I can’t tell you the number of times I have been asked, “Hey, you do insurance, right?”. I’m sure every member of our team can say that they have been asked the same thing multiple times as well. Whether or not this question comes up because of poor marketing is hard to tell, but every time I answer this question it gives an opportunity to shed some light on what Provisio does and how insurance factors into our process. We are not insurance salesman. Todd, Alex, and I are all licensed to sell life and health insurance, but it is not our primary job. Insurance does however play a big role in the financial planning that we do with our clients. Making sure our clients are adequately covered is included in the planning that we do and so in that sense we do “do” insurance. Let’s talk about the different roles that different types of insurance often play in the financial plans of our clients and provide some things for you to evaluate in your current insurance coverage needs.
Everyone has heard of Life insurance before in some capacity. The point of Life Insurance is to calculate the economic value of the person being insured and to provide a sum of money in the event of that person’s death. While conversations surrounding death can be difficult, we often advise people to look at Life Insurance in a positive light considering the fact that you are using it to ensure that your loved ones are taken care of in some sort if you were to pass away. This money in many cases is used to pay off a family’s mortgage or to pay off other burdensome debts. Rather than a somber topic, Life Insurance can genuinely be seen as a gift of love to your family or other loved ones to put them in a better financial position than they otherwise would be. There are two main types of Life Insurance being Term Insurance and Permanent Insurance. Term Insurance runs for a fixed amount of time. If you own a 20-year term policy you are insured for 20 years. You pay a monthly or annual premium and have a death benefit associated with the policy that would be paid out to your beneficiary(ies). Permanent policies offer coverage your entire life as long as you continue to pay the premium. Premiums are often much higher than term coverage with a portion of that premium often going to a cash value of some sort. Life insurance is insurance and not an investment.
Disability Income Insurance
Disability income insurance insures your most valuable asset – Your ability to earn income. Not to be confused with Accident or Critical Illness policies that pay a sum of money when an accident occurs or an illness is diagnosed, disability income policies cover your earned income. Two of the most common types of DII are Total Disability and Partial Disability Insurance. Total Disability insurance pays the monthly benefit if you become totally disabled and are unable to work in any occupation. Partial Disability pays a portion of the monthly benefit if you are partially disabled and have lost income but are still able to work part-time. For example, if you could only work 20 hours a week, a policy that covers partial disability may pay half of your total disability benefit. Individual, non-group, disability income policies will generally insure no more than 80% of your monthly income. Individual coverage can be written to fill in the gaps left by Group Short- and Long-Term Disability policies. Individual disability insurance pays after a waiting period is satisfied, usually 30, 90, or 180 days. Once a claim is approved, monthly payments may continue for a stated number of years or to age 65. Costs are determined based on your age and gender, health history, income and occupation and sometimes certain hobbies or travel may increase cost.
Long-term Care Insurance
One of the largest expenses to plan for in retirement comes at the end of the plan and that is Long-term Care expenses. Think of this as expenses for nursing home or assisted living. This is often a multiple year expense that we plan for. This can either be funded out-of-pocket with money you have saved up or via payments from Long-term Care Insurance. LTC covers care, in a facility or at home, that is required when an insured person is unable to perform 2 or more of the 6 “Activities of Daily Living” (ADL’s) The 6 ADL’s are: 1. Bathing 2. Dressing 3. Eating 4. Transferring 5. Toileting 6. Continence. When is the best time to purchase coverage? Rates are lowest at younger ages but the need for coverage is often not until much later in life. In rare instances, Long Term Care coverage is offered through an employer as group coverage. In these situations, the premiums are usually lower and the coverage is often “portable” meaning that it can be kept even after the employee leaves the company. Conventional insurance policies provide a monthly or lifetime benefit, subject to a waiting period, with premiums that may increase over time. “Asset Based” plans create a lifetime benefit in exchange for a large one-time payment. The premium payment creates a “Pooled Benefit” that may be used for one person or jointly by both spouses. Insurance companies have found it difficult to continue to offer this type of coverage in light of the skyrocketing cost of care and the increasing longevity of our population. Even so, there are still creative ways to address this need by working with an experienced adviser.
If you are wondering if you are adequately covered in any of these areas, come talk to us! We are happy to help overview your plan and identify where there could be holes. We hope you enjoyed this week’s blog even though it came out a bit later than usual, (that’s on me, spent last Friday at a wedding rather than writing a blog). Have a great rest of your week and we will talk again next Tuesday!
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.