Risk Protection
An important part of any wealth management strategy is risk protection. When it comes to risk protection there is typically two choices, either transfer the risk or try to avoid the risk. Since we are not always able to avoid risks, let's look at different ways to transfer risk.
Disability Income insurance provides coverage for the insured in the event that he/she cannot work and perform their duties. Coverages vary from provider to provider and also from profession to profession. A physician declares the insured disabled and unable to work and these policies will begin paying a predetermined amount as long as the insured is considered unable to work. Most of these policies have an elimination period during which the insured does not receive payment.
Today, most employers will offer a group disability policy to their employees. The employer pays the premiums and elects to cover 60 percent of an employees salary in the event of the employee becoming disabled. This benefit is taxable to the employee and typically ends up being about 52 percent of the employees after tax income. Question, if you had to live off of one half of what you currently make, could your household thrive? If not, transferring this risk may be the option for you!
There are many different options available to you when it comes to disability income coverage, consult your advisor for more information.
Long-Term care insurance will provide coverage to the insured in the event that they are unable to perform at least 2 of the activities of daily living(). Long-term care coverage can be tailored to fit the insured specific needs, such as home healthcare, in house care, additions of handicap ramps, assisted living facilities, and so on. Long-Term Care policies pay a specified benefit for a predetermined period as agreed at the time the policy was written.
Long-Term Care Insurance is a great tool to transfer risk for a number of reasons. First, it helps to preserve the insured assets. Secondly, the premiums are usually recovered within the first year of the policy having to pay out. Lastly, it gives the insured more lifestyle options such as home care, assisted living facility, or living in nursing home.
There are different types of life insurance available for tranferring risk. Although sometimes frowned upon by many, life insurance allows great flexibility in planning a person's estate. The most important factor to remember when it comes to life insurance is that the insurance is not for the benefit of the insured but for the beneficiaries the insured leaves behind. Life insurance can be used to fund many different strategies, such as Buy-Sell Agreements, Key Man Coverage, Mortgage Protection, Asset Accumulation(under certain circumstances), Asset Transfer, as well as simply covering the life of a loved one. For more information on these strategies consult your advisor.
The four most common types of life insurance available are: Term Life, Whole Life, Universal Life, and Variable Universal Life. Most of the other life insurance products available are variants of these four.
Term Life Insurance is temporary insurance, meaning that it is purchased to cover a temporary need. This is usually the least expensive of all the policies and the most straightforward. As long as you pay the premiums, the insurance is in force. When you stop paying the insurance goes away and so do the premiums that you paid in. Premiums for term life increase annually as the insured gets older. Term life is typically available as 1, 5, 10, 20, and 30 year policies.
Whole Life Insurance features a level premium that is payable for your whole life, carries a death benefit and accumulates a cash value which earns a fixed amount of interest.Universal Life Insurance is a flexible-premium product providing adjustable, low-cost protection and cash values which earn interest at current rates. Universal Life policies feature two death benefit options, one with a level death benefit, and the other an increasing death benefit which include the accumulated cash value that is in the policy at the time of death.
Variable Universal Life Insurance combines securities with life insurance. Cash values are invested in separate accounts that can assume more risks than the regular investments allowed for life insurance companies. The policyowner assumes the investment risk and the investment results determine the policy cash value.
Which coverage is right for you? Consult your advisor for a detailed analysis of your situation as well as a pros and cons discussion of each type of insurance listed above.
