By Greg Hart, CFP®
First things first: I do not sell, nor am I licensed to sell, insurance. However, I do perform insurance reviews for my clients as part of their financial planning. We review several different scenarios of what a client’s financial picture will look like if an unexpected illness or accident occurs. It’s the section in our financial plans we call “contingency planning”.
It seems like you can get insurance for just about anything these days. And while you know how important it is to have car or home insurance, it’s sometimes hard to know if you need all the other types of insurance policies out there as well.
Insurance is not a one-size-fits-all product. Your life situation, your goals, and your family will require different coverage than your next-door neighbor. The right insurance tools can help ensure that your assets are protected and your family or business has a more secure future, even if the unexpected happens. So, while you shouldn’t run out and get every single type of insurance out there, consider these four types of insurance that are an important part of any financial plan.
1. Long-Term Disability Insurance
Surprised this type of insurance is listed first? The Social Security Administration estimates that the average 20-year-old worker has a 25% chance of becoming disabled and losing at least a year of work before normal retirement age, (1) but only one-third of Americans have disability insurance. (2) 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 plan (aka Group STD & LTD), the coverage may be limited and inadequate. Do you realize that most Group disability benefits will be taxable to you? So, now, you’re only receiving a net benefit. Many plans will only cover you for limited period, say up to two years. So, there is often a “gap” in your coverage that you don’t even realize you have. The need for your own private long-term disability coverage will pick up where employers’ long-term benefits fall short. Before your employer long-term benefit is activated, most employers’ short-term benefits will provide coverage for three to six months. If you have a high-paying job, it’s especially crucial to review your coverage and consider “filling the gap” by purchasing an individual, long-term disability insurance policy to protect against an unexpected loss of income.
2. 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 other dependents. Additionally, it’s wise to make a habit of updating your coverage based on your needs at least once per year.
As of 2018, only 59% of Americans carry life insurance and a third of those only have a basic group policy. (3) This is in opposition to the fact that 84% of Americans believe most people need life insurance. 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.
3. Critical Illness Insurance
While no one wants to think about a life-changing illness entering their life, it happens more often than you might think. Critical illness insurance pays a lump-sum amount to help with the costs associated with the illness. This insurance is unique because there is flexibility with how you can allocate the funds. You can use it to replace income for you and your spouse while you are dealing with an illness, or it can provide for alternative medical treatments not covered by other health insurance. If you don’t want to worry about money while battling a serious illness, consider critical illness insurance.
4. 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 70% of people turning age 65 will require some form of long-term care during their lifetimes. (4) 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.
Get The Coverage You Need
Whatever insurance policies you need, don’t wait to get coverage. 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. To see how insurance can lower your risk and protect your assets, call us at Haddon Wealth Management today at (856) 888-1744 or contact us online to schedule a complimentary get-acquainted meeting.
About Greg
Gregory M. Hart, CFP® is the founder and managing director of Haddon Wealth Management, LLC, a registered investment advisory firm that provides comprehensive wealth management (in-depth financial planning and sophisticated investment management) for clients who value a relationship-driven approach that delivers customized solutions. Based in Haddonfield, New Jersey, Greg works with clients throughout the Delaware Valley, as well as nationwide. To learn more, connect with Greg on LinkedIn, visit our website at www.haddonwealthmgt.com, or call (856) 888-1744 to begin a discussion.
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(1) https://www.ssa.gov/oact/NOTES/ran6/an2017-6.pdf
(3) https://www.tbrins.com/uploads/9/5/9/7/95973204/2018-insurance-barometer-study.pdf
(4) https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
