Whether you’re saving to buy a home or you’re trying to build a cushion for retirement, any one of life’s many unexpected issues can derail your hard work. Purchasing the right amount and type of insurance can help prevent these unexpected issues from throwing you completely off course.
Some kinds of insurance are required by law, such as vehicle insurance and health insurance, but these aren’t necessarily all that you need. Knowing what kinds of insurance that you should have, even though they’re not required by law, will help you mitigate the financial risks you face if something happens to you.
These three types of insurance plans are essential to protect yourself, your family, your future income, and your savings:
1. Life Insurance
Adequate life insurance is essential if you have a family.
One option is to purchase term life insurance, which becomes less and less expensive over time. This type of policy doesn’t require any health screening and it lasts for a set period of time, such as 20 years. If the person who obtains a term life insurance plan dies within the term, the person’s family receives the death benefit defined by the plan. However, if the person with a term life insurance plan outlives the term, they must get the policy renewed for their family to receive any money after their death. This kind of insurance is meant merely to insure against a person’s death. It doesn’t have any additional benefits and insurance companies don’t always allow for renewal.
Permanent life insurance, just as the name implies, will last a person’s entire life. It also has a savings component in addition to the death benefit. The savings component provides a tax-deferred source that you can borrow against. The savings and the permanency of the plan make it different from and possibly better than term life insurance. The risk involved with permanent life insurance is that borrowing too much against the plan can cause it to get canceled.
2. Long-Term Care Insurance
Long-term care is something that everyone needs to think about seriously, especially since the cost of long-term care insurance continues to go up. In the next 20 years, the price to cover just three years of care will be more than $300,000.
There are two basic types of long-term care policies: traditional and hybrid.
Traditional long-term care insurance policies are fairly straightforward. You pay premiums to the insurance carrier for the entire duration of the contract, and they work similarly to term life insurance. If you don’t ever use the policy, you won’t receive the money back for the premiums.
The hybrid policy provides you with a cash back provision. You make an up-front, one-time deposit (usually ranging from $50,000 to $150,000) which funds a pool of money that can be used for long-term care or as a death benefit. If you pass away before the money is completely spent on your long-term care, then the remaining amount will become a death benefit. If you never require long-term care, you may be able to get all of your money back eventually.
3. Long Term Disability Insurance
An illness or injury can render you incapable of earning income for a long period of time. While statistics show that one out of every four 20-year-olds today will become disabled prior to retirement, only about 29 percent of Americans actually have disability insurance.
If you get disability insurance through work, then you will likely have to pay between one and three percent of your total salary each year as a premium. If you opt to pay the premiums, then the benefit eventually paid to you will be tax-free; however, if your employer is paying the premium, then the benefit you receive will be taxed.
Even if you are one of the individuals who has purchased long-term disability coverage through a job, you may want to consider supplementing that with an individual policy. Most employer-provided plans will only give you benefits if you have become completely disabled.
The Bottom Line
Trying to make sure that everything that needs insurance is insured and that every insurance plan is optimal according to your needs can be difficult. Schertz Insurance Agency is here to wade through all of the confusion for you. We’ll make sure you’re covered, and we’ll never try to push policies on you that you don’t need.