Are You Adequately Insured?

Nicole Bailey Picture

by Nicole Bailey, Advisor

We’ve all seen those TV commercials, trying to tell us we have gaps in our insurance.  We may brush it off, or think for a fleeting moment… “I wonder if I’m covered.”  The truth is, you may have gaps, and now is a great time to find out.

So – what would happen if a tornado ripped through your city and destroyed your home and car?  Most people assume that their auto and homeowners insurance policies will cover the damages.  We have health insurance in case we get sick or sustain an injury.  We all understand the need for those policies – our bodies, homes and vehicles, and everything inside them, are important assets to us!  We insure the contents of our home against theft, fires, or natural disasters.  We insure our car to pay for repairs, shield us from damages of an accident-related lawsuit and to protect us from uninsured or under-insured motorists.  We insure ourselves in case of sickness.  But what if you aren’t fully covered for that tornado?  What if you had a car accident which resulted in a lifelong disability, and you could no longer work?  These types of situations can be devastating from a financial perspective – and you might be covered for one, but exposed to another.  It is tremendously important to make sure that the insurance you pay for will kick in at the right time, under the right circumstances, to adequately cover you and your family.

To assist you in your analysis, here are some wide ranging types of insurance that you may need to consider, outside of health, auto and homeowner’s:

Personal Liability (Umbrella) – With few exceptions, any person who owns a home and/or drives a car should consider an umbrella policy.  These policies provide broad liability coverage over and above your standard auto and homeowners insurance – which means that some claims not covered by a standard policy may be covered under the umbrella policy.

Umbrella policies kick in once your regular coverage amount is exceeded.  Generally speaking, your standard policies will need to contain minimum levels of liability coverage (as dictated by the insurance company) in order for you to add the umbrella policy.  The umbrella policy can offer additional protection against large and potentially devastating liability claims or judgments, and offer some peace of mind should you find yourself in unexpected circumstances.

Disability Insurance –You probably have a savings plan in place, and are putting away your earnings into retirement accounts to plan for your future.  Have you considered what would happen to you and your family if you had a long-term disability and could no longer earn income?  Would you be able to maintain your same standard of living, and continue your savings for future retirement and your other financial goals?  In terms of its negative financial impact on a family, a long-term disability can be more severe than death.

Disability Insurance, often called disability income insurance or income protection, is designed to insure the beneficiary’s earned income against the risk that a disability would arise and create a barrier to completing the core functions of their work.  Statistics tell us that approximately 18.5% of Americans are currently living with a disability, and 1 out of every 4 persons in the US workforce will suffer a disabling injury before retirement.[1]

Employers often provide short-term disability and long-term disability insurance to its employees as an employee benefit.  Generally, but not always, group disability insurance policies will coordinate with Social Security disability benefits (disability benefits received from Social Security generally reduce group disability benefits).  However, even with employer provided disability insurance and Social Security disability benefits, an individual disability policy may still be a good choice in order to ensure you can still maintain your family’s lifestyle continue savings based on your financial plan, without having to make drastic changes.

Long-Term Care Insurance – Consider for a moment how you could cope if you were not able to perform some the of basic activities of daily living (ADLs) such as eating, bathing, dressing, transferring from a bed to a chair, using the toilet and maintaining continence?  While your loved ones may be able to provide significant care, these situations are physically, emotionally and financially devastating.

Many individuals feel uncomfortable relying solely on their children or family members for support.  Some may also have an inheritance in mind for their children and grandchildren, and do not wish to risk depleting those assets for long term care.  Adult children may be put in a position to “spend their inheritance” on a parent’s long term care, adding emotional stress to their already difficult situation.  Long-term care insurance can provide peace of mind for covering care related expenses.  Long-term care insurance generally covers home care, assisted living, adult daycare, respite care, hospice care, nursing home and Alzheimer’s facilities.

Life Insurance – People own life insurance for a number of reasons.  Generally, it is used to replace the earnings that cease at the death of the insured.  When life insurance pays out, the payment is income tax free and can be used to help the survivor with income needs including mortgage payments, education goals for children, one-time expenses related to the death of their loved one, and outstanding debt.  Individuals may also wish to own life insurance for estate planning purposes.  A second-to-die or survivorship policy is a contract that insures two lives with the promise to pay only at the second death.  The life insurance proceeds can be used to provide liquidity to pay federal estate taxes at the death of the second spouse.

Businesses may also use life insurance to protect the business from the loss of key employees.  Employees may have specific skills, talents, experience, or business and personal contacts which are of great value to the business.  Such employee’s death would cause severe financial loss for the company and would be difficult to replace. Many businesses cannot afford the financial loss incurred if a key employee was to experience an untimely death, and companies can help to mitigate this risk through key-employee life insurance.  Life insurance can also be useful for business partners, in order to ensure the availability of funds in the event of a partner’s death to purchase the deceased’s business interest.

Clearly, there are many types of insurance, all of which play important role in your financial plan.  Your Moneta Team can help advise you in these many areas to provide assurance that you are adequately insured against any unwelcome surprises.

 

[1] http://www.disabilityinsurance.org/articles/disability-insurance-infographic.html