The challenges we face push us to progress.
“The only guarantee, ever, is that things will go wrong. The only thing we can use to mitigate this is anticipation. Because the only variable we control completely is ourselves.”
― Ryan Holiday, author of The Obstacle Is the Way: The Timeless Art of Turning Adversity to Advantage
The Holidays (no relation to the author) are a great time to reflect on the past year and to set goals for the year ahead. I know we’re all anxious to put 2020 behind us, but don’t close the book on 2020 without reviewing your insurance needs. I know insurance isn’t everyone’s favorite topic. But you don’t want to leave yourself and your family unprotected—or pay too much for protection that’s no longer applicable to your current life circumstances. Insurance can seem complicated, even to those in the industry. That’s why I break it down into three simple, but important buckets:
- Your Assets.
- Your Income.
- Your Life.
- YOUR ASSETS:
People rarely look at their home and auto policies unless they need to file a claim. Most can’t recall who their policy is with or the details of their coverage. If they did, they’d often find their coverages are outdated and/or their premiums are much higher than what they’d find in the open market. Working with a seasoned broker can help you explore options across many carriers and maximize your protections for the least amount of money.
When it comes to asset protection, the two biggest issues we commonly see are:
- Lack of umbrella insurance.
Umbrella liability coverage sits on top of your other policies. It can cover you for losses not covered by your other policies and can protect your other assets or income in case you are sued. Umbrella insurance is one of the most misunderstood and most under-utilized protections for successful people:
- The five major categories of assets at risk from a liability settlement are: (1) savings, (2) investments, (3) home equity, (4) future wages, and (5) certain retirement accounts.
- An umbrella policy provides additional liability coverage to protect those assets from a liability lawsuit.
- Umbrella policies can be very helpful for parents with new/youthful drivers.
- Low deductibles, even though policyholders have ample liquidity elsewhere.
In our consumer-centric society, it’s tempting to focus only on the lowest premium costs. Online quotes can be a good start, but they can be extremely inaccurate as online providers have likely not run additional reports to verify your history. You can end up with higher premiums after paying the initial amount to secure the policy.
Take auto insurance. It’s about more than just repairing or replacing your vehicle. The coverage for your vehicle is optional; the mandatory and primary focus of auto insurance is when you are “at-fault” in an accident and either injure someone or damage their property. Auto insurance should also provide coverage for a lawsuit stemming from an accident.
Many people have low deductibles (e.g., $500). When asked if they would submit a claim for a $1,000 accident, most people tell me NO, since they don’t want to risk having their premiums go up. So why do they set their deductible so low and pay the extra premiums? Wouldn’t it be better to have some extra liquid cash on hand to cover smaller mishaps? You can do that easily by raising your deductible to reduce your premium?
- YOUR INCOME
Disability
Most people don’t think they will ever become disabled. However, the Council on Disability Awareness (CDA) suggests otherwise:
- According to the CDA, over one in four of today’s 20-year-olds will become disabled before they retire.
- Accidents are NOT usually the culprit. CDA says back injuries, cancer, heart disease and other illnesses cause the majority of long-term work absences.
- The average duration for a long-term disability claim is 34.6 months—that’s right, almost THREE years!
Most folks who have coverage through their employer tell me they are covered for 50%-60% of their income. Great. But how long could you get by on half your income after becoming disabled and unable to work? How would that impact your ability to pay for a child’s or grandchild’s education, let alone the monthly bills?
Just as many people gloss over their asset protection policies, they tend to skim over their disability insurance and really don’t know what’s covered. Don’t let this happen to you. Ask a qualified advisor to review your policy to help you determine if it makes sense to get a supplemental disability policy on top of your employer-sponsored disability insurance.
III. YOUR LIFE
Life Insurance
As with disability insurance, many people rely on their employer for life insurance. Typically, they have standard, one-size-fits-all group term life policy. Depending on your circumstance, it may not be enough to ensure your family can maintain their standard of living if you’re live no longer alive and unable to provide for them.
Life insurance comes in many different forms, most commonly term, permanent and various flavors of each. I know the policy language (and math) can be overwhelming. That’s why it’s important to talk to a licensed professional to walk you through various options to meet your financial goals and to see how each type fits into your overall financial picture.
The old adage: “buy term and invest the difference” is way too simplistic and can seriously erode your future wealth. Everyone’s situation is different, and the cheapest option is not always best as it may end up costing you significantly over your lifetime. Remember, we’re talking about protection for your family if you’re no longer there to provide for them.
Estate Planning
According to a Caring.com survey, less than one-third of Americans (32%) had a will or estate plan. Pretty scary amid a pandemic! Remember, if you don’t have a will or estate plan at the time of your death, the state government takes over your estate and determines what to do with your assets and who will care for your children. In many cases, the government’s handling of your estate won’t be what you had in mind for your estate and/or minor children. Why take that risk?
Basic estate plans are not expensive and they’re extremely important for ensuring that your family and heirs are protected according to your wishes—not the government’s. Why wouldn’t more people want to have such an important document in place, especially when it doesn’t cost much to prepare? The main excuse I hear is: “I don’t have enough assets to need an estate plan.”
Well, having an estate plan in place is not just about leaving assets to the next generation. There are other important protections to consider. For instance, if you have minor children, your estate plan will ensure they are looked by the legal guardians of your choice, if you and your spouse are no longer alive. The estate plan will also ensure that your wealth will be used and distributed to heirs according to your wishes—not the probate court’s wishes.
A Living Will and Advanced Health Care Directive will allow you to clearly state how you want your medical care administered if you have a terminal illness or if you’re in a comatose state and can’t make decisions for yourself. Your living will and advanced health care directive will also ensure that medical professionals follow your end of life wishes.
Durable Powers of Attorney (POA)
Your POA will give your appointed agent the power to make certain decisions on your behalf when you are unable to do such as healthcare and financial decisions.
Revocable Living Trust (RLT)
The RLT is completely under your control. As the name implies, your RLT is fully revocable while you are alive. You may alter, amend (in whole or in part), or even revoke your trust at any time. You can transfer assets out of your trust just as easily as you can transfer your assets them into your trust. The RLT also helps your family avoid probate and protects your assets from creditors.
Conclusion
During these unsettling times, I know it’s not pleasant thinking about your mortality or how to protect all your assets from unscrupulous people. But isn’t that the least you can do for the people you love? If you or someone close to you has concerns about protecting their assets, income, or family, please don’t hesitate to schedule a Discovery Session. I’m happy to help.
