Here’s the insurance advisors say you’ll need at each stage of life

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What type of insurance should you have at different stages of your life? When asked, financial advisors pointed to disability and life insurance as most important kind of coverage at any stage, as they apply throughout our lives.

In addition, advisors discussed often overlooked considerations for different points in your adult life. Here’s a look at some age-specific insurance advice, from your days at university to your golden years of retirement.

The insurance you’ll need for each stage of life

Here’s a look at five stages of life and the relevant type of insurance recommended for each:

Single: Health, disability, renters, auto
Young marrieds: Add life and homeowners
With children through college age: Increase auto coverages for young drivers, add liability. Take advantage of employer FSA/125 plans. Gift a life insurance policy to your children.
Empty nesters: LTC or hybrid life and LTC policies
Retirees: Medicare, with Medigap policies. No longer need disability. Long-term care insurance very important. Life insurance necessary for surviving spouse and legacy for heirs.

— Sallie Mullins Thompson, CPA/PFS, CFP, Washington, D.C.

College days

“If you take out a private student loan … and that loan is co-signed by a parent and is not discharged upon your death, then you need some life insurance to cover the loan,” said certified financial planner David J. Haas, owner of Cereus Financial in Franklin Lakes, New Jersey.

Because the need is temporary, for the life of the loan only, term life would be appropriate, he said.

On the job

“If you are working, you almost certainly need disability insurance,” said Sean M. Pearson, CFP, associate vice president with Ameriprise Financial in Conshohocken, Pennsylvania. “Most large employers offer it as a benefit, but that does not mean that you have enough.”

A note on life insurance: The two main categories are generally referred to as “term” (insurance for a defined period of time) and “permanent” (insurance for an undefined period of time; i.e., lifetime).

It’s important to understand your coverage, he said. Plans may cover total disability, which is defined as when the worker is unable to work, or they may only cover a situation where the worker is unable to perform part of a job or requires reduced hours.

“For example, if you are earning $100,000 per year before an injury or illness, and after a change in your health you could still accomplish a job that pays $40,000 but are unable to continue in your current role, you may not be able to collect insurance,” Pearson said.

Family time

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Getting married and starting a family is when things get more complicated, said CFP Robert Fragasso, CEO of Fragasso Financial Advisors in Pittsburgh.

“If you have a mortgage and need two incomes and want to start saving for college, term life insurance would be appropriate until those debts are paid,” he said. “For obligations occurring after you pass, such as death taxes, a business buyout, or supporting a disabled child, you should look into permanent insurance.”

Long-term disability insurance is often overlooked at this stage, Cereus Financial’s Haas said.

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“It is most important the younger you are, because it covers a lifetime of earning which will be in jeopardy if you become disabled,” he said.

Pearson said to be sure to look into “porting” your disability coverage, or taking it with you, if you take a leave of absence to care for a child or family member. “If a stay-at-home parent wants to return to work but has a health change during time spent as a caregiver, that person may be unable to return to work as quickly or at the salary expected,” he noted.

Getting ready to retire

Preretirement is the time to plan for protection against chronic illness that might require care in retirement, Pearson said.

“There are more choices [at that age] … that may be less expensive if you plan early,” he added. “‘Early’ could be a married couple in their late 30s who don’t plan on having children and have extra cash flow after retirement savings, or [in their] late 50s, when education expenses are mostly over,” he said.

Your golden years

If you are newly retired or in retirement, one option to protect against outliving your money is a single premium immediate annuity, said Ivan Illan, founder of Aligne Wealth Preservation in Los Angeles.

This simple form of annuity requires a lump sum upfront, which is generally irrevocable, and pays you a lifetime stream of income immediately. (This contrasts with a deferred annuity, which begins payments at a future date).

It’s important to note that they don’t address inflation risk, he said.

“Annuities in and of themselves are not evil — it’s all in the application,” Illan said. “But there’s no free lunch — you’re in essence giving away this lump sum, but the cash flows can be significantly better than bonds.”