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How to Deal With a Minimum Payment Increase

Chase recently announced a 3% increase in their monthly minimum payment for certain credit cardholders. More credit card issuers could follow. Unfortunately, there's no option to reject the change, so unless you get rid of the balance, you're stuck with the higher payment. Here's what you can do if your card issuer increases your minimum payment.

Stop making purchases on the credit card.

The last thing you need is a higher balance on a credit card whose minimum payment is already difficult to afford. Put the credit card away and avoid using it until you've paid your balance off. Then, make small, affordable charges on the card and pay the balance in full each month.

Pay the entire balance.

If you don't have a balance on your credit card, a minimum payment increase won't affect you. If you're actively working toward paying off your credit card balance, you'd be making higher-than-minimum payments anyway. Since your minimum payment is a percent of your credit card balance, reducing your balance will lower your minimum payment. Ultimately, getting rid of credit card debt completely is the best way to avoid credit card changes like minimum payment increases.

Transfer to another credit card.

When you simply can't afford the increased minimum payment, consider moving the balance to a credit card with a lower, more affordable minimum payment. You might end up with a higher interest rate on the new credit card, so make sure you'll still be able to afford the payment.

Shuffle around some debt payment amounts.

If you're in the process of paying off your debts, you're probably sending higher credit card payments to one or more of your other credit cards or loans. In that case, you can lower payments on your other debts to get more money for the increased minimum payment.

Cut your expenses to the bare minimum.

In some cases, the credit card minimum payment increases by $500 or more. If this is true for you, you have to come up with an extra $500 each month to send to your creditor. It's time to take out your household budget and cut back on some expenses. Some areas you can quickly cut back: cable or satellite television, cell phone, landline phone, and eating out. Look at where you've been spending money each month to see where you should cut back.

Enroll in consumer credit counseling.

You may be able to reduce your minimum payment by enrolling in consumer credit counseling. Credit counselors work with your creditors to lower your minimum payments and often your interest rates as well. Be careful though, that your creditor doesn't use credit counseling as an opportunity to increase your interest rate. Unfortunately, if you're backed into a corner, you have have to accept a higher interest rate in exchange for a lower minimum payment.

Use a home equity loan to pay the balance.

Using your home equity loan to pay off debt is risky business. That's because you're using your home as security for your credit card debt. If you fall behind on your credit card payments, your credit gets tarnished. On the other hand, defaulting on a home equity loan puts you at risk of foreclosure and hurts your credit. Nevertheless, a home equity loan is an option you should carefully consider and take at your own risk.

Cash for Trading in Your Car

The federal government might give you cash to trade in your existing car or truck for a newer, more fuel-efficient vehicle. The Consumer Assistance to Recycle and Save Act (part of H.R. 2346 which has been passed by Congress and is headed to the Whitehouse for the President's signature). This is not a tax credit or a tax deduction, but it is money from the government.

Under this program, the National Highway Traffic Safety Administration will issue vouchers to be used to offset the purchase of a new car. The vouchers are worth up to $3,500 if the new car has a fuel-efficiency rating at least 4 miles per gallon higher than the old car traded in. The voucher jumps to $4,500 if the new car is at least 10 miles per gallon more efficient than the old car. There's different fuel-efficiency guidelines for trucks. (See below.) Purchases need to be made between July 1, 2009, and November 1, 2009, to qualify for the vouchers.

The tax impact? Here's the part I like best. The payment vouchers will not be considered taxable income for the car buyer.

In addition, car buyers are eligible to deduct the full cost of sales taxes paid on the purchase of a new car. This vehicle sales tax deduction is available for purchases made after February 16, 2009, and before January 1, 2010. Also, there's still some tax credits available for hybrid and other fuel-efficient cars.

Making the Most of Your Savings

Where is the best place to stash your cash? Under your mattress? In a cookie jar? Your checking account? Savings account? Certificate of Deposit? With so many choices, it's easy to throw up your hands and take the path of least resistance, but that can end up costing you money in lost interest.

It also doesn't help that lower interest rates are making it more difficult to find good rates of return on your money. Nevertheless, this isn't a time to abandon your emergency fund just because the rates are low. Your goal should be to maximize returns while maintaining the liquidity you need.

There are five common places that you can use to manage your short-term savings:

  • Checking Accounts
  • Savings Accounts
  • Money Markets
  • Certificates of Deposit
  • Savings Bonds

Learn more about where you should keep your savings, and check out the primer on U.S. savings bonds to help you make the most of your savings.

By Jeremy Vohwinkle, Guide to Financial Planning

How Long to Pay Off Balance With Minimum Payments

If you only make the minimum payment on your credit card, it could take years to pay off the balance. Not even that, you could end up spending hundreds, possibly even thousands, in interest by the time the balance is repaid.

How Minimum Payments are Calculated

Typically, minimum payments are calculated as a percentage (something like 1-3%) of your credit card balance. Late fees and over-the-limit fees can increase your minimum payment beyond the base percentage of your balance. Your credit card agreement will describe how your minimum payment is calculated.

Even though it seems like minimum payments are easier to make, they actually cost more in the long run.

Minimum Payment, Maximum Cost

Consider having a balance of $5,000, at 14% APR, and minimum payment as 2% of your credit card balance. Making minimum payments only, it would take you 22 years and $5,887 in interest payments to pay off this debt.

Increasing your payments to $125 a month would allow you to pay off the same debt in less than 6 years and spend only $1,775 in interest.

Not only does increasing your payments allow you to pay off the balance sooner, you also save money in interest.

Calculate Your Minimum Payment Timeline

To see the pay off time and cost of making minimum only credit card payments on your balances, you can use this minimum payment calculator from You might also use the pay off calculator to calculate your pay off time and cost when you make higher monthly payments.

Dollar Cost Averaging - Still a Good Idea?

When you dollar cost average (DCA), you invest a certain sum of money in a specific investment (or investments) on a pre-set schedule. For example, you might arrange to put $100 into mutual fund X on the first day of every month. The primary advantage of dollar cost averaging is that you will buy more shares when the price of the investment is low and fewer shares when it is comparably higher. You automatically use DCA when you sign up for your 401(k) plan.

So, when wouldn't DCA be a good idea?

Turns out, about two-thirds of the time. Since the stock market generally goes up (notwithstanding the nearly two years of current market pain), by waiting to invest a lump sum of money, you miss out on more of the long-term price appreciation. Still, if and when you have a lump sum to invest, you don't know if we're about to enter a period of time when you would be better off investing all at once (two-thirds of such situations) or doing so over several months or longer (one-third of similar occasions). Like everything else, using dollar cost averaging is a trade-off between risk and reward. What would you do? What do you actually do? What do you think about dollar cost averaging?

By Michael Rubin, Guide to Retirement Planning

Insurance Report Card

Now that the school year has ended are you ready for those report cards? Not just students are graded, so are insurance companies.

They are called ratings. These ratings are administered by independent companies. They are sort of like a report card on various aspects of a company's financial strength.

Best's Insurance Reports is an example of a popular independent insurance rating company. Similar to a report card, the ratings range from A+ to a C.

Now that you know..have you checked your insurance company's grade yet? Need to know how? It's easy-just call your insurance agent or company and ask.

Finding More Money to Help You Pay Off Debt

When you're just trying to keep up with your minimum credit card payments each month it can be hard to think that you have extra money sitting around. Although you may not realize it, you're probably sitting on at least an additional $100 per month worth of money that could be used to get that debt paid off faster.

It may be hiding in the more traditional places such as investments or an old cash value life insurance policy, but even more likely is the money that is slowly being drained from your bank account every month. The silent money pit usually comes in the form of small monthly payments. A few dollars a month for a magazine subscription, a gym membership that is rarely used, or even that premium cable channel can really begin to add up. Find five ways to save $10 each month, and you have another $50 a month, or $600 a year to accelerate those credit card payments. This can result in a significant savings on interest, and even cut months or years off the repayment period. Learn more about how you can find extra money to help pay off your credit card debt.

12 Simple Ways to Save Money Today. Learn how.

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Financial Emergency! Tap the Roth?

With the unemployment rate rising practically weekly, many folks are facing real financial emergencies. An event such as a job loss is the perfect time to tap an emergency fund - money put aside for just such an unexpected occurrence. Unfortunately, many people still don't actually have emergency funds. As a result, such folks may consider tapping their Roth IRA money to get by while they look for new employment.

There are plenty of downsides to tapping your Roth IRA in an emergency, not the least of which is the permanent reduction in the future value of your retirement account. That said, a Roth IRA distribution may be the only option for some people. If the total you take out is less than the amount you had previously contributed, you won't owe any income tax or early distribution penalty. If you exceed your contribution total, the financial implications get ugly fast, so try your best to avoid going over that magic number.

Kobrin Ememo - Shrinking your life insurance premium


New opportunities for consumers
More generally, this news item illustrates a growing trend. Carriers that are seeking a competitive edge will choose one or several health areas in which recent medical advances now allow a more precise prognosis. This means their underwriters can more accurately assess an applicant's mortality risk.

For example, some carriers now utilize cognitive testing when underwriting applicants over age 70, to determine whether or not certain impairments inherent in that age group are manifest. Other carriers use specific blood tests to better appreciate the probability of a heart attack.

All of this translates into new opportunities for consumers. People with an impaired health risk may be able to reduce their costs, if they were previously saddled with high premiums. Likewise, people who could not even obtain coverage before, may be able now. A broker who specializes in impaired risks can direct you to the carrier that is right for you.

Interested in Some Free Life Insurance?

If you are employed at least part time and make less than $40,000 per year then you may qualify for free life insurance by MassMutual. The free life insurance program is called LifeBridge. Here are some details according to their website:

"MassMutual's LifeBridge Program provides free life insurance. It is designed to help you protect your dream of providing an education for your children if you die before they complete their schooling.

Under the LifeBridge Free Life Insurance Program, Massachusetts Mutual Life Insurance Company (MassMutual) will issue a $50,000 life insurance policy to a trust for a period of 10 years and at no cost to you. If you die within that time period, the $50,000 is used to cover the educational expenses of your children. And your children have 10 years after your death or until age 35 (whichever is later) to use this $50,000 educational benefit."

A New Federal Tax Reform Panel

Obama has appointed Paul Volcker to head a panel that will make recommendations for reforming our nation's tax laws. Volcker is also the head of the President's Economic Recovery Advisory Board.

The advisory panel will consider ways to simplify the tax code and reduce tax evasion, and will make recommendations to the President by December 4th, 2009, according to a White House briefing.

The last time we had any serious consideration for tax reform was in 2005 when President Bush appointed a panel of advisors to come up with simplified tax systems. Those recommendations were never implemented. There is a strong suspicion that recommendations coming out of this new tax reform panel might not fare any better. Rosanne Altshuler, who worked as the chief economist on the 2005 panel, fears that Paul Volcker and his team might be too constrained,

"President Obama has said that no one making less than $250,000 could pay higher taxes under any new reform. That means ninety-five percent of taxpayers can’t pay additional tax, even if it would result in a more efficient system, decrease inequities, or make their lives much simpler. At a time of monster deficits, that pretty much rules out any sensible reforms." Tax Reform 2.0 (TaxVox blog)
There's no sign of any Web site where we can see what's going on with this advisory panel. The Web site for the 2005 panel, located at, has been removed. Perhaps it will be resurrected for the new panel? I also hope the panel solicits recommendations from the public and holds meetings. This would gives all of us a chance to voice our ideas for tax reform.

By William Perez, Guide to Tax Planning since 2004

Black Swan Theory in Insurance

Black swan theory was bound to show up in the insurance industry, but so far there has been limited discussion. Do you know what a black swan is? Black swans are important in assessing future insurance losses, but are they adequately represented in the models?

The term originates from a book called The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb (also see here, or see Recent Books on the left of this blog). Wikipediahere): provides a good definition (see

a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations

The book was written from the perspective of investing (Taleb was a hedge fund manager), but the concepts are particularly important for the insurance industry. A central thesis of his book is that models are defective and lead to incorrect conclusions because black swan events are not contained in the data and are therefore assigned a probability of zero outcome – obviously incorrect.

While there has been quite a bit of discussion of insurance modeling, there has been little discussion of black swan events and the ability of predictive models to adequately assess severe catastrophes for insurance purposes (see here and here for two such articles).

However, two articles came to our attention recently. The first (see here) is a response to some comments made by Taleb in an interview (see here). Taleb notes:

My idea in The Black Swan is to make people think of the unknown and of the potency of the unknown, particularly a certain class of events that you can’t imagine but can cost you a lot: rare but high-impact events.

The author makes an excellent pitch for combining predictive modeling techniques with outcomes not envisioned in historical data, and makes 4 suggestions for planners (see here).

In the second (Risk & Insurance commentary, see here) the author is concerned that the black swan theory may result in less risk management and assumes that because black swan events occur we should or will not consider past history.

I fear they may increase paralysis in risk management and further promote inaction.

But black swan theory is telling us that modeling, which relies on historical data, is only part of the story. In fact, the future will be a combination of prior history, reflected in historical data, and new events, which can and at some point will lead to more volatility – sometimes better, sometimes worse.

The important point is that black swan events are not contained in historical data, and therefore traditional predictive models cannot provide complete picture of the future. The second piece is equally important: these events can be so large that they will dwarf other outcomes if they occur, although the probability of occurrence is extremely small.

Unfortunately, we have seen a number of these black swan events in the insurance business in the last few years, 9/11 and Katrina being two such examples. Maybe a more flexible approach to modeling and a focus on risk management could be beneficial to the insurance industry.

Brought to you by MercatorPro.

The Rule of 72 for Doubling Your Money

Compound interest is an amazing thing, and the Rule of 72 is a simple way to quickly estimate how long it will take your investment to double. The only piece of information you need for this calculation is the annual rate of return. While most investments don’t have a fixed rate of return over a long period of time, you can use an average estimate to get a pretty good idea.

How to Use the Rule of 72

To estimate how long it takes for your money to double, simply divide 72 by the interest rate. The result is how many years it will take for your money to double at that rate. For example, let’s assume you can earn a 6% rate of return. How long will it take $1,000 to grow into $2,000?

72 / 6 percent = 12 years

In this example, if you invested $1,000 into an account that earned a flat 6% annual rate of return, after 12 years, your investment would be worth around $2,000. To save a little time, here are some interest rates and the corresponding amount of time to double:

1% - 72 years
2% - 36 years
3% - 24 years
4% - 18 years
5% - 14 years
6% - 12 years
7% - 10.3 years
8% - 9.0 years
9% - 8.0 years
10% - 7.2 years
11% - 6.5 years
12% - 6.0 years

Remember, It’s Just an Estimate

Keep in mind that this is just a quick estimate. Depending on changes in the rate of return over time, what you’re invested in, how you invest it, how interest is applied, and possible tax implications, the actual amount of time needed to double your money will vary. Even so, the rule of 72 can be helpful when you quickly want to compare the rate of growth of two investments.

The rule of 72 also works in reverse and can be helpful in understanding the power of inflation. If you consider the average long-term rate of inflation is between 3 and 4 percent, you’ll notice that something worth $100 today will cost $200 in about 20 years. This can help illustrate the power of inflation and the importance of realizing a rate of return over time that can not only overcome inflation, but also taxes.

By Jeremy Vohwinkle,

New Information in Your IRMI Library

For decades, farm insurers had essentially two choices when it came to selecting insurance forms and rating procedures for insuring farms and agribusinesses: to use "farmowners" forms and rating developed for family-owned and operated farms or to select components from commercial property and liability programs and modify them to fit agricultural risks. That changed in 2001 when the American Association of Insurance Services (AAIS) developed and filed its Agricultural Output Program (AgOP), a standardized program providing a wide range of commercial property and inland marine coverages designed for large agricultural operations. In 2008, AAIS followed up on the liability side by filing its new Agricultural General Liability Program (AgGL), the first standardized general liability program specifically designed for farms, ranches, and other agricultural operations.

The May 2009 issue of The Risk Report provides a detailed review of this new portfolio of specially designed policy forms and how they work to provide tailored liability protection for agribusinesses. If you subscribe on IRMI Online, you can learn all about the AGL program here.

All the best,

Jack Gibson, CPCU, CRIS, ARM
International Risk Management Institute, Inc.

Retirement Deductions for Self-Employed

Type of Deduction:

Above-the-line tax deduction (you don't need to itemize). The deduction reduces the income tax, but does not reduce the self-employment tax.

Basics of Self-Employed Retirement Plans:

If you have self-employment income, then you can take a tax deduction for contributions you make to a SEP, SIMPLE, or solo 401(k) retirement plan. You can set up the retirement plan with a financial institution of your choice. Each plan has different deadlines and funding limits. If you are a sole proprietor, you'll need an Employer Identification Number to set up the plan.


SEP-IRAs can be established and funded as late as October 15th for the previous year, provided that the taxpayer filed an extension. The maximum contribution is 20% of the person's net self-employed income, with a maximum dollar limit of $46,000 for 2008. "Net self-employment income" means self-employed income minus one-half of the self-employment tax. More about SEP-IRAs.


Simple IRAs can also be funded as late as October 15th (with an extension), but the plan needs to be established by the taxpayer no later than October 1st of the tax year for which the contributions will apply. SIMPLE plans consist of a salary deferral portion with a maximum of $10,500 for 2008, plus a matching contribution of up to 3% (but not to exceed $4,600 for 2008). Taxpayers age 50 or older can defer up to $20,000 for 2008. More about SIMPLE IRAs.

Solo 401(k) Plans:

Solo 401(k) plans combine a deferral portion with a matching portion. The maximum elective deferral is $15,500 for 2008 (or $20,500 if age 50 or older). The maximum matching portion is 20% of net self-employment income. The total of both the deferral and the matching cannot exceed $46,000 (for 2008). Solo 401(k) plans need to be set up by December 31st, but contributions can be made as late as October 15th of the following year with an extension. More about solo 401(k) plans.

Qualifications to Take the Deduction:

You must have self-employment income. Self-employment income for the purpose of this deduction means net profits from a Schedule C or Schedule F, self-employed income from a partnership, or wages as a shareholder-employee in an S-corporation. Additionally, you must set up and fund a qualified retirement plan by the required deadline.

Where to Claim Deduction:

You must use the worksheets found in IRS Publication 560 for figuring your allowable tax deduction for SEP, SIMPLE, and 401(k) contributions. The allowable deduction is then reported on your Form 1040 Line 29. S-Corporations report SEP contributions on the corporation's Form 1120S.

Explanation from the IRS:

"SEP, SIMPLE, and qualified plans offer you and your employees a tax-favored way to save for retirement. You can deduct contributions you make to the plan for your employees. If you are a sole proprietor, you can deduct contributions you make to the plan for yourself. You can also deduct trustees' fees if contributions to the plan do not cover them. Earnings on the contributions are generally tax free until you or your employees receive distributions from the plan." (from IRS Publication 560)

Relevant Tax Laws:

The deduction for SEP, SIMPLE, and other retirement plans is found in Internal Revenue Code Section 62(a)(6) and Section 404.

By William Perez,

Coastal Risk Management

Coastal Risk Management

Insurance exposures within coastal communities are rising from climate change and development. Increasing populations and property values, higher sea levels and more violent weather are all working to threaten insured property and challenge property insurers. The insurance industry response has been focused on financing the aggregation of coastal exposure in a manner that does not risk insurer solvency. Most of the political response has been focused on affordable insurance options, and one such result, which nobody in the insurance industry believes is effective or reasonable, is Citizens in Florida (see here & here).

Very little attention has been paid to risk management and the impact a risk management approach can have on adverse outcomes. Both pre-loss and post-loss risk management tactics are critical components of successfully financing risk, yet there is little will within the industry or political segments to promote risk management.

A recent paper by The Heinz Center and Ceres has brought a group of diverse organizations (sponsors) together to generally agree on an approach to address the coastal threat that includes a heavy emphasis on risk management (see here, and here for the entire report). Some key points:

Over half the U.S. population lives in coastal counties and almost half of the nation’s gross domestic product – $4.5 trillion – is generated in those counties and in adjacent ocean waters. Further, insured property values along the Gulf and Atlantic coasts have been roughly doubling every decade.

Wharton has demonstrated that homeowners in Florida could reduce losses from a severe hurricane by 61 percent, resulting in $51 billion in savings, simply by building to strong construction codes. Putting this in perspective, the same cost reductions applied to Katrina damages would have reduced the $41.1 billion worth of insured property losses to about $16.1 billion. Similarly, the National Institute of Building Sciences showed that every dollar spent on mitigation saves society about four dollars on recovery costs. Despite this evidence, nearly all U.S. coastal cities and towns lack adequate land use requirements and building code standards to realize these savings.

Five hundred commercial clients of the insurer, FM Global, experienced approximately 85 percent less damage from Hurricane Katrina as similarly situated properties. This significant reduction in the amount of damage was directly attributable to hurricane loss prevention and preparedness measures taken by these policyholders. The return on investment is striking – a $2.5 million investment in loss prevention resulted in $500 million in avoided losses.

While risk management will not eliminate the exposure, it can go a long way towards making the cost of insurance reasonable.

Brought to you by MercatorPro.

Determining if You Can Afford to Stay Home with Your Kids

One of the big questions many new parents are faced with has to do with deciding whether or not one of the parents should stay home with the child. Obviously, if you’re accustomed to living on dual incomes, the thought of giving up an income may sound like a daunting task. Even so, if you sit down and crunch the numbers, you may find that it might be more doable than you thought.

The True Cost of Working

When you think about it, your job not only provides income, but it likely creates some expenses as well. If you were to decide to continue working with the child, you’ll probably create additional expenses in caring for the child. On the other hand, if you were to stay home, you would also eliminate many work-related expenses. Some of the expenses you may have if you decided to continue working with a child:

  • Child care: Depending on the level of care you require, you’re looking at anywhere between $400 and $700 per month per child. It isn’t uncommon to spend upwards of $7,000 each year on full child care during the child’s early years.

  • Food and Beverage: While you can save money by taking your own lunch and drinks to work, most people end up grabbing a coffee or a lunch on the go while working. Even just $5 a day on lunch adds up to about $1,300 each year.

  • Transportation: This varies greatly depending on how far you have to commute and whether or not you have public transportation, but even if you spend just $25 each week for transportation costs (gasoline, bus, subway, etc) you might be spending another $1,300 each year just to get to and from your job.

  • Odds and Ends: If you’re in a profession that requires certain attire, you may need to spend money on clothes or dry cleaning. This can add another few hundred dollars a year. Your job may also require certain licenses, professional fees, or continuing education courses that could tack on additional expenses annually.

As you can see, there is more to that second income than meets the eye. Most people will think of the paycheck that comes with the job and assume that’s the bottom line, but there are many other factors to consider. While giving up that job may result in a loss of income, if you consider the expenses you will also give up, the end result may not be as painful as you had suspected.

The Non-Monetary Benefits

While all of this discussion about money is good, you have to think about the other benefits tied to staying home with your child. Money can’t replace the time spent with your children, and if the bonding aspect of parenting is important to you, this can factor in greatly when determining whether or not you can give up an income. Everyone is different and your priorities may lead towards one direction over the other, but don’t overlook the non-monetary issues when making this important decision.

The Bottom Line

There’s no right or wrong answer, and as you can see, it isn’t as straightforward as deciding whether or not you can live with one less paycheck in your pocket. Depending on the type of job you have, how many hours worked, and how much money you make, you may reach the conclusion that it’s impossible to be able to provide for your family if you give up this income. On the other hand, you may find that after factoring in the expenses related to working and the other benefits of staying home, you’re giving up a lot less than initially thought.

So, take your time and go over your options carefully. The decisions you make will significantly impact your family, so it’s important to take everything into consideration. And if you do find that you can afford to stay at home, you can find plenty of assistance at’s own Stay-at-Home Parents site.

By Jeremy Vohwinkle,

An Investment Guide

Stock Markets Fall - Corporate FDs Rise
May 30, 2009 at 10:19 pm

At a time when stock markets zigzag, what would be the right investment arena? Corporate FDs or equities?

THE sharp fall in the equity markets has changed a lot of things including India Inc's fund raising plans. This, in turn, has changed investment avenues for retail investors. Till about a year ago, the only way for retail investors to participate in a company's growth was to buy equities either in the secondary market or invest in primary issues (IPO) or rights issue.

However, the primary market option currently is almost closed with the virtual drying up of the IPO market. Bearish sentiments and lack of investors' confidence due to wild volatility, on the other hand, has decreased the participation of investors in the secondary market. In such a situation, India Inc is now approaching the potential investors through fixed deposit (FD) schemes.

In fact, FD schemes are not new to India Inc. Earlier, every major company had an FD department and it was considered to be one of the main sources of funding. However, this way of funding decayed slowly as it became easier for companies to raise funds through equity and quasi equity. Besides, equity has no direct servicing cost (except earning and dividends expectations of shareholders), where as interest on FDs is a fixed cost and that has to be paid in all circumstances.

The wheel has now turned a full circle and newspapers are now flooded with advertisements by corporate houses inviting public to entrust their savings with them. To make the deal juicer, most of them are offering interest rates that are significantly higher than bank deposits. But, how attractive are these corporate FD schemes? Do they score over bank deposits or other traditional sources of assured returns only because former offers greater returns? For many investors corporate FDs can be lucrative substitutes for bank deposits. They not only offer higher returns, but many of them also structured similar to a bank FD with facilities, such as premature withdrawal, cumulative accrual of interest, TDS (tax deduction at source) cut up to a certain limit (Rs 5,000) etc.

However, investors should know that bank deposits are insured up to a maximum of Rs 1 lakh per customer and the way banks are regulated in India, it is difficult for retail customers to lose their money.

In contrast, corporate deposits have no such insurance and the investor is solely at the mercy of the company and its financial fate. Given this, it makes sense to invest in corporate FDs that have high credit ratings and are known for their financial soundness and credible past performance. Though corporate FDs look riskier, they carry higher interest rates.

While most corporate FDs are currently offering pre-tax interest ranging from 7–12%, for 1-3 years tenure, interest rate offered by a bank is between 10.25% and 11% for a three-year period. For one year, banks are offering 8.5-9% and there is no TDS up to an interest income of Rs 10,000 a year.

So, is higher interest rate a tempting one to invest his money in corporate deposits? Or is equity investment in these companies still a preferred route? A comparison of the current dividend yields on the company's stock with post tax return on its FD will give an answer. The sharp fall in stock prices of most companies has led to a spike in the dividend yield, based on the dividend payout last year. Tata Motors, for instance, is available at a dividend yield of over 11% as compared post-tax FD return of 7.6%. Dividends are also tax-free in the hands of the investor. The only catch being that dividends are slave of earnings and they tend to rise and fall in line with profit growth. In the near future, market expects most companies to cut dividend payouts. However, as soon as profit growth resumes, dividends pay out will catch up and the stock prices also will begin to soar. This way, equity investors get the best of both the capital appreciation and cash flows in the form of annual dividends payouts.

But, if equity has its advantages, there are risks, too. The biggest shortcoming here is the market risk associated with equity investments. Equity is a risk capital and returns are a function of external macroeconomic environment.

FDs, on the other hand, are relatively riskfree and, in most cases, post-tax returns from FDs are much higher than the tax-free dividend yields. The risk here, however, is that of creditworthiness of a company. Meanwhile, fear of the company defaulting has become prominent after the Satyam fiasco. But, in such cases, default applies to both debt and equity investment.

Investors are thus advised to go for well known companies that have a strong and credible standing in the market. Unlike a bank FD, where high interest rates usually dominate the investment decision over the choice of bank, the integrity of the company should be given the highest priority in case of corporate FD. A few basis points should not matter, for the assurance that the capital is in safe hands.

Understanding UK Payment Protection Insurance

Understanding Payment Protection Insurance Cover in the UK

On Monday, Building Societies and Banks will no longer be allowed to sell payment protection insurance at the point of sale.
They will also be banned from selling lump sum upfront single premium policies. This article explains the principles of PPI and how best to purchase it given the recent legislation and changes in the UK economy.

If you have ever bought a new car or a large flat screen television the chances are you paid for it with some type of finance plan, credit card or credit facility, or loan. Apart from being offered a breakdown warranty, in the past you may well have been offered an insurance plan to cover the repayments of the credit should something terrible befall you. This is the basis of payment protection insurance or PPI as it is commonly known.

What does PPI cover?
Payment protection is widely available these days to cover all forms of credit or borrowing. Loan protection products are sold that either individually or collectively cover credit cards, bank loans, car finance and all other monthly payments and outgoings. Until recently you may well have been offered this type of cover when you took out the loan or credit card; however this was made illegal in 2009 after a long enquiry by the Competition Committee looking into the restrictive practices of the major high street banks and lenders. Consequently payment insurance premiums and plans have become a lot cheaper now that independent suppliers have entered the market.
If you own a house under a mortgage you can purchase what is known as Mortgage Payment Protection Insurance or MPPI. This type of plan though often cheaper, will only cover the monthly mortgage payments.
Other protection insurance products are available, the most common being those that cover your salary or income often known as Income Payment Protection Insurance or lifestyle cover. With these types of products you are not limited to agreed repayments and can spend the income benefits as you would your salary or wages.

What does PPI cover you against?
All payment protection products cover you against and will pay a monthly sum to protect your payments, in the event of you suffering from one or a combination of accident, sickness or unemployment.
It is possible to buy these as standalone covers, although accident cover is more often than not sold alongside sickness cover. Unemployment Insurance cover, which protects you against sudden redundancy or unemployment is often sold by itself but because of the nature of the risk, commands a much higher premium.

How long does protection insurance cover you for?
The length of time of the cover is dependent upon how long someone wants the benefits to be payable for in the event of a claim. This varies by insurance company and is often only for twelve months although some of the better more flexible providers offer cover for up to 24 months, at a premium. It should be noted that this type of insurance is viewed by the providing companies as an invaluable short term solution to life's difficulties and not the correct type of cover for long term illness or disability, for example.

Purchasing payment protection cover
With so many offerings in the market it is a worthwhile exercise to shop around for cover. Most independent suppliers have online applications that literally only take a few seconds to complete. You normally have to supply you age, and how much benefit you would like each month.
When buying you will need to decide how long you wish to wait after you become sick or unemployed, before you start to receive the monthly benefits. This is known as an excess period and you will normally be offered periods of 30, 60 or even 90 days. Obviously the longer you wait the cheaper the monthly premiums will be! Look out for companies offering back to day one cover which will pay you back to day one of your claim once the excess period has passed.
When comparing payment protection insurance plans it is necessary to find one that will cover all of your monthly outgoings. Many providers have different limits and it is important that you find one that will not leave you with a shortfall for repayments!
As with purchasing all types of insurance, but particularly with payment protection cover, it is very important that you check that you are you eligible for cover and not excluded under the policy conditions, which are often more rigorous than for other types of cover.

When comparing payment protection plans for Mortgage Payment Protection Insurance and Income Protection Insurance it is sensible to visit a large respectable, independent supplier such as PPI Insurer of the Year for advice and quotes. Burgesses offer a vast array of information and online quotes backed up by a useful helpline of experts.

The Original Article Source and more information about purchasing specialist insurance can be found at:

American Heart Association Emphasizes Link Between Diabetes And Heart Disease!

American Heart Association twitter this morning, “80% of sudden cardiac arrest victims collapse at home. Are you ready to save someone you love?” It provided a link to a CPR website.

This Twitter @HeartofDiabetes is all about education on the link between diabetes and heart disease. This is a subject that we have continually talked about, the fact that when a life insurance underwriter looks at obesity and/or type 2 diabetes, they know that without effective management and excellent control other health issues are likely to follow. It’s not like the only thing they have to weigh is the chance of a person with diabetes going into a diabetic coma.

It’s the combination of risk factors and collateral health issues that an underwriter has to weigh when they consider an application. Especially in the overweight population having type 2 diabetes puts them at risk of high blood pressure, stroke, coronary artery disease and kidney damage along with a host of issues that have a lower mortality risk. The key to avoiding the downhill slide into health issues that will change your life and can end your life is taking the situation seriously.

Education, compliance and control should be the mantra. Know about your diabetes. Know what it is, what makes it worse and what makes it better. Know how worse and better are measured. Educate yourself on diet and exercise programs. Learn about the direct correlation between obesity and diabetes. Learn what the hbA1c is and why it’s important to keep it in a controlled range.

Compliance is all about listening to your doctor and following recommendations and prescribed treatment. When you don’t feel like you’re getting the information you need from your doctor, finding a diabetes education forum or a professional diabetes educator to help you take control of your condition and your life.

The good news with life insurance is that a diagnosis of diabetes doesn’t knock you out of the running for competitive, affordable life insurance rates. Given good control and no other risk factors, standard or better rates are not uncommon. If you are over age 60 and diagnosed in the last 5 years you actually have a good shot at preferred plus rates with one of our companies.

Bottom line. Diabetes is a destructive disease if not taken seriously. The diagnosis is a wake up call that you should definitely not be hitting the snooze button on.

Post from: Ed Hinerman On Life Insurance

Debt instruments safer in volatile markets

Here I have tried to lists out some investment options that are relatively safer in volatile market conditions

The stock markets are on a downward trend from the beginning of this year. Volatility in the markets is also quite high. There are many factors that contribute to negative market sentiments. For example, a persistent high inflation rate (especially the core inflation rate that is driven by basic commodities), rising commodity prices in global markets, anticipated slowdown in the global economy etc.

Foreign investors were investing heavily in emerging markets. They are now taking out money, especially from emerging markets. Large foreign investors are bearish on global growth and expect the global economy to deteriorate. They believe that in the era of a global slowdown, emerging markets will under-perform their global peers. Foreign institutional investors (FII) have taken out around $5 billion from the domestic markets so far this year.

Since the stock markets are in a sideway movement and not doing very well, equity funds are also not delivering good returns. In fact, most of them delivered negative returns over the last six months and many investors lost their money in equities and equity-based funds. Global stock market analysts' valuations in the domestic markets were overstretched last year. This is why investors witnessed huge corrections this year. Some analysts feel the domestic markets will remain in a sideway movement in the short to medium term (next six months or so) perspective.

Here are some safer investment options in volatile market conditions:
  • Tax-saving options
Since the markets are quite volatile and risky for investments, investors can concentrate on completing their tax-saving limit under Section 80C and keep the option open for investments in the stock markets during the later part of year. There are various options available for investors. Provident fund is one. The primary feature of these instruments is to build a fund for long-term needs (retirement). Insurance is another. Investors can look at investing in life and medical insurance in the present time to fulfil their insurance needs. The primary feature of insurance is to provide risk cover to investors against any unforeseen future event.
  • Potential equities
Investors with moderate to high risk appetite and a long term investment horizon can look at investing in blue chip stocks of select sectors. Many blue chip stocks are trading at attractive valuations in the market. Investors can invest in these sectors based on a careful analysis.
  • Debt mutual funds
Debt mutual funds invest in safe instruments like corporate debt, money market instruments, call money etc. The main objective of debt funds is preservation of principal, accompanied by modest returns. Debt funds are ideal for investors who want to take very little risk, are uncertain about the interest rate scenario or who are uncertain about what they should do with their money in the short term.
  • Cash
Investors looking to invest in stock markets should keep some amount of liquidity at their disposal. The valuation of some stocks and sectors will become quite attractive if the market goes through another fall of 5-10 percent. Investors should identify a few stocks and watch them to make investments.

Bank deposits are good for short-term investors. Short term bank fixed deposits yield 6-7 percent returns. Nowadays, many banks offer funds sweep-in and sweep out facility where a balance beyond a certain limit automatically gets converted into a fixed deposit and banks pay fixed deposit interest on it. This type of arrangement can be an option for the short-term horizon.

5/29 Insurance Blog

Consider Repairers When Getting a Classic Car Insurance Quote Online
May 28, 2009 at 11:56 am

Dave Healey of our resident classic car insurance specialists panel has warned of the dangers of getting a classic car insurance quote online without taking into account who might be repairing your classic car if you have an accident or claim. Dave points out that not all car insurance companies are the same and you pay for what you get!

Does Your Car Require Specialist Car Insurance and Repair Services?
By Classic Car Insurance specialist Dave Healey

When choosing a car insurance policy it is wise to consider what is offered in the event of a claim. After all, you are only insuring the car to have the potential to make a claim and the cover is only as good as the insuring company's claims department.

Although price is most peoples consideration when purchasing car insurance, one of things you should not overlook is who is going to repair your car if it is damaged? Do you own a non-standard car? Surprisingly a large number of vehicles fall into categories that the majority of mainstream insurance companies do not want to cover!

Such examples that may struggle to obtain motor insurance at reasonable rates are owners of performance,prestige, expensive, luxury, foreign, sports, convertibles, modified, veteran, collectors and classic cars. More importantly if you are the owner, if something happens and you need to make a claim on your policy, it is important that your car gets fixed by specialist professionals, using the correct parts. More often than not these type of car repairs require unique tools that are only available through specialist engineers and motor repair shops.

So it is most important when comparing car insurance to also compare the services that a car insurer offers in the event of a claim, especially those regarding choice of repairer.

All specialist car insurers and many insurance companies will offer a choice of repairer - many others will not as they have existing arrangements with so called approved repairers.

Trouble arises when an insurance company insists on employing a particular firm to fix the car against the policyholder's wishes, and it is not uncommon for major disputes to arise at this point.

For example, the insured may have an expensive Italian sports car bought from an exclusive importer and specialist firm of dealers who added a number of accessories and or modifications to the car at the insured's request at the time of sale; the same firm may have performed all the routine servicing since the sale and the insured may genuinely feel that they 'know' his car better than anyone else could, and that only they, in consequence, should be entrusted to carry out the repairs.

If the repair work quoted in an estimate by the specialist firm is substantially higher than that expected from the approved repairer and the car insurance claims department consider that the approved repairers are capable of carrying out the work to the same standard as the specialists , then the only way out of this impasse is usually for the insurance company to suggest that the insured pays the difference!

Clearly then it is very important to understand what you are buying with your policy when it comes to claims and repairs. Specialist car insurance policies always offer unique claims repair services and if you own an unusual, expensive, classic car or performance motor, then it would be sensible to opt for a policy that includes these repair services to avoid the above situations. What might look like a cheap policy might turn into fools gold in the event of a claim!

Dave Healey is a specialist car insurance expert and UK classic car insurance journalist who writes regularly at the Car Insurance Blog and here at Insurance Blog.

You can read the original article and more from dave at :

5/29 Ed Hinerman On Life Insurance

You Might Have Dave Ramsey, But It Doesn't Mean You Have It Right!
May 28, 2009 at 7:01 pm

I will tread carefully with this since the last time I questioned Zander Insurance, well, frankly I kind of over stepped my point and pounded on them a bit. I publicly apologized and we all walked away feeling OK and deciding that while we both believe Dave Ramsey is right on the money, Zander does business a little differently than I do.

A friend pointed out to me that Zander’s website had a few errors on it. I looked at it and decided that was no big deal. On one page they quote rates for a company that no longer sells insurance. US Financial hasn’t written business in a few years and it was just their rate on a child rider so really, as I said, no big deal.

While I was there though I decided to dig a bit like we all do to each other’s websites (checking out the competition), and I ended up on their tobacco use page. I ran rates on myself as a smoker since Zander stated that “Many of our competitors simply treat all tobacco users the same eliminating any potential savings but we have companies that offer competitive preferred tobacco.” The best rate they showed was Transamerica at $6295.00 annually.

I then ran the exact same scenario on our website and found both Liberty Life ($5210.00) and Western Reserve Life ($5375.00), around $1000 a year less. Let me just state for the record that “Many of our competitors simply treat all tobacco users the same eliminating any potential savings, but we have companies that offer competitive preferred tobacco rates.” And these aren’t impossible to get fantasy quotes. Both of these companies have been kicking everyone’s rear end for some time in the preferred tobacco arena.

Bottom line. Zander is a fine agency and they made a case the last time we conversed that they don’t do business with some companies for administrative reasons. And I respect their decision. What I don’t respect is them indicating their competition is doing something bad when their accusation should be spoken into a mirror. Personally, administrative reasons or not, I’m thinking Dave would have a problem with the fact that Zander isn’t really offering people the best option for their hard earned dollar. Dave busts his rear getting those dollars freed up after all.

Just an aside. I am currently facilitating a Dave Ramsey Financial Peace University, which I’ve been through myself and highly recommend to everyone. Dave admits freely that he doesn’t sell insurance so his opinion isn’t biased and I agree with Dave’s philosophy on the best way to buy and use term insurance. I know I’ll get yelled at for this, but personally I think Dave has placed a little too much trust in Zander in the life insurance arena. So, holler away!

Post from: Ed Hinerman On Life Insurance

You Might Have Dave Ramsey, But It Doesn’t Mean You Have It Right!

CEO's Fly More On Their Own Now!
May 28, 2009 at 5:07 pm


While the words CEO and flying may cause a little angst among some, the truth is that CEO’s are flying privately more often and whether that is on a corporately owned aircraft, a chartered jet, or their personally owned airplane, it is generally more efficient and cost effective to the company.

Life insurance underwriting for the pilot in all three of those scenarios is all over the board, but really that’s true of almost any underwriting topic other than the common cold. But private aviation and how different companies view it is about as diverse as you can get. While one company might give a private pilot preferred plus rates, another company will have them pay a flat extra fee for aviation coverage. Corporate pilots and charter pilots get the same wide variance in offers from best rate class to companies that really don’t want to cover them at all.

With the exception of airline pilots, underwriting of pilots really comes down to five primary questions.

1. Age of the pilot
2. Pilot rating - Commercial, private (IFR/VFR), or student
3. Total hours as pilot in command
4. Hours flown annually
5. Type of aircraft

Optimally the best rate class would go to someone over 26, IFR, 250+ total hours, 26-250 hours annually flying a proven, certified plane.

The truth is that private, student and commercial pilots can get very competitive rates and in most cases have the tough part of life insurance already whipped because they fall into that rare category of people who get regular physicals, so they actually know what their health is and it’s almost always good.

Bottom line. With good health being a given, even pilots that don’t meet the optimal criteria above can still get life insurance without paying a flat extra charge.

Post from: Ed Hinerman On Life Insurance

CEO’s Fly More On Their Own Now!

5/29 Prajna Capital - An Investment Guide

Gold ETFs glow gets brighter
May 27, 2009 at 10:18 pm

Investors are slowly warming up to the idea of exchange traded gold schemes from mutual funds. This isn't surprising since they have given an impressive 20%-plus returns in the last one year. The uncertainties in the economic environment is another reason why investors are parking money in gold, as it has always been considered a hedge against uncertainty in troubled times.

Investor interest in gold ETFs is slowly picking up. I won't say there are huge inflows, but we have certainly seen incremental flows into the fund. In between, there was lull when gold prices peaked.

We are getting a lot of enquiries on gold ETFs. This is mainly because of excellent returns in the last one year, which is almost double than that of debt schemes. Also, people are not able to take a call on the stock market. They want to park their money in a safer place till they are confident about the future course of the market.

However, investors should be realistic about expectations on gold ETF returns, warn financial advisors. Most of the gains are because of the volatility in the (US) dollar rate. At one point, the dollar touched 52; in a single day there was a movement of Rs 1.25. During such times gold is expected to give good return. However, these kinds of returns are not sustainable. For that to happen, the dollar should crack by 15% or more. It will sure weaken but not that much. Another scenario is the US government devaluing the currency, which seems very unlikely. However, this doesn't mean investors should overlook gold as it will not give impressive returns in future.

According to financial advisors, gold should always be a part of every investor's portfolio. You can expect 10-15% returns from gold. But it is important to include gold in your portfolio because it's a great way to diversify your portfolio. It always hedge you against uncertainty in troubled times such as the current one. Gold gives stability to your portfolio and buying gold ETF is the best way to do it.

About Credit / Debt Management: How to Clean up Your Credit Report Credit / Debt Management
In the Spotlight | More Topics | |
from LaToya Irby
While credit card issuers figure out how to continue making money after the new credit card rules, it's more important than ever for you to have a good credit score. Getting good credit hinges on having a good credit report.

In the Spotlight
Remove Errors From Your Credit Report
You wouldn't imagine the bump you could see in your credit score just from removing inaccuracies from your credit report. Don't ignore mistakes and errors on your credit report, instead submit a credit report dispute to have them removed.

Send a Pay for Delete Letter
If you have collections or charged-off accounts on your credit report, offer to pay the account in exchange for having it deleted from your credit report. Many creditors will oblige because they realize they won't get anything if they don't.

Credit Repair Checklist
If you're having trouble figuring out exactly what to do for your credit, use this credit repair checklist to guide you. Remember that better credit takes time, so the sooner you clean up your credit report, the sooner you can enjoy the benefits of a higher credit score.

Best Moves in a Bad Economy
Save & Invest the Right Way
Find out how to beat a bear market, make smart choices, and keep your cool even when the economy is unpredictable.

5/28 Ed Hinerman On Life Insurance

New York Life Not Immune From Rate Changes!
May 27, 2009 at 7:49 pm

Just got back from a conference in California and am catching up on the latest news. Life insurance giant New York Life, AARP’s partner in crime with their term insurance and whole life products, doesn’t seem to be making enough soaking us old folks.

They just announced today that they are raising rates on their no lapse guarantee universal life. This is coming from a company that has always made it’s name synonymous with being above all the fray because they have so much money.

I love the way they work. Actually I don’t care how they work because I’m not one of them, but if I was an agent from NYL and was told that I could only have my quotes illustrated by the home office because they don’t want to release their rate increase, I’d be upset. But again, I’m not one so it doesn’t affect me.

In their memo it states to the agents, “Only illustrations provided by our sales team will have the appropriate pricing incorporated. Applicants will be required to sign an acknowledgment that they are aware of the additional charge.” That’s just weird.

Bottom line. Just like New York Life’s AARP rip off and their overpriced cash cow whole life, it now appears their universal life portfolio is heading for the underground shelter where no one can really tell what they are up to.

Post from: Ed Hinerman On Life Insurance

New York Life Not Immune From Rate Changes!