Long Term Disability & Long Term Care

Solutions Magazine: Winter 2010

SETTING THE STAGE

To make sure your financial plan follows your script, you need to set the stage. Determine where you are in life and what your protection needs are – not just for today, but in the future … your next scene.

You need to consider a number of risks that could keep you from reaching your lifetime financial goals and objectives. Up until now, your primary risk has been loss of income – how would your family survive if you were to die prematurely? As you move into your later stages (don’t worry – it’s the best part of any movie), the risks change and you need to shift your focus from protecting your income to protecting your assets. The financial plan you put together for the first stage probably won’t meet your needs for the second.

The diagram below is called the Risk Management Framework. It shows how your needs change throughout your life from income to asset protection and it shows which insurance products can help protect your changing risk.

ACT 1, SCENE 1

You can see that during your younger years (roughly ages 30 to 50), the emphasis is on income protection and as you get older, it shifts to asset protection.

Critical illness insurance is probably one of your most important priorities, which is why it spans both life stages. This important insurance product provides a one-time cash benefit if you are diagnosed with one of the covered conditions (you also need to survive the waiting period, which is typically 30 days). While you can get plans with over 20 covered conditions, most plans cover you for the most common critical illnesses: cancer, heart attack and stroke. The cash benefit you receive will help to reduce the financial stress you might have if you’re faced with a critical illness. The money allows you to focus on recovery because you don’t have to worry as much about things like your monthly mortgage payment and additional expenses such as child care or medical expenses not covered through your health care plan.

Another product that’s important at this stage is long term disability insurance. Disability insurance covers a disability caused by sickness or an accident. It provides a monthly benefit to replace your income if you are disabled and unable to work. Often people are covered through their group insurance, but it’s important to fully understand any limitations of your group coverage. Owning personal coverage may be a good decision.

Finally at this stage, term insurance offers a cost-effective way to provide your family with financial protection against an untimely death.

ACT 2, SCENE 1

As you get older, your needs change and your priority shifts to protecting your assets. While you’re working, you will still need both critical illness and disability insurance. But the older you get, the less important those risks become and the more important long term care becomes. You can think of long term care insurance as a replacement for long term disability insurance during your retirement. It provides money to help pay for additional expenses when you can no longer care for yourself.

This insurance provides a monthly benefit if you are unable to do two of the six activities of daily living or if you suffer from a cognitive impairment.The amount you receive is based on where you receive your care – you get a certain amount if your care is at home and more if your care is at a facility.

The very last piece added to this framework is permanent insurance. In your younger years, term insurance is the most affordable life insurance solution. Over time, as you move into protecting and preserving your estate, permanent insurance makes more sense. It offers the life insurance protection you need, and some plans allow you to deposit more than the cost of the insurance. This extra money builds up over time and is paid to your beneficiaries tax free.

THAT’S A WRAP!

It probably feels that your life movie is rolling a little faster than you’d like. Being prepared for any scene is key to making sure that the movie plays out according to your script. Because when the final credits roll, you’ll want people to sit back and say “Now that was a great movie!”

Solutions Magazine: Winter 2010

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