Insurance Considerations Through Each Life Stage
By Todd I. Youngdahl, CFP®
Insurance is intended to protect you from risk and uncertainty that is simply part of life - an unexpected death of a spouse, a debilitating injury, more expensive than expected long-term care needs, etc. Because nobody can predict the future, insurance can play a vital part within your financial plan to cover such costs. As you go through different stages in life, it is important to understand which types of insurance policies you should be considering.
While somewhat uncommon, a hospitalization policy is a great plan to cover unexpected medical expenses due to surgery or hospitalization while you are a student. This type of insurance helps shields the parents of the student from potentially going into debt due to high costs associated with surgeries and hospital visits.
The most important types of insurance that this stage in life should consider include health, renters, auto, and disability insurance. Most likely your employer will provide health insurance for you, but if they don’t it is important to shop around for the best rates out there. Renters insurance is very affordable, and will help protect you in the case of stolen or destroyed property - think jewelry, laptops, or other big ticket items. After you venture out into the real world, it’ll most likely be the case that you will not be under the auto coverage of your parents. Therefore, it is important to shop around and find the most competitive coverage.
Finally, for this stage in life, disability (or critical illness or income replacement) insurance must be considered. This type of insurance pays a portion of lost wages if you are unable to continue your job due to an accident or illness. Because there are limits and gaps in coverage from your employer, states, and worker’s compensation, it is vital that you also have your own disability policy.
As a newly married couple (with a home), it is important to now consider life, homeowners, and liability insurance. In most cases in this stage in life, a life insurance term policy will make more sense; however, depending on your needs, whole life insurance could also be considered.
Homeowners insurance policies vary in what they cover, so it is important to make sure you understand the terms. It could be best, but more expensive, to purchase “a policy that will pay for the full cost of rebuilding your home and for replacing your personal possessions” when compared to other policies that would just pay for their market value.
Finally, you should also consider liability insurance, also known as umbrella coverage, which essentially will protect you beyond the protection of homeowners and auto insurance. Because your net worth is growing, this type of insurance is important.
The most important types of insurance to have at this stage include life insurance and health insurance for your children. On your existing medical policy, it is important to claim a life event when you are pregnant or within a month of your child’s birth. This will allow you to add your baby to your medical policy.
When it comes to life insurance, term insurance may be the best option for this stage in life. If you already have life insurance, you’d simply want to boost coverage so that you include the future cost of raising a child, college costs, and maybe even coverage for a stay-at-home parent. You want to make sure that your children are taken care of in the event that anything happens to you.
Most of the policies discussed above will not make sense anymore for this group, with the exception of protecting your spouse (disability and life insurance). However, it is important to now start considering long-term care insurance (LTC). This type of insurance will cover the future costs of long-term care, which may include in-home care or the costs of living at a nursing home.
Once you retire, your insurance priorities change. For the most part, you will not be needing to protect your income gaining ability since you are now no longer working. However, as you get older medical expenses and long-term care costs are where insurance can really help you out.
Once you are retired, you will either have to re-assess or obtain new coverage on the following: health insurance, Medigap, Medicare prescription drug plans, and long-term care insurance. Depending on when you retire, you may need an additional health insurance policy since Medicare does not kick in until you reach age 65. It is also important to consider Medigap policies, since Medicare will most likely not cover all of your medical expense needs. Also, because Medicare Part A and Part B do not cover most prescription drugs, you will need to shop around for Medicare Prescription Drug Plans (Part D). Finally, as discussed in an earlier stage, it is very important to make sure you have LTC insurance. The longer you wait, the more expensive this type of coverage will cost.
With different stages of life, come very different insurance needs. Because we cannot predict the future, it is important that you are fully covered during each of these stages. Wherever you are in your life, we would love the opportunity to help analyze your insurance needs. You can always call our office at 703.584.2700 or email email@example.com.
Washington Wealth Advisors is an independently registered investment advisory firm serving high net worth families and small businesses. We focus on holistic financial planning and comprehensive investment management. Leveraging our core strengths of unbiased, active investment management together with a detailed annual financial planning capability, we serve your comprehensive investment and financial planning needs.