You’re probably no stranger to having insurance for expensive physical items like your home or car. However, what if you think of your most valuable asset not as those things or your savings and investments but your ongoing ability to provide for yourself and your family as an architect? Your personal financial protection begins with understanding the importance of being prepared for unexpected, but possible, events.
The twin cornerstones of personal financial protection
Aside from basic health insurance, the two most fundamental kinds of insurance protection for most families are Life Insurance and Disability Insurance: Life Insurance to give help to those who depend on you if you were no longer there to provide for them, and Disability Insurance to help protect the standard of living that you, or you and your family, enjoy today.
LIFE INSURANCE – it can play a crucial role in safeguarding your loved ones’ future
According to the American Council of Life Insurers (ACLI) 2022 Life Insurers Fact Book, over $100 billion in Life Insurance benefits were paid out in 2021 alone.1 Right now, the foresight of those who took out that insurance is helping their families make their mortgage payments, cover daycare or tuition costs, pay for everyday living and realize their long-term goals.
According to the Life Insurance Marketing Research Association (LIMRA), the top three reasons people give for having Life Insurance involve protecting their loved ones, whether it’s replacing lost income, leaving an inheritance or paying for final expenses.2 And 7 in 10 people with Life Insurance feel financially secure versus only 47% of those without.3
Protect your family even if you’re not there to protect them
Some households, however, continue to be uninsured or underinsured – in 2022, 129 million American adults reported not having Life Insurance, and 106 million said they needed to either get Life Insurance or add to their existing coverage.4
The Insurance Information Institute (III) recommends that if you have dependents, you should buy enough Life Insurance, when combined with other sources of income, to replace the income you now generate for them plus provide enough to offset any additional expenses they might incur.
It’s also important to plan for expenses such as bills that may be left behind and final expenses such as funeral costs, taxes and administrative costs related to passing property to heirs – the III recommends planning a minimum of $15,000 for such expenses.5
Closing the gap between what you have and what you need
When you consider these facts and compare these recommendations to the Life Insurance protection you now have, you may find – as many do – that your family would not be adequately protected should they lose you and your income.
If there’s a gap between the amount of Life Insurance you have and the amount your family would need, Term Life Insurance might be the most economical way to close it. Term Life Insurance is just what the name implies – coverage intended to be in place for a specified time, such as until the kids are grown and out of college. Term Life is the most basic kind of Life Insurance and generally provides the most insurance protection for the money. It can become even more affordable when purchased at a group rate.
According to the ACLI’s 2022 Life Insurers Fact Book, 4.1 million of the new individual life policies purchased in 2021 were Term Life Insurance, totaling 71% of the coverage value issued. The most popular form of term life is Level Term Life Insurance, which provides the security of knowing that rates are guaranteed not to increase for the period chosen by the purchaser, in some cases up to 20 years.6
Why do people buy Life Insurance?
People purchase Life Insurance for a variety of reasons, however the acquisition of Life Insurance is commonly tied to significant life events, such as marriage, buying a house and the birth of children.
What to look for in Term Life Insurance
When evaluating Term Life Insurance, here are some factors to consider:
- For what period do you need coverage?
- Should you also get coverage for your spouse?
- Is the underwriting company highly rated and financially strong?
- And maybe most important – what amount of coverage can you buy at a cost you can comfortably afford? Because adding ANY amount of Life Insurance will leave your family better protected, and so is preferable to taking no action out of concern about choosing the “right” amount of coverage.
DISABILITY INSURANCE – preparing for the potential financial impact of a disabling injury or illness
The second pillar of personal financial protection is Disability Insurance that would help replace lost income if an illness or accident were to prevent you from working. Should you suffer a covered disability, you would receive benefits paid directly to you, to spend on mortgage payments or rent, other ongoing obligations, extra medical bills or other living expenses – including medical expenses related to the disability – and everyday expenses.
The Social Security Administration reports that 1 in 4 U.S. workers will experience a disability at some point during their careers.7 And according to the Council for Disability Awareness, 44% of all bankruptcies cite work loss due to disability as a contributing factor.8
Also consider this surprising fact – in 2021 alone, there were 62 million medically consulted injuries in the United States – an average of 2 per second and 1 for every 5 Americans.8 That statistic from the National Safety Council is another good reason to take stock now of how you would continue your standard of living should a disability keep you out of work for several months or more.
Is your lifestyle at risk if you suddenly couldn’t work?
In its publication Disability Income Insurance – Financial Protection for You and Your Family, the American Council of Life Insurers outlines what resources to consider, to help you determine how you and your family would fare financially during a period of disability:10
- First, evaluate your income needs, as well as the benefits you may be eligible for from your employer, the government or other programs. Consider additional savings or other family resources you might have, including a spouse’s salary, short-term emergency savings, investments or help from your family.
- If the total of these benefits is not enough to pay your living expenses on a long-term basis, or if a disability would eat away at your retirement savings or children’s college fund, the council notes that a Long-Term Disability Income Insurance policy may meet your needs.
Employer Disability Coverage vs. Personal Coverage – be aware of the tax effect
If you don’t have employer Disability Insurance or if your coverage through work would replace only 50-60% percent of your current income (typical of a work policy), you may need additional Disability Insurance to help you keep up with your expenses should disability strike.
It’s important to know whether your disability benefits would be subject to income taxes, as is generally the case with employer-provided disability coverage.11 For example, if you were to receive 60% of your current income in disability benefits through an employer-paid policy, you could be left with far less than half of your pre-disability income actually available to you!
If you purchase and pay for your own coverage, such as the coverage available through an AIA Trust group policy, the benefits you receive while disabled would not be subject to income taxes, although you should consult a tax advisor.12
What to look for in Disability Insurance
Other factors to consider when examining specific Disability Insurance policies include:
Whether benefits will be paid if you are unable to perform the duties of your own occupation, versus any job for which you are reasonably qualified – for a highly skilled profession like architecture, this is a crucial distinction.
- The total benefits you will receive from all sources, which are typically limited to 50-70% of your pre-disability income.
- What are your choices of waiting period, or the time between onset of covered disability and when you would start to receive benefits – the longer your waiting period, the lower your cost.
- The maximum amount of time benefits would be paid.
- Whether the coverage is underwritten by a financially strong, reputable insurance company.
Is today the day for you to takes steps to better protect yourself and your family with Life Insurance and/or Disability Insurance? As they say, “Life Happens,” and it’s best to be ready for it. Visit today to get an instant quote for AIA Trust Life Insurance or Disability Insurance , or call 1-877-801-3727 for more information.
1, 6 https://www.acli.com/Industry-Facts/Life-Insurers-Fact-Book
3, 4 https://www.limra.com/siteassets/newsroom/help-protect-our-families/2022/sept/hpof-september-10-facts-about-life-ins.-surprise-you_infographic_final.pdf
5 http://www.iii.org/articles/how-much-life-insurance-do-i-need.html, viewed 3/2023
7 https://www.ssa.gov/disabilityfacts/facts.html, viewed 3/2023
8 https://disabilitycanhappen.org/disability-statistic/, viewed 3/2023
10 Disability Income Insurance – Financial Protection for You and Your Family, American Council for Life Insurers, www.acli.com, viewed 3/2023
11 Source: Insurance Information Institute, https://www.iii.org/article/will-my-employer-provide-disability-coverage, viewed 3/2023
12 Source: IRS, www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insurance-proceeds/life-insurance-disability-insurance-proceeds-1