Financial planning is the process of meeting your life goals through the proper management of your finances. It includes elements of protection, wealth creation, planning for contingencies and emergencies, as well as planning for specific milestones in life. Effective insurance planning not only provides peace of mind to you and your loved ones but can be an essential part of a sound financial plan.
As you get older and move through life, you can appreciate the many benefits a sound insurance strategy can offer. Here, Johnson Wealth and Income Management take a look at three key insurance plans to pay attention to as you near retirement. And the do’s and don’t around those plans…
How much life insurance do I need? Planning to meet the financial needs of your survivors is one of the most important and fundamental steps in creating a sound financial plan for you and your family. Life Insurance provides for your family if an accident were to happen. It is super important to have coverage if you have dependents and want to provide for a minimum standard of living in your absence.
- Don’t: Ignore the importance of having a plan. Some people make the mistake of thinking of life insurance as an investment, which is a problem. Life insurance policies with investment components are riddled with high commissions and hidden costs. For most people, life insurance has one purpose — to replace an economic loss. Once they’re clear about the purpose, buying the right kind of life insurance becomes much easier.
- Do: Update your beneficiaries. You don’t want to disinherit your children and give your life insurance benefits to an ex-spouse when you pass away — but does your policy reflect that? Your beneficiary designations can gain leeway of the instructions laid out in your will. This can create complex tax consequences. It’s always important to 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.
- Don’t: Oversee self-insuring through savings for shorter-term needs. Most advisors recommend setting a goal 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.
- Do: Consider buying catastrophic disability insurance during your working years, and shift 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. Supplemental disability insurance through your employer may be a good option because it’s convenient after you leave your job.
Long-Term Care Insurance
What are my long-term care insurance needs? There are basically three ways to fund your long-term care needs: self-insure, qualify for Medicaid or obtain 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. A healthy 65-year-old couple retiring in 2019 could expect to spend more than $387,000 for retirement health care costs, not including long-term care. Long-term care insurance is intended to offset expenses like in-home care, assisted living, adult daycare, hospice, and other specialty facilities that aren’t covered by health insurance or Medicare.
- Don’t: Pay Long-Term Care insurance premiums monthly or quarterly—pay a lump sum just once a year. With age, billpay ability will decrease. If the policyholder is not regularly opening the mail or forgets to write checks, the policy could lapse. When a Long-Term Care 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 can be a family member, friend or insurance agent who is not responsible for paying the premium, but he or she can help remind the policyholder to do so.
How Johnson Wealth and Income Can Help
Insurance transfers the financial risk of life’s events to an insurance company. A sound insurance strategy can help protect your family from the financial consequences of those events.
Navigating your insurance options is one of the most daunting aspects of retirement. But ignoring this costly issue could prove extremely damaging to your finances and quality of life. At Johnson Wealth and Income Management, our team of financial professionals work together to further our clients’ long-term financial goals.
For more information on our Insurance planning options, contact us today.
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