By Paul S. McNulty, CFP®
When was the last time you gave insurance serious thought? If you have it, you probably purchased it years ago and then turned your attention to more urgent and tangible financial issues, such as your 401(k) or your child’s college fund. 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 ensure that your assets are protected, and your family or business has a more 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 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. (1) 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.
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 help 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 Disability Insurance
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, (2) but only one-third of Americans have disability insurance. (3) 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 two 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 employers’ 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.
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 for peace of mind.
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 Right Coverage
Have you reviewed your insurance coverage recently? If not, you may benefit from a comprehensive review to help 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, contact us for a complimentary consultation by calling (781) 995-0253 or email me directly at [email protected] today!
About Paul
Paul McNulty is the founder of Boston Metro Advisor with over 20 years of experience helping people navigate the ups and downs of the economy toward the financial future they envision. His education consists of a Bachelor of Science in business administration from the University of Rhode Island and the CERTIFIED FINANCIAL PLANNER™ (CFP®) professional designation.
Paul’s experience and education have made him a multi-faceted professional capable of assisting people with virtually all their financial needs. His services include every facet of retirement planning, from 401(k) rollover services and income planning to wealth management and estate planning. Paul has been active in his community over the years as a youth sports coach. When he’s not spending time with his wife, Cindy, and their two children, who are both recent college graduates, Paul enjoys reading, playing golf, and fishing. Learn more about Paul by connecting with him on LinkedIn.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. State insurance laws and insurance underwriting rules may affect available coverage and its costs.
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(1) https://www.tbrins.com/uploads/9/5/9/7/95973204/2018-insurance-barometer-study.pdf
(2) https://www.ssa.gov/oact/NOTES/ran6/an2017-6.pdf
(4) https://acl.gov/ltc/basic-needs/how-much-care-will-you-need