You might be asking yourself this question: "How much life insurance do I need?"
Some financial advisors will tell you to multiply your annual income by seven. Others will tell you to buy only enough life insurance to replace the income you are expected to make between now and retirement. Some might recommend you buy only enough life insurance to cover your present debts.
While you probably can do all of those calculations in a minute, they won't give you the right answer. Simply put, calculating your life insurance needs takes homework. It requires you to do an inventory of all of your finances, and to think long and hard about how your beneficiaries would maintain their lifestyles without you. You also must consider inflation and, if you have children, future college education costs.
What not to do
What's the wrong way to calculate how much life insurance you need? Here are some common but misguided methods.
1. Multiply your annual salary by seven or eight: While it’s a simple formula, it fails to take into account your individual needs and obligations. Life insurance experts say there’s a good chance you’ll buy too little or too much coverage, simply by using a formula such as this.
2. Calculate your "human life value:" This method gives you the income you will earn from your present age until your retirement age, assuming a rate of interest that represents salary increases throughout that period. The problem is it does not take into account what your beneficiary's specific needs will be. You also end up with a figure that requires you to buy a huge amount of life insurance, possibly more than you may need. "There's all sorts of landmines in this," says Michael Snowdon, an instructor at the College of Financial Planning in Denver. "When you calculate this way, you're working with broad brush strokes."
3. Cover your debts. This involves buying only enough life insurance to cover debts such as your mortgage, student loan bills, or outstanding car notes. This method does not consider any future debts or needs, such as childcare or college education costs.
A classic formula
Many experts say the best way to pinpoint a smart life insurance figure is through a needs analysis, which can be broken down into a simple formula: Short-term needs + long-term needs - resources = how much life insurance you need. Snowdon says this method is "probably the most accurate approach in what is an inaccurate and imprecise science."
Experts advise you do an analysis at least once every three years, or whenever you have had a major life change. For example, if you have a new baby, you have to recalculate college education needs and child-care costs. If you own a home, a mortgage is likely your biggest financial burden. Because your mortgage balance decreases with each payment, it's important to include those revised figures in your calculations.
Five steps to a needs analysis
Step 1
Add up all of your short-term needs. These can be placed into three categories: final expenses, outstanding debts and emergency expenses. Among final expenses are medical, hospital, and funeral expenses, attorney or executor fees, probate court costs (if you do not have a will), and any outstanding taxes that would need to be paid if you died. Among outstanding debts are credit card balances, auto loans, college loans, and all other outstanding bills. Emergency expenses should include a cash reserve for medical emergencies and repairs to your home or car.
Calculating final and emergency expenses can be complicated, because you don't have a crystal ball that tells you how much your medical or hospital expenses will be, or if you even will have any.
Step 2
Next, add up your long-term debts, which include your mortgage and college tuition.
Calculating an education fund is tricky because you have no idea where your children will be going to college. Perhaps the best method is to use the present average college cost in the United States and the number of years away your children are from entering college. The average college costs for the 2002-2003 school year were $4,081 annually for a public, four-year institution, and $18,273 annually for a private, four-year institution, according to The College Board.
The U.S. Department of Education reports college costs traditionally have risen at about 5 percent annually, so you need to figure out what the cost will be when your child goes to college. (To calculate what costs will be in the future, see the last section: “A must-know: the equation for the future value of money.” Also be sure to calculate what the entire education will cost while taking into account the increased costs each year.)
Step 3
Next, calculate family maintenance expenses. These include such necessities as childcare, food, clothing, utility bills, entertainment, travel, and transportation. Calculate this figure based on a year's worth of expenses, then multiply that times the number of years you want to provide this income.
Once you've done that, add your short and long-term debts and your family maintenance expenses.
Step 4
Now that you've tallied all of your income needs, figure out what resources you have to meet them. To do this, add all available savings, stocks, bonds, mutual funds, existing life insurance (such as group life through your employer), and Social Security. You and your spouse can find out how much you'll get through the Social Security Administration (SSA) by visiting the SSA’s website, where you can get an estimate of how much you should have in Social Security benefits. Also add your present salary, and assume 5 percent compounded interest each year if you expect salary increases over time.
It's important to count only liquid assets (those that could be quickly converted to cash) among your resources. You shouldn't count items such as your home or automobile, because selling them for cash when you're gone would mean changing your family's lifestyle.
Step 5
Subtract your resources from your total expenses. The figure you get should represent the amount of life insurance you should buy.
Don't be daunted
Snowdon says the final figure that shows how much life insurance a person needs can be quite alarming. If you end up with an astronomical figure that requires a premium that is too high, he recommends you go through the analysis again and select areas for which you think you can allocate less money.
"Many people will look at the final figure and say, 'I can't do that,'" Snowdon says. "You have to look at it, figure out which is the most crucial, start making adjustments, and go from there."
A must-know: the equation for the future value of money
Calculating your life insurance needs will require two equations you may have picked up in Finance 101: the future and present value of money.
The future value of money equation tells you how much your money will be worth in a given number of years while earning a given rate of interest. This equation is essential if you are calculating how much money you'll need in the future because of inflation, or what your death benefit will be if you choose to invest the money at a given interest rate.
The present value of money equation tells you what your money is worth before it has been invested for a given number of years at a given rate of interest. This is important if you have an amount of money you need in the future, and you need to know how much life insurance coverage you should buy now.
If this sounds complex to you, don't fret. As long as you have a calculator (preferably a financial calculator, which is used by accountants and finance professionals), these equations are no sweat.
Here's how the future value of money equation works: Say that average college education costs are $20,000 annually for a private four-year institution, and you want to figure out how much it will cost in four years if college costs keep going up 5 percent per year. You would multiply 20,000 by 1.05 (1 represents the present cost, and .05 is 5 percent inflation) four times (or 1.05 to the fourth power).
So your equation would be this:
20,000 x (1.05)4
or
20,000 x (1.05)(1.05)(1.05)(1.05)
The answer is $24,310.13.
Monday, 1 December 2008
Accidental Death and Dismemberment Insurance
Accidental Death and Dismemberment Insurance (AD&D) can provide benefits, but is it necessary? The additional cost and limited protection offered by accidental death and dismemberment insurance make its purchase difficult to recommend.
About Accidental Death and Dismemberment Insurance
Generally, you can purchase AD&D insurance as a separate policy or as rider (endorsement) on a basic life or health insurance policy. Its name states exactly what it covers; accidental death and dismemberment. However, there are limitations on the coverage. These limitations make accidental death and dismemberment insurance less useful, although it is also usually relatively inexpensive.
The first thing to consider is whether AD&D insurance is a good deal for you. Is it likely you will have to use it? In most cases, life, health, and disability insurance already cover situations AD&D protects against. It can double, or at least add to, the amount of money you receive in case of a covered accident, but it may be wiser and more cost-effective to put the money you'd be paying towards the premium into a standard life or other insurance policy instead. Dave Roush, CEO of Insurance.com, warns consumers that "AD&D is a very, very limited form of insurance. When it comes to insurance, you want to be covered and protected in all instances, not just certain ones."
What Does AD&D Cover?
In the event of a fatal accident or an accident that results in you losing your eyesight, speech, hearing, or a limb, AD&D will pay you or your beneficiaries a specified amount. However, there are stipulations to the coverage. To receive benefits related to an accident, your injuries or death must occur within three months of the accident date. Also, you will only collect benefits if your death or injuries are proven, direct results of the accident.
Dismemberment coverage works on a "per-member" basis. If you lose one member (a hand, foot, limb, sight in one eye, speech or hearing), the insurance company will usually pay 50 percent of the full benefit. If you lose two members, you will receive the whole benefit. Coverage amounts for partial or complete paralysis vary, but are usually 25 or 50 percent.
Optional coverages sometimes include hospital stay coverage after an accident, and spouse and children coverage.
Typical exclusions of AD&D coverage include death during surgery, resulting from a mental or physical illness, bacterial infection, hernia, or a drug overdose. In addition, many policies do not cover risky activities such as skydiving, car racing, and involvement in a war. "It is important to read the fine print when applying for this kind of policy. While it may seem like you're getting better and more adequate coverage, in reality, you're not," reports Roush.
Where to Buy AD&D
AD&D policies are generally underwritten by major insurers and can be purchased through credit card offers or credit unions. Some major life or health insurance companies may include or offer AD&D in their group health or life insurance plans. AD&D coverage can also often be purchased as a separate policy.
Is Accident Protection Worth It?
Accidental death and dismemberment insurance can be a good supplement to a life insurance policy. Depending on the amount of coverage needed, AD&D insurance premiums average around $60 per year. Even with the low cost of accidental death and dismemberment insurance, many would prefer to use the money they could be paying for the policy and put it towards more health or life insurance coverage. Also, since most people die from other causes than accidents, buying AD&D doesn't seem to make a lot of sense.
An accidental death policy (minus dismemberment coverage) is a similar policy to consider. If, for example, you had a $100,000 life insurance policy and you added an accidental death rider, and you were killed in a covered accident, your beneficiary would get $100,000 from your life insurance and $100,000 from you accidental death insurance.
Will It Really Help?
If you're working in a high-risk job, such as construction, the AD&D policy may be a good idea, although high-risk jobs result in higher premiums. It is inexpensive accident coverage, and it won't hurt to have the extra coverage. However, realize that an accidental death and dismemberment policy is extremely specific and thus unlikely to pay a benefit. If you already have a life insurance policy, purchasing a larger benefit amount might not cost much more, and it will cover more circumstances.
About Accidental Death and Dismemberment Insurance
Generally, you can purchase AD&D insurance as a separate policy or as rider (endorsement) on a basic life or health insurance policy. Its name states exactly what it covers; accidental death and dismemberment. However, there are limitations on the coverage. These limitations make accidental death and dismemberment insurance less useful, although it is also usually relatively inexpensive.
The first thing to consider is whether AD&D insurance is a good deal for you. Is it likely you will have to use it? In most cases, life, health, and disability insurance already cover situations AD&D protects against. It can double, or at least add to, the amount of money you receive in case of a covered accident, but it may be wiser and more cost-effective to put the money you'd be paying towards the premium into a standard life or other insurance policy instead. Dave Roush, CEO of Insurance.com, warns consumers that "AD&D is a very, very limited form of insurance. When it comes to insurance, you want to be covered and protected in all instances, not just certain ones."
What Does AD&D Cover?
In the event of a fatal accident or an accident that results in you losing your eyesight, speech, hearing, or a limb, AD&D will pay you or your beneficiaries a specified amount. However, there are stipulations to the coverage. To receive benefits related to an accident, your injuries or death must occur within three months of the accident date. Also, you will only collect benefits if your death or injuries are proven, direct results of the accident.
Dismemberment coverage works on a "per-member" basis. If you lose one member (a hand, foot, limb, sight in one eye, speech or hearing), the insurance company will usually pay 50 percent of the full benefit. If you lose two members, you will receive the whole benefit. Coverage amounts for partial or complete paralysis vary, but are usually 25 or 50 percent.
Optional coverages sometimes include hospital stay coverage after an accident, and spouse and children coverage.
Typical exclusions of AD&D coverage include death during surgery, resulting from a mental or physical illness, bacterial infection, hernia, or a drug overdose. In addition, many policies do not cover risky activities such as skydiving, car racing, and involvement in a war. "It is important to read the fine print when applying for this kind of policy. While it may seem like you're getting better and more adequate coverage, in reality, you're not," reports Roush.
Where to Buy AD&D
AD&D policies are generally underwritten by major insurers and can be purchased through credit card offers or credit unions. Some major life or health insurance companies may include or offer AD&D in their group health or life insurance plans. AD&D coverage can also often be purchased as a separate policy.
Is Accident Protection Worth It?
Accidental death and dismemberment insurance can be a good supplement to a life insurance policy. Depending on the amount of coverage needed, AD&D insurance premiums average around $60 per year. Even with the low cost of accidental death and dismemberment insurance, many would prefer to use the money they could be paying for the policy and put it towards more health or life insurance coverage. Also, since most people die from other causes than accidents, buying AD&D doesn't seem to make a lot of sense.
An accidental death policy (minus dismemberment coverage) is a similar policy to consider. If, for example, you had a $100,000 life insurance policy and you added an accidental death rider, and you were killed in a covered accident, your beneficiary would get $100,000 from your life insurance and $100,000 from you accidental death insurance.
Will It Really Help?
If you're working in a high-risk job, such as construction, the AD&D policy may be a good idea, although high-risk jobs result in higher premiums. It is inexpensive accident coverage, and it won't hurt to have the extra coverage. However, realize that an accidental death and dismemberment policy is extremely specific and thus unlikely to pay a benefit. If you already have a life insurance policy, purchasing a larger benefit amount might not cost much more, and it will cover more circumstances.
Top 10 Things to Know About Life Insurance
We all recognize the importance of life insurance. After all, we want to make sure that our loved ones are taken care of when we die. But before you run out and purchase a policy, do some research ahead of time. That way, you'll be sure to get the best possible coverage at the right price. Here are some helpful tips to get you started :
1. Shop around
2. Never buy more coverage than you need
3. The healthier you are, the better the rates
4. Buy sooner rather than later
5. Realize the importance of periodically reviewing your coverage
6. You don't necessarily have to pay a commission
7. You may be paying more for monthly premium payments
8. Don't rely solely on the life insurance offered by your employer
9. Tell the whole truth and nothing but the truth
10. Buying more is sometimes cheaper
Ways To Save When Buying Life Insurance
When it comes to shopping, savvy shoppers get the most for their money. This stays true not only when shopping for groceries or food, but for life insurance as well. So to help you get the most bang for your buck, Insurance.com has compiled a list of ways you can save the most when you're in the market to buy a life insurance policy.If you're healthy, stay away from guaranteed issue policies. Guaranteed issue policies, also know as "simplified" or "quick" policies, may sound too good to be true, because they really are. They do not require a medical exam, making them seemingly ideal, but ultimately much riskier for the insurer. If you are healthy, you will get much better rates by buying a life insurance policy that requires a medical test.Is term life insurance for you? If most of your goals are short-term and you're not as interested in saving for the long run, term life insurance is for you. Term life insurance typically offers you the most coverage for the least amount of money, and is set up based around spans of time. For example, you may get a term life insurance plan that is set to pay out after five, ten or 20 years.
If your main goal is to save money, and you don't mind paying a higher premium, it would be wise to look into a whole life insurance policy. Whole life policies offer a "cash value" feature that helps you save money each time you make a payment on your premium. However, though you can withdraw funds from the cash value, your death benefit will decrease. If you take out a loan and it exceeds the amount you have already paid for on the premium of your whole life insurance policy, you will receive a tax bill. Also, it's good to note that as time moves on, the cost of insuring you will go up, and your cash value will begin to decrease.
No-load policies. To find lower premiums for variable life insurance, be sure to keep an eye out for "no-load" or "low-load" life insurance policies. These policies have fewer added fees, such as agent commission or fees for marketing, which makes a higher percentage of your premium go to your cash value. To find theses policies, check with a financial advisor who doesn't collect commission from life insurance companies, or inquire around. Some insurance agencies even sell these directly to the customer!
However, the problem for those who buy into guaranteed issue policies is that many may end up paying more in premiums than their beneficiaries receive from their death benefits. The National Association of Insurance Commissioner (NAIC) is trying to find a solution or way to put an end to this. Regulation of rates is not something they plan on doing, but a disclosure statement warning consumers is in the works.
Check online. When shopping around for any kind of insurance, looking online is a great way to compare prices and see what different companies have to offer. The more information you give, the more accurate your insurance quote will be.
Make a change for the better. If you are overweight, are a smoker, have heart disease, high blood pressure or diabetes, finding affordable life insurance may be difficult. This is because the better your health is, the easier and more affordable it will be for you to buy life insurance. Insurance companies will issue lower premiums if the policyholder is in good health standing. The less things that may give you a risk of dying sooner, the more affordable your life insurance policy will be. Also, if you do have an outstanding medical condition, you are a smoker or overweight, and you are trying to better your health, be sure to document it. By showing the insurance company your medical files and that you have been trying to improve your health, you may save yourself some money in the long run.
Many life insurance companies have different categories for medical conditions or combinations of medical conditions, when it comes to issuing you a policy. They also have different tests and medical exams you may need to go through before they will issue you a policy. This may have a major impact if you're a smoker. Even if you quit the day you apply, you will still be considered a smoker, because to be completely "nicotine free," you would have had to quit smoking for two to five years prior. Smokers do generally pay at least three times more than nonsmokers for a life insurance policy, so by quitting, you're not just saving money from not buying tobacco, but also by bettering your standing.
Being overweight is another reason you may have a higher life insurance premium. Though you may not be obese, once your weigh reaches a certain level, you become more of a death-risk. So by taking the steps to lose weight and get healthier, you are not only helping yourself live longer and feel better, but also helping to get more affordable life insurance rates.
Buy what you need. It's not a good idea to under-buy insurance, nor is it beneficial to over-buy, so when you're in the market for insurance, be sure to evaluate what your exact needs are and go from there. A good way of doing that is in the form of an equation: Short-term needs + long-term needs - resources = how much life insurance you will need.
Rider policies are helpful. A rider policy is an extension to an insurance policy that helps you extend you coverage. If your needs change, it may be more cost-effective to purchase a rider policy for additional life insurance-it also doesn't affect your cash value. Be sure to shop around though, you may save more by actually buying a second policy.
Buy early. Instead of waiting until there is a real problem with your health, buy life insurance early in life. As you age, the price of your life insurance will increase, so the younger you start, the more you will save. To keep your premium low, you may want to inquire about a "level premium" policy. Which keeps your premium rates the same for a set amount of time.
Run your credit report. If there are problems with your credit, you may be denied for an insurance policy or your premiums will sky-rocket because you are considered high-risk. If your credit score is low, the insurance company's main concern is that you will let your policy lapse due to non-payment of premiums. So by rebuilding your credit, you are not only helping that financial aspect of your life, but also the one concerning your insurance.
Fractional premiums. Some insurance agencies charge less depending on how you schedule your payments. By paying fractional payments-those are fewer payments over the year-you may pay less over all. For some life insurance companies the same also goes for electronic funds transfer (EFT), which is when they take out the amount of the premium directly from your checking account.
Being responsible saves you money. This goes along with making a change for the better. If you are in an expensive rate class due to high cholesterol (for example), but make a point of going to your doctor regularly and establish a history of lowering your cholesterol, your life insurance company may be willing to lower your premium.
if you are interested in finding out more about life insurance, or getting a life insurance quote, log on to Insurance.com. Here you will be able to evaluate multiple rates from best-in-class life insurance providers - helping you find the best life insurance coverage that benefits you, as well as your beneficiaries, while still being within your budget.
If your main goal is to save money, and you don't mind paying a higher premium, it would be wise to look into a whole life insurance policy. Whole life policies offer a "cash value" feature that helps you save money each time you make a payment on your premium. However, though you can withdraw funds from the cash value, your death benefit will decrease. If you take out a loan and it exceeds the amount you have already paid for on the premium of your whole life insurance policy, you will receive a tax bill. Also, it's good to note that as time moves on, the cost of insuring you will go up, and your cash value will begin to decrease.
However, the problem for those who buy into guaranteed issue policies is that many may end up paying more in premiums than their beneficiaries receive from their death benefits. The National Association of Insurance Commissioner (NAIC) is trying to find a solution or way to put an end to this. Regulation of rates is not something they plan on doing, but a disclosure statement warning consumers is in the works.
Many life insurance companies have different categories for medical conditions or combinations of medical conditions, when it comes to issuing you a policy. They also have different tests and medical exams you may need to go through before they will issue you a policy. This may have a major impact if you're a smoker. Even if you quit the day you apply, you will still be considered a smoker, because to be completely "nicotine free," you would have had to quit smoking for two to five years prior. Smokers do generally pay at least three times more than nonsmokers for a life insurance policy, so by quitting, you're not just saving money from not buying tobacco, but also by bettering your standing.
Being overweight is another reason you may have a higher life insurance premium. Though you may not be obese, once your weigh reaches a certain level, you become more of a death-risk. So by taking the steps to lose weight and get healthier, you are not only helping yourself live longer and feel better, but also helping to get more affordable life insurance rates.
if you are interested in finding out more about life insurance, or getting a life insurance quote, log on to Insurance.com. Here you will be able to evaluate multiple rates from best-in-class life insurance providers - helping you find the best life insurance coverage that benefits you, as well as your beneficiaries, while still being within your budget.
Starting a business
Many complained that to open a business opportunity is not there. This is a classic complaint that can not be with us again. Indeed, to start a business we can do with a variety of ways, one with the education that we have. Jerry Yang and David Filo, the founders of Yahoo start a business with education. They are students from Stanford University. Yahoo started from the back parking lots is now growing rapidly. Jerry Yang and David Filo started the business from small and simple. Jerry Yang describes the discovery that Yahoo is "an accident" when he and Filo tesis complete. Filo and that this launch Yahoo when they sit in the universities, before they complete studies. They start doing business with the listing several web sites that they like and write some software that allows a website to get other web sites that will be placed on a web portal called. At the time established in 1994, named Terry's Guide To The World Wide Web. When they know that their sites visited by people from 90 countries, spontaneously say "Yahoo" and finally the words that are used to name their company. In 1999, Yahoo reach star status. Net income in quadruplicate fourth quarter of 57.6 million dollars, while revenue jump from 91 million dollars into 201 million dollars. Now, Yahoo is the best portal in 2002.
(From http://msuyanto.com/baru/?p=802#more-802)
Starting a business
Many complained that to open a business opportunity is not there. This is a classic complaint that can not be with us again. Indeed, to start a business we can do with a variety of ways, one with the education that we have. Jerry Yang and David Filo, the founders of Yahoo start a business with education. They are students from Stanford University. Yahoo started from the back parking lots is now growing rapidly. Jerry Yang and David Filo started the business from small and simple. Jerry Yang describes the discovery that Yahoo is "an accident" when he and Filo tesis complete. Filo and that this launch Yahoo when they sit in the universities, before they complete studies. They start doing business with the listing several web sites that they like and write some software that allows a website to get other web sites that will be placed on a web portal called. At the time established in 1994, named Terry's Guide To The World Wide Web. When they know that their sites visited by people from 90 countries, spontaneously say "Yahoo" and finally the words that are used to name their company. In 1999, Yahoo reach star status. Net income in quadruplicate fourth quarter of 57.6 million dollars, while revenue jump from 91 million dollars into 201 million dollars. Now, Yahoo is the best portal in 2002.
(From http://msuyanto.com/baru/?p=802#more-802)
How to save on travel insurance
As life expectancy increases, so has the age at which 'life begins' – with many people supporting the idea that 'life begins at 50'. Unfortunately, travel insurance companies disagree. Or at least that is how it seems, considering how rapidly premiums rocket for those who are 50 or over. And as for those who are over 70, many "are shocked to find travel insurers unwilling to provide cover at prices they can afford", says Kara Gammell in The Daily Telegraph. So how do you find affordable travel insurance that won't leave you high and dry if you fall ill on holiday?
Consumers need to think of travel insurance as something they should tailor to their own needs, rather than an off-the-shelf product, says The Daily Telegraph. So one of the simplest ways of reducing the premium is to look carefully at the levelof cover you are being offered and then decide whether you actually need it all within the policy. For example, if you are travelling to Europe, opt for European cover rather than worldwide cover, as the latter includes America, where litigation and medical costs can push up the cost of cover. Also, consider covering personal possessions under your home insurance – and, as always, shop around for the best deal.
Consumers need to think of travel insurance as something they should tailor to their own needs, rather than an off-the-shelf product, says The Daily Telegraph. So one of the simplest ways of reducing the premium is to look carefully at the levelof cover you are being offered and then decide whether you actually need it all within the policy. For example, if you are travelling to Europe, opt for European cover rather than worldwide cover, as the latter includes America, where litigation and medical costs can push up the cost of cover. Also, consider covering personal possessions under your home insurance – and, as always, shop around for the best deal.
FDIC may exclude shortest-term loans from insurance plan: report
Nov 21 (Reuters) - Federal Deposit Insurance Corp (FDIC) staffers are likely to recommend exclusion of the shortest-term loans from a $1.4 trillion debt-insurance program, Bloomberg reported, citing a person briefed on the plan.
The exclusion of loans that mature in 30 days or less, which would encompass overnight interbank loans at the rate targeted by the U.S. Federal Reserve, would help the Fed avoid further unpredictable swings in the country's main interest rate, the news agency reported.
FDIC Chairman Sheila Bair and other board members are scheduled to vote on Friday on regulations governing the plan, it said.
The Fed has failed for two months to keep the federal funds rate close to the target set by policy makers because of more than $1 trillion of loans flooding the banking system, the report said.
The original FDIC proposal required fees to insure debt, spurring complaints that it would lead to an exodus from the $250 billion market for overnight loans between banks, it said.
Companies including JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) said the original proposal threatened to make the overnight federal funds market too costly compared with alternatives such as direct loans from the Fed, the report said.
Taken from :http://www.reuters.com
The exclusion of loans that mature in 30 days or less, which would encompass overnight interbank loans at the rate targeted by the U.S. Federal Reserve, would help the Fed avoid further unpredictable swings in the country's main interest rate, the news agency reported.
FDIC Chairman Sheila Bair and other board members are scheduled to vote on Friday on regulations governing the plan, it said.
The Fed has failed for two months to keep the federal funds rate close to the target set by policy makers because of more than $1 trillion of loans flooding the banking system, the report said.
The original FDIC proposal required fees to insure debt, spurring complaints that it would lead to an exodus from the $250 billion market for overnight loans between banks, it said.
Companies including JPMorgan Chase & Co (JPM.N: Quote, Profile, Research, Stock Buzz) and Bank of America Corp (BAC.N: Quote, Profile, Research, Stock Buzz) said the original proposal threatened to make the overnight federal funds market too costly compared with alternatives such as direct loans from the Fed, the report said.
Taken from :http://www.reuters.com
What bad banking news means to you
NEW YORK (CNN) -- Bad news about the banking industry may have you wondering about the safety of your hard earned cash at your own bank.
In the past year there have been four bank failures.
And the chairman of the Federal Deposit Insurance Corp and banking industry experts foresee many bank failures down the road.
"Regulators are bracing for 100-200 bank failures over the next 12-24 months," says Jaret Seiberg, an analyst with the financial services firm, the Stanford Group.
Expected loan losses, the deteriorating housing market and the credit squeeze are blamed for the drop in bank profits.
The problem areas will be concentrated in the Rust Belt, in places like Ohio and Michigan and other states like California, Florida and Georgia.
The number of institutions categorized as "problem" institutions by the FDIC has also grown from 50 at the end of 2006 to 76 at the end of last year.
But to put that in perspective -- by the end of 1992 -- at the tail end of the banking crisis -- there were 1,063 banks on that "trouble" list says David Barr of the FDIC.
Banking experts say there is one thing that will save your money if your bank goes under. That's FDIC insurance. "It's the gold standard," says banking consultant Bert Ely. "The FDIC has ample resources. It's never been an issue," he says.
The FDIC insures deposits in banks and thrift institutions. The federal agency was created during the Great Depression in response to thousands of bank failures. The FDIC maintains that not one depositor has lost a single cent of insured funds since 1934 as a result of a bank failure
Experts say you shouldn't panic.
"The banking industry comes into this in a very sound condition," says Ely.
Seiberg agrees. "This is not a repeat of the S&L debacle of the late '80s and early '90s. Banks are entering this credit cycle with better capital and better earnings. Many more of them can weather the storms ahead," he says.
And there could be a silver lining. Banks looking for cash may offer some of the best short-term CD rates. "It's a cheap way for banks to make money," says Greg McBride of Bankrate.com.
Protecting your money
Here's how to make sure you pick a safe bank. First, look for the FDIC logo at your local branch. If you don't see it, ask the bank, or go to the FDIC's Web site and click on "Bank Find." Here you'll be able to see if the bank carries this guarantee.
Don't Miss
This step is especially important if you're using an Internet-only bank or a bank you've never heard of. You can also check out the financial health of a banking institution at www.bankrate.com.
The FDIC also maintains a list of bank rating agencies on its Web site that can assess a banks financial stability. But in many cases, these companies charge a fee.
As loan delinquencies rise, and bank failures increase, the FDIC is shoring up its reserves. The agency is bringing back formerly retired employees to bolster a division that deals specifically with bank failures. Many of these agency veterans worked for the FDIC during the late 1980s and early 1990s, when thousands of financial institutions failed during the savings-and-loan crisis according to Barr..
Know your limits
As an individual, your deposits are insured up to $100,000 in an FDIC-insured bank. This includes your savings, your checking, any certificate of deposits (CDs) and money market accounts. Joint accounts can be insured up to $200,000.
IRAs and Keoghs -- these are retirement plans for people who are self-employed -- can be insured up to $250,000. These retirement accounts are considered separate from your individual bank accounts.
If you have money in a credit union, the same protections exist. However, instead of the FDIC insurance, deposits are insured under the National Credit Union Administration, another government agency.
Of course, banks offer much more than your bread-and-butter savings and checking accounts. Some offer investments such as mutual funds or stock funds, which generally promise higher rates of return than CDs, are not insured by the FDIC nor are they insured by the broker/dealer. The general rule is deposits are FDIC-guaranteed, but not investments.
And keep in mind, annuities, life insurance policies -- even the contents of your safe-deposit box -- are not insured. If you're worried you don't have enough insurance on your accounts, the FDIC Web site has a tool that will allow you to calculate your insurance coverage. It's called the electronic deposit insurance estimator -- or EDIE for short. You can also call the agency at 877-ASK-FDIC.
And rest assured if you have U.S. savings bonds or treasury bills, the principle and interest on these products are backed by the faith and credit of the federal government so there's no risk of default as long as you don't sell these products before they mature says McBride.
If your bank bites the dust, there's nothing to fear according to the FDIC. A healthier banking institution normally buys the failed bank according to Barr. "There is little or no interruption to the consumer," he says. "If you go to bed one night as a customer of a bank, and you wake up as a customer of a new bank, there is nothing you have to do." Your checks will still clear, you can still use your ATM card.
But, there can be changes to the terms of your original deposit. For example, if you took out a CD with an annual percentage rate of 3.5 percent, it's entirely possible the new bank will drop that interest rate. If that happens, you have the option to withdraw your funds without penalty.
Loans are handled differently. If you took out a loan with a bank, for example an auto loan or a mortgage, those interest rates and terms of interest remain the same regardless of the new bank.
If no buyer can be found to take over the failed bank, customers are written a check with their deposit money within 48 hours.IMF Wants A Financial Hand
The International Monetary Fund has roughly $200.0 billion in its treasury for struggling economies, but with the global financial crisis spreading deeper into emerging markets, the IMF is going to need more funding, according to its managing directors.
"It is true to say that because of globalization, the amount which the IMF is asking for is increasing rapidly, and the list of countries asking for some support is increasing every day," said IMF Managing Director Dominique Strauss-Kahn.
Developing countries are being hit by the financial slowdown despite hopes that their limited exposure to the soured structured investment vehicles that tightened global credit markets would keep them largely insulated from economic weakness. Foreign investors, however, began pulling much-needed funding from the countries, pressuring their currencies and banks. (See "The Global Financial Crisis.")
"A lot of capital has left emerging market countries where stock markets are down 30.0% to 50.0% and currencies have come down," said Arvind Subramanian, a senior fellow at the Center for Global Development. He said the Fund seems to be preparing for a protracted global slowdown since it has enough money to cover countries' needs in the short term.
"It would seem prudent to aim for a doubling of the resources available for Fund lending, even if the resources appear adequate in the current situation," said IMF First Deputy Managing Director John Lipsky, emphasizing that resources may not be enough if financial weakness isn't corrected before it spreads further. (See "The IMF Only Has So Much Oomf.")
The Ukraine, Iceland, Hungary, Serbia, Belarus and Turkey have already been talking to the IMF, which has 185 member countries.
So far, only Japan has offered additional funding with a $100.0 billion unilateral loan although Strauss-Kahn seems to be expecting more countries to come forward. British Prime Minister Gordon Brown has been lobbying Saudi Arabia and China for more money, and Subramanian said China is certainly in the position to offer financial support--though neither country is likely to give money without also asking for a more active role in managing the Fund, he added
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