Life insurance on children

 I’m often asked if life insurance on children is necessary.  They don’t contribute financially to the household, don’t carry debt (at least the minor ones), and are usually pretty healthy.  But that last statement is the reason I encourage families to have policies for their kids or at least a child rider on their own life insurance policies.  Child riders in particular are fairly easy to add to a policy and once it’s added for one child, you can add future children with just a signature.  This protects their insurability moving forward.  We can all think of families who have kids that were diagnosed with an illness during their childhood.  Most survive but it’s difficult for them to qualify for life insurance as an adult.  Taking out a life insurance policy on the child just a couple months after they are born is a great idea.  Not only is it inexpensive but it is an asset that starts building for their future.   

Insuring the times of your life

Chances are, you need life insurance.  And according to the LIFE Foundation and Kelton Research in 2008, 93% of Americans say that life insurance is something most people need.  However, only about 41% own an individually purchased policy.  Here are some specific life events that might trigger the need for life insurance.

• Married or getting married
• A parent or about to become one
• A homeowner
• Changing jobs
• Retired or planning for retirement
• Single
• Joint owner of a business

Don't live without life.

Myth: Only the primary breadwinner needs life insurance

Growing up with a stay home mom, I can appreciate all the little things she did for me and my sister.  And even though she did not provide a cash income, her valuable services would have had a huge replacement cost.  Those include personal chef, catering, housecleaning, childcare, chauffer, household management, tutor, mentor, the list goes on.  If you were to hire those services out, that could cost anywhere between $50,000 and $120,000 a year.  My mother had a significant contribution to our family.  I suspect that if your family operates on one income or if one of the parents is part time, you can relate with this.  I hope you will see how much economic value a stay home parent provides and that life insurance is just as important for them too.

Don't live without life

September is traditionally known as the month for back to school or the month when football season starts.  But it is also Life Insurance Awareness Month.  Life Insurance is a simple answer to a very difficult question: how will my family manage financially when I die?  It's a subject no one wants to think about and it's easy to procrastinate.  But if someone depends on you financially, it's one that you cannot avoid.  If you or someone you love is married or engaged, a parent or about to become one, a homeowner, or changing jobs - those are all life events that might trigger the need for life insurance or at least a review of what you have currently.

Here's a link that features Lamar Odom (2 time NBA champion with the LA Lakers and reality TV star) and his personal story  http://www.lifehappens.org/lamar-video/

Taxation of Disability benefits and Final Thoughts

This blog wraps up our discussion on disability insurance since May is Disability Insurance Awareness Month.  Taxation of disability policies depends on where the coverage is provided.  If it is a policy through your employer and your employer paid all of those premiums, those benefits are taxable to you once you begin to receive them.  The income is taxable in lieu of wages.  If it is a policy you purchase individually, you pay no income tax on the benefits you receive.   Can you have more than one disability policy?  Yes, but it depends on the income threshold.  If your company’s policy will replace 50% of your income but you are eligible to replace 80%, you can purchase an individual policy to make up that difference.  

If you do not have income to replace, you do not have the need for a disability insurance policy.  While some disability policies can be integrated with Social Security, the reliance on government assistance should not be a factor when determining the disability coverage needed.  Depending on your disability, obtaining Social Security benefits can be a complex, difficult, and drawn out process. 

I encourage you to have an audit done of your disability policies – you may have had a job change, purchased a business, or had an income level change that could modify your benefits.  Disability insurance is an integral component of a financial plan and worth consideration.

Small business owners – the heart and soul of their company

Keeping on the DI theme this month, what if you were a small business owner and your company relied on just yourself or possibly one other person to produce revenue?  If you were unable to produce that revenue, what would happen to your business?  How long would it be able to stay open?  Business Overhead Expense (BOE) plans cover the actual expenses of the business like payroll, rent, office equipment, property taxes, and other day to day operational expenses.    Just because you aren’t able to work, doesn’t mean your business expenses will stop or go away.  That could create substantial debt in a very short period of time.

Typically a BOE policy has a benefit period of 1 to 2 years – that gives the business owner the luxury of time.  Time to decide to sell the business, close the business, or hire a new partner.  

The amount of coverage your business is eligible for is based on your tax return, similar to a personal policy.  As a small business owner, it’s vital to ask the right questions about disability insurance within your business – if it makes sense to have a personal policy and/or a business overhead expense policy, who it should be on, and what it needs to cover.

Waiting is the hardest part

May is Disability Insurance Awareness month so this week's post continues on the DI theme.  The waiting period (also know as the elimination period) is an important factor with disability insurance.  This acts like a deductible – how many days you have to wait before the insurance company begins paying your benefits.  The longer your elimination period, the lower your premiums will be.  For short-term plans, a 0 day or 7 day elimination period is used most often.  For long-term plans, common elimination periods are 30 days, 60 days, or 90 days.  Most financial planners will recommend that clients have an emergency fund sufficient to cover the elimination period plus 30 days in case the insurance company is not timely with their payments. 

 A misconception I hear often is: “I have been disabled now for 30 days and satisfied my elimination period, when can I expect my check?”  Your clock to receive benefits starts after the elimination period.  In a hypothetical situation, if you are disabled for 90 days with a 30 day elimination period, your income will be replaced for 60 days.  And the income replacement is pro rata, based on how many days you are off work.  Even though your benefit may be stated in a monthly figure, it’s more like a payment per day off of work.     

This is another reason that you should review your disability policies, to make sure you understand how the benefits will be paid and make any adjustments if you need to.

What if your last payday was your last payday?

Disability insurance protects against the loss of income due to disability as a result of sickness or accidental injury.  It’s very important to verify what the policy covers.  If your company has a worker’s compensation plan but you injure yourself on the golf course - that is not a covered injury.  The best disability plans cover both sickness and accidents.  But what about health insurance?  That typically just pays for your doctor and hospital bills - it does not supplement your income for time off of work.  Insurance companies generally limit the amount of coverage to replace income, and it is driven by your adjusted gross income calculated on your tax return and also by your occupation.  Short-term disability coverage generally provides coverage for up to two years and is limited to approximately 60% of weekly wages.  Long-term disability coverage can provide benefits for a specific number of years or until a certain age; these plans are limited to approximately 75-80% of weekly wages although most provide 50-60%. 

Talk to your financial planner about what types of coverage you have at work and if it makes sense to supplement that with another policy.

Think you don’t need disability insurance? Think again.

What would you do if you didn’t have a paycheck because you were too hurt or sick and couldn’t work?  Statistics show that people in their 30s are three times more likely to suffer a long-term disability than to die. A recent study showed that a 20-year-old worker’s chance of suffering a disability prior to retirement was 3 in 10! While the bulk of those disabled may suffer their disability for about five years, approximately 30% of disabilities could be lifelong. It’s time to start thinking about disability insurance.

We’d all like to believe that we’ll never be disabled. But the reality is…it could happen to you. If it does, will your family be taken care of? Will you be prepared? Your income during a disability will go away – but your household expenses will not. Bills will still need to be paid such as your mortgage or rent, utilities, groceries, and debt payments to name a few.

My father was diagnosed with cancer at the age of 52.  He spent a few weeks in the hospital, recovering from surgery and several weeks off of work. At that time, my mother was a stay home mom. My father’s disability policy helped insure that his bills were paid and that his income was replaced. That allowed him to focus on getting better without the added stress of financial pressures. My family was still taken care of and provided for even though he wasn’t able to work. That is why I am passionate about disability insurance, I watched it save and protect my family.