Welcome to the first Moneysworth Blog!

Welcome to the Moneysworth first blog! We are an independent IFA who specialise in finding life assurance for those with health conditions such as diabetes, dangerous hobbies and hazardous jobs.

The Moneysworth team have a wide range of opinions and interests, of which i'm sure will be apparent when other members of the team blog!

My names Jacey and I am head of Marketing at Moneysworth. I love cocktails and hate butternut squash!

I was watching Day Break yesterday when i came across this amazing story. http://www.itv.com/daybreak/lifestyle/petsandanimals/meetlifesavingshirleythelabrador

It was an article about Shirley, the life saving Labrador! Her owner, 6 year old Rebecca suffers from Diabetes, and can go into a diabetic coma at any point of the day. Shirley, a hypo-alert dog, has been trained to smell when Rebeccas blood sugar reaches dangerously low levels and can alert those around her by licking their hands when Rebecca needs to raise her blood sugar, and therefore prevents her from slipping into a diabetic coma - how amazing!? Shirley accompanies Rebecca to school and even watches over her when she sleeps, what a hero! What marvellous things we can train such intelligent dogs to do. This kind of thing will prevent people from fatal occurrences and I look forward to hearing more success stories like this soon!

How to Reamortize Your Mortgage

by Richard F. O’Boyle, LUTCF, MBA

Many people refinance their mortgage in the hopes of lowering their monthly payments, but there’s a little-known trick that can lower your monthly mortgage bill without a costly and hassle-prone re-fi. The last thing the banks want you to do is shorten your loan, reduce your interest rate, or lower the lifetime interest paid: that’s why they push refinancing. They want to sell you a new mortgage with all the attendant fees and lock you in for another lengthy term.

A reamortization, also known as a recast or a principal curtailment modification, will lower your monthly payment without a new mortgage loan. The bank will recalculate your current mortgage (using the same term and interest rate) and lower the required principal and interest payments going forward. Over the life of the loan, the total interest payments will also be lower. This strategy only works if you have been paying additional principal towards your mortgage over the years or you have a lump sum now that you want to pay.

Many loan officers don’t even know what a reamortization is! And banks don’t make it easy for you. They will charge a fee of about $200 and then drag things out for a few months. They may even require you to have your mortgage prepaid for a month in advance while they shuffle their paperwork. But if your monthly payment goes significantly lower, it may be worth the effort. After recasting your mortgage, you can still continue to make additional principal payments and then do the process again in a few years.

If you decide that recasting makes sense for you, be prepared:
- Have a lump sum (perhaps from a bonus from work or an income tax refund);
- Call your mortgage company and track down their recasting specialist and get a direct dial phone number and mailing address;
- Ask them to calculate your new recasted payment amount and to quote you the fee;
- Draft a letter of request for the recast (or whatever their bank calls it) and submit it along with the fee;
- Don’t send your lump sum payment until they tell you exactly when and where to send it;
- The bank will send you a letter that needs to be notarized and returned before your next payment is due; and finally,
- Keep copies of everything!


© 2011 Prism Innovations, Inc. All rights reserved.

Life Insurance: The Basics

by Richard F. O’Boyle, Jr., LUTCF, MBA

Life insurance policies are contracts between individuals and insurance companies to pay a set dollar amount on the death of the individual covered by the policy. Most people first buy life insurance when they start a family and take on a large expense such as a mortgage since they don’t want to leave their spouse and kids with a stack of bills and only one income. Individuals in later life see the value of life insurance as part of their retirement and estate planning.

Obviously, life insurance proceeds can be used to pay for final expenses such as probate taxes and funeral costs. But life insurance can also provide retirees with additional options. For example, the cash values in permanent life insurance plans can be used to supplement retirement income on a tax-favored basis. A life insurance plan may allow a retiree to elect a more generous pension option, knowing that the life insurance will pay out to their surviving spouse. Finally, having a life insurance plan late in life gives the retiree the comfort in knowing that she can spend down her assets and savings and her children and grandchildren will have a financial legacy.

Types of Life Insurance

Term Life Insurance will pay your beneficiaries a set amount as long as the policy remains in effect, which is generally 5, 10, or 20 years. If you choose a longer term, the premium will be higher, all other things being equal. The rate will increase at these time increments, and ultimately become unaffordable or simple terminate.

Many term plans offer the option of converting to a permanent plan at a future date with no evidence of insurability, that is, no new medical exam. You get to keep the same rating or classification, even if your health has deteriorated, and the length of coverage can be extended.

Permanent Life Insurance, such as Whole Life or Universal Life, has a higher premium, but some money is set aside in a conservatively invested account for the medium- or long-term. The premium on the permanent plan does not increase over time. There are other variants of permanent insurance such as Variable Life (where the money is invested in stock-type accounts) or Return of Premium plans which act a lot like Universal Life plans.

Keep in mind, that once you get life insurance, the rate will increase only by the specified amount (if a term plan) or not at all (if a permanent plan). These rates are locked in even if your health deteriorates over time.

Whole Life Insurance is permanent life insurance designed to last through your life expectancy. The premium remains fixed and level as long as you own the policy. The policy’s cash value grows at a guaranteed rate and may also accumulate dividends.

Universal Life Insurance is permanent life insurance with a flexible premium and a cash value that grows based on current market interest rates. The policy owner may choose to pay higher or lower premiums depending on his own income cycles.

Term Life Insurance is temporary coverage designed to last for a specified time frame – usually five, ten or twenty years. Premiums will increase on a set schedule after the initial term expires. No cash value accumulates, although many plans offer a conversion rider that allows the owner to convert the plan into a permanent policy.

Customizing Your Policy with Life Insurance Riders

Disability Waiver of Premium: If you are unable to work due to illness or injury for six months or more, the insurance company will pay your life insurance premiums. Whole Life plans will continue to accrue all scheduled cash values and dividends; Universal Life plans will generally not accumulate additional cash values, but will remain in force during the period of disability.

Conversion: You can convert your term policy “without evidence of insurability,” e.g., without a medical exam, into one of the permanent plans offered by your insurer. The insured must pay the new premium based on their age at the time of conversion.

Accelerated Death Benefit: You may take up to 80% or 90% of the death benefit while still alive if diagnosed with a terminal illness.

Family and Child Insurance: The spouse and/or dependent children of the primary insured may be covered at a percentage of your death benefit.

Book Review: "The Big Short: Inside the Doomsday Machine"

by Richard F. O’Boyle, Jr., LUTCF, MBA

In Michael Lewis’ expose of the origins of the 2008-2009 credit meltdown, “The Big Short: Inside the Doomsday Machine,” we see how greed and ignorance created the perfect storm that brought on the worst financial crisis since the Great Depression. As a financial professional who helps families and businesses plan for their retirements, I help implement insurance and planning strategies. When we put in place these plans we are often relying on third party ratings of insurance companies and products to give us the confidence that the plans can be fulfilled.

If anything, the experience of the last three years must give us pause when taking for granted the ratings of companies such as Moody’s and Standard and Poor’s. I’m not saying that we should jettison these ratings altogether – instead we should consider them carefully as a piece of the overall picture of financial strength. These agencies went wrong when they got involved in rating very complex derivative products while relying almost entirely on the data supplied by the companies that created those same products.

Lewis’ account of the development mortgage bonds and the evolution of derivative financial products such as credit default swaps is a readable insider’s view of Wall Street’s money machine. Things went awry when rating agencies gave their stamp of approval on these products for sophisticated investors such as hedge funds and institutions. Shockingly, the creators of these products – Citigroup, Goldman Sachs, Merrill Lynch and other banks – often weren’t so sure of the value of the home loans that were the foundation of the underlying bonds.

The basic problems were that the mortgages that formed the foundation of the bonds after 2005 were increasingly low-quality subprime loans and the rating models of the agencies did not take into account that property values might decline. Furthermore, the banks creating the products tailored their submissions to the agencies so that the credit risks of the underlying bonds were not truly diversified and thus riskier than they appeared. In effect, very risky bonds were given super-safe AAA ratings.

Here’s how the products were constructed and what went wrong:
1. Individual mortgages are lumped together into mortgage bonds. Investors in these asset-backed bonds get paid off as the individual mortgages are paid off.
2. Mortgage bonds are rated for financial stability by rating agencies based on their assumptions about default rates by individual mortgagees. The underlying home values and FICO scores are two key measures that they look at.
3. Investors in the bonds buy insurance called “credit default swaps” against the risk that these mortgage bonds will not pay off as expected (that they will default). The price of this insurance is based on the rating that the mortgage bonds received.
4. Big banks package thousands of these bonds and savvy investors trade in the swaps. Some banks generated so many of the bonds that they couldn’t sell them all right away so they held onto them in their own accounts.
5. When adjustable rate mortgages began to reset in 2007 and 2008, the new higher rates forced many individual mortgagees to default. The cascade effect of high defaults and sinking home values triggered the credit default swap insurance plans.
6. Banks were forced to pay out on the insurance and devalue the bonds held on their own books. Ultimately, the banks were forced to come up with more cash to shore up their finances or go bankrupt.

While I walked away after reading this book with a clearer understanding of how Wall Street works, I’m not sure that this knowledge makes me any more confident with the abilities of the various players. Lesson learned: be careful of the herd mentality in all forms of investing. Even the most sophisticated investors can get into trouble when they get greedy and rely too heavily on someone else to do their own homework.

“The Big Short: Inside the Doomsday Machine” is available from Amazon.com

The Life Insurance Medical Exam

by Richard F. O’Boyle, MBA, LUTCF

When applying for life insurance, the company bases it’s underwriting decision on a slew of data, including a past medical treatments, personal history, financial profile, motor vehicle record and current medical examination. If you are applying for over $1,000,000 of coverage or if you are over age 60, the medical requirements will be a bit more thorough.

The medical exam usually consists of a series of medical questions, blood pressure and pulse readings, and blood and urine samples. The insurance company will have a nurse collect copies of your medical records from your doctors. Additional tests may be requested, most often an EKG if you have a history of serious heart disease.

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What Happens If My Life Insurance Company Goes Bankrupt?

by Richard F. O’Boyle, MBA, LUTCF

Over the last few years we have seen seemingly solid American corporations go out of business. It doesn’t happen often, but it’s a legitimate fear of all investors: What happens if my life insurance company goes bankrupt?

First, don’t panic. Each state has a guaranty fund set up by the insurers that is responsible for managing insolvent insurance company policies and claims until another company moves in and merges the outstanding policies with its own. When trouble strikes the company, you will receive a letter from the company and/or state insurance commission.

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Long Term Care Insurance: The Basics

Few individuals or families actually plan for disability and dependence in later life. Sadly, the lack of planning and self-education often results in lost opportunities to prepare for potential disability. Without the planning and discussion of these issues, we are often forced to learn quickly about available options after a traumatic accident, diagnosis of dementia, or loss of ability to care for oneself. While many of us are emotionally resilient, we usually are not financially resilient.

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