Insurance Planning – A Simple Annual Checklist:

Insurance planning is a critical component to your financial life.

There is a delicate balance between having too much insurance and not enough. 

Here is a simple annual checklist to help you review if your current coverage is adequate. 

In this post, we are covering: 

• Your Phase of Life 
• Life Insurance Basics 
• Long-Term Care Overview 
• Disability Insurance Fundamentals 

Your Phase of Life

Understanding your phase of life is a broad but useful way for analyzing the types of risk you may need insurance to cover.

There is no “one size fits all” for insurance, everyone has unique needs that must be considered.

Here is a quick look at general life phases: 

• Asset accumulation: This phase is usually when saving for retirement and reaching long-term goals is a priority.
• Financial Independence: This phase is typically when savings, net worth, and cash flow have met your goals and priorities. The focus is on maintaining your position.
• Distribution: This phase is usually when your focus shifts to drawing down your net worth to sustain your lifestyle. 

 Let’s take a look at basic types of insurance, and the life changes that may impact your coverage. 

Life Insurance Basics

Typically, life insurance is designed to cover expenses and bills for your loved ones when you pass away. 

Here are a few common needs for life insurance: 

INCOME REPLACEMENT

This is the most common reason to purchase life insurance. An untimely death would cause the income you generate to cease. 

A general rule of thumb is to have coverage of approximately 10-12 times your annual income. 

 Common examples of income to replace include working income, Social Security benefits, or a pension. 

FINANCIAL OBJECTIVES

This is a broad topic that ranges depending on your phase of life.  

Common financial objectives for asset accumulators include funding college, paying off debt or a mortgage, and possibly a bequest goal. 

CHILD CARE

Often a homemaker or stay-at-home spouse should be insured.  

Although they may not bring income into the home, their absence could produce a gap in household needs and increase costs. 

BUSINESS PLANNING 

Buy-sell agreements are often used in strategic business planning. This helps with succession planning. 

SPECIALIZED CIRCUMSTANCES 

There may be times when insurance is needed in conjunction with a more advanced financial strategy.  

For example, using Charitable Remainder Trusts is a great way to save taxes and give to charity. However, without insurance you may not meet bequest goals to inheritors, such as children

EVENTS THAT MAY SHIFT YOUR LIFE INSURANCE NEEDS: 

• Change in employment: A new job or retirement. 
• Increased household income 
• Having children 
• Purchase of a new home: Consider goals if there is a mortgage. 
• Getting married or divorced: Be sure to review beneficiaries! 

Long-term Care Overview

Long-term care insurance (“LTC”) provides medical and custodial care when your health deteriorates. 

Typically, these policies are activated when you cannot perform basic functions of daily living such as bathing, dressing, etc., without assistance.  

Medicare or health insurance do not provide sustained long-term care coverage! 

WHEN TO CONSIDER LONG-TERM CARE 

It is best practice to explore long-term care options in your 50’s or early 60’s. 

This balances two priorities: 

1. Attempt to pay the lowest amount of premium dollars over your lifetime 

1. Attain coverage while you are young enough to lock-in solid rates  

LONG-TERM CARE TYPICAL COVERAGE 

Long-term care attempts to maintain your individual lifestyle. Most insurance policies have the option to provide for the following types of care: 

• Nursing home care 
• Assisted–living facilities 
• In-home care 
• Adult daycare services 
• Home care and modification 

 According to the Genworth Cost of Care Survey, the national median annual cost for long term care ranges from $51,600 to $105,850 depending on location and the type of care needed. 

 In 2020, for example, Genworth shows the monthly median cost of an assisted living facility to be $4,525 a month in San Diego! 

“The world’s population is aging at a faster rate than ever before and people are living longer. Every day until 2030, 10,000 Baby Boomers will turn 65, and 7 out of 10 people will require long-term care in their lifetime.” 

Anthony Saffer and Alex Okugawa break down the need for long term care in this video: Health Risks: Do I Need Long-term Care Insurance? 

 

IMPORTANT CONSIDERATIONS FOR LONG-TERM CARE 

LIFE EXPECTANCY 

“Life expectancy has been on an upward trajectory for more than 100 years.”  

According to the most recent report released by AARP, “longevity for those age 65 and older will increase 89 percent over the next 20 years, and the age 85 and older population will grow 74 percent during the same period.” 

This impacts the need for long term care going into the future. 

GENDER 

Women have a longer life expectancy than men, outliving men by about five years on average. 

According to an AARP study, “More than 70 percent of nursing home residents are women; their average age at admission was 80.” 

FAMILY SITUATION 

Will your family be able to cover your needs of long-term care? Do you want them to help? 

Long-term care can be very expensive, but if you or your family can cover expenses out of pocket, there may not be a need for LTC insurance.  

Also, single people are more likely than married people to need care from a paid provider, but counting on a spouse to provide major care can be risky. 

FAMILY HEALTH HISTORY 

Family health is a risk factor for long-term care since there are conditions or diseases that are hereditary such as Alzheimer’s.  

Your family’s medical history tells an important story about your genetics. 

QUALITY OF CARE 

The degree of assistance, the facility, and the level of care all play a role in the costs you pay.  

The cost of care is on the rise. Finding the quality of care that fits your needs and lifestyle is a big factor. 

EVENTS THAT MAY SHIFT YOUR LTC COVERAGE NEEDS: 

• You are in your late 50’s or early 60’s 
• You have reached financial independence and are able to self-insure 
• There is a change in your family dynamics 

Disability Insurance Fundamentals

Disability insurance is designed to cover a portion of your income.  

It’s possible to be hit with health issues that leave you unable to work for months and even years. This can make it difficult to make ends meet.   

According to a Social Security Administration (SSA) report, one in four of today’s 20-year-olds will become disabled for 90 days or more before they turn 67 years old. 

MAIN TYPES OF DISABILITY INSURANCE 

SOCIAL SECURITY 

The insured must be disabled for 5 months and projected to be disabled for 12 months or more AND not able to perform the duties of any occupation. 

WORKER’S COMPENSATION 

Covers disability resulting from injuries on the job. 

GROUP DISABILITY 

This is provided by an employer and is typically less expensive than individual disability policies. 

PRIVATE OR INDIVIDUAL POLICIES  

Disability policies purchased by individuals directly. Generally: 60-70% of pre-tax income should be covered in your insurance policy. 

EVENTS THAT MAY SHIFT YOUR DISABILITY INSURANCE NEEDS 

• Your Employer’s coverage is not enough 
• You Changed Jobs or Occupation: If you work in a field that is more likely to result in a disabling injury, it may be time to review your coverage. 
• You are retired or nearly at retirement 

Coordinating All Insurance Needs 

Ultimately, properly structured insurance can serve to protect the wealth you have worked hard to accumulate while providing for your family during challenging times.  

Your life is dynamic and always changing. Periodically reviewing your coverage while considering the changes in your life is important.  

If you’d like to talk with us about how risks in your life may be appropriately managed within your financial plan, give us a call. We’d love to talk with you. 

 

The examples provided in the post are hypothetical. Insurance coverage decisions require a thorough analysis. Your unique situation should be reviewed by a quality professional advisor before making decisions.