Sharing Your Risk: The Best Insurance Plans to Consider Now

My last article, The Best Practices for a Healthy Financial Life: Creating Your Financial Plan, gave you the resources to get started on setting and achieving your financial goals. Whether saving for retirement or buying a new home, those goals can be quickly derailed if life throws you a curve ball. That’s why having the right kind and amount of insurance is an important piece in any financial plan.

Some insurance is mandatory, like automobile insurance, and more recently, health insurance because of the Affordable Care Act. Other types of insurance are just as important because they let you “share the risk” should something happen to you. Here’s the insurance that I recommend everyone consider to protect their future income and savings.

Listen to Barry Glassman’s WTOP interview: Sharing Your Risk

1. Life Insurance:

If you have a family and you love them, then life insurance is a must. Basic term life insurance is purchased for a period of time, say 20 years, and pays a death benefit to your beneficiaries should you die while the policy is in effect. This money will help to replace the income your family depends on and pay for things like the mortgage on your home or for your children’s college education. Once you retire and no longer have these types of large obligations, then this insurance is usually no longer necessary. Bankrate.com has a terrific Life Insurance Calculator to estimate how much life insurance coverage you should consider for your situation.

You may also want to consider permanent life insurance which is more expensive, but has a savings component, also called a cash value which builds up over time. The idea is that you keep this insurance your entire life, and it will pay a benefit when you die. There are a number of reasons to consider permanent life insurance like using it to pay federal estate taxes or to protect assets from creditors. It’s always a good idea to consult a financial advisor of insurance professional to know what type of life insurance makes sense for you and your family.

Term life insurance is becoming less and less expensive and some policies may not require a health screening. Insure.com is a great source to learn more about life and other types of insurance and to shop for the best policies and most affordable coverage.

We also really like PolicyGenius.com, an easy-to-use online service dedicated to educating consumers about life and disability insurance. Started by two former McKinsey consultants, they are shaking up the insurance industry by offering sensible and accessible information online, providing comparisons of top policies without sending personal information to the insurance carriers and letting the consumer reach their own conclusion as to whether they should have this insurance.

2. Long-Term Care Insurance:

Just as term life insurance is becoming less expensive, the price for long-term care insurance keeps going up. It’s not surprising when you consider that roughly half of the $2.5 trillion spent on health care in 2009 was allocated to those who are over the age of 65 according to the Office of the Actuary (OACT). At least 70 percent of people over 65 will need long term-care services during their lifetime according to the 2014 Medicare and You, National Medicare Handbook.

Long-term care insurance is something that most people should seriously consider given that in 20 years, the cost to cover three years of long-term care could exceed $300,000. Genworth has an interactive map that shows the costs of long-term care across the U.S. You can also calculate future long-term care costs based on your state’s median costs by clicking on your state and selecting a timeframe, such as 20, or 30 years from now. For instance, the annual median cost for a private, one bedroom apartment in an Assisted Living Facility in Virginia is $47,880 in 2014, and estimated to be $116,217 by 2044. A private room in a nursing home jumps from $84,315 to $204,655 in 30 years in Virginia.

Typically, there are two types of long-term care policies, traditional and hybrid. Keith Eig, a long-term care insurance specialist at Greenberg, Wexler and Eig, LLC writes that the traditional policy is relatively straight forward. Premiums are paid to an insurance carrier for the life of the contract, much like term life insurance. And also like term insurance, if you don’t use it, you don’t get the money back for those premiums.

The hybrid policy has a type of “cash back” provision. A one-time deposit (typically $50,000 to $150,000) is paid up front. This deposit “funds” a pool of money to be used for long-term care in addition to a death benefit. If the insured dies before the long-term care benefit pool is used up, then a death benefit is paid to the beneficiaries. The entire deposit could potentially be refunded to the policyholder if they cancel the policy prior to the start of the benefit withdrawals or death.

See our article, How Much Does a Long-Term Care Plan Cost? Another great place to learn more about long-term care and compare policy benefits and costs is through the American Association for Long-Term Care Insurance.

3. Long-Term Disability Insurance:

Just 29 percent of Americans own disability insurance according to the Insurance Information Institute, but one in four of today’s 20-year-olds has a chance of becoming disabled before they retire according to the Council for Disability Awareness. That means a lot of people may be out of work and without a paycheck for a long time because of an injury or illness.

Most disability policies pay out 40% to 60% of your base salary. Even if your one of the fortunate few who has long-term disability insurance through your employer, you may still want to look into supplementing that coverage with an individual policy. Why? Many employer-based plans only provide benefits if you’re totally disabled.

If you don’t have disability insurance or you want to add to the benefits you receive through work, you can expect to pay between 1% and 3% of your gross salary annually for the premium. If you pay the premiums, then any benefit paid out is tax-free. If your employer pays the premium, then your benefit is taxed which means less money coming to you. You’ll want to check out PolicyGenius.com for more information and to receive quote comparisons for the best policies.

Let’s be honest, insuring for all of the what-ifs in life can be confusing, time consuming and expensive. But, the alternative could be potentially devastating to you and your family. The resources listed in this article are a good place to start to get educated about what insurance you should consider, how much you can afford and the best prices and policies to meet your needs.

Barry Glassman, CFP®

His vision for starting GWS was to deliver investment strategies and wealth management services typically available at the highest levels of wealth. Today, clients benefit from these sophisticated financial services targeted to meet their unique needs.
Barry Glassman, CFP®
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