Dear Mary: My husband has a $50,000 term life insurance policy. He is 57 and a smoker, and the premium is quite high. He has an additional $10,000 death benefit at work. The value of the policy keeps going down, while the premium climbs. He pays $57 a month for the coverage. We have an IRA worth about $100,000 but plan to spend some when he becomes 591/2 to buy a bigger home. What should we do?
-- Anne, Massachusetts
Dear Ann: First, you need to understand the purpose of life insurance. It's is to replace income for dependents that would be left in financial hardship upon the death of the breadwinner. The theory is that as a person gets older, the need for life insurance diminishes as dependents become independent and one's estate grows.
I do not have enough information to advise you, but it is possible that the $10,000 employer-furnished policy is sufficient at this point in his life, freeing that $57 each month to be redirected into an investment vehicle that would work harder for you.
Whatever you do, do not cancel that $50,000 policy without first getting advice from a trusted advisor. Generally speaking, at the peak of a family's need for life insurance, the amount should be equal to six to eight times the breadwinner's annual income in a term insurance policy. The theory is that the proceeds of the policy would enable the family to maintain the lifestyle they had prior to the death.
-- Megan, California
Dear Megan: Refinancing is not always advisable, even when you can get a lower interest rate. There are many things to consider. First, don't even think about refinancing unless you can reduce the rate by at least 2 full percentage points. Next, determine the costs you will incur by refinancing. There may be "points" (loan fee), an appraisal fee, document recording fees and so on. If you cannot recoup those costs within two years in the difference between the old and new monthly payments, it's probably not a wise move.
Even if you can get a significantly lower interest rate and the fees are low, refinancing may be a big mistake based on the big picture.
Let's say you've had your current 15-year mortgage for seven years. You've built a nice amount of equity and will own it in eight more years. Refinancing into a new 15- or 30-year mortgage may give you a much lower payment, but in the long run you will pay a great deal more given the new terms. Look beyond the monthly payment. If you can refinance for the same term you have remaining, end up with a lower monthly payment and recoup the associated costs within two years, that would be a terrific deal.
Dear Mary: I've been at my job for almost a year. When I interviewed last fall, my boss told me that part of my compensation would include a Christmas bonus. The holidays came and went, and I didn't receive that bonus. Now we're just months from my second Christmas with the company. Is it OK to bring this up with my boss?
-- Sandy, Indiana
Dear Sandy: Speak with your boss right away to resolve this, or it might destroy your attitude and the quality of your work. Graciously say: "I'm afraid I misunderstood the terms and conditions of the Christmas bonus you offered during my interview last fall. Could we go over that again?"
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