Get the Money Out of Your Hands - Part 2 of 3 Parts
Remember now, Wilma is looking for money for 3 things: the emergency fund, the 401(k)'s, and the debt destruction engine.
The emergency fund will be used to pay for the things that were covered in the past by survival crutches.
Then, if possible, she would like to start investing in their future by contributing to their 401(k)'s and by running a debt destruction engine.
She has thus far rustled up an extra $175 a month by lowering their income tax withholding.
Since the two new term life insurance policies in the right amounts with a company with a solid rating are now in force and she has received documentation establishing this beyondanydoubt, she now cashes in the whole life policies and uses this money to start the emergency fund at the bank.
Both of their payroll checks are already set up for automatic deposit.
After she cuts out the weenie tax and finds as much money as possible in LEX Cash (reductions in living expenses), she will arrange for part of their payroll checks to be automatically deposited into this second account, the emergency fund.
As long as they carry a checkbook only for the regular checking account, they will have gotten this emergency fund money out of their hands so they will not be tempted to use it on day to day expenses.
Wilma sets out now to actually cut out the weenie tax.
She calls insurance agents, finance companies, the mortgage company, credit card companies, banks, and the group that handles the repair contract that covers her appliances.
As she does this, everything is not sweetness and light.
There are folks who argue with her and try to get her to keep the coverage she wants to cancel.
(They do not interrupt your supper to ask you to take one of these "crutches" because they like you.
These nickel and dime coverages taken by millions of people across the country bring in hundreds of millions of dollars.
) She persists and insists that they desist and they resist but then just do justice in this.
(I think I just slobbered on myself.
Suffering succotash!) She and Ted have been paying $410 a year extra for the deductible on the first car to be lowered from $500 to $250.
To save this $410, she raises the deductible to $500.
Then she saves $390 a year by raising the deductible on the second car to $500.
She cancels the towing coverage on both cars and kills the "death, dismemberment, loss of sight" coverage on both cars.
She drops the car phone/audio equipment coverage on both cars.
She terminates the medical insurance on both cars.
She shakes her head and wonders why she has never realized how unnecessary this coverage is.
Their hospitalization plan is in force whether they are in a car or not.
She cuts out the rental car reimbursement coverage on their auto insurance.
Then she sees the last item on the auto insurance part of the list and she shakes her head again so hard that it almost falls off.
They are actually carrying full coverage on a 16-year old clunker pickup that Ted keeps at his Uncle Bob's camp house at the lake! They use this vehicle that has no book value at all to cruise the dirt roads and slide around in mud holes.
They are even paying extra to get a lower deductible! Wilma cancels the full coverage on this mud cruiser and takes only liability with the largest permitted deductible.
Now she starts feeling really good about herself and almost enjoys the resistance these mudsuckers are putting up! She has become a lean mean canceling machine! (We'll have to bring George Foreman on board to help sell this.
) She calls the bank that holds the mortgage and cancels the mortgage protection insurance.
She now has enough term life insurance that is renewable and convertible to pay for the funeral(s) and to pay off all debt including the mortgage with money left to invest for the children's education needs and to invest to support survivors in a comfortable lifestyle.
She calls the credit card companies and the finance companies and cancels charge guard protection, credit life insurance, and credit disability insurance.
She calls one finance company to cancel an extended warranty that has 15 months left to go on it.
This extended warranty on one of their cars is part of the original financing package.
She cancels it and this causes the total balance due to go down and makes the monthly payment a little lower.
She calls the bank that holds the note on the other car and cancels the extended warranty on it.
Now she stands up after each call and performs a little "in your face" dance.
She is so excited in her euphoria that she mistakenly gives a dyslexic impersonation of Mohammed Ali: "I sting like a butterfly and dance like a bee!" She cancels a cash-per-day-of-hospitalization policy, a cancer policy, and a school accident policy.
Her children are already covered by their hospitalization plan and the school accident coverage is an inefficient add-on.
She calls to cancel the repair contract on her major appliances.
The contract costs $225 a year.
She is unfortunately locked in for 6 more months because she has signed a contract.
She asks them to please note in her account that she does not wish to renew at the end of the contract period.
She makes a note in her tickler file to remind her to call them six months hence to make sure the contract is not renewed.
She cancels a supplemental accident policy.
This is coverage that pays an extra amount if the insured dies in a particular way.
The high premium relative to the death benefit and the odds of collecting make this an inefficient coverage.
Next comes another "head shaker.
" They are paying $35 a month for a weird policy they got through the mail.
It covers the $250 deductible on one auto policy.
They are paying someone $420 a year so they can receive $250 if they file a claim.
These folks will, no doubt, cancel the policy if Wilma and Ted file more than one claim in a two-year period.
There is actually no phone number to be found for these fly-by-night operators.
So, she will just not pay the premium any more and writes them a letter, just to be sure, canceling "this valuable coverage.
" Now, Wilma is starting to feel like Forest Gump when he stopped running in Arizona.
"I'm tired...
I'm goin' home now.
" She has been fighting the purveyors of survival crutches all afternoon and is exhausted.
There is, however, one more crutch to deal with.
She and Ted have a whole life insurance policy on each of their 3 children with a death benefit of $50,000.
She now understands that, generallyspeaking, there are more efficient ways to cover this contingency than a whole life policy with a high death benefit.
But, she is just not comfortable with changing the policies too much.
This brings us to an important point.
I am not offering you a rigid legalistic structure with fixed rules.
I am getting you to develop a sense of how this whole "weenie tax" thing works.
If you want to cut out most of the survival crutches, but are emotionally bound to a few of them and cannot cut these few out, that is perfectly legitimate.
If you cut out all the other survival crutches and keep the existing insurance on children, the strategy will still free up money for investing and killing debt.
When Wilma is more confident in her ability to run the debt destruction engine 3 or 4 years from now, she may feel that she has enough money built up in her emergency fund to cover this contingency.
She may at that time be comfortable with changing this coverage substantially and drop it as low as $10,000.
But for now, she decides to keep it.
She does, however, feel that $50,000 is an excessive death benefit.
She contacts the insurance representative and has the death benefit on each policy reduced to $20,000.
The emergency fund will be used to pay for the things that were covered in the past by survival crutches.
Then, if possible, she would like to start investing in their future by contributing to their 401(k)'s and by running a debt destruction engine.
She has thus far rustled up an extra $175 a month by lowering their income tax withholding.
Since the two new term life insurance policies in the right amounts with a company with a solid rating are now in force and she has received documentation establishing this beyondanydoubt, she now cashes in the whole life policies and uses this money to start the emergency fund at the bank.
Both of their payroll checks are already set up for automatic deposit.
After she cuts out the weenie tax and finds as much money as possible in LEX Cash (reductions in living expenses), she will arrange for part of their payroll checks to be automatically deposited into this second account, the emergency fund.
As long as they carry a checkbook only for the regular checking account, they will have gotten this emergency fund money out of their hands so they will not be tempted to use it on day to day expenses.
Wilma sets out now to actually cut out the weenie tax.
She calls insurance agents, finance companies, the mortgage company, credit card companies, banks, and the group that handles the repair contract that covers her appliances.
As she does this, everything is not sweetness and light.
There are folks who argue with her and try to get her to keep the coverage she wants to cancel.
(They do not interrupt your supper to ask you to take one of these "crutches" because they like you.
These nickel and dime coverages taken by millions of people across the country bring in hundreds of millions of dollars.
) She persists and insists that they desist and they resist but then just do justice in this.
(I think I just slobbered on myself.
Suffering succotash!) She and Ted have been paying $410 a year extra for the deductible on the first car to be lowered from $500 to $250.
To save this $410, she raises the deductible to $500.
Then she saves $390 a year by raising the deductible on the second car to $500.
She cancels the towing coverage on both cars and kills the "death, dismemberment, loss of sight" coverage on both cars.
She drops the car phone/audio equipment coverage on both cars.
She terminates the medical insurance on both cars.
She shakes her head and wonders why she has never realized how unnecessary this coverage is.
Their hospitalization plan is in force whether they are in a car or not.
She cuts out the rental car reimbursement coverage on their auto insurance.
Then she sees the last item on the auto insurance part of the list and she shakes her head again so hard that it almost falls off.
They are actually carrying full coverage on a 16-year old clunker pickup that Ted keeps at his Uncle Bob's camp house at the lake! They use this vehicle that has no book value at all to cruise the dirt roads and slide around in mud holes.
They are even paying extra to get a lower deductible! Wilma cancels the full coverage on this mud cruiser and takes only liability with the largest permitted deductible.
Now she starts feeling really good about herself and almost enjoys the resistance these mudsuckers are putting up! She has become a lean mean canceling machine! (We'll have to bring George Foreman on board to help sell this.
) She calls the bank that holds the mortgage and cancels the mortgage protection insurance.
She now has enough term life insurance that is renewable and convertible to pay for the funeral(s) and to pay off all debt including the mortgage with money left to invest for the children's education needs and to invest to support survivors in a comfortable lifestyle.
She calls the credit card companies and the finance companies and cancels charge guard protection, credit life insurance, and credit disability insurance.
She calls one finance company to cancel an extended warranty that has 15 months left to go on it.
This extended warranty on one of their cars is part of the original financing package.
She cancels it and this causes the total balance due to go down and makes the monthly payment a little lower.
She calls the bank that holds the note on the other car and cancels the extended warranty on it.
Now she stands up after each call and performs a little "in your face" dance.
She is so excited in her euphoria that she mistakenly gives a dyslexic impersonation of Mohammed Ali: "I sting like a butterfly and dance like a bee!" She cancels a cash-per-day-of-hospitalization policy, a cancer policy, and a school accident policy.
Her children are already covered by their hospitalization plan and the school accident coverage is an inefficient add-on.
She calls to cancel the repair contract on her major appliances.
The contract costs $225 a year.
She is unfortunately locked in for 6 more months because she has signed a contract.
She asks them to please note in her account that she does not wish to renew at the end of the contract period.
She makes a note in her tickler file to remind her to call them six months hence to make sure the contract is not renewed.
She cancels a supplemental accident policy.
This is coverage that pays an extra amount if the insured dies in a particular way.
The high premium relative to the death benefit and the odds of collecting make this an inefficient coverage.
Next comes another "head shaker.
" They are paying $35 a month for a weird policy they got through the mail.
It covers the $250 deductible on one auto policy.
They are paying someone $420 a year so they can receive $250 if they file a claim.
These folks will, no doubt, cancel the policy if Wilma and Ted file more than one claim in a two-year period.
There is actually no phone number to be found for these fly-by-night operators.
So, she will just not pay the premium any more and writes them a letter, just to be sure, canceling "this valuable coverage.
" Now, Wilma is starting to feel like Forest Gump when he stopped running in Arizona.
"I'm tired...
I'm goin' home now.
" She has been fighting the purveyors of survival crutches all afternoon and is exhausted.
There is, however, one more crutch to deal with.
She and Ted have a whole life insurance policy on each of their 3 children with a death benefit of $50,000.
She now understands that, generallyspeaking, there are more efficient ways to cover this contingency than a whole life policy with a high death benefit.
But, she is just not comfortable with changing the policies too much.
This brings us to an important point.
I am not offering you a rigid legalistic structure with fixed rules.
I am getting you to develop a sense of how this whole "weenie tax" thing works.
If you want to cut out most of the survival crutches, but are emotionally bound to a few of them and cannot cut these few out, that is perfectly legitimate.
If you cut out all the other survival crutches and keep the existing insurance on children, the strategy will still free up money for investing and killing debt.
When Wilma is more confident in her ability to run the debt destruction engine 3 or 4 years from now, she may feel that she has enough money built up in her emergency fund to cover this contingency.
She may at that time be comfortable with changing this coverage substantially and drop it as low as $10,000.
But for now, she decides to keep it.
She does, however, feel that $50,000 is an excessive death benefit.
She contacts the insurance representative and has the death benefit on each policy reduced to $20,000.
Source...