Insurance Selection and Annuities - An Introduction to Insurance Policy Selection
PURPOSE OF COVERAGE
The most important element when selecting an insurance policy and insurance company is determining the purpose of the insurance coverage. Different insurance companies offer different types of policies.
Different purposes for insurance coverage
- Life Insurance
- Long-Term Care
- Health Insurance
- Property and Casualty
- Disability Insurance
- Liability Insurance
During a client meeting the client expresses to you his/her concern for his aging parents. The client is concerned that his parent's cannot afford nursing home care, assisted living, or home-health care. The client would like to protect his parent's capital as well as insure his family's future if his parents were to incur extensive health care costs. Which type of insurance should you recommend?
A. Supplemental Health Insurance
B. Life Insurance
C. Long-Term Care Insurance
D. Disability Insurance
Long term care insurance can provide benefits to those who need home-health care, assisted living, and nursing home care. Typically health insurance will not cover the cost of long-term care. Life insurance will only provide benefits in case of his parents death (they may not qualify anyway) and disability insurance will only pay benefits for loss of income (his parents are retired and do not qualify).
DURATION OF COVERAGE
Like determining the purpose of an insurance policy, one must also consider the duration or length of coverage. This consideration is especially important with disability insurance policies. Insurance policies that offer varying benefit periods should be analyzed and evaluated closely. The duration needed differs depending on the insured's current coverage and expected needs.
Ann is 44 years old and is planning on working to age 65. She has two children ages 14 and 16. She takes home around $100,000 net each year and spends around $75,000. Both kids plan on attending college. She believes she has enough cash flow to support them during school. You have told her the importance of a disability insurance policy and she has decided to purchase a policy. Ann is unsure of how long she needs benefits and upon careful analysis you give her the following recommendation.
A. Long-Term Disability with a 5 year benefit
B. Long-Term Disability that will pay benefits until Ann reaches age 65
C. Short Term Disability with a 36 month benefit
D. Short Term Disability with a 2 year benefit
The key facts to the question are that Ann plans to work until age 65 (she will need income until then). She has kids to put through college (the youngest child's expected graduation is 8 years down the road). She plans on putting her kids through college with cash flow. Therefore, if she were to become disabled she would need benefits until age 65.
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