Insurance Is a Risk Management Tool
Insurance risk management is exactly what it sounds like: managing potential risks to your financial life through insurance. People should consider their needs for life insurance, health insurance, disability insurance and long-term care insurance as part of their overall financial planning. Why? Because the absence of insurance may pose a risk to your assets.
Here’s a brief overview of what to know about insurance risk management once you’re in your 50s.
Life Insurance
People whose dependents rely on them financially may want to consider life insurance. Life insurance can protect your dependents against the loss of your income and financial protection should you pass away.
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Some people may believe that the need for life insurance lessens as you become middle-aged and older. After all, this reasoning goes, your children are grown and therefore don’t rely on you financially. Your spouse may be shielded from financial risk in the event of your passing by the assets you have accumulated together.
But in fact, life insurance needs are more complex than that. You may need life insurance in your 50s – and beyond.
Why You Might Need Life Insurance in Your 50s
The key factor in life insurance in the context of financial planning is not your age or even your retirement plans. It’s your dependents and their need for the financial role you provide.
Historically, most children were grown and out of the house by the time parents reached their 50s. But that may no longer be true. Younger generations are facing financial difficulties that their parents or grandparents may not have had to face. Rising real estate prices in many parts of the country have made buying a home for younger generations challenging. Many young people now may have large student loan debts that could impact their ability to support themselves and even their families completely. As a result, their parents may be supporting them financially where they live or the adult children may still be living at home.
It’s not only the role of younger generations that has changed in the last several decades. It’s also the financial lives of people who are middle-aged and older. At one point, most people were preparing for retirement in their 50s and retired by their mid-60s. In that model, many had their mortgages paid off and low or no debt in retirement.
But that may no longer be true. Many people are still paying off mortgages into their retirement years. Some are helping children with mortgage payments or student loan debt. Those are financial outlays that need to be planned for if you want them to continue after your passing.
In addition, it’s now much more common to continue to work into the retirement years. Motivations for work in those years vary: it could be you love your job, want to work, or are pursuing a second career or business. But it’s also true that you might need the income.
When Social Security was enacted in the 1930s, the average American life expectancy didn’t extend much beyond 65. It now can extend 20 or even 30 years beyond that. So folks who once may have planned their life insurance needs for a spouse not living past their late 60s now need to think of their spouse potentially living until their 90s. That changes the life expectancy financial planning for many people.
In short, if your spouse, children, or other life insurance beneficiaries may still need your income and financial support in your 50s and beyond, you may want to consider life insurance.
Types of Life Insurance
It’s very important to know the differences between the two types of life insurance, whole life (often called universal or permanent) and term.
Whole Life Insurance
Whole life insurance will pay a benefit to the beneficiaries designated on the policy whenever you pass away. Whole life insurance can support a spouse, be used to pay off a mortgage to relieve that burden, and could support children or grandchildren as well, depending on your wishes.
Term Life Insurance
Term life insurance is designed to be in force for only a certain period (usually in increments of five years). Let’s say, for example, that your mortgage will be paid off in 10 years. If you want to make sure your spouse receives funds to pay it off, should you pass away within those 10 years a term life insurance policy for 10 years would do that.
The premiums on a term life policy are generally lower than those on a whole life policy.
Health Insurance
Health insurance can help shield you from having to pay the full cost of health care, which is increasingly expensive. As you plan for retirement, be aware that while most retirees are covered by Medicare, Medicare is not free. Currently, retirees pay from $5,000 to more than $6,000 per year out of pocket on premiums, deductibles, and copays.
Disability Insurance
Disability insurance is insurance to protect you against the risk of a disability that prevents you from working and earning. The Social Security Administration provides some insurance to the disabled. Disability insurance can also be purchased from private insurers.
The likelihood of your becoming disabled depends on your overall health, any current conditions that might lead to disability long term, your occupation, and other factors. Consider all these when deciding on coverage.
Long-Term Care Insurance
Long-term care insurance is designed to pay for the cost of long-term care, such as a nursing home or assisted living facility. (It may also pay for home health aides in your own home.) It’s important to know that Medicare coverage does not cover long-term care insurance. So if you want it, you will need to purchase a policy.
All insurance risk management decisions can be complicated and it’s prudent to discuss your needs with a financial advisor, such as PAX Financial Group.
Pax Financial: Risk Management Is Part of Your Overall Financial Plan
When you reach your 50s, insurance risk management should be considered as part of your overall financial plans for retirement and your estate plan. Our CERTIFIED FINANCIAL PLANNER™ Professionals in San Antonio, Texas can help you decide what insurance coverage is the best for you and your family. We can assist you in evaluating and purchasing plans to fit your needs, goals, and spiritual beliefs.
