Estate planning is already one of those tasks most of us don’t look forward to. Throw in the word “insurance” and it’s easy to understand why many would prefer to just conveniently forget to cover those bases. Of course, we all know that’s not really an option, but don’t allow the unpleasant reality prevent you from obtaining the necessary coverage sooner rather than later.
One of the biggest reasons for covering those important insurance bases is simple: failure to plan adequately could mean unnecessary hardship for loved ones. Not only that, but once you begin considering the role insurance plays, it becomes clear that it’s not as time consuming or expensive as you might thing. In fact, the easiest way for most people to mitigate financial risks in retirement is through insurance products, such as disability, life and long-term-care insurance.
According to Tim Maurer, a certified financial planner and the Vice President of the Financial Consulate, there exists a “natural inclination to avoid topics of death and disability. But they are extremely important.” The problem is ensuring clients understand that it should be a priority in their estate planning efforts.
Disability Insurance
Disability insurance can be costly, but when you consider the statistics, its purpose is clear. Between the ages of 25 and 65, the chances of becoming permanently disabled are higher than the chances of dying. Too many of us rely on a company disability policy, but most of those policies don’t adequately cover income loss. These types of policies typically have a number of qualifiers, including, according to Maurer, the “any occupation” versus “own occupation” coverage. An “any occupation” policy is stricter, and will pay out if you are unable to work in ANY job deemed “reasonably suitable” for you. Meanwhile, an “own occupation” policy will pay if you’re unable to perform your current job. That’s an important distinction for professionals—for example, surgeons, who would want to be compensated if they injured a hand and could no longer perform operations.
For anyone who is still working, especially in a one-income household, disability is as important as life insurance. Another reason why employer insurance may fall short: group policies generally cover 60% of income. Some may indeed offer short-term coverage; benefits may not start immediately, in which case a supplemental policy makes sense.
Life Insurance
This is another one of those “understand the fine print” scenarios that can catch you off guard. Mostly, this is due to the terminology in the various options: term, universal, whole life — getting the right amount of insurance is what’s most important, but it’s not the only important decision.
What type you choose has to do with factors such as your current cash flow, any discretionary income you have, your age and financial objectives. One of the newer trends over the past several years has to do with term rates, which have become quite affordable. Ideally, this trend will continue.
To learn more about estate planning and the role of insurance after retirement, contact our offices today.
Daniel DeBruyckere
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