The main purpose of having insurance is to hedge against risk. There is a small percentage of Americans that are fully self-insurable—meaning that they have enough assets to cover any financial liabilities that may occur due to health issues or damage to property and intangible assets.

Consider the costs that would be incurred in the event of a total loss of property. How would you cover the expenses to be made whole? For example, you can consider carrying lower auto insurance coverages if you have an older car and you have the money to replace it and reduce your premiums. Higher deductibles can help with this expense as well.

In the event that you have passed before your spouse or loved ones, is there enough money to cover burial expenses and debts that need to be settled? Will a surviving spouse or financial dependent be able to live comfortably without your income? If the answer is no to these questions then life insurance is a tool that can be used to take care of these expenses.

Rates become more expensive with age and you may be rejected due to age and/or health conditions. It is best to try to secure life insurance as early as possible, as the rates become more expensive over time. Rates are significantly higher after reaching 60 years of age.

Short- and Long-Term Disability

Can you survive financially through a short- or long-term disability? According to SSA.GOV, the sobering fact for 20-year-olds, insured for disability benefits, is that 1-in-4 of them will become disabled before reaching retirement age. This period of disability can be 6 months or more. There are differences between short and long-term disability insurance. One big difference is the period that you can begin collecting payments from these policies. The disability may have to last 30, 60 or 90 days before the coverage begins. Typically, this insurance covers 60% of income, so it is critical to have money saved in the event you need more than 60% of your income to cover your monthly expenses.

While one is out on disability, it is likely that medical bills are still being incurred. Doctor visits may have co-payments and/or deductibles that need to be paid. It is a good idea to have money saved in a flexible health spending account to cover those expenses. Flexible health spending accounts, through your employer, allow you to save money pre-tax towards health care expenses. This lowers your overall tax liability at the end of the year.

Another type of insurance that is available is critical illness insurance, which is usually specific to certain illnesses. For example, a cancer critical illness policy would pay you a certain amount of money in the event you are diagnosed with the illness. Those funds can be used towards any expenses that you may incur during the treatment as well as towards your household expenses.

Long-Term Care Insurance

Long-term care costs are very expensive and can wreak havoc on a financial plan. As we age, the probability of using these services heighten. If these expenses can be covered out-of-pocket without affecting the quality of life of the individual, then a policy may not be needed. The reality is that for most Americans, paying upwards of $75,000 a year for a quality assisted-living facility out-of-pocket is not feasible.

Long-term care insurance provides more options that just what Medicare can provide. Nursing homes that are covered by Medicare usually provide a minimal amount of care needed and it is emotionally difficult to have to depend on a government run facility or witness a loved-one being subject to this situation. Medicare run facilities can try to re-coop incurred expenses from you or expenses can roll over to children or next-of-kin. Certain events can trigger Medicare ineligibility therefore creating expenses for you or a loved one.

For example:

A New Jersey man paid a nursing home 5 months of expenses because his uncle accidentally breached the Medicaid assets limit when his Social Security payments accumulated in a bank account. This uncle was childless so his NJ nephew was deemed the closest living relative. The nursing home was supposed to monitor the account collecting Social Security payments to insure they didn’t breach limits and trigger Medicaid disqualification. Even though the nursing home dropped the ball for some months (during which time Medicaid refused to pay nursing care costs), they went after the NJ nephew. The NJ man could have sued but decided instead to pay the nursing home the $30,000+ tab to avoid further “aggravation.”

When Should You Buy?

As with all types of insurance, the lower of a risk you pose, the lower your cost. Younger applicants typically are healthier and expected to go a longer period of time before needing this type of care. It may be to the benefit of the individual to start strongly considering this coverage in their late 40’s and to have it in place definitely prior to age 60. Similar to life insurance, rates drastically, increase after age 60. If you are predisposed to certain health conditions due to your family’s medical history, then this should be taken into account while considering when to purchase a policy.

An American Association for Long-Term Care insurance survey found that insurers rejected:

  • 44% of applicants aged 70-79
  • 25% of those aged 60-69
  • 17% of those aged 50-59
  • 12% under age 50

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