money

Life insurance can provide financial security to your loved ones even when you’re still alive

Fact checked by Vikki Velasquez

Life insurance is a product that provides your loved ones financial support in the event of your passing. Life insurance can also offer several benefits while you are still alive. What you’ll get from a policy depends on the type of coverage. By understanding the benefits, you can find the right fit for your family’s needs. 

Key Takeaways

• Life insurance provides financial protection for your family during your life and after your death.
• Benefits are generally tax-free, ensuring your beneficiaries receive the full amount to cover expenses without tax deductions.
• Life insurance can help replace lost income, pay off debts, and fund future goals like education or childcare, offering financial stability for your family.
• Policies can be tailored to meet your family’s specific needs, whether it be for chronic illness, long-term care, or other specialized coverage.
• Most permanent life insurance combines a death benefit with a savings component. Term policies just have the death benefit.

Types of Life Insurance

There are two umbrella types of life insurance: term and permanent. Term life insurance covers you for a set period and then expires if you outlive the term. Permanent insurance covers a lifetime as long as you make the premium payments.

Permanent life insurance policies can also include cash value, which is money you can take out while alive. Term policies do not include this extra benefit. In exchange, term policies are much cheaper than permanent policies.

Now that you understand the fundamentals let’s look at the main benefits of life insurance for families.

1. Coverage for Final Expenses

According to the National Funeral Directors Association, the median cost of a funeral is $8,300 for a burial with a casket and $6,280 for a cremation. Additional final expenses that many do not consider are medical bills resulting from your passing and estate settlement costs. These bills are significant for many families with already tight budgets, and life insurance can alleviate the burden of these expenses during this difficult time.

TIp

While thinking about your funeral is not probably making the top ten list of daydreams, planning for it when you’re young means better health when you apply and cheaper premiums. 

2. Financial Security for Your Family

In addition to paying for final and funeral expenses, replacing lost income and death repayment are the other most common reasons people get insurance. 

According to financial advisor Prince Dykes, “Unfortunately, the risk of death is certain and, in the event of the untimely death, the family will have the necessary funds to cover living expenses, debts, and future financial goals, such as children’s education.” 

If you’re your family’s primary earner, a policy that covers essential expenses like mortgage payments, utility bills, debt repayments, and daily living costs can offer you tremendous peace of mind that your family can maintain their standard of living in the event of your passing. 

When deciding how much life insurance you need, a general standard is to have coverage at least ten times your income. This safety net is enough for most families to continue on comfortably while they navigate life without you. 

There is a common misconception that stay-at-home spouses do not need life insurance because they do not contribute financially to their families, but that is simply not true.

“Life insurance protects families from financial shocks due to the loss of an income earner OR stay-at-home parent said Sybil S. Slade, President of IntegriVest Wealth Advisors.

Note

The death benefit from life insurance can help cover household expenses, childcare costs, and other financial needs after losing a stay-at-home spouse. 

3. Life Insurance Payouts Are Income Tax-Free

“Life insurance death benefits paid out to beneficiaries are generally tax-free, meaning that the full amount can be used for financial support without tax implications,” said Dykes. The Internal Revenue Service (IRS) does not charge income tax on life insurance death benefits.

While the IRS could charge estate taxes on life insurance death benefits, these only apply to the very wealthy. In 2025, you can leave up to $13.99 million of property at death to your heirs, including the life insurance payout, without owing estate taxes. For this reason, most heirs receive everything tax-free.

Because your loved ones don’t have to worry about paying taxes on your death benefits, every dollar of your policy can support their financial needs, whether for current expenses or future plans like education planning.

4. Coverage for Chronic and Terminal Illnesses

Many policies allow you to add riders to your policy to provide benefits for chronic or terminal illnesses. These riders will enable you to receive some of your death benefits while you’re still alive to cover medical treatments, caregiving, or other related expenses. These expenses may include day-to-day living expenses if you are unable to work.

Accelerated benefits riders are one rider that allows you, as the policyholder, to access part or all of your death benefits before you pass away. Accelerated benefits riders are designed to protect those who suffer from terminal illnesses, chronic illnesses, or other medically incapacitating conditions.

Another common rider is one for long-term care (LTC). These LTC riders pay for the expenses that medical insurance typically does not cover. These expenses include skilled nursing facilities, long-term care facilities, and home healthcare support. LTC policy riders may have a waiting period before benefits start. You may receive benefits after this waiting period (typically 90 days) as a lump sum payment or a monthly percentage of your death benefit. 

5. Cash Value

Permanent life insurance products accumulate cash value over time. The cash value in your permanent policy acts like a savings component that grows with every passing year from your premium payments and an investment return. The steady growth in the account will likely not rival the stock market, but it can provide a safety net for families that need cash.

Dykes reminds us that “cash value accumulated in whole life insurance policy grows on a tax-deferred basis, meaning policyholders won’t pay taxes on the growth until they withdraw it. In certain cases, policyholders can borrow against their cash value without triggering a tax event, provided the policy remains in force.” This tax-advantaged status may make borrowing against life insurance preferential to withdrawing funds from investments subject to capital gains taxes. 

While life insurance is part of a comprehensive financial plan, not the entire one, cash-value loans are still viable for unexpected emergencies or other expenses like car purchases, home down payments, or college costs. Though you will pay interest on your loan, you may find that the rates are exceptional compared to other financial institutions or student loan providers.

What Are the 5 Types of Life Insurance?

Term life, whole life, universal life, variable life, and final expense are the five main types of life insurance. Each policy is unique in its features, benefits, and costs. You may need more than one policy or more than one type of policy to cover your financial needs cost-effectively. 

What Is the Best Age To Get Life Insurance?

Some people think you don’t need life insurance until you have people depending on your income, but that’s not exactly true. Your health, age, and your policy specifications determine premiums. Therefore, the younger you get your life insurance, the lower your premiums. Buying early also sets your coverage up for future goals and would give your loved ones money to cover your final expenses, an important need even if you don’t have any dependents. 

How Do I Name Beneficiaries?

You must designate a beneficiary for your policy when you apply for your insurance. You may also choose to designate contingent beneficiaries as a backup. You should review these named beneficiaries regularly and update them as necessary. It is imperative that your beneficiary on your policy accurately reflects who you want to receive the money because the name listed on the account paperwork overrides any beneficiary listed in the will.

How Do Beneficiaries Receive Their Money?

When you die, your loved ones will contact the life insurance company holding your policy and fill out their paperwork. Once complete, the insurance company pays your family the death benefit, less any outstanding loans, in a lump sum payment. The death benefit is typically tax-free for your beneficiaries.

How Is the Price of Life Insurance Determined?

The key factors influencing premium costs are age, health, lifestyle habits, gender, policy type, and coverage. Generally speaking, the longer the life insurance company expects you to live from the date of application, the lower your costs.

The Bottom Line

Life insurance is a tool to help you protect your family’s future whether you’re no longer around or need some support reaching your goals together. It can cover final expenses and provide tax-free payouts after death. Furthermore, it can also help pay your bills while you’re still alive, support your medical needs, or even pay for college. Life insurance provides a safety net for the unexpected and builds stability for your loved ones while you’re around to enjoy it. 

Fact checked by Suzanne Kvilhaug

What is success, and how do you achieve it? Experts suggest that it means different things to different people. However, there is a commonly held belief that success is related to accomplishment. This can mean achieving personal, financial, educational, and/or career goals. While luck and fortune may have a hand in your success, forming good habits can get you there quicker. We’ve highlighted some key habits successful people form and what you can do to adopt them into your own life and career.

Key Takeaways

• Organization, taking action, and getting up early can help keep you on track to meet your goals.
• It’s important to take time for personal care and relaxation while having a positive attitude.
• Don’t forget that networking, collaboration, reading, and continuing education can help you achieve your goals.
• There’s nothing wrong with being frugal, but don’t forget to give back to help foster a sense of purpose and community.

1. Organization

If you want to be successful in any aspect of your life, you need to be organized. When you’re organized, you can manage your time better, and you can remain focused on your priorities. Organized people tend to be planners, are generally neat and orderly, and often have a sense of control.

2. Relaxation and Meditation

There’s a saying that the road to success is paved with failure, which can be very frustrating. And it’s no secret that money can be stressful. In fact, some 47% per Americans say money has negatively impacted their mental health.

One way many successful people navigate turbulent times is by relaxing and meditating. Meditative techniques can help you focus, tap into your creativity, and promote overall well-being.

“Healthy active rest is a vital part of brain and body care,” said Allison Task, a life coach in Montclair, New Jersey. “People who are continually stressed wear themselves down and ultimately get less done.”

Apple (AAPL) co-founder Steve Jobs used Zen meditation to combat his stress and help him achieve success. He suggested sitting cross-legged on a low pillow, closing your eyes, and listening to your thoughts.

3. Taking Action

Being proactive is pivotal to success in your personal or professional life, regardless of the endeavor you take. Taking action can boost your confidence, help you make and set very clear goals, and push you to move forward to achieve them. To accomplish this, ensure you identify and manage your fears, and most importantly, don’t wait until tomorrow to begin.

It’s also important to be clear about what you want. Task said it’s important to be intentional about what you want and follow that with perseverance.

4. Personal Care

Take the time you need to take care of yourself as you head down the path to success. Some of the ways you can explore personal care are to:

• Eat well
• Exercise
• Manage your stress
• Get enough sleep, which is roughly eight to 10 hours per day for people between 18 and 64

Sleep, in particular, is vital for professional performance. Sleep deprivation negatively impacts working memory, result in riskier decisions, and lead to aggressive workplace behavior.

Taking care of yourself can boost your productivity and self-esteem, build strong relationships, and prevent burnout.

5. Positive Attitude

Psychology plays a big part in how people build their success. Having a positive attitude can boost your performance and self-confidence. You’ll come across hurdles that may test your optimism. But, understanding that challenges are a natural part of the journey can help keep you on track rather than derail you.

Falling into a negative headspace can lead you down a narrow path. You tend to focus on the problem(s) you encounter rather than how to move forward. When you have a positive attitude, you tend to think of the bigger picture and look for solutions to the issue(s).

“That doesn’t mean being happy-go-lucky, it means being able to maintain a healthy balance of putting yourself out there and not letting yourself get taken advantage of,” according to Philadelphia-based coach, speaker, and consultant Rita Friedman. “I’d count being true to yourself as part of having a good attitude—knowing what you are working for and what quality means.”

There are other benefits to remaining positive, even when you’re faced with adversity, including benefits to your mental and physical well-being. You may also notice that you’ll connect well with others, too, if you carry your head high.

6. Networking and Collaboration

Some people find success on their own, while others find that networking and collaboration play a big part in their success. Developing and maintaining important relationships allows you to learn, share ideas and knowledge, and leverage strength from others.

Task said it’s important to remember that “you can only get so much done on your own.”

Note

Networking and collaboration can help you develop new ideas and improve your communication and problem-solving skills.

7. Frugality

Frugality is defined as being careful or economical with your resources. Put simply, it’s a form of discipline. Being frugal is especially important if you want to be financially successful. Some of the wealthiest people, such as Warren Buffett in the world are known for their frugal approach to money. People in this category are careful about how they spend their money and use their resources, including their time and energy.

8. Early Rising

You’ve probably heard the adage about the early word catching the worm. If you get up early, you have more time to get things done (meditating, eating, and exercising to name a few) and become more productive.

“There’s something mentally healthy about waking up before the sun, journaling, exercising, greeting the bracing cool air,” Task said. “It’s a different vibe than late night, which tends to be bawdier.”

Consider doing the following to become an early riser:

• Go to bed at a reasonable hour and get enough sleep
• Don’t hit the snooze button and get up when your alarm goes off
• Establish (and stick to) a morning routine
• Set up a schedule of tasks for the morning, such as meetings and appointments

9. Giving Back

Some of the world’s most successful people are among the most philanthropic. Bill Gates, Warren Buffett, George Soros, and Michael Bloomberg give a lot of their wealth to various causes. But it isn’t just about money. Rather, it’s also about giving up your time.

When you give your time to your community, you gain new skills, sharpen your leadership skills, and, more importantly, foster a sense of purpose.

Friedman considers Dolly Parton a great example of someone who’s found success and paid it forward. “She’s contributed to disease research efforts and provided millions of free books to kids in need. Throughout her career, she has found new ways to engage with her own music and collaborate with other artists.”

10. Reading and Continuous Learning

Reading is often considered to be a vital key to success. You can continue to learn on your own, take a class, pursue your education, or just read books. The goal is to access information, develop your critical thinking skills, and boost your personal growth whether you want to advance in your career or to achieve financial success.

“Continuing education is one of my favorite ways to keep pushing yourself and growing in ways that you might not even know you’re craving yet. It’s also a fantastic way to expand your network,” Friedman said. 

The Bottom Line

We all define and measure success in different ways. While it isn’t uncommon to associate success with fame or dollars and cents, Friedman suggests it can be as simple as holding down a job or doing a monthly neighborhood cleanup. At the same time, Task says it’s important to find joy and contentment by making a commitment that uses your skills and talents.

Regardless of what you want to accomplish, living a healthy life and developing some (if not all) of the habits above can help you achieve success both personally and financially. If you’re stuck, look around you for examples of successful people whose habits you think you can adopt yourself.

Fact checked by Vikki Velasquez

Your net worth can say a lot about your financial life. It is easy to calculate and is a quick way to compare yourself to others at your income level. Just what is net worth?

“Net worth is a key measure of financial health. It’s the difference between what you own and what you owe. It reflects not just how much money you make but how well you manage, save, and invest your resources,” says Inna Rivilis, the founder of and a certified financial planner at Sunflower Financial Planning.

Key Takeaways

• To measure net worth, you subtract the total of how much you owe from the total of how much you own.
• As of 2022, the average net worth in the United States was $1,063,700, an increase of 23% from just three years earlier, according to the Federal Reserve.
• Checking net worth once every quarter is a good way of monitoring your finances.

How Do You Calculate Net Worth?

To calculate your net worth, you’ll need to make a list of your assets and liabilities.

“Calculating net worth is straightforward: List all your assets—such as savings, investments, retirement accounts, and real estate—and subtract all your liabilities, including mortgages, car loans, and credit card debt. The result offers a clear snapshot of where you stand financially,” Rivilis says.

How Does Your Net Worth Compare to Others?

According to the Pew Research Center, in 2021 (the most recent data available), upper-income households had a median net worth of $803,400, middle-income households had a median net worth of $204,100, and lower-income households had a median net worth of $24,500.

According to the Federal Reserve, the average net worth in the United States was $1,063,700 as of 2022, an increase of 23% from just three years earlier. The median net worth rose 37% to reach $192,200 in that same year.

The most common locations where Americans held assets were transaction accounts such as checking accounts (98.6%), vehicles (86.6%), their primary residence (66.1%), and retirement accounts (54.3% ) in 2022.

2022 Average and Median Net Worth For Different Income Levels
Income Percentile	Average Net Worth	Median Net Worth
Less Than 20%	$129,700	$14,000
20% to 39.9%	$218,700	$71,000
40% to 59.9%	$385,400	$159,300
50% – 79.9%	$636,800	$307,200
80% – 89.9%	$1,264,700	$747,000
90% – 100%	$6,629,600	$2,556,200

How does your net worth compare for your income level? If it is lower than you would like, there are things you can do to improve it.

“Improving net worth comes down to two core principles: increasing your assets and reducing your liabilities. Save regularly, invest for long-term growth, and focus on paying off debt efficiently. Avoiding unnecessary expenses frees up more money to grow your savings and investments,” Rivilis says.

Why Is Net Worth an Important Measure of Your Finances?

Measuring your net worth is a great way to track how well you are doing financially.

“Net worth serves as a financial progress report. Even if your income changes from year to year, a growing net worth indicates you’re building financial security,” Rivilis says. “Tracking it helps you see if your spending, saving, and investment habits are aligned with your long-term goals.”

How Often Should You Check Net Worth?

Plan on calculating your net worth four times each year to see if you are on track with your financial goals.

“Reviewing your net worth every quarter is a good balance. It allows you to track progress without stressing over short-term market fluctuations. If you’re working toward specific financial goals, more frequent check-ins can help you stay motivated and on track,” Rivilis says.

The Bottom Line

Your net worth is a useful measure of your financial life. Taking stock of your net worth every three months will help you see how well you achieve your financial goals.

To improve your net worth, bolster your assets, and pay down debts. You’ll have a stronger financial picture in no time.

Fact checked by Vikki Velasquez

Life insurance is a financial tool for protecting your family in the event of your passing. It ensures your family can maintain their standard of living, pay off debts, and cover future expenses without your income. 

Insurance experts usually recommend getting at least 10 times your annual income, but many factors could change that number. Too little coverage may leave your family financially vulnerable, and too much could stretch your budget unnecessarily. Here’s how to calculate how much life insurance your family truly needs.

Key Takeaways

• Life insurance coverage should be sufficient to cover your family’s immediate and future financial needs, including debts, income replacement, and education costs.
• Factors like family size, financial obligations, and lifestyle are significant in determining the right amount of coverage.
• Some methods to calculate life insurance needs include the human-life approach, multiplying income by 10, and the DIME formula.
• Regularly reviewing and updating your life insurance policy ensures it aligns with your family’s evolving needs.

What Should You Consider When Calculating Life Insurance?

When calculating how much life insurance your family needs, start by assessing your current circumstances and financial responsibilities. The two main factors to consider are:

• Your family size and status
• Your current financial obligations

Your Family Size and Status

Your family structure is one of the most significant factors in choosing the amount of life insurance coverage you need. Consider the following:

• Marital status: If you’re married or in a long-term partnership, your spouse may depend on your income to maintain their lifestyle. Life insurance helps replace your lost income to continue covering shared expenses like housing, utilities, and daily living costs.
• Number of children: If you have children, you’ll need to account for their future expenses, such as education, childcare, extracurricular activities, and other daily costs.
• Other dependents: If you support aging parents, siblings, or other relatives, their needs should also be factored into your calculations.
• Stay-at-home parents: Even if you don’t earn an income, your contributions to the household, including childcare, cooking, and cleaning, have substantial financial value. A life insurance policy can help your family cover the cost of hiring services for childcare, housekeeping, and other domestic responsibilities, in addition to funeral expenses.

Your Current Financial Obligations

Life insurance should cover all your financial obligations to keep your family free of debt and expenses after your passing. Key considerations include:

• Income replacement: Your policy should provide enough coverage to replace your income for some years. This helps your family maintain their standard of living. A common recommendation is to cover 5 to 10 years of income.
• Mortgage or rent: Include the outstanding balance on your mortgage or future rent payments in your calculations to ensure your family can keep their home without you.
• Outstanding debts: Factor credit card debt, car loans, and personal loans you’d like to pay off in your coverage amount.
• Child education costs: If you have children, estimate the cost of their future education: college tuition, books, and other education-related expenses.
• Funeral and final expenses: The average funeral costs over $8,000 in the United States. Be sure you include these expenses in your calculations and that your policy covers them.
• Other lifestyle expenses: Consider ongoing costs like groceries, transportation, healthcare, and entertainment.

By accounting for these factors, you can rest assured your life insurance policy provides comprehensive financial protection for your loved ones.

How To Calculate the Amount of Life Insurance You Need

There are several methods to calculate how much life insurance your family needs. The following are most common:

The Human-Life Approach 

The human-life approach calculates the amount of life insurance you need based on your lifetime earning potential. It considers factors like your current income, age, retirement age, and inflation. The goal here is to replace the financial value you provide to your family. For example, if you earn $50,000 annually and plan to work for 20 more years, your estimated insurance need would be $1,000,000 (before adjusting for inflation and other factors).

Tip

This method is thorough but can be complicated to calculate manually. Tools like the GEFCU Life Insurance Calculator can help simplify the process.

Multiplying Your Income by 10, Plus College for Each Child

A simpler method is to multiply your annual income by 10 and add the estimated cost of college for each child. For instance, if you earn $80,000 per year and have two children, you might calculate $800,000 (10 x 80,000) + $200,000 (estimated college costs). This will give you $1,000,000 in coverage. While this method is straightforward, it may not account for all financial obligations.

The DIME formula (Debt, Income, Mortgage, and Education)

The DIME formula is a comprehensive method that considers four key areas:

• Debt: Include all outstanding debts, such as credit cards, car loans, and other personal loans.
• Income: Multiply your annual income by the number of years your family would need support (e.g., 10–20 years).
• Mortgage: Add the remaining balance on your mortgage.
• Education: Estimate the cost of college or other education expenses for your children.

The total sum of those four factors is your number. For example, if you have $50,000 in debt, earn a yearly income of $80,000, and have a $200,000 mortgage and $100,000 in future education costs, you would need $1,330,000 in coverage (assuming 10 years of income replacement).

This method provides a more tailored estimate but requires careful calculation. A life insurance agent or financial adviser could help with this calculation.

How Much Life Insurance Does the Average American Have?

The average new life insurance policy purchased in 2023 was for $206,000 of coverage, though this amount may not work for all families. Finance experts often recommend higher coverage (up to 20 times your salary before taxes) based on individual needs.

What Percentage of Your Salary Should You Spend on Life Insurance?

The ideal life insurance premium is not simply a set percentage of your salary—it’s unique to your financial situation. When considering your coverage amount, you need to factor in your financial responsibilities and dependents.

If you have substantial debt or multiple dependents who require financial support, you may need higher coverage and, consequently, higher premiums. If, on the other hand, you have fewer financial obligations, you may find sufficient coverage with a smaller policy and lower premiums.

The type of life insurance impacts the cost. Term life insurance starts out much less expensive than permanent life insurance for the same death benefit. This is because term is temporary coverage, while permanent can last your entire life. By adjusting the type of coverage, you can find a solution that meets your salary and financial goals. A financial adviser or insurance professional can also help you find the right balance.

How Much Does Life Insurance Cost per Month?

The cost of life insurance varies based on factors like age, health, and coverage amount. A healthy 35-year-old male might pay around $40 a month for a 10-year term policy with $250,000 of coverage, according to quotes from Aflac. To calculate the specific amount, use tools like the GEFCU Life Insurance Calculator.

What Is the Minimum Amount of Life Insurance You Can Get?

The minimum coverage amount varies by insurer but is typically between $25,000 and $50,000. This death benefit will not be large enough for most families. However, the right amount depends on your specific financial obligations and family needs.

How Much Life Insurance Should a Stay-at-Home Parent Get?

A stay-at-home parent might need between 15- to 20-year life insurance policy with a minimum coverage of $250,000–$400,000 to account for childcare, household duties, and other contributions. This coverage amount also depends on the family’s needs.

The Bottom Line

Figuring out how much life insurance coverage you need for your family is crucial in securing your financial future. Considering family size, financial obligations, and long-term goals helps tailor your policy to meet your family’s unique needs. Whether you use the human-life approach, multiply your income by 10, or apply the DIME formula, the goal is to protect your family and loved ones from financial hardship.

Ultimately, the best life insurance coverage is the one that gives you peace of mind, knowing your family will be taken care of no matter what happens. Remember to regularly review and update your policy to ensure it remains aligned with your family’s evolving needs.

KEY TAKEAWAYS

• Warren Buffett said in a rare TV interview that tariffs are an “act of war” and could cause inflation.
• The legendary investor and CEO of conglomerate Berkshire Hathaway made those comments Sunday in an interview with CBS News for a documentary on Katherine Graham, the late publisher of The Washington Post.
• President Donald Trump last week said that he plans to impose 25% tariffs on products from Mexico and Canada beginning Tuesday, and would double tariffs on China to 20%.

Warren Buffett said in a rare TV interview that tariffs are an “act of war” and could cause inflation.

The legendary investor and CEO of conglomerate Berkshire Hathaway (BRK.A)(BRK.B) made those comments Sunday in an interview with CBS News for a documentary on Katherine Graham, the late publisher of The Washington Post.

Responding to a question from Norah O’Donnell about how he thought tariffs would affect the economy, the 94-year-old Buffett said, “Tariffs are actually, we’ve had a lot of experience with ’em. They’re an act of war, to some degree.”

When asked how tariffs would impact inflation, Buffett said, “Over time, they’re a tax on goods. I mean, the Tooth Fairy doesn’t pay ’em! And then what? You always have to ask that question in economics. You always say, ‘And then what?'”

The “Oracle of Omaha” added that “prices will be higher 10 years from now, and 20 years from now, and 30 years from now.”  

President Donald Trump said last week that he plans to impose 25% tariffs on products from Mexico and Canada beginning Tuesday, and that the U.S. would raise double tariffs on goods from China to 20%.  

Fact checked by Vikki Velasquez
Reviewed by Julius Mansa

We know water is the source of life. But it can also be a source for portfolio diversification. Like gold and oil, water is a commodity—and it happens to be rather scarce nowadays. Investors can gain exposure to the commodity through brokers who offer water indexes, mutual funds, and exchange-traded funds. So, as with any other scarcity, the water shortage creates investment opportunities.

Key Takeaways

• Water is arguably the most important resource on planet Earth.
• Shortages of water can lead to social, political, and economic disruption.
• Water is increasingly scarce, due to climate change, pollution, and increasing demand.
• Because of its importance, investors can diversify their portfolios by acquiring water-related assets and investments.
• There are multiple indexes, mutual funds, and ETFs that allow retail investors to gain exposure to water-related securities.

Understanding Water Investments

The investment case for water is simple: water is one of the most important resources, and it is likely to become a lot scarcer. About 70% of the earth’s surface is covered in water, but over 97% is saltwater. Saltwater cannot be used for drinking, crop irrigation, or most industrial uses. Of the remaining 3% of the world’s water resources, only about 1% is readily available for human consumption.

Rapid industrialization and increasing agricultural use have contributed to worldwide water shortages. Areas that have experienced a lack of H₂O include China, Egypt, India, Israel, Pakistan, Mexico, most of Africa, and the United States (Arizona, New Mexico, California, and West Texas), to name but a few.

Pollution also highlights the need for clean water. The dead zone off the Gulf Coast highlights the impact of fertilizer runoff, and methyl tertiary butyl ether (MTBE), an additive in unleaded gasoline, can be found in well water from California to Maryland.

Overseas, highly publicized incidents in Russia, China, and elsewhere demonstrate that pollution isn’t limited to the West. Of course, fouled water supplies further restrict the amount of fresh water available for human use.

$55 Billion Investment in Clean Water

On Nov. 15, 2021, President Biden signed into law the Infrastructure Investment and Jobs Act. The bipartisan infrastructure bill authorizes $1.2 trillion in spending, which includes $55 billion allocated to create clean drinking water, $65 billion in clean energy, and $21 billion to clean up hazardous, polluted sites.
The legislation is good news to clean water advocates since it will expand access to clean drinking water for households, businesses, schools, and child care centers in cities and rural areas. The legislation will also invest in water infrastructure to eliminate lead service pipes.

Water Investment Indexes

Here are some of the more popular indexes designed to track various water-related investment opportunities:

• The Dow Jones U.S. Water Index is composed of various water-related companies in the U.S.
• The ISE Clean Edge Water Index was launched in December 2000 and represents water distribution, water filtration, flow technology, and other companies specializing in water-related solutions. It contains 36 stocks.
• The S&P 1500 Water Utilities Index is a sub-sector of the Standard & Poor’s 1500 Utilities Index that includes water-related companies in the larger index.
• The S&P Global Water Index is an index that began in 2001 and contains 100 companies worldwide; its water-related businesses fall into two areas: water utilities and infrastructure and water equipment and materials.

The MSCI Global Sustainable Water Index provides another look at the water industry from an international perspective. The index focuses on developed and emerging companies that earn at least 50% of their revenue from sustainable water products and services. There are also a variety of utility indexes that include some water stocks.

720 Million

The number of people in the world, 10% of the global population, who live in countries with high and critical water stress levels.

How to Invest in Water Securities

Firms seeking to profit from water-related businesses include beverage providers, utilities, water treatment/purification firms, and equipment makers, such as those that provide pumps, valves, and desalination units.

A look at the holdings of any of these water indexes provides an easy way to start looking for suitable investment opportunities. Companies from blue-chip stalwart General Electric to small-cap Layne Christensen are all seeking a piece of the water market. In addition to direct stock purchases, some of the larger firms offer dividend reinvestment plans.

The bottled water market continues to grow. In the U.S., per capita consumption of bottled water in 2023 was 46.4 gallons per capita compared with 31.6 gallons per capita in 2013. According to a 2018 UN study, 177 countries rely on desalination for at least part of their freshwater consumption needs. Companies in these industries can be added to your portfolio to gain water exposure.

If stock picking doesn’t interest you, ETFs, mutual funds, and unit investment trusts (UITs) also provide plenty of opportunities to invest in water.

The Invesco Water Resources ETF (PHO) “tracks the performance of U.S. exchange-listed companies that create products designed to conserve and purify water for homes, businesses, and industries.” The fund has 40 holdings as of Feb. 28, 2025.

The iShares U.S. Utilities ETF (IDU) provides some exposure to water-related stocks. Other alternatives include the Invesco Global Water Portfolio ETF (PIO), which tracks the Nasdaq OMX Global Water Index, and the First Trust Water ETF (FIW). Benchmarked to the MSCI ACWI Index, the Allianz Global Water Fund invests in improving the supply, quality, and efficiency of water resource management.

How Do You Invest in Water As a Commodity?

The Chicago Mercantile Exchange has tradeable water futures that are tied to water prices in California. These futures contracts allow investors to bet on the future value of the Nasdaq Veles California Water Index, effectively betting on the future price of water.

How Is Michael Burry Investing in Water?

At the conclusion of “The Big Short,” it is revealed that Scion Capital founder Michael Burry followed up his successful short trade with investments in water. In later interviews, Burry explained that “food is the way to invest in water. That is, grow food in water-rich areas and transport it for sale in water-poor areas.” Farmland in high-precipitation areas is effectively a bet on water’s future value. However, for retail investors, it may be easier to focus on water stocks.

How Do You Invest in Water Stocks?

Water stocks are stocks of companies whose business is closely tied to irrigation, utilities, water treatment, or other water-related industries. One can invest in these by buying the stocks of individual companies, or by investing in a mutual fund or ETF with high exposure to water stocks.

The Bottom Line

There is demand for investments that profit from the need for fresh, clean water. As this is expected to continue, investors should see a host of new investments that provide exposure to this precious commodity and to the firms that deliver it to the marketplace.

There are currently numerous ways to add water exposure to your portfolio; most simply require a bit of research. Opportunities to invest in this scarce resource are flowing freely.

KEY TAKEAWAYS

• Prices of bitcoin and a slew of cryptocurrency stocks are jumping Monday, after U.S. President Donald Trump announced that the token, as well as four others, could be included in a strategic crypto reserve for the United States. 
• In two Sunday posts on Truth Social, Trump said that the reserve would include bitcoin, ether, XRP, Solana’s SOL token as well as Cardano’s ADA.
• On Monday morning, bitcoin, which had hit a high of around $109,000 in January, was trading around $92,000.

Prices of bitcoin (BTCUSD) and a slew of cryptocurrency stocks are jumping Monday, after U.S. President Donald Trump announced that the token, as well as four others, could be included in a strategic crypto reserve for the United States.

In two Sunday posts on Truth Social, Trump said such a reserve would include bitcoin, ether (ETHUSD), XRP (XRPUSD) , Solana’s (SOLUSD) SOL token as well as Cardano’s ADA (ADAUSD).

“A U.S. Crypto Reserve will elevate this critical industry after years of corrupt attacks by the Biden Administration, which is why my Executive Order on Digital Assets directed the Presidential Working Group to move forward on a Crypto Strategic Reserve that includes XRP, SOL, and ADA,” Trump said in a post on his social media platform Sunday. “I will make sure the U.S. is the Crypto Capital of the World.”

He said that bitcoin and ether will be “at the heart of the Reserve.“

Bitcoin Comes Off Last Week’s Around $80k Levels

Trump in January had signed an executive order to establish U.S. dominance in the digital asset market. He had promoted the idea of creating such a reserve on the campaign trail, saying that cryptocurrency the government seized during criminal prosecutions would serve as the core of a “Strategic National Bitcoin Stockpile” and that his policy would be never to sell it.

On Monday morning, bitcoin, which had hit a high of around $109,000 in January and flagged last week on Trump’s tariffs pledge, was up more than 8% at around $93,000 while ether had gained around 7%, Solana more than 13%, XRP more than 16%, and cardano more than 50%.

Shares in trading app Robinhood (HOOD) are rising more than 7% in premarket trading Monday. Cryptocurrency exchange Coinbase Global (COIN) was up more than 8%, Marathon Digital parent company MARA Holdings (MARA), bitcoin mining and infrastructure company Riot Platforms Inc. (RIOT) and bitcoin treasury company Strategy (MSTR), formerly known as MicroStrategy, are all rising at least 10%.

KEY TAKEAWAYS

• Warren Buffett said in a rare TV interview that President Donald Trump’s tariffs are an “act of war” and could cause inflation.
• The legendary investor and CEO of conglomerate Berkshire Hathaway made those comments Sunday in an interview with CBS News for a documentary on Katherine Graham, the late publisher of The Washington Post.
• President Trump last week said that he plans to impose 25% tariffs on products from Mexico and Canada beginning Tuesday, and would double tariffs on China to 20%.

Warren Buffett said in a rare TV interview that President Donald Trump’s tariffs are an “act of war” and could cause inflation.

The legendary investor and CEO of conglomerate Berkshire Hathaway (BRK.A)(BRK.B) made those comments Sunday in an interview with CBS News for a documentary on Katherine Graham, the late publisher of The Washington Post.

Responding to a question from Norah O’Donnell about how he thought tariffs would affect the economy, the 94-year-old Buffett said, “Tariffs are actually, we’ve had a lot of experience with ’em. They’re an act of war, to some degree.”

When asked how tariffs would impact inflation, Buffett said, “Over time, they’re a tax on goods. I mean, the Tooth Fairy doesn’t pay ’em! And then what? You always have to ask that question in economics. You always say, ‘And then what?'”

The “Oracle of Omaha” added that “prices will be higher 10 years from now, and 20 years from now, and 30 years from now.”  

President Trump said last week that he plans to impose 25% tariffs on products from Mexico and Canada beginning Tuesday, and that the U.S. would raise double tariffs on goods from China to 20%.  

Reviewed by Margaret James
Fact checked by Amanda Jackson

Reverse Mortgage vs. Forward Mortgage: An Overview

A forward mortgage is a mortgage loan used to purchase a home that typically involves a fixed interest rate and monthly payments. Conversely, a reverse mortgage allows homeowners 62 and older to convert their home equity into cash, getting paid by the lender via monthly payments, a credit line, or a lump sum.

With a forward mortgage, your loan balance decreases as you make payments, increasing your home equity. However, your loan balance with a reverse mortgage increases due to your withdrawals, reducing your home equity. The reverse mortgage lender also charges interest and fees that are added to the loan balance, reducing your equity. The reverse mortgage gets repaid when the homeowner passes away, sells or leaves the home.

Both forward and reverse mortgages are significant financial commitments that use your home as collateral. A homeowner might use their home as collateral twice in a lifetime, getting a forward mortgage to purchase the home and, decades later, a reverse mortgage to withdraw income from the home. Discover the similarities and differences between a forward mortgage and a reverse mortgage.

Key Takeaways

• Reverse and forward mortgages are large loans that use your home as collateral.
• Forward mortgages, more commonly just called mortgages, are loans used to purchase a home.
• Reverse mortgages, which require you to be 62 years old or older, allow homeowners with large amounts of equity in their home to borrow a lump sum or annuity-like payment.
• Reverse mortgages have no monthly payments, and the balance—plus interest—is due when the borrower dies, sells the home, or moves.

Important

Only people aged 62 and above are eligible to get a reverse mortgage.

Reverse Mortgage

A reverse mortgage allows homeowners to withdraw their home equity value and get paid via a lender as a lump sum, monthly annuity, or line of credit. The funds from a reverse mortgage can be used without restrictions, including to pay medical expenses, debt consolidation, home repairs, and supplement income.

Reverse Mortgage Costs

The accumulated debt, interest, and fees on a reverse mortgage are due when the mortgage holder moves, sells the home, or dies. Like a traditional forward mortgage, you will pay closing costs for a reverse mortgage.

One of the costs includes the mortgage insurance premium (MIP) paid to the lender, which is 2% of the home value paid upfront at the loan closing and 0.5% of the outstanding loan balance paid annually thereafter.

Other costs include third-party charges, such as appraisal, title search, and insurance fees as well as property taxes. The lender charges an origination fee to process the loan, which is the greater of $2,500 or 2% of the first $200,000 of your home’s value and 1% over $200,000 but are capped at $6,000.

Federally Regulated

The federal government regulates reverse mortgages to prevent predatory lenders from snaring senior citizens. The bank may not demand a payment that exceeds the value of the home. The bank recoups any losses through an insurance fund, which is one of the costs of the reverse mortgage.

The Department of Housing and Urban Development (HUD) oversees the most common reverse mortgage, called a home equity conversion mortgage (HECM), which is issued through private lenders but insured by the Federal Housing Administration (FHA).

Warning

Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).

Forward Mortgage

A forward mortgage is a loan used to buy a home or real estate, which is typically a fixed-rate 30-year term. As you make payments, your loan balance decreases, increasing your home equity. Other mortgage products exist that include a 15-year or 20-year term, as well as adjustable-rate mortgages that have a variable interest rate for a portion of the term.

Borrowers may get a better interest rate and save a substantial amount in interest over time if they go for a 10- or 15-year mortgage. However, the shorter the term, the higher the monthly payment. Like a reverse mortgage, the home serves as collateral for a forward mortgage loan.

Closing Costs and Down Payment

With a forward mortgage, closing costs usually include a down payment based on a percentage of the home’s value. Typically, mortgage lenders require 20% down, paid at the closing.

However, programs exist for first-time homebuyers through the Federal Housing Administration (FHA), which insures mortgage loans, protecting lenders. This protection allows lenders to offer a lower down payment by as low as 3.5% for qualified buyers. The FHA insures its loans, protecting the lender, but you must go through an FHA-approved lender.

Risks of Borrowing Too Much

The mortgage system is based on the assumption that real estate increases in value over time. That is often the case, but not always, for example, when the housing bubble burst in 2008. As of 2010, over 23% of homes were underwater, according to Housing Wire, but the state of financing has improved in the decade since then. As of the third quarter of 2024, (the most recently available data), 1.8% of American mortgaged homes—or 990,000 homes—were underwater according to Housing Wire and CoreLogic’s Homeowner Equity Insights report. That means that the owners of those homes must continue to pay inflated mortgages or pay their banks 25% or more above their homes’ assessed value when they sell.

Speaking of getting into trouble, during the housing boom, it became common for homeowners to obtain a line of credit, using their homes as collateral in addition to their mortgages. Both the homeowners and their bankers assumed that the significant increases in home values would keep going. When the bust came, homeowners got stuck holding the double debt for the mortgage and the line of credit.

Reverse Mortgage vs. Forward Mortgage Example

A married couple, each about 30 years old, buys a home with a small down payment. They are promising to pay the money back in small monthly increments of principal plus interest over a period of years. Thirty years is traditionally the standard.

More than 30 years later, the same couple lives in the same house, having paid off the mortgage in full. Even with their combined Social Security benefits and retirement savings, it’s difficult to make ends meet, so they take out a reverse mortgage. They’ll pay nothing upfront and get a monthly check to supplement their income. They never pay off the mortgage or the interest and costs that accrue over the years. However, the loan must be repaid when they pass away, sell the home, or leave the home.

What Is a Forward Mortgage?

A forward mortgage, or mortgage, is a loan with a fixed rate of interest used to purchase a home. A forward mortgage loan has a fixed monthly payment, with a portion of each payment going to pay the principal (the borrowed amount) and interest. Typically, a forward mortgage has a loan term of 15, 20, or 30 years.

What Is a Reverse Mortgage?

A reverse mortgage allows those 62 years or older to take out a loan using their home as collateral. The equity or home ownership built up in your home can be cashed out via a monthly payment stream, credit line, or lump-sum payment.

Unlike a traditional mortgage, you don’t make monthly payments on a reverse mortgage. Instead, you repay the loan when you sell the home, no longer live in the home, or pass away. In return, the mortgage lender charges interest and fees by adding them to the loan balance, reducing your home equity.

What Are the Downsides of a Reverse Mortgage?

The downsides to a reverse mortgage include interest and fees charged to the loan balance by the lender, which reduces your home equity. Also, the more money you get paid from a reverse mortgage, the faster your home equity decreases.

You must still pay for the property taxes, homeowners insurance, and upkeep of the property. However, the biggest downsides include running out of money or equity, and you may receive less if you sell the home due to the reverse mortgage loan balance.

The Bottom Line

With a forward mortgage, or mortgage loan, you borrow money to buy a home and, in return, make monthly payments to the lender who charges you a fixed rate of interest on the loan. Once you pay off the loan, you own the home.

Conversely, a reverse mortgage allows those 62 and older to get paid using their home’s equity via monthly payments, a credit line, or a lump sum. In return, the lender charges interest and fees, which get added to the loan balance, reducing your home’s equity. You repay the reverse mortgage when you sell or leave the home. Both a forward and reverse mortgage use your home as collateral for the loan.

Reviewed by Samantha Silberstein

A mortgage is a long-term loan designed to help you buy a house. In addition to repaying the principal, you also have to make interest payments to the lender. The home and land around it serve as collateral. But if you are looking to own a home, you need to know more than these generalities. This concept also applies to businesses, especially concerning fixed costs and shutdown points.

Key Takeaways

• Mortgage payments are made up of your principal and interest payments.
• If you make a down payment of less than 20%, you will be required to take out private mortgage insurance, which increases your monthly payment.
• Some payments also include real estate or property taxes.
• A borrower pays more interest in the early part of the mortgage, while the latter part favors the principal balance.
• Making a larger down payment will immediately boost the equity in your home.

Mortgages

Just about everyone who buys a house has a mortgage. Mortgage rates are frequently mentioned on the evening news, and speculation about which direction rates will move has become a standard part of the financial culture.

The modern mortgage came into being in 1934 when the government—to help the country overcome the Great Depression—created a mortgage program that minimized the required down payment on a home, increasing the amount potential homeowners could borrow. Before that, a 50% down payment was required.

In general, a 20% down payment is desirable, mostly because if your down payment is less than 20%, you are required to take out private mortgage insurance (PMI), making your monthly payments higher. Desirable, however, is not necessarily achievable. There are mortgage programs available that allow significantly lower down payments, but if you can manage that 20%, you definitely should.

The main factors determining your monthly mortgage payments are the size and term of the loan. Size is the amount of money you borrow and the term is the length of time you have to pay it back. Generally, the longer your term, the lower your monthly payment. That’s why 30-year mortgages are the most popular. Once you know the size of the loan you need for your new home, a mortgage calculator is an easy way to compare mortgage types and various lenders.

PITI: Mortgage Payment Components

There are four factors that play a role in the calculation of a mortgage payment: principal, interest, taxes, and insurance (PITI). As we look at them, we’ll use a $100,000 mortgage as an example.

Principal

A portion of each mortgage payment is dedicated to repayment of the principal balance. Loans are structured so the amount of principal returned to the borrower starts out low and increases with each mortgage payment. The payments in the first years are applied more to interest than principal, while the payments in the final years reverse that scenario. For our $100,000 mortgage, the principal is $100,000.

Interest

Interest is the lender’s reward for taking a risk and loaning you money. The interest rate on a mortgage has a direct impact on the size of a mortgage payment: Higher interest rates mean higher mortgage payments.

Higher interest rates generally reduce the amount of money you can borrow, and lower interest rates increase it. If the interest rate on our $100,000 mortgage is 6%, the combined principal and interest monthly payment on a 30-year mortgage would be about $599.55—$500 interest + $99.55 principal. The same loan with a 9% interest rate results in a monthly payment of $804.62.

Taxes

Real estate or property taxes are assessed by government agencies and used to fund public services such as schools, police forces, and fire departments. Taxes are calculated by the government on a per-year basis, but you can pay these taxes as part of your monthly payments. The amount due is divided by the total number of monthly mortgage payments in a given year. The lender collects the payments and holds them in escrow until the taxes have to be paid.

Insurance

Like real estate taxes, insurance payments are made with each mortgage payment and held in escrow until the bill is due. There are comparisons made in this process to level premium insurance.

Two types of insurance coverage may be included in a mortgage payment. One is property insurance, which protects the home and its contents from fire, theft, and other disasters. The other is PMI, which is mandatory for people who buy a home with a down payment of less than 20% of the cost. This type of insurance protects the lender if the borrower is unable to repay the loan.

Because it minimizes the default risk on the loan, PMI also enables lenders to sell the loan to investors, who can have some assurance that their debt investment will be paid back to them. PMI coverage can be dropped once the borrower has at least 20% equity in the home.

While principal, interest, taxes, and insurance make up the typical mortgage, some people opt for mortgages that do not include taxes or insurance as part of the monthly payment. With this type of loan, you have a lower monthly payment, but you must pay the taxes and insurance.

Important

Mortgage insurance may be canceled once the balance reaches 78% of the original value.

The Amortization Schedule

A mortgage’s amortization schedule provides a detailed look at what portion of each mortgage payment is dedicated to each component of PITI. As noted earlier, the first year’s mortgage payments consist primarily of interest payments, while later payments consist primarily of principal.

In our example of a $100,000, 30-year mortgage, the amortization schedule has 360 payments. The partial schedule shown below demonstrates how the balance between principal and interest payments reverses over time, moving toward greater application to the principal.

Payment	Principal	Interest	Principal Balance
1	$99.55	$500.00	$99,900.45
12	$105.16	$494.39	$98,772.00
180	$243.09	$356.46	$71,048.96
360	$597.00	$2.99	$0

As the chart shows, each payment is $599.55, but the amount dedicated to principal and interest changes. At the start of your mortgage, the rate at which you gain equity in your home is much slower. This is why it can be good to make extra principal payments if the mortgage permits you to do so without a prepayment penalty. They reduce your principal which, in turn, reduces the interest due on each future payment, moving you toward your ultimate goal: paying off the mortgage.

On the other hand, the interest is the part that’s tax-deductible to the extent permitted by law; if you itemize your deductions instead of taking the standard deduction.

Note

FHA-backed mortgages, which allow people with low credit scores to become homeowners, only require a minimum 3.5% down payment.

Your First Mortgage Payment

The first mortgage payment is due one full month after the last day of the month in which the home purchase closed. Unlike rent, due on the first day of the month for that month, mortgage payments are paid in arrears, on the first day of the month but for the previous month.

Say a closing occurs on Jan. 25. The closing costs will include the accrued interest until the end of January. The first full mortgage payment, which is for February, is then due March 1. For example, let’s assume you take an initial mortgage of $240,000 on a $300,000 purchase with a 20% down payment.

Your monthly payment is $1,077.71 under a 30-year fixed-rate mortgage with a 3.5% interest rate. This calculation only includes principal and interest but does not include property taxes and insurance.

Your daily interest is $23.01. This is calculated by first multiplying the $240,000 loan by the 3.5% interest rate, then dividing by 365. If the mortgage closes on Jan. 25, you owe $161.10 for the seven days of accrued interest for the remainder of the month. The next monthly payment, the full monthly payment of $1,077.71, is due on March 1 and covers the February mortgage payment.

You should have all this information in advance. Under the TILA-RESPA Integrated Disclosure rule, two forms must be provided to you three days before the scheduled closing date—the loan estimate and closing disclosure.

The amount of accrued interest and other closing costs are laid out in the closing disclosure form. You can see the loan amount, interest rate, monthly payments, and other costs and compare these to the provided initial estimate.

How Is a Mortgage Payment Calculated?

A mortgage payment is calculated using principal, interest, taxes, and insurance. If you want to find out how much your monthly payment will be there are several good online mortgage calculators.

When Do Mortgage Payments Start?

When you buy a home, mortgage payments begin on the first of the month after you have lived in the home for 30 days. If you buy a home in October, your first payment on your mortgage will be due on Dec. 1, even if you purchased your home on Oct. 1 or Oct. 31.

What Is Mortgage Insurance?

There are two kinds of insurance associated with a mortgage payment. The first one is property insurance, which protects the home and everything in it, more or less, from man-made and natural disasters. The second kind of mortgage insurance is PMI and if you bought your home with a downpayment of less than 20%, you will have to pay this insurance to protect the lender, if you suddenly can’t pay your loan back.

The Bottom Line

A mortgage is an essential tool for buying a house, allowing you to become a homeowner without making a large down payment; however, when you take on a mortgage, it’s important to understand the structure of your payments, which cover not only the principal (the amount you borrowed) but also interest, taxes, and insurance. It tells you how long it will take you to pay off your mortgage and how expensive it will be to finance your home purchase.