There are many different kinds of insurance. Property-casualty and health insurance are what people most often think of, but there is also other important insurance: life, disability and long-term care.
Ideally these types of insurance are discussed in the context of a comprehensive financial plan. But for some, these can fall between the cracks. Below are some questions to consider.
Individual Life Insurance
Do you need life insurance? How much?
Your need for traditional life insurance peaks when you have a young family then it decreases over time as your assets accumulate and you have fewer years of child and marital support obligation. Later in life some higher net worth families use life insurance as an estate planning tool.
Do you have life insurance you don’t need?
Some people bought life insurance to protect their young families then hung on to the policies as investments. This can be a problem.
Back in the 1980’s a product called Universal Life was invented that had a savings component added to an insurance component to arrive at a death benefit. The rate per dollar of the insurance component gets more expensive as you get older, but the savings component was supposed to grow over time which would reduce the size of the expensive insurance component. At time of sale the policies were projected to pay for themselves as long as the return assumptions came true.
They didn’t. Over the last 30 years interest rates were much lower than expected. As a result, the Universal Life savings component is lower, and the expensive insurance component is higher than expected. People with these expensive policies now need to decide if they want to keep paying into them or convert them into something more appropriate.
What happens if you are disabled and can’t work?
Only five states (CA, NY, NJ, RI, HI) provide state mandated disability benefits. California is the most generous: you can be paid 60-70% of your wages with a maximum of $1,252/week for 52 weeks. If you are working and your state benefit is inadequate, you should explore disability insurance, either by electing the group option offered by your employer or buying an individual plan.
Long-Term Care Insurance
Are you financially prepared to pay for assisted living, nursing home care or home health care?
The US Department of Health and Human Services has determined that 69% of Americans age 65 and older will need some form of long-term care. According to Forbes Magazine, a semi-private room in a nursing home in 2017 averaged $7148 per month. Medicare nor health insurance pay these expenses. Medicaid will help pay for certain facilities, but only after you’ve spent down your assets to a low level.
So, for many people, this is a problem.
The insurance industry responded by creating long-term care insurance. Long-term care insurance got some bad press over the past few years because the insurance industry originally underestimated claims and then had to raise prices. But now prices are more stable, and a number of good insurance options exist.
Business Life Insurance
What happens to your business if you or your business partner dies?
If you are a business owner, life insurance can help here. “Key man” insurance provides cash to the business, so the survivors have some breathing room in the case of the death of an owner or key employee. A “buy sell agreement” funded by life insurance ensures a deceased partner’s heirs receive a cash payment and the surviving partner gets the business. Without a buy sell, the surviving partner is suddenly in business with the deceased partner’s heirs which is rarely a good situation.
Carrie Babij is President of Desert Insurance Solutions in La Quinta, and has more than 25 years’ experience with high net worth personal and commercial lines of insurance. For more information, contact Carrie at firstname.lastname@example.org.
Last modified: February 4, 2019