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The 3 Estate Planning Documents Everyone Should Have
The best thing you can do for your future self and your loved ones is prepare for the worst. ...
The 3 Estate Planning Documents Everyone Should Have The best thing you can do for your future self and your loved ones is prepare for the worst. Create your estate plan with these three essential documents. We all have an estate, even if we’ve never thought about it. Each of our estates includes our financial assets, bank accounts, life insurance, pensions, real estate, cars, personal belongings, and even debts. Estate planning means putting a plan in place for how the physical and financial assets we described above will be transferred after either your death or a serious illness. It is crucial for everyone to prepare an estate plan, no matter what the value of your estate is. It will help others follow your wishes when it comes to protecting your family, loved ones, and assets—in case you’re unable to do so. Don’t know where to start? All you need for a basic estate plan are three essential documents. 1. Financial Power of Attorney A durable financial power of attorney document (POA) allows you to designate someone to handle your finances if you are unable to do so. The person you choose is considered to be your designated agent. If you don’t designate an agent, it may be difficult for someone—even your spouse—to do things on your behalf, such as pay bills, file taxes, or cash checks. Your agent’s signature will be required for every decision, so before choosing an agent, consider their schedule and where they live. Betterment can take direction from your agent if you have an approved POA on file with us. Note that we are not able to create a POA document for you—this is something your legal counsel can help you with. Your POA must clearly reflect that you allow your agent a sufficiently broad scope of capabilities, such that they are able to fully interact with the account. The POA must undergo an approval process with our estates team before it's considered to be valid. For more information, please contact us. 2. Advanced Health Care Directive An advanced health care directive allows you to designate someone to make medical decisions on your behalf. Again, this person is known as your agent and they can make decisions such as choosing a doctor, accessing medical records, and putting you on life support. Your agent’s signature will be required for every decision, so before choosing an agent, consider their schedule and where they live. Make sure your doctors have a copy of your advanced health care directive on file. Some entities may even require additional documentation or have specific procedures when dealing with agents. Make sure to check ahead of time to avoid putting your agents in a difficult position. 3. Last Will and Testament Your will is the document that determines who will inherit any of your assets if there is no joint ownership, or beneficiaries are not file at an institution. If you named beneficiaries for most of your assets, this document will mostly be reserved for your personal belongings. However, a will can help with other important decisions, such as naming a guardian to look after your children. You’ll also choose an executor in your will, which is the person who is charged with ensuring your wishes are carried out. Protect What’s Important An estate plan is an important step to help ensure that you and your assets are protected. We highly recommend speaking with an estate planning professional or an attorney to help you implement your estate plan. Once your estate plan is set up, you’ll want to review it every two years at least, or whenever there is a major life event such as marriage, divorce, or death—especially among your beneficiaries. Additionally, if there are any significant changes to estate planning laws, you’ll want to review your plan again. Betterment does not currently offer estate planning services. We do, however, encourage you to add beneficiaries to your Betterment account, which you can do in your account without any paperwork. Our Experts Can Help You Plan Our team of CERTIFIED FINANCIAL PLANNER™ professionals are ready to speak with you about planning for the next stage in your life. We offer five unique advice packages that help you review your current financial situation. Our Financial Checkup or Marriage Planning packages provide a perfect opportunity to discuss basic estate planning recommendations. -
What Is A Life Insurance Beneficiary?
If you have an active life insurance policy when you die, your insurer will pay out a death ...
What Is A Life Insurance Beneficiary? If you have an active life insurance policy when you die, your insurer will pay out a death benefit. The person or organization you choose to receive the death benefit is called the beneficiary. If you have a life insurance policy, and you’ve been keeping up with your premiums, your insurer will pay out a death benefit when you die. The benefit goes to someone who you designated with the insurance company, such as your spouse. That person is called a beneficiary. Your life insurance beneficiary can be a family member, a friend, a business partner, a charitable organization or a legal entity like a trust or your estate. While the beneficiary is your choice, some states have laws that regulate who you can name as a beneficiary. You can also name multiple people as beneficiaries and choose to have the death benefit distributed among them. Read on to learn about the different types of beneficiaries, who can be a beneficiary, and the roles and responsibilities of the beneficiary. In this article, we’ll cover: Primary and contingent beneficiaries. Who can be a beneficiary. How to update your beneficiaries. How a beneficiary can claim the death benefit. Can a life insurance beneficiary get denied the death benefit? Naming your life insurance beneficiary is a big decision, so we recommend consulting with an estate planning professional for guidance Primary And Contingent Beneficiaries Your primary beneficiary is the original person or organization you designate with the insurer to receive the life insurance benefits when you die. Most people designate their spouse. You can also name multiple beneficiaries and determine how much each one gets. If you don’t choose any primary beneficiaries, the insurance company will pay out your benefit to your estate. This can significantly slow down the disbursement of life insurance benefits because your benefits are subject to probate, which is when the courts determine who should get your assets. You may also have to pay tax on your life insurance benefit if it goes to your estate. You’ll also want to choose some contingent beneficiaries. A contingent beneficiary is someone you elect to receive the death benefit if the primary beneficiary dies or goes out of business before you die. Although the contingent beneficiary is named in the life insurance policy, they won’t receive a portion of the death benefit if any of the primary beneficiaries are still alive. The first contingent beneficiary you name is called the secondary beneficiary, the third is the tertiary beneficiary and so on. Who Can Be A Beneficiary Your Spouse Most people choose their spouse as their primary beneficiary. Life insurance is meant to help protect your family from financial hardship after you’re gone, so by leaving money to your spouse, you can help ensure that they won’t struggle with paying the bills or for your kids’ college. Additionally, nine states have “community property” laws that make it illegal to name someone other than your spouse as your beneficiary without their consent. These laws generally apply only if you got the policy after getting married. These states have community property laws: Arizona California Idaho Louisiana Nevada New Mexico Texas Washington Wisconsin Alaska and Tennessee also have community property laws, but they are voluntary. You and your spouse have to opt in to them. Your Kids We don’t recommend naming your children as beneficiaries if they’re still minors. It’s very difficult to pay out such a large sum to a child without jumping through some legal hoops. If you designate a minor as your beneficiary, when the insurer pays the death benefit, it will go into a trust overseen by a court-appointed guardian. That guardian will hold onto the money until the child reaches the “age of majority.” You can also designate a trust in the child’s name as the beneficiary, and the fiduciary in charge of the trust will pay out the benefit when the child becomes eligible. Nonrelatives You can designate a business partner or even just a friend as a beneficiary. Remember, your beneficiary can be anyone you want, with one exception: If you live in a community property state, you will need to get consent from your spouse in order to pay the benefit to someone else. Organizations Your beneficiary doesn’t have to be a person. You can direct your life insurance policy to pay out to an organization, such as your business. Many people select an organization as their beneficiary if their family is already well-off. A sudden injection of cash can help any business manage the loss of an employee or owner. You might also consider a charity or nonprofit. These organizations often operate with tight margins, and you can help further their mission by naming one as a beneficiary of your life insurance policy. A Trust Another way to leave an insurance benefit to your intended beneficiary is by having the insurance company pay out to a trust. Trusts are also useful because if you’re considering an unusual choice as your beneficiary, you might run into resistance from the insurer itself. In that case, you can name a trust as your beneficiary so that an appointed conservator can receive and disburse the money on your behalf. People have even used trusts to effectively leave money for their pets. You would accomplish that by naming someone to inherit the pet in your will, and then establishing a trust to pay for the pet’s care using the money from the insurer. There are multiple types of trusts, like irrevocable and revocable living trusts, and you might not even need one depending on what assets you have and what’s in your will. How To Update Your Beneficiaries You can change your life insurance beneficiaries at any time by contacting your life insurance company. Common reasons to change beneficiaries include getting married, getting divorced, or if your original beneficiary dies. How you actually update your life insurance beneficiaries will depend on which carrier you have your policy with. Some allow you to update beneficiaries online. Others require a phone call or for you to fill out a paper form that you either mail or fax. How A Beneficiary Can Claim The Death Benefit The beneficiary needs to do a few things before the insurer pays out: Get a copy of the death certificate. This proves that the claim is legitimate. Find the policy document. This paper has the details of your life insurance policy. You should have this document in your records and you should always make sure your beneficiaries know where to find it. Otherwise they may have to call up insurance companies to find the one that insured you. File a “request for benefits”, or claim form, with the insurer. How The Beneficiary Gets Paid Once a beneficiary finds the right paperwork and correctly submits the claim form, they will get paid the death benefit. This is the amount of insurance coverage you purchased. So if you had a $1 million policy, your beneficiary will receive $1 million (with rare exceptions). There are two options for how to receive the money: Lump sum. Your beneficiary can request the entire amount all at once. That’s useful if he or she has any immediate expenses to cover, like your funeral or mortgage payments. The best part is that it’s typically tax-free. Installment or annuity. Your beneficiary can also request to receive the payments in monthly or annual installments. This might be beneficial if they think it’ll be easier to manage, or if they know their spending habits are less than thrifty. Installments can be spread out across five to 40 years. Can a life insurance beneficiary get denied the death benefit? There are a couple of scenarios where the life insurance carrier may deny your beneficiary’s claim to the death benefit. If your beneficiary is suspected of foul play, the insurer will (hopefully) reject their claim. Thanks to “the slayer rule,” most states won’t pay the benefit if there’s any evidence against the person trying to claim it. The insurer may also deny your beneficiary if you die of a disease that you didn’t mention in your application or that was caused by something you didn’t mention. For example, if you die of esophageal cancer, but you failed to mention your smoking habit on the life insurance application, the insurance company could withhold the death benefit. Similarly if the insurer finds out you died from a previously undisclosed risky hobby, the insurer could recalculate your premiums to the amount it believes you should have been paying and subtract that amount from the payout. Ultimately, there are many reasons why a life insurance beneficiary may be denied the death benefit. Make sure to check-in with your life insurance provider about what scenarios may fall under this category. Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you. This article originally appeared on Policygenius, a licensed insurance broker. Betterment is not an insurance broker and this article is not insurance advice nor an offer for particular insurance products or services. The content was not written by an insurance agent, and it is intended for informational purposes only, and it should not be considered legal or financial advice. Betterment makes no warranties or representations with respect to specific insurance offerings. -
How To Find Affordable Life Insurance
Buying cheap life insurance doesn’t have to mean skimping on coverage. Knowing how companies ...
How To Find Affordable Life Insurance Buying cheap life insurance doesn’t have to mean skimping on coverage. Knowing how companies set rates means you can take the right steps to finding an affordable life insurance policy. Life insurance is a crucial part of a financial safety net. But in addition to getting the best life insurance coverage, you also want to find an affordable life insurance plan. It may seem like there has to be a tradeoff between finding a cheap policy and a comprehensive one, but there are things you can do to help you find an affordable policy. In this article, we’ll discuss how to: Buy life insurance early. Buy a term life policy. Get the right amount of coverage. Understand the underwriting process. Choose the best life insurance company for your situation. Compare quotes. Don’t be afraid to use a broker. Buy life insurance early. Life insurance isn’t usually a top priority for young people, since they might not have mortgages, dependents or the same financial responsibilities that older people might have. But one big way to help yourself get cheaper life insurance is to buy early. Life insurance is almost always cheaper the younger you are when you buy it. Rates rise an average of 8-10% every year you put off applying. Plus, when you buy young, you lock in premium rates for the entire duration of the policy. That means you’ll be paying the same low insurance premiums decades later. The following table demonstrates how the monthly cost of a term life insurance policy increases as you age, based on three coverage amounts. These numbers reflect the average monthly premiums for men. Average rates for women are generally lower. Average Life Insurance Rates By Age AGE $500,000 $750,000 $1,000,000 30 $25.97 $36.25 $43.94 35 $27.26 $38.18 $47.37 40 $36.68 $52.28 $65.32 45 $58.22 $84.75 $108.15 50 $87.81 $129.13 $167.06 55 $140.95 $208.85 $257.14 60 $233.36 $347.46 $456.42 This explainer gives an in-depth look at life insurance rates by age and the benefits of buying young. Shopping for life insurance over 50. Even though you’ll typically get better rates if you buy when you’re younger, you may still need to buy insurance later on in life. While it will inevitably be more expensive, it’s still possible to find low-cost life insurance, especially if you’re healthy. One way to find an affordable insurance policy is to look for a smaller benefit amount and shorter term length than you would if you were buying in your 30s. Now, this doesn’t mean you’re giving up the coverage you need in order to save money. Because you have fewer, if any, dependents, you likely just don’t need as much coverage as you would have needed decades earlier. So consider a smaller policy, such as one that lasts just until your mortgage is up. This guide will help you determine what length of benefit you actually need. You can also look into types of no-medical-exam life insurance, like simplified issue or guaranteed issue life insurance. These allow you to apply for a life insurance plan without getting a medical exam. They can be more expensive than a typical term policy, but they’re still a good option for some older or less-healthy applicants because they have less-stringent health qualifications. If you’re an older applicant, start your search by learning more about the best life insurance for seniors. Buy a term life policy. In almost every case, term life insurance is the most affordable option. It’s also the most straightforward type of life insurance; it provides only a death benefit, without any additional investment components, and it expires after a set period of time. Because you can choose whichever term length works for your situation, you only pay for the insurance coverage you want. If you’re in your mid-30s, you could realistically take out a 20-year, $1 million term life policy and pay insurance premiums of about $45 per month. Affordable Whole Life Insurance Whole life insurance is a type of permanent life insurance, which means it lasts for as long as you continue paying your premiums, with no expiration date. It’s also a type of cash-value life insurance with an investment option that gains interest over time. A whole or permanent life policy can be a valuable tool for some people, especially those who have complex financial situations and would benefit from the cash value. However, the investment component and maintenance fees make whole life insurance rates up to six to ten times as expensive as term life. If you do want a whole life policy, the best way to find an affordable policy is to be smart about the coverage you need, the company you choose, and your overall health. Long-term Care Insurance The majority of people who turn 65 will need some form of long-term care and the U.S. Department of Health & Human Services, estimates an average cost of $138,000. So while a death benefit can help your loved ones after you pass, you may also need to pay for care before you pass. That’s where long-term care (LTC) insurance comes in. LTC insurance helps you pay the costs associated with chronic illnesses, like Alzheimer’s, that leave you unable to care for yourself. LTC can cover nursing home costs and at-home care if you’re unable to live alone. LTC insurance can be costly so there are a couple of things to consider. For starters, ask about a long-term care rider as you look for your regular life policy. Some companies offer standalone LTC plans but they are usually more expensive than a rider and it’s harder to qualify for them. The other advice in this article also applies to getting LTC. In particular, you can save significantly by getting coverage for LTC in your 50s or earlier. By the time you get into your 60s, adding LTC to your insurance will cost you thousands more. Supplemental Group Life Insurance Another way to keep a personal life insurance policy affordable is to supplement it with employer-provided coverage. Group coverage through a workplace is a common benefit that you can get at little or no cost. The downside is that it usually won’t provide enough coverage for all your needs and it’s tied to your employment. But while an employer-provided group policy isn’t enough on its own, it can supplement a private policy. If you’re able to get, for instance, $50,000 worth of coverage for free, you can consider lowering your private policy (and thus your monthly premiums) slightly to make it more affordable. Get the right amount of coverage. It’s easy to overestimate the amount of life insurance you need and buy too much, raising the cost considerably. But it’s also easy to underestimate how much you need, potentially leaving your beneficiaries on the hook. A good rule of thumb is that the insurance you need is equal to 10-12x your salary. You can estimate how much coverage that means for you by using a free life insurance calculator. You can also crunch the numbers on your own if you prefer. Either way, make sure to consider all of your financial obligations when choosing a benefit amount and term length. For example, take the following into account: Existing debt, like a mortgage or student loans. Future college plans (for you, a spouse, or a child). Dependents, including children and aging parents. Any financial cushion you want to leave behind. Final expenses, like end-of-life medical care or funeral costs. Consider the ladder strategy. One tricky situation when it comes to how much life insurance you need is that your coverage needs decrease over time: your mortgage debt decreases, you need to provide for kids for less time, and so on. By using the ladder strategy, you can get the coverage you need while ensuring you’re not paying for coverage you won’t need later in life. With the ladder strategy, you buy multiple policies of varying coverage amounts and term lengths. As the decades pass, some policies will expire, and at the end you’ll be paying for a small policy that covers your current needs and nothing extra. Policyholders can spend up to 50% less on life insurance by laddering smaller policies versus buying one larger policy. Understand the underwriting process. Life insurance companies largely set the price of policies through the underwriting process. This is where they determine how risky an applicant is to insure by using: Your current health and medical history. This is done primarily through a paramedical exam and a request for documents from your doctor. Motor vehicle reports that show your driving record. A phone interview with you to find out if you have any dangerous habits (like smoking) or hobbies (like rock climbing). At the end, the underwriter will assign a classification to you that determines your policy cost. There isn’t anything you can do to change what happens in the underwriting process, but knowing beforehand what insurance companies look for can help you take steps to lower your insurance costs. For example, a health condition like diabetes can result in more expensive life insurance. But with certain steps to manage your condition, like taking the proper medication or treatments, insurance carriers may lower your premiums. Before you apply for life insurance, help yourself by taking a minute to learn more about what happens during the life insurance underwriting process. Choose the best life insurance company for your situation. Life insurance companies use your health to determine your policy cost, but not all carriers treat health conditions the same way. One common example is that certain companies offer better rates than others for former or current smokers. Certain companies also offer better rates for people of certain ages, military personnel, high-net-worth individuals, recovering alcoholics, those who recently lost weight, people with high blood pressure, or individuals with certain types of cancer. These differences between companies are why the best life insurance company for you is usually the one that is most accommodating to your health situation. Going with the wrong one can cost you thousands of dollars over the decades you own the policy. To see which companies offer comprehensive and affordable life insurance coverage based on specific factors like your age, lifestyle, or health circumstances, see our page on a few top life insurance companies. Compare quotes. Taking all of the above into account — coverage amount, type of policy, company differences — can feel overwhelming. But if you want the best insurance rates, it’s also crucial to compare life insurance quotes for different plans. An easyway to quickly compare quotes from multiple insurance carriers is with an automated process like Policygenius. Otherwise, you will need to do all of the above — figure out what type of insurance you need, the death benefit size, which company is best for a given health situation, and more — and then go to each company individually, write down their offers, and compare manually. And if you do it manually, you’ll still need to apply through the insurance carrier, another thing Policygenius helps you do quickly and without putting you through a confusing online application. Don’t be afraid to use a broker. Knowing how to get an affordable life insurance plan is important, but so is recognizing some myths about saving money. It’s untrue that you can save money by buying directly through an insurance company. Using a life insurance agent or broker does not come with additional costs. Life insurance rates are highly regulated, so the same policy cannot be offered at a discount by some parties or marked up by others. You will pay the same amount for an individual policy whether you buy from the carrier or use an independent broker. Additionally, independent brokers (like Policygenius) can help guide you through the process and answers questions you may have about how certain policies or companies compare. We’ve also debunked a few other common myths about life insurance to make sure you understand what you’re getting with your policy. Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you. This article originally appeared on Policygenius, a licensed insurance broker. Betterment is not an insurance broker and this article is not insurance advice nor an offer for particular insurance products or services. The content was not written by an insurance agent, and it is intended for informational purposes only, and it should not be considered legal or financial advice. Betterment makes no warranties or representations with respect to specific insurance offerings.
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The Role Of Life Insurance In A Financial Plan
The Role Of Life Insurance In A Financial Plan Life insurance helps loved ones cover expenses and progress toward financial goals after you’re gone. In 10 seconds In the event of your death, life insurance helps loved ones cover expenses and progress toward financial goals. In 1 minute If you have dependents, life insurance should be strongly considered in many cases. You don't want financial ruin to add to your loved ones' grief in a time of tragedy. A term life insurance policy gives you temporary coverage for a low monthly or annual premium. You decide how long you want coverage, then lock in your rates. When you pay off your debts and reach other financial goals, you can then reassess your life insurance needs. Alternatively, permanent life insurance policies ensure your loved ones will receive a payout, regardless of at what age you pass away. One of the biggest challenges is deciding how much coverage you need. One thing to consider is how much it would take to pay off any debts you and your dependents owe and how much they might need for future expenses, like college. Replacing the loss of income from a breadwinner is another consideration. It may seem complicated, but applying for life insurance is pretty straightforward. Consider the steps outlined below, and you can help protect your loved ones from the financial pain of an untimely death. In 5 minutes In this guide, we’ll cover: Life insurance basics How to decide if you need life insurance How to apply for life insurance When you’re making a financial plan, life insurance probably isn’t the first thing that comes to mind. But if you pass away, life insurance helps take care of your loved ones when you can’t. It helps your beneficiaries stay on track to pay off your mortgage, pursue secondary education, retire on time, and reach the other financial goals you’ve made together. It protects them from the sudden loss of income they could experience. Life insurance won’t help you reach your goals, but it ensures that your loved ones still can when you’re gone. But not all life insurance policies are the same. And if you’re considering this financial move, it’s worth understanding the basics. Life insurance basics Whatever policy you buy, life insurance has five main components: Policyholder: The person or entity who owns the life insurance policy. Usually, this is the person whose life is insured, but it’s also possible to take out a policy on someone else. The policyholder is responsible for paying the monthly or annual insurance premiums. Insured: Also known as the life assured, this is the person whose life the policy covers. The cost of life insurance heavily depends on who it covers. Beneficiary: The person, people or institution(s) that receive money if the insured dies. There can be more than one beneficiary named on the policy. Premium: This is what you pay monthly or annually to keep a policy active (or “in-force”). Stop paying premiums, and you could lose coverage. Death benefit: This is what the insurance company pays the beneficiaries if the insured person passes away. As soon as the policy is in force, the beneficiaries are usually eligible for the death benefit. In some circumstances, insurance companies aren’t obligated to pay the death benefit. This includes when: The insured outlives the policy term The policy lapses or gets canceled The death occurs within two years of the policy being in-force and the insurance company finds evidence of fraud on the application Term life insurance vs. permanent life insurance Term life policies last for a set period of time. When the term is up, the policy expires. This is usually the most affordable type of life insurance. And since it’s not permanent, you can let it expire once you reach your financial goals and have other means of providing for your loved ones. You’re not stuck paying for protection you no longer need. In fact, the premiums are so low that you can even abandon your policy later without losing much money. Permanent life insurance policies don’t have an expiration date. They last for as long as the policyholder pays the premiums. Since they’re permanent, these policies also have a cash-value component that can be borrowed against. These policies have higher premiums than term policies. Permanent life insurance policies include whole, variable, universal and variable universal life. So, should you sign up for life insurance? If you have financial dependents, and you don’t have enough money set aside to provide for them in the event of your passing, then life insurance should be considered. Here are some cases where buying life insurance might not be beneficial: You have neither a spouse nor dependents You don’t have any debt You can self-insure (you have enough saved to cover debts and expenses) Unless that describes you, getting life insurance should probably be on your To-Do list. How much coverage do you need, though? That depends. If you’re married, you want to leave a financial cushion for your spouse. You also want to make sure that they can continue to pay off the loans you co-signed. For example, your spouse could lose your house if they are unable to keep up with the mortgage payments. Consider choosing a policy that will cover any debts your spouse may owe and the loss of your income. A common rule of thumb for an amount is 10x the insured's income. If you have kids, consider getting a policy big enough to cover all childcare costs, including everything you pay now and what you may pay in the future, such as college tuition. You may wish to leave enough behind for your spouse to cover your kids’ education expenses. Your death benefit should usually cover the entire amount of all these expenses, minus any assets you already have that your family can use to make up some of the financial shortfall. This could be as little as $250,000 or as much as several million dollars. How to apply for life insurance Applying for life insurance usually takes four to eight weeks, but you can often complete the process in just seven steps: Compare quotes from multiple companies Choose a policy Fill out an application Take a medical exam Complete a phone interview Wait for approval Sign your policy And just like that, you have life insurance—and your dependents have a little more peace of mind. Don’t let death derail your financial plan Life insurance is about preparing for the unexpected. As you set financial goals and plan for the future, it’s important to consider what your family’s finances would look like without you. This is your fail-safe. In the worst case scenario, life insurance prevents financial loss from adding to your loved ones’ grief. Please note that Betterment is not a licensed estate planning professional. -
Do I Need Disability Insurance?
Do I Need Disability Insurance? Most people overlook disability insurance. Here's a guide to why you might need it, along with what kind and how much. While most people see the benefits of life insurance or health insurance, disability insurance is often overlooked. But it can be just as important a part of your financial plan as other types of insurance. Disability insurance helps ensure you have income coming in to help protect your financial plans even if you’re sick or injured. It’s not just about knowing that you need disability insurance, but what kind of disability insurance policy is right for you. Read on to learn about: Who needs disability insurance What kind of disability insurance you need (and don’t need) How much disability insurance to get Who needs disability insurance? If you work, have people relying on your income, and aren’t financially able to go years, or even just months, without a paycheck, you should consider disability insurance. Why might you need it? Because most people rely on their paychecks to pay bills and support their families, they would benefit from having disability insurance to cover these responsibilities if something prevented them from working. Consider the following: Over 25% of American workers experience a long-term disability longer than three months at some point in their careers. 69% of workers have no long-term disability insurance coverage. 66.5% of all U.S. bankruptcies stem from illness or injury-related medical issues. You may think that disability insurance is just for accidents and that you’re not at risk if you don’t work a dangerous job. However, 90% of long-term disabilities result from illness rather than accident, meaning they can affect you no matter what you do for work. Even white collar professions like doctors and lawyers likely need disability insurance — in fact, because of the expensive educational investments in these fields, they benefit even more from disability coverage. If you don’t have disability insurance, you can risk not being able to cover everyday expenses, pay regular bills, or keep up with your larger financial plan. Disability insurance helps protect your ability to earn an income and should be considered a part of every financial safety net. What kind of disability insurance might I need? Once you realize you need disability insurance, you need to decide what kind of disability insurance. Most provide the same sort of protection but under very different circumstances, so it’s important to choose the right one. The options available to most people are: Long-term disability insurance Short-term disability insurance Employer-provided disability insurance Social Security disability insurance Workers’ compensation Do I need long-term disability insurance? Long-term disability insurance (LTD) should be the first option for most people looking to protect their income. LTD provides income when you’re unable to work for at least two years, and can last all the way to retirement. A great part about long-term disability insurance is that, for the most part, benefits are distributed tax-free and can be used on whatever you need them for. You have the freedom to use it as needed and can maintain your lifestyle. Long-term disability insurance can be the most cost-effective form of protection you can get. When it comes to length of coverage, benefits received, cost, and ease of qualification, LTD can give you more for your money. Do I need short-term disability insurance? Some people would rather purchase a short-term disability policy instead, thinking that they’ll recover soon and won’t have to pay for a long-term policy. But most short-term policies max out at six months of coverage, well short of the 36 months an average disability lasts. The monthly premiums for short-term disability are also relatively close to those of LTD. Considering you get much more coverage with LTD, it can make it the more cost-effective product. It’s also typically easier to buy long-term disability insurance. You can go to essentially any insurance company and buy an LTD plan, but there are relatively few options for buying a private short-term plan. Which brings up a time when short-term disability insurance might be worth it: if you can get it subsidized by an employer. Some workplaces offer subsidized short-term disability insurance, making the cost cheap or even free. If this is the case for you, you should consider it. Short-term disability insurance can complement LTD by providing coverage before your long-term benefits kick in, but if you have to foot the entire bill yourself it’s likely not worth the cost. Do I need disability insurance alternatives? While LTD is a good choice, and short-term policies can work in the right circumstances, there are other forms of disability insurance that you should be wary of because they can leave you unprotected in the long run. Employer-sponsored long-term disability insurance: Like short-term disability insurance, if you’re able to get LTD subsidized through your employer, it’s worth looking into. However, it probably isn’t a good replacement for a private long-term policy. The coverage amount through an employer plan can be limited, and it’s tied to your employment so you’ll lose coverage if you leave the job for whatever reason. A private policy is portable and will follow you to any employer you’re with. Social Security disability insurance (SSDI): SSDI is used as an excuse for not buying a private disability policy, but most people don’t realize the limitations of SSDI. It’s extremely hard to qualify for, largely because you have to be unable to work at all, rather than just unable to work in your profession. Even for people who do eventually qualify, it can take appeals and many years, and the benefit amount is relatively low. Workers’ compensation: Many people have workers’ comp through their employer, but this only covers disabilities that occur on the job. That means it only kicks in in a small portion of incidents and shouldn’t be relied on for comprehensive coverage. How much disability insurance might I need? Once you’ve determined that a) you need disability insurance and b) long-term disability insurance is likely your best option, you have one final needs-based decision to make: how much you need. You should take three things into account when determining how much additional protection you need: Coverage amount: Long-term disability benefits will pay around 60% of your gross monthly salary, short-term disability benefits up to 80%, and SSDI pays under $1,200 a month. Make sure your benefits cover any bills and immediate expenses, but don’t forget about savings and long-term plans like retirement that require investment as well. Duration: The average disability lasts for around three years. A long-term insurance disability policy that lasts five years should be the minimum duration, but a policy that lasts until retirement provides the maximum protection (and usually isn’t much more expensive than a five-year policy). When determining how long benefits should last (known as the benefit period), you should also consider when they start. This is called the waiting period, or elimination period. Ninety days is typically the most cost-effective elimination period. Cost: The amount of disability insurance you have depends in part on what you can afford. The cost is determined by coverage amount and duration, along with other factors like age, health, and gender. However, most people can expect to pay between 1-3% of the annual income on disability insurance. SSDI and workers’ compensation are free, and employer-sponsor disability benefits are subsidized, but be sure to factor in indirect costs — the aforementioned limitations of these forms of protection — as well. How much disability coverage you need depends on your individual financial circumstances, including your ability to self-insure with savings. Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you. This article originally appeared on Policygenius, a licensed insurance broker. Betterment is not an insurance broker and this article is not insurance advice nor an offer for particular insurance products or services. The content was not written by an insurance agent, and it is intended for informational purposes only, and it should not be considered legal or financial advice. Betterment makes no warranties or representations with respect to specific insurance offerings. -
Understanding The Cost Of Life Insurance
Understanding The Cost Of Life Insurance Learn what goes into pricing life insurance and how to get a low cost policy to protect your family. Life insurance provides a financial safety net that you'll potentially be paying for some decades. That’s why it’s important to understand the cost of your policy. After all, letting a policy lapse because you can’t afford it defeats the purpose of having it in the first place. A healthy 35-year-old male can expect to pay about $327 per year on life insurance premiums. But individual costs depend on a number of factors, including the details of your policy, your health, age, hobbies and gender — these are some of the criteria used by insurance providers to give you a classification that deems how risky you are to insure. What are the chances that you’ll die over the course of your policy? If you’re very unhealthy and more likely to die during your policy term, you’ll be charged more. If you’re in tip-top health and there’s little risk that the life insurance company will have to pay the death benefit, then you’ll get better rates. Knowing what goes into the cost of before you get life insurance quotes can help you make better decisions during the application process and find a policy that fits your budget. Your policy Your health Your age Your hobbies Your gender Your Policy Coverage Amount and Term Length How much life insurance you need is a two-part question: how much coverage you need (the death benefit), and how many years you need that coverage to last (the term). Both are important and affect the cost of life insurance. Policies with higher coverage amounts will cost more, as do policies that last longer. Note that the policy length is only applicable to term life insurance. Permanent life insurance doesn’t have this limitation and costs more. More on this distinction below. Type Of Life Insurance The type of life insurance you have will largely affect the cost of the policy. A term life insurance policy is typically the most common and most affordable; a permanent policy is more expensive but has extra perks, like an investment-style cash component. Term life insurance cost With term insurance, you pay a monthly premium for a set amount of time. If you pass away while your policy is active or in-force, the insurance company will pay out a death benefit to your beneficiaries. A term life insurance policy is the right policy for most people. A healthy 30-year-old male can expect to pay an average cost of $26 a month for a 20-year policy with a $500,000 coverage amount. Whole life insurance cost While term insurance is typically affordable, whole life insurance has the potential to be pricey. Whole policies can be 6 to 10 times as expensive as a comparable term policy. This is because: It lasts longer. A term life policy has an expiration date, but whole life policy doesn’t. As the name implies, it lasts your entire life as long as you pay the monthly premiums, and therefore it’s more likely that you’ll die while the policy is active. There’s an additional cash-value component. Like other types of permanent life insurance, whole life has a cash-value component in addition to a life insurance component. Premium payments are split between these two sides, leading to higher rates. There are more fees. Due to the above points, there are management fees associated with whole life insurance that are incorporated into premium rates. Riders Riders are like mini contracts appended to your life insurance policy that allow for customization for individual scenarios. They often come at an additional cost that will raise your premium and as such some riders might not be worth it. Your Health Your health status is one of the most important factors in determining your premiums. The healthier you are, the less likely you are to die, and thus cheaper to insure. During the underwriting process, you’ll have to answer some questions about your health and your family health history, and take a brief medical exam. The insurance company may also request an Attending Physician’s Statement (APS) from your doctor to get their assessment of your health as well. Some things that might result in higher premiums include: High blood pressure High cholesterol Hypoglycemia HIV/AIDS and hepatitis Recreational drugs including marijuana Nicotine use Chronic illness If you use marijuana, your insurance company might also take that into consideration or even classify you as a smoker. However it's still possible to find providers to accommodate your lifestyle and health status whether you're a smoker, former smoker, or marijuana user so it's important to shop around. Similarly, chronic illness or pre-existing conditions also tend to warrant higher premiums, but it's possible to find life insurance coverage with the right provider. Your Age In most cases, the older you are, the more you’ll pay for life insurance. This is because as you age, your health generally declines and your likelihood of dying while the policy is active increases. That’s why it’s best to get coverage while you’re healthy and young. For a healthy male aged 30 years old, a 20-year term policy purchased has a $26 monthly premium, but the same policy at 40-years old would cost $37. Your Hobbies Some hobbies are more dangerous than others. If you skydive or scuba dive, your insurance company may deem you a higher risk and raise your rates since there’s a higher chance they’ll have to pay out the death benefit. Your provider might also check out your driving history. A motor vehicle report will alert them to any risky drinking and driving-related behavior, like DUIs or DWIs, which will also increase your premium. Your Gender In most cases men pay higher premiums than women, due to the fact that they engage in riskier behaviors and have a shorter life expectancy on average. However applying for life insurance during pregnancy can raise your rates depending on the trimester. In most cases you’ll find that you can get a lower premium if you postpone buying life insurance until after you give birth. Read more about buying life insurance when you’re pregnant. Policygenius’ editorial content is not written by an insurance agent. It’s intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you. This article originally appeared on Policygenius, a licensed insurance broker. Betterment is not an insurance broker and this article is not insurance advice nor an offer for particular insurance products or services. The content was not written by an insurance agent, and it is intended for informational purposes only, and it should not be considered legal or financial advice. Betterment makes no warranties or representations with respect to specific insurance offerings.
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