As your wealth continues to accumulate, you may find yourself reconsidering your insurance related decisions. Priorities change, and the need for specific asset protection can become more or less valuable. We all understand that maintaining home, auto and health insurance are necessities, but when looking at other types of coverage, the answers may not be as simple. Let’s take a deeper dive into two other types of coverage to better understand the cost, value and other important decision-making factors.
Life Insurance – One of the most popular uses it to protect the family’s income in the case of a premature death. With a home mortgage and young children, the need to protect is extremely high. This risk can be covered by the purchase of term life insurance, which is the most cost-effective choice. It can be designed to align with the amount of years left until retirement, children’s college expenses, and the amount of years left on the home mortgage. As you get older and your wealth accumulates, the need for this type life insurance often becomes less important, so it’s important to design the plan with these considerations in mind.
Another potential need for life insurance is for use in the estate planning process. Life insurance proceeds remain untaxed at death, and if constructed properly using a Life Insurance Trust, the proceeds can be outside of the estate and therefore not subject to estate taxes. With the uncertainty surrounding the future estate tax laws, this is a conversation to be had with your advisor and estate planning attorney (along with an insurance expert) to determine whether this is a valuable tool and the best way to design a plan.
Long Term Care Insurance – This type of coverage primarily pays for supervision or assistance with everyday tasks that the insured can no longer handle on their own. As innovation in the medical community continues and people are living longer, this is certainly a topic many have considered. The cost to have full time care or live in an assisted living facility could easily top $100,000 per year and will continue to increase. Because of this, we’ve seen a drastic increase in the price of long-term care insurance. The other thing to consider is that the premiums are generally not guaranteed meaning the insurance carrier has the ability to increase the cost over time. This has been a consistent issue over the past few years, and we’ve even seen insurance carriers stop offering new coverage.
There are hybrid life / long term care insurance products that are worth considering as well. The accumulated value in the life insurance plan is designed to grow and can be tapped into for long term care needs if/when needed. They don’t generally provide as much benefit or flexibility, but do provide peace of mind if the coverage is never used, as the death benefit would then be paid out to the beneficiary. When analyzing the pros and cons of long-term care insurance, we often find that with enough wealth, a client can afford to ‘self-insure’ and the need for the high-cost insurance is not always necessary.
Given the variety of scenarios involved in analyzing the need for these types of insurance, we would recommend you take the time to discuss these matters with your trusted advisors.