Nobody expects worst-case scenarios to happen to them, but with a bit of preparation you can make sure your financial world isn’t thrown asunder when they do. Having the right insurance coverage can help you or your loved ones get through the most difficult moments. Let’s review the insurance to consider various points in your life.
Everyone faces various types of risks in their lives, but not everyone manages them the same way. There are typically four ways a person can deal with risk: avoid, reduce, accept, and transfer. For example, consider the risk that you’re the primary income earner in your household and you suddenly lose your job, how do you handle that risk?
- Avoidance – Avoid situations that pose a risk, e.g., choose a profession less affected by downward economic cycles.
- Reduction – Taking steps to reduce the likelihood of a risk, e.g., investing in your career via education, certifications, or new projects to make you a more indispensable team member.
- Acceptance – Accepting the risk and trying to mitigate its impact, e.g., saving up 4-6 months of expenses to prepare for a job loss.
- Transfer – Transferring the risk to another party, e.g., getting life and disability insurance to help your family replace your income in case of an accident.
Transferring the risks in your life to a third party is the bedrock thesis behind the insurance industry. Our belief as planners is that identifying the risks in your unique situation, and mitigating them appropriately, is essential to a successful plan.
The most common types of insurance coverage we analyze for clients are:
- Health Insurance
- Life Insurance
- Long Term Care Insurance
- Auto & Home/Renter’s Insurance
- Disability Insurance
When It’s Important – Your entire life!
What Does It Cover – Varies depending on coverage but can be all types of healthcare including preventative care, emergency care, surgery, rehabilitation, and much more.
What Does It Cost? – Coverage costs vary widely based on your employer, age, geographic location, and other factors. One common planning opportunity we see is forecasting ahead for any pre-65 retirees that may be losing their employer’s coverage but aren’t yet eligible for Medicare. For this reason, it’s good to be aware of the cost to get added to a spouse’s coverage or how much an equivalent plan would cost on the open marketplace.
When It’s Important – When you get married, have a baby, get a mortgage, or any time you want to protect your family or property if you died unexpectedly. Having enough coverage to pay off outstanding debt, help kids get their education, and replace lost earnings/retirement savings are some of the factors we consider when analyzing how much coverage a client may need. When you have enough financial resources to fulfill your remaining financial obligations, you may no longer need life insurance and instead become “self-insured.”
What Does It Cover – The insurance company pays your beneficiary(ies) an amount of money upon your death. These lump sum death benefits are tax free to recipients.
What Does It Cost? – This depends greatly on what type of life insurance you buy and other factors including your age and health. Term life insurance covers your life for a certain number of years for a set amount of premium. Permanent life insurance is designed to cover you for your entire life and premiums may be fixed or variable. Term insurance is typically less expensive but doesn’t offer some of the features of permanent insurance, like cash value.
Long Term Care (LTC) Insurance:
When It’s Important – When you need help to take care of yourself, typically in your later years. We start reviewing the need for this coverage between the ages of 55-65.
What Does It Cover – Some or all of home health care, assisted living, nursing home care, memory care, respite care, and more. This depends on the policy, and you’ll want to read carefully to make sure the care you’re seeking is covered by your policy ahead of time.
What Does It Cost? – LTC coverage was underpriced by most insurance companies for a long time, and traditional policies can be very expensive today. A less expensive route to explore is a “hybrid” policy, which is a life insurance policy with a long term care “rider” (extra benefit) attached.
Auto & Home/Renter’s Insurance:
When It’s Important – As long as you drive a car or own/rent a home.
What Does It Cover – Auto coverage helps protect you against financial loss in the event of an accident, including repairs to your vehicle, medical bills for you and passengers, and property damage to others. Home insurance protects your home and its contents from damage or loss and can provide liability coverage if someone is injured on your property.
What Does It Cost? – Auto coverage looks at age, type of vehicle, driving record, and more to determine your cost and generally gets cheaper the older you get and the cleaner your driving history. Homeowner’s insurance is usually a less expensive type of insurance overall but depends greatly on home value, location, and age of your home, among other factors. Renter’s coverage can also be quite affordable, and we highly recommend this coverage for anyone renting to cover property, liability, and living expenses if they were forced to vacate their rental (think flooding or a major remodel).
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When It’s Important – Any time you are dependent on your work income to support your family or maintain your lifestyle.
What Does It Cover – Short term disability typically pays you a portion of your income for a brief period of time when you are unable to work (usually 3-6 months). Long term disability is similar but typically pays for up to two years (though some can pay all the way to retirement age). You must be prepared to prove that an illness or injury is preventing you from working and wait 90-180 days, usually, before payments start arriving (called an elimination period). Sometimes the payments received are taxable, and sometimes they’re tax free, depending on how premiums were initially paid.
What Does It Cost? – Many employers offer affordable short and/or long-term disability coverage to their employees as a benefit. If you are self-employed, or don’t have disability insurance through your employer, consider seeking out this coverage on your own, but know it can be expensive. Your age, occupation, health, income, etc. all impact the cost. If you work in a dangerous or high-paying job you’re more likely to want this coverage but you’ll need to be prepared to pay for it!
At the end of the day, we want our clients to have peace of mind, knowing they and their loved ones would be okay if calamity (or a minor fender-bender) struck.
If reviewing this list made you question whether your family is prepared for a financial curveball, reach out to your Financial Planner, or schedule an introductory call with us today.