What Kinds of Insurance Do You Need?
Just last week a client expressed his confusion over assessing whether or not he and his family are appropriately covered given his current insurance policies. This confusion in regards to insurance is not uncommon. Clients know they need some protection, but how much insurance and for how long is a very personal decision and changes with many variables. In general, insurance protects you against the risk of the unknown and the key to obtaining appropriate coverage is to understand what you want to protect.
If you need your income to maintain your lifestyle, then you need disability insurance. Statistically speaking, you are four times more likely to face a long term disability than you are likely to die before your 65th birthday.
Disability plans vary greatly and the income benefits are partially to completely taxable (if your employer covers some or all of the premium). If your employer does not offer the benefit, individual policies are available for purchase. The maximum benefit for which you may be eligible will be less than 100% of your current income.
The primary purpose for life insurance is to protect your surviving family in the instance of an untimely death. The amount of protection will vary depending on circumstances but 7 – 10 times your annual income often provides sufficient protection for a young family. Even a stay-at-home parent should have some protection to help offset the additional costs that it would take to replace their role in family life and childcare.
Once your family is grown, and college and retirement has been funded you may no longer need the additional protection life insurance offers. This will vary greatly on individual circumstances. Life insurance can also be a good tool to provide liquidity for an estate liability or a vehicle for charitable gifting.
Long-term care insurance
Research shows that at least 70 percent of people over 65 will need long term care services at some point in their lifetime. Long-term care insurance provides funds when the insured can no longer perform two of the six basic activities of daily living (also known as “ADLs” – eating, bathing, dressing, toileting, transferring (walking) and continence). Typically people consider purchasing long-term care insurance between ages 50 and 65 while they are still relatively healthy and active so that the insurance is that much more affordable. If you anticipate a family member being financially dependent on you in the future, it may also being worthwhile to consider purchasing protection for them.
Today in Massachusetts the median expense for a private room in a nursing home is $133,225, at an assisted living facility it is $59,400 and the median cost is $55,370 for a home health aide (44 hour week). In the next 20 years these costs are expected to nearly triple. While the cost of long term care insurance is high, it is often worth having at least a minimal daily benefit to “share the risk” of needing this additional assistance. When you consider your daily benefit and length of coverage, important factors for consideration are your age, family history and your goals for preservation of wealth. In general, the average period for which an individual needs assistance is 3 years and a policy that provides $200-$300 daily reimbursement for that period should help offset the expenses of the additional care.
Property & Liability Insurance – Auto & Homeowner’s & “Umbrella” Policies
Auto insurance is required for anyone who owns and drives a car. Depending on the value of your vehicle and your state’s requirements, the type of automobile insurance you should carry will vary. In most cases you will want to purchase the maximum liability coverage available.
If you own a home and you have a mortgage, you mortgage company requires that you maintain adequate homeowner’s insurance protection. We would recommend that even if you own your home outright, you should still consider homeowner’s insurance to protect for unexpected home repairs. As costs rise, it is a good rule to review the policy every few years to help ensure you have appropriate coverage.
An umbrella policies offer liability protection over and above your auto and homeowners policies. It is added protection. Everyone should have an umbrella policy for at least as much as their net worth or $1,000,000 whichever is greater. In the rare event you are sued, the policy will help pay towards a legal judgment, thereby preserving at least the value of the policy from your current assets and future earnings.
Everyone hopes to never need to access their insurance, but if you do you will want the appropriate protection. If you have any questions about your current coverage, please let us know. We are happy to review your protection with you.