Insurance: Integration into Financial Planning.
by Rick Zich, Southwest Investment Advisors; Jim Miller, Miller Insurance and Financial Services
I (Rick) have worked with many insurance agents over the past decades. I have learned from those relationships as well as being a licensed agent, we are required to stay up to date on regulations. Today we are going to talk about how to specifically target insurance to fit into a financial plan.
Let’s start out with types of insurance to include in a comprehensive financial plan
- Life insurance: Life insurance is a financial product that pays out a sum of money to designated beneficiaries upon the death of the insured.
- Disability insurance: Short-term and long-term disability insurance provides financial support to individuals who are unable to work due to illness or injury.
- Health insurance: Health insurance helps cover the costs of current medical care and can provide access to preventive care services.
- Long-term care insurance: Long-term care insurance can meet the cost of rehabilitation services, assisted living, memory care, in-home care, or senior housing.
- Property and casualty insurance: Property and casualty insurance can help protect a person’s assets in the event of a loss due to theft, fire, flood, or other catastrophic events.
If insurance is critical to your future and your financial health, why don’t more people have it? Good question!
According to a 2021 National Health Interview Survey, 69.6% of uninsured adults say they can’t afford health insurance. People who elect not to buy life insurance also name cost barriers along with age (I’m young!) and marital status (I’m single!). And long-term care insurance? A common reason not to buy is the misconception that Medicaid or Medicare provides this service.
In fact, none of these excuses (except possibly cost) is a valid reason not to be properly insured. Let’s look at each one in turn.
Medicare does not cover long-term care expenses — at all. You do. Yes, Medicaid will provide funding for a Medicaid-approved nursing home but only after an applicant has exhausted almost all personal financial resources, which can leave them destitute and their families without resources. If you’re counting on the family to chip in, remember that family members may not be able to provide the round-the-clock care that some older adults need.
Life insurance rates are the lowest for young people. If you are young, now might be the time to buy. And if you’re not married or don’t have children? Life insurance can cover a mortgage, student loans, or small business costs that your parents or other relatives might otherwise have to pay.
Health insurance should be a priority for everyone. If your employer provides a plan, consider buying into it! If you are self-employed, unemployed, or retired early, consider a low-cost “catastrophic” health plan or look into the Affordable Care Act’s marketplace (such as Covered California). You could also consider a health share plan, which operates somewhat like a simple insurance plan but offers much cheaper premiums.
Maintaining good health and healthcare coverage is important even after you retire. While Medicare is likely to meet most of your healthcare needs, a strong supplemental plan and health savings account (HSA) can help you avoid unpleasant surprises.
Having insurance is not a reason to go into debt. If you’re living paycheck to paycheck, obtaining proper insurance may be a challenge. You likely need to revisit your spending plan and focus on living within your means before you consider buying an insurance policy.
We have all heard the saying, “We don’t know what we don’t know.” So with that in mind, what sort of questions or ideas should we be wary of.
Insurance planning is an important part of a sound financial plan, and it’s essential to get it right to ensure that you and your family are protected from unforeseen events. However, there are several common mistakes that people make when it comes to insurance planning. Here are some of the most common insurance planning mistakes to avoid:
- Underestimating insurance needs: According to Kiplinger, about 90% of Americans underestimate their risk of losing work time due to a disability (it will happen to about ⅓ of current workers). You’ll also want to make sure you have enough health, life, and liability insurance to protect your assets.
- Overlooking policy details: Another common insurance planning mistake is overlooking the details of your policies. To avoid this mistake, carefully read your insurance policies, including the coverage limits, deductibles, and exclusions. You should have a basic understanding of what’s covered and what’s not. Ask your insurance agent or financial advisor to explain anything you don’t understand.
- Failing to shop around: Many people stick with the same insurance company for years, even though there may be better options available. While avoiding this mistake takes some additional time and effort, you might consider getting quotes from at least three insurance agencies for your auto and home insurance policies every 1-2 years.
- Not reviewing policies regularly: Failing to review your policies regularly can result in inadequate coverage or unnecessary expenses.
- Ignoring insurance as part of overall financial planning: Insurance planning can be integrated with other financial planning activities, such as retirement planning and estate planning. This can help ensure that your insurance coverage is aligned with your overall financial goals.
By avoiding these common insurance planning mistakes, you can ensure that you have the right insurance coverage to protect yourself and your family from unforeseen events.
We explain to clients that having adequate insurance coverage is a critical component of a full emergency fund and a healthy wealth management plan. Therefore, it is important to work with an experienced professional who can provide the necessary guidance and advice when making decisions about your insurance needs.
Important Information
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
