Recently, I was dramatically reminded of the need for a conversation about insurance planning as a part of any discussion of financial planning and goals.
We often think of planning for a secure retirement as being all about what we have saved in our 401(k), other retirement plans and investment accounts. We take great care in crafting a suitable portfolio and allocation to fit an individual or family’s risk tolerance and time horizon. We carefully monitor the investments, with money managers who choose stocks and bonds to hold in each fund. We make changes to allocation of those investments depending upon age, stage in life, and other life changes.
What often is forgotten during this conversation is what some people call the “building blocks” or “base” of your financial plan. These are the things that can keep us, our families, and even our savings safe when bad things happen to us, which unfortunately, they often do. I am talking about insurance.
We pay premiums to insure our health. We insure our homes against damage and our belongings against theft. If we drive a vehicle, we are required to insure it and also have a liability rider to protect others in case we injure them while driving. These are coverages that we rarely think about (other than the premiums seem very high sometimes) but take for granted that we are always going to have to plan for.
Many of us own life insurance. We acknowledge the need to replace income for our families if we die unexpectedly or prematurely. We often forget, however, or think it is too expensive, to insure one of our most important assets: our earning power. Disability Income insurance is used to replace a portion of income in the event that we become disabled and unable to earn an income.
Another building block in our financial planning foundation is Personal Liability Insurance, often called umbrella coverage, another layer of insurance over and above the benefit provided by homeowners or auto insurance. In this increasingly litigious society, it can be an important part of a persons financial picture.
Finally, there is Long Term Care Insurance, which is often used to protect assets in the event of the need for long term care in a facility, or at home. With rising costs for extended care, it does not take long to deplete accounts that took a lifetime to build.
Not having a plan for any of the above situations can derail a carefully crafted retirement strategy.
In my situation, the need was not as dire as these but I still required help. The question arose as I was telling my friend (who owns a pet grooming business) that I had to take my Yorkie for x-rays to determine if he would need surgery, when he was inadvertently stepped on and suffered a broken leg.
She said “I hope that you have pet insurance. It will really help, as it is very expensive to have that type of surgery done.” My response – “No I don’t.” It just had never occurred to me.
After writing a rather large check to the veterinary office, who did a wonderful job fixing his leg, I realized I may have a hole in my financial plan. Now I am off to research the costs and benefits of pet insurance – because sometimes bad things happen no matter how careful we are, and they can be very expensive.
During your next conversation with your financial advisor please take just a few minutes to do an insurance review. Make sure that all of your various policies are covering the risks that you think they are – and that they are enough. The peace of mind will be priceless!