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The Importance of Life and Long-Term Care Insurance to a Comprehensive Financial Plan

December 12, 2014

The development of a comprehensive financial plan provides understanding of your current and future financial state by using variables to predict the value of your assets, future cash flow and withdrawal plans in retirement. Unfortunately, insurance is an often overlooked variable in the financial planning process. Life and long-term care insurance are critical to consider when developing a realistic, well-rounded and comprehensive financial plan.

 Life insurance, according to the American College of Financial Services, is concerned with the economic values of a human life, derived from its earning capacity. Life insurance is provided to protect the financial dependents of that earning capacity. However, earning capacity doesn’t refer only to those who bring in an income. It also refers to homemakers and at-home parents and caregivers who have traded earning income for not paying for care services for dependents. When economic value is viewed this broadly, it opens up a wide range of purpose and need to establish good life insurance policies for any family member with economic value.

Many think life insurance is only responsible for paying for final expenses, such as funeral and burial expenses. While simple plans like these exist, most frequently life insurance plans also include contingencies for survivor income needs, such as readjustment income, dependency period income and life income for a surviving spouse. They can also include more complex plans for final expenses, to include an allowance for an emergency fund, mortgage cancellation, debt liquidation, education funding, supplemental retirement funding, and charitable donations, in addition to funeral and burial expenses. Taking the time and money necessary to allocate funds for these other expenses will decrease the stress and anxiety heaped on the widow at the loss of their spouse, and on other family members and friends who will need to manage the deceased’s estate.

Long-term care insurance has become more important recently as the economy has taken a beating and traditional living situations have evolved in order to accommodate desired lifestyles.  Rather than houses filled with multi-generational families, more and more of the aging population are moving into various senior living and long-term care facilities. Long-term care includes the skilled, custodial, and other care services that need to be provided for an extended period of time, most frequently due to chronic illness, physical disability, or cognitive impairment. With average nursing home costs now over $75,000 annually for private accommodations (, long-term care insurance provides the necessary financial benefits to help offset that cost.

Most people wait to engage a financial advisor until they are in the midst of or after triggering life events. This reactive, rather than proactive, approach jeopardizes the financial stability of the remaining family and dependents and creates additional stress during an already difficult time. Even for those whose assets aren’t limited, dollars spent on insurance premiums are dollars that can’t be spent on other needs or desires, and too often, people focus on the now and avoid thinking about the future. As you choose a life or long-term care insurance plan, remember that the more plans you have in place, the more money you have allocated to the different subcategories, and the less stress you heap on your loved ones as they struggle with an already difficult situation.