The Finatical
Week of August 16th, 2022 - Life Insurance, Bankers Take A Hit, Continued Interest Rate Hikes
Topic Breakdown - Learn about Life Insurance
Introduction
In today’s article, we will be covering what life insurance is, how expensive it can get, and what type of coverage you will need. Having a better understanding of how life insurance works, and how much coverage you need, can help you avoid unnecessary costs while still ensuring that your loved ones will be financially supported in the event of your death. Life insurance is a contract in which the insurer pays a sum of money to your beneficiaries in the event of your death. Term life insurance is purchased for a specific time period, typically between ten and thirty years. While premiums are low in comparison to permanent life insurance, they often increase at the end of each term. Permanent life insurance provides coverage for your entire lifespan. Although premiums are usually higher, most permanent life insurance policies have a cash value component. This is that a portion of each of your premium payments goes into a cash value account, and you can invest or borrow from this.
Contributing Factors
For the costs, premium rates vary widely for various types of life insurance. Other than the amount of coverage you want, the most influential factors are age, gender, medical history, smoking, and lifestyle. Bankrate.com says that “what you do for a living can also impact how much you pay for life insurance. If you are in a dangerous profession such as piloting, war reporting or law enforcement, you could have a greater mortality risk. Because of this, you might pay a bit more for life insurance,” and according to Business Insider, “the average cost of a life insurance policy ranges from $40 to $55 per month. The true cost varies by the type of insurance, coverage amount, and personal factors. Permanent insurance tends to be more expensive than term life insurance and is used differently.”
Identifying Your Requirements
You should also consider how much coverage you will need; this is primarily dependent on your family situation. A common rule of thumb is that you at least need coverage of your income multiplied by ten; however, this will not be the right amount for everyone. Consider how many dependents you have, how much income they would need to maintain their standard of living, and how long they will need financial support. Your mortgage, debts, and college education expenses for children should also be taken into account. To keep it simple, calculate your financial obligations and subtract your existing assets. This will determine how much coverage you need. Many people end up overpaying for life insurance. If your current savings will be enough to support your family, or if you are single and have no dependents, you may not need a life insurance policy at all.
Financial Trends
Bankers Take A Hit
So far this year, investment bankers have taken a hit in their equity and issuance of debt, as their bonuses have dropped by 50% compared to last year. Due to the economy, pay cuts are widely expected across the finance industry as the season for bonuses approaches. Bankers that are involved with underwriting securities face bonus cuts of 40-45% or more, depending on the sizes of the firms that they work at. As IPOs (initial public offerings) recently started to decline, Wall Street is struggling with the steep declines in capital market activity and the pace of acquisitions fell along with stocks having their worst first half since 1970.
Despite the U.S. adding a total of 59,575 new employees from 2020-2022 in the banking industry, they may eventually be forced to cut their jobs as the outlook of investment banking continues to look uncertain. Financial analysts and economists forecast there to be some layoffs in Wall Street, with there being 5-10% of staff job cuts as firms want their headcount to be low at the moment. According to Bloomberg, Credit Suisse is planning to cut thousands of jobs in the upcoming years as a part of a strategic review, focusing on supporting roles in the middle and back offices. There is still some good news for workers as firms will have to boost workers’ base salary by roughly 5% due to wage inflation and the necessity of retention.
Continued Interest Rate Hikes
This Saturday, Fed Governor Michelle Bowman said that she supported the Fed’s recent high-interest rate increase and also believes that it will continue at this rate until inflation is fully subsided. At the last two policy meetings, the Fed raised the benchmark borrowing rates by 75 basis points, which was the largest increase since 1994. Bowman also stated that with the hikes in interest rates, the Federal Open Market Committee has decided that an ongoing increase of interest rates will be appropriate for combating inflation. Multiple regional presidents have also said that they expect interest rates to continue to aggressively increase until inflation comes significantly down from its 9.1% annual rate.
After the latest job report which reported an addition of 528,000 in July and worker pay up by 5.2% year by year, which was both higher than projected, markets are now pricing in a 68% chance of a third consecutive 75 basis points increase at the next FOMC meeting in September. Bowman stated that she would be closely looking at the upcoming inflation data to decide exactly how much the interest rates should be increased at the next FOMC meeting. Regardless of the recent data showing that inflation may have peaked, Bowman said that she needs to see unambiguous evidence of inflation’s decline before easing the interest rate hikes. The biggest threat that excessive inflation would impose would be on the strong labor market, which if it were to occur would result in a further economic downfall and risking potential recession.
Financial Guidance
“Your assets are your employees. Invest more on those performing well. Let the non performers go.” - Manoj Arora
It’s important to determine which of your assets are bringing in consistent returns, and which ones are underperforming, as you want to stop investing in the ones that aren’t performing in order to free up more capital to invest in the ones that are or other assets that have potential.