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Risk Management: Understanding The 5 Types of Insurance  Thumbnail

Risk Management: Understanding The 5 Types of Insurance

There are multiple types of insurance, each with unique properties that must be understood if you're going to protect your family in the event of an emergency. 

When it comes to creating a sound financial strategy, many people think of creating a diversified portfolio or making sure they’re regularly contributing to their retirement plan. But a good financial plan includes insuring against the unexpected and making sure that no matter what happens, you’re covered.

If you’re younger and have a lot of life ahead of you, you might wonder why you need to consider disability insurance or life insurance. But the point of insurance is to expect the unexpected and make sure that you've taken care of yourself and your family if something happens to you.

Each type of insurance has specific coverages and restrictions, and some types of insurance make more sense than others, depending on your age. Talking with one of our licensed financial advisors will ensure that insurance is a well looked after part of your strategy.

Understanding the different types of insurance policies will give you the freedom to live your best years during your retirement.

  • Property insurance may take the form of homeowners insurance, renters' insurance, or insurance against a specific natural disaster, like flood or earthquake insurance. Property insurance typically covers the building itself and the contents within it should something happen. A rental policy will cover your possessions as a renter should something happen to your building. You’ve spent a lifetime building up your possessions; if everything were lost tomorrow, you wouldn’t want to outlay the funds to rebuy everything you own.1
  • Casualty insurance protects you against claims or lawsuits made against you by outside parties. Casualty insurance is already bundled in if you already have homeowners and auto insurance. For example, if someone falls down deck stairs because you failed to maintain them, the casualty part of your homeowners insurance would cover this type of claim.2
  • Life insurance is a way of providing financial support to your loved ones after you’re gone. You’ll pay a premium, typically monthly or annually, and pay a death benefit to your beneficiaries after you’re gone. Death benefit money can be used to pay funeral expenses, mortgage or rent payments, and day-to-day living expenses. Younger people typically overlook this type of insurance, but life insurance should be a part of everyone’s financial plan.3
  • Disability insurance protects you if you become disabled and unable to work. It’s helpful to think of disability insurance as insurance for your income. The two types of disability insurance—short-term disability (STD) and long-term disability (LTD)—are typically offered as part of or in addition to your insurance options provided by your employer. STD typically covers periods of injury or disability from 13-26 weeks, while LTD usually offers several years of continuous income replacement after a work-ending workplace injury. However, these policies only typically cover a percentage of your previous income. Still, having at least some of your income covered is better than nothing.4
  • Extended care insurance, sometimes referred to as long-term care insurance, is designed to help cover you after age 65 and provide in-patient or at-home care for a chronic condition. Extended care insurance can cover nursing homes, assisted living facilities, home health aides, and private-duty nurses. Extended care insurance is also less expensive the younger you are, so if you’re approaching 50, it’s something to start considering.5

Insurance is an essential part of your life and financial strategy. By preparing for the worst (while hoping for the best), you’ll be able to handle any changes in your life and provide yourself with some protection against significant disasters or illnesses. Remember, you can’t control everything that happens in life, but you can create a plan that will support you no matter what. Here at California Retirement Advisors, we can help you understand, plan for, and implement appropriate insurance strategies such as: potential tax consequences of annuities and life insurance, liquidity when your heirs need it most, evaluating your existing assets, and more. Feel free to contact us to speak with a qualified advisor today and plan for the best years of your life.

By Christian Cordoba
Founder, California Retirement Advisors

For more information on risk management, check out these CRA articles:

Risk Management: What Is Asset Allocation? — California Retirement Advisors (cradvisors.com)

Risk Management - How Diversification Can Increase Your Gains Exponentially! — California Retirement Advisors (cradvisors.com)

Market, Interest Rate and Currency Risk - Understanding The Three Risks of Risk Management — California Retirement Advisors (cradvisors.com)

  1. https://www.thebalance.com/what-is-property-insurance-5201635
  2. https://www.forbes.com/advisor/car-insurance/what-is-casualty-insurance/
  3. https://www.usnews.com/insurance/life-insurance/how-does-life-insurance-work
  4. https://www.forbes.com/sites/paulamorgan/2021/05/19/everything-you-need-to-know-about-disability-insurance/?sh=36ccba1c3420
  5. https://www.investopedia.com/terms/l/ltcinsurance.asp

Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.