan in time, avoid being extravagant. Keep a check on your daily and monthly expenditure; don't spend money on unnecessary things.

Try to save even small amounts and stop borrowing, not even a single penny.

Conclusion

Payday loans aren't as big as personal or home loans.

But these small loans are easily returnable and a simple way of getting cash in advance. You get the required amount even without going through a credit check or waiting for approval on your small cash loan.

Low-Interest Personal Loans

2010-01-25T07:03:00.000-08:00

Qualifying for a low-interest personal loan can be quite difficult. Also known as signature loans, they are granted without the lender having benefit of any collateral. Because of this, the lenders’ guidelines for making such loans are much more stringent.
Unlike a home or car loan, there is no security that the lender can seize should the borrower default. Therefore, the lender’s only legal alternative would be to file a lawsuit. While it’s possible that the lender could be awarded some element of personal property or a wage garnishment from the borrower, this is rarely the case. In areas that allow wage garnishment, it is usually reserved for child support payments. Because of this limited recourse, lenders strictly require that borrowers have good credit, a good income, and financial stability before granting this type of loan. Those with excellent credit and a strong repayment history can obtain low-interest, no-fee personal loans from Credit.com. This company makes loans only to strong-credit borrowers, thereby substantially lowering risk-associated costs and passing the savings on to their customers.
Each lending institution sets its own underwriting guidelines for making personal loans. If a business relationship already exists between the lender and a prospective borrower, that institution may be a bit more lenient with regard to their qualification criteria. This relationship could be in the form of a checking or savings account, a Certificate of Deposit, a mortgage loan, or business banking accounts. Of course, they're under no obligation to bend their guidelines for existing customers. Generally, the qualities that they're most adamant about seeing in a prospective borrower are an excellent credit rating, job longevity, a low debt-to-income ratio, and solid financial assets. They also are very likely to want to know what the borrowed money will be used for.
Many banks and credit unions limit the size of the personal loans that they make, perhaps as low as $2,500 to $5,000. Some may loan more, but it must be remembered that all of these loans are very tough to get. Some institutions refuse to make unsecured personal loans of any size. The ones that do grant them require the borrower, as previously stated, to have a very solid financial position. If a borrower has less-than-perfect credit, the chances of obtaining a low-interest personal loan can be somewhat low.
Are there alternatives for people with average- to below-average credit? Yes, there are. Finance companies have been around for years. They specialize in financing smaller purchases, no more than a few thousand dollars, for example. They also make personal loans, but of course, they are not generally low-interest. The price of these loans can range from five- to ten percent above market interest rates, and can generally be amortized over a one- to two year period. As is always the case, comparing several lenders is the wisest avenue to finding the program that best fits your needs.
Another option exists in the use of cash advance loans. Also called fast-cash or payday loans, they require no credit check so the borrower’s credit history is not an issue. These loans are designed to be high-risk, high-interest, short-term loans that solve immediate cash-flow problems. They are not meant as solutions for long-term monetary concerns. It must be noted, however, that some lenders are more flexible than others, and willing to work with borrowers of all credit ratings. Some even grant personal loans up to $15,000 or more. Of course, the criteria varies greatly among such lenders, and also among loan programs of the same lender. Again, thorough shopping is your best friend. One of the better and more reputable lenders for loans such as these can be found at Credit.com.
Unsecured personal loans are obtainable for virtually any situation. Although the low-interest loans are very difficult to come by, other alternatives do exist for less financially strong borrowers. Compare the programs; become aware of what’s available to you. With the proper knowledge, you’ll be able to find the package that’s right for youloans/low-interest-personal-loans.

How to Reduce Your Insurance Costs

2010-01-24T01:44:00.000-08:00

With the cost of insuring homes on the rise in recent years, now is a good time to examine your policy and look for ways to save money.
The Insurance Information Institute, a non-profit organization supported by the property and casualty insurance business, attributes the increases to the mounting number of catastrophes, the high cost of home repairs, and the emergence of mold claims.
So what can you do to help keep your rates reasonable? The III makes the following suggestions:
· Shop for the best deal. Get at least three quotes. See if your state department of insurance has any price comparisons available. But don't just look at prices. Evaluate which companies provide the best customer service and are readily available to answer your questions.
· Raise your deductible. The higher your deductible, the less premium you'll have to pay. The III says if you raise a $500 deductible to $1000, you may save as much as 25 percent.
· Buy your home and automobile policies from the same insurer. Some companies will reduce your premium up to 15 percent if you have at least two policies from them.
· Reduce the odds of being affected by a disaster. Make your home more resistant to disasters - you might be able to save by adding storm shutters and shatter-proof glass or reinforcing your roof. If you live in an older home, you should consider modernizing your heating, plumbing and electrical systems to reduce the risks of water and fire damage.
· Understand the costs. The cost to rebuild your home is going to be different than what you paid for it. Don't include the cost of the land in deciding how much coverage to purchase.
· Secure your home. Some companies offer a modest discount, usually at least 5 percent, for installing smoke detectors, burglar alarms and dead-bolt locks. Some insurers will also offer a discount if you install a sprinkler system and a fire and burglar alarm that rings at the police, fire or other monitoring stations. First you'll want to research the costs involved, and whether you'd be saving on your premiums.
· Inquire about discounts. Ask your company about all potential discounts. For example, some offer discounts to those 55 and older.
· Investigate group coverage. You may be able to get a group coverage plan through your employer or a professional or business group. See if it's a better deal than what you have.
· Stay put. Many companies offer discounts for longer-term customers - sometimes up to 10 percent if you've had your policy through the company for more than six years. Be sure to compare prices against other companies once in awhile.
· Review your policy and the value of your possessions. If you sold that pair of diamond earrings or other valuable for which you have a floater policy - additional coverage for items not covered by a standard homeowners policy - be sure you're not paying for the extra insurance.
Finally, when you're ready to buy a new home, be sure you factor in the cost of homeowners insurance. The cost of your premium will depend on how much it would cost to rebuild, and whether the house is likely to succumb to a disaster or fire.
Also, flood and earthquake damage are not covered by a standard policy. If you need flood insurance, which costs about $400 per year, you'll want to contact the Federal Emergency Management Agency. Most insurance companies offer a separate earthquake policy.

Personal financial planning

2010-01-24T01:33:00.000-08:00

A key component of personal finance is financial planning, a dynamic process that requires regular monitoring and reevaluation. In general, it has five steps:

1. Assessment: One's personal financial situation can be assessed by compiling simplified versions of financial balance sheets and income statements. A personal balance sheet lists the values of personal assets (e.g., car, house, clothes, stocks, bank account), along with personal liabilities (e.g., credit card debt, bank loan, mortgage). A personal income statement lists personal income and expenses.
2. Setting goals: Two examples are "retire at age 65 with a personal net worth of $1,000,000" and "buy a house in 3 years paying a monthly mortgage servicing cost that is no more than 25% of my gross income". It is not uncommon to have several goals, some short term and some long term. Setting financial goals helps direct financial planning.
3. Creating a plan: The financial plan details how to accomplish your goals. It could include, for example, reducing unnecessary expenses, increasing one's employment income, or investing in the stock market.
4. Execution: Execution of one's personal financial plan often requires discipline and perseverance. Many people obtain assistance from professionals such as accountants, financial planners, investment advisers, and lawyers.
5. Monitoring and reassessment: As time passes, one's personal financial plan must be monitored for possible adjustments or reassessments.

Typical goals most adults have are paying off credit card and or student loan debt, retirement, college costs for children, medical expenses, and estate planning.[citation needed]

The six key areas of personal financial planning, as suggested by the Financial Planning Standards Board, are:

1 - Financial Position: this area is concerned with understanding the personal resources available by examining net worth and household cash flow. Net worth is a person's balance sheet, calculated by adding up all assets under that person's control, minus all liabilities of the household, at one point in time. Household cash flow totals up all the expected sources of income within a year, minus all expected expenses within the same year. From this analysis, the financial planner can determine to what degree and in what time the personal goals can be accomplished.

2 - Adequate Protection: the analysis of how to protect a household from unforeseen risks. These risks can be divided into liability, property, death, disability, health and long term care. Some of these risks may be self-insurable, while most will require the purchase of an insurance contract. Determining how much insurance to get, at the most cost effective terms requires knowledge of the market for personal insurance. Business owners, professionals, athletes and entertainers require specialized insurance professionals to adequately protect themselves. Since insurance also enjoys some tax benefits, utilizing insurance investment products may be a critical piece of the overall investment planning.

3 - Tax Planning: typically the income tax is the single largest expense in a household. Managing taxes is not a question of if you will pay taxes, but when and how much. Government gives many incentives in the form of tax deductions and credits, which can be used to reduce the lifetime tax burden. Most modern governments use a progressive tax. Typically, as your income grows, you pay a higher marginal rate of tax. Understanding how to take advantage of the myriad tax breaks when planning your personal finances can make a significant impact upon your success.

4 - Investment and Accumulation Goals: planning how to accumulate enough money to acquire items with a high price is what most people consider to be financial planning. The major reasons to accumulate assets is for the following: a - purchasing a house b - purchasing a car c - starting a business d - paying for education expenses e - accumulating money for retirement, to generate a stream of income to cover lifestyle expenses.

Achieving these goals requires projecting what they will cost, and when you need to withdraw funds. A major risk to the household in achieving their accumulation goal is the rate of price increases over time, or inflation. Using net present value calculators, the financial planner will suggest a combination of asset earmarking and regular savings to be invested in a variety of investments. In order to overcome the rate of inflation, the investment portfolio has to get a higher rate of return, which typically will subject the portfolio to a number of risks. Managing these portfolio risks is most often accomplished using asset allocation, which seeks to diversify investment risk and opportunity. This asset allocation will prescribe a percentage allocation to be invested in stocks, bonds, cash and alternative investments. The allocation should also take into consideration the personal risk profile of every investor, since risk attitudes vary from person to person.

5 - Retirement Planning: retirement planning is the process of understanding how much it costs to live at retirement, and coming up with a plan to distribute assets to meet any income shortfall.

6 - Estate Planning: involves planning for the disposition of your asset when you die. Typically, there is a tax due to the state or federal government at your death. Avoiding these taxes means that more of your assets will be distributed to your heirs. You can leave your assets to family, friends or charitable groups.