Your Insurance Team

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Who Plays on Your Insurance Team?

June 22, 2009 11:00 AM ET | Philip Moeller | Permanent Link | Print

The Boomerater™ Report, our weekly collaboration with online baby boomer resource Boomerater, this week explores the insurance coverage you need to be properly protected. Certified financial planner Paul Bennett is today's guide; Paul is a featured advisor in Boomerater’s financial advisor directory.

[See 6 Tips to Save on Insurance Costs.]

Life Insurance. If you are still working and have a family, life insurance is very important. Your ability to earn a living is your most valuable asset. If you are no longer on the “right side of the grass” as a client once said to me, then your ability to earn a living goes away as well; you can figure out the rest. There are basically two different types of life insurance: term and permanent. Term insurance is less expensive than permanent and you can view it the same way you would view your auto policy – every year it renews and every year you pay a premium that is essentially an expense. Once the term of the policy is over, then you no longer have a policy. Most term policies can be purchased for 10, 15, 20 or even 30 year level premiums.

Permanent insurance comes in many varieties (whole, universal, variable, indexed, private placement, etc.). For the sake of brevity, let’s discuss whole life. Whole life insurance is something you may own for your “whole” life. Essentially you pay premiums into the policy for a given amount of coverage for a specified amount of time (sometimes indefinitely). A cash value builds inside of the policy on a tax-deferred basis. As long as you pay the scheduled premium, you have coverage.

[See also Is Longevity Insurance Right for You?]

Disability Income Insurance. If you are still working, you should protect your biggest asset: your ability to earn a living! Disability insurance pays you if you become disabled, usually up to 60 percent of your salary. If your premiums are paid with after-tax dollars then the benefits are received tax-free. As an aside, most group policies offered by employers are good but many leave gaps in coverage that an individual policy would cover.

Homeowners Insurance. You will need to decide between a cash value policy and a replacement cost policy. A cash value policy will pay you for the value of the home at the time of its destruction which includes depreciation. A replacement cost policy will be more expensive, but will cover the costs of rebuilding your home to comparable quality. A key thing that many people forget to do is inform their agent regarding any improvements that were made to the home so that the valuation can be adjusted accordingly. If you are moving to a retirement community or assisted living facility you should switch to renter’s insurance. These facilities should have coverage for fire, destruction of property, etc. Make sure they do. However, contents would be covered under a renter’s policy, even though in a lot of instances one “purchases” not rents their unit in the retirement community. Title is usually not conveyed on these transactions and in actuality is just a large deposit you put down to live in the unit.

Contents: Jewelry, antiques and electronics all should be covered. How they are covered and to what limits are the important questions. Jewelry and antique riders can cover specific items, such as an engagement ring or a fine painting. Make sure you update your rider when you get that new watch or a new piece of art. Most of the other items in the home should be covered up to 75 percent of the face value of the policy for contents. However, theft of fine jewelry or collectibles may not be covered unless you have a rider.

Continue reading the rest of this post about the insurance you need to have. We discuss long-term care insurance, umbrella liability, and the key takeaways for each insurance type.