Choosing The Right Insurance___________________________For Your Life’s Stages_____________________

Along the financial road of life arise theinevitable delays, detours, emergencies, andbreakdowns. Some are small, which you canpay for out of cash flow, a cash emergency fund,or even investments. But others are major andexpensive setbacks. That’s when you needinsurance.

The purpose of insurance is to shift these majorfinancial risks to insurance companies. Withoutadequate formal insurance, you are, in reality,self-insuring. You’ll pay out of your own pocketthe cost of such financial calamities as the lossof a home, an auto accident, or a seriousillness—expenses that could demolish yourhousehold finances and derail accomplishmentof your life’s dreams.

Insurance coverage costs money and that cost isrising. So you need to buy insurance wisely: theright kind . . . the right amount . . . at the righttime . . . at the best price.

This brochure, produced by the FinancialPlanning Association (FPA), the membershiporganization for the financial planningcommunity, explains what types of insuranceare most likely appropriate for the differentstages of your life: from first launching out as ayoung adult to raising a family to retirement. Bybuying the right mix and amount of insurance—and not buying coverage you don’t need—you’llget the best bang for your insurance dollars.

Young, Single, And On Your Own ______________________________

You are fresh out of high school, college, or ashort tour of the military. For the first time, youare truly on your own as a young adult—andyou’re on your own for insurance, too, as mostinsurers drop a child from the parents’ coveragesonce the child leaves home or school.

The Financial Planning AssociationTM (FPA®)is the membership organization for the financialplanning community. Its members are dedicatedto supporting the financial planning process inorder to help people achieve their goals anddreams. FPA believes that everyone needsobjective advice to make smart financialdecisions and that when seeking the advice of a financial planner, the planner should be a CFP® professional.

To locate a CFP professional in your area,please call FPA at 800.647.6340 or visitwww.fpanet.org.

or illness. Any employer disability coverage isusually limited to 6 to 12 months, and what they provide may be insufficient for your wages. State-sponsored worker’s compensationprograms may provide income, but normallyonly if you’re injured on the job (a few statesprovide for non-work-related disabilities). SocialSecurity may provide benefits, but only if you’reunable to work at virtually any job.

If your employer’s coverage doesn’t pay at least60 percent and doesn’t last to age 65, you’lllikely want to supplement it with privatecoverage.

Renter’s – Your personal assets are probablymodest, but nonetheless, it could cost youthousands or tens of thousands of dollars toreplace clothes, a computer, audio equipment,and other property if stolen or destroyed. Yourlandlord’s insurance does not cover yourpersonal property.

A personal renter’s policy is usually quiteaffordable—$150 to $300 a year will probablybuy the coverage you need, though you mightneed additional coverage for high-valuedproperty such as jewelry. Also see if the policyincludes liability coverage in the event you aresued for injuries suffered at your residence.

Auto – Once you’re no longer a student, youwon’t be able to insure your vehicle through yourparents’ policy. Shop around. Rates vary widelyfor comparable coverage.

Life – Because you’re single, you probably don’tneed life insurance yet. It generally is designed to provide income for those whose financialsecurity is tied to you, such as a spouse, child, or dependent parents.

Below are some of the insurance coverages youshould consider.

Health – A medical plan will likely be available at your job, but not all employers provide healthbenefits, and not all employees join availablehealth plans. You may not have found a job yetout of school, or you may be between jobs. As aconsequence, many young people choose to gowithout coverage. But that’s not wise. Even theyoung can suffer an expensive major illness or accident.

If you are between jobs, and you were coveredunder the previous employer’s plan, youprobably can continue that group coverage forup to another 18 months through the federalprogram COBRA. But before continuing underCOBRA, compare the cost against similar private coverage.

If employer coverage or COBRA isn’t available,consider a temporary short-term health carepolicy (1–12 months) to cover you until youbecome eligible for a new employer’s plan. Orapply for a high-deductible permanent majormedical policy. Either of these types of policiescan be reasonably priced, but you must qualifymedically and they usually don’t cover pre-existing conditions.

Disability – Your working income is possiblyyour most precious financial resource at thisstage. Yet as a young person, your odds of beingdisabled by illness or injury at least 90 days orlonger before age 65 are higher than your oddsof dying, according to the Insurance InformationInstitute.

Disability insurance, sometimes called income-replacement insurance, pays a portion (typicallyaround 60–80 percent) of lost wages if you’reunable to continue your job due to an accident

Some financial experts argue, however, that itcan be worth buying life insurance while you’reyoung because premiums are relatively low andyou’re likely in good health.

Newly Married__________________

Wedding bells ring in the need to revamp theinsurance coverage you were carrying when you were single. For example, it may be lessexpensive for both of you to insure under asingle employer’s medical plan. You’ll probablyalso want to insure your vehicles with a singlecarrier. If one of you quits working, you mightwant to drop that person’s disability coverageunless they anticipate returning to work within a couple of years.

Life – Now life insurance is more importantbecause someone else is financially tied to you.

Calculate first the amount of coverage you needto replace future lost income, and then decidewhat type of insurance to buy. You might be ableto afford to buy sufficient death benefits througha whole life policy, which has an investmentcomponent as well as death benefits. Morelikely, you’ll be better off buying term lifeinsurance, which provides only a “pure” deathbenefit for a death occurring within a specifiedtime. Generally, term insurance allows you tobuy more death benefits for each premiumdollar.

Homeowner’s – You may become a first-timehomebuyer. If so, it’s best (though moreexpensive) to buy a policy that will pay for thefull cost of rebuilding your home and forreplacing your personal possessions, versusmerely paying for their market value at the time. Standard policies typically set limits on what

they’ll pay for higher-end possessions such asjewelry, silverware, and antiques, so you mayneed a “rider” or “floater” to provide extracoverage.

And be aware that the standard homeowner’spolicy does not cover flood or earthquakedamage. You’ll have to buy separate policies for that.

Liability – Commonly called umbrella coverage,this provides liability protection above thelimited protection offered by standardhomeowner’s and auto insurance. In this era of lawsuits, liability coverage becomes moreimportant as your net worth grows.

Umbrella coverage is only a few hundred dollarsfor the typical $1 million policy, especially ifbought from the company that insures your car or home.

Proud Parents___________________

A newborn brings many changes to yourhousehold, including insurance.

Health – Add your baby to your medical policywithin 30 days of birth. Otherwise, many policiesrequire you to wait until the next enrollmentperiod.

Life – Boost coverage to take into account thefuture cost of raising your child, includingcollege. Provide coverage for a stay-at-homeparent, too.

Planners differ over whether to buy a smallamount of life insurance for children. Someconsider it a waste of money, while othersrecommend coverage for unexpected funeralexpenses.

year-olds “flunk the physical.” If poor health is abarrier, you may be able to qualify by buyinggroup coverage through work, if it’s available.

Disability – You’ll want to continue thiscoverage as long as you are working anddependent on the income.

Life – With the kids gone, you may not need asmuch life insurance as before, but it remainscritical if you’re married and still working.

Retired_________

Health – Medicare doesn’t start until age 65, so if you retire before then, you’ll need to bridgethe gap with alternative coverage. You may havea retiree medical plan available through yourformer employer, but many employers aredropping these plans because of costs. If 18months of COBRA doesn’t get you to age 65, you will need to convert your group coverage to individual coverage or venture out into theprivate coverage market.

Just don’t go without as you may have done as a young adult. A Fidelity Investments study, forexample, estimated that couples retiring at age65, with no access to employer-sponsoredhealth insurance, would spend $175,000 out ofpocket for medical care over the next 20 years—not including long-term care.

Medigap – Medicare generally pays only about55 percent of retirees’ average medicalexpenses. Consequently, unless you are enrolledin a reliable Medicare HMO program, you eitherpay the difference out of pocket or you can buy a Medicare supplemental insurance, commonlycalled Medigap insurance.

You may want to use your will to create a trustwith your children as beneficiaries in order tomanage the life insurance proceeds (and otherassets) in the event both parents die while thechildren are still young.

Other – Review other existing policies. Forexample, your auto insurance may cost less if a previously working parent stays home toprovide childcare.

Empty Nesters_________________

As your children strike out on their own, it’s time for another major review of your insurance coverage.

Long-term care insurance – Now is the timeto begin considering one of the most overlookedtypes of insurance: long-term care. Thisinsurance is designed to pay for custodial care in a nursing home, assisted-living facility, or professional at-home care, any of which can be very expensive.

Many people don’t buy this insurance becausethey assume that the government will pay for it.But Medicare won’t pay for long-term custodialnursing home care. And Medicaid, a federal/state program designed for the poor, will pay for it only if you have spent down most of yourfinancial assets in order to qualify. Furthermore,Medicaid benefits are much more limited thanprivate coverage.

The majority of financial planners recommendbuying long-term care insurance while you arein your fifties. The premiums are still reasonableat this age and you run less risk of failing toqualify due to deteriorating health. According toa 2003 Consumer Reports article, one in four 65-

Don’t Skimp on Coverage_____________________________

Many often view the purchase of insurance—particularly policies such as disability or long-term care—as a “waste” of money. Some see it as money spent on policies they hope or thinkthey will never use.

Yet without adequate insurance, you run the riskof a financial disaster. The key is to buy only theright types and amounts of insurance at the righttime. Don’t get sidetracked by insurance that may be a waste of money for most people, suchas credit, flight, specific disease, car rental, andpet insurance.

Work with your financial planner to match theright insurance coverage for the right stages ofyour life.

© 2004 The Financial Planning Association

The Financial Planning Association is the owner of trademark,[and registration], service mark and collective membership markrights in, various U.S. registrations/applications for: FPA,and FINANCIAL PLANNING ASSOCIATION. The marks may not be used without written permission from the Financial Planning Association.

CFP,® CERTIFIED FINANCIAL PLANNERTM and arecertification marks owned by the Certified Financial PlannerBoard of Standards, Inc. These marks are awarded to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

Medigap policies come in 10 standardizedversions, A through J, with each version offeringdifferent degrees of benefits. While the planbenefits are standardized among insurers, prices are not, so shop around carefully.

Disability – Once you retire, you don’t needdisability coverage. Besides, most disabilitypolicies won’t cover you beyond normalretirement age.

Long-term care (LTC) – If you haven’t alreadybought LTC insurance, don’t wait any longer.You’re probably in your sixties now and the cost of coverage climbs rapidly. Your risk of not qualifying because of health reasons also accelerates.

Life – You may need minimal or no lifeinsurance at this stage—perhaps just enough tocover any debts you have and to be certain yourspouse will be OK financially.

Larger amounts might still be necessary if youwant to pass the death benefits on to your adultchildren or to pay for potential estate taxes. Withlarge amounts, it’s often wise to shift ownershipof the policy out of your estate in order to reduceany potential tax bite.

Other – Retirees often can get a discount forhomeowner’s coverage, and they may get adiscount for auto insurance until they turn 75.

National Financial Planning Support Center800.647.6340

www.fpanet.org