01 May 2007 -  Jacksonville, Florida USA                                        

Are You and Your Family Protected?

Coming from a country where any type of insurance is just about in no existence rather than an option for a number of well-to-do/rich families; my first reaction was, "why do I really need to get one? I survived for 34 years without any type of insurance.   These are just but waste of money, darling!” I blurted out once after DH entrusted to me our finances and the responsibility of paying our recurring bills.

Here in the States, these types of insurance are very crucial to our day to day life:

·  Health insurance policy
·  Dental/vision insurance policy
·  Auto/car insurance policy
·  House hazard insurance policy
·  Flood insurance policy

Although, I sometimes still cringe on the amount we spent on insurance alone but you know what? When those unexpected incidents crop up; man I was glad we have the right insurance that pays the bill otherwise we’re in big financial trouble by now.

And so I thought having those requisite insurance policies are all we really need to carry on as long as we live.  Boy was I wrong!  I really didn’t realize the extent and importance of other insurance policies such as short term & long term disability, term life insurance, and long term care insurance until I took the financial planning class last fall.

Folks, ask yourself these questions:  If you were to, especially as the bread-winner of the family become sick or disabled, temporarily or permanently, would you be able to support your family let alone yourself?   If you were to die suddenly, what kind of financial burden would your family have to endure? Would there be dependents left without basic support? Morbid as they are, these questions are at the root of life insurance decisions.

Bottom line is, most of us here depend mainly on our salary/income unless you have thousands/million of dollars stashed somewhere right? Therefore, our earning power is still our number one asset. Accordingly, we must protect this income with the right insurance policy if we possibly can, as our fall back more so if we have small children who are dependent to us.

Let’s dissect each insurance policy one at a time.

1.            Short Term and Long Term Disability:  If you’re fortunate enough to work for an employer who provides you with disability insurance, make sure you know exactly how much you’re protected for so you can supplement the policy as needed. If your employer provides coverage that will pay you for, say, 30 days if you are unable to work, you might want to buy a supplemental policy that pays after the first 30 days have passed.  Consider getting enough disability insurance to replace 60% to 70% of your current income and your spouse’s salary.

Short Term disability insurance usually kicks in after 30 days of disability until 60 to 90 ninety days depending on your policy. After 90 days, your Long Term disability insurance usually kicks in to continue the coverage. 

How Short Term and Long Term Disability differ from Worker’s Comp?  Workers Compensation protects you only if you are injured while performing your job while Short Term and Long Term Disability insurance covers you for any injury or illness, whether it happens at home, on vacation or on the job. 

2.    Term Life Insurance policy:  If there are members of the family who can't afford to lose you because they are completely dependent on you financially, you MUST buy this type of insurance. Why Term and not Whole Life Insurance? Because Term Life Insurance is more affordable though it’s only limited to 10, 20 or 30 years depending on the term your chose but 20 or 30 years from now your kids are already on their own.  Whole Life Insurance however, covers you for life and some policies have cash value (not much though) but then you pay more than double on premiums compared to Term Life Insurance.  The point is, if your budget allows you---meaning you can afford the premium for Whole Life Insurance, why not just get a Term Life Insurance and invest the remaining amount into some kind of investment? That money can grow hastily if you invest it either in stocks, bonds, mutual fund, or IRA  for 20 0r 30 years.

I’ll add a little caveat here. Stay home mom/dad should get a term life insurance also more so if you have more than one kid and your spouse’s salary is just a little more than enough to cover your bills.  This way, God forbid, if you pass away first, your spouse is able to stay home temporarily with the kids until she/he finds the right person to mind the kids without having to agonize where to get the money to pay the bills.   

3.      Long Term Care Insurance policy.   Contrary to popular belief, Long Term Care insurance is not only for elderly.   I used to think if you’re under 55, purchasing a long-term care policy is just a waste of money. After all, it may be a long time before you need long-term hospitalization or nursing care. But just as with life insurance, it’s never too early to think about buying long-term care coverage. For one thing, such insurance is much cheaper when you’re young, precisely because it’s unlikely you’ll need it any time soon. If you sign up when you’re 50, your annual premiums will be about 30% as much as those for a 75-year-old, and you will be covered for 25 years more.

Right now. I pay $53/month and DH pays $98/month for long care insurance policy while if we have to get one for my MIL whose 74 years old, hers would come up to $798/month.

In addition, you may not even qualify for long-term care insurance when you are older and sickly. All the application forms ask you about a host of medical conditions, from diabetes to arthritis, any of which may cause your application to be rejected.

A typical long-term care policy covers extended care regardless of whether the care is medically related to a specific illness or injury. A typical policy pays for care provided either in a nursing care facility or at home. In some cases, long-term care also covers adult day-care centers and other community-based care facilities. It is very important to find out which medical and ancillary expenses will be covered. You want a policy that reimburses you for expenses rather than a policy that pays you a flat daily rate (an indemnity policy.)

How is Long Term Care Insurance different from a Long Term Disability?  Long Term Care Insurance pays for care provided either in a nursing care facility or at home regardless of whether the care is medically related to a specific illness or injury. It covers the costs of long-term care up to the maximum amount and years stipulated in your policy whereas Long Term Disability provides cash benefits to replace 60% to 70% of your salary while you can't work.   It’s like you are having a double dipping income here. When disability strikes, you get paid for not working plus your care is being paid for at the same time by your long care insurance. 

Average costs for nursing home facilities can range anywhere from 30-70 thousand a year. Don't count on Medicare or Medicare Supplemental Insurance to pick up the bill. If you can qualify, Medicaid may pay up to half of the cost.

Medicare will pay for your stay in a nursing home only for a limited time. If you are discharged from a hospital but still need skilled nursing care in a nursing home, Medicare will cover skilled nursing home care only on a part-time or intermittent basis. Medicare pays nothing if your need is only for custodial care or if you go directly into a nursing home without first staying in the hospital. You might be eligible for assistance from Medicaid, the program for low-income elderly people who have few assets. Otherwise, you probably must pay the cost of your stay out of your own pocket.

You should at least begin learning about all these types of insurance and start investigating companies that offer it. You'll want an insurance company with extremely sound ratings, of course.  So check Weiss ratings before signing up. You don't want to shovel tens of thousands of dollars into a company that won't be around when you need it.

Tax Benefit:  

You will be able to deduct your total medical expenses, including long-term care insurance premiums, to the extent that they exceed 7.5% of your adjusted gross income.  You can deduct long-term care insurance premiums as medical expenses, up to certain limits based on the insured’s age.

For 2007, the limitations based on the insured’s age before the end of the year are:

· Age 40 or less: $ 290

· Age 41 to 50: $ 550

· Age 51 to 60: $1,110

· Age 61 to 70: $2,950

·  Over age 70: $3,680

Bear in mind that insurance is like a life guard and is our number one fall back. Nope, I am not an insurance sales agent thus I am not trying to sell you one :-P

 

References:
        Jeff Boyd, MA, CFP
        Personal Finance by Kapoor, Dlabay, and Hughes
        IRS.gov
        Women and Money by Suze Orman
        Personal Finance and Investing MSN Money
        Yahoo Finance
        IRS.gov
        Investopia.com