- Posted by Sally Jilek, CLTC®
- On April 24, 2019
- financial planning, insurance, insurance coverage, RAA Risk, risk management
As financial planners, the RAA team spends a lot of time thinking about and preparing to help our clients with the unknowns in life. What happens if the Fed raises rates? What happens if a client develops a chronic medical condition, or becomes disabled and isn’t able to work?
By thinking about and planning for adverse conditions, we can better protect our clients from downside risk. Insurance is a crucial part of this process since it is a tool to reduce the financial risk that is present in everyday life. Below are five key types of insurance to consider in your own financial life with an overview of how each can protect your financial security from the unexpected.
1. LIFE INSURANCE
Most financial plans rely on a fundamental assumption: you will work for the next 10, 20, or 30 years and then retire. And the math that determines how much you should be saving each month, or how much inheritance you will have left over, is driven by your annual income. While life insurance can never replace you or your spouse, it can replace your earning potential in the event of an unexpected passing. This can include debt expenses, home mortgages, college tuition, and private school costs that may otherwise go unpaid. In general, we suggest that clients consider life insurance coverage that is ten times their annual income. This level of coverage would provide your family with ten years of financial stability during a very difficult time.
2. DISABILITY INSURANCE
While life insurance provides financial support after an unexpected passing, disability insurance provides financial support to your family if you are physically or cognitively impaired and cannot work. This type of insurance comes in two forms.
Short-term disability coverage:
Most short-term policies are designed to cover impairments that last less than one year. An injury that requires you to miss three weeks of work, an infection that persists for two months, or even the birth of a child are all events that can trigger this type of coverage.
Long-term disability coverage:
For injuries or illnesses that last longer than one year, long-term disability coverage is designed to fill the earnings gap. Cancer, osteoarthritis, coronary heart disease, or a persistent mental disorder are all issues that are typically covered.
Adequate disability coverage is especially important for those in the airline industry, as regular medical checks could uncover a potential disability at any time in your flying career.
3. MEDICAL, MEDICARE, AND SUPPLEMENTAL COVERAGE
This type of coverage protects you against the cost of health care. This type of insurance is most important for retirees, as a 2019 estimate found that the average retired couple will spend $285,000 on medical needs after they turn 651. This figure is likely low, as it does not take into consideration any long-term care costs.
If you are over 65, or under 65 but have a disability, Medicare is a federal program that provides health care coverage. For many of our clients, supplemental coverage (insurance in addition to Medicare) is needed to finance the full cost of medical care during retirement.
Last but not least, keep in mind that the cost of dental visits and eye exams can add up significantly over a lifetime, so we suggest choosing the coverage that includes these costs as well.
4. LONG-TERM CARE
When thinking about long-term care, it’s important to understand the “activities of daily living.” These are tasks that many of us take for granted but define our ability to live independently. They include dressing, eating, bathing, toileting, transferring (getting in and out of a bed or chair without assistance), and maintaining continence.
Due to an accident or illness, you may be unable to do two or more of these daily living tasks. If that’s the case, you will likely require some type of long-term care, which can include extra home assistance and/or living in a care community. The cost of this care can be expensive. A 2018 study found that the median, annual cost of at-home health care was $50,336 per year2.
Long-term care insurance can cover these expenses, but it also plays another critical role: it helps to support the people that are closest to you. Without long-term care insurance, your spouse, children, or grandchildren may need to be your primary caregivers, adding further hardship to their lives in what is already a very difficult time. While the hope is that it’s never needed, long-term care insurance can help protect your family’s financial, emotional, and physical wellbeing.
5. PROPERTY AND CASUALTY INSURANCE
The first four coverages listed protect your body and wellbeing, and the last category of insurance protects your assets and any legal liability you may incur surrounding these assets. The following are ways property and casualty insurance can offer additional defenses against the unexpected.
Protecting your assets*:
This type of coverage can protect your vehicle when it is damaged, or your house in the event of a fire. Floods, hurricanes, and tornados are generally not included in standard insurance plans, so read the fine print and use RAA as a resource if you have any questions on what is covered.
*Please note that RAA as a company is not licensed for property and casualty insurance, however, we are happy to help with some direction regarding contacts to those that are.
Protecting you from liability related to these assets:
If you injure someone with your vehicle or someone gets hurt on your property, you may be liable for the cost of making them whole. Property and casualty insurance not only protect your assets – they protect you from the financial liability surrounding these assets.
INTRODUCING RAA RISK MANAGEMENT
RAA is excited to have recently launched a new program called RAA Risk Management to help provide our clients the appropriate insurance coverage for their needs. As RAA’s Insurance Specialist, I can offer multiple-carrier quoting through A-rated or better insurance companies. Options I can quote include life insurance, long-term care insurance, and fixed annuities.
Just as important, since RAA is a fiduciary, you can be confident that any insurance-related recommendation that our team makes is in the best interest of you and your family. If you have questions about your insurance needs or would like to discuss your options, please reach out to me, Sally Jilek, CLTC®, at firstname.lastname@example.org or request more information by filling out the form below.
1Information obtained from Fidelity Investments report titled “How to plan for rising health care costs”. Fidelity Investments is an independent third party and is not associated with RAA.
2Information obtained from Genworth Financial report titled “Cost of Long-Term Care 2018”. Genworth Financial is an independent third party and is not associated with RAA.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by RAA following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, RAA accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.