Life Insurance

Term life insurance makes up a significant part of our practice. For the vast majority of clients, term life insurance is the best life insurance solution. It is rare that we ever use a permanent life insurance solution and when we do it is usually in a special needs child situation, and only if the advisor is in agreement that a permanent solution is in the best interest of the client.

In most situations, we recommend guaranteed level term insurance with a guarantee period of either 10, 15, 20, 25, or 30 years.

Laddering coverage

Insurance needs change over time and the need for life insurance, in particular, typically decreases over time as clients become financially free or self-sufficient. As a result, it is common for us to “ladder” policies to give clients the best value for their premium dollars over time.

For example, if a client has a need for $3 million of term life insurance today, he may only need $1 million of the $3 million for the next 25 or 30 years. As a result, in situations such as this, it is common for us to recommend the purchase of $2 million of 20-year level term and $1 million of 30-year level term, rather than $3 million of 30-year level term so that the client is only paying for $1 million of life insurance between years 21 and 30, rather than $3 million.

Disability Insurance

Disability insurance also makes up a significant part of our practice. For most people, their most important asset is their ability to earn an income. Our income drives our financial life. It is the engine that provides for our financial security. It’s tempting to think of life insurance as being more important than disability insurance; however, the odds of becoming disabled are greater during one’s working years than the risk of premature death. Furthermore, it is important to insure our income, whether we have dependents or not. Disability insurance is an especially important need for white collar professionals whose lifelong earning potential can be substantial.

Unlike term life insurance, disability insurance has many nuances and product expertise is especially important. Many important features can be added to a disability policy and many come standard, depending on the policy. It is also common for clients to have existing group disability coverage, which must be taken into account in any planning situation. In addition, there are different definitions of what it means to be disabled, and these definitions significantly impact policy premiums and benefits.

Consider the same dentist in the above example who would receive a benefit of $7,800 per month under a basic own occupation definition of disability and $13,000 per month under a transitional own occupation definition. With a true own occupation definition of disability, the dentist would receive a benefit of $15,000 per month or $180,000 per year since a true own occupation definition never takes income from an insured’s new occupation into consideration.

Long-Term Care Insurance

While the cost of traditional long-term care insurance has risen dramatically since it was first introduced, it still makes sense for certain clients to purchase some coverage to hedge the risk of needing long-term care services. The longer we live, the greater the probability we will need long-term care services at some point in life, and contrary to popular belief, Medicare does not pay for long-term care services. Medicare is intended to help pay for the cost of acute healthcare, not long-term care, which is different. Medicaid, however, will pay for long-term care services, but only after one has become impoverished enough to qualify.

Outside of Medicaid, which is not a desirable option for any of the clients with whom we work, there are essentially three options for securing a paying for long-term care services-1) paying them from personal resources (current income or by turning assets into income), 2) paying them from an insurance policy, or 3) relying on family and friends for care, paying for these services from personal resources or from insurance become the most common alternatives.

Because the cost of long-term care services can be very expensive, some clients use long-term care insurance to minimize their risk. Skilled care in a long-term care facility, for example, can cost well over $10,000 a month. And even families with the income and assets to pay for care sometimes choose to insure the risk to avoid having to divert significant financial resources away from other priorities.

When working with clients on long-term care risk management, we never recommend that anyone insure 100% of their likely long-term care risk, if we recommend that they purchase long-term care insurance at all. Generally speaking, we do not recommend that anyone offload 100% of any particular risk onto an insurance company. The purpose is to pay for the risks we cannot afford to take.

Our first goal in discussing long-term care risk with anyone is to help them understand their risk and the options available to pay for long-term care services should they need them. If a client decides to purchase some amount of long-term care insurance, we generally recommend traditional, stand-alone long-term care insurance. This coverage is similar to term life insurance in that it is pure insurance designed solely to pay for long-term care services.

Hybrid or combination products are growing in popularity for managing long-term care risk; however, we do not believe that these products typically offer the best option for clients because they generally require tying up large amounts of money in a low-yielding insurance product. Furthermore, we have found that by purchasing stand-alone long-term care insurance and investing the difference, so to speak, clients often end up with more cash at the end of their life than the death benefit in they hybrid product, and they enjoy superior long-term care coverage during their lifetime as well. In sum, just as we are proponents of term life insurance in virtually all situation where life insurance is needed, we generally recommend traditional, stand-alone long-term care insurance when insurance is needed or desired.

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