Managing risk with insurance
Insurance is an effective risk management tool. If a family member were to die or become disabled, would it impact your family's finances? Would the liability costs of an accident affect your savings? If so, you should consider insurance.
The six most common insurance coverage types based on individual needs:
"Life insurance is a contract between you and an insurance company that can provide funds (death benefits) to pay expenses upon the death of the insured."
Life insurance is a contract between you and an insurance company that can provide funds (death benefits) to pay expenses upon the death of the insured. Death benefits can be passed on tax free to beneficiaries if properly structured.
Term life is a contract with a set duration limit on the coverage period. The contract pays a stated benefit if the insured dies within a specific time period. It's important to note that if the insured lives beyond the specified time period, there is no benefit paid out. This makes premiums for term life insurance the most cost-effective form of life insurance.
Variable universal life insurance
Variable universal life (VUL) insurance is a form of cash-value life insurance which combines some features of universal life insurance (such as premiums and death benefit flexibility) with some features of variable life insurance (investment choices).
The premium amount for variable universal life insurance (VUL) is flexible and may be changed by the consumer as needed, but such changes can result in a change in the coverage amount. The investment feature usually includes "sub-accounts," which function very similarly to mutual funds and can provide exposure to stocks and bonds. This exposure offers the possibility of higher growth over a normal universal life or permanent insurance policy.
Cash value insurance contracts can grow tax deferred. Contracts can be based on guaranteed fixed interest rates or variable rates tied to the performance of underlying investments. Accumulated assets may increase the death benefit value. Because it is a permanent life policy, VUL provides tax-deferred cash value and loan withdrawals - within certain limits - against the cash value. Normally, policy loans are tax free, but you need to confirm this with your insurance advisor because the tax implications may differ from one state to another.
Because you bear the investment risk in these policies, if your investments perform poorly, this may mean that you'll pay higher premiums to sustain the policy. Investment values of variable options will fluctuate so that the investor's units, when redeemed, may be worth more or less than their original cost.
Long-term care insurance
Healthcare can get expensive fast, especially with impairments requiring long-term care. Generally, Medicare doesn't pay for long-term care; it pays only for medically necessary skilled nursing facility or home health care. However, you must meet certain conditions for Medicare to pay for these types of care. You can learn more from Medicare's website, Medicare.gov.
"Long-term care (LTC) insurance helps the insured determine how and where care is received and offers the dignity to control one's own future."
Do not leave the expenses to your family. Rather than rely on government funded care, LTC insurance helps the insured determine how and where care is received and offers the dignity to control one's own future. Relying on children or family members for support can make some individuals uncomfortable. Without this insurance, the cost of providing these services may quickly deplete the savings of the individual and their family. Long-term care insurance can help cover out-of-pocket expenses.
An LTC insurance program designed specifically for you can provide benefits to help cover additional costs of long-term care, which might mean freedom from becoming dependent on a family member or the government.
Do you need it? Consider the following factors when deciding on LTC insurance:
"An auto policy covers a specific vehicle — you are only insured for cars listed in your policy."
Most states require auto insurance, the most common type of insurance policy. Make sure you and your passengers are properly covered. An auto policy covers a specific vehicle - you are only insured for cars listed in your policy. Auto insurance typically includes six basic kinds of coverage:
Do you need medical coverage if you have health insurance? Your employer's health insurance may cover certain medical expenses, but medical coverage can help cover the costs for a poorly insured passenger.
The auto insurance industry is competitive and policy premiums vary considerably among providers. Evaluate the coverage you need, then get competitive quotes. Ask your agent about available discounts such as:
"Homeowner’s insurance helps you manage property loss, damage and liability risks."
Your home may be your most valuable asset, so a homeowner's policy is one of the most important types of insurance to own. Homeowner's insurance helps you manage property loss, damage and liability risks.
Types of available coverage
A homeowner's insurance policy offers various types of coverage including:
If you submit a claim, you are required to submit proof of loss to the insurance company, which should include the approximate condition and value of the items claimed. Therefore, you should maintain an inventory list or a video of your insured items and keep it in a safe place outside your home.
If using a video, include a picture of the current newspaper in the beginning of the tape with the date clearly visible, as well as an audio declaration stating that the items in the video belong to you.
Policy terms to know
Is your home fully protected?
To be fully protected, make sure your replacement cost is current. If your home is destroyed, replacement cost will pay for the reconstruction of your home. Another option to consider is the guaranteed replacement cost of your dwelling. It will pay the actual cost to replace your home rather than its fair market value.
Also, keep records of all your insured items so you receive proper reimbursement.
As with all insurance, balance the benefit of coverage with its cost. Only insure what is necessary. A financial advisor can help you develop an insurance plan that suits your needs.
"Sound risk management should include liability insurance which can protect you from lawsuits that may arise"
Personal injury lawsuits have increased dramatically. While homeowners and auto policies include liability insurance, they only protect you up to a certain limit. Therefore, you may need to insure your assets at higher amounts. Sound risk management should include liability insurance which can protect you from lawsuits that may arise from someone falling in your yard, or your dog biting a guest.
An umbrella policy provides liability coverage that starts where your other coverage ends. This coverage takes effect only above certain limits of your casualty insurance, so it is important that your auto and homeowners policies protect you below those limits. Most umbrella policies require a specific minimum in liability coverage on your auto and home insurance policies.
Also, most umbrella policies require that your auto, home and liability policies be held by the same insurance company. It is important that you shop around for the best package rates. You may actually save money by consolidating policies under one company.
"Disability insurance can provide the income you need until you can return to work."
If you become disabled and cannot work for a period of time, would you be able to continue paying your living expenses? Disability insurance can provide the income you need until you can return to work.
Short-term financial needs
Consider how a short-term disruption in income can significantly affect your long-term financial responsibilities. Even a brief period of disability can impact your long-term financial stability if you are not adequately protected. The problem can escalate to a bigger issue, affecting your finances for a long time.
Disability insurance policy basics
Policies vary among insurance companies, but there are four main features of a disability policy that you should know:
Disability insurance can be expensive. Here are some ideas to save money: