Getting your proverbial “financial house” in order requires an investment into many different areas of your life, such as an investment in knowledge, experience, and other internal/external areas. It also includes an investment into different types of insurance policies that provide safety and security to your existing lifestyle, today and beyond.
In the following article we will cover the different types of insurance policies that will provide asset protection, so you can focus on what matters, building wealth and creating a legacy.
Life Insurance
If you died today, would you life insurance pay for your Human Life Value, replace your income, pay off your mortgage or only cover your funeral?
Life Insurance is a type of insurance policy that will pay out an amount of money to your beneficiaries when you die as long as the premiums have been paid. In addition, cash value life insurance provides many advantages while you are alive.
Types of Life Insurance Policies
The two types of life insurance policies you are most likely to hear about are term and whole life. At I&E, we don’t believe in pitting term life vs whole life, but rather, term life AND whole life into one blended policy for maximum results.
Term Life
A term life policy is the most basic life insurance you can get. It is so basic it should probably be called “death insurance” rather than life insurance, since your primary benefit is that it will pay out a death benefit to your beneficiary.
You can choose different term lengths, such as annual renewable term, 10, 15, 20, 25 and 30 year term lengths. Term life only pays out the death benefit if you die occurs during the term of the policy.
Nowadays, most term policies have other benefit provisions. For example, many offer chronic illness riders, terminal illness riders and even critical illness riders.
In addition, convertible term life insurance allows you to convert all or a portion of your face amount to a permanent policy. The benefit of convertible term is that you can covnert the policy with no evidence of insurability.
With term policies, you either get level term or decreasing term. Level term means that the death benefit remains the same during the policy period. A decreasing term policy means the death benefit drops over the life of the policy.
A decreasing term policy is a favorite for mortgage protection, although you may find that a level term life policy offers similar coverage and pricing, without decreasing over time.
Whole Life and Permanent Life
Permanent life insurance is designed to pay a death benefit whenever the policyholder dies as long as the policy premiums have been paid. There are different types of permanent life insurance — whole life, universal life, indexed universal life and variable universal life.
When it comes to the best whole life insurance, you can design the policy to achieve maximum early cash value growth. Overtime, the death benefit will increase, particularly through the use of dividends purchasing additional paid-up life insurance, further increasing your cash value and death benefit.
Long-term Care Insurance
The older you live, the higher your likelihood that you will need some type of long-term care services. One way to prepare is to buy long-term care insurance (LTCI).
Long-term care includes a host of services that aren’t covered by general health insurance. This includes services that provide support for everyday actions, like bathing, dressing or getting in and out of bed.
There are many long-term care insurance pros and cons, such as the ability to help cover long-term care costs associated with chronic medical conditions, a disability or a disorder such as Alzheimer’s disease. Many policies will compensate you for care given in different places, such as:
- Your home.
- A nursing home.
- An assisted living facility.
- An adult day care center.
It is important to compare the long-term insurance cost vs what your out of pocket expenses will be if you are not covered. There are also long-term care partnership programs available to help protect your assets.
Should I buy long-term care insurance?
According to the U.S. Department of Health and Human Services, 70% of 65-year-olds will use some form of long-term care in the years ahead.
Regular health insurance does not cover long-term care. And don’t count on Medicare either; it only covers short nursing home stays or limited amounts of home health care when you need skilled nursing or rehab. It also does not pay for custodial care that includes supervision and assistance with day-to-day tasks.
Bottom line, if you do not have insurance to cover long-term care, it is coming out of your pocket. Help through Medicaid, may be an option but only after you have drained most of your savings.
Disability Insurance
Disability insurance will pay a portion of your income if you cannot work for an extended period because of an illness or injury.
The importance of disability insurance
The likelihood of missing months or years of work because of an injury or illness may seem unlikely, especially when you are young and healthy and you work at a desk. However, it is more common than you think.
According to the Social Security Administration, more than one in four 20-year-olds will experience disability for 90 days or more before the age of 67.
Types of disability insurance
The two main types of disability insurance are short-term and long-term disability insurance coverage. Both repay a part of your monthly base salary up to a cap, such as $10,000, during disability.
Some long-term disability insurance policies pay for extra services, such as training to go back to work.
Disability policies vary in how they define “disabled.” Some policies pay out only if you cannot work any job for which you are qualified. Others pay out if you cannot perform a job in your own occupation.
Some policies cover partial disability, which means they pay a portion of the benefit if you can work part-time. Others pay only if you cannot work at all.
Critical Illness Insurance
When diagnosed with a critical illness, focusing on recovery should be our number one priority. However, even with complete medical insurance, some of us could still face financial difficulties. When facing a long recovery period and are out of work, could you keep your standard of living and keep up with unforeseen expenses?
Critical illness insurance is designed to help you control costs by paying a lump-sum cash amount to you if you are diagnosed with a covered illness or procedure once the waiting period is up. You choose how to use your lump-sum cash payment, including help with:
Out-of-pocket medical costs comprehensive medical insurance may not cover like deductibles and co-pays.
Unforeseen recovery expenses, like as extra-childcare, rehab, or other support that you may need throughout your recovery. Everyday expenses, such as mortgage payments, groceries, and utility or credit card bills. Any other financial support you may need.
Health Insurance
Health insurance is a type of insurance coverage that pays for medical and surgical expenses that you may incur. Health insurance can reimburse you for the expenses that add up from illness or injury or pay the care provider directly.
Your health insurance policy is an arrangement between you and your insurance company. The policy lists a set of medical benefits, the most common are tests, drugs, and treatment services. The insurance company agrees to cover the cost of these benefits listed in your policy in return for a premium payment. These are often referred to as “covered services.”
Your policy will also list the kinds of services that are not covered by your insurance company. These are your financial responsibility.
There are other options besides health insurance, such as health care sharing networks. These health care sharing networks are communities of people sharing similar goals and beliefs that support one another in true community. Many times health care sharing plans are much more affordable and are a viable alternative to traditional health insurance.
Auto Insurance
First and foremost, most states require that you carry a minimum limit liability policy. Minimum limits are the most basic auto insurance policy you can purchase. Your state chooses the limits as to what they feel is an acceptable coverage.
For example, Texas minimum liability limits are $30,000 for each injured person, up to a total of $60,000 per accident, and $25,000 for property damage per accident. You may see this coverage listed on your auto policy as 30/60/25. Liability is just going to pay for the damage you caused to another party. You and your vehicle have no coverage.
It is essential to keep in mind when purchasing a minimum limits policy that if you cause damage above your policy limits, you will pay out of your pocket.
Other Coverages Available on Your Auto Policy
Physical damage– this is your comprehensive and collision coverages. Comprehensive covers things like theft and weather-related damage while collision provides coverage if you accidentally drove into a tree or covers your vehicle in an at-fault accident.
Medical payments- will pay for medical expenses and funeral costs, for you, other drivers on your policy, and passengers. If you are walking on the street or riding your bike, it can provide coverage if a vehicle strikes you.
Personal injury protection or PIP– this complex coverage helps cover medical expenses for you and your passengers after an accident, regardless of fault. Required in no-fault states; PIP coverage varies widely by state. It can cover hospitalization, rehabilitation, other medical expenses, and (sometimes) lost wages up to the limits you select.
You may also add:
- Roadside coverage
- Rental car coverage
- Loan/lease gap coverage
Property Insurance
[Homeowners and Landlords Insurance]
Unlike auto insurance, homeowners insurance is not required by the state you live in. However, if you are purchasing a home, chances are your lender has requested that you secure a policy as terms of your loan.
You should look into homeowners insurance coverage even if you do not have a mortgage; you do not want to watch your home equity go up and smoke with no way to replace it.
And if you are a landlord, protecting your valuable real estate asset with landlord’s insurance is a very prudent risk management decision.
So what does homeowners insurance cover?
One of the most common misunderstandings about homeowners insurance is that it covers anything that goes wrong in your house or rental. It is important to remember that insurance and home warranties are two very different products.
For example, a home warranty may cover your air conditioner malfunctioning, while your insurance policy may cover it if it stops working due to a lightning strike or theft.
When it comes to homeowners insurance, there are basic coverages that all companies will cover. Often the product name may be different based on the company, what they provide coverage for are the same.
Your basic homeowner’s policy often referred to as an HO-1 will cover the structure and depending on the policy your stuff inside from the following perils or cause of loss:
- Fire or smoke
- Explosions
- Lightning
- Hail and windstorms
- Theft
- Vandalism
- Damage from vehicles
- Damage from aircraft
- Riots and civil commotion
- Volcanic eruption
A step above the HO-1, the HO-2 will protect your home and belongings from these additional perils:
- Falling objects
- Weight of ice, snow, or sleet
- Freezing of household systems like AC or heating
- Sudden and accidental tearing apart, cracking, burning, or bulging of pipes and other household systems
- Accidental discharge or overflow of water or steam
- Sudden and accidental damage from artificially generated electrical current
Even more robust policies such as the HO-3 (this is the most common type of coverage) or the H0-5 will provide additional coverage to what is listed above.
Lanlord Insurance
For many people who use real estate to build wealth, protecting your valuable asset against potential damage is a worthwhile pursuit.
Landlord insurance coverage may include:
Travel Insurance
If you want to make sure you protect against loss while traveling, consider travel insurance. Travel insurance covers medical emergencies, trip cancellations and lost or damaged valuables. Probably the number one value it brings is that if you have a medical emergency in another country, travel insurance can be used to reimburse the cost of bringing you back to your home country due to a medical emergency.
Umbrella Insurance
An Umbrella Insurance Policy provides for excess liability coverage. It is extra liability insurance that helps protect you and your assets from major claims and lawsuits.
Personal liability is the part of your home or auto policy that protects you financially and covers third party injuries.
On a homeowners policy, it provides coverage if someone was in your home and fell down your stairs. It would cover their medical expenses and so on. But what if it is not enough?
For example, let’s say you have a pool and were hosting a party. During this party, your neighbors’ kid fell into the pool, drowned and had to be care lifted to the hospital. Your primary liability coverages of $100,000, $300,000 or even $500,000 may not be enough to cover the child’s medical expenses, and you would be responsible for paying the difference out of pocket, possibly in a lawsuit.
However, if you had a one million dollar personal umbrella insurance policy, once those underlying limits were exhausted the umbrella would kick in and cover the added expenses you may be liable for up to the umbrella policy’s limits.
It would work the same if you were in an at-fault automobile accident. Most auto limits are in amounts of 50,000/100,000/50,000. The first number is the amount of liability per person per accident, the second is the amount of liability total paid per accident, and the last is the amount paid towards property damage.
Let’s say you are traveling down the road, have a sudden sneezing attack, and you veer out of your lane into approaching traffic, causing an accident that involves more than one vehicle, chances are the above limits would not be enough to cover everyone that claimed damages.
This means you would be financially responsible for the remaining balances and most likely find yourself on the wrong end of a lawsuit. If you have an umbrella policy, it would kick in after your primary limits are used up.
Conclusion
The idea behind insurance is to limit or eliminate risk. While not every type of insurance listed above is needed, you should be aware of the different types of insurance available and assess whether or not you should have any of them in place. After all, it is better to be safe than sorry and the minimum costs associated with many of these insurance policies is worth the peace of mind they bring.
