Your Financial Future: Insurance PlanningSubmitted by Alexander Consulting Group, LLC on September 7th, 2021
For the past several months, I have been blogging about Financial Wellness and the six verticals I believe are integral to planning your financial future and reaching financial wellness:
2. Estate Planning
4. Insurance Planning
5. Cash Flow and Budget
6. Assistance to Loved Ones
So far, I have covered investment and retirement planning in previous blogs. This month I am going to focus on some basic considerations for Insurance Planning.
Life Insurance Needs Analysis
No matter what phase of life you are in, as your life changes, so do your insurance needs. You will want to take a look at the type of policies you have, what they cover, the associated costs, how they change over time, what you need now, and what you may need later. Review each of your policies and the type of policies available for life insurance, long-term care, disability, health insurance, and homeowner/renter.
When you are younger, you will generally buy what you can afford. Depending on your employer, many types of policies are included in a standard benefits package. Take the time to review what they cover and determine if it is adequate based on your personal situation. Depending on your age and whether or not you have others depending on you, you may decide to increase your coverage or change the type of coverage you have.
Even after you have analyzed your current situation and make necessary changes, you still need to periodically assess and update your policies based on your dynamic needs.
Review Existing Policies
No one wants to think about their death, but it is an important area to cover. When you are reviewing your current coverage, think about the age of your dependents and the length of time that your current coverage would carry them after you are gone.
Generally, there are two basic types of life insurance – term and permanent. There are many nuances to life insurance policies, but for the purposes of this blog, I am going to keep it very simplistic. Term insurance is generally less expensive and you pay a premium to provide an amount of coverage for a specified period. Although it is generally renewable, when the period is over it doesn’t continue. Permanent insurance is generally more costly up front, but provides long-term benefits, has cash value, and may have tax advantages.
When you review your existing life insurance coverage, consider your age, dependents, current health, and plan for unknowns. Think about who needs to be taken care of after your death at various points in time. As you add dependents, dependents age, or health needs change, revisit your coverage.
Long-term Care Insurance Analysis
Life is very unpredictable. The only thing we can be sure of is that situations can always change. Most individuals do not have long-term care coverage even though most need it at some point in their life. Most older individuals rely on family members to provide care, which potentially creates multi-generational challenges. Caregiver.org estimates that 66% of caregivers are women.
Many only consider long-term care as something they will need closer to the end of life. However, there are many health issues that could arise requiring long-term care for you or one of your dependents at any age. The impacts to you or your family can quite burdensome financially, physically, and emotionally.
When you are thinking about the type of long-term care coverage you may need, consider the various worst-case scenarios and how they could play out, who would be impacted, what type of care may be needed, and for what length of time.
Disability Insurance Analysis
Many of the same factors and considerations that I discussed for long-term care insurance apply to disability as well. Disability insurance helps to protect you when an unexpected event occurs impacting your ability to perform work or daily life as you currently do. Some situations are temporary and some could impact you for a longer period of time.
Many benefit packages provided by an employer provide some type of limited Short-term Disability/Long-term Disability (STD/LTD) coverage and they are paid through payroll deduction. Find out if you are eligible through your employer and what the coverage includes. After you leave that employer, typically the coverage ends.
The United States Social Security Administration reports that approximately 53% of disability claims are denied. That is why it is very important for you to assess your individual current and future needs and purchase the level of coverage that suits your unique circumstances.
Health Insurance Review
Health insurance can be a fairly complicated topic. However, the selection of plans is usually limited by your employer and the options available for your specific region narrowing your choices. Self-pay options are often costly and limited.
Take a look at your current insurance coverages and what the needs for you and your dependents are along with premium and out-of-pocket costs. Compare them to the other options available to you. Make sure you consider unknowns. Life is unpredictable and everyone goes through something that impacts their own or a loved one’s health. A new plan can be selected each year or when a change in circumstance occurs.
Homeowners/Renters Insurance Review
Whether you own or rent, insurance to cover your property and the contents within is important. Review your existing coverage – what it covers and what it does not cover – and determine if it is enough to replace your home in a catastrophic situation. Like all insurance, homeowner and renter insurance is there when life is unpredictable.
An umbrella policy works well for a lot of people and covers most situations. Depending on where you live and the type of natural hazards typical for your region, you may need to consider different scenarios and make sure your policy covers that situation. You can review your specific situation with an insurance agent to help decide what the total replacement costs of your home would be to help guide your coverage decisions.
Basic liability coverage is required for vehicles, but it is best to have some additional coverage for protection in an accident. Liability coverage helps to pay for the other driver’s expenses in the event that you caused the accident. Additional coverage would be needed to pay for bodily injury, the impacts to your car and health, lost income, emergency aid, and more.
Review your existing coverage, driving habits, dependents, and other factors with an insurance agent to determine what the best type of coverage is for you.
Health Savings Accounts
Health Savings Accounts (HSA) are typically offered through an employer where a specific amount of money is set aside annually to cover medical costs. Some employers offer a match. If you are self-employed, it is more difficult to obtain this type of plan.
Evaluate what is offered through your employer and your current medical costs and determine if this will be helpful for you.
According the U.S Department of Health & Human Services, Medicare is a federal insurance program for individuals who are over age 65. Patient pay part of the costs through deductibles and small premiums. Medicaid is an assistance program serving individuals of any age. It is a federal-state program serving low-income individuals.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.