Here’s a hypothetical. Let’s say that today when you leave the office, a piano is going to fall on your head, Looney Tunes-style. You’re going to have a bear of an evening, no doubt—but what about a month from now? Would the mortgage be paid? Would the kids still be participating in their normal activities and sports? If you were unable to provide for your family, who would?
Risk management is an important part of your financial life. September is Life Insurance Awareness month, and there is no time like the present to evaluate your current insurance policies to ensure that your needs and your family’s needs are covered.
At Halpern Financial, we do not sell insurance, but we can help coordinate with your insurance professional to make sure your insurance plans work in tandem with other elements of your overall financial plan. We do not do taxes or draw up legal documents for your estate plan either—there are other professionals who specialize in these areas. Our specialty is helping clients fit all of these aspects together to meet their long term goals.
Here are a few tips to get you started when it comes to different types of insurance:
Life Insurance provides for your family should you suffer a premature death. It is critically important to have adequate coverage if you have dependents and want to provide for a minimum standard of living in your absence.
- Don’t consider life insurance an investment. While life insurance with an investment component does exist, these products are often riddled with high commissions and hidden costs. Carl Richards, New York Times columnist and author of The One Page Financial Plan puts it well in his New York Times column: “For most of us life insurance has one purpose — to replace an economic loss... Once we are clear about the purpose, buying the right kind of life insurance becomes much easier. Most of us don’t need a variable life insurance policy that also acts like an investment. We have investments for that.”
- Do update your beneficiaries. Chances are you don’t want to disinherit your children and give your life insurance benefits to an old ex when you pass away…but does your policy reflect that? Your beneficiary designations can trump the instructions laid out in your will, creating complex tax consequences so always review your beneficiaries after significant life events like marriage, divorce, new job or the birth of a child.
One of your greatest assets is your ability to earn income—and losing that ability would cause a huge financial difficulty for most families. Yet most people do not insure against this risk—only 31% of workers in the private sector have private long-term disability insurance. Social Security or Workers’ Compensation may or may not cover your full income needs if you were to become disabled.
- Do consider buying catastrophic disability insurance during your working years, and shifting to Long-Term Care insurance after your working years. You are much more likely to become disabled compared to dying prematurely. Just over 1 in 4 of today's 20 year-olds will become disabled before they retire, according to the U.S. Social Security Administration’s February 7, 2013 Fact Sheet. Supplemental disability insurance through your employer may be a good option because it is portable after you leave your job.
- Don’t neglect “self-insuring” through savings for shorter-term needs. Your goal should be to have 3 months of your core expenses in easily accessible accounts (1 month of “buffer” in your checking and 2 months of emergency savings in the savings account). If you have highly fluctuating or unpredictable income, it may be prudent to increase the level of cash reserves to 5 months of core expenses.
Long-Term Care Insurance
As the American lifespan increases, retirement funds now need to last longer than ever, and may need to cover increased medical costs. According to a 2015 report by the CDC, the cost of medical care increased 48% per capita from 2000 to 2014! Long-term care insurance is intended to offset expenses like in-home care, assisted living, adult daycare, hospice, and Alzheimer’s facilities that are not covered by health insurance or Medicare.
- Don’t pay LTC insurance premiums monthly or quarterly—pay a lump sum just once a year. As Kim Natovitz, an insurance associate with TriBridge Partners explains, “With age, billpay ability may diminish. If the policyholder is not regularly opening the mail or forgets to write checks, the policy could lapse.” When a LTC policy lapses, you may not be able to reinstate it except in the case of mental impairment, and the easier you make your financial life in old age, the better.
- Do take advantage of third-party notifications. You can name a third party to be notified when the LTC policy premium is due. The third-party (which could be a family member, friend or even your insurance agent) is not responsible for paying the premium, but the idea is that he or she can help remind the policyholder to do so.
- Don’t call the insurance company directly to open a claim. “You can’t read the label when you’re inside the jar,” says Natovitz. Your insurance agent should have the experience to coordinate the claim, be the point person, and make calls to home healthcare providers.
- Do consider using an Aging Life Professional (also known as a Geriatric Care Manager). These are neutral third-parties who are independent of any facility, but have extensive knowledge of available healthcare resources. An Aging Life Professional can assess the patient’s healthcare situation holistically to triage crisis or provide regular check-ins. This objective guidance can be helpful if the patient’s family lives far away, or if family members disagree on the best course of action. Ideally, seniors can meet with an Aging Life Professional or adult children can interview one before there is a problem. Some LTC policies cover the fees of aging life professionals and care managers. It is also possible to include instructions to hire an Aging Life Professional in a living will. With hourly fees around $140, the cost of an Aging Life Professional is negligible to find appropriate healthcare options and avoid family conflict.
How to Find a Reputable Insurance Agent
You will typically be using funds from insurance after some kind of health or personal crisis. You want someone who will help you navigate this complex area should you need to make a claim, and someone who will make it a smooth process.
Ideally you should work with an independent insurance agent who works with multiple insurance companies (as opposed to a “captive” insurance agent, who is limited to a single insurer’s products). Your agent should evaluate your individual needs to find the policy that is best for you, with an eye toward low costs, tax efficiency and a high level of customer service. If you already have insurance policies from different providers, some independent insurance agents will help you to coordinate the policies on a project or hourly basis, even if they were not the one to sell you the policy.
Quarterback of Your Professional Team
At Halpern Financial, we are happy to coordinate with our clients’ insurance agent, estate attorney, and CPA to ensure that the “professional team” is working together to further our clients’ long-term financial goals. We can also refer our clients to trusted professionals in these areas if needed—but we do not have ANY financial benefit from referring clients to these professionals. We have a fiduciary duty to put our client’s needs first, and avoiding these conflicts of interest allows us to give unbiased advice.
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IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Halpern Financial, Inc.), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Halpern Financial, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Halpern Financial, Inc. is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Halpern Financial, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request. Please Note: Halpern Financial, Inc. does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Halpern Financial, Inc.’s web site or incorporated herein, and takes no responsibility therefore. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.