Amy & Dan Smith's Planning for Life: Insurance—What’s the Use of It?

It’s like putting money down a black hole – Until You Need It! It is the major, unplanned-for loss that permanently wrecks financial well-being. Consider the following:

Major illness: Paying the premiums and then the deductible is annoying. However, failure to cover the possibility of a long-term illness can devastate savings and, even, lead to bankruptcy.

Fire: The loss of a residence seems remote to most folks. However, it happens. If there is inadequate coverage, comparable replacement may not be possible. At the same time the mortgage must be paid.

Liability: Harm to an individual – eg., an invited guest or a random victim in a car accident – can be emotionally gut-wrenching. One can be charged with liability for his/her actions which arguably caused injury to a friend or family member as well, of course, to a stranger. Having ample liability coverage – and, I would suggest, an umbrella policy – does give some peace of mind even though it may not remove the personal pain. Also, not having to pay lawyers to defend you (they are paid by your insurance company) can help relieve much stress.

Disability: The inability to function in the workplace due to disease or accident can put an abrupt end to the income stream which is supporting the family in whole or in part. Income replacement policies are expensive and are often not part of the employment package provided by employers. Furthermore, there are vast differences among policies — e.g., the definition of “disability,” waiting period before coverage begins, length of time the benefit is paid, etc. High quality policies are more expensive. Honestly, this is a difficult area of risk management, and hopefully it will not be needed. For the major bread-earner, however, it is an essential element for financial well-being of the family.

Long term care: Medicare does not provide long term care. The need for in-home care or residential assisted living must be self-insured. Having a policy can mean the difference between staying at home or having to going into residential living. It also gives peace of mind to parents who are not wanting to deplete the children’s inheritance. The cost of the long-term care policy depends on the “bells and whistles” one contracts for – eg, waiting period, length of time the benefit will pay, the amount of the benefit, and whether there is an inflation adjustment to the benefit. It is not too early for folks in their late 40’s to begin to look at these policies. The earlier coverage begins, the lower the premium.

Life: This is certainly an area where you hope the insurance company wins the bet; that is, that you live a long life! The type of policy one obtains—permanent vs term — depends on the risk that the loss of the insured poses. The major bread-earner with young children certainly needs to cover potential child care and education costs. Even the non-income producing spouse should have some coverage. Typically, cost of term insurance for parents with young children is inexpensive; however, it is the time of life when insurance is most needed.

Your author does not sell insurance. However, he has personally experienced the loss of his residence by fire, the long-term illness and death of a loved one, and a disability. The value of appropriate insurance at the right time cannot be overstated.

From "Amy & Dan Smith's Planning for Life" column appearing monthly in the Blue Ridge Leader, Loudoun County, VA.

The foregoing article contains general legal information only and is not intended to convey legal advice.  For legal advice regarding estate planning, the reader should contact his/her lawyer.

Daniel D. Smith is a partner in the law firm of Smith & Pugh, PLC, 161 Fort Evans Road, NE, Suite 345, Leesburg, VA 20176. (Tel: 703-777-6084, He has practiced law in Loudoun County since 1980.