Prioritize Your Insurance Needs
Authored By: Legal Hotline for Older Iowans
Insurance helps protect you from loss when things go wrong. For example, if a tree fell on your car and you couldn’t drive it, insurance could help pay for repairs. Or if you fell and broke your arm and couldn’t work, insurance could pay for your treatment and even part of your wages until you could return to work.
There are many different kinds of insurance to help protect us from loss. There are some that most people should have, like home, auto, and health. There are other kinds that you might need, like disability, life or long-term-care insurance. Last, there are the kinds almost nobody needs because they are seldom worth the cost. This article gives some information about the main kinds of insurance and whether they make sense for you.
If you drive or own a car in Iowa, Iowa law says you must have auto liability coverage to pay for damages that you cause. There are several things that can happen if you don’t have it and all of them are bad. First, if you are stopped by an officer for any reason, you could get a ticket simply for not being able to show you have liability coverage. Second, if you are in an accident that is your fault and can’t afford to pay the other parties losses, your license or registration will probably be suspended. In addition, you could be sued for damages and possibly lose some of your property and income.
If you own your home, you should strongly consider “homeowners” insurance. Homeowners insurance will pay for many different kinds of losses to your home. For example, it will pay losses from fire, theft, hail and many other risks. Without it, you can lose your place to live and literally everything you own. Homeowner’s insurance does not protect from flood loss. If you live in a flood zone, you should contact an insurance agent to discuss a special flood insurance policy. You may be required to buy this insurance if you have a mortgage in order to protect the lender from loss.
If you rent an apartment or other housing, you should consider “rental” or “contents” insurance. If you have rental insurance and your property is damaged in a fire or natural disaster, this insurance could pay to replace your belongings. If you don’t have it, you could lose everything. A landlord will have insurance to protect his or her apartment or house from loss, but not your property.
We sometimes forget how much we have, so take a moment to look around your home or apartment and inyour closets, nooks and crannies and think about the cost to replace it all. If you cannot afford to replace your property, then you should strongly consider property insurance.
Health insurance pays for medical treatment if you are sick or hurt. For example, if you fall and break your leg or have a heart attack, health insurance could pay most of your hospital and doctor bills and follow-up treatment. There are several ways to get health insurance. First, and most commonly, many employers offer health insurance to their employees. If they do, they may ask you to pay part of the premium. Second, you may be able to purchase health insurance through the Affordable Care Act insurance marketplace. Visit www.healthcare.gov for more information. Subsidies may be available. Third, you may be able to get insurance through public programs. For example, the Iowa Department of Human Services provides health insurance to low-income Iowans through several different Medicaid and other programs. Fourth, if you are disabled or at least 65 years old, you may get health insurance under the federal Medicare program. If you do not get health insurance in any of these ways, contact a health insurance agent about an individual policy. Note that most health insurance plans only pay part of the cost of treatment. For example, you may have to pay a “deductible” or “copay” before the insurance starts providing benefits.
Health insurance is very important. If you get sick or hurt and don’t have it, medical providers including hospitals, can refuse to give you non-emergency treatment. Even if you are treated, a single uninsured illness or injury could result in bills that can eat up your savings, cause the loss of your property and take years to repay.
►Insurance Covering Specific Diseases or Conditions.
Some insurance policies are designed to cover a specific type of disease or condition. For example, some policies just provide benefits if you get cancer; others might cover just a heart attack. Most people do not need these kinds of policies as long as they have comprehensive health and major medical insurance. These specific disease or condition policies can cost a lot for the benefits they offer.
Disability Insurance pays a benefit to make up for part of your lost wages if you become sick or disabled and cannot work. Most people don’t think much about becoming disabled, but accidents and illness happen all the time. In fact, studies show that a 20-year-old worker has a 3-in-10 chance of becoming disabled before reaching retirement age. If you or your family will suffer financially if you become disabled, then you should strongly consider disability insurance. Your employer may provide it for free or at low cost. If your employer does not offer it, check with a disability insurance agent. Do not assume that Social Security Disability payments will replace lost income if you become disabled. You need to be totally disabled to get Social Security Disability. Depending on your illness or injury, you may not be eligible. Social Security Disability will also not come close to replacing your employment earnings. For example, a person making $50,000 a year for 20 years or more could expect his or her Social Security to replace only about 50% of income. A young person with lower earnings could get a much lower percentage.
Life insurance generally pays a lump sum benefit if you die. If someone currently depends on your income, you should strongly consider life insurance. You should also consider insurance if you are planning to start a family. Your rates will be cheaper now than when you get older or have health problems. Since the idea of life insurance is to provide funds to take the place of income, how much you need depends on how much you earn. A rule of thumb is that you should try to have about 12 to 15 timesyour annual income in a combination of savings and life insurance. The more you have in savings, the less you will need in life insurance and vice versa. Even if you are single and responsible only for yourself, you may want to consider a small policy that will pay your funeral and burial expenses.
►Credit/Mortgage Life and Disability Insurance.
These kinds of policies promise to pay off all or some of your credit or loan balance if you die or to make your payments if you become disabled. They are often more costly than basic life or disability insurance policies. Claims based on disability might be denied because you are already retired, have a pre-existing condition, or are not disabled enough. Most people are better off if they can buy adequate life or disability insurance coverage.
►Accidental Death Insurance.
Unless you race cars or walk a tightrope for a living, you probably do not need accidental death insurance. If you do have a dangerous occupation or hobby, you may not be able to buy this kind of insurance anyway! If you need life insurance (see discussion above), it is probably best to have a policy that covers all risks.
►Long Term Care Insurance.
People purchase long-term care (LTC) insurance to meet all or part of the cost of nursing home care. LTC insurance lets you use your income and assets for other purposes. Whether you should or can buy LTC insurance will depend largely on how you balance the following factors:
Objectives.Valid objectives for buying a policy include protecting resources for a spouse or other dependents, leaving an inheritance, avoiding Medicaid and having more choice where you receive your care.
Risk Factors.Women usually outlive their spouses and are at higher risk of needing nursing home care. Women, in fact, make up roughly 90% of current nursing home residents. Persons with a family history of Alzheimer’s or other degenerative disease are also at higher risk.
Age and Health.Your age and health will influence your ability to obtain and pay for LTC insurance. The older you are and the poorer your health, the more difficult to obtain coverage at an acceptable cost.
Availability of Others to Provide Care.If you have a spouse or other family members willing and able to provide care over an extended period of time, you are less likely to need LTC insurance.
Income and Assets. If buying LTC insurance would make it difficult to pay other expenses, then you probably should not purchase it. A rule of thumb is that you should not pay more than 7% of your income on premiums. Also, ask if buying LTC insurance makes sense in your specific financial situation. If you have assets that produce enough income to pay for a nursing home, you may not need insurance to protect or preserve your assets. If you have only a small amount of assets, you will probably qualify for Medicaid in a short amount of time, and the cost of insurance may exceed the value of your assets. If you are married, there are special rules to preserve assets if only one spouse needs Medicaid for nursing home payment. (Request the Legal Fact sheet entitled “Medicaid Payment for Nursing Home Care” for details). If you have or expect to have a fairly significant amount of assets ($200,000 or more) but not enough income to pay for nursing home care, you may wish to consider buying LTC insurance.
►Cell Phone Insurance.
These plans provide a replacement if your phone is lost, stolen, or accidentally damaged. Monthly premiums are typically $5 to $7 per month and deductibles can run $150 or more. If you file a claim after 18 months, your total cost in premiums and deductibles could be $250 or more. You may be better off to keep an old phone that still works as a backup. That way, if you lose or damage a newer phone, you can reactivate and use your old phone until you qualify for a new free or discounted phone. If you do buy this insurance, you may want to cancel it when you are eligible to upgrade to a free or discounted phone, usually in 18 to 24 months.