Homeowners, drivers and other individuals in the marketplace for insurance, have a host of factors to consider to make sure they are appropriately covered in the event of a death, accident, or other untimely event, advisors shared in interviews with VettaFi.
In some cases, standard insurance policies don’t cut it. However, there are other provisions that can help. They ensure individuals, or their remaining family members, aren’t left with hefty financial burdens on top of everything else.
Kenneth Chavis IV is a senior wealth counselor at Versant Capital Management. He recommends that individuals should generally “have enough life insurance so it does cover the debts that you owe.” That way, they do not become a burden to a partner or other family member.
“And if you’re the primary income earner, that amount after the debts that you have, can replace income for your family,” Chavis added.
“Let’s say, after all your debts, your family’s expenses are $40,000 a year. After all of your debts are paid, you’d want around $1 million left. You’d want enough to cover your debts and enough proceeds that can maintain your family’s lifestyle. It’s the 4% rule. If you have $1 million, you can take $40,000 a year and adjust for inflation and spread that out over multiple decades,” he explained.
Lindy Venustus, CEO and founder of Create Financial Planning, said that for individuals who don’t have dependents or a spouse or partner, they should still consider, “the people or organizations that you care about, and how they could suffer if you weren’t there.”
Preparing for the Worst
For someone who is fresh out of college, debts like student loans would no longer be an issue in the event of their death. That said, they could consider getting enough life insurance to cover things like back taxes or medical expenses, Venustus said. Their family or their estate may still be liable for those costs.
For married or partnered individuals, she recommends they get enough insurance for that partner to live in the same residence, or at the same lifestyle, without your income.
“Consider replacing a few years of your income,” Venustus said, noting that trying to cover income for the rest of a partner’s life could get too costly.
“Consider replacing half, to all of the mortgage, depending on if you and your partner are both working. If there are children, you have to think about what you would have given them if you were both here, such as a wedding or a home down payment,” Venustus said.
“I like to say, prepare for the worst, but plan for the best,” she added.
For single, older adults, Venustus said that individuals could consider a long-term care policy, with a return-of-premium rider. Such a rider ensures, upon one’s passing, that any money they paid out that was never used for their long-term care could go towards a beneficiary or charity.
“This is so you don’t have to worry about spending down the family assets if you get sick. I think of it as a coupon that reduces some of your end-of-life expenses, even though it might not cover them all. Whether that’s someone helping you with your personal care, lawn care, things around the home, etc.,” Venustus explained.
Concerns for Homeowners
When looking for homeowners insurance, Chavis noted that individuals should keep a few things in mind. This includes coverage that could replace the value of their home, coverage for calamitous events that could result in them needing to rebuild their home, and coverage in case someone is injured in their home or on their property.
“If you have people over and they could get hurt, and you have a big backyard, for instance, you might want to consider an umbrella policy for additional coverage,” Chavis said. “ If you’re renting, or maybe throw a lot of big parties at your house and someone could get hurt, (the umbrella policy would cover someone who is) out of work for medical issues, or who might sue you for something happening on your property. It applies to adults, children, maybe even pets.”
He noted, however: “If someone gets hurt by a certain breed of dog, it’s not a covered event,” for most insurance carriers.
The Cost of Climate Change
The new normal of consistent extreme weather as a result of climate change has come with costs. It has significantly raised insurance costs, and even affected the accessibility of insurance for many homeowners.
Due to the increased incidence of natural disasters in recent years, some insurers have stopped offering coverage in states, like Florida and California, that have repeatedly been hit hard by wildfires, hurricanes and other climate-related disasters. In fact, in September a group of senators recently held a hearing to discuss the impact of these developments on insurance premiums, a report by CNBC said.
Just before the hearing, a group of senators, led by Sen. Elizabeth Warren, D-Mass., wrote a letter to Treasury Secretary Janet Yellen and Steven Seitz, director of Treasury’s Federal Insurance Office, urging them to collect data about the impact of climate change on the insurance industry.
“The cost to insure properties has gone up astronomically in the last two years,” Chavis noted of the dilemma. “Part of it is weather events. Insurers had to reassess and adjust their risk models, which influence premiums. On the Atlantic Coast, Florida in particular, and certain parts of the South, that was because of severe hurricanes and flooding, primarily. And in California, due to their wildfires.”
Insurance for Your Vehicle
For individuals in the market for car insurance, Venustus shared that drivers should consider getting a personal liability umbrella policy. That can serve to supplement where any standard car insurance policy may fall short.
“You’ll get more coverage potentially with this additional policy,” she said. “They are sold in million-dollar increments. It helps you to decrease your liability usually by about $250,000 dollars if one person is injured in a car accident. It might cover injury, loss of work, physical therapy. The coverage doubles if more than one person is injured,” Venustus explained.
“In my state of Minnesota, you’re required to drive with insurance. But the state minimum is $30,000 (in bodily injury liability per person) which probably wouldn’t even cover a quarter of one night in a hospital if one person were to get seriously hurt. It’s probably not going to do anything other than keep you from getting a ticket for not having insurance,” she added.
Venustus also noted that drivers should try to line up their current net worth to a personal liability umbrella policy. After all, an insurance agent may not know their net worth when trying to match them with the right policy.
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