As described on the Financial Planning page, insurance is a significant part of financial and estate planning, wealth accumulation and wealth transfer. For many people, insurance is a concept that they just don't want to deal with. Whether it's life, disability or long-term care insurance, if it's not researched now, there may not be the financial resources later on, should something happen. Furthermore, due to the many different types of life and long-term care insurance available, the analysis before selection can be very overwhelming. Below is a brief description of the many different types of insurance.
Insurance planning is an ongoing process. To ensure that you have adequate protection, you should review your insurance coverage regularly and decide if changes are necessary. In addition to the life and long term care insurance described below. you may also want short term or long term disability. Insurance needs are an integral part of the financial planning process. In some cases it can be used as a wealth accumulation too, a wealth preservation tool and/or an income replacement tool. We take a unique approach to all insurance analysis by not only defining the need but being able to mathematically demonstrate the affordability at various times of your life. We have yet to find any agent or broker that works this way - which normally results in them just selling a product without fully quantifying the amounts and proving to the client how it will be funded and the resulting net benefits.
There are many other areas of concern that we like to discuss with our clients but if you wanted to do some research on your own, we highly recommend that you read the information located at the Insurance Information Institute. If your financial model should prove that insurance is needed and is affordable, we work with one of the premier insurance companies in the nation. We are not licensed to sell insurance products but have created a wonderful alliance with a partner that works properly within the environment we do. Contact us if you would like to discuss your insurance needs.
If you would like to get a head start on some of the issues, before we discuss them with you, please complete our Insurance Questionnaire
We have found that most people are looking to insure for the occurrence of two major events:
Here are the various flavors of insurance available to properly cover you, and your family, based on the decisions above:
Covers you for a specific length of time and pays a death benefit to your beneficiary if you die while the policy is in effect. At the end of the term, the policy expires without any value. This type of policy may work when your need for insurance is temporary, such as when you have dependent children or a mortgage you would want the proceeds to pay off.
Permanent life insurance is often referred to as cash value insurance because part of the premium you pay goes toward building equity (cash value). The cash value increases over the years until it reaches the policy's full face amount. Most policies have a loan feature that allows you to borrow against your policy's cash value. You can also "surrender" your cash value policy once your need for protection diminishes and receive the equity that has built up. These types of policies may be suitable to you if you want to have a life insurance policy in force throughout your lifetime and/or the savings element appeals to you. There are several types of cash value life insurance, including:
With a traditional whole life policy, you pay a fixed annual premium and earn interest on the cash value that your policy builds. If you die while the policy is in force, your beneficiary receives a fixed sum of money — the death benefit amount.
Universal life offers more flexibility than traditional whole life by allowing you to change the amount, date, and frequency of your premium payments. You may also increase or decrease the amount of the death benefit. Typically, you can choose from among several death benefit options, which may include a fixed benefit plus an additional benefit equal to the policy's cash value or premiums paid.
Differs from other permanent life policies because neither the cash value nor the death benefit is guaranteed. Instead, benefits are connected to the performance of selected investment portfolios (or "sub-accounts"). If you choose a variable life policy, you take on some risk. But you gain the potential for a higher death benefit and a greater cash value if your investments perform well. Straight variable life offers a fixed premium. Universal variable life allows you to vary your premiums and reconfigure the death benefit.
In addition to life insurance, many people are recognizing a need to purchase long term care insurance. Long-term care insurance can protect against the high costs you'll face if you are unable to live without help due to a physical or mental condition. Insurance is available that covers care received in a nursing home, an assisted-living residence, an adult-care center, or your home. Be aware that all guarantees are based on the claims paying ability of the issuer. Long-term care policies and premiums differ among insurance companies, sometimes greatly. Be sure you carefully compare policies and benefits. The terms you choose will have a big impact on the premium. Here are a few of the different variables:
The benefit amount and maximum length of coverage vary from one policy to another. Generally, the higher the benefit amount and the longer the coverage period, the higher a policy's premium is likely to be. Also, the definition of disability is different from one policy to another. Be sure you know what physical and mental conditions are necessary to "trigger" benefit payments.
How soon coverage begins will also vary. Usually, you'll have to wait between 20 and 90 days after your care begins to start receiving benefits. The waiting period you choose should depend in part on how much you can afford to pay on your own before benefits begin. In general, the shorter the wait, the higher the premium.
Some policies increase the benefit amount to keep up with inflation. You can expect to pay a higher premium for this protection, but it may be worth it to help ensure that policy benefits will keep pace with what could be substantial increases in the cost of care in the future.
In comparing policies, check to see what conditions must be met before benefits will be paid. For example, a health-care professional may need to confirm that you are unable to perform certain daily physical activities, such as bathing, dressing, and walking, or that your mental ability has greatly deteriorated.
If your policy meets certain requirements, you could be eligible for tax benefits. Within tax law limits, qualified policy premiums are deductible as a medical expense. (Medical expenses are an itemized deduction. Only aggregate expenses that exceed 7.5% of your adjusted gross income are deductible.) Policy benefits are tax free (again, within certain limits).
There is no "right time" to buy long-term care insurance. Many people purchase long-term care policies between ages 55 and 65. The longer you wait, the higher the premiums will be. On the other hand, if you buy coverage when you're younger and premiums are lower, you may have to pay premiums for many years before any need for care occurs. We can help you weigh the options so you can make an informed decision.