Risk Management Demystified
Find the right mix of insurance coverage to live with confidence.
February 21, 2019
Let’s face it: Life is a risk. That’s why risk management is a crucial part of a long-term financial plan. When it comes to investments, we’re talking diversification and asset allocation. When it comes to your family, health, property and income, we’re talking insurance.
But what kind of coverage do you really need? Take a deeper look at four useful types of policies.
Perception: It’s just for people with dependents.
Reality: It can be used as a flexible planning tool that provides liquidity, and the survivor benefit is generally not considered taxable income.
Though term life insurance is designed to replace the income of a breadwinner if the unthinkable happens, what’s called a “permanent” policy has an investment component that can potentially be helpful for things such as keeping the family business functioning or paying estate taxes after death.
Perception: The risk of long-term disability is too minimal to worry about.
Reality: Sadly, 20-year-old workers have a 25% chance of becoming disabled before age 67, the Social Security Administration estimated in January 2019.
If you’re out of work for an extended period, the lost income can easily reach six figures or more. Even if your profession isn’t strenuous, you may not be in the clear – cancer is the second-leading cause of claims, according to insurer Sun Life Financial.
A 20-year-old worker has a 25% chance of becoming disabled before age 67.
What about that government safety net, you say? Workers who pay into the system are eligible to apply for Social Security disability insurance, but the average benefit in January 2019 was just $1,234 a month.
Considering all of this, it’s best to get a professional opinion about whether you can afford the consequences of going without this type of coverage.
Long-term Care Insurance
Perception: Coverage isn’t needed – doesn’t Medicare pay for that?
Reality: Help with the tasks of daily living, similar to care provided in a nursing home, isn’t covered by Medicare.
Such aid is a common necessity. Seven out of 10 people turning 65 in this day and age can expect to use some form of long-term care, according to the U.S. Department of Health and Human Services, though only one out of 10 has planned ahead to pay for it.
Securing this type of policy allows you control over the situation, making sure your future needs will be met without creating an undue burden for your loved ones. Though coverage can be expensive, there are federal and state tax breaks available for qualified plans.
Seven out of 10 people turning 65 can expect to use some form of long-term care.
Perception: Only people who are very wealthy need it.
Reality: If you often entertain at your home, own a dog, have a teenage driver in your household or ride jet skis in your spare time, you might want to prepare for a rainy day.
This basically is an extra layer of liability coverage above the limits on your home, auto and other policies – protection just in case you or a family member causes harm to someone else. For example, if your dog attacks a visitor and your home insurance covers up to $300,000 of liability, then you’re on the hook for anything above that amount if the injured party sues. If you don’t have the money, your wages could be garnished.
Time for a Fresh Perspective
Facing risk isn’t easy, but the protection you can gain for yourself and your loved ones makes it all worth it. That’s why you should review your insurance needs once a year and after each big milestone in life. You can always call on your advisor to coordinate with other professionals in determining the proper policies and coverage for you.
Asset allocation and diversification do not guarantee a profit nor protect against a loss. Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional. All expressions of opinion reflect the judgment of Raymond James & Associates, Inc., and are subject to change. These policies have exclusions and/or limitations. The cost and availability of life insurance and long-term care insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company.