insurance products that we'll commonly use to manage risk.
that insurance was a form of risk sharing and risk transfer.
to help us in our family.
that's going to be protecting our earnings power.
And this is disability insurance planning.
might have, even more so than dying.
power during our working years.
So some of the basic elements are, is what is disability insurance?
in the event that we become injured or unable to work because of illness as well.
illness, however it's usually not just for illness.
So, we'll kind of find the nature of these policies being as such.
private insurance companies, of course.
is that disability insurance is because we're unable to pursue an occupation.
more complex, give, given the different types of policies.
having a deductible, the deductible, is really in the form of elimination period.
before which you can of course receive your benefits.
elimination period, typically the lower your premium all things going to be equal.
disability at most ages before retirement is greater than the probability of death.
partial, it could be total.
It could be permanent for that matter.
financially devastating as the death of a breadwinner in a family situation.
further complicates our assessment of how much insurance is needed.
And the other side is we're not always going to have an accident at work.
So when we say well our employer can take care of that if we get hurt.
this picture is really only applicable when the injury happens at work.
So what about short term versus long term disability?
a worker's wages for up to two years of an injury or illness.
after that two year marker, if you will.
usually 70 to 80% of their pre-disability income, of course.
Obviously, there's going to be differences in cost.
whose involved, how long someone has until retirement.
So really trying to decide whether or not to take one or both of these products.
So, how much do we need?
we'll see, it really has a lot to do with how much the family needs.
we're also thinking about how much the breadwinner themselves need.
rehabilitation costs and other expenses related to.
we really have to look at this as a monthly need.
How much spending do we need to have versus what income is coming in.
has for spending and what resources are going to still be in the picture.
they need from disability insurance should something happen to them.
ongoing income that would be part of what's funding those expenses?
qualify for social security disability benefits.
So do we need disability insurance, right?
We tend to follow this basic decision tree, then.
Taking a look and saying what do we need to do.
again, are we more concerned about short term and long term?
Do we have sick leave?
How much is available to us there?
saying do we have short term needs?
Do we have long term needs?
is it a lot more than two years, is it four or five years.
Trying to put all of that into perspective there.
not we'll qualify for Social Security?
The truth is, you won't know.
them and hopefully obtain them over time.
further through the decision tree, again, do we have enough resources?
Do we have enough savings?
In the short term, in the long term?
We may have a enough savings for example to support ourselves for a year or two.
take us all the way until what we had hoped would be retirement.
If we use them, there'll be nothing left at that time, either.
through a decision process to think about short term verses long term needs.
Now lets talk about life insurance then for a few moments.
we are concerned about replacing someone's income potential.
with life insurance, that person is no longer in the equation after the event.
So life insurance is much more about protecting the families ongoing longevity.
Protecting their ongoing consumption needs than it is for protecting the individual.
the second is going to be this lifetime protection.
we've often heard this phrase that we buy term, that we invest the difference.
protecting against the fact that we die during that particular time period.
It could be one year, it could be five years, it could be ten years.
what we might think of as whole life and the various other policies.
So it can vary length in coverage, and we pay a regular premium for that.
we can also obtain it on the private markets as well.
there's going to be a form of mortality risk, like term insurance.
the mortality risk and then to the savings component itself.
So as I said the premium will be a little higher as a result.
You'll pay this premium forever or until you've paid up enough into it.
That you're no longer required to keep making premium payments.
there's a whole set of tax rules of course that'll be associated with that too.
So do we need life insurance?
Well again, we've got our fancy decision tree here that we can look at.
So, do we have any dependents that really need our income for ongoing needs.
are there people that still were depending upon our earnings potential.
This could be a spouse.
Who, right, was, who we were supporting.
This could be children, minors.
Or even older family members that were also helping out.
Would we like to plan for future expenses.
example, are older, getting ready to finish high school.
We did, we want to help them out with college?
Were we going to pay as we went during college?
Which means, if we're not there, whose going to pay those college bills for them?
these are the considerations we want someone to go through.
illness, either mental in nature or physical in nature.
But someone who requires ongoing caregiving.
with respect to the family?
That's again another piece of the puzzle there that we'd like to have.
struggle to pay on their own income.
the size of the wealth that we're leaving behind, of course.
And again, we don't currently cover any final expenses.
So in other words, we haven't paid for our funerals already.
the younger we are the less likely it is that we've done anything about that yet.
the family can be beneficial, of course, as well.
And then there can be other factors, too.
insurance is not going to be enough to cover those costs.
And then lastly, any special needs circumstances simply may have arisen.
So as we think about insurance, right?
Do we need, do we have dependents?
That's one of the first questions that we ask.
Right, is there something that you're going to need ongoing support for?
whether or not you need a particular type of insurance policy or not.
is the simple fact that saying, well, do we also need to increase our savings?
Do we need to increase our overall level of assets?
product do we want to benefit from.
We often recommend, we do consider and consult a professional for these.
There's just simply different techniques that are going to exist.
The human value approach focuses really on the income side of things.
How much income is being lost, how much income are we trying to replace?
focuses more on meeting a family's economic needs.
And so that's going to be something else we consider, too.
types of savings that we need to have, which this insurance would go towards.
So, the need then, actually very fine methods.
you will not arrive at the same answer for how much insurance a family needs to have.
different methods are going to make more sense.
The younger we are, the less capital needs we may understand.
We might be thinking more about income replacement.
Often times an advisor will use, multiple methods to estimate life insurance.
And really kind of triangulate in and say, where are we really falling in?
that might be employed in exploring life insurance need.
Obviously a really hot topic is health insurance, as well.
And make sure to check out the video link.
So, just to kind of point out a few of these there, right.
been this managed care organization.
reflect in terms of whether or not we go with certain diagnostic procedures or not.
HMOs help make those organizations.
So a few key things.
The Affordable Care Act right was a game changer on some of this.
Number one is that for many individuals there's now an individual mandate.
So when we say why spend time talking about health insurance.
one of the big challenges that people face were those with pre-existing condition.
your new insurance to pick up expenses related to your diabetes condition.
Simply because of that pre-existing clause,.
Pre-existing conditions are now no longer a factor.
even if an employer doesn't provide health care insurance for us.
limited resources, there's going to be subsidies available to us.
websites to follow up and look and see for more details about the ACA itself.
So what type of health insurance do we potentially want?
Well some simple questions here too.
Do we frequently use medical services?
OK, well, do we travel a lot?
where networks are not a big issue.
us having a good cost associated with it.
again, a few other types of things too.
do we require lower cost health care plans?
So in other words, its cost a big factor for us there.
which may have a higher deductible, but have a lower premium associated with it.
going to have a lower premium as a result of it.
then we might say that we prefer to choose our own physician.
P, or point of sale plans.
more traditional plans, PPOs and such like that, too.
we're going on the health care marketplace where we might have choices.
there may just be one to two choices, anyways.
say, which one of these plans is best for me, assuming there's a choice.
So looking at the two more common ones, an HMO and a PPO.
HMOs are pretty restricted in some ways.
PPOs are a little more flexible, and pretty popular in that regard.
pick a primary care physician, who's typically going to be a gatekeeper for us.
not someone's part of that preferred provider organization.
we're going to need a referral for that from our primary care physician.
we can make a choice to go see a particular individual.
often times then have a co-insurance percentage above the deductible.
for the year, and then pay 20% of health care expenses above and beyond that.
of the greater flexibility generally have higher premiums.
You're going to need to compare these.
These are not absolutes, they're simply generalities.
Now, we've talked a lot about protecting ourselves.
of course, our health our, our ability to earn income.
Now, we're going to talk a little bit about our stuff.
renting, or even older and renting, renter's insurance.
So this is something that's really about protecting our stuff.
injuries that may occur in our place that we're renting.
That again, we would potentially be financially responsible for.
The old, famous, someone slips on your kids rollerskate and hurts themselves.
We're legally responsible then, potentially, for their medical expenses.
That liability insurance is still part of renter's insurance policy.
actually be bundled in with your parents' homeowners insurance policy.
So that's worth checking out because it can save everybody a little bit of money.
look at sort of, what it does provide for us in the nature of protection.
Homeowner's insurance is a little more involved, then.
Number one, the first component, is the property.
the residential structure that we're talking about.
be included, these are typically going to be limited to 10% of the dwelling value.
Personal property, the things within the house of course.
Are going to be limited to 50% of the dwelling value.
in other words, what is that item worth today.
We think of that as being the effect of depreciation.
And we'll also even have things like the loss of use.
there's damage done to our property, we'll eventually be able to go back in it.
residents in an extended stay type of facility.
a temporary period, is also covered under most homeowners policies and the result.
And again, limited to 20% of the value of the dwelling.
elements called Section 1 of the homeowners insurance.
But there's another section to homeowners policies.
Section 2 is this personal liability component that we talked about.
oftentimes limited to simply $100,000, so it's not based on the value of the home.
But, again, based sort of on a typical value.
again, we could say what's the difference?
So, and again, this is for damage caused by them or the property.
it's not for the family member or the residents in particular.
that cat bite was covered under this home owners policy itself.
What types of things does homeowner's policies protect?
On a basic level, things like fire, smoke, explosions, volcanic eruption.
Vehicles, aircraft, lightning, windstorm, hail.
Vandalism, malicious mischief, which is always fun to say.
You can also get Broad Named Perils as a form of coverage, slightly higher premium.
This will include specific items like falling objects or heavy objects.
not some of these perils are there.
Remember back to our concept of adverse selection, though.
because they're too likely to happen to us given where we live.
So, we can get endorsements for these as well.
And these are going to be add on, upping the premium cost of course.
And this allows for things that we might want in addition.
All risks for personal property, not just the ones that are typical or namely.
the fact that something we got 20 years ago cost more nowadays than it did then.
you would be better off simply saving that money.
example that's not personal use so it changes the game a little bit for us.
other type of vehicle associated with it, like of course a Sea-doo.
other policies, this is true for homeowners as well.
If something happens, say a pipe bursts in the house.
You've got to notify the insurer as quickly as possible.
Most of them have a 24-hour line if you need to report to them immediately.
You need to actually then protect the property from further damage.
puts a hole in the roof, we need to put a tarp up there.
Prevent any additional water damage or other damage from coming in.
that's happening is because nobody put a band aid on the problem.
lack of a better example, is something you would want to remember to do too.
And also that we prepare and inventory and file written proof of what was missing.
documented; appraised values whenever possible for jewelry or other items.
We want to make sure we've got all of that done.
the insurer then has 60 days to furnish payment.
you'll have a lot of these things coming as part of the process.
this of course or provide some sort of other explanation.
So again, do we own a home?
If we don't own a home, right, then do we own a condominium?
Well if we do, then we potentially want the condominium specific policies.
HO policies that are out there based upon the type of dwelling we have.
this HO6 policy here, would cover things like the liability in other elements.
If we don't own a condominium.
Then, do we rent an apartment?
often referred to as renter's insurance again.
well, what do we want to have with it?
It is a older home, a historic home.
have unique values associated with them.
So we walk through this process, this decision tree.
Right in general the question is not so much.
Do we need home owner's or renter's insurance?
But the question we're asking is which type of policy.
which HO policy is really the one for us.
us and for those around us, of course, as well.
So there's three major types of loss with auto injuries.
people inside our vehicle and liability to injuries to people outside of our vehicle.
So in any case, right, we might be running into these challenges or these lawsuits.
lost wages as a result of injury.
see what that quote looks like.
Medical payments, a little different.
These are different from bodily injury.
That was people in the other car.
This is for people in your car.
So still for medical costs resulting from the injury.
family that's riding in someone elses car as well.
are not covered by our policy, of course.
Financial loss from damage done to other properties in your vehicle.
This could be someone's mailbox.
This could be someone's car, of course.
Any type of physical property.
Collision covers damage done to your car regardless of fault.
Many states have a no fault provision now where fault is sort of irrelevant.
the insurance companies will work it out afterwards.
That process is often referred to as subrogation.
So in other words, the insurance company might sue the other insurance company.
This is all typically limited to the retail value of the car.
financial record keeping, is Kelly's Blue Book.
50 in this case is the per person bodily injury limit, so in this case $50,000.
The second number is per occurrence bodily injury limit, so per person.
the second number as a multiple of the first one, in this case $50,000.
And then $100,000 for the per occurrence bodily injury.
The third is the property damage per occurrence limit, in this case $25,000.
Now, medical payments are not in this particular set of quotes.
not included, included in that three-number quote.
might pay for more depending on the type of policy that you're most interested in.
So, some additional provisions we might have.
if someone's right is going to cover bodily injuries and property.
ergo, right, our insurance is going to pick up the difference between the two.
And no-fault insurance is more common nowadays.
injury costs from their own insurance.
This includes collision, non-collision related damage.
especially if they're installed after factory.
It may, you may add on coverage for towing.
other things that you're already paying for.
other things through other plans that you might have.
you already have the protection from something else.
somehow affects the likelihood of how good of a driver we are.
a lot of accidents or caused a lot of accidents.
how much of a deductible we want is clearly going to be a factor.
The type of car you have, and of course where you live, the rating territory.
how much your insurance is going to cost, all other things equal, so who's covered?
You or any family member, even when you're renting.
your conduct, or the conduct of the driver.
So, these are different places that will be covered.
not going to be covered by insurance.
Bodily injury to an employee, not going to be covered.
have rather than personal auto-insurance.
Commercial use, if you're hauling things for a cost.
again, that's going to be something where your personal insurance won't kick in.
if you've stolen a car, the insurance is not going to cover that, as well.
So let's recap, then for just a moment.
risk sharing with an insurance company.
potential catastrophic expenses to our household to ourselves to our family, met.
We can look at protection for our earnings potential.
For our overall health and well being.
And of course, for our stuff as well.
So, tune in next time, we'll be talking about investments.