I’m often asked what kind of insurance Desert Insurance Solutions provides. The answer is every kind. We’re best known for property-casualty and health insurance, but we also provide advice on other important insurance: life, disability and long-term care.
Ideally these types of insurance are discussed in the context of a comprehensive financial plan. But for some of my clients I’m seeing that fall between the cracks. So in this newsletter I’ll ask you some questions to consider and provide a resource if you need answers.
Individual Life Insurance
Do you need life insurance? How much?
Your need for traditional life insurance peaks when you have a young family then it decreases over time as your assets accumulate and you have fewer years’ of child and marital support obligation. Later in life some higher net worth families use life insurance as an estate planning tool.
Do you have life insurance you don’t need?
Some people bought life insurance to protect their young families then hung on to the policies as investments. This can be a problem.
Back in the 1980’s a product called Universal Life was invented that had a savings component added to an insurance component to arrive at a death benefit. The rate per dollar of the insurance component gets more expensive as you get older, but the savings component was supposed to grow over time which would reduce the size of the expensive insurance component. At time of sale the policies were projected to pay for themselves as long as the return assumptions came true.
They didn’t. Over the last 30 years interest rates were much lower than expected. As a result, the Universal Life savings component is lower and the expensive insurance component is higher than expected. People with these expensive policies now need to decide if they want to keep paying into them, or convert them into something more appropriate.
What happens if you are disabled and can’t work?
Only five states (CA, NY, NJ, RI, HI) provide state mandated disability benefits. California is the most generous: you can be paid 60-70% of your wages with a maximum of $1,252/week for 52 weeks. If you are working and your state benefit is inadequate, you should explore disability insurance, either by electing the group option offered by your employer, or buying an individual plan.
Long-Term Care Insurance
Are you financially prepared to pay for assisted living, nursing home care or home health care?
The US Department of Health and Human Services has determined that 69% of Americans age 65 and older will need some form of long-term care. According to Forbes Magazine, a semi-private room in a nursing home in 2017 averaged $7,148 per month. Medicare nor health insurance pay these expenses. Medicaid will help pay for certain facilities, but only after you’ve spent down your assets to a low level.
So, for many people, this is a problem.
The insurance industry responded by creating long-term care insurance. Long-term care insurance got some bad press over the past few years because the insurance industry originally underestimated claims and then had to raise prices. But now prices are more stable and a number of good insurance options exist.
Business Life Insurance
What happens to your business if you or your business partner dies?
If you are a business owner, life insurance can help here. “Key man” insurance provides cash to the business so the survivors have some breathing room in the case of the death of an owner or key employee. A “buy sell agreement” funded by life insurance ensures a deceased partner’s heirs receive a cash payment and the surviving partner gets the business. Without a buy sell, the surviving partner is suddenly in business with the deceased partner’s heirs which is rarely a good situation.
What To Do Next
Your needs evolve over time and your insurance should adapt. If you’re paying for something and not sure why, that’s a big yellow flag.
If you have any questions or concerns, please let me know and we can evaluate your situation at no cost. On your behalf, I’ve teamed up with one of the Valley’s top life/disability/long term care underwriters to ensure you’ll get top quality technical advice on these products.
Make it a great day!