Category Archives: Assets

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Can Space Tourists Get Life Insurance? by Aaron Crowe

Astronaut

The Oct. 31 crash of a Virgin Galactic rocket that killed a pilot hasn’t stopped the company from continuing its quest to offer space tourists a chance to see the Earth from above, giving potential riders a chance to reconsider their life insurance options.

While life insurance might be the furthest thing from any space tourist’s mind, a loophole that allows current life insurance policyholders to retain such coverage if they fly into space remains, though the insurance industry may look to close it.

Skydivers, pilots and people with other high-risk jobs or hobbies must buy extra coverage on their life insurance policies. Space tourists, however, who either already have life insurance or are applying for a policy don’t have to mention their upcoming trip to space because insurers either don’t ask about space tourism or don’t exclude it from coverage.

The loophole means they’d likely have to pay if the policyholder died on a space trip.

There are little or no established life underwriting guidelines specifically for space flight, and such activity would probably be covered under common aviation clauses and exclusions, says Rob Drury, executive director of the Association of Christian Financial Advisors.

“For a life insurance company to deny coverage for space travel would require a specific exclusion of such activity,” Drury says. “If the current treatment of aviation activities is an indication, the greater likelihood is that a proposed insured would be underwritten at a higher risk class.”

Once a policy is issued, death benefits must be paid for any death regardless of cause, unless there is a finding of fraud, misrepresentation, or suicide within the policy’s contestability period of the first two policy years in most states, he says.

Coverage is provided by omission, meaning the underwriter doesn’t ask about an applicant’s plans to fly into space.

“If someone wants to run the bulls at Pamplona, his insurer might not like it, but they must pay in the event of death if the activity isn’t specifically excluded,” Drury says.

Astronauts are rated at $10 per $1,000 of coverage in addition to their approved rate based on amount of coverage, age and other factors, says Ellen Davis, president of Life Health Home Insurance Group. Space tourists can’t buy coverage yet, Davis says.

However, if the insurer doesn’t ask an applicant about space travel, then it would be covered under travel outside of the United States, she says.

Virgin Galactic’s SpaceShipTwo crashed during a test flight. The craft is designed to carry six passengers on two-hour suborbital flights that offer a few minutes of weightlessness. The company announced after the crash that it plans to continuing selling tickets at up to $250,000 per seat.

The good news is that while flying in a rocket sounds risky, even for insurers, not many people have died riding into space. No one has died in suborbital manned flights. There have been three fatal orbital space shots, including the space shuttles Challenger and Columbia with 14 deaths, and a Soyuz flight that killed one person.

Mention that to your underwriter next time you’re applying for insurance as a space tourist.

Aaron Crowe is a freelance journalist who specializes in content about personal finance and insurance.

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Why Do Mortgage Interest Rates Change? Part I

To understand why mortgage rates change we need to know why do interest rates change and there is not one interest rate, but many interest rates!

Prime rate: The rate offered to a bank’s best customers.
Treasury bill rates: Treasury bills are short-term debt instruments used by the U.S. Government to finance their debt. Commonly called T-bills they come in denominations of 3 months, 6 months and 1 year. Each treasury bill has a corresponding interest rate (i.e. 3-month T-bill rate, 1-year T-bill rate).
Treasury Notes: Intermediate-term debt instruments used by the U.S. Government to finance their debt. They come in denominations of 2 years, 5 years and 10 years.
Treasury Bonds: Long debt instruments used by the U.S. Government to finance its debt. Treasury bonds come in 30-year denominations.
Federal Funds Rate: Rates banks charge each other for overnight loans.
Federal Discount Rate: Rate New York Fed charges to member banks.
Libor: : London Interbank Offered Rates. Average London Eurodollar rates.
6-month CD rate: The average rate that you get when you invest in a 6-month CD.
11th District Cost of Funds: Rate determined by averaging a composite of other rates.
Fannie Mae Backed Security rates: Fannie Mae, a quasi-government agency, pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae backed securities. The rates on these securities influence mortgage rates very strongly.
Ginnie Mae-Backed Security rates: Ginnie Mae, a quasi-government agency, pools large quantities of mortgages, securitizes them and sells them as Ginnie Mae-backed securities. The rates on these securities affect mortgage rates on FHA and VA loans.

Interest-rates move because of the laws of supply and demand. If the demand for credit (loans) increases, so do interest rates. This is because there are more people who want money, buyers, so people who are willing to lend it, sellers, can command a better price, i.e. higher interest rates. If you have questions about your mortgage please contact me or visit my web site at www.mortgagelinkhome.com.

Diversification is Risk Management

Here’s a great article by Joseph Kapp about diversification and risk management.

(In conjunction with Lincoln Financial Advisors, a registered investment advisor*)

Ellen

ARE YOUR ASSETS REALLY DIVERSIFIED?

You’ve heard the old investment adage, “Don’t put all your eggs in one basket.” It’s good advice. A diversified portfolio should be at the core of any well-planned investment strategy. While a worthy goal at any age, it’s especially desirable as your net worth grows over the years.

The basic purpose of diversification is to reduce your risk of loss. It’s primarily a defensive type of investment policy. Depending on your investment goals and tolerance for risk, your strategy may emphasize one type of investment over another. But overall, your plan should be diversified. That’s because no single type of investment performs best under all economic conditions. A diversified program is capable of weathering varying economic cycles and improving the trade-off between risk of loss and expected return. Of course, diversification cannot entirely eliminate the risk of investment losses.

Forms of Diversification:

An investment portfolio consisting of twenty different construction industry stocks is not diversified. Diversification means dividing your funds among different classes of assets, such as stocks, bonds, real estate, savings accounts and tangible assets. For instance, suppose your portfolio consisted entirely of bonds. Your money would be at significant risk if interest rates rose since bond prices generally fall when rates go up.

It’s also important to diversify by owning several stocks in different industries. Suppose you held just 1,000 shares of a major company’s stock from December 31, 1999 through December 30, 2003, and you suffered a loss of $40 per share when the stock fell from 100 to 60. A diversified portfolio consisting of many different stocks in various sectors may have cushioned the blow of the loss.

A prudent investor managing his own portfolio might diversify his holdings by selecting some stocks for their rising earnings or accelerating “growth” potential while buying other stocks because they offer “value” by temporarily being out of favor. In addition, an investor may buy individual securities for other reasons, such as income or tax advantages.

An alternative to selecting and managing individual stocks and bonds is to invest in mutual funds. Some mutual funds offer diversification by holding many securities within the portfolio. However, some other funds may not be diversified across industries or asset classes and may focus on a single sector. Mutual funds offer several other features, including:

  • Funds have clearly defined objectives and strategies, which are detailed in the fund’s prospectus. A prospectus contains more complete information on the style of investment objectives you should expect in addition to the charges, expenses and risks the fund may incur. Read the prospectus carefully before investing. The investment return and principal value of an investment will fluctuate with changes in market conditions so that an investor’s shares when redeemed may be worth more or less than the original amount invested.
  • Shareholders receive periodic reports reviewing the fund’s results and performance.
  • Funds are managed by full-time professionals.
  • Fund families allow investors to allocate investment dollars among a combination of funds with varying objectives.

Diversification also means not tying up all your funds in long-term investments. You’ll need to keep a certain amount easily accessible — that is, in money-market accounts, savings accounts or short-term certificates of deposit (CDs) — for on-going expenses, emergency needs, and short-term goals such as saving to buy a car or pay taxes. And through dollar-cost averaging, a process of buying stocks and bonds from time to time instead of all at once, you can spread the risk over both good and bad markets. Using this investment method involves continuous investment in securities regardless of fluctuating price levels of securities.

Therefore, investors should consider their financial ability to continue purchasing through periods of fluctuating price levels. Dollar cost averaging does not ensure a profit and does not protect against a loss in declining markets. Diversification is also important because CDs are FDIC-insured and typically offer a fixed rate of return while investments such as stocks and bonds are not FDIC-insured and their value will fluctuate with current market conditions.

Sample Portfolio: Continue reading