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Protecting your family is your #1 priority, but what have you done to protect yourself? If something happens to you, what are the consequences for your family? What steps have you taken to manage the risks you face everyday? What would happen if you became too sick to work or died unexpectedly?
Properly managing these risks is the cornerstone of any financial planning effort. No matter how elaborate your investment portfolio, retirement plan, or estate plan, if you have not managed these risks then all of your planning efforts could be worthless. Proper risk management through insurance planning needs to be the foundation of any financial plan, but it is often the most overlooked piece. If properly implemented, it can remove the uncertainty from your financial plan.
The probability of becoming disabled is more likely than dying unexpectedly, but many people overlook this fact and have done nothing to manage this risk. Today it is just as common to be disabled from an accident as it is to become disabled from a debilitating illness. In many ways, disability is a more expensive risk to manage, since there are usually extra medical and care-giving costs which actually increase the cost of living. Your employer may provide you with some elective coverage through its group disability plan. However, group plans often only replace a fraction of your income, may not cover certain types of disability and may only cover you for a specific period of time. Therefore, it is critical to consider using an individual disability plan tailored to your specific needs to cover these gaps.
Death Protection
Death protection through life insurance is the first type of protection to consider. Death always involves an emotional loss, but it does not have to be a financial loss as long as the proper protection is in place. Your family's financial goals and way of life should not change because of an unexpected death. Some of the financial needs that may be created by a death are:
- Family income - support for surviving spouse and dependent children
- Additional expenses - necessary additional household services, childcare, etc.
- Liquidation of debts - mortgage, auto loan, credit cards educational loans, etc.
- Special financial needs - care of aging parents, special needs child, or other family member
- Final personal expenses - final medical expenses, funeral, burial, etc.
- Estate / death expenses - estate settlement costs to include federal and state estate taxes, probate, legal, accounting, appraisal fees, etc.
- Liquidity - emergency fund, necessary immediate cash flow
- Bequests - church, school, family members, friends employees, charities
- Funding of established financial goals - college funding, purchase of second home, pay off the mortgage, etc.
- Business continuity - protecting a business from the loss of an owner/key-employee or funding the transfer of an existing business
Death protection options available today are vast and complicated. It is equally important to determine how much protection you need, which option will work best for you, and which insurance company will provide you with the best overall package.
Many people obtain medical insurance though their employer on a group basis. These plans are frequently more comprehensive in coverage and more cost-effective than the purchase of individual plans. In addition to the managed care plans and indemnity plans that dominate the market, a proper financial plan must consider the use of FSAs, HSAs and other tax advantaged ways to pay for health care insurance and to cover out-of-pocket health costs.
Long-term care has garnered more and more attention lately as America's baby boomers grow older and the cost of medical care continues to rise. Americans 85 and older are the fastest-growing segment of our population, and are expected to comprise at least 5% of our total population by the year 2050. Living to advanced ages brings its own problems, such as the need for assisted living and changes in lifestyle. Industry studies indicate that 40% of all persons reaching age 65 will need some form of long-term care.
Costs vary greatly depending on nature of service provided and geographic location. Skilled care (the highest level of care within a long-term nursing facility) can cost $4,000 to $6,000 monthly. Other levels of care are somewhat less expensive, but can also cost in excess of $2,000 per month.
Long-term care is more than paying for a nursing home. Long-term care is assistance-in-living that must be provided for an individual due to illness or injury. This may include full skilled care or may only involve some assistance with life's daily activities. These services may be provided in a long-term nursing facility, an assisted-living facility, or even within the patient's or a family member's home.
The two primary sources of payment for long-term care are from the recipient's personal financial resources (40%), and from low-income subsidy programs such as Medicaid (45%) after personal resources have been exhausted. Medicare, Medicare Supplemental Policies and private medical insurance provide very limited, if any, benefits for this type care since they are focused on curing ailments not providing long-term care. For this reason, long-term care policies are becoming an important part of most financial planning strategies.
To carefully select a proper long-term care policy, we will review and consider various plan provisions such as:
- Type of Care - Some policies pay for nursing home only while others pay for alternative care facilities and even care within one's own home.
- Eligibility Requirements - Some policies may require the certification of a physician that care is necessary.
- Daily Benefits - Benefits are usually expressed as a per-day benefit (i.e. $100 per day). This amount may or may not be limited for home health care (i.e. $50 per day).
- Benefit Duration - Duration of benefits ranges from one year to lifetime.
- Waiting Period - The insured pays the cost of care during the waiting period (usually 30 to 100 days). This is the equivalent of a "deductible" on other types of insurance.
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