Risk Management 101
Are you financially fit enough to protect your love ones in the event of an emergency or incapacitation? If you are like most Americans you are likely woefully underinsured when it comes to protection from a death, disability or even a natural disaster than destroys your home.
Here’s a quick quiz to assess your ability to manage these risks:
1. Do you have health insurance; and if so, can you cover your maximum out of pocket costs?
Having a reserve to cover these costs will enable you to consider a lower cost high deductible policy and prevent you from reading your 401K or taking loans in the event of a medical emergency.
2. Do you have emergency cash reserves of at least 6 months of expenses?
This is especially important in today’s economy. Families who did not have this buffer are really struggling due to a job loss. If you have a higher income position, you will need to consider an even larger reserve or cushion of at least 1 years living expenses.
3. If you have dependents do you have life insurance of roughly 7-10 times income?
This is a general rule of thumb and this will decline as your assets increase with age. Procuring low cost term insurance to cover your living expenses, including your mortgage and possibly college funding as well as retirement funding during your anticipated employment, is wise.
4. Do you have disability insurance that provides roughly 2/3 of your income after taxes?
Group policies are taxes while individual policies are not, so look at your after tax payment and see if you think it will cover you. Likely you will need a supplemental individual policy to provide adequate protection. Note that group policies can be extremely expensive after age 50; so, if you are healthy, locking in a lower premium for individual coverage at that point may be wise.
5. If you are a renter, do you have renters insurance?
This will protect your contents in case of a fire, theft or other disaster.
If you own a home, does your insurance cover the full replacement cost (current) of your home? Make sure the coverage is increased to correspond with current building costs. Often if your insurance coverage is less than 80% of the replacement cost you will not be reimbursed for full replacement cost of the dwelling.
6. If you are in a flood plain or fault line, have you acquired supplemental coverage for these events?
Consider a wind and hail policy, flood policy on coastal property or flood prone areas. Shop around for earthquake coverage if you are concerned about this risk.
7. Are you deductibles as high as you can afford? $1000+ for homeowners, $500+ auto?
Increasing your deductibles can substantially decrease your premiums. Ask your agent to run the numbers to quantify savings.
8. Do you have an umbrella liability policy that covers your net worth?
This is an often overlooked aspect of your insurance coverage yet it is very inexpensive and provides peace of mind in a litigious society.
9. If you are in your 50s+ have you looked into a long term care policy?
Baby Boomers are aging and with that will come an epidemic in long term care due to age related decline in physical and mental capacity. You need to have a plan in place to protect yourself and your assets. Medicaid is not a viable option as you must spend down almost all of your assets and have a limited income.
February may be an excellent time to review your insurance policies to better understand your coverage. Contact your agent for any questions and or to run quotes from other carriers to see if you can save money for the same or better coverage.
