Evaluating Your Insurance Coverage on National Insurance Awareness Day

Insurance is the safety net that every individual and family needs, mitigating bigger problems when the worst-case scenario occurs and minimizing unnecessary financial risks. Yet an alarming number of households do not have adequate coverage for their needs, nor are they aware of the specialized plans that will serve them best. Indeed, insurance policies are highly personal and nuanced. For example, while health insurance is on the rise from employer-sponsored or private plans, more than 100 million Americans are uninsured or underinsured when it comes to life insurance.

June 28 is National Insurance Awareness Day and a great time to evaluate the benefits that insurance provides and what type of coverage is necessary for your individual lifestyle.

The five main insurance policies everyone needs

One of the most important things to know about insurance is that any type of coverage can range from a basic policy to a Cadillac version. This means that insurance can and should be customized and flexible to your lifestyle and budget.

Working adults, regardless of whether they support any dependents, should have four main policies in their name:

  1. Healthcare coverage is obvious: this is an insurance plan that is needed for the entirety of a person’s life. When adults turn 26 and (theoretically) roll off their parent’s plan, they will need their own coverage; as they approach retirement, they’ll likely transition from private policy to Medicare or a Medicare supplement. Luckily, there is good news: according to data collected by the Insurance Component of the Medical Expenditure Panel Survey (MEPS-IC), about 86% of U.S. private-sector employees worked for establishments that offered employer-sponsored health insurance, according to a 3-year average based on 2020-2022.
  2. But what happens when life throws a curveball? Similar to creating an estate plan or living will, life insurance policies may be morbid to think about now, but they provide an enormous sense of comfort and financial relief in the event of an unexpected premature passing.
  3. In the same vein, long-term disability is an appropriate supplement for any income-producing member of the household who would be rendered unable to work due to illness or an accident. This is one of the most underinsured areas where families and individuals often leave themselves exposed. Many employers offer some level of coverage to employees, but self-employed and business owners often leave themselves completely exposed to this potentially catastrophic risk.
  4. Last but certainly not least, homeowners and renters insurance are critical to protect against damages, floods, theft, or other unforeseen events. The difference will be whether you rent or own your home, and coverage will depend on the valuables you own and keep inside your home.
  5. One age-based type of insurance that becomes necessary as we age is long-term care insurance (LTCI). Often replacing long-term disability coverage as we age, LTCI can ensure an otherwise sound long-term retirement plan is not derailed due to the need for help with day-to-day activities of daily living in the later stages of life.

Let’s not forget supplemental coverage. By law, most individuals will also need some form of auto coverage if they own and drive a vehicle. Higher net-worth individuals should also seek umbrella coverage that protects their total net worth, assuming it is over $500,000.

Finding the right insurance balance

Balancing the right mix of insurance products depends on your personal preferences, budget, and risk assessment. The two greatest concerns are being either overinsured (you have too much coverage) or underinsured (you do not have enough coverage). Generally speaking, most Americans are underinsured rather than overinsured.

A financial advisor can help you assess the types of coverage you need, as they should have a comprehensive understanding of your financial picture and a working knowledge of your priorities and goals. For example, a good rule of thumb for life insurance is having ten times the coverage relative to your personal income.

For long-term care, you have a couple of options: Many times, individuals can buy a policy that covers a portion of the capital needs should they require care, or they can be fully insured. Most people choose a balance between partial coverage and lower premiums, which can be built based on budget and desired outcome.

Disability insurance certainly requires a closer look than most individuals give it. Most companies offer basic coverage but not enough to make a difference when needed. According to the Bureau of Labor Statistics 2020 report, long-term disability insurance was available to only 35 percent of civilian workers. Indeed, disability is one of the most uninsured areas of insurance from a risk perspective; pursuing a private policy is a great conversation point to have with your advisor. Dealing with the residual effects of long-term disability can be debilitating for a family. Make sure you plan ahead.

Insurance as part of a comprehensive wealth management plan

Similar to overall wealth management planning, thinking ahead on your insurance needs will only benefit you. Changes to estate taxes are coming up at the end of 2025, so life insurance will become much more prominent as a wealth transfer tool if those changes come through.

Be vigilant with the policies you need and when you can find better pricing or coverage. Revisiting your life and disability insurance policies when your income or family situation changes ensures your policies are aligned with any potential income replacement needs and lifestyle changes. Life insurance should be revisited every few years to find a better policy but long-term care (traditionally secured at age 50 through 65) will likely not be revisited once confirmed because of the shorter policy length.

Is reviewing your insurance policies part of your comprehensive financial planning with your advisor? If not, contact Merit Financial Advisors today for a complimentary consultation.

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This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. This article is intended to assist in educating you about insurance generally and not to provide personal service. Guarantees are based on the claims paying ability of the issuing company.