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Insurance: Who Needs it?

What type of insurance makes sense for you?

Evalue sus seguros

— Jacques Laurent/Wave/Corbis

Life Insurance

Life insurance, which comes in many types and sizes, isn’t for everyone.

Do you need it? If you have dependents—such as young children or a non-working spouse who would not be able to support themselves if you died—life insurance can be crucial. Otherwise, probably not.

How much is enough? If we’re talking about term life insurance—the kind that remains in force for say, 10 years, or 20 years—you need enough so that if you die, your family could get by. “As a very rough rule, you should carry life insurance to the tune of eight to 10 times your annual income,” says Cathy Pareto, CFP, president of Cathy Pareto & Associates, a financial planning firm in Coral Gables, Florida.

The other kind of life insurance—permanent life insurance—is a more complicated product that combines a death benefit with money you can tap while still alive. “Permanent life insurance is sold heavily in Latino communities as a conservative investment, but it typically isn’t the best investment in town,” says Pareto. “Permanent life insurance [which includes whole life and universal life policies] tends to be an expensive way to invest. You might be better off with lower-cost term insurance and then investing your money elsewhere,” she says.

Tips: Whether you buy term or permanent, it pays to shop around. Premiums can vary substantially.

Long-Term Care Insurance

With the average cost for a single day in a nursing home now hovering at about $200—an expense usually not covered by health insurance or Medicaid—even a short-term stay could obliterate an average family’s finances. Long-term care (LTC) insurance is designed to pay for nursing-home care, or perhaps a home-health aide, should you find yourself in need. Government figures tell us that about 70 percent of people over age 65 will require some form of long-term care during their lifetime, and that the average need for services spans three years.

Do you need it? LTC insurance is a wonderful thing to have, but you must weigh the benefits against their high cost. The best candidates tend to be in their 50s and have enough money to pay the premiums. “Saving for retirement should come first, and LTC insurance after that,” says financial planner Pareto.

How much is enough? Purchased at age 55, a plan that would pay $150 a day, inflation-adjusted, for up to three years of care might run you $1,100 or so a year in premiums. Purchased at age 65, that same plan might cost $3,000 or so a year. Given these prices, you don’t want to buy more than you need. How much you need, says Pareto, can vary greatly depending on where you live. Use this online calculator to find out what the average cost of care in your area. Factor in other potential sources of income such as Social Security, pension, and investment income in determining your need.

Tips: Look very closely at each policy’s list of “activities of daily living” (ADL)—which determine how bad your condition must be before your policy kicks in—the waiting period, and the time that your benefits will last. It’s best to have inflation adjustment built in, especially if you’re buying the plan at a younger age. If you’re healthy, ask for a good-health discount, which might save you 10 percent off your premiums.

For Hispanics in particular, who often see caring for their elders as a natural part of family life, Pareto suggests paying special attention to the part of the policy that discusses home-care reimbursements. And if you think that you may want to return to your home country some day, look for a policy that will pay you a lump sum that you can take with you. Such a policy would be called a “cash” or “cash-based” policy.

Next: Umbrella and Cancer & Heart Disease/Stroke Insurance.>>

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