Fifth Third Securities
Fifth Third Guide to Consumer Insurance

Fifth Third Bank

 

You may know that insurance is designed to protect you and your loved ones’ finances when the unexpected happens—but figuring out what type of insurance will provide adequate protection can be difficult to decipher.

Consider this your educational guide to consumer insurance to help you determine what types of coverage may be the best fit for your needs, based on the factors unique to your life.

Disability income insurance

Disability income insurance is designed to provide a steady source of income should you become disabled and unable to work. If you are covered under an employer’s disability insurance and make less than $200,000 as an individual, you may not need an additional policy. But, if you are the sole breadwinner, do not have disability coverage through an employer, and/or make more than $200,000 in income a year, consumer advocate Clark Howard recommends securing disability insurance through a private provider.

Because take home pay is about 60% of annual salary after taxes, a disability income insurance policy in that amount should provide adequate coverage. Look for a disability policy that begins making payments three or six months after you are disabled and continues until at least age 65.

Term life insurance

Term life empowers the policy holder to stipulate coverage amounts, and the time period to which the coverage applies. Because of this, term life insurance can be inexpensive compared to other types of life insurance policies.

If you have young children or your family relies heavily on the income of one or two providers, term-life insurance can provide the peace of mind that children or other survivors will have financial support in the event of the income earner’s death. Policy holders can determine how long the policy is in place based on a child’s age, for example, or the year major expenses like a mortgage will be paid off.

Because term life has no cash value once the term expires, policy holders should consider what expenses survivors need covered, to ensure the payout is adequate. Some provider’s may offer the option for annual renewal, or a level premium term that allows the policy holder to “lock” the premium for a specified number of years. Otherwise, annual premiums may increase each year, to reflect that the policy holder is getting older.

Whole life insurance

As the name suggests, whole life insurance provides protection for the entirety of the policyholder’s life. Part of the premium goes to the life insurance portion of the policy, while the other part directs to a savings-like account. As a result, whole life insurance can serve double-duty as a savings account where cash grows tax-deferred, over time. The cash value of a whole life insurance may be used to pay for college tuition, or could be tapped as a source of retirement income -- though doing so will reduce the value of the death benefit.
Some policy holders use whole life insurance to ensure that survivors have the funds to pay taxes after the policy holder’s death, or to gift funds to charity or heirs. Generally, whole life insurance provides a death benefit until age 100 to 121—provided the policy holder pays the premium as long as they live. Some whole insurance policies may include the option for the policy to pay the whole life insurance premiums for the rest of the policy holder’s life should that person become disabled before age 65.

Because whole life insurance tends to be more expensive than term life insurance, Consumer Reports explains that policy holders should be confident they can maintain premium payments on the policy for a minimum of 16  years in order to “break even” with a whole life policy. Otherwise, term life insurance may be a better fit.

Universal life insurance

Like whole life insurance, universal life insurance can provide coverage for the policy holder’s entire life, but also allows the option to adjust premium and coverage amounts to manage costs. As a policy holder’s children age and need less financial support, for example, the policy holder could reduce the amount of the premium and coverage without losing the total value of the policy. Some universal life insurance policies may include a cash accumulation account designed to build the universal life insurance policy’s value, while earning interest. As with any investment, however, there is the risk that the investment component will not perform as intended.

Variable life insurance

Variable life insurance offers the flexibility to change a premium payment amount, and offers the option to invest in market-based sub-accounts that may raise the potential benefits or returns of the policy. Variable life insurance can also provide the opportunity to borrow against the cash value of the policy to pay for other expenses. If the policy is canceled, the policyholder has the opportunity to access his or her accumulated cash value, minus outstanding loans, interest or deferred sales charges on the policy (but would lose the death benefit).

Long-term care insurance

Long-term care insurance can provide the peace of mind that you’ll have access to the health care you need when you’re elderly -- but the premiums can be expensive. Experts recommend that people who want to invest in long-term care insurance secure coverage by the time they’re in their mid-fifties, and have a well-defined idea of what costs they want long-term care insurance to cover (such as nursing care, or in home health care) to manage costs.

Some long-term care plans offer protections against inflation, while others may state an elimination period that acts like a deductible; policy holders may be required to pay for costs for a specific time period, before the policy pays. Worried about the costs of long-term care insurance but want some form of coverage? Kiplinger says some life insurance policies allow policyholders to accelerate the death benefit to get the money required to pay for a terminal, chronic, or critical illness.

Title insurance

Title insurance may be optional coverage, but it’s ultimately a protection for homeowners. Title insurance essentially ensures that there are no liens or judgments on the property from the past that could make an innocent homeowner the subject of a lawsuit—and could mean they don’t own the home they thought they purchased if the title is unclear. An owner's policy can help protect you as the homebuyer from legal and financial threats for as long you or your heirs own the home.

Homeowner’s Insurance

Homeowner’s insurance applies to people who own a home, but the amount of coverage needed under the policy isn’t as straightforward. Homeowners should secure a policy in an amount that’s at minimum adequate to rebuild the home’s structure, replace personal belongings in it, and provide financial support if the home is damaged to the extent that occupants are temporarily displaced.

As the Insurance Information Institute explains, homeowner’s may also want to consider coverage beyond standard amounts to ensure adequate protection. For example, homeowner’s insurance provides liability protection against lawsuits for bodily injury or property damage that family members or pets cause to other people. It can cover the costs of damages awarded if a court determines a homeowner is liable for a person’s injuries that occurred on the property. If a homeowner owns additional property and/or has investments and savings worth more than the liability limits stated in the homeowner’s insurance policy, a separate excess liability or umbrella policy can provide additional protections. In addition, some homeowner policies allow the option to purchase riders that protect against losses related to identity theft, technology, or valuables like jewelry, art or collections.

Car insurance

Based on the state in which you live, you may be required to carry a minimum amount of car insurance—regardless of how often you drive, or where. Car insurance is typically categorized based on the type of coverage offered, and coverage amounts that apply to it. For example, bodily injury liability pays for the medical expenses of people injured in a crash when the policy holder is at fault. Property damage liability pays for damage done to other cars or surrounding property if the policy holder is at fault for an accident. Personal injury protection (PIP) covers the policy holder and her passenger’s medical expenses after an accident, and may cover lost wages due to an accident. (Some driver’s may already be covered for these incidents under a separate health insurance or disability insurance policy).

Other types of car insurance include uninsured/underinsured motorist coverage, which covers a policy holder who is hit by someone without adequate insurance. Collision coverage refers to the costs of repairs if a policyholder’s car is damaged in an accident; comprehensive covers the policyholder’s car if it’s stolen or damaged outside of an accident.

Though car insurance costs are determined by factors including the type of car insured, a person’s financial history, driving record, level of coverage, the deductible and the insurer, remember that drivers could be held financially responsible for any costs that exceed coverage limits.  You can manage the costs of your car insurance by carefully selecting coverage levels and deductible amounts—but don’t skimp on coverage to the extent that you put your financial life at risk.

 

Related Articles