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What Are the Basic Types of Life Insurance? One of the best ways to protect against the financial consequences of a primary wage earner’s premature death is life insurance. However, only about 6 out of 10 Americans actually own life insurance and 30% believe they do not have enough.1 However, choosing from the many types of life insurance policies that are available can be a difficult process. A few main categories are described here to help you search for a life insurance policy that is appropriate for you.

Keep in mind that the cost and availability of insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving insurance, it would be prudent to make sure that you are insurable.

Term Life Insurance

Term life insurance is the most basic and usually the most affordable. Policies can be purchased for a specified period of time. If you die within the time period defined in your policy, the insurance company will pay your beneficiaries the face value of your policy.

Policies can usually be bought for one- to 30-year time spans. Annual renewable term insurance usually can be renewed every year without proof of insurability, but the premium may increase with each renewal. Term insurance is useful if you can afford only a low-cost option or you need life insurance only for a certain amount of time (such as until your children graduate from college).

Permanent Life Insurance

The other major category is permanent life insurance. You pay a premium for as long as you live, and a benefit will be paid to your beneficiaries upon your death. Permanent life insurance typically comes with a “cash value” savings element. There are three main types of permanent life insurance: whole, universal, and variable.

Whole life insurance. This type of permanent life insurance has a premium that stays the same throughout the life of the policy. Although the premiums may seem higher than the risk of death in the early years, they can accumulate cash value and are invested in the company’s general investment portfolio. You may be able to borrow funds from the cash value or surrender your policy for its face value, if necessary.

Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase.

Universal life insurance. Universal life coverage goes one step further. You have the same type of coverage and cash value as you would with whole life, but with greater flexibility. Once money has accumulated in your cash-value account, you may be able to vary the frequency, as well as the amount, of your premiums. In fact, it may be possible to structure the policy so that the invested cash value eventually covers your premium costs completely. Of course, it’s important to remember that altering your premiums may decrease the value of the death benefit.

Variable life insurance. With variable life insurance, you receive the same death protection as with other types of permanent life insurance, but you are given control over how your cash value is invested. You have the option of investing your cash value in stocks, bonds, or money market funds. The value of your policy has the potential to grow more quickly, but there is also more risk. If your investments do not perform well, your cash value and the death benefit may decrease. However, some policies provide a guarantee that your death benefit will not fall below a certain level. The premiums for this type of insurance are fixed and you cannot change them in relation to the size of your cash-value account.

Variable universal life is another type of variable life insurance. It combines the features of variable and universal life insurance, giving you the investment options as well as the ability to adjust your premiums and death benefit.

As with most financial decisions, there are expenses associated with life insurance. Generally, life insurance policies have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. Most policies have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the policy. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. Life insurance is not guaranteed by the FDIC or any other government agency; it is not a deposit of, nor is it guaranteed or endorsed by, any bank or savings association.

Withdrawals of earnings are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made prior to age 59½. Withdrawals reduce contract benefits and values. For variable life insurance and variable universal life, the investment return and principal value of an investment option are not guaranteed and fluctuate with changes in market conditions; thus, the principal may be worth more or less than the original amount invested when the policy is surrendered.

Variable life and variable universal life are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses before investing. The prospectus, which contains this and other information about the variable life or variable universal life insurance policy and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Source: 1) LIMRA, 2015

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Does Medicare Cover? Medicare is the federal health insurance program for elderly persons and certain disabled individuals. In 1965, Medicare was enacted to provide a “safety net” of health-care coverage for qualifying individuals.

Medicare is packaged in two major parts. Part A is hospital insurance protection. It covers hospitalization, some hospice care, and a limited amount of post-hospital skilled nursing and home health care. Part B, which is medical insurance, helps cover physicians’ services, outpatient hospital care, physical therapy, diagnostic tests, and a variety of other services. More recently, Medicare added Part D, prescription drug coverage.

At first glance, it appears that Uncle Sam has everything covered. But unfortunately, there are many limitations.

Medicare Costs

Every time you go to the hospital, you have to pay a certain amount of your hospitalization costs, unless your visits are separated by fewer than 60 days. If that’s the case, you pay the deductible only the first time. If you stay in the hospital longer than 60 days, you will be required to pay a copayment every day for days 61 through 90.

You also have a lifetime reserve of 60 days that can be used in conjunction with more than one extended stay. These days also have an associated copayment. Medicare won’t cover any stays longer than 90 days once you have depleted your 60-day reserve.

Will Medicare Pay for Skilled Nursing Care?

Medicare will pay for the first 20 days of skilled nursing care, but only after you’ve been in the hospital for three days. This means you’ll have paid at least the deductible for that three-day stay. From the 21st day through the 100th day, Medicare will cover some of the costs of skilled nursing care, but you still have a copayment. After 100 days, Medicare will not pay for skilled nursing care, and you must bear the full cost. The 100 days are per benefit period.

What About Medigap?

Medicare supplemental insurance, or “Medigap,” is designed to pick up where Medicare stops. As such, it usually pays the deductibles and copayments required by Medicare. Coverage will vary according to the benefits outlined in each specific policy.

Medigap insurance may not pay for any additional procedures that aren’t specifically addressed by Medicare. Most policies will only help to cover the deductibles and copayments imposed by Medicare.

What About Long-Term Care?

Medicare provides only limited coverage for skilled nursing care and pays for only up to 100 days of care following a three-day hospital stay. Medigap doesn’t fill the gaps in this coverage.

If you are concerned about meeting your potential long-term-care needs, you should look into additional insurance to help fill in the gaps. In many cases, it may be best to consider purchasing a private long-term-care insurance policy to help protect against these potentially devastating costs.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

How Can I Determine the Financial Strength of My Insurance Company? How do you compare life insurance companies? What features do you examine? What criteria do you use? How do you know what to look for? Making sure that your insurance company is financially sound is an important part of helping to ensure family security.

Fortunately, there are a number of independent companies that make these evaluations. These rating companies carefully examine each insurance company in the areas of profitability, debt, liquidity, and other factors. From the results of these examinations, they then issue overall ratings.

Looking up a company’s rating will provide you with a snapshot of that company’s financial health. Tracking the company’s rating on a regular basis may give you some advanced warning of trouble.

The four most prominent rating companies are A.M. Best, Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings. Each of these services uses slightly different criteria when rating companies. As a result, each may have a slightly different view of a given company. A.M. Best ratings are based on financial conditions and performance; Moody’s, Fitch Ratings, and Standard & Poor’s ratings are based on claims-paying ability.

You should be able to find copies of at least one of these ratings in the reference section of your local library. If you are unable to find them, or if the ratings in your library are outdated, you can contact the services directly. All four services will provide ratings over the phone.

A.M. Best Company: 908-439-2200, www.ambest.com

Standard & Poor’s: 877-772-5436, www.standardandpoors.com

Moody’s Investors Service: 212-553-0377, www.moodys.com

Fitch Ratings: 800-893-4824, www.fitchratings.com

 

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is the Difference Between an HMO and a PPO? Selecting health insurance is often one of the most important decisions you will make. Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are types of managed health-care plans and can cost much less than comprehensive individual policies.

Through the use of managed care, HMOs and PPOs are able to reduce the costs of hospitals and physicians. Managed care is a set of incentives and disincentives for physicians to limit what the HMOs and PPOs consider unnecessary tests and procedures. Managed care generally requires the consent of a primary-care physician before a patient can see a specialist.

An HMO provides comprehensive health-care services to the insured for a fixed periodic payment. There may also be a nominal fee paid for each visit to a health-care provider. Unlike traditional insurance, HMOs actually provide the health care rather than just making payments to health-care providers. HMOs can have a variety of relationships with hospitals and physicians. Plan physicians may be salaried employees, members of an independent multi-specialty group, part of a network of independent multi-specialty groups, or part of an individual practice association.

Because HMOs integrate health-care providers with insurance, they are able to provide improved health-care delivery. This unique relationship often allows HMOs to maintain a lower cost of service from plan providers. Because the HMO is both a provider and an insurer, this allows for lower administrative costs and paperwork for the patient.

HMOs also try to reduce costs by providing preventive care. Because visits to primary-care physicians are inexpensive for patients, the chance of early detection and care increases.

Preferred provider organizations have also contracted with hospitals and physicians to provide health-care services. Unlike the case with an HMO, you do not have to go to these physicians. However, you will pay more if you go outside the list of preferred providers. PPO plans usually have a deductible, which is the amount that the insured must pay before the PPO begins to pay. When the PPO plan does start to pay, it will usually pay a percentage of the bill and you have to pay the remainder, which is called “coinsurance.” Most plans have an out-of-pocket maximum. This helps protect you from paying more than a certain amount per year. After you exceed the out-of-pocket maximum, the coinsurance percentage paid by the PPO increases to 100%.

The out-of-pocket maximum, deductible, and coinsurance will each affect the cost of the PPO insurance coverage. You can help lower your premiums by having as high a deductible as you can afford to pay.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

How Can I Extend My Liability Coverage? In this litigious society, no one is immune from potential lawsuits. Anyone with significant assets might need protection from the devastating effects of a liability lawsuit.

Elected officials and members of boards may be especially vulnerable. It’s not uncommon for plaintiffs to name everyone involved in an incident who has any perceived authority, responsibility, or ability to pay.

Personal liability lawsuits sometimes award the future earnings of the defendant. This makes many self-employed people, and some corporate officers, vulnerable to personal liability suits.

Fortunately, there is a way to help protect yourself. You can supplement both your auto and homeowners policies with excess liability insurance, or an “umbrella policy.”

For as little as a few hundred dollars per year, umbrella liability policies may provide between $1 million and $5 million of protection for you and your household members from negligence claims, libel, slander, or defamation.

And by buying your auto, homeowners, and excess liability policies from the same company, you may be able to reduce the total cost by as much as 15%.

Most individual liability policies, however, don’t cover occupational risks such as professional malpractice. In many cases, professional organizations such as the American Medical Association and the American Bar Association offer group policies for their members. The state equivalents of these organizations are usually quite aggressive in finding group providers to protect their members. In some professions, a local member may take the additional responsibility of helping to administer the group insurance for the state’s participants — overseeing and monitoring the coverage and costs and helping watch for abuses.

Because liability is an area connected with ongoing litigation, it changes often. Professionals should closely follow developments in their own fields in order to avoid expensive mistakes. In many businesses and professions, there are watchdog groups appointed to provide current information.

Large groups often evaluate competitive policies annually to assess the performance of their group’s insurance company. Such an organization may change insurance companies on a regular basis, as this is a very competitive area.

When evaluating your personal liability, consider the following:

  • Everyone in your household should be covered, including those who don’t live at home.
  • Your policy should cover physical injuries, libel, slander, invasion of privacy, malicious prosecution, wrongful eviction, defamation of character, and discrimination.
  • Shop around for the lowest number of exclusions. For example, many policies will not help you if you are sued as a result of your participation on a board or less formal committee.
  • Be aware of wording that limits coverage to exclusive causes of injury

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Types of Health Coverage Are Available? Rising health-care costs have driven the demand for, and the price of, medical insurance sky-high. The availability of group coverage through employment has helped many Americans face such costs. However, people who are not currently covered by their employers have few affordable sources for group coverage currently. However, as a result of the Patient Protection and Affordable Care Act, state and/or regional exchanges will offer coverage to individuals and some small businesses.

Individuals seeking medical coverage on their own can explore purchasing an individual health insurance policy. And those aged 65 and older may qualify for Medicare coverage.

There are three general classifications of medical insurance plans: fee-for-service (indemnity), managed care (e.g., HMOs and PPOs), and high-deductible health plan (HDHP).

Fee for Service

With a basic fee-for-service (indemnity) insurance plan, health-care providers (such as physicians, nurse practitioners, surgery centers, and hospitals) are paid a fee for each service provided to insured patients.

Indemnity plans normally cover hospitalization, outpatient care, and physician services in or out of the hospital. You select the health-care provider for consultation or treatment. You are then billed for the service and reimbursed by the insurance company, or you can “assign” direct payment to the provider from the insurance company. Indemnity plans typically require the payment of premiums, deductibles, and coinsurance. Limits on certain coverage or exclusions may apply. Lifetime limits on benefits are prohibited as are limits on annual benefits.

Managed Care

Managed-care plans became popular in the 1990s as a way to help rein in rising medical costs. In managed-care plans, insurance companies contract with a network of health-care providers to provide cost-effective health care. Managed-care plans include health maintenance organizations (HMOs), preferred provider organizations (PPOs), and point-of-service (POS) plans.

Health maintenance organization. A HMO operates as a prepaid health-care plan. You normally pay a monthly premium in addition to a small copayment for a visit to a physician, who may be on staff or contracted by the HMO. Copayments for visits to specialists may be higher. The insurance company typically covers the amount over the patient copayment amount.

Each covered member chooses or is assigned a primary-care physician from doctors in the plan. This person acts as a gatekeeper for his or her patients and, if deemed necessary, can refer patients to specialists who are on the HMO’s list of providers. Because HMOs contract with health-care providers, costs are typically lower than in indemnity plans.

Preferred provider organization. A PPO is a managed-care organization of physicians, hospitals, clinics, and other health-care providers who contract with an insurance company to provide health care at reduced rates to individuals insured in the plan. The insurance company uses actuarial tables to determine “reasonable and customary” fees for each type of service, and health-care providers accept the PPO’s fee schedule and guidelines.

The insured can see any health-care provider within a preferred network of providers and pays a copayment for each visit. Insured individuals have to meet an annual deductible before the insurance company will start covering health-care services. Typically, the insurance company will pay a high percentage (often 80%) of the costs to the plan’s health-care providers after the deductible has been met, and patients pay the balance.

Although insured individuals can choose providers outside the plan without permission, patient out-of-pocket costs will be higher; for example, the initial deductible for each visit is higher and the percentage of covered costs by the insurance company will be lower. Because PPOs provide more patient flexibility than HMOs, they may cost a little more.

Point-of-service plan. A POS health-care plan mixes aspects of a PPO and HMO to allow greater patient autonomy. POS plans also use a network of preferred providers whom patients must turn to first and from whom patients receive referrals to other providers if deemed necessary. POS plans recommend that patients choose a personal physician from inside the network. The personal physician can refer patients to other physicians and specialists who are inside or outside the network. Insurance companies have a national network of approved providers, so insured individuals can receive services throughout the United States. Copays tend to be lower for a POS plan than for a PPO plan.

High-Deductible Health Plan

A HDHP provides comprehensive coverage for high-cost medical bills and is usually combined with a health-reimbursement arrangement that enables participants to build savings to pay for future medical expenses. HDHP plans generally cover preventive care in full with a small (or no) deductible or copayment. However, these plans have higher annual deductibles and out-of-pocket limits than other insurance plans.

Participants enrolled in a HDHP can open a health savings account (HSA) to save money that can be used for current and future medical expenses. There are annual limits on how much can be invested in a HSA. The funds can be invested as you choose, and any interest and earnings accumulate tax deferred. HSA funds can be withdrawn free of income tax and penalties provided the money is spent on qualified health-care expenses for the participant and his or her spouse and dependent children.

Remember that the cost and availability of an individual health insurance policy can depend on factors such as age, health (pre-existing conditions), and the type of insurance purchased. In addition, a physical examination may be required.

Medicare

Medicare is the U.S. government’s health-care insurance program for the elderly. It is available to eligible people aged 65 and older as well as certain disabled persons. Part A provides basic coverage for hospital care as well as limited skilled nursing care, home health care, and hospice care. Part B covers physicians’ services, inpatient and outpatient medical services, and diagnostic tests. Part D prescription drug coverage is also available.

Medicare Advantage is a type of privately run insurance that includes Medicare-approved HMOs, PPOs, fee-for-service plans, and special needs plans. Some plans offer prescription drug coverage. To join a Medicare Advantage plan, you must have Medicare Part A and Part B and you have to pay the monthly Medicare Part B premium to Medicare, as well as the Medicare Advantage premium.

Medicare Supplement Insurance, or Medigap, is sold by private insurance companies and is designed to cover the deductibles and copayments that Medicare doesn’t cover. At one point, there were more than 200 different policies available. Then the National Association of Insurance Commissioners stepped in and created 10 standard packages of coverage, designated by the letters A through J. Since June 2010, plans E, H, I, and J have not been sold, although you are able to keep your plan if you already had one of these plans before June 2010. There are also two new policies (plans M and N) that offer different benefits and premiums. Plans D and G bought on or after June 1, 2010, have different benefits than D and G plans bought before June 1, 2010 (although the benefits won’t change for those who participated in these plans prior to June 1). Only Medigap insurers are able to offer these plans. Although each standardized plan is identical from insurer to insurer, prices may differ and all these plans may not be available in every state.

Patient Protection and Affordable Care Act

In June 2010, Congress passed the Patient Protection and Affordable Care Act. Many of the provisions have already been implemented, including the law’s individual health-care mandate.

Basically, most individuals who are not covered by employer-sponsored health insurance, Medicare, Medicaid, or another government program will be required to have “minimum essential coverage” or pay an annual penalty. The penalty assessed is the greater of a flat dollar amount or a percentage of modified adjusted gross income. Taxpayers who claim dependents on their tax returns will be subject to the penalty for each dependent who does not have coverage, although college students and minors under age 18 would be subject to only 50 percent of the penalty.

Since 2010, as a result of the health-reform act, adult children up to age 26 have been eligible for dependent coverage under their parents’ health insurance plans provided they are not eligible for their own employer-based coverage. Insurance companies are no longer able to refuse coverage for children (under age 19) with pre-existing conditions nor can adults with pre-existing conditions be rejected or charged higher premiums.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Do I Need Disability Income Insurance? Although most of us are aware of the need for health insurance coverage when determining our risk-management needs, many of us fail to consider the possibility that we could become disabled. A disability income insurance policy can help replace income lost because of an injury or illness. Few people would have an adequate “war chest” for an extended battle with a loss of income.

Unfortunately, many of us will need disability income protection before we retire. Without the appropriate coverage, a disability could spell financial disaster.

Disability at any age can disrupt income while medical expenses mount. Unless you have a battle plan, the effects of even a short-term disability could be financially debilitating and emotionally devastating.

Disability Protection

In the event that you become disabled and are unable to work, the benefits provided by disability insurance can help replace a portion of your earned income.

The appropriate amount of disability coverage will depend on your particular situation. However, there are a few issues you may want to consider.

First, consider carrying enough coverage to replace at least 60 percent of your earnings. Many companies limit benefits to between 50 percent and 80 percent from all sources of disability income prior to the disability. This would mean, for example, that the amount of any Social Security disability payments you receive could be deducted from your benefit amount.

If you are concerned about the cost of a private disability insurance policy, consider extending the waiting period, which is the time between when the disability occurs and when you start receiving benefits. Choosing a 90-day or 180-day waiting period (instead of 30 days) may help lower your premium.

Be sure to compare and review policy benefits carefully. Disability insurance can be an affordable way to help protect your assets in the event of a disability.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

How Can You Protect Your Home? Your home is one of your greatest assets, and it should be well protected. It is startling to consider that an estimated 60% of American homes are inadequately insured by an average of 17%.1

Homeowners insurance protects against liability (in case someone is injured on your property), damage to the structure of your home and/or personal belongings, and theft. Most policies cover damage caused by certain “perils,” such as fire, lightning, and wind damage (except in certain locations). You must purchase separate policies to cover disasters such as floods, earthquakes, and tornadoes, which can be a good idea if you live in a high-risk zone.

Most insurance companies offer different levels of coverage. Standard policies usually cover a home’s contents for half the dollar limit carried on the house and reimburse only for the depreciated value of furniture and belongings. Other policies cover 80% to 100% of the value of a home, as well as its belongings.

When evaluating a homeowners policy to determine whether it is right for you, find out how much it would cost to rebuild your home. Typically, even if you are insured for 80% or more of the cost of rebuilding, your carrier will pay the cost of any repair only up to the limit of your coverage. Because of this drawback, consider a guaranteed replacement provision, a feature that ensures almost full reimbursement for replacement costs.

A guaranteed replacement provision places responsibility for valuation of a home on the insurance company. The insurance company conducts periodic appraisals, makes sure coverage is adequate, and automatically upgrades your policy as the value of your property increases. Of course, your premium rises automatically along with this increase in coverage. This type of policy will also pay to replace your furniture and belongings with new or equal-quality items at current market prices.

For an extra cost, additional valuables can be protected with “floaters” designed to cover such items as jewelry, silverware, furs, artwork, other value collections, and the contents of a safe-deposit box, up to a certain amount.

Regardless of your needs, you should be able to find a policy that will be well suited for your specific situation. The most important thing is to protect one of your greatest assets—your home.

Source: 1) ibamag.com, September 29, 2015

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

How Can You Insure Your Future? Long ago, people realized that there is strength in numbers. For hundreds of years, we have been joining forces against all kinds of calamities — including financial troubles.

The concept of insurance is simply that if enough of us can pool our money to form a large enough fund, then together we can handle practically any financial disaster. Our motivation for contributing to this fund is our own eligibility to draw from it in the event of a disaster. One for all and all for one, so to speak.

An early example of the concept comes from the Code of Hammurabi, Babylonian laws dating back to 1700 B.C., which contain a credit insurance provision. For a little higher interest, the ancients could exempt themselves from repayment of loans in the event of personal misfortune. A citizen of the Roman Empire could buy life insurance through the Collegia Tenuiorum for slaves and wage earners, or the Collegia for members of the military. The funds provided old-age pensions, disability insurance, and burial costs. In spite of some complications and occasional bureaucratic snarls, the system has worked remarkably well through the ages.

Today, virtually all heads of families should carry life insurance. Most financial advisors also recommend automobile, health, homeowners, personal liability, professional liability and/or malpractice, disability, and long-term-care insurance.

Purchasing individual or family insurance coverage is probably one of the most important financial decisions you will make. A great deal of study and advice is needed to choose wisely. A few basic guidelines can safely be applied to most consumers. Beyond these, each individual’s needs are unique and should be carefully assessed by an expert.

1. How much insurance do you need?

A good rule of thumb is: Don’t insure yourself against misfortunes you can pay for yourself. Insurance is there to protect you in case of an event with overwhelming expenses. If anything short of a calamity does occur, it will usually cost you less in actual costs than the insurance premiums you would have paid.

2. What kind of policy is best?

Broader is better. Purchase insurance that will cover as many misfortunes as possible with a single policy; for example, homeowners insurance that covers not only damage to the house itself but also to its contents. Carefully examine policies that exclude coverage in certain areas, the “policy exclusions.”

3. From whom should I buy?

Always buy from a financially strong company. Take the time to shop around for the best prices with the most coverage for your specific situation. You may be able to save money by buying multiple policies from the same agent.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Maximizing Your Insurance Benefits Understanding the threat of estate taxes on your life insurance proceeds is the first step in protecting these funds from unnecessary taxation. The next steps are determining the appropriate ownership of your policy and selecting a proper beneficiary. Although there are other alternatives, a life insurance trust can help avoid potential threats to the policy’s proceeds.

What Threats Exist Besides Estate Taxes?

Several factors may come into play that could undermine the financial security provided by the proceeds of your life insurance policy. Beyond estate taxes, there is the potential for probate, gift taxes, financial mismanagement, and misuse. Proper planning is necessary to help avoid these threats.

Ownership Options*

Other than owning the insurance yourself, there are three practical options for the ownership of your life insurance.

Your spouse. If you choose your spouse to be the owner and beneficiary of a policy on your life insurance, the proceeds of the policy will be subject to estate taxes and perhaps probate administration when he or she eventually dies. In addition, he or she will be responsible for investing the proceeds of your policy. Make sure your spouse is prepared and has the willingness to handle these additional responsibilities.

A child. Naming a child as owner and beneficiary can lead to problems if the child lacks the experience for such a designation. You must be able to rely on him or her to maintain the policy and avoid letting the policy lapse. In addition, because your child will be the legal owner of the policy proceeds, you must be sure that he or she will be willing to supply necessary funds to the estate to settle taxes, fees, and other expenses.

An irrevocable life insurance trust. An irrevocable life insurance trust can help avoid threats to your policy’s proceeds. Because the designated trustee must manage the trust for your benefit, it helps ensure the availability of liquid funds when they are most needed. And because the trust is irrevocable and is the owner and beneficiary of your policy, the proceeds escape estate taxes in most cases. The trust arrangement allows the proceeds to avoid probate administration and can sanction the professional management of the proceeds to help ensure the livelihood of your survivors. The use of a life insurance trust can provide an opportunity for families to utilize the benefits of their life insurance.**

Keep in mind that the cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing this strategy, it would be prudent to make sure that you are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges.

Trusts incur upfront costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You should seek the counsel of an experienced estate planning professional before implementing such a strategy.

* A taxable gift from the owner to the beneficiary may result when the owner, the beneficiary, and the insured are all different parties. To reduce the threat of gift taxes, the owner of the policy should be the beneficiary of the policy.

**An ILIT is irrevocable and cannot be changed once it has been created. An insured individual contemplating the use of an ILIT must be willing to relinquish control of the assets transferred to the trust and must recognize the limitations that arise as a result thereof. The insured may not retain the right to revoke, alter, amend, or terminate the Trust, meaning that the insured may not retain the power to change the trust beneficiaries and their interests. Likewise, the insured cannot require that assets contributed to the trust be used to pay premiums or otherwise maintain life insurance owned by the trust. Finally, the insured may not retain any economic benefit in the life insurance policy, for example, the insured will not be able to cash in or borrow against the cash surrender value of any life insurance policy after it is transferred to the Trust.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Making an Insurance Claim When it is time to make an insurance claim, the more prepared you are, the more smoothly it will go. Be familiar not only with your policies but also with the steps you should take to file a claim.

Preventive Measures

It’s important to know beforehand what to expect from the insurance company. When you buy any insurance policy, read the contract carefully and learn specifically what is not covered. Know what numbers to call and the type of information you will need when speaking with a claims agent.

It’s also a good idea to take an inventory of your belongings and keep the list in a safe-deposit box. Make sure to include:

  • Descriptions of possessions; for example, the makes and model numbers of electronic equipment and appliances.
  • Photographs or a videotape showing the condition and quality of your insured items, especially jewelry or antiques and collectibles.
  • Appraisals of expensive items such as antiques, artwork, furs, and jewelry.
  • Receipts documenting purchase prices; canceled checks or charge-card statements also can be used.

When Trouble Strikes

File a complete and accurate claim as soon as possible. Take the time to fill out everything the way the insurance company wants it. Or, if you are on the phone with a claims agent, be extremely detailed in your descriptions and be certain that all your information is correct.

  • File a police report in the event of theft or vandalism. Your claim may be denied if you don’t.
  • Write a detailed account of any incident immediately after it occurs so that you are more likely to remember what happened.
  • Take photos of any damage.
  • Telephone your agent and send him or her a copy of the police report. Follow his or her instructions on how to proceed.

Filing a claim can be stressful, but being properly prepared and knowing what to expect will help move the process along, possibly allowing you to receive the funds you need to cover your losses in a more timely manner.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Auto Insurance Four main types of auto insurance are available: liability, uninsured or underinsured motorist, collision and comprehensive, and personal injury. Most states require drivers to carry certain types of insurance.

Liability

Liability insurance is usually considered a necessity, and many states have a minimum legal requirement for liability coverage. This type of insurance helps protect, up to the ploicy limits, against injury claims and property-damage suits brought by other drivers, pedestrians, or property owners if you are at fault in an accident. Your liability policy pays for injuries suffered by others and the costs of damage to other people’s property, as well as legal costs, if necessary, up to a dollar limit.

You can choose a policy with an overall limit for all liabilities, or you can select one with separate limits for (1) individuals injured in an accident, (2) all injuries in the same accident, and (3) property damage.

Uninsured or Underinsured Motorist Coverage

A policy with an uninsured motorist provision will pay damages if an uninsured motorist or a hit-and-run driver injures you and/or your passenger(s). You cannot buy more coverage against an uninsured driver than you carry yourself in liability. For example, if you carry $25,000 coverage per person and $50,000 per accident, you can buy only up to those amounts of coverage against an uninsured driver.

For a nominal additional amount, you can also carry protection against inadequate insurance coverage by another driver who injures you or damages your property in an automobile accident. This provision means that your policy will pay for injuries or damage that his or her policy does not.

Collision and Comprehensive Coverage

Collision insurance reimburses you for repair costs resulting from a collision that has been deemed to be your fault. Collision insurance is usually the most expensive part of your policy. Comprehensive coverage is for damage due to fire, storm, vandalism, or theft.

If a lender holds a lien on your car, the lender will probably require you to pay for bothcollision and comprehensive insurance. To lower the cost of this kind of insurance, you may choose a $500 to $1,000 deductible, instead of the usual $100 to $250. Although this increases your out-of-pocket expenses in the event of an accident, it may cut the cost of your premiums substantially.

Personal Injury Protection

Residents of states with “no-fault” insurance must buy personal injury protection. Personal injury insurance will pay your medical expenses in the event of an automobile accident, regardless of who was at fault. By purchasing this protection, you agree not to sue for any suffering or injury you may sustain.

Whether or not your state requires certain types of auto insurance, it may be a good idea to purchase multiple types to ensure that you are covered for many possible situations. In the event of a traffic collision, you don’t want to be left with bills that you cannot pay.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is Variable Life Insurance? The insurance industry has introduced different types of insurance to meet consumers’ needs. For example, universal life insurance was created to provide a solution for many of the perceived shortcomings of whole life insurance and term life insurance. (See “What Is Universal Life Insurance?”)

When consumers demanded even more changes from the life insurance industry, it responded with variable life insurance and the concept of investment control. Whereas whole life insurance provides fixed rates of return on the account value, at rates determined by the insurance company, variable life insurance provides the policyholder with investment discretion over the account value portion of the policy.

If you own a variable life policy, you may allocate your account value among a variety of investment subaccounts. The premiums you pay are fixed throughout the life of the contract, while the performance of your chosen subaccounts determines the growth of your account value. The performance of the subaccounts can also determine the value of your death benefit.

There are usually several subaccount options to choose from, including stock, bond, and fixed-interest options. You can allocate your account value as you see fit, and you can be as conservative or aggressive as you wish.

A possible disadvantage is that the premiums of a variable life insurance policy generally are fixed and cannot be adjusted if your financial situation changes. A variable life policy does provide you with a guaranteed death benefit. If your subaccounts perform poorly, the death benefit could decline, but never below a defined level specified in the policy. Of course, any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.

Withdrawals may be subject to surrender charges and are taxable if you withdraw more than your basis in the policy. Policy loans or withdrawals will reduce the policy’s cash value and death benefit, and may require additional premium payments to keep the policy in force. There may also be additional fees and charges associated with a VUL policy.

In sum, variable life offers the flexibility to design your own portfolio, together with the security of a guaranteed death benefit. As long as you pay your fixed premiums, your death benefit cannot go away. This is not the case with universal life insurance or variable universal life insurance.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Generally, policies have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Variable life policies are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. The investment return and principal value of an investment option are not guaranteed. Because variable life subaccounts fluctuate with changes in market conditions, the principal may be worth more or less than the original amount invested when the annuity is surrendered.

Depending on your situation, variable life is an option to consider. If you are considering purchasing life insurance, consult a professional to explore your options.

Variable life insurance is sold by prospectus. Please consider the investment objectives, risks, charges, expenses, and your need for death-benefit coverage carefully before investing. The prospectus, which contains this and other information about the variable life policy and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is Universal Life Insurance? Universal life insurance was developed in the late 1970s to overcome some of the disadvantages associated with term and whole life insurance. As with other types of life insurance, you pay regular premiums to your insurance company, in exchange for which the insurance company will pay a specific benefit to your beneficiaries upon your death.

As with whole life insurance, a portion of each payment goes to the insurance company to pay for the pure cost of insurance. The remainder is invested in the company’s general investment portfolio, with the potential to build cash value.

Most universal life policies pay a minimum guaranteed rate of return. Any returns above the guaranteed minimum vary with the performance of the insurance company’s portfolio. The policyholder has no control over how these funds are invested; funds are managed by the insurance company’s professional portfolio managers.

However, universal life policies are very flexible. As the policy owner, you can vary the frequency and amount of premium payments and also increase or decrease the amount of the insurance to suit changes in your situation.

For example, if your financial situation improves significantly, you can increase your premiums and build up the cash value more rapidly. On the other hand, if you find yourself under a financial strain, you can reduce your premiums, or you may even be able to deduct premium payments from the cash value of the policy. Of course, changing the premium or withdrawing part of the cash value in your policy will affect the rate at which your cash value accumulates. It may also reduce the size of the death benefit.

Any cash you withdraw from your universal life policy is considered “basis-first.” You won’t incur a tax liability until your withdrawals exceed the premiums you’ve paid into the policy. Any amount that exceeds the premiums will be taxed as ordinary income.*

It is possible to structure many universal life policies so that the invested cash value will eventually cover the premiums. You would then have full life insurance coverage without having to pay any additional premiums, as long as the cash-value account balance remains sufficient to pay for the pure cost of insurance and any other expenses and charges.

Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase. Guarantees are contingent on the financial strength and claims-paying ability of the issuing company.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

For investors who want the flexibility to change their premiums or death benefits, a universal life insurance policy may be ideal. If you are considering purchasing life insurance, consult a professional to explore your options.

* Under current federal tax rules, loans taken will generally be free of current income tax as long as the policy remains in effect until the insured’s death, does not lapse or matures, and is not a modified endowment contract. This assumes the loan will eventually be satisfied from income tax-free death proceeds. Loans and withdrawals reduce the policy’s cash value and death benefit and increase the chance that the policy may lapse. If the policy lapses, matures, is surrendered or becomes a modified endowment, the loan balance at such time would generally be viewed as distributed and taxable under the general rules for distributions of policy cash values.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is Whole Life Insurance? Most people are familiar with whole life insurance. For many years, whole life policies were the predominant type of life insurance sold in America.

When you purchase a whole life policy, you traditionally pay a fixed premium for as long as you live or for as long as you keep the policy in force. In exchange for this fixed premium, the insurance company promises to pay a set benefit upon your death.

In addition to providing a death benefit, a whole life policy can build cash value. Part of the premium pays for the protection element of your policy, while the remainder is invested in the company’s general portfolio. The insurance company pays a guaranteed rate of return on the portion of your premium that is in its investment portfolio, building up the value of your policy. Guarantees are contingent on the financial strength and claims-paying ability of the issuing company.

This buildup in cash value is part of the reason the premiums on a whole life policy generally remain fixed instead of escalating to match the increased risk of death as you age. As the cash value grows, the risk for the insurance company declines.

Although the cash value in your policy is “your” money, you can’t simply withdraw it as needed, as you would cash from a savings account; but you do have limited access to your funds. You can either surrender the policy for its cash value or take the needed funds as a loan against the policy.*

Access to cash values through borrowing or partial surrenders can reduce the policy’s cash value and death benefit, increase the chance that the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured. Additional out-of-pocket payments may be needed if actual dividends or investment returns decrease, if you withdraw policy values, if you take out a loan, or if current charges increase.

You should be aware that, in addition to charging a modest interest rate for loans against a policy, the insurance company may pay a lower rate of return for the portion of your cash value that you borrow. However, loans against the value of an insurance policy are generally not taxable and can provide the cash to help with unexpected expenses.

The cash value of a life insurance policy accumulates tax deferred. If you surrender the policy, you’ll incur an income tax liability at that time, but only for those funds that exceed the premiums you have paid.

The fact that whole life policies have fixed premiums and fixed death benefits can be either positive or negative, depending on the situation. To some people, it means one less thing to worry about. They know in advance what they’ll have to pay in premiums and exactly what their death benefits will be.

To others, whole life policies don’t provide enough flexibility. If their situations change, it is unlikely that they will be able to increase or decrease either the premiums or the death benefits on their whole life policies without surrendering them and purchasing new policies.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

If you are considering purchasing life insurance, consult a professional to explore your options.

* Under current Federal tax rules, loans taken will generally be free of current income tax as long as the policy remains in effect until the insured’s death, does not lapse or matures, and is not a modified endowment contract. This assumes the loan will eventually be satisfied from income tax-free death proceeds. Loans and withdrawals reduce the policy’s cash value and death benefit and increase the chance that the policy may lapse. If the policy lapses, matures, is surrendered or becomes a modified endowment, the loan balance at such time would generally be viewed as distributed and taxable under the general rules for distributions of policy cash values.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is Term Life Insurance? Term life insurance is “pure” insurance. It offers protection only for a specific period of time. If you die within the time period defined in the policy, the insurance company will pay your beneficiaries the face value of your policy.

Term insurance differs from the permanent forms of life insurance, such as whole life, universal life, and variable universal life, which generally offer lifetime protection as long as premiums are kept current. Also, unlike other types of life insurance, term insurance does not accumulate cash value. All the premiums paid are used to cover the cost of insurance protection, and you don’t receive a refund at the end of the policy period. The policy simply expires.

Term life insurance is often less expensive than permanent insurance, especially when you are younger. It may be appropriate if you want insurance only for a certain length of time, such as until your youngest child finishes college or you are able to afford a more permanent type of life insurance.

The main drawback associated with all types of term insurance is that premiums increase every time coverage is renewed. The reason is simple: As you grow older, your chances of dying increase. And as the likelihood of your death increases, the risk that the insurance company will have to pay a death benefit goes up. Unfortunately, term insurance can become too expensive right when you need it most — in your later years.

Several variations of term insurance do allow for level premiums throughout the duration of the contract. You may be able to obtain 5-, 10-, 20-, or even 30-year level term, or level term payable to age 65. An advantage of renewable term life insurance is that it is usually available without proof of insurability.

Life insurance can be used to achieve a variety of objectives. The cost and availability of the type of life insurance that is appropriate for you depend on factors such as age, health, and the type and amount of insurance you need. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Disability Income Insurance for Business Owners One of your greatest assets is the ability to earn an income. If you were to lose that ability due to a disabling accident or illness, how would you pay your bills, send your kids to college, and save for retirement?

A disability can create substantial economic hardship for individuals and their families. As a business owner, both your personal finances and your business could be at risk.

One way to help protect against the financial loss associated with a disability is to purchase disability income insurance. If you pay the premiums, an individual policy can provide you with a tax-free income stream while you are unable to work.

Weigh Your Options

When evaluating disability income insurance policies, it’s helpful to consider the following.

  • Definition of disability. You can typically choose between “own occupation” coverage and “any occupation” coverage. With “any occupation” coverage, you can claim disability only if you are unable to perform any type of job. This type of coverage is generally less expensive than “own occupation” coverage.
  • Amount of monthly coverage. You can purchase disability insurance that will replace a certain percentage of your income —normally up to 50% or 60% of your pre-disability income. You should purchase coverage that will enable you to meet your monthly financial obligations.
  • Waiting period. The waiting period represents the amount of time that must pass between the date you become disabled and the date that disability income payments begin. The longer the waiting period, the less expensive coverage will be.
  • Benefit period. The benefit period can range from several months to life. The longer the benefit period, the higher the cost of insurance.

A disability income insurance policy could make the difference between financial security and financial hardship. Don’t wait to consider this protection until it’s too late.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Last-Survivor Life Insurance Last-survivor life insurance has been a popular estate conservation tool for couples who want to help ­protect their legacy from estate taxes. Because this type of policy pays a benefit after the death of the last-surviving insured individual, it can provide heirs with much-needed cash to help cover final expenses, probate costs, and estate taxes.

Of course, fewer households will be subject to the federal estate tax as a result of the American Taxpayer Relief Act of 2012. The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually increased the federal estate tax exemption, until finally repealing the federal estate tax altogether for the 2010 tax year only. The Tax Relief Act of 2010 reinstated the federal estate tax with a $5 million exemption, indexing the exemption for inflation after 2011. The provisions of the Tax Relief Act of 2010 expired on December 31, 2012.

The American Taxpayer Relief Act of 2012 increased the federal estate tax rate from 35 percent to 40 percent, but left in place the higher exemption level ($5.45 million in 2016 up from $5.43 million in 2015); both provisions are now permanent. It also left in place the “portability” of any unused exemption between spouses.

As history shows, estate tax rates are subject to change. Also, many states have their own estate taxes, most with exemptions of $1 million or less, and only one state (Hawaii) currently has a portability provision. Because of this, many financial experts agree that it is important to have an estate conservation plan in place.

As a result of the unlimited marital deduction, when one spouse dies, his or her entire estate passes to the surviving spouse without becoming subject to estate taxes. (The surviving spouse must be a U.S. citizen.) When the second spouse dies, federal estate taxes come due on whatever portion of the estate exceeds the prevailing exemption amount.

Because estate taxes are typically due within nine months of the surviving spouse’s death, heirs could be forced to sell property, liquidate other assets, or take out a loan in order to make the payment on time. The benefit from a survivorship life insurance policy can help provide funds so the heirs can pay the bill rather than dipping into their inheritance.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges.

Many people work and save throughout their lives to leave a legacy to their loved ones. Survivorship life insurance can help safeguard the assets they’ve worked hard to build.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Split-Dollar Life Insurance Life insurance can be an important part of a business owner’s financial strategy. It can also be a great benefit to offer to key employees. However, sometimes the cost can be prohibitive. With split-dollar life insurance, the cost of life insurance can be managed by splitting it up.

To be clear, split-dollar life insurance is not an insurance product but rather an arrangement to purchase and fund life insurance between two parties, generally an employee and an employer.

Basically, an agreement is made under which a life insurance policy is purchased on an individual. The employer will pay all or a portion of the premiums on the policy, depending on the arrangement. When the individual dies, the employer receives a portion of the death benefit equal to the amount paid in premiums. The remaining benefit goes to the individual’s beneficiaries.

For example, if a $200,000 policy were purchased for an individual who died after the employer had paid $28,000 in premiums, then the employer would get back the money it had paid in premiums and $172,000 would go to the insured individual’s beneficiaries.

This agreement is attractive to both parties because the employer recoups its money and the employee receives a life insurance policy at a better rate because the company is picking up all or a portion of the cost. The death benefit is free of income tax for both parties as well.

A split-dollar life insurance arrangement can be used for a variety of reasons.

  • Split-dollar life insurance can be used to fund a buy-sell agreement.
  • It can be used as a benefit to recruit and retain quality executives.
  • Business owners who might not otherwise be able to afford life insurance might benefit from a split-dollar arrangement.

There are different ways to set up split-dollar life insurance. Usually, the individual owns the policy and designates beneficiaries, then by absolute assignment transfers to the employer an amount equal to the premiums paid by the employer. In this case, the individual retains all ownership rights, but when the individual dies, the employer is reimbursed before the individual’s named beneficiaries are paid. If the individual leaves the company, any cash value in the policy would be used to repay the company.

In other arrangements, the policy can be purchased by the employee and assigned to the employer as collateral in exchange for the employer paying the premiums. Because the company holds the policy as collateral, it can be confident that it will recoup the money spent on the insurance premiums.

In some cases, the employer can take out a life insurance policy on the employee. The employer names itself as a beneficiary of an amount equal to the cash value and designates that any funds in excess of that amount will be paid to the individual’s beneficiaries.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable.

As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Life Insurance for Business Owners If you own your own business, chances are you’ve at least thought about the conditions under which you will make your departure from the business and who is going to take over after you leave. Business continuation is difficult enough under normal circumstances, but if it has to take place following the unexpected death of a key person or owner, the complications can increase exponentially.

Company-owned life insurance is one way to help protect a business from financial problems caused by the unexpected death of a key employee, partner, or co-owner. If the covered individual dies, the proceeds from this type of insurance can help in several ways. Here are some examples.

Fund a Buy-Sell Agreement

A buy-sell agreement typically specifies in advance what will happen if an owner or a key person leaves the company, either through a personal decision or because of death or disability. The death benefit from a company-owned life insurance policy can be used to purchase the decedent’s interest in the company from his or her heirs.

Keep the Business Going

If a decision is made to continue the business, there may be a period when operations cease while the survivors develop a plan to move forward. The death benefit can be used to help replace lost revenue or to pay costs associated with keeping the doors open, including rent, utilities, lease payments, and payroll. It may also help the surviving owners avoid borrowing money or selling assets.

Replace Lost Income

If a business owner has family members who depend on the income from a business, which simply could not continue if he or she were suddenly gone, the proceeds from company-owned life insurance could help replace the lost income and help protect the family’s quality of life while they adjust and move on.

The appropriate coverage amount will depend on several factors. It could be a multiple of the business owner’s annual salary or the company’s operating budget. Don’t forget to factor in such details as the cost of hiring and training a successor, where applicable, and any debts that the family may have to repay.

A thorough examination of a business and the related personnel should be conducted before the exact amount of coverage is determined.

Remember that the cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that the individual is insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges.

The loss of an owner can be devastating to a small business. A company-owned life insurance policy may help reduce the financial consequences if such a loss were to occur.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Do I Need a Business-Owner Policy? Your business may be running smoothly. You could be making money hand over fist. But don’t be lulled into thinking that a catastrophe could never hit your business. Disasters can strike in many ways; even a minor one could wipe out a lifetime of hard work.

Fortunately, the appropriate business owner’s insurance policy, sometimes called a BOP, can help protect your company in the event of property damage, business interruption, or legal troubles.

Property Coverage

A BOP can insure a company’s buildings and equipment in much the same way as homeowners insurance covers a residence and its contents. A standard BOP policy helps protect against a specific list of perils, such as fire, wind, hail, water damage, and vandalism.

It’s advisable to insure for “replacement value” rather than “actual value.” That way, you might not have to come up with extra money to get back to business. The premiums will be higher, but the extra expense may well pay for itself if it means getting back to work in a matter of days rather than weeks or months. You may be able to offset the extra expense by working with the insurer to identify and reduce certain types of risks to help lower premiums.

Liability Coverage

This coverage is essential if someone were to become injured on your premises, by your employees, or by one of your products. It can be used to pay medical costs for the injured parties or to defend against liability claims, even if a claim is unfounded. Liability coverage also helps protect against claims of slander or libel.

Business Interruption

If your business operations cease because of a disaster, this coverage can help replace the lost income and expenses related to operating from a temporary location.

A natural disaster is only one of the many threats facing small businesses. In such a situation, a business owner policy can help put you back in business.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is Property and Casualty Insurance? Property-casualty insurance practices in the United States are based on British practices and started with marine insurers located in major U.S. ports. Even when our nation was young, we were concerned with protecting ourselves and our property and not much has changed since then. Property-casualty insurance is specifically designed to help protect your possessions from theft or destruction and your assets from being depleted through disaster or litigation claims brought against you.

The property side of a policy insures physical items, such as homes, commercial buildings, motor vehicles, and personal possessions or business inventory. Types of property insurance include homeowners insurance, fire insurance, flood or earthquake insurance, and automobile insurance.

These insurance contracts may have an “open perils” or a “named perils” clause. The open perils clause covers losses for reasons that are not specifically excluded in the policy. Typical exclusions are earthquakes, floods, and acts of terrorism or war. A named perils clause requires the actual cause of loss to be listed in the policy, such as fire, lightning, explosion, and theft.

Casualty insurance, or liability insurance, covers you for losses that you may cause to another individual or business. This is called “third-party” coverage. For example, if you have liability insurance on your car and another party is injured in a collision caused by you, your liability insurance will take care of the other person’s medical and repair costs. In addition, if someone sues you because of harm you may have caused to him or to his possessions, your casualty insurance may cover the cost.

Both individuals and businesses can purchase property-casualty insurance. Personal policies include homeowners insurance, renters insurance, and automobile insurance, whereas commercial polices are written specifically for businesses and other organizations and may include commercial general liability, workers’ compensation, and commercial property insurance.

If you are worried about protecting your possessions from damage and your assets from being diminished due to liability costs, then you may want to consider the types of property-casualty insurance that are appropriate for you. When selecting an insurance policy, make sure to examine all your options, as well as the positives and negatives of each type.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Why Are Annuities Considered an Insurance Product? Annuities are financial vehicles that can be sold only by insurance companies. Basically, an annuity is a contract between you and an insurance company, which promises to pay you a future income in exchange for the lump-sum payment or premiums that you pay. The payments specified in the annuity contract will be paid to you during your retirement (or, in some situations, to your beneficiaries after your death).

Annuities can be used to help ensure a steady stream of income in retirement, as well as to help ensure that your spouse and/or designated beneficiary will be taken care of in the event of your death. Many types of annuities exist, and most of them include a death benefit option.

If you elect to annuitize your annuity contract, you are choosing to receive your payments on a schedule that can be based on a single or joint life expectancy (for you and your spouse, for example) or for a specified period of time. Once you begin receiving payments, most annuity contracts do not allow money to continue to be made to your heirs, other than your designated joint-life beneficiary, in the event of your death. However, if you die before annuitization begins, your designated beneficiary typically will receive a death benefit at least equal to the net premiums paid.

Some annuity contracts may offer refunds or guarantees, allowing your beneficiary to receive the remaining amount upon your death (the accumulated value or premiums paid, whichever is greater).

If you would like to use your annuity to help provide for your heirs, make sure to examine the contract closely for specific beneficiary allowances.

Generally, annuities have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10 percent federal income tax penalty if made before you reach age 59½.

Withdrawals reduce annuity contract benefits and values. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. For variable annuities, the investment return and principal value of an investment option are not guaranteed. Variable annuity subaccounts fluctuate with changes in market conditions; thus the principal may be worth more or less than the original amount invested when the annuity is surrendered.

Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Why Purchase Life Insurance? We’ve all heard about the importance of having life insurance, but is it really necessary? Usually, the answer is “yes,” but it depends on your specific situation. If you have a family who relies on your income, then it is imperative to have life insurance protection. If you’re single and have no major assets to protect, then you may not need coverage.

In the event of your untimely death, your beneficiaries can use funds from a life insurance policy for funeral and burial expenses, probate, estate taxes, day care, and any number of everyday expenses. Funds can be used to pay for your children’s education and take care of debts or a mortgage that hasn’t been paid off. Life insurance funds can also be added to your spouse’s retirement savings.

If your dependents will not require the proceeds from a life insurance policy for these types of expenses, you may wish to name a favorite charity as the beneficiary of your policy.

Whole life insurance can also be used as a source of cash in the event that you need to access the funds during your lifetime. Many types of permanent life insurance build cash value that can be borrowed from or withdrawn at the policyowner’s request. Of course, withdrawals or loans that are not repaid will reduce the policy’s cash value and death benefit.

When considering what type of insurance to purchase and how much you need, ask yourself what would happen to your family without you and what type of legacy you would like to leave behind. Do you want to ensure that your children’s college expenses will be taken care of in your absence? Would you like to leave a sizable donation to your favorite charity? Do you want to ensure that the funds will be sufficient to pay off the mortgage as well as achieve other goals? Life insurance may be able to help you meet these objectives and give you the peace of mind that your family will be taken care of financially.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.

If you are considering the purchase of life insurance, consult a professional to explore your options.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

529 Lesson Plan: High Scores for 529 College Savings Program Looking for a tax-advantaged college savings plan that has no age restrictions and no income phaseout limits — and one you can use to pay for more than just tuition?

Consider the 529 college savings plan, an increasingly popular way to save for higher-education expenses, which have more than tripled over the past two decades — with annual costs (for tuition and fees, and room and board) of more than $43,000 per year for the average private four-year college.1 Named after the section of the tax code that authorized them, 529 plans (also known as qualified tuition plans) are now offered in almost every state.

Most people have heard about the original form of 529, the state-operated prepaid tuition plan, which allows you to purchase units of future tuition at today’s rates, with the plan assuming the responsibility of investing the funds to keep pace with inflation. Many state governments guarantee that the cost of an equal number of units of education in the sponsoring state will be covered, regardless of investment performance or the rate of tuition increase. Of course, each state plan has a different mix of rules and restrictions. Prepaid tuition programs typically will pay future college tuition at any of the sponsoring state’s eligible colleges and universities (and some will pay an equal amount to private and out-of-state institutions).

The newer variety of 529 is the savings plan. It’s similar to an investment account, but the funds accumulate tax deferred. Withdrawals from state-sponsored 529 plans are free of federal income tax as long as they are used for qualified college expenses. Many states also exempt withdrawals from state income tax for qualified higher education expenses. Unlike the case with prepaid tuition plans, contributions can be used for all qualified higher-education expenses (tuition, fees, books, equipment and supplies, room and board), and the funds usually can be used at all accredited post-secondary schools in the United States. The risk with these plans is that investments may lose money or may not perform well enough to cover college costs as anticipated.

In most cases, 529 savings plans place investment dollars in a mix of funds based on the age of the beneficiary, with account allocations becoming more conservative as the time for college draws closer. But recently, more states have contracted professional money managers — many well-known investment firms — to actively manage and market their plans, so a growing number of investors can customize their asset allocations. Some states enable account owners to qualify for a deduction on their state tax returns or receive a small match on the money invested. Earnings from 529 plans are not taxed when used to pay for eligible college expenses. And there are even consumer-friendly reward programs that allow people who purchase certain products and services to receive rebate dollars that go into state-sponsored college savings accounts.2

Funds contributed to a 529 plan are considered to be gifts to the beneficiary, so anyone — even non-relatives — can contribute up to $14,000 per year in 2016 (the same as in 2015) per beneficiary without incurring gift tax consequences. Contributions can be made in one lump sum or in monthly installments. And assets contributed to a 529 plan are not considered part of the account owner’s estate, therefore avoiding estate taxes upon the owner’s death.

Major Benefits

These savings plans generally allow people of any income level to contribute, and there are no age limits for the student. The account owner can maintain control of the account until funds are withdrawn — and, if desired, can even change the beneficiary as long as he or she is within the immediate family of the original beneficiary. A 529 plan is also extremely simple when it comes to tax reporting — the sponsoring state, not you, is responsible for all income tax record keeping. At the end of the year when the withdrawal is made for college, you will receive Form 1099 from the state, and there is only one figure to enter on it: the amount of income to report on the student’s tax return.

Benefits for Grandparents

The 529 plan could be a great way for grandparents to shelter inheritance money from estate taxes and contribute substantial amounts to a student’s college fund. At the same time, they also control the assets and can retain the power to control withdrawals from the account. By accelerating use of the annual gift tax exclusion, a grandparent — as well as anyone, for that matter — could elect to use five years’ worth of annual exclusions by making a single contribution of as much as $70,000 per beneficiary in 2016 (or a couple could contribute $140,000 in 2016), as long as no other contributions are made for that beneficiary for five years.* If the account owner dies, the 529 plan balance is not considered part of his or her estate for tax purposes.

As with other investments, there are generally fees and expenses associated with participation in a Section 529 savings plan. In addition, there are no guarantees regarding the performance of the underlying investments in Section 529 plans. The tax implications of a Section 529 savings plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also note that most states offer their own Section 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.

Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses — which contain this and other information about the investment options, underlying investments, and investment company — can be obtained by contacting your financial professional. You should read these materials carefully before investing.

By comparing different plans, you can determine which might be available for your situation. You may find that 529 programs make saving for college easier than before.

* If the donor makes the five-year election and dies during the five-year calendar period, part of the contribution could revert back to the donor’s estate.

Sources:
1) The College Board, 2015
2) College Savings Plans Network, 2015

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is Dollar-Cost Averaging? Every investor dreams of buying into the market at a low point, just before it hits an upswing, and garnering a large profit from selling at the market’s peak. But trying to predict market highs and lows is a feat no one has ever fully mastered, despite the claims by some that they have just the right strategy that enables them to buy and sell at the most opportune times.

Attempting to predict which direction the market will go or investing merely on intuition can get you in trouble, or at the very least may cause you a great deal of frustration. One strategy that may help you navigate these investing pitfalls is dollar-cost averaging.

Dollar-cost averaging involves investing a set amount of money in an investment vehicle at regular intervals for an extended period of time, regardless of the price. Let’s say you have $6,000 to invest. Instead of investing it all at once, you decide to use a dollar-cost averaging strategy and contribute $500 each month, regardless of share price, until your money is completely invested. You would end up purchasing more shares when prices are low and fewer shares when prices are high. For example, you might end up buying 20 shares when the price is low, but only 10 when the price is higher.

This strategy has the potential to reduce the risk of investing a large amount in a single investment when the cost per share is inflated. It may also help reduce the risk for an investor who tends to pull out of the market when it takes a dip, potentially causing an inopportune loss in profit.

The average cost per share may also be reduced, which has the possibility to help you gain better overall profits from the market. Utilizing a dollar-cost averaging program, the bottom line is that the average share price has the potential to be higher than your average share cost. This occurs because you purchased fewer shares when the stock was priced high and more shares when the price was low. Dollar-cost averaging can also help you to avoid the annoyance and stress of continually monitoring the market in an attempt to buy and sell at “fortuitous” moments.

Dollar-cost averaging is a long-range plan, as implied by the word “averaging.” In other words, the technique’s best use comes only after you’ve stuck with it for a while, despite any nerve-racking swings in the market. When other panicky investors are scrambling to get out of the market because it has declined and to get back into it when the market has risen, you’ll keep investing a specific amount based on the interval you’ve set.

Dollar-cost averaging does not ensure a profit in rising markets or protect against a loss in declining markets. This type of investment program involves continuous investment in securities regardless of the fluctuating price levels of such securities. Investors should consider their financial ability to continue making purchases through periods of low and high price levels. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Stock and Bond Alternatives Do I Have? Many prudent investors may have at least some of their holdings in stocks, corporate bonds, or both. In fact, when most people think of “investing,” they think of Wall Street and the stock markets.

Many fail to realize that there are a number of ways to invest in stocks besides owning individual shares.

Mutual Funds

A mutual fund is a collection of stocks, bonds, or other securities. Investors purchase shares of the mutual fund that is managed by a professional investment company.

A typical mutual fund may hold dozens of different securities. That offers some measure of diversification — a sharp decline in an individual security wouldn’t be nearly as damaging to your portfolio as it would be if you only owned a few securities. Diversification is a method used to help manage investment risk; it does not guarantee against loss.

Mutual funds are professionally managed. Fund managers devote their attention to buying and selling securities according to the goals of their funds.

And mutual funds often have a minimum investment of only $1,000 — some will accept even less.

The return and principal value of mutual funds fluctuate with changes in market conditions. Shares, when sold or redeemed, may be worth more or less than their original cost.

Bond funds are subject to the interest-rate, inflation, and credit risks associated with the underlying bonds in the fund. As interest rates rise, bond prices typically fall, which can adversely affect a bond fund’s performance.

Variable Universal Life Insurance

The insurance companies have developed some innovative products that enable you to invest in a wide range of securities — including stocks — through your life insurance policy.

A variable universal life (VUL) insurance policy operates much the same as a “traditional” universal life policy. In exchange for premiums, the insurance company provides a death benefit. And, just like more traditional life insurance policies, the cash value within the policy accumulates tax deferred. When considering this product, you should have a need for life insurance.

But here is the unique difference: you decide how the premium is divided among the subaccounts. With most policies you can select from several different investment subaccounts (or investment options). These investment options allow you to participate in the market and experience the gains and losses realized by the underlying securities.

The cash value of a VUL policy is not guaranteed. The investment return and principal value of the variable subaccounts will fluctuate. Your cash value, and perhaps the death benefit, will be determined by the performance of the chosen subaccounts. Withdrawals may be subject to surrender charges and are taxable if you withdraw more than your basis in the policy. Policy loans or withdrawals will reduce the policy’s cash value and death benefit, and may require additional premium payments to keep the policy in force. There may also be additional fees and charges associated with a VUL policy.

Variable Annuities

The insurance companies have developed another interesting product: the variable annuity. With a variable annuity, you invest a sum with an insurance company, just as you would with a fixed annuity.

But instead of investing your money in its general account, as with a fixed annuity, the insurance company invests it in a separate account. Like a variable universal life insurance policy, this separate account is made up of a number of different investment subaccounts. You specify how much of your annuity will be invested in the various subaccounts. Your return will be based on the performance of the investments you select.

There are contract limitations, fees, and charges associated with variable annuities, which can include mortality and expense risk charges, sales and surrender charges, investment management fees, administrative fees, and charges for optional benefits. Withdrawals reduce annuity contract benefits and values. Variable annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10 percent federal income tax penalty if made prior to age 59½. Any guarantees are contingent on the claims-paying ability of the issuing company. Variable annuity subaccounts fluctuate with changes in market conditions, and when surrendered, your principal may be worth more or less than the original amount invested.

Mutual funds, variable annuities, and variable universal life insurance are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the mutual fund, variable annuity contract, or variable universal life policy and their underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What College Investment Options Do I Have? As tax laws change, college investment planning becomes increasingly complex. The most beneficial strategies for creating a college fund are quite similar to other investment tactics. Investment products that are tax deferred, tax exempt, or transferable without tax consequences can be especially advantageous.

This could be even more effective if you do your planning early.

One important aspect of an investment is its balance of yield and risk. Determine the amount of risk you can tolerate, given the amount of time you have to recover from any potential losses.

Take the time to familiarize yourself with the financial aid formulas. This could help you determine whether assets and income should be in your name or your child’s name. Structuring your investments ahead of time can have a significant effect on the net amount of funds available for your child’s education.

There are a number of funding options available for your college investment plan. This list contains a few of the more common.

Certificates of Deposit

CDs offer a reasonable return with a relatively high degree of safety. They are FDIC insured to $250,000 (per depositor, per federally insured institution in interest and principal) and offer a fixed rate of return, whereas the principal and yield of investment securities will fluctuate with changes in market conditions.

The interest earned on a CD is taxed as ordinary income. And CDs are not very liquid. You could pay a significant interest penalty for withdrawing money before it reaches maturity.

Bonds

Many people consider U.S. government bonds to be among the least risky investments available. They are guaranteed by the U.S. government as to the timely payment of principal and interest.

The interest on Series EE bonds is tax-free to low- and middle-income families if the proceeds are used to fund a college education. This benefit phases out for individuals and couples in the upper middle class and above.

Zero-coupon bonds are purchased at a substantial discount and pay their face value upon maturity. Because they do not pay interest until maturity, their prices tend to be more volatile than bonds paying interest regularly. Thus zero-coupon bonds make it possible to buy high-quality bonds for far less money up front. Interest income is subject to taxes annually as ordinary income, even though no income is being paid to the investor.

The return and principal value of bonds fluctuate with market conditions and when sold, bonds may be worth more or less than their original cost.

Stocks and Mutual Funds

Many people who use stocks to fund a college investment program invest in mutual funds.

Mutual funds are professionally managed. They buy and sell securities to meet the specific goals of their fund, weighing risk against security, yield against quality. They can be an effective addition to a college investment plan. The investment return and principal value of stocks and mutual funds fluctuate with market conditions, and, when sold or redeemed, shares may be worth more or less than their original cost. Bond funds are subject to the same inflation, interest-rate, and credit risks associated with their underlying bonds. As interest rates rise, bond prices typically fall, which can adversely affect a bond funds performance.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Making Choices

There are college investment options to fit almost any investor. No matter how modest or how ample your income, careful planning could be the most effective way to “find” the money for college. The key is to start early and remain consistent.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

How Can I Save for My Child’s College Education? Once you’ve determined how much it could cost to send your children to college, your next prudent step is to develop a systematic investment plan that may help you to accumulate the necessary funds.

What are your funding options? Which would be appropriate for your situation? We’ve listed several below, along with a brief description of each.

Universal Life Insurance

Universal life insurance policies build cash value through regular premiums and grow at competitive rates. These policies carry a death benefit. In addition to providing cash to your heirs in the event of your death, this death benefit gives universal life insurance policies their tax-free status. Money can usually be withdrawn from these contracts through policy loans, often at no interest. These withdrawals may reduce the policy’s death benefit.

Zero-Coupon Bonds

Zero-coupon bonds represent the ownership of principal payments on U.S. government note or bonds. Unlike traditional bonds, zero-coupon bonds make no periodic interest payments. Instead, they are purchased at a substantial discount and pay face value at maturity. The value of these bonds is subject to market fluctuation. Their prices tend to be more volatile than bonds that pay interest regularly. And even though no income is paid, the inherent interest is still taxable annually as ordinary income.

Mutual Funds

Mutual funds are established by an investment company by pooling the monies of many different investors and then investing that money in a diversified portfolio of securities. These securities are selected to meet the specific goals of the fund. The value of mutual fund shares fluctuates with market conditions so that, when sold, shares may be worth more or less than their original cost.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Independent College 500-Indexed Certificates of Deposit

The I.C. 500 is the College Board’s index of college inflation based on a survey of the costs at 500 independent colleges and universities. I.C. 500-indexed Certificates of Deposit are a relatively new funding vehicle offered by a few savings institutions. Their rate of return is linked to the I.C. 500 index.

Section 529 Plans

Section 529 Plans are also known as Qualified Tuition Plans. These state-sponsored and college-sponsored plans offer higher contributions than Coverdell IRAs along with tax-deferred accumulation. Once withdrawals begin, they are tax exempt as long as the funds are used to pay for qualified higher education expenses.

As with other investments, there are generally fees and expenses associated with participation in a Section 529 savings plan. In addition, there are no guarantees regarding the performance of the underlying investments in Section 529 plans. The tax implications of a Section 529 savings plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also note that most states offer their own Section 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.

Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options and underlying investments, can be obtained by contacting your financial professional. You should read this material carefully before investing.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is Asset Allocation? Lewis Carroll, the author of Alice’s Adventures in Wonderland, once said, “If you don’t know where you’re going, any road will get you there.” This is certainly true when it comes to investing: If you don’t know where you’re headed financially, then it is not as vital which investments make up your portfolio. If you do have a monetary destination in mind, then asset allocation becomes very important.

The term “asset allocation” is often tossed around in discussions of investing. But what exactly is it? Simply put, asset allocation is about not putting all your eggs in one basket. More formally, it is a systematic approach to diversification that may help you determine the most efficient mix of assets based on your risk tolerance and time horizon.

Asset allocation seeks to manage investment risk by diversifying a portfolio among the major asset classes, such as stocks, bonds, and cash alternatives. Each asset class has a different level of risk and potential return. At any given time, while one asset category may be increasing in value, another may be decreasing in value. Diversification is a method to help manage investment risk. Asset allocation and diversification do not guarantee a profit or protect against loss. So if the value of one asset class or security drops, the other asset classes or securities may help cushion the blow.

Dividing your investments in this way may help you ride out market fluctuations and protect your portfolio from a major loss in any one asset class. Of course, it is also important to understand the risk versus return tradeoff. Generally, the greater the potential return of an investment, the greater the risk.

As a result, the makeup of a portfolio should be based on your risk tolerance. Generally, you should not place all your assets in those categories that have the highest potential for gain if you are concerned about the prospect of a loss. It is essential to find a balance of asset classes with the highest potential return for your risk profile.

Other factors that are important to developing an asset allocation strategy are your investment goals and time horizon. When you are considering how to diversify your portfolio, ask yourself what you want to accomplish with your investments. Are you planning to buy a new car or house soon? Do you aspire to pay for your children’s college education? When retirement rolls around, would you like to travel and buy a vacation home? These factors should all be considered when outlining an asset allocation strategy.

If you require a specific amount of money at a point in the near future, you might want to consider a strategy that involves less risk. On the other hand, if you are saving for retirement and have several years until you will need the funds, you might be able to invest for greater growth potential, although this will also involve greater risks.

Whichever asset allocation scenario you decide on, it’s important to remember that there is no one strategy that fits every type of investor. Your specific situation calls for a specific approach with which you are comfortable and one that could help you pursue your investment goals.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Are the Different Classes of Assets? When it comes to investing their money, many people are content to take a random approach.

They may have received a hot tip for a particular investment and decided to plow a large amount of money into it with no regard to the overall balance of their portfolios.

However, research has shown that it is through the careful selection of the various asset classes, rather than the individual investments themselves, that people prosper financially.

One study showed that on average, as much as 91.5 percent of an investment portfolio’s overall return can be attributed to asset class selection.1

Therefore, the careful selection and distribution of your investments among the various asset classes is likely to prove crucial to the future success of your investment portfolio.

There are five broad asset classes that you should take into consideration when constructing your investment portfolio.

Cash refers to the most liquid holdings in your portfolio. It includes the balance in your checking account, money market account, and certificates of deposit.

Conventional wisdom holds that you should keep three to six months’ salary in cash to cover yourself in the event of an emergency.

Fixed-principal investments are those that do not put your principal at risk to market forces. Fixed annuities and trust deeds fall into this category.

Debt makes up the third asset class. It includes municipal, corporate, government, and government agency bonds. It also covers other debt-secured investments such as collateralized mortgage obligations.

Equity represents an ownership interest in a business entity; this class covers any investment you might make in stocks. It also covers any interest you may have in a closely held corporation or partnership.

Tangibles include your holdings in real estate, art, gold, precious stones, stamps, baseball cards, or other valuable collector’s items.

How you choose to distribute your investments among the various asset classes depends on your goals, your risk tolerance, and your expected rate of return.

Keep in mind that asset allocation does not guarantee a profit or protect against loss; it is a method used to help manage investment risk.

All investments are subject to market fluctuation, risk, and loss of principal. When sold, investments may be worth more or less than their original cost.

Source: 1) Brinson, Singer, and Beebower, “Determinants of Portfolio Performance II: An Update,” Financial Analysts Journal, May-June 1991 (most current data available)

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Investment Risks Should I Know About? Taken by itself, the word "risk" sounds negative. But broken down into what it really stands for in terms of investing, it begins to be a little more manageable. By understanding the different types of risk and keeping an eye on your investments, you may be able to manage your money more effectively. Remember, strategic investing doesn’t mean "taking chances" so much as "making decisions." Long-term investing and diversification may be some of the most effective strategies you can use to help manage investment risk; however, neither guarantees against investment loss.

Inflation Risk

The main risk from inflation is the danger that it will reduce your purchasing power and the returns from your investments. If your savings and investments are failing to outpace inflation, you might consider investing in growth-oriented alternatives such as stocks, stock mutual funds, variable annuities, or other vehicles.

Interest Rate Risk

Bonds and other fixed-income investments tend to be sensitive to changes in interest rates. When interest rates rise, the value of these investments falls. After all, why would someone pay full price for your bond at 2% when new bonds are being issued at 4%? Of course, the opposite is also true. When interest rates fall, existing bonds increase in value.

Economic Risk

When the economy experiences a downturn, the earnings capabilities of most firms are threatened. While some industries and companies adjust to downturns in the economy very well, others — particularly large industrial firms — take longer to react.

Market Risk

When a market experiences a downturn, it tends to pull down most of its securities with it. Afterward, the affected securities will recover at rates more closely related to their fundamental strength. Market risk affects almost all types of investments, including stocks, bonds, real estate, and others. Historically, long-term investing has been a way to minimize the effects of market risk.

Specific Risk

Events may occur that only affect a specific company or industry. For example, the death of a young company’s president may cause the value of the company’s stock to drop. It’s almost impossible to pinpoint all these influences, but diversifying your investments could help manage the effects of specific risks.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is the Difference Between a Fixed Annuity and a Variable Annuity? An annuity is a contract with an insurance company in which you make one or more payments in exchange for a future income stream in retirement. The funds in an annuity accumulate tax deferred, regardless of which type you select. Because you do not have to pay taxes on any growth in your annuity until it is withdrawn, this financial vehicle has become an attractive way to accumulate funds for retirement.

Annuities can be immediate or deferred, and they can provide fixed returns or variable returns.

Fixed Annuity

A fixed annuity is an insurance-based contract that can be funded either with a lump sum or through regular payments over time. In exchange, the insurance company will pay an income that can last for a specific period of time or for life.

Fixed annuity contracts are issued with guaranteed minimum interest rates. Although the rate may be adjusted, it should never fall below a guaranteed minimum rate specified in the contract. This guaranteed rate acts as a “floor” to potentially protect a contract owner from periods of low interest rates.

Fixed annuities provide an option for an income stream that could last a lifetime. The guarantees of fixed annuity contracts are contingent on the financial strength and claims-paying ability of the issuing insurance company.

Immediate Fixed Annuity

Typically, an immediate annuity is funded with a lump-sum premium to the insurance company, and payments begin within 30 days or can be deferred up to 12 months. Payments can be paid monthly, quarterly, annually, or semi-annually for a guaranteed period of time or for life, whichever is specified in the contract. Only the interest portion of each payment is considered taxable income. The rest is considered a return of principal and is free of income taxes.

Deferred Fixed Annuity

With a deferred annuity, you make regular premium payments to an insurance company over a period of time and allow the funds to build and earn interest during the accumulation phase. By postponing taxes while your funds accumulate, you keep more of your money working and growing for you instead of paying current taxes. This means an annuity may help you accumulate more over the long term than a taxable investment. Any earnings are not taxed until they are withdrawn, at which time they are considered ordinary income.

Variable Annuity

A variable annuity is a contract that provides fluctuating (variable) rather than fixed returns. The key feature of a variable annuity is that you can control how your premiums are invested by the insurance company. Thus, you decide how much risk you want to take and you also bear the investment risk.

Most variable annuity contracts offer a variety of professionally managed portfolios called “subaccounts” (or investment options) that invest in stocks, bonds, and money market instruments, as well as balanced investments. Some of your contributions can be placed in an account that offers a fixed rate of return. Your premiums will be allocated among the subaccounts that you select.

Unlike a fixed annuity, which pays a fixed rate of return, the value of a variable annuity contract is based on the performance of the investment subaccounts that you select. These subaccounts fluctuate in value with market conditions and the principal may be worth more or less than the original cost when surrendered.

Variable annuities provide the dual advantages of investment flexibility and the potential for tax deferral. The taxes on all interest, dividends, and capital gains are deferred until withdrawals are made.

When you decide to receive income from your annuity, you can choose a lump sum, a fixed payout, or a variable payout. The earnings portion of the annuity will be subject to ordinary income taxes when you begin receiving income.

Annuity withdrawals are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made prior to age 59½. Surrender charges may also apply during the contract’s early years.

Annuities have contract limitations, fees, and charges, which can include mortality and expense risk charges, sales and surrender charges, investment management fees, administrative fees, and charges for optional benefits. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.

Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is an Annuity? An annuity is a contract with an insurance company that is funded by the purchaser and designed to generate an income stream in retirement. It is a flexible financial vehicle that can help protect against the risk of living a long time because it provides an option for a lifetime income.

Two advantages of annuities are that the funds accumulate tax deferred and they can be distributed in a variety of ways to the contract owner.

There are many different types of annuities. Immediate annuities are designed to provide income right away, whereas deferred annuities are designed for long-term accumulation. Some annuities offer a guaranteed rate of interest, whereas others do not.

Generally, annuities have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges, plus a 10 percent federal income tax penalty if made prior to age 59½. Withdrawals reduce annuity contract benefits and values. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. For variable annuities, the investment return and principal value of an investment option are not guaranteed. Variable annuity subaccounts fluctuate with changes in market conditions; thus, the principal may be worth more or less than the original amount invested when the annuity is surrendered.

Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is a Mutual Fund Load? Mutual fund transactions can be complicated, especially with the fees and expenses that accompany the process. It’s important to understand mutual fund load, or sales, charges, and exactly what they entail so you can make informed investing decisions.

A “load” is a fee charged to an investor who buys or redeems shares in a mutual fund. It is similar to the commission that investors pay when they purchase a stock. There are two general types of sales loads. If a sales load is required at purchase, it is called a “front-end” sales load; if it is charged when shares are redeemed, it is a deferred or “back-end” sales charge.” The most common type of back-end sales load is a “contingent deferred sales charge” or CDSC. The amount will depend on how long an investor held the shares, and it could be nothing if they were held long enough.

Loads generally compensate brokers and/or salespeople for selling you a fund. For example, it might help compensate a financial professional who spends time with you at the beginning of your relationship, learning about your objectives and helping with your investment program. Brokers might also continually keep in touch with you and answer any questions you have. This communication can be particularly handy for busy people whose idea of investment tracking amounts to little more than an occasional call to their financial professionals.

Funds without load fees are called “no-load funds.” These funds are distributed directly by the investment company and therefore do not need to charge for brokerage services.

Despite this, all funds, even those with load charges, also have management and expense fees. Management fees pay for the administration of the fund and are usually based on a percentage of the fund’s assets. There are also 12b-1 fees, or distribution fees, that compensate brokers and other sellers of mutual funds for advertising and marketing costs. These fees are typically a very small percentage of the fund’s assets, often less than a half percent.

Funds that charge loads may have lower 12b-1 fees and administration fees, so when you are deciding which type of mutual fund to purchase, it is important to review all the costs and fees involved to see which funds may work best for your investment purposes. Fees and expenses vary from one fund to the next. When assessing different mutual funds, a fund with higher fees and expenses would need to generate higher returns than another fund with lower fees as higher fees can lower your returns.

Mutual fund share prices fluctuate with market conditions. Shares, when sold, may be worth more or less than their original cost. Investments seeking to achieve higher rates of return also involve greater risk.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is a Closed-End Fund? Closed-end funds have been around since 1893, more than 30 years before the first mutual fund (also known as an open-end fund) was created in the United States. However, closed-end funds are much less common than open-end funds. There are fewer than 600 closed-end funds on the market, whereas there are more than 8,000 mutual funds available.

Closed-end funds are similar to open-ended mutual funds in that investors pool their money together to purchase a professionally managed portfolio of stocks and/or bonds. They also have dividends and capital gains that are distributed annually. In other ways, they are very different. Closed-end funds actually have more in common with stocks or exchange-traded funds (ETFs), but they are actively managed.

Closed-end funds have an initial public offering (IPO) with a fixed number of shares to sell to investors. After that point, the investment company usually does not deal with the public directly, and any investors who want to purchase shares must do so on a secondary market, such as the New York Stock Exchange. A closed-end fund’s investment portfolio is generally managed by a separate entity, known as an “investment adviser,” that is registered with the Securities and Exchange Commission.

Shares are bought and sold on the open market, creating a situation in which investor activity does not significantly impact decisions on handling the funds. The market price of closed-end fund shares trading on a secondary market is determined by supply and demand, not by the shares’ net asset value (NAV). Although closed-end funds start with a NAV, the trading price may be higher or lower than that value. If the price is higher, shares are selling at a “premium.” If the price is lower, they are selling at a “discount.”

If you are considering investing in a closed-end fund, there are some things to be aware of. Closed-end funds have broker trading fees and are considered riskier than open-ended mutual funds. They can invest in a greater amount of illiquid securities and can use leveraging methods usually avoided by mutual funds. Because they are harder to sell, they are less liquid than mutual funds. Closed-end funds are generally not redeemable. The investment company does not have to buy back shares to fulfill investor demand. And closed-end funds often charge between 1% and 2% annually for management fees.

Some people consider investing in closed-end funds because they are designed to provide a stream of income, often on a monthly or quarterly basis. Closed-end funds also could provide an important diversification element to their portfolios. Diversification is a method to help manage investment risk, but it does not guarantee a profit or protect against investment loss.

The value of closed-end fund and mutual fund shares fluctuate with market conditions. Shares, when sold or redeemed, may be worth more or less than their original cost.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Source: 1) Investment Company Institute, 2015

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is a Mutual Fund? Since the creation of the first modern-day mutual fund, the Massachusetts Investors Trust, in 1924, there has been a steady growth of mutual funds. Today there are over 8,000 mutual funds.1 Because of their convenience and flexibility, you might want to consider including mutual funds in your investment portfolio.

A mutual fund is a collection of stocks, bonds, and other securities that is purchased and professionally managed by an investment company with the capital from a group of investors. When you invest in a mutual fund, the investment company pools your money with that of other investors that is invested to pursue the objectives stated in the mutual fund prospectus.

As a mutual fund shareholder, you gain an equity position in the fund and, therefore, in all of the underlying securities. You share in any gains and/or losses of the fund. The mutual fund manager trades securities, incurring capital gains or losses, and generates dividend or interest income. Some mutual funds hold securities that offer the potential for capital appreciation. When these securities are sold by the fund, it distributes the profits from the sale to its shareholders in the form of capital gains. Most mutual funds will automatically reinvest your dividends and capital gains in additional shares, if you’d like.

You can redeem your mutual fund shares at any time for their current market value. The value of mutual fund shares is determined daily, based on the total value of the fund divided by the number of shares purchased. The return and principal value of mutual fund shares fluctuate with market conditions; shares, when redeemed, may be worth more or less than their original cost.

Purchasing shares in a mutual fund can give you access to a diversified portfolio, often without having to spend a large chunk of money and time deciding which types of individual securities to purchase on your own. In addition, you benefit from having your investment managed by a financial professional. Diversification is a method to help manage investment risk, but it does not guarantee a profit or protect against investment loss.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

Source: 1) Investment Company Institute, 2015

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

How Do Mutual Funds and Stocks Differ? Whether you’re a first-time stock investor or a seasoned veteran, you should understand what differentiates single stock investments from mutual fund investing.

First, Some Working Definitions

Picture a collection of stocks, bonds, or other securities that are purchased by a group of investors and then managed by an investment company. That’s a mutual fund.

When you buy a share in a fund, you’re really buying a piece of a large, diverse portfolio. Conversely, stocks are shares of a single company.

Stocks vs. Funds:

The Management

When it comes to managing an investment, some investors prefer leaving those details and skills to someone else.

They like having a professional manager oversee the day-to-day decisions that a changing stock investment involves and see that as a distinct advantage. A good manager, they might argue, has access to information that would cost them an exorbitant amount, even if they had the time and inclination to do the work themselves.

On the other hand, some investors would never surrender control of their investments. Part of the thrill of investing is knowing that when they succeed it was due to their own decisions, these investors might say.

Individual comfort level plays a big part in your investment choice.

Diversifying Matters

When one security in a fund drops, an insightful fund manager may have included stocks that could cushion or offset that loss. Diversification is a big selling factor for mutual funds.

But that’s not to say that an investor couldn’t diversify via his or her own stock selections. Diversification does not guarantee a profit or protect against investment loss; it is a method used to help manage investment risk.

Liquidity

Fund investors can cash in on any business day.

When you sell a stock, you must wait three business days before the trade settles and your money is released.

The Issue of Red Tape

Mutual fund investors often cite transaction ease as an inviting factor. And it is hard to beat the convenience of having records and transactions handled for you, while periodically receiving a detailed statement of your holdings.

Transacting business with stocks can be a more complicated experience. Placing buy orders, selling shares, or dictating any number of orders can be time-consuming. To some, however, that’s just part of the experience.

In summary, fund investors are often attracted by the overall convenience. By way of contrast, stock investors may tend to be more comfortable with their own investing skills.

Remember the value of both mutual funds and stocks will fluctuate with changes in market conditions, and when sold the investor may receive back more or less than their original investment amount.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

What Is a Stock Index? In 1884, Charles Henry Dow averaged the closing prices of 11 stocks he considered representative of the strength of the U.S. economy in a paper that preceded The Wall Street Journal. By 1896, The Wall Street Journal was publishing this average on a regular basis, and the most famous indicator of stock market performance was born: the Dow Jones Industrial Average (DJIA or Dow).

Most people have heard of the Dow, as well as a few other well-known stock indexes that track the overall direction of the market. Indexes and averages serve as useful benchmarks against which investors can measure the performance of their own portfolios. Depending on its makeup, a stock index can give investors some idea about the state of the market as a whole or a certain sector of the market. Conceptually, a shift in the price of an index represents an equitable change in the stocks included in the index.

Basically, indexes are imaginary portfolios of securities that represent a particular market or section of the market. Each index has its own method of calculating a change in its base value, often expressed as a percentage change. Thus, you might hear that an index has risen or fallen by a certain percentage. Although you can’t invest directly in an unmanaged index, you can invest in an index mutual fund that attempts to mirror a particular index by investing in the securities that comprise the index. The performance of an unmanaged index is not indicative of the performance of any specific investment.

Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

All the stocks in an index typically have at least one element in common. They might trade on the same stock market exchange, belong to the same industry, or have similar market capitalizations. Some of the more widely known indexes are the Dow, the S&P 500, the Nasdaq Composite, the Wilshire 5000, and the Russell 2000.

The Dow Jones Industrial Average

The Dow is an index of widely held “blue-chip” stocks that is used as an indicator of the performance of U.S. industrial stocks. Unlike most other major indexes, the stocks in the Dow are unweighted by market capitalization. The 30 stocks included in the Dow are all major factors in their industries. Many have become household names: American Express, Boeing, Coca-Cola, General Electric, Hewlett-Packard, IBM, Intel, Johnson & Johnson, McDonald’s, Microsoft, Procter & Gamble, Walt Disney, and Wal-Mart.

S&P 500

The Standard & Poor’s 500 is an index of 500 of the most widely held stocks — leading companies from all sectors of the economy — chosen for their market size, liquidity, and industry group representation. Because some stocks influence the market more than others, each stock is given a different weight when the calculations are made. This is called “market-capitalization weighting,” which is the type of weighting used for the Nasdaq Composite, the Wilshire 5000, and the Russell 2000. Over 80% of all U.S. equity is tracked by the S&P 500.

Nasdaq Composite Index

The National Association of Securities Dealers Automated Quotation system, or NASDAQ, represents all domestic and non-U.S. based common stocks traded on The NASDAQ Stock Market. It includes over 3,000 companies — more than most other stock indexes —many of which are in the technological field. Of course, The NASDAQ Stock Market isn’t restricted to technology issues. Many other well-known companies, such as Starbucks and Amgen, are listed there. The NASDAQ Stock Exchange was established in 1971 as the world’s first electronic stock market.

Wilshire 5000

Probably the most broadly based market index is the Wilshire 5000 Total Market Index. Originally comprising 5,000 stocks, the Wilshire 5000 now uses more than 5000 market capitalization–weighted security returns to adjust the index. The index tracks the overall performance of stocks actively traded on the American stock exchanges; the companies are all headquartered in the United States.

Russell 2000

Started in 1972, the Russell 2000 Index gauges the performance of 2,000 “small cap” stocks that are often omitted from large indexes. This market capitalization–weighted index serves as a benchmark for small-cap U.S. stocks and could be useful for tracking small companies with growth potential.

* * *

Market indexes are useful for assessing the historical performance of investment portfolios over time, but they don’t reveal important details about the companies they track. They also have certain biases inherent in their statistical calculations. Remember that past performance is not a guarantee of future results.

If your portfolio lags substantially behind a corresponding index, it may be time to reevaluate and reallocate assets. Be sure to select an appropriate index as your benchmark. For example, comparing a small-cap stock portfolio to the Dow Jones Industrial Average may not be very meaningful; comparing it to the Russell 2000 Index would be more appropriate. When selecting stocks, it’s prudent to keep an eye on long-term performance based on certain fundamentals that may or may not be subject to market trends.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC