I have been following the bail out plea of the Big Three automakers of Detroit for quite a while now. Ford, General Motors and Chrysler, iconic brands of the American car industry are now in the brims of bankruptcy with government bailout being their only option for survival. As some one who has driven and owned some of their cars and as a fellow American it pains me to see the CEO’s of these companies mumbling lame answers for questions raised by the Congress. But much of this is their own making.

Even as their ideas of making gas guzzling cars in these days of fluctuating oil prices became a subject of debate, the CEO’s of the companies also came in for much criticism for flying in private jets to Washington to seek bailout for their companies from the Congress. That brings us to the question of austerity and cost cutting measures adopted by the CEO’s in their personal front, when they axe hundreds and thousands of jobs in the name of cost cutting.

There seem to be very few CEO’s who lead by example when it comes to implementing real cost cutting measures and austerity. The CEO of Japan Airlines for instance was in the news recently for taking a salary cut, making his pay much lower than what his pilots take home. The CEO slashed his pay to $90,000, something that most American middle level managers take home. And what a joke it was when the CEO’s of the Big three said that they will henceforth take home only $1 as their pay.

Having said that I should also add that it this seems to be the case only with the large corporations. I am sure new entrepreneurs and small corporations are feeling the heat of the recession even more due to their size and possibly inexperience in tackling such crises head on. And when it comes to survival, there does not seem to be much difference between the GM’s and Ford’s of the world and these small ventures. Like this entrepreneur’s experiences that he states in the ‘First time CEO’s recession survival guide’, you won’t own all the proceeds if the company succeeds, but you’ll certainly own a failure in its entirety.

The large corporations atleast have a well established board, wise bankers and investors advising them on handling recession. And most of these corporations have been there, done that and fairly know how to sail through the crises. But for entrepreneurs and first time CEO’s this is an acid test and a time when Darwin’s theory of ‘Struggle for existence and survival of the fittest’ really comes into play.

Call it sadistic pleasure, but it sort of makes me happy to know that whether the CEO of a Ford, GM, a new corporation like Redfin or an ordinary person like me, the recession hits us all and is a great equalizer that way.

 

Like a sort of trilogy to my previous two posts ‘Home owners insurance, explained’ and ‘Are you financially ready to welcome your new baby’ this blog on life insurance deals with the importance of providing financial security to the family in these uncertain times.

During my student days I worked part time as an insurance agent. The experience was an eyeopener for me. Had to undergo a lot of ‘doors-slammed-on-my-face’ and friends and acquaintances trying to avoid my gaze while crossing each other, just for the fear that I might coax them to buy a new policy. Even those customers who lend me an ear to know about the latest life insurance products would retort back with questions like, ‘ Are you trying to say I will die soon?’, or ‘How does it matter on who spends my money after I die?’.

I have only one question to ask those who always view life insurance with a negative perception. Do you get upset that the airbags in your car never came of use, despite you spending so much on it? Or do you worry that the helmet that you use for your weekend country side bike rides, never actually came of use because there was no accident? Life insurance is similar to that. A safety measure. Just that you would not be able to see and enjoy the fruits of it.

Who requires a life insurance policy? – Anybody with dependants like young children or a spouse should ideally have a life insurance policy. People usually buy life insurance policies after marriage or the birth of a child to ensure that in case of the untimely death, their dependents do not suffer financially. Having a policy becomes even more important if the spouse is non-working or if the child is too young and financially dependent on the parents.

Why take a policy when you are young? – We all get older as the years pass by and also get more susceptible to ailments like diabetes and high blood pressure, which in turn may lead to other health complications. By taking a policy when young we get to pay a smaller amount as premium for a longer period of time.

Types of policies – There are two types of policies,

1. Whole Life – This is for the entire life of the policy holder and will be valid as long as the premium is paid. In addition to the death benefit, there is also an ‘account’ that earns interest that however starts accumulating only in the 10th year or so of paying the premium. The premium paid is slightly higher than term policies.

2. Term Insurance – As the name suggests, it is for a specific term, say 3, 5 or 10 years and expires after that. The premium is fixed for a number of years and the older the policy holder is, higher will be the premium. So at the end of the term, if the policy holder wants to extend the tenure the premium to be paid will become higher. It is pure coverage, in the sense that it pays only upon the death of the policy holder. There are no other cash benefits. The premium paid is lower than that for whole life policies.

Types of death that a life insurance policy covers? – Life insurance policies usually cover death by natural causes. One can add an ‘accidental death benefit rider’ to the life insurance policy, to cover death of the policy holder due to an accident. The premium will be higher accordingly. In case of death due to suicide, the premium amount paid till date is returned. Death due to chronic illnesses like cancer and AIDS are also covered by such policies provided the policy holder has paid the premium for a minimum number of years. The number of years varies from one insurer to another. To cover critical illnesses like HIV/AIDS, cancer and paralysis, one can go in for critical illness insurance which fellow blogger HillsPersonalFinance explains.

How much can you insure yourself for? – It all depends on your income levels, the sum that you feel would be adequate to provide your dependents after your demise and how much you can spare on a monthly, quarterly or yearly basis. Insurance4USA provides an insurance calculator that helps you calculate the amount of life insurance that you need.