When you think of insurance, the word protection probably comes to mind. If you get into a car accident, your auto insurance will help you cover the costs involved. Having health insurance can protect you from going into debt to pay for the care you need. But insurance costs money, and when you have more urgent and tangible financial priorities, such as building up your 401(k) and growing up child’s college fund, it’s easy to put off optional insurance products for the future. But a great savings rate means nothing if your financial plan doesn’t include appropriate protection against risks. Risk management through insurance is a critical part of a comprehensive financial plan. Without adequate insurance coverage, your financial future may not be secure.
With the right insurance tools, you can help to ensure that your assets are protected and your family has a secure future, even if the unexpected happens. Here are four key types of insurance that are an important part of your financial plan:
1. Life Insurance
Thankfully, this is the least commonly used insurance of the four, but the most regularly purchased due to its importance. Life insurance protects your dependents in the event of your death, so it’s crucial to carry life insurance if you have children or others who rely on you financially. Additionally, it’s wise to make a habit of updating your coverage at least once per year as your life situation and needs change.
As of 2017, only 59% of Americans carry life insurance and a third of those only have a basic group policy. (1) This is in opposition to the fact that 84% of Americans believe life insurance is essential. Life insurance policies should be purchased to take into account mortgages, non-mortgage debt, childcare, college savings, and more. Stay at home parents should also have coverage since they provide valuable work that would be costly to outsource in the event of their death. Business owners may have other insurance needs to protect the future of their business.
The next three insurance coverages are considered living benefits insurance. In other words, these policies serve as income replacement and health cost coverage tools to have in place in order to ensure that you and your family can reach your financial goals with as little financial disruption as possible while you are living.
2. Long-Term Care Insurance
If you are approaching age 65, it may be a gamble to go without long-term care insurance. According to the U.S. Department of Health and Human Services, an average of 63% of people turning age 65 will require some form of long-term care during their lifetimes. (2) Additionally, 20% of 65-year-olds will need long-term care for more than five years.
Long-term care insurance covers the cost of services that include a variety of tasks you may need help with as you age. Today’s long-term care policies offer more flexibility and benefits than ever before. It is important to understand the long-term care insurance options available to you and whether or not a policy is appropriate for your lifestyle and needs. While some policies can be expensive, requiring long-term care without insurance in place can be financially devastating.
3. Long-Term Disability Insurance
The Social Security Administration estimates that the average 20-year-old worker has a 3 in 10 chance of being disabled before age 65, (3) but only one-third of Americans have disability insurance. (4) An accident, injury, or illness that keeps you from working can wreak havoc on your financial plans and set you back months or years. Common long-term disabilities can even include neck, back, or joint disorders.
While many people believe they are covered by their employer’s long-term disability insurance, the coverage may be limited and inadequate. Coverage of up to 2 years is the typical limit for employer benefit long-term disability plans. The need for a private long-term disability coverage will pick up where employer’s long-term benefits fall short. Before your employer long-term benefit is activated, most employer’s short-term benefits will provide coverage for three to six months. If you have a high-paying job, it’s especially crucial to purchase long-term disability insurance to protect against an unexpected loss of income.
4. Umbrella Liability Insurance
What happens if you get into a major car accident and you are at fault? Or what if you experience a disaster in your home? Many times, your homeowner and auto policies have limits and significant events can exceed these limits. Additionally, sometimes things happen that aren’t protected by your other policies. Umbrella insurance can provide coverage for things such as injuries, lawsuits, and property damage. Umbrella insurance just gives you that extra cushion of protection to increase your peace of mind.
Get The Insurance You Need
Have you reviewed your insurance coverage within the last twelve months? If not, you may benefit from a comprehensive review to protect your family and your financial future. Since insurance can get complicated, someone experienced with insurance policies can offer you guidance on the products available to you and how they can integrate into your other financial strategies. If you need a second opinion on your portfolio or would like to discuss how insurance can lower your risk and protect your assets, request a meeting online!
Ash Toumayants is a financial advisor and the founder of Strong Tower Associates. For over a decade, he has helped hard-working people across Central Pennsylvania prepare for retirement. Fueled by a passion for helping people see through the veil of confusion that shrouds the financial world, his goal is to educate his clients so they can make more sound choices regarding their financial future. A Penn State graduate, he currently lives in State College with his lovely wife, Noelle, and their two adorable children. Learn more by connecting with Ash on LinkedIn or emailing firstname.lastname@example.org.
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