Every year, when I get my bonus I think about how I will split up the money. A couple years back I received less than what I expected and discussed what to do if you receive an unexpectedly low bonus while last year I discussed what I would do with my larger than average bonus, and so following with tradition I will go into what I did with my bonus. I should mention that my bonuses aren’t huge as they usually equal less than 10% of my salary, it is just that they are a good amount all at once to hit my bank account. I also treat it like found money and who doesn’t like “finding” money?
- 25% Went into Hoard lots of cash for our future home purchase – I will chronicle this further as it comes up but looks like it is coming sooner than later with our target date to put our current house up on the market by March 1st…scary
- 5% when into my Traditional IRA for Tax Year 2011
- 5% when into my Son’s 529 – I have really been lacking in this category as The Wife and I have been so focused on getting our cash savings up to 25+% of a home purchase which in the areas we are looking will easily be above the $450,000 range.
- 5% when into my Dividend Investment Portfolio
- 5% went to pay off some of the principal of my ridiculous student loans – One of my goals is to kill off one of my student loans which has a remaining balance of a couple grand…luckily that will leave me with just $60,000 or so to go lol
- *10% when into life insurance* – This is the point of the article
- 10% is going to sit in my checking account as my actual useable bonus.
The other 35% will be likely allocated in February, which usually means it will be transferred into the operation hoard cash account.
Purchasing Paid Up Additions Within My Whole Life Insurance Policy
Even before I found out how much I was getting I knew I wanted to use some of this bonus towards my protection contracts. If I had I had to guess I am underinsured; actually I don’t have to guess I have 12 different tools at work that let me know I am woefully underinsured. Currently, I have $750,000 of life insurance broken up into two parts a whole life portion ($250K) and a term portion ($500K) that is set to increase yearly.
My initial goal was to increase my term coverage with a 20 year term policy. I ultimately decided against this for two reasons, one my available income ratio would decrease which wouldn’t be good for getting that mortgage I mentioned earlier, and two, I got blood work back the other day and it wasn’t that great. To be honest the second reason was much more in play then a little term policy hurting my debt to income ratio.
I called up my insurance agent despite who was in my wedding party and sold me insurance before I got into the business I am today and asked him to look at my blood results. He let me know that it was probably best not to apply for term for another couple months as I am working to shed a couple pounds.
So since I wasn’t paying for additional term what should I do with it? I decided to bump up my whole life insurance with a paid up addition.
What is a Paid Up Addition?
Every mutual life insurance company can provide you with a definition but why don’t we use a third party like wikipedia:
…if “paid-up additions” is elected, dividends will purchase additional death benefit which will increase the death benefit of the policy to the named beneficiary. Since this additional death benefit generates cash value, it also increases the cash value of the policy.
The wikipedia definition is referring to compounding dividends, but what I did was jump in with new money. Currently, the mutual company that my main policy is with is paying near 7% in dividends so I am happy to purchase a small little policy that is “paid up” and that will throw off that dividend rate while provide more death benefit in case I were to die. It is the same thing as compounding dividends.
Did you get a bonus this year? What did you do with it?