It seems that every television commercial these days is for another insurance product. Although consumer choice is a positive thing, not all insurance products are as important as they make it out to be. Jonathan Howard, a certified financial advisor with SeaCure Advisors, Lexington, Ky., and a former salesman in insurance, says that there is a lot of marketing and sales that are based on fear. People buy insurance because they fear losing their job, rather than to meet a real insurance need.
Howard believes that insurance is an essential part of any financial plan. However, certain products are more focused on protecting the bottom line of the insurance company than theirs. It is important to not make insurance decisions in isolation. They must consider all aspects of your financial picture. This will allow you to identify gaps and determine the coverage you need. Do not buy insurance based on fear, particularly if the products are on this list.
Consider whether you should keep your long-term disability coverage if you are still working and near retirement. Greg Klingler from the Government Employees Benefit Association in Fort Meade (Md.) says that the premium for an employer-sponsored plan increases as you get older.
Also, the policy will limit the payout period to a certain age such as 65. Your maximum benefit decreases as you get closer to 65. This is particularly true for those who could have retired earlier, but are still working. Klingler says, “You are no longer dependent upon your salary. So weigh the benefits of protecting that extra income against the high insurance costs.”
You may be offered an extra warranty by the seller to repair or replace your item after you purchase merchandise such as computers, smartphones, and televisions. Consider whether you have the funds to replace the product.
Insurance must collect more premiums than it pays, which is why it can be a net loss for average policyholders. The majority of policyholders receive nothing.
Major assets such as a house or a vehicle are difficult to replace out-of-pocket. This is why it makes sense to insure these assets with an auto or home policy. For smaller items that you can replace yourself, such as a $700 laptop or house, skip the warranty and opt for self-insure.
Critical illness insurance covers serious medical issues such as stroke, heart attack and life-threatening cancer. The insurer will send you a lump sum payment of cash, which can be used however you wish. It ranges from $10,000 to $50,000.
Howard doesn’t like this flexibility. He says that insurance is not a good option. Howard suggests looking at your out-of-pocket expenses for medical insurance to determine if you might need critical illness insurance. Or if it would be possible to save money on the bills.
Social Security Insurance
Social Security insurance is a product that has emerged from all the chaos and uncertainty in Washington. It is a type annuity that converts part of your savings into future income. The insurer will promise that your annuity payment will rise if the government fails to pay less Social Security benefits.
Howard does not believe this is a good return. He says that retirees vote and live mainly in swing states. “If Social Security were ever cut for those who are already receiving it, it would be a disaster,” he said.
Howard does not expect future generations to see benefits cut, but Howard does not believe that those who are already receiving benefits will have any problems.
Individual Vision and Dental Insurance
Travis Price, a Traverse City, Mich. Medicare agent, doesn’t believe individual vision and dental policies are worth purchasing in retirement. People who work and have group vision/dental coverage are heavily subsidized by their employer and the group. For less coverage, their coverage costs may rise 10-fold if they go into the individual market.
Premiums for individual plans are higher than for group plans. They may also have high out of pocket costs for care, exclusions of major services in the first year, and a limit on annual coverage. An entry-level plan that covers vision and dental can be limited to $1,500 per annum. Price says that seniors often do better being cash patients and negotiating with their providers about cash costs. He suggests that another option is to find a Medicare Benefit plan that includes vision and dental coverage.
Insurance for long-term care
Long-term care in the United States can be costly. This is a fact that no one disputes. According to the U.S. Department of Health and Human Services, a private room in a nursing facility costs over $90,000.
Klingler and Howard still dislike traditional long term care insurance policies due to their high premiums. Howard says that although the cost of insurance varies depending on who you are and how much coverage they offer, I have seen premiums as high as $5,000 per year for a couple in their 60s and $10,000 per year for those in their 70s. Howard also points out that premiums can rise as you age, even after you sign up.
Howard believes traditional long-term insurance doesn’t apply in certain circumstances. This is especially true considering its high cost. An LTC-hybrid policy is an alternative because it provides the death benefit to those who don’t require long-term care.
Klingler recommends looking at other options before purchasing any long-term insurance policy. He says that you don’t have to pay the entire cost of care in almost all cases. Some expenses like housing, food and utilities would be covered by long-term care facilities.
Some daily living expenses can still be reduced even if one spouse moves into long-term care. Consider whether long-term care insurance is necessary to pay for the entire cost of a nursing home or if a partial benefit would be more affordable.
Rental car and travel insurance
It happens quickly. It happens quickly. You are at the rental car counter when the agent asks you if insurance is required. Why not? You’ll pay only $12-15 per day. You might have rental car coverage via your credit cards, auto insurance policy, or membership in an organization such as AAA.
Other types of travel insurance may be provided by your credit card, including coverage for lost bags and trip cancellation, emergency evacuation, as well as emergency medical and dental insurance. You may also be covered by your health insurance for medical emergencies. Be sure to review your current benefits before you purchase any travel insurance.
Redundant insurance coverage
While rental car insurance is the most common example, there are often overlaps with other insurance policies. Your auto insurance could cover medical expenses if you are involved in an accident. However, your health insurance may also be covered. Your homeowners insurance protects your net worth by covering liability for injuries to your property. An umbrella policy should also be included.
Don’t buy too much insurance. Because these policies cover the same risk, it is possible that your existing insurance limits are higher than necessary. You may find that even one of these policies provides more coverage than you actually need. Howard discovered that his homeowner’s insurance was $100,000 higher than his replacement cost.