03/01/2012 - Many are aware of the role insurance plays in long-term financial security, but people often underestimate the importance of updating insurance policies as you age. The decisions you make about the best protection plan for you and your family today may not be applicable down the road, so you should frequently reassess whether your coverage is adequate as you pass through every stage of life.
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Make it a goal to review your insurance needs every two or three years – and more often if a dramatic event occurs in your life. A number of personal milestones and life events can change circumstances enough to require alterations to your protection plan.
Newly graduated or on your own:
When you set out on your own, you may need to buy auto and home insurance for the first time. If you're renting, consider renter's insurance to protect what you own. Health insurance may be available through your workplace – or if you're unemployed and under age 26, you can still be included in a health plan carried by a parent. An individual policy is another alternative. As you develop your budget, consider the costs associated with your auto, home and health insurance as part of your essential expenses.
You may also want to research your options for disability income protection if you're dependent on a single income to maintain your lifestyle.
Married with a family
At this stage, life insurance is critical if you have a spouse or children who are financially dependent on you – explore a whole life or universal life policy that includes a savings element designed to build cash value over time.
Disability income protection is even more important at this point in life. The probability of a white-collar worker becoming disabled for 90 days or longer between the ages of 35 and 65 is 27% for men and 31% for women.1 Such an event could detract from your ability to meet current income needs, but it would also critically impact your capacity to keep long-term savings plans on track for retirement or college funds.
Your protection needs may move in a different direction in the last one or two decades before you retire. If you feel financially secure and your children are financially independent, you may think life insurance is no longer vital – but if you want to pass your legacy on to your heirs or desired charities, life insurance can play a role in protecting it. Proceeds from a life insurance policy can help offset taxes due at death and may help preserve the value of your estate for your beneficiaries.
It's also important to recognize that you may need assistance in the form of long-term medical or nursing care in the future. The U.S. Department of Health and Human Services estimates that seven out of every ten individuals over age 65 today will require at least some type of long-term care during their lifetime2, and can be one of the most costly expenses in retirement. A long-term care policy can protect you from depleting your assets in the event you need extended nursing home or in-home health care at any point in your life. Keep in mind that the sooner you purchase coverage, the less expensive it tends to be.
When you retire, some of the changes in your protection plan are obvious. For example, if you aren't earning income from a job, you no longer need disability income insurance – but other issues take on greater importance.
You may want to protect your retirement savings from the impact of market volatility. This could include using annuities to generate a guaranteed income stream regardless of future market fluctuations.3
If you retire before reaching age 65 (the eligibility age for Medicare), make sure you have another health plan option in place when you leave your job. Your company may allow you to maintain your workplace coverage, but often at your own expense. Even when you become eligible for Medicare, consider a Medicare Supplement policy to help limit out-of-pocket costs for expenses not covered by Medicare. Keep up on your long-term care coverage as well.
Reasons for reviewing
As you go through life, individual events may also change your definition of "adequate insurance coverage." You should review your protection needs if you're:
• Getting married or going through a divorce
• Adding children to your family
• Changing jobs
• Having an elderly parent move into your home
• Inheriting money
• Buying or selling real estate and other high-value items
Be sure to consult with your financial advisor or insurance professional regularly to make certain your protection strategy keeps pace with your life.
1 Source: Millman, sponsored by Life and Health Insurance Foundation for Education (LIFE), "The Real Risk of Disability in the United States", 2007 (http://www.lifehappens.org/pdf/Real-Risk-of-Disability-paper-FINAL.pdf)
2 Source: U.S. Department of Health and Human Services, longtermcare.gov
3 Guarantees are based on the continued claims paying ability of the issuing company.
[Insert advisor's biography]. Advisor is licensed/registered to do business with U.S. residents only in the states of [Insert the state(s) the advisor is licensed in].
Before you purchase a life insurance policy or annuity contract, be sure ask your financial advisor to explain the features, benefits, risks and fees, and whether the product is appropriate for you based upon your financial situation and objectives. Annuities are long-term insurance products.
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File # 130906 (2/2012)