with Mike Smith & Emily Weed
Mike: I have Emily Weed with me –a certified financial planner. We’re discussing insurance, its purpose, and the various types of insurance products. So, I’m going to start by asking Emily the following question: where do you see the need for life insurance today?
Emily: I think it depends on the age of the clients. For younger families, especially if there’s just one breadwinner, it’s important to make sure that if that breadwinner were to pass away, the surviving spouse has income to manage outstanding debts like a mortgage payment or school funding. These funds are to tide them over as they navigate a new chapter in their life and provide peace of mind to the families.
Later in life, long term care insurance can be important. We’ve recently received a couple of letters from clients about the cost of group Long-Term Care increasing, their premiums are going up by over 20%. I anticipate them going up again as this is an area where there’s still uncertainty about what that true cost will look like. So, insurance companies are hedging. Most of our clients own a hybrid policy where the fixed premium is known and policies are locked in to cover a portion of it, which can be beneficial.
Then there are situations appropriate for whole life policies. This is an estate planning piece for those high net worth individuals with an estate tax issue.
Mike: Great, thanks Emily. Next question – in the insurance world, where do typical employees get their insurance today?
Emily: The first place for most people is their employer. Employers in general have basic coverage for life insurance, disability insurance, in addition to what you typically think of like health insurance and dental insurance, all that good stuff. You’ll want to look at the kinds of coverage offered through your employer.
If you’re a healthy individual, shopping the market may prove to be a lower cost solution than just signing up for additional coverage with your employer. But first make sure you understand what the employer coverage is.
Mike: Great observation on the employer coverage and I’ll just use an example for highly compensated employees. If you go beyond the basic allowance of a typical company using five times your base salary, and you want to elect 8 or 10 times your base salary for insurance coverage, that additional election could cost you significantly more than the value received.
Alternatively, you can shop for that extra value and get a better policy for less dollars and you can set it for a set term.
Emily: And then I think it’s also important to think about group insurance with the understanding that they have to cover everyone, even those that are uninsurable.
If you’re a healthy person, like I mentioned, it is worth it to shop the insurance marketplace because you can most likely get better coverage for a period of time needed, i.e., getting kiddos through college, paying off the mortgage, etc.