Protection Planning. These are some of the things we have to think about in order to protect our families should something happen to us suddenly. When people think of protection planning, they typically think of life insurance. Life insurance comes in all shapes and sizes. It is usually used to pass on a tax free inheritance. Certain types of life insurance can also be used to fund trusts for heirs. There are other kinds of insurance as well. We will touch on a few in this chapter. This is the place where your financial advisor or estate attorney can help you depending on your needs.
Life Insurance. When thinking of life insurance, people usually cover the highest breadwinner in a household more than they cover a lower wage earner or stay at home spouse. Let’s look at why there may be a flaw in that logic. When I became a single mom, I took out a life insurance policy on myself immediately. Why? Even though I didn’t have a high paying job, was on welfare at the time and trying hard to make ends meet, my thoughts were about my children. What if something happened to me? Who would take care of the children? For anyone, four children is a lot of children. The challenge became, who would want to take on the task of taking in 4 children that were not their own? The designated guardian would need money, and lots of it to raise four children. It was ok that I was struggling to make ends meet but I did not want my children to become a financial burden to whoever was kind enough to say yes to taking care of them should I die. I did not want to risk my children not being able to stay together.
When a stay at home spouse passes, the remaining spouse has to pay for things this spouse did. Besides trying to be both “Mom and Dad”, you have to pay for daycare, maybe someone to do cooking and cleaning. Someone to drive your children to their activities after school. All of this adds up. My point is that both spouses should be covered commiserate to what they contribute to the family. This does not just mean monetarily! Don’t underestimate the worth of the spouse that stays home with the children. If you are the spouse that stays at home, don’t think you don’t contribute to the home in a financial way! Sometimes, it may even be prudent to have a high life insurance on your stay at home spouse! What they do at home, no amount of money can buy, but at least it would help!
Life insurance is vital at any age. We have already established that there are two things we can’t avoid, death and taxes. Without life insurance, if you suddenly passed away, your family would be left destitute both emotionally and financially. I just recently heard a story of a young man who was killed. He was riding his motorcycle when he got hit by a drunk driver. He was killed on impact leaving behind 2 small children and his wife who was a stay at home Mom. He was also the owner of a company. He left behind a $10,000 life insurance policy. This covers nothing, not even the funeral! Not only that but he did not leave a succession plan for his company. He WAS the company so now there is no income and without him, his company is not worth much. His family is now trying to figure out how to survive. Please don’t do this to your family! Experts feel that your life insurance should be “10 times your yearly income”. This may sound like a lot but it should ideally cover your mortgage, funeral, college costs for the children and give your surviving spouse enough money to make a life for themselves. When you have small children, having a life insurance policy is priceless, as long as it provides for them until they are old enough to be on their own. If you are a parent and are divorced, having a good life insurance policy can be of utmost importance to your children as well. As I have previously stated, if you are a single parent and you pass, your children will need someone to watch over them and that costs money. Imagine the burden spared if you left life insurance to help that person care for your children!
Health insurance. This may seem like an obvious thing but not everyone has health insurance. It may be costly but in the long run can save you money. There was a recent Harvard study that statistically noted, "Your family is just one serious illness away from bankruptcy.” They also concluded that, "62% of all personal bankruptcies in the U.S. in 2007 were caused by health problems and 78% of those filers had medical insurance at the start of their illness." This is not necessarily a long term illness. This may be a major accident or short hospital stay. The costs for these can be exorbitant. The financial burden on the family can devastate anyone and not just financially but emotionally as well. Finding a good healthcare provider means shopping around if you don’t have one provided for you by work. There are state programs available for people who cannot afford any type of insurance at all. See my resources chapter for help with this.
Short Term Disability Insurance. If you are the major breadwinner in your household and you could no longer work, due to illness or accident, disability insurance would give you a salary to keep your family afloat. There are several types of disability. An insurance provider or a financial advisor can help you figure out what is the best type of policy for you and your family. Disability insurance can give you an income while you are recuperating from surgery or a car accident. In a perfect world, we would all have 3-6 months’ worth of household expenses in the bank in case of a loss of job, or illness. How many of us actually have 3-6 months’ worth of household expenses in the bank? Sadly, not many of us. If you suddenly become temporarily disabled, these policies will help. None of us expects any of these things to happen, but if it does and you and your loved ones are covered. You will be thankful that you did it! I must note that this is not the same as social security disability insurance. There are many types of disability insurance available. You can check my resources page for more resources to help you find the best fit.
Long Term Care Insurance. With an increasing older population and with dementia or Alzheimer’s on the rise, long term care insurance should be considered in your financial plan. This is a personal choice and you can discuss this with your financial advisor. You should be considering long term care if you are between the ages of 50-70.5. Long-term care (LTC) is a variety of services which help meet both the medical and non-medical needs of people with a chronic illness or disability who cannot care for themselves for long periods. Long term care is focused on individualized and coordinated services that promote independence, maximize patients’ quality of life, and meet patients’ needs over a period of time.
Medicare does not cover long term care expenses. It only covers about 62% of expenses associated with health care services.** The older we get, the more expensive long term care insurance becomes. Also, if you have any preexisting conditions, you may not qualify for long term care. The expense of a long term care illness can wipe out the wealth accumulated by the average person. The average cost of care can be anywhere between $8,000 and $10,000 a month! Consider the average couple. If one of the partners needs long term care and there is not insurance in place, it not only wipes out savings, but leaves the remaining spouse in the most difficult position of not having any money left to live on. (Unless of course, the spouse has a life insurance policy that can “reinstate” the wealth used to care for the deceased spouse). This insurance should be a consideration in your financial planning.
To decide what insurance would best fit your needs, you can speak to your financial advisor. He or she will be able to help you determine what areas of your life need to be protected and what kind of LTC options you have available to you. They are there to assist you in finding the perfect “insurance fit” for your needs. We protect what is most valuable to us. We have insurance for our cars, boats, motorcycles and homes. We should be considering insurance for protecting our families.
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