REAL ESTATE CONTRACTS METHODS AND TECHNIQUES
| LAND CONTRACT / LAND TRUST / REAL ESTATE CONTRACT: Land contract /contract for deed or "installment sale agreement") is a contract between the owner of the real property (called the "vendor" or the "seller") and a person who wants to buy the property (the "vendee", "contract purchaser", "purchaser" or "buyer")for an agreed-upon purchase price. Under a land contract the vendor grants equitable title to the vendee (which consists of virtually all rights to the property other than actual legal title), and the vendee agrees to pay the purchase price to the vendor over time, usually in monthly installments, by a certain date. When the full amount of the purchase price is paid, the vendor is obligated to deliver legal title to the vendee by an actual deed, and upon delivery of the deed, the vendee owns equitable and legal title to the property. Equitable title, for all intents and purposes, makes the purchaser the "owner" of the property. There are several "land contract friendly" states in the US, while other states make it extremely difficult to sell or purchase real property by means of a land contract. It is common for the installment payments of the purchase price to be similar to mortgage payments in amount and effect. The amount is often determined according to a mortgage amortization schedule. In effect, each installment payment is partially payment of the purchase price and partially payment of interest on the unpaid purchase price. This is similar to mortgage payments which are part repayment of the principal amount of the mortgage loan and part interest. However, since land contracts can easily be written or modified by any seller or purchaser, you may come across any variety of repayment plans. Interest only, negative amortizations, short balloons, extremely long amortizations just to name a few. It is therefore even more so advisable to read your contracts and consult professionals. Typical land contracts are easy to understand and usually only make up 3-5 pages. It is not uncommon for land contracts to go UNrecorded. For several reasons the vendor or vendee may decide that the contract is not to be recorded in the register of deeds. This does not make the contract invalid, but it does increase exposure to undesirable side effects. Contrary to common belief, a contract is valid with only a vendors' signature, provided it is delivered and accepted by the vendee. Contracts without the vendee's signature, or without being notarized - although not recommended- are therefore still valid and enforceable in court. Although land contracts can be used for a variety of reasons, their most common use is as a form of short-term seller financing. Usually, but not always, the date on which the full amount of the purchase price is due will be years sooner than when the purchase price would be paid in full according to the amortization schedule. This results in the final payment being a large "balloon" payment. Since the amount of the final payment is so large, the buyer usually obtains a conventional mortgage loan from a bank to make the final payment. Land contracts are sometimes used by buyers who do not qualify for conventional mortgage loans offered by traditional lending institutional, for reasons of poor credit or an insufficient down payment. Land contracts are also used when the seller is anxious to sell and the buyer is not given enough time to arrange for conventional financing. Besides the obvious reasons, land contracts are a favorite amongst many real estate investors because of their ease of use, extreme flexibility, and fast executions. |
LAND TRUST
A land trust is an agreement whereby one party (the trustee) agrees to hold ownership of a piece of real property for the benefit of another party (the beneficiary). Land trusts are used by
nonprofit organizations to hold conservation easements, by corporations and investment groups to compile large tracts of land, and by individuals to keep their real estate ownership
private, avoid probate and provide several other benefits.
A community or conservation land trust is an organization established to hold land and to administer use of the land according to the charter of the organization. A land trust is a useful
way to manage complex divisions of the that people can own in real estate, and can be used to manage something as large and complex as a multi-state REIT, or as common and
small as a single-family home.
Corporations sometimes set up land trusts when they want to compile large tracts of land without arousing suspicion or alerting people to their plans (which would cause the asking
price to rise). For example, the land for Walt Disney World near Orlando Florida was put together by using many land trusts to buy smaller tracts of land.
Individuals use land trusts mainly for privacy and to avoid probate. No one knows what one's bank balance or stock investments are, yet anyone with an internet connection can look up a
person's real estate holdings. A person who has an auto accident or a doctor who accidentally injures a patient is a much better target for a lawsuit if he or she owns real estate
investments. So some investors buy their properties in land trusts so their name does not appear in the public records. The land trust also allows the property to immediately pass to
their heirs at the moment of death, rather than go through a long probate process.
A land trust is an agreement whereby one party (the trustee) agrees to hold ownership of a piece of real property for the benefit of another party (the beneficiary). Land trusts are used by
nonprofit organizations to hold conservation easements, by corporations and investment groups to compile large tracts of land, and by individuals to keep their real estate ownership
private, avoid probate and provide several other benefits.
A community or conservation land trust is an organization established to hold land and to administer use of the land according to the charter of the organization. A land trust is a useful
way to manage complex divisions of the that people can own in real estate, and can be used to manage something as large and complex as a multi-state REIT, or as common and
small as a single-family home.
Corporations sometimes set up land trusts when they want to compile large tracts of land without arousing suspicion or alerting people to their plans (which would cause the asking
price to rise). For example, the land for Walt Disney World near Orlando Florida was put together by using many land trusts to buy smaller tracts of land.
Individuals use land trusts mainly for privacy and to avoid probate. No one knows what one's bank balance or stock investments are, yet anyone with an internet connection can look up a
person's real estate holdings. A person who has an auto accident or a doctor who accidentally injures a patient is a much better target for a lawsuit if he or she owns real estate
investments. So some investors buy their properties in land trusts so their name does not appear in the public records. The land trust also allows the property to immediately pass to
their heirs at the moment of death, rather than go through a long probate process.
LEASE OPTION CONTRACT
A lease option (or lease purchase) is a type of contract used in residential real estate. The contract is typically between two parties: the tenant (also called the lessee), who will
occupy a house or apartment, and the landlord (lessor), who owns the property.
During the term of the lease option, the tenant pays rent to the landlord, and in exchange is permitted to occupy the property. At the end of the contract, the tenant has the
option to purchase the property outright; the tenant would typically obtain the money to do this using a mortgage. In exchange for this option, the tenant pays extra money to the
landlord, in excess of usual market rent.
Excess rent may also be applied towards the eventual purchase of the property, or towards the down payment for a mortgage. In that case, the lease option works as an
automatic savings plan for the tenant.
Lease options are often used by tenants with a poor or limited credit history, who would not qualify for a typical mortgage. The lease option may carry less risk for the landlord
than a mortgage would for the lender. In the event of non-payment, it may be possible to remove the tenants through eviction, which is likely to be cheaper than foreclosure on a
mortgaged property. The lease option may also require less money up front, while a mortgage might require a substantial down payment from the tenant.
If the tenant does not exercise the option to purchase the property at the end of the lease, then the money that the tenant paid for this option was wasted. This might occur if
the tenant no longer wishes to purchase the property, or if the tenant wishes to purchase the property but is unable to obtain the financing required to do so. Some forms of
lease option have been criticized as predatory, if a lease option is sold to a tenant who cannot realistically expect to ever exercise the option
A lease option (or lease purchase) is a type of contract used in residential real estate. The contract is typically between two parties: the tenant (also called the lessee), who will
occupy a house or apartment, and the landlord (lessor), who owns the property.
During the term of the lease option, the tenant pays rent to the landlord, and in exchange is permitted to occupy the property. At the end of the contract, the tenant has the
option to purchase the property outright; the tenant would typically obtain the money to do this using a mortgage. In exchange for this option, the tenant pays extra money to the
landlord, in excess of usual market rent.
Excess rent may also be applied towards the eventual purchase of the property, or towards the down payment for a mortgage. In that case, the lease option works as an
automatic savings plan for the tenant.
Lease options are often used by tenants with a poor or limited credit history, who would not qualify for a typical mortgage. The lease option may carry less risk for the landlord
than a mortgage would for the lender. In the event of non-payment, it may be possible to remove the tenants through eviction, which is likely to be cheaper than foreclosure on a
mortgaged property. The lease option may also require less money up front, while a mortgage might require a substantial down payment from the tenant.
If the tenant does not exercise the option to purchase the property at the end of the lease, then the money that the tenant paid for this option was wasted. This might occur if
the tenant no longer wishes to purchase the property, or if the tenant wishes to purchase the property but is unable to obtain the financing required to do so. Some forms of
lease option have been criticized as predatory, if a lease option is sold to a tenant who cannot realistically expect to ever exercise the option
NET LEASE CONTRACT
Single net lease
In a single net lease (sometimes shortened to Net or N), the lessee or tenant is responsible for paying property taxes as well as the base rent. Double- and triple-net leases are
more common forms of net leases.
[Double net lease
In a double net lease (Net-Net or NN) the lessee or tenant is responsible for real estate taxes and building insurance. The lessor or landlord is responsible for any expenses
incurred for structural repairs and common area maintenance. "Roof and structure" is sometimes calculated as a reserve, the most common amount is equal to $ .15 per square
foot. Double net leases are rarely used in the industry.
Triple net lease
A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the
three 'Nets') on the property in addition to any normal fees that are expected under the agreement (rent, etc.). In such a lease, the tenant or lessee is responsible for all costs
associated with repairs or replacement of the structural building elements of the property.
Although rents are usually lower in triple net leases than other forms of lease agreements, this form of lease agreement is desirable for real estate investors since the expenses
incurred on the investor are dramatically decreased due to the transfer of financial responsibilities on the property from the investor/lessor to the lessee. But they may also have
certain tax disadvantages for the lessor. Among other effects, if the lease produces losses, these could be disallowed for their tax benefit due to the passive loss limitations of
the Internal Revenue Code Section 469 or the at-risk rules of IRC §465, and significant income from them could cause a closely held C corporation to become a Personal Holding
Company per IRC §542 (subject to a special tax), or an S corporation to lose this status per IRC §1362(d)(3).
This form is frequently used for freestanding buildings, such as outparcel developments or single-tenant "big box" sites.
Use of a triple net lease may be a prerequisite for credit tenant lease financing, and may permit a lender to lend to the landlord on nonrecourse terms.
Bondable lease
A bondable lease (also called an absolute triple net lease or a "hell-or-high-water lease") is the most extreme variation of a triple net lease, where the tenant carries every
imaginable real estate risk related to the property. Notably, these additional risks include the obligations to rebuild after a casualty, regardless of the adequacy of insurance
proceeds, and to pay rent after partial or full condemnation. These leases are not terminable by the tenant, nor are rent abatements permissible. The concept is to make the rent
absolutely net under all circumstances, equivalent to the obligations of a bond: hence the "hell-or-high water" moniker. An example of this type of lease would be a leaseback
arrangement in which a retailer leases back the building it formerly owned and continues to run the store.
Bondable leases are typically used in so-called "credit tenant lease" deals, where the main driver of value is not so much the real estate, but the uninterrupted cash flow from the
usually investment-grade rated "credit" tenant.
Single net lease
In a single net lease (sometimes shortened to Net or N), the lessee or tenant is responsible for paying property taxes as well as the base rent. Double- and triple-net leases are
more common forms of net leases.
[Double net lease
In a double net lease (Net-Net or NN) the lessee or tenant is responsible for real estate taxes and building insurance. The lessor or landlord is responsible for any expenses
incurred for structural repairs and common area maintenance. "Roof and structure" is sometimes calculated as a reserve, the most common amount is equal to $ .15 per square
foot. Double net leases are rarely used in the industry.
Triple net lease
A triple net lease (Net-Net-Net or NNN) is a lease agreement on a property where the tenant or lessee agrees to pay all real estate taxes, building insurance, and maintenance (the
three 'Nets') on the property in addition to any normal fees that are expected under the agreement (rent, etc.). In such a lease, the tenant or lessee is responsible for all costs
associated with repairs or replacement of the structural building elements of the property.
Although rents are usually lower in triple net leases than other forms of lease agreements, this form of lease agreement is desirable for real estate investors since the expenses
incurred on the investor are dramatically decreased due to the transfer of financial responsibilities on the property from the investor/lessor to the lessee. But they may also have
certain tax disadvantages for the lessor. Among other effects, if the lease produces losses, these could be disallowed for their tax benefit due to the passive loss limitations of
the Internal Revenue Code Section 469 or the at-risk rules of IRC §465, and significant income from them could cause a closely held C corporation to become a Personal Holding
Company per IRC §542 (subject to a special tax), or an S corporation to lose this status per IRC §1362(d)(3).
This form is frequently used for freestanding buildings, such as outparcel developments or single-tenant "big box" sites.
Use of a triple net lease may be a prerequisite for credit tenant lease financing, and may permit a lender to lend to the landlord on nonrecourse terms.
Bondable lease
A bondable lease (also called an absolute triple net lease or a "hell-or-high-water lease") is the most extreme variation of a triple net lease, where the tenant carries every
imaginable real estate risk related to the property. Notably, these additional risks include the obligations to rebuild after a casualty, regardless of the adequacy of insurance
proceeds, and to pay rent after partial or full condemnation. These leases are not terminable by the tenant, nor are rent abatements permissible. The concept is to make the rent
absolutely net under all circumstances, equivalent to the obligations of a bond: hence the "hell-or-high water" moniker. An example of this type of lease would be a leaseback
arrangement in which a retailer leases back the building it formerly owned and continues to run the store.
Bondable leases are typically used in so-called "credit tenant lease" deals, where the main driver of value is not so much the real estate, but the uninterrupted cash flow from the
usually investment-grade rated "credit" tenant.
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Even if housing prices don't continue to increase at the
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Selling Your Home
To sell your home, you'll need more than yard signs and
advertisements. You need a Sales Associate who will work as your
Trusted Advisor, Skilled Negotiator and Expert Facilitator ®.
AS YOUR Real Estate Sales AGENT, I can help you sell your home
more quickly and easily by:
Helping you set the right price on your home to attract the right
buyers and the sales professionals who work with these buyers.
Gathering data that will present your house and neighborhood in the
best light.
Targeting the market where the most likely buyers will be.
Qualifying calls from people who may be more curious than serious
about buying
Showing your home to the best prospects
Accessing an established local network
Skillfully representing you during the offer process
Doing the necessary paperwork and legwork in a timely manner.
Guiding you through settlement.
Six Critical Elements of a Sale
Asking Price
1. This is the number one factor in the sale of your home. The actual
market value is determined by what a buyer is willing to pay.
Through their research, AS your Real Estate AGENT I will assist you
in determining the most appropriate sales price. Their customized
sales and marketing program will then target exposure to a large
segment of potential buyers.
Property Location
2. The second most important factor in the buyer's mind is location.
The proximity to area amenities and schools is typically a concern.
In addition, street traffic, proximity to expressways and public
transportation are considerations.
Property Condition
3. Buyers consider the structural and mechanical integrity of your
home as well as the upkeep and cosmetic appeal. Neutral décor,
including floor and wall coverings, appliances and fixtures, offers
the broadest appeal to potential buyers.
Market Conditions
4. Interest rates, competition from other properties, the economy
and consumer confidence all influence the sale of your home and
are beyond your control. The best response to these conditions is
expert marketing and pricing strategy.
Contract Terms
5. The terms of the sale can make or break a contract. For instance,
house sale contingencies, closing dates and exclusions of
accessories or fixtures should always be handled clearly up front in
order to avoid any confusion that could affect the sale.
Marketing
6. When marketing and advertising are done correctly, your home
will sell more quickly and command a higher price. But every
property is unique and the marketing plan should be designed to
target those buyers most likely to want your home. Special attention
should be paid to the most popular sources buyers use to find the
homes they purchase.
Explore the links on this page to learn more about the home selling
process, and find a
Real Estate Office or Agent that can help you sell your home.
To sell your home, you'll need more than yard signs and
advertisements. You need a Sales Associate who will work as your
Trusted Advisor, Skilled Negotiator and Expert Facilitator ®.
AS YOUR Real Estate Sales AGENT, I can help you sell your home
more quickly and easily by:
Helping you set the right price on your home to attract the right
buyers and the sales professionals who work with these buyers.
Gathering data that will present your house and neighborhood in the
best light.
Targeting the market where the most likely buyers will be.
Qualifying calls from people who may be more curious than serious
about buying
Showing your home to the best prospects
Accessing an established local network
Skillfully representing you during the offer process
Doing the necessary paperwork and legwork in a timely manner.
Guiding you through settlement.
Six Critical Elements of a Sale
Asking Price
1. This is the number one factor in the sale of your home. The actual
market value is determined by what a buyer is willing to pay.
Through their research, AS your Real Estate AGENT I will assist you
in determining the most appropriate sales price. Their customized
sales and marketing program will then target exposure to a large
segment of potential buyers.
Property Location
2. The second most important factor in the buyer's mind is location.
The proximity to area amenities and schools is typically a concern.
In addition, street traffic, proximity to expressways and public
transportation are considerations.
Property Condition
3. Buyers consider the structural and mechanical integrity of your
home as well as the upkeep and cosmetic appeal. Neutral décor,
including floor and wall coverings, appliances and fixtures, offers
the broadest appeal to potential buyers.
Market Conditions
4. Interest rates, competition from other properties, the economy
and consumer confidence all influence the sale of your home and
are beyond your control. The best response to these conditions is
expert marketing and pricing strategy.
Contract Terms
5. The terms of the sale can make or break a contract. For instance,
house sale contingencies, closing dates and exclusions of
accessories or fixtures should always be handled clearly up front in
order to avoid any confusion that could affect the sale.
Marketing
6. When marketing and advertising are done correctly, your home
will sell more quickly and command a higher price. But every
property is unique and the marketing plan should be designed to
target those buyers most likely to want your home. Special attention
should be paid to the most popular sources buyers use to find the
homes they purchase.
Explore the links on this page to learn more about the home selling
process, and find a
Real Estate Office or Agent that can help you sell your home.
Top 10 Life Insurance Myths
Life insurance is not a simple product. Even term life policies have many elements that
must be considered carefully in order to arrive at the proper type and amount of coverage.
But the technical aspects of life insurance are far less difficult for most people to deal with
than trying to get a handle on how much coverage they need and why.
Myth No.1:
I Don't Need Coverage, I'm Single With No Dependents
Even single people need at least enough life insurance to cover the costs of personal
debts, medical and funeral bills. If you are uninsured, you may leave a legacy of unpaid
expenses for your family or executor to deal with. Plus, this can be a good way for low-
income singles to leave a legacy to a favorite charity or other cause.
Myth No.2:
I Only Need Coverage Equal to Twice My Salary
You need an amount of life insurance equal to the amount that is actually required. In
addition to medical and funeral bills, you may need to pay off debts such as your mortgage
and provide for your family for several years. A cash flow analysis is usually necessary in
order to determine the true amount of insurance that must be purchased - the days of
computing life coverage based only on one's income-earning ability are long gone.
Myth No.3:
My Term Life Insurance at Work Is Sufficient
Maybe, maybe not. For a single person of modest means, employer-paid or provided term
coverage may well be enough. But if you have a spouse or other dependents, or know that
you will need coverage upon your death to pay estate taxes or create an estate for charity,
then additional coverage may be necessary if the term policy does not meet those needs.
Myth No.4: The Cost of My Premiums Will Be Deductible
Afraid not, at least in most cases. The cost of personal life insurance is never deductible
unless the policyholder is self-employed and the coverage is used to insure the business.
Then the premiums are deductible on the Schedule C of the Form 1040.
Myth No.5:
I Should ALWAYS Buy Term and Invest the Difference
Not necessarily. The cost of term life coverage can become prohibitively high in later years;
therefore, those who know for certain that they must be covered at death should consider
permanent coverage. The total premium outlay for a more expensive permanent policy
may be less than the ongoing premiums that could last for years longer with a less
expensive term policy.
Myth No.6:
Only Breadwinners Need Life Coverage
Nonsense. The cost of replacing the services formerly provided by a deceased
homemaker can be higher than you think, especially when it comes to cleaning and
daycare.
Myths no.7:
Insuring Against The Loss
Whether you love it or hate it, everyone should still consider purchasing life insurance.
Unfortunately, when it comes to this insurance, coverage for non-working spouses is often
overlooked, especially if the household is in a lower income bracket. But the economic
replacement cost of a non-working spouse should never be discounted.
Some estimates say a homemaker is worth $500,000 or more per year because of the
endless list of tasks and burdens that fill a stay-at-home parent's
Myth No.8:
I Should Always Purchase the Return-of-Premium Rider
There are usually different levels of ROP riders available for policies that offer this feature.
Many financial planners will tell you that this rider is not cost-effective and should be
avoided. Whether you include this rider will depend on your risk tolerance and other
possible investment objectives.
A cash flow analysis will reveal whether you could come out ahead by investing the
additional amount of the rider elsewhere versus including it in the policy. (Riders are
available to provide additional benefits that help you customize your policy.
Myth No.9
I'm Better Off Just Investing My Money
Hogwash. Until you reach the breakeven point of asset accumulation, you need life
coverage of some sort (barring the exception discussed in Myth No.5.) Once you amass $1
million of liquid assets, you can consider whether to discontinue (or at least reduce) your
million-dollar policy.
But you take a big chance when you depend solely on your investments in the early years
of your life, especially if you have dependents. If you die without coverage for them, there
may be no other means of provision after the depletion of your current assets.
BEST INSURANCE ADVICE EVER
•Don't be sold on permanent insurance for the investment or cash-value feature. For the
first two to 10 years, your premiums are paying the agent's commission anyways.
Most policies don't start to build respectable cash value until their 12th year, so ask
yourself if the feature is really worth it.
•Always shop for a level-premium policy. Nobody likes a surprise increase in their premium
payments! So, before you buy term or permanent insurance make sure your illustration
shows that your premium payment is guaranteed not to increase over the duration of your
coverage.
When seeking insurance, don't rush into buying expensive permanent life insurance before
considering if term life insurance sufficiently meets your needs.
•For 24 hours before your medical exam, keep sugar & caffeine out of your system. It's
best to schedule your exam early in the morning, and don't consume anything but water for
at least eight hours beforehand.
Life insurance is not a simple product. Even term life policies have many elements that
must be considered carefully in order to arrive at the proper type and amount of coverage.
But the technical aspects of life insurance are far less difficult for most people to deal with
than trying to get a handle on how much coverage they need and why.
Myth No.1:
I Don't Need Coverage, I'm Single With No Dependents
Even single people need at least enough life insurance to cover the costs of personal
debts, medical and funeral bills. If you are uninsured, you may leave a legacy of unpaid
expenses for your family or executor to deal with. Plus, this can be a good way for low-
income singles to leave a legacy to a favorite charity or other cause.
Myth No.2:
I Only Need Coverage Equal to Twice My Salary
You need an amount of life insurance equal to the amount that is actually required. In
addition to medical and funeral bills, you may need to pay off debts such as your mortgage
and provide for your family for several years. A cash flow analysis is usually necessary in
order to determine the true amount of insurance that must be purchased - the days of
computing life coverage based only on one's income-earning ability are long gone.
Myth No.3:
My Term Life Insurance at Work Is Sufficient
Maybe, maybe not. For a single person of modest means, employer-paid or provided term
coverage may well be enough. But if you have a spouse or other dependents, or know that
you will need coverage upon your death to pay estate taxes or create an estate for charity,
then additional coverage may be necessary if the term policy does not meet those needs.
Myth No.4: The Cost of My Premiums Will Be Deductible
Afraid not, at least in most cases. The cost of personal life insurance is never deductible
unless the policyholder is self-employed and the coverage is used to insure the business.
Then the premiums are deductible on the Schedule C of the Form 1040.
Myth No.5:
I Should ALWAYS Buy Term and Invest the Difference
Not necessarily. The cost of term life coverage can become prohibitively high in later years;
therefore, those who know for certain that they must be covered at death should consider
permanent coverage. The total premium outlay for a more expensive permanent policy
may be less than the ongoing premiums that could last for years longer with a less
expensive term policy.
Myth No.6:
Only Breadwinners Need Life Coverage
Nonsense. The cost of replacing the services formerly provided by a deceased
homemaker can be higher than you think, especially when it comes to cleaning and
daycare.
Myths no.7:
Insuring Against The Loss
Whether you love it or hate it, everyone should still consider purchasing life insurance.
Unfortunately, when it comes to this insurance, coverage for non-working spouses is often
overlooked, especially if the household is in a lower income bracket. But the economic
replacement cost of a non-working spouse should never be discounted.
Some estimates say a homemaker is worth $500,000 or more per year because of the
endless list of tasks and burdens that fill a stay-at-home parent's
Myth No.8:
I Should Always Purchase the Return-of-Premium Rider
There are usually different levels of ROP riders available for policies that offer this feature.
Many financial planners will tell you that this rider is not cost-effective and should be
avoided. Whether you include this rider will depend on your risk tolerance and other
possible investment objectives.
A cash flow analysis will reveal whether you could come out ahead by investing the
additional amount of the rider elsewhere versus including it in the policy. (Riders are
available to provide additional benefits that help you customize your policy.
Myth No.9
I'm Better Off Just Investing My Money
Hogwash. Until you reach the breakeven point of asset accumulation, you need life
coverage of some sort (barring the exception discussed in Myth No.5.) Once you amass $1
million of liquid assets, you can consider whether to discontinue (or at least reduce) your
million-dollar policy.
But you take a big chance when you depend solely on your investments in the early years
of your life, especially if you have dependents. If you die without coverage for them, there
may be no other means of provision after the depletion of your current assets.
BEST INSURANCE ADVICE EVER
•Don't be sold on permanent insurance for the investment or cash-value feature. For the
first two to 10 years, your premiums are paying the agent's commission anyways.
Most policies don't start to build respectable cash value until their 12th year, so ask
yourself if the feature is really worth it.
•Always shop for a level-premium policy. Nobody likes a surprise increase in their premium
payments! So, before you buy term or permanent insurance make sure your illustration
shows that your premium payment is guaranteed not to increase over the duration of your
coverage.
When seeking insurance, don't rush into buying expensive permanent life insurance before
considering if term life insurance sufficiently meets your needs.
•For 24 hours before your medical exam, keep sugar & caffeine out of your system. It's
best to schedule your exam early in the morning, and don't consume anything but water for
at least eight hours beforehand.
5 Insurance Policies Everyone Should Have
Protecting your most important assets is an important step in creating a solid
personal financial plan. The right insurance policies will go a long way toward
helping you safeguard your earning power and your possessions
1. Long-Term Disability Insurance
The prospect of long-term disability is so frightening that some people simply
choose to ignore it. While we all hope that, "Nothing will happen to me," relying on
hope to protect your future earning power is simply not a good idea.
Instead, choose a disability policy that provides enough coverage to enable you to
continue your current lifestyle even if you can no longer continue working.
(Protecting Your Income Source provides a closer look at this important topic.)
2. Life Insurance
Life insurance protects the people that are financially dependent on you. If your
parents, spouse, children or other loved ones would face financial hardship if you
died, life insurance should be high on your list of required insurance policies.
Think about how much you earn each year (and the number of years you plan to
remain employed) and purchase a policy that will replace that income in the event of
your untimely demise. Factor in the cost of burial too, as the unexpected cost is a
burden for many families.
(For a more detailed look at the types of coverage available and factors involved in
choosing the right coverage for your situation, read Buying Life Insurance: Term
Versus Permanent and How Much Life Insurance Should You Carry?)
3. Health Insurance
The soaring cost of medical care is reason enough to make health insurance a
necessity. Even a simple visit to the family doctor can result in a hefty bill. More
serious injuries that result in a hospital stay can generate a bill that tops the price of
a one-week stay at a luxury resort. Injuries that require surgery can quickly rack up
five-figure costs.
Although the ever-increasing cost of health insurance is a financial burden for just
about everyone, the potential cost of not having coverage is much higher. (For more
insight, see Fighting The High Costs Of Healthcare.)
4. Home Insurance
Replacing your home is an expensive proposition. Having the right home insurance
can make the process less difficult. When shopping for a policy, look for one that
covers replacement of the structure and contents in addition to the cost of living
somewhere else while your home is repaired. (To keep reading on this subject, see
Insurance Tips For Homeowners.)
Keep in mind that the cost of rebuilding doesn't need to include the cost of the land,
since you already own it. Depending on the age of your home and the amenities that
it contains, the cost to replace it could be more or less than the price you paid for it.
To get an accurate estimate, find out how much local builders charge per square
foot and multiply that number by the amount of space you will need to replace. Don't
forget to factor in the cost of upgrades and special features. Also, be sure the policy
provides adequate coverage for the cost of any liability for injuries that occur on
your property.
5. Automobile Insurance
Some level of automobile liability insurance is required by law in most localities.
Even if you are not required to have it and you are driving an old junker that has been
paid off for years, automobile liability insurance is something you shouldn't skip.
If you are involved in an accident and someone is injured or their property is
damaged, you could be subject to a lawsuit that could cost you everything you own.
Accidents happen quickly and the results are often tragic - having no automobile
liability insurance or purchasing only the minimum required coverage saves you
only a tiny amount of money and puts everything else that you own at risk.
*Bonus Tip For Business Owners: In addition to the policies listed above, business
owners need business insurance. Liability coverage in a litigation-happy society
could be the difference between a long, prosperous endeavor and a trip to
bankruptcy court.
Protecting your most important assets is an important step in creating a solid
personal financial plan. The right insurance policies will go a long way toward
helping you safeguard your earning power and your possessions
1. Long-Term Disability Insurance
The prospect of long-term disability is so frightening that some people simply
choose to ignore it. While we all hope that, "Nothing will happen to me," relying on
hope to protect your future earning power is simply not a good idea.
Instead, choose a disability policy that provides enough coverage to enable you to
continue your current lifestyle even if you can no longer continue working.
(Protecting Your Income Source provides a closer look at this important topic.)
2. Life Insurance
Life insurance protects the people that are financially dependent on you. If your
parents, spouse, children or other loved ones would face financial hardship if you
died, life insurance should be high on your list of required insurance policies.
Think about how much you earn each year (and the number of years you plan to
remain employed) and purchase a policy that will replace that income in the event of
your untimely demise. Factor in the cost of burial too, as the unexpected cost is a
burden for many families.
(For a more detailed look at the types of coverage available and factors involved in
choosing the right coverage for your situation, read Buying Life Insurance: Term
Versus Permanent and How Much Life Insurance Should You Carry?)
3. Health Insurance
The soaring cost of medical care is reason enough to make health insurance a
necessity. Even a simple visit to the family doctor can result in a hefty bill. More
serious injuries that result in a hospital stay can generate a bill that tops the price of
a one-week stay at a luxury resort. Injuries that require surgery can quickly rack up
five-figure costs.
Although the ever-increasing cost of health insurance is a financial burden for just
about everyone, the potential cost of not having coverage is much higher. (For more
insight, see Fighting The High Costs Of Healthcare.)
4. Home Insurance
Replacing your home is an expensive proposition. Having the right home insurance
can make the process less difficult. When shopping for a policy, look for one that
covers replacement of the structure and contents in addition to the cost of living
somewhere else while your home is repaired. (To keep reading on this subject, see
Insurance Tips For Homeowners.)
Keep in mind that the cost of rebuilding doesn't need to include the cost of the land,
since you already own it. Depending on the age of your home and the amenities that
it contains, the cost to replace it could be more or less than the price you paid for it.
To get an accurate estimate, find out how much local builders charge per square
foot and multiply that number by the amount of space you will need to replace. Don't
forget to factor in the cost of upgrades and special features. Also, be sure the policy
provides adequate coverage for the cost of any liability for injuries that occur on
your property.
5. Automobile Insurance
Some level of automobile liability insurance is required by law in most localities.
Even if you are not required to have it and you are driving an old junker that has been
paid off for years, automobile liability insurance is something you shouldn't skip.
If you are involved in an accident and someone is injured or their property is
damaged, you could be subject to a lawsuit that could cost you everything you own.
Accidents happen quickly and the results are often tragic - having no automobile
liability insurance or purchasing only the minimum required coverage saves you
only a tiny amount of money and puts everything else that you own at risk.
*Bonus Tip For Business Owners: In addition to the policies listed above, business
owners need business insurance. Liability coverage in a litigation-happy society
could be the difference between a long, prosperous endeavor and a trip to
bankruptcy court.
Life Insurance: Putting A Price On Peace Of Mind
If you're wondering whether or not you should buy life insurance, ask yourself this one
question: "Would my death leave anyone in a financial bind?"
If you answer "yes", it may be time to get serious about shopping for life insurance.
Life insurance can offer peace of mind, ensuring that your debts or loved ones will be
taken care of in the event of your death. But before you buy it, you need to ask yourself
if you'll qualify, and whether you should purchase term or permanent life insurance.
What Does Life Insurance Mean?
A protection against the loss of income that would result if the insured passed away.
The named beneficiary receives the proceeds and is thereby safeguarded from the
financial impact of the death of the insured.
knowledgefinancial.com explains Life Insurance
The goal of life insurance is to provide a measure of financial security for your family
after you die. So, before purchasing a life insurance policy, you should consider your
financial situation and the standard of living you want to maintain for your dependents
or survivors.
Permanent Life InsuranceWhat Does Permanent Life Insurance Mean?
An umbrella term for life insurance plans that do not expire (unlike term life insurance)
and combine a death benefit with a savings portion. This savings portion can build a
cash value - against which the policy owner can borrow funds, or in some instances,
the owner can withdraw the cash value to help meet future goals, such as paying for a
child's college education. The two main types of permanent life insurance are whole
and universal life insurance policies.
knowledgefinancial.com explains
Permanent Life Insurance
To borrow against the savings portion of a permanent life insurance policy, there is
usually a waiting period after the purchase of your policy for sufficient cash value to
accumulate. Also, if the amount of the unpaid interest on your loan plus your
outstanding loan balance exceeds the amount of your policy's cash value, your policy
and all coverage will terminate.
Permanent life insurance policies enjoy favorable tax treatment. The growth of cash
value is generally on a tax-deferred basis, meaning that you pay no taxes on any
earnings in the policy so long as the policy remains active.
Provided you adhere to certain premium limits, money can be taken out of the policy
without being subject to taxes since policy loans generally are not considered taxable
income. Generally, withdrawals up to the amount of premiums paid can be taken
without being taxed.
Here are the main characteristics of permanent life insurance:
•Permanent insurance protection.
•More expensive to own.
•Builds cash value.
•Loans are permitted against the policy.
•Favorable tax treatment of policy earnings.
•Level premiums.
-Term Life Insurance
What Does Term Life Insurance Mean?
A policy with a set duration limit on the coverage period. Once the policy is expired, it
is up to the policy owner to decide whether to renew the term life insurance policy or
to let the coverage end. This type of insurance policy contrasts with permanent life
insurance, in which duration extends until the policy owner reaches 100 years of age
(i.e. death).
knowledgefinancial.com explains
Term Life Insurance
These types of policies provide a stated benefit upon the death of the policy owner,
provided that the death occurs within a specific time period. However, the policy does
not provide any returns beyond the stated benefit, unlike permanent life insurance
policies, which have a savings component that can be used for wealth accumulation.
Here are the main characteristics of term life insurance:
•Temporary insurance protection
•Low cost
•No cash value
•Usually renewable
•Sometimes convertible to permanent life insurance
-Who Needs and Qualifies for Life Insurance?
The rule of thumb is once you become a parent, any adult in your house earning
income should have life-insurance coverage that will last until your youngest child
completes college.
If you have large financial obligations such as high credit-card debt or a mortgage, you
could use life insurance to ensure that debt is covered. Because life-insurance death
benefits are exempt from federal taxation, many financial planners often use clients'
life-insurance benefits to help pay for the estate taxes generated upon the death of a
loved one.
To determine if you qualify, most life-insurance policies require you to undergo a
medical exam primarily to check for high cholesterol and blood-sugar levels. Prior to
issuing a policy the insurance company will also check things such as your medical
history, hobbies, credit rating, alcohol-related issues and driving record, just to name
a few. Factors such as age, smoking and prior health issues can also drive up the
premiums on a policy.
-The two primary methods used to determine the amount of insurance an individual
requires are the 'human-life approach' and the 'needs approach'. The first projects an
individual's income through his or her remaining working life expectancy, and then the
present value of the life is determined by means of a discount rate. With the needs
approach, all reoccurring and unusual expenditures are examined to determine the
amount of life insurance needed.
If you're wondering whether or not you should buy life insurance, ask yourself this one
question: "Would my death leave anyone in a financial bind?"
If you answer "yes", it may be time to get serious about shopping for life insurance.
Life insurance can offer peace of mind, ensuring that your debts or loved ones will be
taken care of in the event of your death. But before you buy it, you need to ask yourself
if you'll qualify, and whether you should purchase term or permanent life insurance.
What Does Life Insurance Mean?
A protection against the loss of income that would result if the insured passed away.
The named beneficiary receives the proceeds and is thereby safeguarded from the
financial impact of the death of the insured.
knowledgefinancial.com explains Life Insurance
The goal of life insurance is to provide a measure of financial security for your family
after you die. So, before purchasing a life insurance policy, you should consider your
financial situation and the standard of living you want to maintain for your dependents
or survivors.
Permanent Life InsuranceWhat Does Permanent Life Insurance Mean?
An umbrella term for life insurance plans that do not expire (unlike term life insurance)
and combine a death benefit with a savings portion. This savings portion can build a
cash value - against which the policy owner can borrow funds, or in some instances,
the owner can withdraw the cash value to help meet future goals, such as paying for a
child's college education. The two main types of permanent life insurance are whole
and universal life insurance policies.
knowledgefinancial.com explains
Permanent Life Insurance
To borrow against the savings portion of a permanent life insurance policy, there is
usually a waiting period after the purchase of your policy for sufficient cash value to
accumulate. Also, if the amount of the unpaid interest on your loan plus your
outstanding loan balance exceeds the amount of your policy's cash value, your policy
and all coverage will terminate.
Permanent life insurance policies enjoy favorable tax treatment. The growth of cash
value is generally on a tax-deferred basis, meaning that you pay no taxes on any
earnings in the policy so long as the policy remains active.
Provided you adhere to certain premium limits, money can be taken out of the policy
without being subject to taxes since policy loans generally are not considered taxable
income. Generally, withdrawals up to the amount of premiums paid can be taken
without being taxed.
Here are the main characteristics of permanent life insurance:
•Permanent insurance protection.
•More expensive to own.
•Builds cash value.
•Loans are permitted against the policy.
•Favorable tax treatment of policy earnings.
•Level premiums.
-Term Life Insurance
What Does Term Life Insurance Mean?
A policy with a set duration limit on the coverage period. Once the policy is expired, it
is up to the policy owner to decide whether to renew the term life insurance policy or
to let the coverage end. This type of insurance policy contrasts with permanent life
insurance, in which duration extends until the policy owner reaches 100 years of age
(i.e. death).
knowledgefinancial.com explains
Term Life Insurance
These types of policies provide a stated benefit upon the death of the policy owner,
provided that the death occurs within a specific time period. However, the policy does
not provide any returns beyond the stated benefit, unlike permanent life insurance
policies, which have a savings component that can be used for wealth accumulation.
Here are the main characteristics of term life insurance:
•Temporary insurance protection
•Low cost
•No cash value
•Usually renewable
•Sometimes convertible to permanent life insurance
-Who Needs and Qualifies for Life Insurance?
The rule of thumb is once you become a parent, any adult in your house earning
income should have life-insurance coverage that will last until your youngest child
completes college.
If you have large financial obligations such as high credit-card debt or a mortgage, you
could use life insurance to ensure that debt is covered. Because life-insurance death
benefits are exempt from federal taxation, many financial planners often use clients'
life-insurance benefits to help pay for the estate taxes generated upon the death of a
loved one.
To determine if you qualify, most life-insurance policies require you to undergo a
medical exam primarily to check for high cholesterol and blood-sugar levels. Prior to
issuing a policy the insurance company will also check things such as your medical
history, hobbies, credit rating, alcohol-related issues and driving record, just to name
a few. Factors such as age, smoking and prior health issues can also drive up the
premiums on a policy.
-The two primary methods used to determine the amount of insurance an individual
requires are the 'human-life approach' and the 'needs approach'. The first projects an
individual's income through his or her remaining working life expectancy, and then the
present value of the life is determined by means of a discount rate. With the needs
approach, all reoccurring and unusual expenditures are examined to determine the
amount of life insurance needed.
Understand Your Insurance Contract
Almost all of us have insurance. When your insurer gives you the policy document,
generally, all you do is glance over the decorated words in the policy and pile it up
with the other bunch of financial papers on your desk, right?
If you spend thousands of dollars each year on insurance, don't you think that you
should know all about it? Your insurance advisor is always there for you to help you
understand the tricky terms in the insurance forms. SOUTH FLORIDA. CALL THE
INSURANCE REPRESENTATIVE AT: 786-709-6577, but you should also know for
yourself what your contract says.
In this article at knowledgefinancial.com, we'll make reading your insurance
contract easy. Read on to take a look at the basic principles of insurance contracts
and how they are put to use in daily life.
Essentials of a Valid Insurance Contract
•Offer and Acceptance:
When applying for insurance, the first thing you do is get the proposal form of a
particular insurance company. After filling in the requested details, you send the
form to the company (sometimes with a premium check). This is your offer.
knowledgefinancial.com
If the insurance company accepts your offer and agrees to insure you, this is called
an acceptance. In some cases, your insurer may agree to accept your offer after
making some changes to your proposed terms
•Consideration:
This is the premium or the future premiums that you have pay to your insurance
company. For insurers, consideration also refers to the money paid out to you
should you file an insurance claim. This means that each party to the contract must
provide some value to the relationship.
•Legal Capacity: You need to be legally competent to enter into an agreement with
your insurer. If you are a minor or are mentally ill, for example, then you may not be
qualified to make contracts. Similarly, insurers are considered to be competent if
they are licensed under the prevailing regulations that govern them.
•Legal Purpose:
If the purpose of your contract is to encourage illegal activities, it is invalid.
Find the Value in Indemnity contracts
Most insurance contracts are indemnity contracts. Indemnity contracts apply to
insurances where the loss suffered can be measured in terms of money.
Principle of Indemnity:
This states that insurers pay no more than the actual loss suffered. The purpose of
an insurance contract is to leave you in the same financial position you were in
immediately prior to the incident leading to an insurance claim.
When your old Chevy Cavalier is stolen, you can't expect your insurer to replace it
with a brand new Mercedes-Benz. In other words, you will be remunerated
according to the total sum you have assured for the car. (To read more on indemnity
contracts, see Shopping For Car Insurance and How does the 80% rule for home
insurance work?)
Additional Factors
There are some additional factors of your insurance contract that also need to be
considered, including under-insurance and excess clauses that create situations in
which the full value of an insured asset is not remunerated.
Not all insurance contracts are indemnity contracts. Life insurance contracts and
most personal accident insurance contracts are non-indemnity contracts. You may
purchase a life insurance policy of $1 million, but that does not imply that your life's
value is equal to this dollar amount. Because you can't calculate your life's net worth
and fix a price on it, an indemnity contract does not apply.
Insurable Interest
It is your legal right to insure any type of property or any event that may cause
financial loss or create a legal liability to you. This is called insurable interest.
Suppose you are living in your uncle's house, and you apply for homeowners'
insurance because you believe that you may inherit the house later. Insurers will
decline your offer because you are not the owner of the house and, therefore, you do
not stand to suffer financially in the event of a loss.
This example demonstrates that when it comes to insurance, it is not the house, car
or machinery that is insured. Rather, it is the monetary interest in that house, car or
machinery to which your policy applies.
It is also the principle of insurable interest that allows married couples to take out
insurance policies on the lives of their spouses - they may suffer financially if the
spouse dies. Insurable interest also exists in some business arrangements, as
seen between a creditor and debtor, between business partners or between
employers and employees.
Principle of Subrogation
Subrogation allows an insurer to sue a third party that has caused a loss to the
insured and pursue all methods of getting back some of the money that it has paid
to the insured as a result of the loss.
For example, if you are injured in a road accident that is caused by the reckless
driving of another party, you will be compensated by your insurer. However, your
insurance company may also sue the reckless driver in an attempt to recover that
money.
Doctrine of Utmost Good Faith
All insurance contracts are based on the concept of "uberrima fidei", or the doctrine
of utmost good faith. This doctrine emphasizes the presence of mutual faith
between the insured and the insurer.
In simple terms, while applying for life insurance, it becomes your duty to disclose
your past illnesses to the insurer. Likewise, the insurer cannot hide information
about the insurance coverage that is being sold.
Doctrine of Adhesion
The doctrine of adhesion states that you must accept the entire insurance contract
and all of its terms and conditions without bargaining. Because the insured has no
opportunity to change the terms, any ambiguities in the contract will be interpreted
in favor of the insured.
Conclusion
When purchasing insurance, most of us rely on our insurance advisor for everything
- from choosing a policy for us to filling in the insurance application forms.
Most people try to stay away from the boring legal terms of insurance contracts, but
it is always handy to be familiar with these words and phrases and to become
familiar with the terms of the policy you are paying for.
Almost all of us have insurance. When your insurer gives you the policy document,
generally, all you do is glance over the decorated words in the policy and pile it up
with the other bunch of financial papers on your desk, right?
If you spend thousands of dollars each year on insurance, don't you think that you
should know all about it? Your insurance advisor is always there for you to help you
understand the tricky terms in the insurance forms. SOUTH FLORIDA. CALL THE
INSURANCE REPRESENTATIVE AT: 786-709-6577, but you should also know for
yourself what your contract says.
In this article at knowledgefinancial.com, we'll make reading your insurance
contract easy. Read on to take a look at the basic principles of insurance contracts
and how they are put to use in daily life.
Essentials of a Valid Insurance Contract
•Offer and Acceptance:
When applying for insurance, the first thing you do is get the proposal form of a
particular insurance company. After filling in the requested details, you send the
form to the company (sometimes with a premium check). This is your offer.
knowledgefinancial.com
If the insurance company accepts your offer and agrees to insure you, this is called
an acceptance. In some cases, your insurer may agree to accept your offer after
making some changes to your proposed terms
•Consideration:
This is the premium or the future premiums that you have pay to your insurance
company. For insurers, consideration also refers to the money paid out to you
should you file an insurance claim. This means that each party to the contract must
provide some value to the relationship.
•Legal Capacity: You need to be legally competent to enter into an agreement with
your insurer. If you are a minor or are mentally ill, for example, then you may not be
qualified to make contracts. Similarly, insurers are considered to be competent if
they are licensed under the prevailing regulations that govern them.
•Legal Purpose:
If the purpose of your contract is to encourage illegal activities, it is invalid.
Find the Value in Indemnity contracts
Most insurance contracts are indemnity contracts. Indemnity contracts apply to
insurances where the loss suffered can be measured in terms of money.
Principle of Indemnity:
This states that insurers pay no more than the actual loss suffered. The purpose of
an insurance contract is to leave you in the same financial position you were in
immediately prior to the incident leading to an insurance claim.
When your old Chevy Cavalier is stolen, you can't expect your insurer to replace it
with a brand new Mercedes-Benz. In other words, you will be remunerated
according to the total sum you have assured for the car. (To read more on indemnity
contracts, see Shopping For Car Insurance and How does the 80% rule for home
insurance work?)
Additional Factors
There are some additional factors of your insurance contract that also need to be
considered, including under-insurance and excess clauses that create situations in
which the full value of an insured asset is not remunerated.
Not all insurance contracts are indemnity contracts. Life insurance contracts and
most personal accident insurance contracts are non-indemnity contracts. You may
purchase a life insurance policy of $1 million, but that does not imply that your life's
value is equal to this dollar amount. Because you can't calculate your life's net worth
and fix a price on it, an indemnity contract does not apply.
Insurable Interest
It is your legal right to insure any type of property or any event that may cause
financial loss or create a legal liability to you. This is called insurable interest.
Suppose you are living in your uncle's house, and you apply for homeowners'
insurance because you believe that you may inherit the house later. Insurers will
decline your offer because you are not the owner of the house and, therefore, you do
not stand to suffer financially in the event of a loss.
This example demonstrates that when it comes to insurance, it is not the house, car
or machinery that is insured. Rather, it is the monetary interest in that house, car or
machinery to which your policy applies.
It is also the principle of insurable interest that allows married couples to take out
insurance policies on the lives of their spouses - they may suffer financially if the
spouse dies. Insurable interest also exists in some business arrangements, as
seen between a creditor and debtor, between business partners or between
employers and employees.
Principle of Subrogation
Subrogation allows an insurer to sue a third party that has caused a loss to the
insured and pursue all methods of getting back some of the money that it has paid
to the insured as a result of the loss.
For example, if you are injured in a road accident that is caused by the reckless
driving of another party, you will be compensated by your insurer. However, your
insurance company may also sue the reckless driver in an attempt to recover that
money.
Doctrine of Utmost Good Faith
All insurance contracts are based on the concept of "uberrima fidei", or the doctrine
of utmost good faith. This doctrine emphasizes the presence of mutual faith
between the insured and the insurer.
In simple terms, while applying for life insurance, it becomes your duty to disclose
your past illnesses to the insurer. Likewise, the insurer cannot hide information
about the insurance coverage that is being sold.
Doctrine of Adhesion
The doctrine of adhesion states that you must accept the entire insurance contract
and all of its terms and conditions without bargaining. Because the insured has no
opportunity to change the terms, any ambiguities in the contract will be interpreted
in favor of the insured.
Conclusion
When purchasing insurance, most of us rely on our insurance advisor for everything
- from choosing a policy for us to filling in the insurance application forms.
Most people try to stay away from the boring legal terms of insurance contracts, but
it is always handy to be familiar with these words and phrases and to become
familiar with the terms of the policy you are paying for.
