People are always asking me financial questions... especially where they should do their banking. I have a simple answer for them... it's the same answer I give to most other questions I get on where to buy what or from whom.... KEEP IT LOCAL!
Let's face it, the days when we trusted banks is over. It is unfortunate that people lump the small community banks in with the "evil" mega-banks like BofA, Citi, Wells, Chase, etc. I'm not going to pass judgement on the ethics of these large institutions... you hear the news and read the headlines in the paper and I'm sure you have your own opinions. However, the one thing that most of us can agree on is that when you bank locally you are directly helping your own community.
Yes, the large banks have lots of branches which do employ a lot of people in this area, but in the end the profits flow out of our area and to the home-office in some distant city... and most of it does not return here.
The community banks, on the other hand, have a charter of sorts to invest back into the community. They make the loans (or are supposed to make the loans...) for the small start-ups that might become large employment-engines later on. They are the ones who "take the chance" on our community. The large banks simply "milk" us for our deposits but do little to foster growth in our local economy.
I do most of my banking these days at Sierra Vista Bank and Folsom Lake Bank. Greg Patton run Sierra Vista and Bob Flautt is president of Folsom Lake. While friendly rivals, they are both committed to serving the financial needs of local businesses beyond the traditional real estate deals. Both of these banks "get it" and know that they have to reach beyond real estate to small businesses and professional practices in order to compete.
I used to do the majority of my banking with American River Bank, but their technology is about five years behind that of the average kitchen refrigerator... especially their horrid online bill-paying system. And while they used to be the gold standard in service, now it's all about the bottom line... not personal service like it was when they started over twenty years ago.
People ask about the safety of small NEW banks that lose money quarter after quarter. The answer is that you have to understand that a loss is not really a loss all the time. Both Sierra Vista and Folsom Lake have moved sums into reserves. They put money from one bucket into another. However, in bank financial reporting, moving money into reserves is considered a loss... as if they flushed it away. It's not true, but that's how it looks on paper.
Banks move money into reserves not just for bad loans, but they do it when they have no bad loans... and are flush with cash... on the anticipation of making more NEW loans. (It is necessary by law for the bank to have (or put) a certain amount in reserve for each loan made.)
I think it is important to keep as much of your business local as you can. Yes, I shop at Whole Foods because I think they have better meat, but we get most everything else at Bel Air... a local company.
When I meet people for coffee I do it a Dianda's in Fair Oaks or Black Rooster in Folsom... not a national chain like Starbucks. When I take a client to lunch it is at someplace like the Balcony Cafe in Folsom or Fat's Asia Bistro in Roseville, both local.
And of course I like to use local professionals. I would not use a national law firm or accounting firm when there are perfectly competent local people to service those needs. I don't go to a Supercuts to have my hair done... I go to a local salon (Regent Street in Fair Oaks.) And when I need something for the house I always try the Oaks Hardware (Fair Oaks) or an Ace store before Lowes or Home Depot.
It is going to take a while before we are back to full employment in our region but I think that buying local as much as we can will get us there a lot quicker.
-Al
Many older Americans continue to struggle with finances in retirement as a result of the recession. The wrong life insurance plan in particular can represent a tremendous burden on a retiree's finances, as premiums can rise swiftly and unexpectedly later in life. Senior citizens should educate themselves early about the potential cost of life insurance as they age in order to be properly prepared... and the best way to do this is to have their agent (or someone recommended) review what they have now.
When I do reviews I look for five specific characteristics of life insurance that can significantly increase expenses for those on a fixed income. Let's take a quick look at them and possible solutions.
1. Avoid Fast Rising Premiums
Life insurance premiums on some plans can rise significantly and suddenly for older Americans, creating challenges for those on a fixed income. Premiums for universal life insurance (also known as flexible premium whole life) rise in cost as the consumer ages because the insurer factors in higher mortality risk. If you look at premium tables as I often do you will see that premium increases usually begin their steep rise around age 70 or 75.
For those on a fixed income this sudden increase can become unaffordable. If the policyholder needs to maintain coverage, one option is to reduce the face amount of the policy. Options for unneeded or unaffordable policies include selling or surrendering the policy. (Of course the best "prevention" is not to buy universal life plans unless they have a level (fixed) premium) for life... the only kind that you could buy from me.)
2. Monitor Term Insurance Increases
Term life insurance premiums can take a big jump at renewal. At the end of most term policies, if the owner cannot or will not convert the policy, then they must either discontinue coverage or undergo a new medical underwriting in order to get a new policy. This will often lead to higher rates. The antidote to this is to NOT buy term insurance when permanent insurance will better meet your needs. (No one ever listens to me on this... but it is true.)
There are also term policies that begin with level premiums, but then increase dramatically as the insured ages. If you have one of these plans... get rid of it if possible. Talk to your trusted agent about alternatives.
3. Pursue Payouts from Policies
Most life insurance never pays a death benefit, meaning most policies never realize their original intent. According to the Insurance Studies Institute, this number is as high as 85 percent of all policies. In those cases, policy owners often leave a significant amount of money on the table. For example, in 2005 policy owners stopped paying premiums on 19.8 million policies worth $1.1 trillion (Insurance Information Institute). The carriers love for you to lapse your plans.
Policy owners should monitor their policies closely and be aware of all the life insurance options available to them so as not to leave their money on the table. These can include adjusting beneficiaries, choosing to receive cash value, or selling their policy in a settlement.
4. Avoid Cash Surrender Fees
Be wary of the cash surrender option with a life insurance policy. In many instances, if you choose to access the cash value in your policy, you'll have to pay a surrender fee. These fees vary by insurer, and can be substantial. Seek other options for generating cash from your policy such as life settlement or -- if your policy allows -- taking dividend payments.
5. Be Aware of Policy Maturity
The majority of life insurance policies are only valid through age 95 or 100. If the insured is still alive at that point, then the policy matures and the carrier will pay out the cash value. However, if the senior had previously relied on the cash value to pay for the policy's increasing premiums, then they could be left with little to no benefit at maturity. One way to address this is to inquire about a life extension rider that can extend the maturity date to 120 years of age.
Another option available to those policy owners facing unexpectedly increasing premiums or those who are considering allowing their insurance to lapse is life settlement. Life insurance was classified as an asset by the Supreme Court in 1911, and as such, can be sold just like a house or car. This is useful for those older policy owners seeking to turn an unneeded or expensive policy into cash.
A recent study found that more than 80 percent of older policy owners did not know they could sell their policy for cash. This means that many policy owners simply allowed their policy to lapse or accepted a cash surrender value instead of seeking a more lucrative life settlement.
You are going to hear more and more about life settlements in the coming years. The carriers are trying to get legislation pushed through that will either limit or prohibit turning a life policy "asset" into cash.
Bottom line, your life policy IS an asset and you need to review it and make changes if necessary. Don't neglect this. Call your agent and have him or her review your coverage every two years and have them tell you about new products that have come out that might work well for you as you get older.
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