Types of Insurance

There are may different types of insurance coverage  Life insurance is usually your primary defense and has the two-pronged effect of protecting your family’s assets from being depleted or lost and providing liquidity. This post lists the various types of insurance for you to consider and briefly introduces some of their attributes, but by no means is the list or discussion complete or an exhaustive description of the issues.  Talk with your insurance agent about your coverages.

Health insurance.

Most bankruptcies in the United States are the result of medical care expenses.  Being covered by a strong health insurance policy is as, if not more, important than your auto and homeowners policies.  Reviewing physician and hospital networks is as important as premiums and deductibles.  Health Insurance is major issue and you need to address it – if a typical plan is unavailable, at least purchase catastrophic or high deductible coverage. For those on Medicare, supplemental insurance is strongly recommended.

Personal Liability Insurance.

When was the last time you sat down with your insurance agent and reviewed your policies?  Liability insurance is your first line of defense and usually covers most claims. Reviewing your coverages with your agent can identify gaps, missed assets and changes in your life that didn’t get changed at renewal.  In addition to premiums, review limits and deductibles to insure they are appropriate.  We strongly recommend adding an umbrella policy to your homeowners policy to give you extra coverage without dramatically increasing your insurance costs.  Most people are good about adding or deleting cars.  But what about your homeowners policies – did you modify your policy when you changed your second home from a personal residence to a rental?  Did you separately schedule your valuable jewelry and collections, such as art, coins and stamps?  Are you covered for sewer back-ups and mold remediation?  Does your home need flood and earthquake coverage?  We have seen situations arise when changing policies where related entities were not listed as additional insureds and were not covered by the policy.   Reviewing your policy after an accident does not help you. Schedule your appointment with your agent now.

Business Liability Insurance.

General liability insurance and D&O coverage for businesses are common as is malpractice insurance for professionals such as doctors, lawyers and accountants.  Endorsements can also usually be purchased to cover employment practices, cyber security and data breach.  Liability policies are often on a “claims made” basis, so the policy must be inforce when the incident occurred and when the claim was made.  Nose and tail coverage can also be purchased to cover incidents before or after the policy is in force.  Each industry has its own nuances, so talk with your insurance agent about your industry and the best coverages for it.  For example, the entrepreneur with a small business has a much different risk profile than the young surgeon with a large income.  Each situation is unique. Your agent also can also be a good source of information of where the potential risks are in your industry and ways to mitigate that risk through insurance endorsements, education, contracts or legal structure.

Life Insurance.

Much has been written about life insurance elsewhere, but here are our thoughts on the topic.  Life insurance is a fantastic solution to a multitude of issues in addition to providing liquidity to your business or family upon death.  Life insurance can be used to turn an illiquid asset into a liquid one, such as providing for the buy-out of a closely held business.  It also can be used as an effective creditor protection tool because the cash surrender value and death benefits of life insurance policies are exempt from attachment by creditors under Arizona law.  See A.R.S §33-1126(A)(6) and A.R.S. §20-1131(D).  However, life insurance can also can be oversold.  It is important to get input from your accountant, attorney and life insurance agent before purchasing a large life insurance policy.  Ownership and death benefits can have unintended adverse consequences.  An irrevocable life insurance trust can solve some of those issues.  For more on ILIT’s go to our discussion on advanced estate planning tools here.  Needless to say, getting input from each of your advisors will help you find the appropriate death benefit and structure for your policy given your particular circumstances.

Long term care insurance.

Long term care has become more limited and more expensive because of rising health care costs.  However, that does not mean it should be ignored, especially for individuals with relatively small estates.  Protecting those assets means insuring around the risk that you will need long term care because of an accident, an illness or simply aging.  Talk with your insurance agent about whether a long term care insurance policy is appropriate given your circumstances.

Disability Insurance.

A disability insurance policy is often associated with replacing your income if you were to become disabled and unable to work.  However, it also can be purchased to provide for a buy-out of a closely held business.  The key to these policies is the definition of disability and the exclusion period.  Make sure you have adequate liquidity to cover a disability before the coverage kicks in.  These policies are very important for those individuals, spouses and dependents who are relying on the income from the individual or his or her business to support their lifestyle.  Availability depends your income and health.  Talk with your insurance agent about whether a disability care insurance policy is appropriate given your circumstances.

As your primary defense against an accident or claim, proper insurance is essential. Make sure you have the appropriate types of insurance, are appropriately covered, and regularly review those coverages with your agent.  For a description of other important defense strategies see the post on protecting family assets here.