Heather N. Kolich, ANR Agent, UGA Extension Forsyth County
Insurance is a tool to manage financial risk. Since life is full of risks, there are an astounding number of insurance products to protect against them, including life, renters, short- and long-term disability, vacation, and pet insurance. Within each insurance category are different types and levels of risk coverage. Understanding how insurance protects our financial health and when we need – or don’t need – specific insurance products is an element of financial literacy.
Life insurance: Term, Whole, AD&D
My husband and I purchased life insurance policies when our first daughter was born. As young parents with a home and a mortgage, we purchased term life insurance.
Term life insurance is inexpensive when you’re young, provides coverage for a specified period of time, from 1-30 years, and pays a specified lump sum to beneficiaries if the insured person dies while covered. Beneficiaries are the person or people named to receive the pay-out that helps cover the loss of income of the deceased partner, pay off the mortgage, and protect the family from financial crisis and additional suffering.
Our daughters are grown and independent, now, and the original term of my life insurance policy ended several years ago, but I still renew it annually – at a slightly higher monthly premium – because we have a new mortgage and depend upon my income.
Whole life insurance offers lower coverage amounts than term life, but provided the premiums are paid, it continues for the life of the insured person and builds cash value. Some companies call this type of insurance burial or funeral insurance because benefit options are enough to pay for funeral costs and final expenses so that loved ones don’t have to bear that financial burden.
AD&D insurance covers accidental death and dismemberment. AD&D policies pay a fixed amount for loss of a limb, vision, hearing, or life due to a covered accident. It is a supplement to life insurance.
Short-term and long-term disability
Short- and long-term disability policies pay a portion of your normal weekly or monthly earnings if you’re unable to work because of sickness or accidental injury. I routinely purchase both through my employer, but I questioned if I still need short-term disability since I have a healthy bank of sick leave. Reading over the policy revealed that there is an “elimination period” of 14 days after the date the sickness or injury occurs before the benefit period begins on my policy. Accrued sick leave could be used for the elimination period. After that, short-term disability benefits begin and may continue for up to 11 weeks. If the disability continues beyond that term, then long-term disability benefits kick in and can continue up to your normal retirement age as defined by the Social Security Administration, at which point, Social Security benefits kick in.
Individual risk assessments and risk tolerance are important in determining if and when we need particular insurance coverage. For information on these and other types of insurance, visit the website of the Georgia Office of the Commissioner of Insurance and Safety Fire at https://oci.georgia.gov/.