- Employer-based disability income insurance may not cover enough of your needs
- Advances in life insurance and long-term care policies mean greater flexibility for you
- Cash-value life insurance can be tapped for living expenses if structured properly
While many people understand the importance of life insurance, other forms of coverage become more significant as you approach retirement and hit your peak earning and saving years. “Insurance can’t prevent the first tragedy, but it can help prevent the second one — the financial impact of an unexpected life event,” says Tom Maki, Vice President at RiverSource Life Insurance Company.
Understanding some of the myths and misconceptions around insurance options is a powerful first step in helping to protect your assets from the unexpected. Here are some key insights to help you plan ahead.
Myth: Disability-income insurance is primarily for accidental injuries
Fact: One common notion is that disability-income insurance covers only accidents. “But the reality is that only about 10% of RiverSource disability claims are the result of accidents, while illnesses that result in disabilities are much more common,”1 Maki says. “More than 1 in 4 adults will become disabled at some point before they retire.”2
Myth: Employer disability-income insurance will replace your income
Fact: If you experience a disability during middle age, it may coincide with your peak earning years. “Most employer disability-income insurance only covers up to 65% of base salary and does not cover bonuses, which leaves what we call an income gap,” Maki says. “Even if you’re able to cover basic expenses on six-tenths of your income, you may have to put saving for retirement on hold.”
Myth: Medicare covers all long-term care needs
Fact: More than half of retirees surveyed are not confident in their ability to pay for long-term care (LTC) needs — such as a nursing home or home health care — should they need it during retirement, according to the Employee Benefit Research Institute’s 2018 Retirement Confidence Survey. Contrary to popular belief, Medicare does not cover all LTC needs. Individuals may receive coverage for short-term needs - like temporary stays in skilled nursing facilities - but Medicare it doesn't cover care for extended lengths of time.
Myth: Long-term care insurance is always “use it or lose it”
Fact: In response to those who are wary of buying insurance they think they may never use, the industry has stepped in to provide more flexible solutions. “Stand-alone LTC with its ‘use it or lose it’ drawback is becoming a thing of the past,” Maki says. “The industry has responded to consumer concerns by creating hybrid policies such as LTC ‘riders’ attached to an individual life insurance policy at an additional cost, so if you don’t end up needing LTC, the funds pass on to heirs via an income-tax-free death benefit.”
"Stand-alone LTC with its 'use it or lose it' drawback is becoming a thing of the past."
Myth: Life insurance only benefits heirs
Fact: If structured properly, a cash-value life insurance policy that provides an income-tax-free death benefit to heirs may also be used in your lifetime. “You can build a pool of money (i.e., cash-value) that can be accessed via loans or partial surrenders3 — a feature unique to cash-value life insurance,” Maki says.
These income-tax-free funds could be used to supplement your future retirement income, help pay for grandkids’ higher education costs or remodel your home to prepare for aging in place. In short, a cash-value life insurance policy not only provides a death benefit for heirs but it may also provide the flexibility and freedom to use the funds as you choose.
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Your advisor can provide a tailored solution that is right for you. “Unexpected events can derail a financial plan, which is why protecting against uncertainty is vitally important,” Maki says.