Print the article: The Role of Insurance - Retirement Savings Planning

The Role of Insurance

Insurance should be an important part of your overall financial plan. Simply put, insurance can provide for your family's financial security, should something happen to you before you've accumulated enough assets to cover their needs.

While there are many types of insurance - and the type(s) that are right for you depend on your specific financial situation - we focus here on life, disability and long-term care insurance.

Life Insurance

Life insurance is designed to provide family members (beneficiaries) the money they would need to live the life you've envisioned for them, should you die prematurely. When considering the amount of life insurance you need, consider your family's needs for:

Immediate Cash
To cover final medical and funeral expenses, mortgages, other one-time costs

Ongoing Replacement Income
Provide investable assets sufficient to generate the income on which your family depends

Keep in mind that as you grow older you'll probably need less coverage as debts are usually paid off, college costs are gone, mortgages are paid off, etc.

	Term Life	Cash-Value Life
Benefits	Typically lower premiums Lock in premiums for set time period Can be converted to cash-value policy	Tax-deferred interest Can be withdrawn or borrowed against Coverage for life regardless of age or change in health
Drawbacks	Coverage terminates at the end of the term unless you renew Premiums can increase when you renew Can be expensive in later years of if health problems develop	Higher premiums may make it difficult to buy enough coverage Additional fees or charges may apply to loans or withdrawals
Who should consider	A good choice if you're looking for maximum coverage for a specific period of time for the lowest cost	May be appropriate if you would like permanent coverage and a tax -favored way to save

Learn More About Life Insurance

Disability Insurance

Disability insurance is designed to provide replacement income if you're unable to work due to illness or injury. It provides the financial protection to cover your expenses normally covered by your work income. This protection, an important facet of any retirement plan, should be considered for both the short and long term.

While many employers offer short-term disability coverage (usually up to two years), a long-term policy can protect you potentially until retirement or for life.

Long Term Care Insurance

Long term care is a combination of services directed toward meeting the needs of someone who, due to reduced physical functioning and/or reduced intellectual functioning, is unable to carry out everyday tasks without the help of another person.

Long term care goes beyond medical and nursing care to include all the assistance you could need if you ever have a chronic illness or disability that leaves you unable to care for yourself for an extended period of time - generally over 3 months. You can receive long-term care in a nursing home, assisted living facility, or in your own home. Though older people use the most long-term care services, a young or middle-aged person who has been in an accident or suffered a debilitating illness might also need long-term care.

At age 65, people face at least a 40% risk of entering a nursing home at some point in their lifetime and about 10% will have a stay of five years or longer. (Source: AHIP, LTC Insurance, 2003)

Because women generally outlive men by several years, they face a 50% greater likelihood than men of entering a nursing home after age 65. (Source: AHIP, LTC Insurance, 2002)

The average daily rate in 2004 for a private room in a nursing home was $192, an increase of 6% from 2003.
(Source: 2004 MetLife Market Survey of Nursing Home & Home Care Costs)

The average length of a nursing home stay is about 2.4 years.
(Source: CDC/NCHS Health Care in America; U.S. Department of Health and Human Services; January 2004)

At an average daily rate of $192, an average nursing home stay of 2.4 years costs about $168,000, making it virtually unaffordable for many Americans.

Learn More About Long Term Care Insurance