Insurance Coverage Primer

Building your net worth is a critical component of reaching your financial goals. But did you know that protecting it is just as important? Having the right type and amount of insurance coverage can help your family remain financially stable during turbulent times—a medical emergency, home damage, early death, and more.

Let’s examine a few insurance policies you may want to incorporate into your greater financial plan and consider what to consider about each.

Life Insurance

Life insurance can be a safety net if your family relies on your income to support their financial needs. It comes in a few different forms, but the most common are term and whole:

Term life insurance is active for a certain period, typically 10, 20, or 30 years. While the policy is active, you pay a premium, and your family will receive a payout (called a death benefit) if you die. Once the term limit is up, you stop paying for premiums, and that policy no longer covers you.

Whole life insurance covers your entire life, meaning there is no expiration date (as long as you continue paying on the policy). Because of this, the premiums on whole policies are almost always higher than their term policy counterparts. Some whole life insurance policies also have an insurance component, enabling them to accrue a cash value.

How much and which type of life insurance policy you pursue will depend on your unique circumstances and goals. If you’re solely focused on replacing lost income, it might make sense to have a term policy that expires once you anticipate retiring. Or, if you’re interested in using a life insurance policy to leave an inheritance for your grandkids, a whole-life policy could be more suitable for your needs. Talk to your advisor or insurance agent about your unique goals when selecting a policy.

Health Insurance

Health insurance is one of the most widely used insurances available, and you’re likely already covered in some way. But you may not have considered just how important insurance coverage is to managing risk and protecting your financial security.

Medical debt is a severe issue in America as healthcare costs continue to rise. Around 14 million Americans owe over $1,000, while 3 million owe more than $10,000 of medical debt.1  

Reevaluate your policy every year during the open enrollment period to assess your coverage needs and identify any potential gaps in your existing coverage. If you buy insurance from the marketplace or your employer offers multiple options, you can shop for a policy that better suits your needs. This is especially important if you’ve experienced or anticipate changes to your health. Having the right coverage can help you avoid taking on medical debt; alternatively, it can keep you from overpaying for more coverage than you may need.

Disability Insurance

Should you become disabled and unable to work, disability insurance will help replace a portion of your lost income. Some companies (usually larger corporations) offer disability insurance to employees as part of their benefits package. You can also buy an individual policy from a private carrier.

There are two common types of disability insurance:

Short-term policies will replace a portion of an employee’s income (typically 40% to 80%) for a short period—a few weeks to a whole year, depending on the circumstances. This policy would apply if you couldn’t work due to a qualifying medical condition, like a broken leg, pregnancy, or surgery. 

As they sound, long-term policies are designed to replace lost income over a more extended period—generally for a few years, but in some cases, it can be for a lifetime. Like short-term policies, the policyholder must have experienced a qualifying medical condition their doctor deems a disability.

Property and Casualty Insurance

Property and casualty insurance is designed to protect your physical assets. It comes in several variations, including:

  • Homeowners
  • Renters
  • Auto
  • Boat
  • Motorcycle
  • Umbrella

As your estate grows over time, it’s essential to reassess your property and casualty insurance and ensure you remain adequately covered. Home and car repairs, for example, can run in the tens of thousands of dollars—and it’s impossible to predict when something will go awry. The right insurance policy can help you cover costs without draining your savings or tapping into your investments.

Review the coverage limits, deductibles, exclusions, and any other fine print when assessing various property and casualty policies. 

Long-Term Care Insurance

It’s estimated that 70% of 65-year-olds today will need long-term care during their lifetime.2 Despite common misconceptions, long-term care is not typically covered under your health insurance policy either (including Medicare). If you’re interested in having it, you’ll likely need to obtain a separate long-term care policy instead.

Should you no longer be able to perform the essential functions necessary to care for yourself, long-term care coverage can help you pay for assisted living, skilled nursing care, equipment, and other associated expenses.

When comparing policies, look for factors that could impact coverage, including:

  • Waiting periods before the policy goes into effect
  • Preexisting conditions
  • Daily or monthly coverage caps
  • Lifetime coverage caps (including number of years or monetary value)

Conclusion

If you haven’t already, take some time soon to reevaluate your coverage and identify potential gaps or over-coverage. The key is to balance protecting your financial well-being and not overpaying on unnecessary premiums.

If you’d like help reviewing your current coverage in relation to your overall financial plan, don’t hesitate to schedule a time to talk with our team.

Sources:

1The Burden of Medical Debt in the United States

2The Need for Long-Term Care Continues to Grow

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2024 Broadridge Financial Solutions, Inc.