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

A Guide to Estate Planning for Second Marriages

A Guide to Estate Planning for Second Marriages – SmartAsset

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Getting married for a second time following a divorce or the death of your first spouse can feel like a fresh start. But it’s important to consider how joining your life with someone else’s may impact your financial plan, including how you manage your estate. What is fair in a second marriage and estate planning? It can be a difficult question to answer, especially when you or your new spouse are bringing children into the marriage or you plan to have children together at some point. Understanding some of the key financial issues surrounding a second marriage can help with reshaping your estate plan. So can consulting a financial advisor, especially one experienced in estate planning for second marriages.

Key Estate Planning Considerations for Second Marriages

Remarriage can bring up a number of important questions for estate planning. Both spouses should be aware of what the central issues are when updating individual estate plans or creating a new joint one.

Here are some of the most important questions to ask for estate planning in a second marriage:

  • What assets will be left to each of your children?
  • Do you plan to have additional children together and if so, what assets will be preserved for them?
  • Which assets will you each continue to hold individually?
  • Are there any assets that will be retitled in both of your names, such as a first home, vacation home or bank accounts?
  • Are either of you bringing any debts into the marriage or will you incur new debts after the marriage?
  • Do each of you have a will in place that needs to be updated?
  • Or will you establish a new joint will?
  • Besides a will, what other estate planning tools may be necessary, i.e. a trust, advance healthcare directive or power of attorney?
  • Will you continue working with your current financial advisors or choose a new advisor to help you manage your financial plan together?

Asking these kinds of questions can help you each get a sense of the other’s perspective on estate planning. Ideally, you should be having these types of discussions before the marriage takes place to minimize potential conflicts later. This can also help you decide if a prenuptial agreement may be necessary to protect your individual financial interests. But if you’ve already remarried, it may be a good idea to have this discussion sooner, rather than later.

At the same time, it can also help to complete an inventory of your assets and liabilities so you both know what you’re bringing into the marriage. This can help with managing the distribution side of your estate plan later as well as planning for how any debts may need to be handled should one of you pass away.

Estate Planning for Second Marriages With Children

Having kids can add a wrinkle to your estate planning efforts when you’re getting remarried. For example, you may wish to leave certain assets to your children while your new spouse may want your assets to be equally distributed among his or her children as well as yours. Or there may be questions over who would assume control over assets on behalf of minor children should one of you die.

When there are children in the picture, it’s important to consider any provisions you’ve already made for them in a will or trust and how that might affect any assets your spouse stands to inherit. You may need to update your will or set up a separate marital trust, for example, to ensure that your spouse receives the share of your assets you wish them to have while still preserving your children’s inheritance. Provisions may also need to be made for any children you plan to have if you’re still relatively young when a second marriage occurs.

It’s important to consider the age of your children when deciding what is fair in a second marriage and estate planning. If you have adult children, for example, it could make sense to gift some of their inheritance to them during your lifetime. But if you have minor children, you and your new spouse would need to decide who should be in charge of managing their inheritance on their behalf if one of you dies prematurely.

Check Beneficiary Designations

Assets that already have a named beneficiary may need to be updated if you’re remarrying. For example, if you named your previous spouse as beneficiary to your 401(k), individual retirement account or life insurance policy, you’d likely want to change the beneficiary to your new spouse or to a trust you’ve set up so that your former spouse can’t collect on those assets.

You should also consider other assets, such as bank accounts or real estate, should be titled. Adding your new spouse to your home as a joint tenant with right of survivorship may seem like the right move for keeping things simple in your estate plan. But doing so means that if something happens to you, your spouse will automatically assume full ownership of the home. They could then do with it as they wish, regardless of what you might have specified in a will or trust.

Look for Gaps in Your Estate Plan

When deciding what is fair in a second marriage and estate planning, consider where the gaps might exist that could leave your assets in jeopardy. Not having a will, for example, could be problematic if you pass away. Without a will, your state’s inheritance laws would be applied – not your wishes. That means your assets may not go to your children or other heirs as you’d like them to.

A trust can also be a useful tool in estate planning for passing on assets to your spouse or children as well as managing estate and inheritance taxes. If either of you are bringing considerable assets into a second marriage or you want to minimize the potential for conflicts over asset distribution later, setting up one or more trusts could be a good idea. Talking to an estate planning attorney can help you decide whether a trust is necessary and if so, which type of trust to set up.

Also, consider whether you have sufficient life insurance coverage to provide for the surviving spouse and any children associated with the marriage. Both spouses in a second marriage may need to have life insurance coverage, particularly if one person is the primary breadwinner while the other is the primary caregiver for children. Checking your existing life insurance policies and talking to your insurance agent can help you determine whether what you have is enough or if more coverage is necessary.

Finally, think about what you may need in terms of end-of-life planning. Long-term care insurance, for instance, can help pay for nursing home costs so that your spouse or either of your children aren’t left in the lurch financially. An advance healthcare directive and a power of attorney can ensure that your wishes are carried out in end-of-life situations where you’re unable to make financial or medical care decisions on your own behalf.

The Bottom Line

Deciding what’s fair in a second marriage and estate planning can be tricky and it’s important to get the conversation started early. Understanding what the biggest challenges of estate planning in a second marriage are can help you work together to shape a plan that you can both be satisfied with. And if you have adult children, it’s important to keep them in the loop so they understand how a second marriage may impact their inheritance.

Tips for Estate Planning

  • Consider talking to a financial advisor about the implications of a second marriage and what it might mean for your portfolio. You and your spouse may choose to maintain your current advisors or find a new advisor to work with together. In either case, finding the right professional to work with doesn’t have to be hard. SmartAsset’s financial advisor matching tool can offer personalized recommendations for professional advisors in your local area, in just minutes. If you’re ready, get started now.
  • Trusts can be a useful estate planning tool for couples, including those who are getting married for a second time. A marital trust, for example, goes into effect when the first spouse dies. This can be helpful for passing assets on to a surviving spouse while minimizing estate taxes. You may want to create this type of trust, along with a second living trust set up specifically for your children, to manage assets more efficiently while also protecting them from creditors.

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Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Source: smartasset.com