Insurance can seem complex, confusing, and generally not fun to talk about, so it often gets put on the back burner. However, buying the right policies is crucial to a healthy financial life, particularly if you have a family.
While insurance policies are largely personal, and your coverage will evolve along with your life, there are three important types for all families to consider: disability, life, and long-term care insurance.
Here’s a brief overview of each, but don’t stop researching just after learning the basics. To get the best possible policies for your family, you’ll want to continue educating yourself by getting multiple quotes, reading your policy closely before signing on, and asking questions as they arise.
Disability insurance tends to get neglected more than other types of insurance, yet it is one of the most important types to buy — particularly for young families — emphasizes Jonathan Meaney, a certified financial planner and wealth manager at Carter Financial.
“Your biggest asset is your ability to work and earn a living over your lifetime,” he explains. “If you get disabled at age 25, and are unable to work and earn an income over your lifetime, that’s probably the biggest loss that you could have. Disability insurance is there to protect you from things like that.”
It provides income — generally about 60% of your former earnings, but it varies depending on your policy, Meaney explains — should you be disabled and unable to work. That’s more likely to happen that many of us may think. It’s estimated by the Social Security Administration that over 25% of today’s 20-year-olds will be disabled before retirement.
“Disability insurance is very important, especially for young families. If the main breadwinner gets hurt, things can get pretty tough pretty quickly,” says Meaney.
Most people who are traditionally employed should be able to secure a policy through their employer, while people who are self-employed will have to take out an individual policy. You can also supplement your employer’s policy by buying private policies, which some people prefer to do, particularly those with dependents relying on them.
Once you retire, you’ll stop needing it. Age 65 is generally the end of the longest policy you can buy.
Life insurance — an insurance policy that will provide income for your loved ones if you die — is highly underused. According to nonprofit LifeHappens.org, over 40% of the American population doesn’t have it.
“It’s very important if you have any dependents, whether that be young kids, a spouse that’s not working, or any family member who depends on you for income,” Meaney explains. In most cases, life insurance for children is unnecessary.
There are two primary kinds of life insurance: term and permanent. “Term is much less expensive,” Meaney explains. “It is often used by young families that want to get some coverage in place, but don’t want to spend on a policy that can last for a lifetime.” You choose to buy it for a certain time span, whatever makes the most sense for you and your family, and after that set amount of years, it expires.
Permanent insurance, on the other hand, lasts for your entire lifetime. This might be a good option for people who need cash flow at their death no matter when that happens, Meaney explains. For example, if you own a business and all of your assets are tied up in the company, if you die, your family will need cash to be able to pay estate taxes — otherwise, they’ll have to sell the business.
You’ll stop needing life insurance when your dependents are no longer relying on you for financial support. For that reason, term life insurance tends to be a better fit for many parents, whose kids will grow up and become financially independent.
It’s important to put in research or consult a professional to make sure you choose the ideal life insurance for you — otherwise, you could waste a lot of money and still leave your family unprotected.
You can calculate your coverage needs at lifehappens.org. Again, many people will be able to get coverage through their employers, but not always as much as they need. Some experts recommend replacing up to 10 times your annual income.
Long-term care insurance.
This type of insurance helps pay for costly elder care expenses for people with chronic illnesses, disabilities, or other conditions that need daily attention over a long time frame. While health insurance covers hospital and doctor bills, it doesn’t cover things such as nursing homes, assisted living, adult day care services, and home care, which are all very pricey and may be needed.
Long-term care benefits will only kick in once you qualify — your doctor will verify you need aid and then will reach out to your insurance company, Meaney explains.
It’s smart to consider, as you never know what may happen in the future and if you’ll be able to depend on your spouse or the rest of your family to provide (or pay for) long-term care. As you get older, you get more expensive to insure, so it’s a good idea to start looking at options and getting quotes well before you need it.
Unlike disability and life insurance, you’ll never stop needing long-term insurance.