8 Insurance Products You May Not Need

These days, it seems like every other television commercial is for yet another insurance product. While consumer choice can be a good thing, not all insurance is as essential as the ads make it seem. “There’s a lot of sales and marketing based on fear that especially targets retirees,” says Jonathan Howard, a certified financial planner with SeaCure Advisors in Lexington, Ky., as well as a former insurance salesman. “People end up buying because they’re terrified of a loss rather than to cover an actual insurance need.”

Although Howard believes insurance plays an important role in anyone’s financial plan, some products are more about protecting the insurance company’s bottom line rather than yours. Insurance decisions shouldn’t be made in a vacuum. They should consider your entire financial picture. That way, you can identify the gaps and figure out the coverage you truly need, along with any you could do without. Above all, never buy insurance hastily based on fear, especially if it involves the products on this list.

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Long-Term Disability

If you’re still working but nearing retirement, consider whether your long-term disability coverage is worth keeping. The premium for an employer group plan typically increases with age, says Greg Klingler, director of wealth management at the Government Employees’ Benefit Association in Fort Meade, Md. 

The policy also will limit the payout period until a particular age, such as 65. As this age nears, your maximum possible benefit shrinks. This is especially true for someone who could have retired earlier but is still working. “You’re no longer dependent on your salary, so weigh the value of protecting this extra income versus the high insurance cost,” says Klingler.

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Product Warranties

A woman standing next to a broken dishwasher A woman standing next to a broken dishwasher

When you buy merchandise like computers, televisions, smartphones, and home appliances, chances are the vendor will try to sell you an additional warranty to replace or repair the item after you buy it. Ask yourself whether you have enough savings to replace the product yourself.

By design, insurance must collect more in premiums than it pays out, making it a net negative for the average policyholder. Most policyholders collect nothing. 

For major assets like a house or vehicle, most people would find it difficult, if not impossible, to replace them out-of-pocket, so insuring these assets with a home or auto policy makes sense. But for smaller things that you could easily replace yourself, like a $700 laptop, skip the warranty and self-insure instead.

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Critical Illness Insurance

Doctors wheeling a patient on a gurneyDoctors wheeling a patient on a gurney

A stroke, heart attack, life-threatening cancer and an organ transplant are just some of the serious health issues that critical illness insurance covers. If you develop one of these conditions, the insurer sends you a lump sum cash payment, ranging between $10,000 and $50,000, that can be spent however you want. 

Despite this flexibility, Howard isn’t crazy about this type of insurance, “where unless a specific situation happens, you don’t get anything back.” He suggests reviewing your potential out-of-pocket costs for health insurance to see whether you need critical illness insurance or if you could manage the bills with savings.

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Social Security Insurance

All the dysfunction and uncertainty in Washington has led to a new product: Social Security insurance. It’s a type of annuity, an insurance contract that turns part of your savings into future income. When you add this insurance to an annuity, the insurer promises your annuity payment will increase to cover any government shortfall that results in a smaller Social Security benefit.

Howard doesn’t think this is a good return on your money. “Retirees vote, and they predominantly live in swing states,” he says. “If the government ever reduced Social Security for people already claiming it, they’d never hear the end of it.”

Perhaps benefits will be cut for future generations, but Howard doesn’t expect those already collecting benefits to have a problem.

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Individual Dental and Vision Policies

A woman undergoing an eye examA woman undergoing an eye exam

Travis Price, a Medicare insurance agent in Traverse City, Mich., does not think individual dental and vision policies are worth buying in retirement. “When people are working and get group dental/vision, the insurance coverage is heavily subsidized in the group and by their employer. When they get into the individual marketplace, the coverage costs can increase 10-fold for less coverage.”

Not only are premiums higher for individual plans, but they could also have high out-of-pocket costs for care, an exclusion of major services for the first year of coverage, and a limited annual coverage limit. Price says an entry level plan meant to cover both dental and vision can be capped at $1,500 per year. “Often, seniors are better off simply being a cash patient and negotiating cash costs with their provider,” says Price. Another alternative, he says, is finding a Medicare Advantage plan that includes dental and vision coverage.

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Long-Term Care Insurance

A doctor shaking hands with a patientA doctor shaking hands with a patient

No one disputes that long-term care in the United States is an expensive risk. A private room in a nursing home costs more than $90,000 a year, on average, according to the U.S. Department of Health and Human Services. 

Still, both Howard and Klingler dislike traditional long-term care insurance policies because of their high premiums. “The cost varies based on the carrier, the amount of coverage and the applicant’s health, but I’ve seen [premiums] around $5,000 a year for a couple in their 60s, $10,000 a year when they’re in their 70s,” says Howard. He also notes that premiums rise over time based on age even after you sign up. 

Howard says traditional long-term care insurance is another example of insurance that only applies under such narrow, specific circumstances that it’s not worthwhile, particularly given its hefty cost. As an alternative, he prefers an LTC-hybrid life insurance policy because that way, if someone doesn’t need long-term care, the heirs receive the death benefit instead.

Klingler suggests considering other resources before buying any long-term care policy. “In almost all cases, you don’t need to cover the full cost [of care],” he says, because some expenses, like food, housing and utilities, would be provided by the long-term care facility.

Even when one spouse enters long-term care while the other remains in the couple’s home, some daily living expenses are still reduced. If you’re considering long-term care insurance, ask yourself whether you need to cover the full cost of a nursing facility or if you could go with a partial benefit that’s more affordable.

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Rental Car and Travel Insurance

It happens in a flash. You’re at the rental car counter at the start of a trip, when the agent asks if you want insurance. Well, why not get it? It’s only another $12 to $15 a day. The thing is you might already have rental car insurance through your credit cards, auto policy and membership in an organization like AAA. 

Your credit card may provide other types of travel insurance as well, such as coverage for lost bags, trip cancelation, emergency evacuation, and emergency medical and dental insurance during the trip. Your health insurance may cover you for medical emergencies, too. Before buying any travel insurance, study what you already have through your existing benefits.

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Any Redundant Insurance Coverage

File folders with different financial products written on them, including insuranceFile folders with different financial products written on them, including insurance

Although the classic example is rental car insurance, there’s often a fair amount of overlap with the insurance people have. Your auto insurance covers medical bills after a car accident, but so could your health insurance. Your homeowners insurance covers liability for an injury on your property and so does an umbrella policy, which should offer enough supplementary coverage, if needed, to protect your net worth. 

But don’t go overboard buying insurance. Given this overlap, it’s possible that the limits on your existing policies are higher than necessary because they cover the same risk. It’s also possible that the coverage provided by even one of those policies exceeds what you truly need. Howard recently found that his homeowner’s coverage was for $100,000 more than the replacement cost of his home. 

Source: kiplinger.com

What Long-Term Care Insurance Covers

What Long-Term Care Insurance Covers – SmartAsset

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While Medicare and Medicaid both help aging adults afford some of their medical expenses, they may not cover the cost of an extended illness or disability. That’s where long-term care insurance comes into play. Long-term care insurance helps policyholders pay for their long-term care needs such as nursing home care. We’ll explain what long-term care insurance covers and whether or not such coverage is something you or your loved ones should consider.

Long-Term Care Insurance Explained

Long-term care insurance helps individuals pay for a variety of services. Most of these services do not include medical care. Coverage may include the cost of staying in a nursing home or assisted living facility, adult day care or in-home care. This includes nursing care, physical, occupational or speech therapy and help with day to day activities.

A long-term care insurance policy pays for the cost of care due to a chronic illness, a disability, or injury. It also provides an individual with the assistance they may require as a result of the general effects of aging. Primarily, though, long-term care insurance is designed to help pay for the costs of custodial and personal care, versus strictly medical care.

When You Should Consider Long-Term Care Insurance

During the financial planning process, it’s important to consider long-term care costs. This is important if you are close to retirement age. Unfortunately, if you wait too long to purchase coverage, it may be too late. Many applicants may not qualify if they already have a chronic illness or disability.

According to the U.S. Department of Health and Human Services, an adult turning 65 has a 70% chance of needing some form of long-term care. While only one-third of retirees may never need long-term care coverage, 20% may need it for five years or longer. With a private nursing home room averaging about $7,698 per month, long-term care could end up being a huge financial burden for you and your family.

Most health insurance policies won’t cover long-term care costs. Additionally, if you’re counting on Medicare to assist you with these extra expenses, you may be out of luck. Medicare doesn’t cover long-term care or custodial care. Most nursing homes classify under the custodial care category. This classification of care includes the supervision of your daily tasks.

So, if you don’t have long-term care insurance, you’re on the hook for these expenses. However, it’s possible to get help through Medicaid for low income families. But keep in mind, you may only receive coverage after you deplete your life savings. Just know that Medicare may cover short-term nursing care or hospice care, but little of the long-term care in between.

What Does Long Term Care Insurance Cover

So what does long term care insurance cover, Well, since the majority of long-term care policies are comprehensive policies, they may cover at-home care, adult day care, assisted living facilities (resident care or alternative care), and nursing home care. At home, long-term care may cover the cost of professional nursing care, occupational therapy, or rehabilitation. This may also include assistance with daily tasks, including bathing or brushing teeth.

Additionally, long-term care coverage can cover short-term hospice care for individuals who are terminally ill. The objective of hospice care is to help with pain management and provide emotional and physical support for all parties involved. Most policies allow beneficiaries to obtain care at a hospice facility, nursing home, or in the comfort of their own home. However, most hospice care is not considered long-term care and may receive coverage through Medicare.

Also, long-term care insurance can help cover the costs of respite care or temporary care. These policy extensions provide time off to those who care for an individual on a regular basis. Usually, respite care provides compensation to caregivers for 14 to 21 days a year. This care can take place at a nursing home, adult daytime care facility, or at home

What Long-Term Care Doesn’t Cover

If you have a pre-existing medical condition, you may not be eligible for long-term care during the exclusion period. The exclusion period can last for several months after your initial purchase of the policy. Also, if a family member provides in-home care, your policy may not pay them for their services.

Keep in mind, long-term care coverage won’t cover medical care costs. Many of your medical costs will fall under your coverage plan if you’re eligible for Medicare.

Long-Term Care Insurance Costs

Some of the following factors may affect the cost of your long-term care policy:

  • The age of the policyholder.
  • The maximum amount the policy will pay per year.
  • The maximum number of days the policy will pay.
  • The lifetime maximum amount that the policy will pay
  • Any additional options or benefits you choose.

If you’re in poor health or you’re currently receiving long-term care, you may not qualify for a plan. However, it’s possible to qualify for a limited amount of coverage with a higher premium rate. Some group policies don’t even require underwriting.

According to the American Association for Long-Term Care Insurance (AALTCI), a couple in their mid-50s can purchase a new long-term care policy for around $3,000 a year. The combined benefit of this plan would be roughly $770,000. Keep in mind, some policies limit your payout period. These payout limitations may be two to five years, while other policies may offer a lifetime benefit. This is an important consideration when finding the right policy.

Bottom Line

While it’s highly likely that you may need some form of long-term care, it’s wise to consider how you will pay for this additional cost as you age. While a long-term care policy is a viable option, there are alternatives you can consider.

One viable choice would be to boost your retirement savings to help compensate for long-term care costs. Ultimately, it comes down to what level of risk you’re comfortable with and how well a long-term care policy fits into your bigger financial picture.

Retirement Tips

  • If you’re unsure what long-term care might mean to your retirement plans, consider consulting a financial advisor. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
  • The looming costs of long-term care may have you thinking about how much money you’ll need for retirement. If you aren’t sure how much your 401(k) or Social Security will factor into the equation, SmartAsset’s retirement guide can help you sort out the details.

Photo credit: ©iStock.com/KatarzynaBialasiewicz, ©iStock.com/scyther5, ©iStock.com/PeopleImages

Ashley Chorpenning Ashley Chorpenning is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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Source: smartasset.com