Did you know June 28th was National Insurance Day? While perhaps not the most exciting summer holiday (overshadowed by July 4th, we’d say), it is worth “celebrating.” In fact, consider this your annual nudge to revisit all your various insurance policies and coverage.
Now’s the ideal time to make necessary updates before the hustle and bustle of the holidays sets in… It always happens sooner than you think.
As a breadwinner, you hold your family’s financial safety in your hands. Beyond your home or car, your income itself is an asset worth protecting. Many women don’t consider just how vulnerable their financial well-being is should something happen to them. If you couldn’t work tomorrow, would your family be financially cared for? That’s the challenge we address by helping women implement and maintain the right mix of coverage.
Your Income Is Your Biggest Asset (Here’s How to Protect It)
During your peak working years, you’re earning more than ever. Your financial obligations and responsibilities are heightened as well. You may be investing aggressively for retirement while paying the mortgage, covering the cost of college, saving for home repairs or renovations, and all while supporting a comfortable lifestyle for your family.
To maintain and meet their financial responsibilities, high earners must continue earning. This puts them in an especially vulnerable position, which can threaten their family’s financial stability if they’re no longer able to work.
As the primary earner for your family, disability insurance is worth serious consideration if you don’t already have it. If you know me, you know I consider insurance a necessary evil. Its purpose is to protect the people who’d be hurt financially if something happened to you, and to safeguard the assets you’ve worked so hard to build. That said, I believe strongly in having enough coverage in place. It’s why we review it with clients at every meeting.
Disability insurance is a safety net for your income, should you be unable to work due to illness, injury, or the onset of a new medical condition. While it won’t replace your income completely, disability insurance does pay up to a percentage of what you currently earn (usually 60% to 80%).
You may already have coverage through a group policy provided by your employer. While this is a good start, group policies are often limited in scope. For employees with higher salaries, it might not be enough. Not to mention, group policies don’t travel with you when your employment is terminated. Should you leave your job, your coverage will end.
If you already have some disability coverage, use this opportunity to review it carefully. Take note of the type of coverage, waiting periods, exclusions, and percentage of salary replaced.
Disability coverage comes in two forms: short-term and long-term.
Short-Term Disability
Short-term disability has a shorter waiting period (often one to two weeks) and provides coverage for a limited amount of time. Often, short-term disability is used for temporary injury or illness, with the assumption you’ll return to work in the coming weeks or months. Short-term disability can be used if you break a bone, end up in the hospital after a car accident, or experience serious illness.
Policies will differ, but some may require you to use all available PTO before coverage kicks in.
Long-Term Disability
Long-term disability has a longer and more involved waiting period, since coverage can last for years, decades, or even the remainder of your working years. Often, the long-term disability waiting period extends the length of a short-term disability’s coverage (usually 12 months).
Long-term disability coverage is for severe, long-lasting injury or illness such as cancer, MS, PTSD, Lupus, or other chronic conditions.
Life Insurance When You’re the One Everyone Depends On
Similar to disability insurance, you may already have some life insurance coverage through a group policy. The same problems exist—a group policy likely won’t meet your coverage needs, and it won’t leave your job when you do.
Consider what amount of life insurance coverage would best suit your family between now and retirement. If you died tomorrow, how much is enough to provide your family some financial safety? Take into account your debts (mortgage, car payment, etc.), obligations (college tuition, child’s wedding, etc.), annual take-home pay, and your spouse’s earnings.
You’ll also want to consider policy premiums, since the higher the death benefit, the larger the premiums. Type of coverage impacts premiums too. Term policies offer lower monthly costs compared to whole or permanent policies.
Term Life Insurance
A term life insurance policy will provide coverage for a predetermined period of time, say 10, 15, or 20 years. Once the period is over, the policy terminates, and coverage ends. High earners will commonly “ladder” term policies to provide greater coverage now while gradually tapering off as they near retirement.
We typically suggest clients have term life insurance policies that extend until their youngest child is a few years out of college. At this point, that child could likely have a job and be financially self-sufficient.
For example, a couple might purchase both a 10-year policy and a 20-year policy now when they’re younger, and premiums are cheaper. By the end of the 10 years, their mortgage will be paid off and their kids will be out of the house. They won’t need as much coverage for the following 10 years, but they’ll still benefit from the lower premiums locked in now.
The Coverage High Earners Forget: Umbrella and Liability Policies
As your estate and net worth grow, typical home or auto insurance policies may leave gaps in coverage. People in certain public-facing careers may also be more susceptible to lawsuits, which aren’t always covered by traditional insurance. This includes attorneys, business owners, executives, board members, and people who often host events at their homes.
Umbrella and liability policies protect your personal wealth, high-value property, and large accounts. They also offer protection against litigation arising from personal injury, libel, slander, and defamation.
Say you serve as a board member of an HOA. A homeowner sues and wins to the tune of $1 million. While the HOA itself may offer some coverage, it may not be enough to cover the full amount. If you have liability insurance, your policy will step in to cover the remaining balance, leaving your retirement accounts and personal property protected.
We believe every client should have umbrella coverage and make sure the liability limits on their home, auto, boat, and rental properties are sufficient in the event of a claim. We’ve had clients face unfortunate situations, and having the right amount of liability and umbrella coverage gives tremendous peace of mind, knowing they’re protected.
Health Insurance and Long-Term Care: Planning for What’s Unpredictable
Every year, you’ll have the opportunity to update your health insurance coverage during the open enrollment period. Typically, this occurs closer to the end of the year, but some employers may begin earlier. Is your current coverage meeting your needs, or do you feel a change is necessary? Once open enrollment hits and new plan information becomes available, you’ll be ready to act promptly.
In addition to your regular health insurance coverage, consider whether long-term care has a place within your bigger retirement picture. Traditional health insurance policies, including Medicare, do not provide coverage for long-term care.
Long-term care is used for those who require ongoing assistance with activities of daily living (ADLs) either in their home, a nursing home, or an assisted living facility. Long-term care policies can help cover the cost of nurses, therapists, home health aids, speech therapists, transportation to facilities, and other related expenses. These costs can add up quickly and catch retirees off guard, especially if they have no established health savings account or policy in place.
We typically have a conversation with clients about long-term care planning when they reach 50. From there, we’ll determine whether long-term care insurance is the right solution or whether self-insuring makes more sense.
Make Insurance Part of Your Annual Financial Checkup
Your insurance coverage needs will evolve as things change in your life—say you earn a promotion, buy a new home, join a board, welcome a grandchild, and so on.
Carve out time each year to check your current coverage and consider whether it’s still serving your needs. It’s not always easy striking the right balance between premium costs and coverage needs, but that’s where an advisor can help.
If you’d like an experienced professional to review policies with a fine-toothed comb and identify opportunities, we’re here to help. Schedule a complimentary consultation with our team to get started today.
