Don’t Gamble With Your Golden Years

By admin | Published: December 8, 2011

Will you have enough money for retirement? That question may keep you up at night. Or you may avoid thinking about it altogether.
“What scares me for this country, especially for the baby boomer generation, is that many people will have to rely on their investment smarts in managing retirement funds,” says economist Steven Weisbart of the Insurance Information Institute. “Many have no training, or interest, in managing money.”

One possible solution? Annuities – contracts sold by life insurance companies that offer a guaranteed stream of income for those golden years.

Fixed savings annuities, also known as deferred annuities, have guaranteed interest rates and tax-deferred benefits. And immediate income annuities offer guaranteed income for life. Most important, they both promise peace of mind. Both are popular during market downturns. At USAA Life Insurance Co., one of five life insurers that is AAA rated, total Caring for aging parentsannuity sales grew 26 percent from 2008 to 2009. And the company says it anticipates annuity growth will increase as baby boomers get further into retirement.

“Annuities come up in conversation when people are concerned about market turmoil, or when they do a retirement income plan and are worried about running out of money,” says J.J. Montanaro, a certified financial planner practitioner with USAA.

Now more than ever

With a draining Social Security reserve, traditional pensions on the wane, a volatile stock market and homes losing value, retirees should be thinking harder than ever about protecting and growing retirement assets. Longer life spans mean retirees may have to amass more money and preserve it many more years than previous generations.
Having a portion of retirement money in a fixed savings annuity with a fixed interest rate offers certainty in an uncertain investment market, Montanaro says. And using a portion of your savings to buy an income annuity can offer a pension-like stream of monthly payments to help pay your bills. “Whether you’re talking about creating income or building a retirement portfolio, an annuity can work well as a tool in your retirement toolkit,” says Montanaro.

Fighting misperceptions

Weisbart says annuities in general get an unfair rap, often from people who sell competing investment products on commission. But fixed savings annuities and fixed immediate income annuities are fairly straightforward, says Montanaro. And their fees are very competitive to other retirement products. In some instances, fees can be waived altogether. You can also name a beneficiary so any money remaining goes to someone you love.

Finally, some point out interest rates on annuities aren’t as high as they were a few years back. But annuities with fixed rates can still be a good deal if you’re looking for a secure place to put your money. “Relative to other safe investments, such as certificates of deposit or treasury bills with even lower rates, they are still attractive,” Montanaro says.

How to choose

Deciding which of these kinds of annuities could benefit you is easy, says Joe Montminy, assistant vice president of the annuity research program at LIMRA. Just ask, “Do you need the money now or later for your retirement needs?”
If you need it now, consider the immediate income annuity. If your retirement is a few years away and you want to increase your assets, go with a fixed savings annuity.

Here’s how each works:

Savings annuity

Savings annuities earn either a fixed rate for a period of time, say five or 10 years, or a flexible rate that changes over time within an established range. All fixed savings annuities have a guaranteed minimum interest rate, the interest is not taxed until you take the money out, and is guaranteed against loss by the insurer.

“Think of the fixed savings annuity as a safe harbor,” Montanaro says. “It can only go in one direction: up.”
Because taxes are deferred, withdrawals before age 59 1/2 could be subject to penalties. But remember the annuity is really for retirement, so you should try not to touch it anyway.

Immediate income annuity 

This kind of annuity helps cover basic living expenses in retirement. To find out if you need one, add up monthly, non-negotiable bills — utilities, food, property taxes, etc. If your guaranteed income from Social Security and military or corporate pensions can’t cover the tab, an immediate income annuity can help fill the gap.

You’ll feel secure not having to pay bills with your investment income, which can plunge during market downturns, notes Montminy. Weisbart agrees: “If you have to cancel a vacation because the market’s down, that’s fine. But if you can’t buy medicine or food, that’s a problem.”

Though immediate annuities require a sizable one-time premium, you’ll have the security of knowing essential expenses are covered – immediately. That’s what makes them worth considering. “It’s the insurance factor — the peace of mind — that people are looking for,” says Montminy. “By having that guaranteed payment for life, you know you have some protection on your overall portfolio.”

Experts emphasize that the lump sum you use to buy an income annuity should be just a portion of your retirement assets. You want to diversify your retirement portfolio to also provide liquidity and to protect against inflation.

Bottom line

There are only five life insurers that are AAA rated, so make sure the company you buy from has high marks from the insurance rating agencies. You want to make sure the company is around as you age. And review the fine print on your contract with a financial adviser.

“The goal is to understand what you’re buying and approve the terms,” Weisbart says.

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Finding Value in a Beaten-Down Market

By admin | Published: November 10, 2011

With Wall Street’s recent seismic shifts, true stock jockeys may be tempted to buy on the dips. But this desirestocks raises an important question: Is a low price by itself a true measure of a value stock? If an investor plans to hold a stock for the long term, how can an investor gauge its future potential compared with the broader market?

Value Investing Defined

Value stocks are those that have fallen out of favor in the marketplace and are considered bargain-priced compared with book value, replacement value or liquidation value. Value fund managers typically invest only when they believe the underlying company has good fundamentals. Many value investors think that a majority of value stocks are created because investors overreact to negative events, which can include:

• Disappointing earnings

• A negative outlook for the industry

• A regulatory setback

• Substantive litigation

The idea behind value investing is that stocks of good companies will bounce back in time when a company overcomes a short-term obstacle and investors ultimately recognize fair value. But this recognition may take time or, in some instances, may never materialize.

Comparative Analysis

Investors looking to avoid a value mistake may want to compare a stock’s recent trend with a peer group or with a broad market index. Here are some other suggestions:

• Consider whether a stock has dropped more than the average stock in the S&P 500 during the past three months.

• Examine whether earnings estimates are being revised downward faster when compared with a peer group.

• Compare analyst estimates of future profit margins to historical margins. If expectations for future profits exceed past earnings, the company could end up disappointing investors.

Another technique for potentially avoiding a value mistake is to look for stocks paying dividends. Dividends historically have been seen as a sign of management’s confidence in healthy cash flow over the long term, as well as an indicator that management’s interests align with shareholders. Even if a stock price languishes for a period of time, a dividend provides an investor with something in the way of a return. Note that dividends are not guaranteed, and a company can reduce or eliminate a dividend at any time.

Perhaps the best strategy for avoiding a value mistake is to combine value stocks with growth stocks, international stocks, and other types of equities to pursue diversification. Although there are no guarantees, owning some of each could help to balance an equity portfolio over the long term.1

Source/Disclaimer:

1Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, and may not be suitable for all investors. Investing in stocks involves risks, including loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market.

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Consider Dividend-Paying Funds as a Source of Income

By admin | Published: October 26, 2011

Key Points

Profitable companies traditionally have rewarded their shareholders one of two ways: by reinvesting corporate profits in the company with the long-term goal of increasing the stock price or by paying shareholders a regular dividend. While the stock price may or may not increase over the long term, dividends, typically paid quarterly, offer investors more immediate income. Many large, well-established companies historically have paid dividends.Dividend Funds 3rd qtr

Mutual funds that invest in dividend-paying stocks may enhance your portfolio in the following ways:

• A source of supplemental income. For investors with an appropriate risk tolerance, funds that pass along equity dividends offer another choice for potential income.

• A track record of strong returns. Past performance is no guarantee of future returns, but history shows that dividend-paying stocks have the potential to generate average annual returns that are higher than those generated by non-dividend payers.

• A potential cushion against market volatility. The prices of dividend-paying stocks historically may experience fewer ups and downs compared with equities that have not paid dividends. Dividends provide a regular return even when stock prices are in a slump.

Ask us whether a dividend-producing fund provided by the investment is appropriate for your circumstances. As its name implies, an equity income fund may enable your portfolio to benefit from the best of both worlds: The long-term growth potential of stocks combined with a source of income.

Keep in mind, however, that a company’s track record of paying dividends in the past does not necessarily mean the company will remain profitable or continue to pay dividends in the future.

Because of the possibility of human or mechanical error by Financial Communications or its sources, neither Financial Communications nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Financial Communications be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

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Thwart Identity Theft Now

By admin | Published: October 17, 2011

With a combination of good decisions and some luck, you’ve managed to build a tidy little nest egg for retirement. Having enough saved for retirement can help ensure your golden years are the best they can be. But what are you doing right now to protect the nest egg that’s essential to your future financial well-being?

“Retirees are a favorite target for identity thieves,” says Jennifer Leuer, general manager of Experian’s ProtectMyID. “Seniors usually have more investments and cash reserves, and are less likely to check their credit regularly. Identity thieves target seniors in a number of ways, from phone scams in which they pose as a relative in need, to raiding 401(k) accounts.”  Thief

Your nest egg doesn’t have to be at risk from common types of identity theft. Be aware of the ways in which thieves can make use of your personal information, check your credit report regularly, and take these steps to thwart identity theft:

Monitor your credit
Your credit will be an important part of your financial health even after you retire. Just because you stop working doesn’t mean it’s safe to stop checking your credit report. Review your report regularly and consider enrolling in a protection product like ProtectMyID, which is designed to detect ID theft, protect against it and help resolve the situation if you’re a victim while enrolled. It works by monitoring your credit daily, performing daily Internet scans for your personal information, and alerting you when key changes occur.

Watch over your 401(k)
Employer-administered retirement accounts are becoming increasingly popular targets for thieves, who can defraud these funds of millions of dollars. Always thoroughly read your 401(k) statements. If you only get a quarterly statement, ask for more frequent account summaries and review them with a financial professional. Review your account online regularly so that you can quickly detect any activity that doesn’t look right. And once you retire, consider rolling your 401(k) into an IRA.

Take care of your Social Security
You probably protected your Social Security number throughout your professional life. Continue protective measures in retirement, including not carrying your Social Security card in your wallet, and being cautious about whom you give your SSN to. As a retiree, your SSN is particularly valuable to identity thieves, who can use it to pilfer your monthly Social Security payment, access your medical records or even falsify your tax return so that your refund goes to them instead of into your bank account.

Stay alert and educated

Identity thieves come up with new ways to scam people all the time. With seniors being a favorite target, it pays to keep abreast of the latest scams. Check online resources like IRS.gov, FTC.gov and IDtheftcenter.org, the website of the Identity Theft Resource Center, for updates on current identity theft scams.

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Retirement Financing Risks

By admin | Published: October 14, 2011

As Americans live longer, the task of managing money after retirement gets more complex. A retiree in his or her mid-60s typically has a different risk profile than an individual approaching 90. It may be helpful to look at various types of risk from the vantage point of how they affect retirees at different life stages. Here are four key risks to consider.

1. Investment Risk – Balancing risk and return takes on a different meaning for individuals as they age. A negative rate of return during the early years of retirement could leave an individual with a significantly smaller nest egg when compared with negative returns later in the retirement life cycle. Your financial advisor can help you craft an investment mix with the goal of smoothing out returns over the long term and increasing the chances that your assets will last throughout your lifetime.Happy Retirement

2. Longevity Risk – Withdrawing too much from a portfolio during the early years of retirement may heighten the chance of depleting your assets during your later years. For this reason, many financial advisors recommend limiting annual withdrawals to 5% or less of a portfolio’s value, adjusted for inflation, to make assets last as long as possible.

3. Inflation Risk – Because younger retirees typically are planning for a time horizon of 20 years or more, it is important that their portfolios include a source of growth that is likely to exceed inflation over the long term. To complement this potential growth, many retirees rely on more conservative investments that may generate income and help to balance risk and potential return.

4. Health Care Risk – It is not unusual for medical costs to increase as retirees age, and it may be prudent to plan for these costs before the need is immediate. Pre-retirees and younger retirees may want to explore options for medical insurance that supplements Medicare, as well as long-term care insurance, to reduce the possibility of dipping into personal assets to finance illness- or accident-related expenses. Also, remember that those who retire before age 65 need to find an alternate source of medical insurance prior to becoming eligible for Medicare.

Reviewing these and other challenges associated with retirement planning with Haisman Wealth Management may increase your confidence that you have considered all scenarios. While it may not be possible to prepare for every situation, planning ahead may help you cope with financial issues that come your way.

Because of the possibility of human or mechanical error by Haisman Wealth Management, Inc. or its sources, neither Haisman Wealth Management, Inc nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Haisman Wealth Management, Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content.

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What Are the Tax Issues Associated With a Gain or Loss on a Primary Residence?

By admin | Published: September 20, 2011

You may be able to exclude from income any gain up to $250,000 for a single taxpayer and $500,000 for a joint return. To exclude the gain, you must have owned and lived in the property as your main home for two of the five years prior to the date of the sale. If you lose money on a sale, the loss is not tax deductible.

Your Adjusted Basis

A dollar amount known as your adjusted basis determines whether you experience a gain or a loss. If you purchased or built your home, your initial cost basis typically is the cost to you at the time of purchase. If you inherit a home, the cost basis is the fair market value on the date of the decedent’s death or a later valuation selected by a representative of the estate.

The formula for determining your gain or loss is as follows:

Selling price – Selling expenses = Amount realized

Amount realized – Adjusted basis = Gain or loss

The cost basis may be adjusted over time due to the following conditions:

· Additions and other improvements that have a useful life of more than one year and that add to the value of your home. These can include a garage, decks, landscaping, a swimming pool, storm windows and doors, heating and air conditioning systems, plumbing, interior improvements and insulation. Note that repairs that keep your house in good condition but do not significantly enhance value, such as fixing gutters, repainting, or plastering, do not affect the cost basis.

· Special assessments paid for local improvements.

· Amounts spent to restore damaged property.

· Payments for granting an easement or right-or-way.

· Depreciation if the home was used for business or rental purposes.

· Others as determined by the Internal Revenue Service (See Publication 523 Selling Your Home).

The definition of a "main home," according to the Internal Revenue Service, includes a private residence, condominium, cooperative apartment, mobile home or houseboat. It is to your advantage to maintain records of a home’s purchase price, purchase expenses, improvements, additions, and other issues that may affect the adjusted basis.

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Managing Cash Flow in Retirement

By admin | Published: September 6, 2011

Tools for the Task

If you are retired, or about to retire, you will need to gather and organize key information before you can tackle the ongoing tasks of monitoring and managing your cash flow in retirement. The purpose is to give you a clear and complete picture of your current financial situation, as well as of any significant changes you expect. Two sources will provide this information:

• An up-to-date net-worth statement, which provides a snapshot of your assets, debt, and cash reserves.

• Your monthly or annual budget, with itemized breakdowns of your income and expenses. If you haven’t retired yet, it’s a good idea to prepare a projected budget of your retirement income and expenses.

Be sure to account for all expenses, including those that occur infrequently, such as insurance bills, college tuition, membership fees, and investment management fees. They should be reflected in your monthly budget on a prorated basis. If you need assistance creating your net-worth statement and budget, you may want to consult HWM, a book on the subject, or resources that are available online – for example, the Financial Planning Toolkit at CCH Incorporated.

Analyzing this information will reveal any major problems that you need to overcome, such as insufficient cash reserves for an emergency or an income shortfall compared with current or projected expenses. It may also point up areas for improvement. For example, you may be able to free up cash by reducing debt or eliminating nonessential expenses.

Regular Monitoring

Plans and projections are always subject to change. Even with reasonable assumptions about investment returns, inflation, and retirement living costs, it’s likely you will encounter numerous changes to your cash flow over time. Frequent monitoring of your income and expenses will detect changes that you can address in a timely fashion to prevent significant problems down the road. Experts often recommend a monthly review of your budget, as well as a comprehensive annual review of your financial situation and goals. While you can keep track of your situation with paper and pen, specialized software may make the task easier, especially if your finances are relatively complex.

What to Look For

What should you look for as you monitor your finances? Following are potential developments that could affect your cash flow and require adjustments to your plan.

Interest rate trends and market moves may result in an increase or decrease in income from your savings and investments. For example, if interest rates decline, you may have clip_image002to reduce your expenses if you are periodically withdrawing a fixed percentage from your investment assets. Alternatively, you might consider altering your investment mix to

• pursue other sources of income, aside from traditional fixed-income investments – equity dividend income investments, for instance.

• You may also encounter changes in federal, state, and local tax rates and regulations. This factor may come into play if you relocate after retiring. The state you move to may impose higher income or property taxes, for example. Other factors that could have a bearing on your retirement cash flow include changes in Social Security and Medicare benefits or eligibility, as well as those affecting employer-provided retiree benefits and private insurance coverage.

• Inflation and health care costs are two other variables that can have an impact on living costs and, hence, your retirement planning assumptions.

• Life events – such as marriage, the death of a spouse, and the addition or loss of a dependent – may also affect your cash flow. Cash flow is also a matter of personal preferences and decisions, and here you will be in control of the many small and large choices likely to be made over the course of retirement. How much you spend on travel, entertainment and recreation and whether you live in a lower or higher cost locale are examples of factors that can have a significant effect on cash flow – and how long your retirement assets are likely to last.

That’s why it’s worth paying close attention to cash flow, making sure you budget carefully, monitor income and expenses frequently, and take action whenever you see significant changes in income and expenses.

Points to Remember

1. Due to increasing longevity, managing cash flow has become a critical task for retirees seeking to ensure that they do not outlive their assets.

2. An up-to-date net-worth statement and monthly budget providing itemized breakdowns of income and expenses are the basic tools used to monitor and manage cash flow.

3. Interest rate trends and market moves may result in higher or lower income from savings and investments.

4. Other factors that can alter cash flow include changes in inflation, health care costs, tax rates and regulations, and Social Security and Medicare benefits.

5. Lifestyle choices – such as preferences for housing, travel, and entertainment – also affect cash flow.

© 2011 McGraw-Hill Financial Communications. All rights reserved.

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What Happens to My Retirement Assets in the Event of a Divorce?

By admin | Published: August 23, 2011

Federal law requires that participants in employer-sponsored retirement plans designate their spouse as their beneficiary unless the spouse waives this right in writing. Assuming that you and your spouse adhered to this practice, a document known as a Qualified Domestic Relations Order (QDRO), which is part of a divorce settlement, specifies how retirement assets are divided.

A QDRO specifies the amount or portion of a plan participant’s benefits that are paid to a spouse, former spouse, child, or other party. A QDRO typically governs assets within a retirement plan such as a pension, profit-sharing plan, or a tax-sheltered annuity. Benefits paid to a former spouse typically are considered income for tax purposes. If you contributed to your retirement plan, a prorated share of your investment is used to determine the taxable amount.

Former spouses on the receiving end of a lump-sum distribution mandated by a QDRO may be able to roll over the money tax free to a traditional individual retirement account or to another qualified retirement plan. Following such a transfer, assets within the plan are subject to rules that would normally apply to the retirement plan. If you transfer assets within a traditional IRA to your spouse as part of a divorce decree, the transfer is not considered taxable and the assets are treated as your former spouse’s IRA.

Procedural Issuesmonkey clip art5

QDROs are governed by rules established by the U.S. Department of Labor. In most instances, a judge must formally issue a judgment or approve a settlement agreement before it is considered a QDRO. The fact that you and your soon-to-be-former spouse have signed an agreement is not adequate for a QDRO to take effect. Also, following an order issued by a judge, the administrator of the retirement plan affected by the QDRO must determine whether the court order qualifies as a QDRO according to the rules of the labor department.

Note that retirement assets are part of a broader financial picture that may include your home, taxable investments, personal property, and other assets. It is not mandated that your spouse receive a portion of your retirement assets in the event of a divorce. You and your spouse may negotiate another type of arrangement that permits you to retain your retirement assets while granting other assets to your spouse. In addition, a prenuptial agreement, depending on its provisions, could potentially limit your spouse’s rights to your assets.

You may want to consult a divorce lawyer and your financial advisor to determine whether federal laws relating to retirement accounts apply to your situation.

July 2011 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by Haisman Wealth Management, Inc, a local member of FPA.

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How Are ETFs Different From Mutual Funds?

By admin | Published: August 9, 2011

You’ve probably heard of exchange-traded funds (ETFs), but you may not have a clear idea of how they work, how they differ from mutual funds, or how they might fit in your investment portfolio. Here’s your chance to take a closer look at ETFs and examine the characteristics they share with mutual funds as well as those that set them apart.

Mutual Funds That Trade Like Stocks

Although ETFs and mutual funds both register with the SEC as investment companies, they are structured and operate quite differently.
Mutual funds pool investors’ money to purchase a portfolio of securities. Each investor owns shares, which represent a portion of the holdings of the fund. Shareholders buy and sell shares based on the fund’s NAV — net asset value — which is calculated daily and fluctuates as fund holdings and shares outstanding change. Some mutual fund shares can be purchased from fund companies directly, while others are sold through brokers, banks, financial planners, or insurance agents. If you purchase mutual fund shares through a third party, there is a good chance you will pay a sales commission, or load. Increasingly, funds can be purchased through no-transaction-fee fund supermarkets that let you buy funds from many different companies.
When describing ETFs, it may help to think of them as mutual funds that trade like single stocks. ETF shares are created when an institutional investor or “authorized participant” deposits a specified block of securities with the fund. This “basket” of stocks reflects the composition of an index, such as the S&P 500 or the Nasdaq 100. Individual investors can buy and sell ETF shares only after they are listed on an exchange such the American Stock Exchange (AMEX) or the New York Stock Exchange (NYSE). Unlike mutual funds that must be purchased or sold at their end-of-day NAV, ETFs can be bought and sold in real time at prices that change throughout the day. Although ETFs still calculate an end-of-day NAV, intraday prices are based on investor demand. ETFs can thus be used for certain hedging strategies typically associated with stocks, such as buying on margin and selling short.Bull and Bear

Comparing Costs

One of the key selling points of exchange-traded funds is cost. ETF expense ratios are generally lower than no-load index mutual funds and are significantly lower than actively managed mutual funds.1 For instance, the average expense ratio is 0.56% for ETFs, 0.76% for index funds, and 1.17% for actively managed funds.2
These cost savings can be significant, especially for long-term investors. Although ETF investors will pay a brokerage commission on a per-trade basis to buy or sell shares, the savings from lower expenses can help offset these transaction costs.

Tax Consequences

One major tax advantage that sets ETFs apart from mutual funds is that ETF shareholders are not affected by the trading activity of fellow investors. For instance, mutual fund managers may be forced to sell portfolio holdings to meet the redemption demands of certain fund investors, resulting in an unexpected capital gain or loss to all shareholders. With ETFs, since trading takes place on an exchange between investors, the fund doesn’t need to sell stock to meet redemptions, thereby avoiding unforeseen tax events. In addition, the generally low portfolio turnover rate of ETFs contributes to their lower operating costs.
It should be noted that mutual funds and ETFs are required to make annual capital gains distributions to investors, which may be caused by index rebalancing. But as noted above, for ETF investors capital gains distributions are never caused by redemptions in the fund.

Fund Transparency

Today, investors are increasingly demanding more transparency with

depend on your age and health. If you take out a policy when you are young, you can expect to pay comparatively low premiums during the life of the plan, while starting a new policy when you are older will entail significantly higher monthly premiums. A 65-year-old in good health can expect to pay between $2,000 and $3,000 a year for a policy that covers nursing home care and home care, with premiums adjusted for inflation.2

Most long-term care policies sold today are federally tax-qualified, which means the premiums paid and out-of-pocket expenses for long-term care may be applied to the medical expense deduction of the federal tax code. (Typically, taxpayers may deduct the portion of medical and dental expenses that exceed 7.5% of adjusted gross income.) Additionally, long-term care benefits received are not taxed as income up to certain limits. Consult with a tax advisor to learn more about the tax implications of long-term care insurance.

Coverage

Long-term care policies are complex and vary widely. But in general, long-term care insurance typically covers the following:

· Nursing home care

· Adult day care

· Visiting nurses

· Assisted living

· In-home assistance with daily activities

LTC includes a range of nursing, social, and rehabilitative services for people who need ongoing assistance due to a chronic illness or disability. LTC insurance can be used by anyone at any age who suffers an accident or debilitating illness, but it most frequently is used by older adults who need assistance with essential physical needs, such as bathing, dressing, or eating.

Other Considerations

Deciding whether to purchase long-term care insurance will depend on your personal situation. You may want to consider your family health history, your level of assets to potentially pay for long-term care, and your feelings about relying on family members for support. Probing these and other individual circumstance can help you make a well-informed decision.

1 U.S. Department of Health

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Do You Need Disability Income Insurance?

By admin | Published: August 2, 2011

The key to determining your needs is to assess how much you would be required to spend during each week or month that you would be unable to earn your normal pay.

Your best defense against a financial catastrophe brought on by long-term illness or injury may be the purchase of a disability income insurance policy with enough coverage to compensate for your lost wages. Disability insurance provides you with cash that you can use for paying your mortgage or rent, buying groceries and meeting other ongoing living expenses.

Putting Policies in Perspective

For most people, there are two main forms of disability income insurance to consider: employer-sponsored policies (called "group" policies) and private insurance policies. Group policies are relatively inexpensive and generally remain in effect for as long as the individual remains with the employer. But there are often significant limits on the benefits provided by these policies, so it’s important to determine whether coverage is adequate for your needs.disabled

Private insurance policies, paid for by individuals, typically are more expensive than group policies but may also provide a higher level of coverage. In certain instances, those with a group policy may want to consider purchasing a private policy to fill in the income gaps frequently associated with group-only coverage.

How Much Disability Income Insurance Do You Need?

The key to determining your needs is to assess how much you would be required to spend during each week or month that you would be unable to earn your normal pay. For example, if you would need 80% of your pretax earnings but your group policy would only pay an amount equal to 60%, then you may need additional coverage.

Disability Defined

The way in which an insurance policy defines disability can determine your eligibility to receive benefits. The following is a quick overview of three basic definitions:

Own-occupation. The most comprehensive definition of disability, it states that you are unable to perform the duties of the occupation you were performing at the time of the disability.

Income replacement. Policies with income replacement coverage define disability as sickness or injury that doesn’t allow you to perform the duties of your occupation and typically stipulates that you are not currently engaged in any other occupation.

Gainful occupation. These policies define disability as the inability to perform the duties of your occupation or any occupation that you are considered to be reasonably qualified for by way of your education, skills or training.

HWM can assist you in finding a qualified insurance professional that can help you assess your need for disability income insurance and find a policy that is most appropriate for you.

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