In our last article, we shared how to properly manage risk and protect your assets with life and disability insurance. In part two of this two-part blog series, we focus on long-term care, umbrella, and identity theft insurance—three types of insurance that may not make sense for everyone but can be extremely valuable in the right circumstances.
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Long-Term Care (LTC) Insurance
For most Americans, healthcare is one of the largest—if not the largest—expenses in retirement. If you end up needing some type of long-term care, your medical costs can skyrocket.
According to AARP, you have a fifty-fifty chance of eventually needing paid long-term care by the time you reach 65. Furthermore, if you pay out of pocket, you’ll spend $140,000 on average.
One way to potentially defray this cost is to purchase long-term care (LTC) insurance. LTC insurance has its advantages and drawbacks, so be sure to consult a financial planner or insurance specialist if you’re considering this option.
What is Long-Term Care Insurance?
The National Institute on Aging defines long-term care as a variety of services that help people live as independently and safely as possible when they can no longer perform everyday activities on their own.
If you don’t have a spouse, family member, or friend who can act as your caretaker, the alternative is to pay for long-term care. Unfortunately, long-term care can be very expensive because traditional health insurance and Medicare don’t cover it.
LTC insurance provides coverage for nursing home care, home care, and adult daycare for individuals aged 65 or older. It also covers individuals who require constant supervision due to a chronic or disabling condition.
The two main types of LTC policies are standalone and hybrid. Standalone policies simply provide traditional long-term care coverage. Meanwhile, hybrid policies combine long-term care coverage with either life insurance or a qualifying annuity.
Who Needs LTC Insurance?
If you have accumulated significant retirement savings, you may be able to pay long-term care expenses out of pocket if necessary. On the other hand, those with limited financial resources can potentially rely on Medicaid’s benefits to cover these costs.
For everyone else, long-term care insurance may be a worthwhile consideration. This may be especially true if you live alone, don’t have close family members nearby, or don’t want to burden loved ones as you age.
However, it’s important to note that not everyone qualifies for long-term care insurance.
The younger and healthier you are when you apply, the more options you’ll have. Meanwhile, a variety of factors can make you ineligible for this type of insurance. For example:
- Pre-existing conditions like Parkinson’s, multiple sclerosis, or any dementia or progressive neurological condition such as Alzheimer’s
- History of stroke
- Metastatic cancer diagnosis
- History of smoking
- Certain psychiatric illnesses
In addition, some of the more surprising reasons you may not qualify for LTC insurance include:
- You’re a teetotaler.
- You are significantly underweight.
Of course, this isn’t a comprehensive list, and everyone’s personal situation is different. The bottom line is that even if you want and need long-term care insurance, you may have a difficult time getting it.
How Much Does It Cost?
The cost of LTC insurance can vary based on several factors, including:
- Marital status
- Coverage & benefits
In general, if you purchase long-term care insurance in your 50s, your premiums will likely cost between $1,000 and $2,500 annually. Thus, LTC insurance can be expensive—especially if you don’t end up needing it.
How Much Coverage Do You Need?
If you’re considering long-term care insurance, you’ll need to think about how much coverage you may need and how long you want your plan to last.
According to the Department of Health and Human Services, most people who require long-term care need it for two years. However, 20% of people require more than five years of care.
For most people purchasing LTC insurance, a minimum of two years of coverage is advisable. Depending on your lifestyle, health, and other circumstances, you may want to consider additional coverage.
Again, long-term care insurance is complex, and everyone’s situation is unique. While it may make sense for you, be sure to consult an expert before purchasing a policy.
As your net worth increases, creditors and predators are more likely to go after your assets. Thus, umbrella insurance becomes more valuable the wealthier you are, as it provides extra liability protection above and beyond your existing coverage.
For example, your homeowner’s insurance policy provides liability coverage up to a certain amount. Umbrella insurance continues that coverage to much higher limits.
What Is Umbrella Insurance?
Umbrella insurance covers your assets against liability claims that exceed the limits of your other insurance policies. This generally includes:
- Others’ injuries
- Damages to others’ property
- Certain lawsuits involving libel, defamation of character, and slander
- Personal liability situations
For example, suppose you’re hosting a party at your home and one of your guests accidentally falls down the stairs and gets hurt. As a result, they sue you to pay for their medical expenses.
Once you exhaust your homeowner’s liability policy, umbrella insurance would kick in to cover the difference.
The same would be true if you or one of your family members are in an auto accident. If your auto insurance doesn’t cover the extent of the damage, your umbrella policy would cover the difference up to your policy limit.
Umbrella coverage often applies anywhere in the world. In some cases, it may even extend to certain rental items like boats, RVs, or cars.
On the other hand, umbrella insurance typically doesn’t cover the following:
- Intentional acts. If you intentionally cause damage, harm, or injure another person or property, umbrella insurance won’t cover you.
- Business losses. Umbrella coverage doesn’t extend to your business, even if you operate it from home.
- Your injuries or damage to your property. While umbrella insurance covers others’ injuries and damage to others’ property if you’re liable, it generally won’t cover your injuries and damage to your property.
Who Needs Umbrella Insurance?
Generally, you should consider purchasing umbrella insurance when your assets exceed your existing liability coverage. In most cases, this is when your personal assets exceed roughly $250,000 to $300,000—the average liability limit for auto and homeowner’s insurance.
Your personal risk tolerance and exposure to risk may also determine whether you need umbrella coverage.
For example, if you like to host and entertain guests, there may be a higher risk of someone experiencing injuries on your property, which could result in a costly lawsuit. Alternatively, if you have teenage drivers, umbrella insurance can help protect your assets in the event of an accident.
You may also want to consider purchasing umbrella insurance if:
- You coach kids’ sports.
- You’re a landlord or public figure.
- You serve on the board of a non-profit.
- You own property, pools, trampolines, guns, or dogs.
How Much Does It Cost?
According to the Insurance Information Institute, the average umbrella policy costs between $150 and $300 per year for every $1 million in coverage.
Keep in mind that most insurance providers will also require you to have the maximum coverage amounts on your auto and homeowner’s policy before purchasing umbrella coverage. Depending on your existing coverage, this could increase your current insurance rates, thus increasing the total cost of adding umbrella coverage.
How Much Coverage Do You Need?
Typically, coverage starts at $1 million and increases in million-dollar increments. While every situation is unique, a common rule of thumb is to purchase enough umbrella insurance to cover your current assets minus your current liability coverage.
To find this number, first total your assets. Then, subtract the amount of your existing liability coverage. You can round the difference up to the nearest million to determine how much umbrella coverage you may need.
Identity Theft Insurance
Finally, as cyber-attacks and identity theft become more common, the risk you’ll fall victim to one of these crimes only increases. While there are steps you can take to protect yourself against identity theft and fraud, you may also want to consider purchasing identity theft insurance.
What Is Identity Theft Insurance?
Some insurance providers offer cybercrime and identity theft insurance as an additional safeguard against what can be an expensive ordeal. Although this type of insurance may not reimburse victims for all stolen funds and financial loss, it typically covers actual losses resulting from identity theft up to a specific dollar amount.
Identity theft insurance may also reimburse you for any large expenses you incur while restoring your identity. In addition, many policies include identity restoration, which can help you avoid falling victim to identity theft and fraud in the future.
Who Needs It?
Identity theft insurance may benefit you if you’ve experienced or are at risk of identity theft. It can also be beneficial if you have an extensive digital presence or regularly use credit cards to make purchases.
Lastly, this type of insurance may be worth considering as your personal assets and net worth grow.
How Much Does It Cost?
According to Equifax, identity theft insurance typically costs between $25 and $60 a year. Depending on the type of policy you purchase, you may also have to pay an out-of-pocket deductible if you file a claim.
How Much Coverage Do You Need?
Generally, policies range from basic coverage with limited benefits to extensive coverage with a wide variety of services. In addition, many insurers offer customizable plans to match your individual needs.
Ultimately, the amount of coverage you may need typically depends on the value of your personal information, as well as the financial losses you may incur if you’re the victim of identity theft.
Milestone Asset Management Can Help You Protect and Grow Your Wealth
Insurance can be a valuable component of your financial plan, especially as your net worth increases. Thus, it’s important to review your policies and coverage regularly to ensure you, your family, and your assets are protected in the event of a setback.
An experienced financial advisor like Milestone Asset Management Group can also help you evaluate your insurance needs and identify additional asset protection strategies that make sense for you. Our in-house team of financial planners and estate planning attorneys can help create a personalized plan to protect and grow your wealth long-term. To see if we may be the right fit for your financial planning needs, please schedule a call.