Insurance Considerations

The topic of insurance is quite expansive.  This article covers some of the basic considerations and strategies.

Life Insurance:

There are two key questions to address with life insurance.  How much should you have, and what type is the best to have?  The most popular type of life insurance is term insurance, which is generally the least expensive option.  With term insurance, you go through underwriting and have a fixed premium for a set term, such as 10 years or 20 years.  At the end of the term, you need to reapply to maintain your health rating, or the premiums increase significantly.  Term insurance is great for needs with a fixed period of time, such as when your child turns 21 or your mortgage is paid off.  In contrast, permanent insurance has a higher premium but is designed to stay in force at a fixed premium forever.  Permanent insurance might make sense if you think you will need the insurance for a long time, such as if you have a special needs child or own a business with a buy-sell agreement.  Permanent insurance can also be integrated with long-term care, so the death benefit is prepaid if you need care.  Permanent insurance generally builds a cash value, which can be borrowed against or cashed in.  If you have permanent insurance, it is recommended you obtain an inforce illustration from the company every 2 years.  This illustration shows the “health” of your policy and what will happen to your coverage over time.

Disability Insurance:

Most employers provide a base level (such as 60% of compensation) of disability insurance as an employee benefit.  Most employer plans are taxed if you ever collect benefits.  In contrast, if you buy disability insurance on your own, the benefits are received tax-free.  Disability insurance provides benefits if you are unable to work for medical reasons.  In some cases, it makes sense to supplement coverage through your employer, based on your overall finances.

Long-Term Care Insurance:

Long-term care insurance (LTCi) is designed to provide resources if you need care as you get older, such as homecare or nursing home care.  There are several types of LTCi and the products are fairly complex.  Most policies have a set premium for life.  It is possible to have a policy that is paid up after one or a certain number of payments.  Some LTCi plans integrate with life insurance, so the policy pays a benefit if you die as well as a benefit if you need LTC.  As a general rule, we recommend that you plan on a premium equal to 1% of your investment assets.  As an example, if your portfolio is $500,000, you might want a policy with an annual premium of $5,000.  Most clients start looking at LTCi in their 50s.

Property Casualty Insurance:

Common property casualty insurance includes homeowners (renters), vehicle (boat/motorcycle) and umbrella coverage.  It is important to review your deductible.  If you have a good cash reserve, you may be able to save some money with a $1,000 or $2,500 deductible.  It is also important to ensure you have enough liability coverage.  Depending on your assets, many people should have auto coverage of $250,000 per person and $500,000 per accident.  In Massachusetts your auto liability shows up in Parts 3, 5 and 12.  Most people have $500,000 of home liability coverage, but the costs are normally nominal to increase this coverage to $1 million.  If you have valuable jewelry, art or collectibles, they should be insured with a specific endorsement.  You may also want to have at least $1 million of umbrella coverage.  This type of policy provides additional coverage if your home or auto liability coverage is exhausted.

Lars Lambrecht, Rehoboth resident and Certified Financial Planner, is available to answer questions or meet for a consultation.  617-947-6428