It is no secret that you’re going to have to pay for insurance at some point of your life. The question is, what kind of insurance do you need? Life insurance? Disability insurance? What about renters insurance? Sometimes, it can be confusing trying to decipher between them all.
In a recent episode of our Wealth Matters Radio Show, our attorneys sat down with Andy Siegel, Owner & President of Siegel Insurance, Inc., and Philip Kahn, CPA/CFP® for Kahnsulting Financial Planning, to discuss the different kinds of insurance, and why you might need them.
Life insurance:
Life insurance can be broken into two different categories, temporary and permanent. A temporary policy is considered to be term insurance, which is the fastest way to collect the money your estate will need after you’ve passed. This type of insurance offers protection for a stated number of years; if you pass away during that time, it will pay the death benefit to your designated beneficiaries. But if you do not die during that time, it pays nothing. Andy Siegel, owner and president of Siegel Insurance, explains:
“Think of life insurance as replacing lost income…that’s why term insurance is so good for the young person trying to get their child through college. If they die when the child is five years old, there’s income that’s no longer there that needs to be replaced, and term insurance is the most cost-effective way to do that.”
On the other hand, permanent policies have an investment feature to them. These policies will be more expensive. Permanent policies include: whole life and universal insurance. Whole life insurance is very stable, while the value of universal life insurance goes up and down along with the market. If the market goes up, then the investment goes up.
Disability insurance:
Disability insurance replaces lost income if you are unable to work because of an accident causing a long-term disability. If you end up unable to work in the future, you will still have income. You can get this on your own, through work, or through life insurance. Philip Kahn, a certified financial planner at Kahnsulting Financial Planning, says there’s one important element about this type of insurance that you must remember:
“You need to be fully aware that if you’re not paying for it [from your own funds], you’re going to be taxed on it” if it pays you because of a disability.
On top of that, because you pay taxes on income and because disability insurance replaces income, you would receive less than what you were making. It is also important to note that Medicare does not cover going into a facility or in-home nursing for long-term. You would need private insurance beyond that to cover those costs. That’s why disability insurance is important.
Renters insurance
Renters insurance is just a different type of homeowners insurance, for people who rent their homes instead of own. Also, if you use sites such as VRBO or Airbnb to rent your home, condo, or apartment, you still need renters insurance to cover potential risk and liabilities. Andy Siegel says it’s tempting to fudge your answers on the policy application when applying for this type of insurance in order to save money, but it’s best to tell the truth.
“You need to be 100% honest. It’s that simple, because you don’t want to risk a claim being excluded because you weren’t truthful on the application.”
Business insurance:
If you are a business owner, you should consider getting liability coverage. Andy Siegel explains that insurance is particularly important when your family relies on your business income and you can’t afford to have operations shut down.
“Insurance is important to keep you in business if something were to happen, whether it’s a fire, tornado, pipe bursting, theft, really any kind of damage to the structure itself.”
With liability coverage, you and your business will be okay if something or someone were to get hurt on the job. Your business can also protect itself from loss of income, which is called business interruption insurance. For example, if your company is closed because of a hurricane or other natural disaster, your policy might cover the losses suffered. Your business is being interrupted by something out of your control.
Want to hear the whole conversation? Check out our Wealth Matters Radio Show.
The show airs live on the 4th Wednesday of every month at 8:30am, on Gwinnett Business Radio X.
