What insurance coverages should you review as part of your long-term financial plan?
Many people do not spend much time thinking about insurance until something goes wrong. But what if reviewing your coverage now could help protect your family, your income, your assets, and your identity when life takes an unexpected turn?
In this episode of Retire in Texas, Darryl Lyons walks through six types of insurance coverage that individuals and families should revisit: life insurance, health insurance, long-term care insurance, disability insurance, umbrella coverage, and cybersecurity or identity theft protection. He explains why each one plays a different role and how the right coverage can help reduce financial stress during already difficult moments.
You’ll learn:
• Why life insurance is not a “rich or poor” issue, but a family protection issue.
• How health insurance and alternative options like sharing plans can fit into the conversation.
• Why long-term care planning should include family roles, communication, and potential caregiving burdens.
• How disability insurance can help protect income for those who are still working.
• Why umbrella coverage may matter for families with assets, teenage drivers, boats, or other liability risks.
• How cybersecurity and identity theft protection can help when scams, phishing texts, ransomware, or stolen personal information disrupt your life.
Insurance planning may not be exciting, but it is an important part of thinking long term. Darryl explains why reviewing your policies, checking beneficiaries, understanding deductibles, and talking through family care expectations can help you build a more complete financial plan.
Benefiting from the show? We’d appreciate it if you left a review on your favorite podcast platform.
Transcript:
Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. And you’re listening to Retire in Texas. This information is general in nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information.
Okay, if I talk insurance, you’re going to check out on me. Are you going to hang with me? I want you to hang with me just for 20 minutes. I’ll try to keep it brief, but I need to talk about six types of insurance coverages you need to have, or at least need to be thinking about. There’s situations where you may not need it, but I really need to make sure you do a checklist in your life on these six types of policies.
Very important. So, let’s jump into it. Life insurance. Typically somebody needs 8 to 10 times the amount of life insurance coverage relative to their income. So, if you have a $100,000 income, you’re going to need 800-1 million. That’s the general rule of thumb. It was funny because when I first started in the business, I remember I remember my first application again, I started in the business in 99, and they gave me this specific formula on how to evaluate life insurance.
And I turned the life insurance application into the underwriter. And it was, and I’m pretty close to this number. It was six. I remember the number because it was so peculiar. I did such a nerdy calculation that I turned it into the underwriter, and I said, this family needs $677,432.67 of life insurance. And they look at me, they go, what is this?
And I go, well, he told me to use a formula to identify their needs. And I followed the formula to the T. And I say that because I had these formulas that I used from these insurance companies. Then I heard about this rule of thumb 8 to 10 times. And I started stress testing the formula, like the mathematical model that I used, that underwriters gave me.
And I started to see if it fit within that 8 to 10 times number, that rule of thumb. And sure enough, it did. So, then I was able to feel comfortable using the 8 to 10 number, which is a heuristic rule of thumb, with confidence. And so now I still use the 8 to 10 times. I still recommend you have 8 to 10 times.
If you have kids, make sure that your kids, if they’re adult kids, they have 8 to 10 times they can have group. And that’s okay. But don’t forget, it’s usually not portable. Meaning if you leave to another company, you can’t usually take it with you. So that’s important to remember. And you know, life happens.
Yeah. I don’t have to sell you on the idea. This is not a rich or poor issue. This is just thinking about your family and, thinking about the situation that they’ll be in and how much, how life insurance will help them mourn, grieve, and transition and life insurance is not taxable. So, there’s no taxes on the life insurance, and then it doesn’t go through probate because it’s a contract.
So, it’s pretty efficiently processed. We’ve had claims over the years and the money gets pretty quickly to the widow. Usually it’s in the form, like not a check. Usually the insurance company keeps it and it’s optional, but they can usually keep it in an account. And then the widow can and I say widower, can take money out of that account whenever they want.
So, it’s flexible in how it’s constructed, but it’s usually pretty efficient. The insurance companies don’t, in my opinion, if you use it. I guess if you use quality companies, which we tend to do, there’s no reason to be skeptical about them paying out claims. They do pay out claims. I had one situation where this is years ago, it wasn’t my client.
It was one of the, I was actually in charge of. This is a long time ago. A number of agents, one of his clients applied for life insurance and applied and died in the application process. And so, the question is, did the insurance company pay the claim? And so, it’s a matter of contract law.
And contract law says there has to be offer acceptance and consideration. That’s the framework of contract law. The offer and acceptance is the actual application. But consideration is the check. So did the in this situation and it and it was the case. Did the person that died that applied, did they write the first premium check because that secures the contract.
And if they did, which in this case they did write the first initial premium check, then the insurance company, despite having not completed the underwriting process, did have to pay a claim even though that man died in a car accident, before the application was completed. Just life is precious and your loved ones need that liquidity, so make sure you have it.
This is not like I said, it’s not a rich or poor issue, but it’s generally for people who have to replace income that’s lost from a death or pay off debt. The third group, I would also say, and I see this less because of the laws, but for estate tax issues. So, if you have an estate that’s large and check with your financial advisor, then there’s an estate tax on larger estates that’s due within nine months to the IRS.
And those situations, it’s better to have life insurance to pay that estate tax bill. It prevents a burden from being on the estate and the family ultimately. So, if you are growing well through real estate or business or Nvidia stock or whatever, don’t forget about the estate tax liquidity thing that you need to have constructed.
Because I did say life insurance is not taxable. It is subject to state tax not income tax. So important to know that’s number one. Number two is health insurance. Most people have health insurance. Most people are mad about the health insurance industry at large. I talked to doctors, I talked to hospitals, I talked to insurance companies, and they all point fingers.
I have my opinions. I just, I think the consumer, plays a role in this, you know, unhealthy population. It’s diabetic. And I just was walking by somebody the other just a few minutes ago, and she was drinking this huge Dr. Pepper. Not in my office, but in a tangential office. Dr. Pepper and all these tacos and very overweight.
So, there are self-destructing cultures that exist that makes it problematic for these, our system puts a lot of pressure on our system. And the other thing is, we have a pretty good medical system. I mean, innovation’s crazy. So, for us to pay for some of these things, it’s expensive, so it’s complex. There’s a lot of issues.
A lot of finger pointing. But health insurance is necessary. I have been a proponent of alternatives like, the Christian sharing plans, which I’ve used for 12 years now. And I’ve had really good experience with them. There’s many of them that are out there and you just have to know what you’re getting into. They’re different and they work different.
They just work different than traditional insurance. But it’s not. It’s not as, I guess, it’s not as spooky as it was even when I first started 12 years ago. A lot of people have been using it. They’ve been stress tested very well. And so I feel comfortable making a recommendation for those that are interested in the sharing alternative, because the premium savings are incredible.
So, make sure you have health insurance. If not, it’s like going down I-35 to Austin blindfolded. It says, you just can’t do it. You should do it. Okay. The third one is long term care insurance. This is for chronic care, not acute. Acute would be like a broken arm. Chronic would be you are unable to eat, bathe, dress, toilet transfer, bowel movements, Alzheimer’s, as we’ve all experienced, with our families.
Now this is just prevalent. And how to pay for this is just super expensive. So, security will cover. Social security doesn’t cover it. Don’t misunderstand me. A Social Security payment that a retiree is receiving helps pay for it, but it doesn’t cover it. Medicare does not cover it. Medicare has a little formula. They’ll cover a little bit of chronic care, but don’t expect Medicare to cover it.
Medicaid will cover it. But you have to be indigent. You have to spend down all your money. You have to get rid of everything, which is really challenging. And you can’t do it in an unlawful way either. You can’t just say, okay, I’m going in, I’m going to need care. So, I’m going to go ahead and give away all my assets.
So, I qualify for Medicaid. Now there’s a five-year lookback rule. So don’t depend on Medicaid. Don’t depend on the government. Long term care insurance is an option. I will say we’ve struggled as advisors recommending it because the premiums have gotten so expensive. And then when we have found that our clients can afford it and want it, they get a premium increase the following year and then it becomes problematic.
So how do you handle long term care insurance? And the reality is the majority of families are going to need it. Let me say it differently. How do you handle how do you handle the very likely situation of needing to pay for chronic care? Long term care insurance is an option. And if you find that the premiums are unaffordable, then just model.
When you do your modeling with your financial advisor, stress test it by adding in situations that might require chronic care and see if your current cash flow can support it. Family members are also going to play a key role. This gets really interpersonal, but what I found over the years is that there is one son or daughter that carries the burden.
So, if you can kind of map that out beforehand and provide the support to that specific child, that can help navigate that, I think that’s really important. You don’t want a situation where there’s resentment, where one child, excuse me, one child is caring for a mom or dad, and the others are out playing golf or vacationing. It’s a real challenge.
When you think about long term care, don’t think about it. Just the economics of it. Think about as family dynamic. And yes, your cash flow may support the bill may be able to pay the bill. Insurance or Medicaid may play a role. But most importantly, make sure that all the kids are on the same page for how this is going to work out in a way that’s equitable, that if the burdens carried by one family member more than another, that it’s understood and maybe there’s some way to make it equitable in some way, maybe with an inheritance.
But that’s the tricky part, is not just the financial but the burden. And I think what you want to try to avoid more than anything is you passing away, and the kids are resentful to each other. The fourth insurance is disability insurance. This is typically going to be the type. This is the insurance that’s going to protect the goose that lays the golden egg.
So, for those that still are working, a lot of times you get disability through your employer and it will pay at the most 60% of your gross income. So, it’s that’s a fairly good number considering that, your gross income is, also a function of, you know, 401(k) and health insurance payments. But when you get your group, if there’s a claim for your group disability plan, it’s taxable.
So, make sure that you remember that you can. And this is a little trick that I do. You can work with your employer or in some cases to pay your disability premiums pretax. That means you don’t get the benefit of, avoiding the, you know, I guess the tax deductibility or the tax offset of group disability.
But the reason I like to make the disability payments after tax is because if you do get disabled, then the claim is tax free. So I love to reconstruct disability contracts if I can to make them after tax. So that way if there’s a claim you’re going to get more money, 60% tax free is is really helpful.
Most disabilities aren’t falling off a ladder. Just know that most disabilities are illnesses. Stroke, cancer. Things like that. So really want to make sure that if you’re a primary breadwinner, and yeah, I want to say if you’re in your 40s or 50s, I’ve had it my whole life, but just make sure you have good disability. We’ve paid claims for those in their 20s before, and so, you know, most people don’t die.
I say everyone dies, but most claims are actually, I think and I haven’t looked at the statistic in a while, but most claims are that are, like in their 50s or younger are going to be disability claims rather than rather than life insurance claims. So it’s not cheap. You can buy it individually outside of a group.
So, if you’re a small business owner, you can buy it individually. And we, you know, help people with that. But it’s a little cheaper if you can do a group plan. So oftentimes we’d like the group. That’s my fourth one. My fifth one is going to be an umbrella coverage. So an umbrella is if I’ve got teenage drivers and if they get a car accident and somebody hurts their neck on the other in the accident and they grab their neck and then they file a claim against my auto insurance coverage and my auto insurance coverage is going to have limits, you know, 100,000, 200,000.
And they make the claim because today’s American, I guess a tradition is no longer baseball. It’s lawsuits. So, they decide to sue me or anybody will. Then that’s where an umbrella policy kicks in. So, it’s not that expensive, relatively speaking. And I think really if you have any assets to protect. So, in the state of Texas, assets are, you know, in the 401(k), 529, your house, those are all going to be pretty well protected.
But it’s the other stuff. Your cash in the bank, your non primary residence, maybe even your income that are subject to litigation or subject claims of litigation. Then the umbrella policy is going to add a layer of protection to help pay those claims and protect your family. So, it’s really lawsuit protection more than anything. So, and you go to your insurer, you go to your auto insurance company for this.
So make sure that that if you’re out on a boat at the lake some time and you’re like, I’m covered on my boat insurance, well, make sure you have also umbrella coverage. The final one is the cyber security coverage. I’ve talked about this a lot. This is the sixth one. And how many times are you guys getting like, phishing texts?
In fact, I get them all the time. And, you know, they’re just phishing for all kinds of stuff. I often get I have to get text from. I don’t know how I got on, like, employer lists. People text me all the time and say randomly, maybe I say all the time, maybe once a month. Hey, you are, fit the profile of somebody that we’re looking to hire.
We’re paying $40 an hour. Are you interested? I always reply back. Is there a drug test? Drug test involved? And then I never hear from them again. But I also get texts from, like, random people that will say something like, hey, I sorry I missed you last night. I was there, and it’s very peculiar. And they’re trying to beat you.
These are businesses. They’re no longer individuals that are like in a basement. Maybe they are, but there’s definitely businesses in India and Pakistan and all across the world. Russia, Eastern Europe, Italy, even in the United States. But they’re designed to specifically bait you into a place of trust to ultimately swindle you out of money. But those are and again, I do a lot of podcasts I’ve done on that a lot of content around cyber threats.
But even the simple ones, like somebody stole money from your bank account, ID theft, you know, phishing scams, ransomware, all of that. It’s just so prevalent now you’ve got to have some cyber security and there’s plenty of ID theft coverage services out there today. And so you need to have one. And claims are not terribly high in this space.
Not like a not like long term care where it’s hundreds of thousands, although they can be. But many of them, if you look at them, if you look at the data, many of them aren’t huge, but it’s just a disruption of life. So, if somebody steals your Social Security number or something like that. So what I think is probably an understated benefit of having ID theft coverage or cyber security coverage is just having a third party that can help walk you through it so it can relieve the stress.
I think about insurance in the context of what’s the probability of an event happening and what’s the scope of damage. And in this case, the scope of damage could be high. But the probabilities are definitely high in this situation. There’s just a lot out there. So, I want to make sure you have good ID theft coverage. And there’s plenty of carriers out there to get that.
So, in summary, I want to make sure you have those six or at least visited or addressed, those six types of coverages, review all the coverages. Be sure to also check beneficiaries on your life insurance. You sometimes we forget about the primary and contingent beneficiary. Check your deductibles. Sometimes that’s a forgotten element.
You can increase your deductible, especially if you have more cash reserves and lower your premiums. Make sure that you look at your umbrella as your net worth might have grown over the years. You might not have thought it’s a big deal. And now your wealth has grown. And then finally want to make sure that you, you think about it finally, coordinating with your family on long term care issues and then finally, making sure that you have good ID theft.
So those are the six things, six insurance coverages that I want you to be thinking about. And, you know, it’s like a seatbelt. It’s not something that you really spend a lot of time, talking about that you don’t really care. You might care about the color of your car, the way it drives. You don’t care about seatbelts, but, you know, when things go wrong, that’s like the most important component in your entire life.
So that’s why insurance is something periodically I bring up to you guys, and I want to make sure it’s not lost on you. So go out there, revisit your insurance, and remember you think different when you think long term. Have a great day.
Listen on:
