Myth Busters: Insurance

Insurance… We buy it and hope we never need it. When we need it, it’s never enough, yet when we don’t need it, it’s too much. Can anyone identify with these? Most people would agree that insurance can be a tricky matter. It is important that you speak to your financial advisor about insurance to ensure it is working in conjunction with your financial plan. Here are four common insurance myth’s to be aware of:

1) Property/Casualty coverages – the deductible amount is the most important item.  Not really.That is the amount we all worry about as that is what has to come out of our pocket. Yet the much bigger risk is the catastrophe where hundreds, perhaps millions of dollars may be involved. I submit we all can survive even the higher deductibles, but the big claims could bankrupt us.

 2) Disability coverage – it isn’t that critical, especially if you have short term coverage at work.  Various sources indicate that a person is 4 times more likely to be disabled, not die,during their working years. When a disability occurs, I’ve heard it is like a living death, i.e., the income stops yet you are still alive. Many times, I see clients comfortable with their 6 months of disability protection at work, yet the much bigger risk is a prolonged, even lifetime disability which could be financially devastating. Over the years, fewer and fewer companies offer this coverage and many people are negligent in protecting themselves. I believe it is a very critical element in a person’s overall financial plan and recommend that it not be left out of discussions with your financial advisor.

3) Life insurance – which kind is more important than the amount.  Many articles are written and read about the kinds of life insurance: term vs. universal life vs. whole life. Let me say this, I have never had a beneficiary ask me what kind of life insurance this was. They only ask how much is it and how long it will last them. It is the amount that is most important. After that, it is a matter of what you can afford and how you wantthe life policy to fit into your financial plan. You may only want death protection, while others may want to take advantage of the tax-free benefits and asset protection of life insurance to enhance their lifestyle in their working years and into retirement.

4) Long term care coverage – it is not necessary if you have assets.  Somewhat of a myth, but not completely. All insurance is, really, is a choice, despitewhat the insurance industry and their agents try to tell you – that we all “need” insurance. In fact, without it we would all survive, might be difficult and unpleasant, but we would survive. Take for example a client I have whose father developed Huntington’s disease. He was expected to live 2 years, but he lived 10. His daughter brought his money to me to help manage, it was several hundred thousand dollars. The money was safely managed, but after 10 years it was substantially depleted. When I tell this story, people say “wasn’t it great he had the money?” To which I say yes, but he spent his lifetime creating these assets and it all went to a nursing home. How is that good? Long term care protection is a choice and can now be secured in many different ways to accommodate any household.

The information provided here is for general information and educational purposes only and should not be considered an individualized recommendation or personalized investment advice. Each person’s situation will be different, please speak to a financial advisor about your individual situation before taking any actions.