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Balance cost, coverage when buying insurance

Death, injury, or illness can have a devastating effect on family finances. Death, injury, or illness can have a devastating effect on family finances.
By Allison Knothe
Globe Correspondent / March 6, 2011

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For most people, the most valuable financial asset is the ability to work. And like any other asset, it needs to be protected.

Death, serious injury, or illness can have a devastating effect on family finances. And that’s where insurance comes in. In putting together financial plans, individuals and families need to consider products such as life, disability, and long-term care insurance, financial advisers said.

Carefully consider both the coverage and the cost, financial specialists said. Shop around, and don’t buy more coverage than you can afford. The key, though, is to plan ahead and be prepared if the worst happens.

“You can’t insure a burning house,’’ said Bob Ryan, a fee-only insurance adviser and partner at Resolute Financial in Wakefield.

Life insurance
Life insurance comes in many varieties, but for most working people the best answer is level premium term insurance, which has a fixed premium over a specified period, according to insurance and financial specialists.

These term policies can cost anywhere from $150 per year for a healthy 30-year-old to $14,000 year for a 50-year-old smoker, depending on coverage. The premium will stay the same for 15 to 30 years, depending on the contract. If you choose to continue after the contract ends, premiums shoot up exponentially.

In buying life insurance, the first question to answer is how much would your dependents need to maintain their lifestyle? Consider expenses such as mortgages, car payments, and college tuition for children. Also consider sources of income, such as Social Security survivor benefits or help from relatives.

The idea is to balance coverage against the cost of the policy. “You cannot buy more life insurance than your family can afford,’’ said Sharon Rich, a fee-only financial planner in Belmont.

A good place to buy life insurance is at work, financial advisers said. Many employers offer life insurance at lower group-rate premiums. You might also buy additional insurance through a broker, in case you change jobs.

Before meeting with a broker, advises Rich, check your medical records to make sure they are accurate. Compare prices, too. If you have special health concerns, such as a heart condition or diabetes, ask your agent to run your information by underwriters before submitting the application, said Rich. You don’t want to get turned down. If one company rejects your application, it will be harder for you to be approved by another.

Disability insurance
Disability insurance provides a steady income if injuries and illnesses keep you from working over the long term. Typically, disability insurance provides about 60 percent of working income.

As with life insurance, disability coverage can often be purchased through employers and at a fairly low price for younger workers. Premiums tend to increase as you get older.

“You want to make sure that what you’re paying for covers what your needs are,’’ said Ryan.

Joe McGurn, owner of New England Brokerage Insurance Agency in Peabody, said disability insurance should be considered a way to pay for living expenses and help protect retirement savings. Once you have saved enough money to retire, you can probably do without disability insurance.

Long-term care insurance
Long-term care insurance covers expensive nursing home and related care that can quickly consume assets after retirement. Long-term care insurance costs anywhere from $600 a year to $4,000, depending on age and health conditions, according to McGurn. People should expect those rates to rise in the future.

The younger you are when you buy the policy, the lower the premiums. But financial advisers say don’t buy it too soon before you retire because the probability of using it when you are younger is very low. Generally, when people retire, they should drop disability insurance and purchase long-term care insurance.

Allison Knothe can be reached at aknothe@globe.com.