Question:
How does cash value in a life insurance policy work?
Answer:
Cash value life insurance policies require that you pay more premium annually than you would for a typical term policy. Your premium is allocated three ways. A portion pays for the insurance costs, a portion goes to the insurance company for operating cost and profit and the remained is allocated toward the policy’s cash value. Ideally, the money in your policy is invested throughout the life of the policy. Over time, the amount of your premium that goes toward the cash value decreases due to the fact that the underlying cost of insurance increases each year, which should be stated in your policy. If you surrender the policy, this excess premium and its earnings are returned to you. If you want to borrow against the cash value of your policy, you do so paying an interest rate. If you die, the policy pays out only the death benefits, minus any amounts already distributed, to your beneficiaries.
For the majority of people this policy is not one that will benefit them, as it is viewed as an investment. In our opinion, cash value policies are only useful to the very wealthy, or to corporations wanting to provide an Executive Benefit to select individuals. When you are young, our recommendation is to purchase the maximum amount life insurance possible, using term insurance. Your next insurance purchase should be disability insurance. The majority of individuals do not have adequate life or disability insurance coverage, therefore this is the best place to begin. We believe an investor should maximize all retirement accounts, such as, 401(k)s, IRAs, Roth IRAs and education savings before considering a cash value plan.
Question:
My son, 14, is interested in Pandora Media. What can you tell me about this stock? I thought this was a “TiVo for music,” thinking it would die soon enough. But looking at it, the stock seems to have done well this year. Should this be one we add to his portfolio?
Answer:
Pandora Media Inc. (NYSE: P) is an internet radio provider with 125,000 registered users. Pandora uses an algorithm to suggest songs and artists that its users may like based on their search query. Pandora gets its revenue from subscription members and advertisements.
Based on the current stock metrics, we do not recommend this stock for the average investor. The company has no earnings, and significant competition from Apple Radio. It is pricey on a price-to-sales basis.
However, since your son is 14 and interested in the company, it could be an opportunity to buy a share of something that perhaps will get him interested in saving and investing for his future.
Question:
I’m at a loss of what to buy right now. I have money flowing into my accounts, and every pick my broker suggests is either at a high or seems overvalued. Where are the good buys right now? I’m a value investor, and I’m not finding any good deals.
Answer:
With the current market many stocks are at or near all-time highs. We believe it is important to look at other factors to value stocks. We look for stock, with a price-to earnings to growth basis of less than one. There are still stocks that we like based on their PEG ratio. Some examples of good Technology companies are EMC Corp. (NYSE: EMC), Oracle Corp. (NYSE: ORCL), and QUALCOMM, Inc. (NASDAQ: QCOM). We also like AFLAC, Inc. (NYSE: AFL) as a Financial stock. Additionally, there are several companies in the Consumer Discretionary sectors that offer low PEG ratios.
At Henssler Financial we believe you should Live Ready, and that includes consulting experts for financial matters you do not understand. If you have questions regarding your financial situation the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
