Your clients likely know they should be saving for their golden years.
But, setting aside money for retirement in addition to the many other financial demands of life, can lead to competing priorities and challenging trade-offs.
As a financial professional, you have undoubtedly encountered this fiscal juggling act with your clients. You have also probably seen first-hand how insurance options – particularly some of the lesser-known voluntary offerings – are frequently over-looked as a helpful planning tool until it is too late.
In many ways, they are a retirement plan’s humble and unappreciated hero, failing to get the credit and attention they rightfully deserve.
In addition to retirement, health care is another pressing priority that pulls at the family budget. With premiums, deductibles and coinsurance payments on the rise, individuals are faced with increased medical bills for out-of-pocket expenses. This makes certain voluntary insurance products even more valuable, particularly critical illness, hospital indemnity, disability and accident insurance.
With these demands constantly tugging at their wallets, employees aren’t always thinking of how to protect the very assets that will sustain them today and through retirement.
For example, establishing an easily-accessible emergency fund with three to six months of income can be essential for the “just in case” scenarios of job loss, extended illness or other unexpected financial burdens. Yet, many struggle to build that safety net into their strategy. If such an event were to happen, they may be forced to dip into their retirement savings as the only answer. This is never an ideal option and it can take a big bite out of one’s future retirement security.
One relatively easy and cost-effective way to prepare for this risk is through insurance. Life insurance can help protect a family in case of death, while voluntary insurance can protect a family if something unexpected occurs and a medical plan does not cover all of the costs. Proceeds from either can be used so that your nest egg stays well insulated.
A real-world scenario
To illustrate how voluntary insurance coverage could help, take for example, the impact of a stroke. At first glance, a medical plan with a $1,250 deductible and a $2,500 out-of-pocket maximum payment seems reasonable. To cover the costs, an employee can dip into an emergency fund or perhaps squeeze it into the budget.
But, even a minor stroke can sideline an employee from work for a week or more, and possibly require physical therapy – which means more time away from work. Vacation hours can quickly disappear and disability benefits cover only a portion of salary – typically around 60 percent. While physical therapy visits are generally covered by medical insurance, an employee is often left exposed due to lost income from time away from work.
In addition, they may be unable to drive to therapy themselves and have to take a taxi or enlist a spouse or friend to drive them (and take time off work). If it’s more serious, they may need to install a ramp into their home, a grab bar in the shower or even an “elevator chair” in the stairwell. These and other possible expenses start to add up.
As funds in an emergency account dwindle, an employee may be left looking at the unappealing prospect of tapping their retirement savings.
In this example, voluntary insurance benefits – such as a $15,000 critical illness policy – could help fill the gaps and fund those inevitable out-of-pocket expenses that quickly emerge.
This protection is particularly helpful in situations where disability insurance covers, let’s say, 60 percent of salary and an employee needs help with the basics such as the mortgage and keeping the lights on. Beyond the basics, they may need to pay for home or vehicle modifications, transportation to and from physical therapy, and medical co-pays and deductibles.
Voluntary benefits are not only a means to help with medical deductibles and out-of-pocket expenses, but, equally important, a key way to protect an emergency fund and retirement savings. It’s helpful to think about the money you set aside for retirement as distinct from the money you use and need for day-to-day living – especially when those living expenses emerge unexpectedly. My own company calls attention to this concept by suggesting that people imagine their retirement assets as "orange money," which they need to preserve and protect.
Viewed this way, insurance such as voluntary coverage plays an important role. Working quietly – yet effectively – in the background until needed, it may very well be the unsung hero in retirement planning.