How stagnated insurance leaves us vulnerable.
Americans are becoming more adept at taking care of the big stuff. We are paying down debt, saving for our children’s educations and becoming more mindful of our responsibility for our own retirement. But as our wealth increases; homes are bought, cars accumulated, maybe even a pool put in, we sabotage years of hard work by not revisiting insurance policies. Adequate coverage should be the foundation of our portfolios. Not revisiting our policies is like playing Russian roulette with our wealth.
In general, insurance is not anyone’s favorite aspect of financial planning. It lacks the sexiness of stocks, bonds and mutual funds. If not used, it is hard not to see it as a lifetime of paying in for little or no return. But we are wired to protect ourselves. If we live in a nice home, maybe we put up a fence. If our homes have valuable items, an alarm system may be installed. But fences and alarm systems can not protect the bulk of our wealth left compromised, neglected and unprotected. Only proper insurance can. As a simple rule of thumb, every event that you would receive a greeting card is a good time to review your insurance.
Here are the basics:
Graduation from College
The beginning of life as an independent adult comes with a lot of responsibilities. Likely, you will be moving into your first apartment, owning your first car, and beginning your first job. Renters insurance, car insurance and health insurance are a new adult’s first steps into the world of the insured. For some, this may be simply transferring from your parent’s policies onto your own. Shop around and do your homework before purchasing your first policies. Understanding the terms will make you a more educated and confident consumer. Often overlooked, but necessary, is disability coverage. If you were to get sick or injured, your rent, car payment and student loans will still be due. With the exception of life insurance, where the younger you purchase it, the less expensive it will be, make sure your policy covers what you need now and not what you speculate you could need in twenty years.
Laying your Roots
When you begin to lay roots by getting married or buying your first home, your insurance needs begin to change. Marriage is an important time in life to review your insurance. As a couple, it makes sense to merge onto the better or more cost effective health insurance plan and not maintain separate policies. Auto policies often offer discounts when merged and updated to a married status. If you have not done so already, life insurance policies should be reviewed to determine if policy amounts should be increased. If you are purchasing your first home, homeowners insurance is required. Be sure than your policy covers jewelry or new valuables you received as wedding gifts.
And Baby Makes Three
Having children is a good indicator that it is time to again update your insurance. In addition to adding the child to your health insurance policy, you also need to review your life insurance policy to make sure that it is adequate for the next two decades. It is vital to make sure that in the event of tragedy, the surviving spouse has the means to care for your children until adulthood. If one spouse temporarily leaves the work place or reduces their hours in order to care for children, disability insurance becomes even more vital to the protection of the family’s income in the event that the primary earner is sick or injured.
The Empty Nest
The empty nest phase is the next time for an adjustment of your insurance needs. As children are removed from your health and auto policies, you will need to factor in long term care insurance. This often overlooked insurance is necessary to maintaining your independence as you grow older and to avoid becoming a financial burden to your children and family members as you age. The earlier you add this insurance, the more favorable the rates will be.
Moving Beyond Basics
Where many people go wrong is they purchase the basics but never review or adjust after the basics have been secured. It is good to meet with a financial advisor each year, not only to discuss your investments and financial plan, but to make sure that your insurance needs are reflected in the increase of your wealth. Life insurance purchased when you were living in a starter home and making $40,000 a year probably is not sufficient twenty years later when you are living in a larger home and making four times that salary. Also, if you have a vacation home, multiple cars with multiple drivers, pools, and a family member who is on the board of a non-profit organization or conducts business from home, you are probably not adequately insured. As you progress in life and become more financially secure, your need for a periodic comprehensive review becomes a more non-negotiable aspect of your financial planning. Most Americans do not realize the extent of the holes in their coverage until an event happens. The reality is that there are very few working people who would not benefit from gap or umbrella coverage. The other reality is that very few realize this.
A comprehensive insurance evaluation should address whether you have adequate coverage to protect against lawsuits, extensive property damage in the event of natural disaster or acts of nature, enough income if you become sick or disabled, or life long security for family members if you are not longer around.
So when you think about insurance, instead of thinking of it as a necessary evil, think of it as the unsung hero of financial planning. If you are not sure if you are a candidate for a comprehensive insurance update, ask yourself this question; would you bet all of your money and worldly goods on a horse race? If your answer was no, Contact us to schedule an evaluation.