Financial Preparedness, Insurance, Retirement

A New Year, A Fresh Look

January 06, 2011

Happy 2011! As one of my New Year's Resolutions, I’d like to greet a new person every day. So if you’re new to this blog, hello. If you’re a regular reader, thank you and welcome back.

The start of the year is also a great time to reevaluate your financial needs. My recommendation is to conduct a financial situation assessment at least annually, including insurance. I recently did this for my family, and discovered that I needed to adjust more than I thought.

Knowing your core household expenses is critical. Evaluate your current monthly living expenses from the perspective of “if something happened to our ability to generate the same family income, what expenses are essential?”

Disability protection

Given my household’s core expenses, my family’s biggest risk is my short term or long-term disability impeding our income. I’m the primary wage earner, so having solid Disability Income Protection is critical. By understanding our monthly expenses and my Long Term Disability (LTD) elimination period, I know how much liquidity I need to maintain in my investment portfolio before my LTD kicks in.

I took a hard look at whether my long-term disability coverage was sufficient given our current expenses and income. This area needed a tune up for sure.

Life insurance

When you add back monthly discretionary spending (to have a little fun in life) and savings for retirement, you get a feel for the annual income needed to support the lifestyle your family enjoys. The risk of premature death in your family, and a resulting disruption in your standard of living or life-long goals, is certainly a risk worth handing to an insurance company.

I added up the annual income (after tax) we’d need if either my wife or I passed away. A quick calculation of how much principal we would need to generate that income when invested at a reasonable return rate of 5% or 6%, gave me the life insurance face value targets for each of us. Most folks, when they do this calculation, find they’re under insured.

Other insurance needs a good review as well – health, auto, home, liability umbrella, etc. Mostly it’s a quick check to make sure coverage levels are sufficient. For auto & home, it’s not a bad idea to snoop around for rate comparisons. (Even if you like your agent, asking how other companies provide more competitive quotes often leads to interesting insights, like ways coverage might deliver better value.)

Retirement savings

Are you socking away enough for retirement? If you don’t have a plan that has a target savings level and a life insurance wrapper to complete the plan if death occurs, you need one. Visit your financial advisor (and yes I recommend everyone have one) to assess how things are going on the retirement front. For some, educational expenses or home purchase might sideswipe savings, but build those “big rocks” into your plan and keep things moving!

Lastly, it was time to check on our wills, powers of attorney (financial and medical), and estate plans. The laws change. Documents get stale. My wife and I had to update ours this past year.

I’ve seen first hand the complications that dying without a will causes. I’ve also seen life-prolonging procedures engaged when a medical power of attorney would have instructed otherwise. It’s not just about medical expenses. It’s about how families are torn apart by conflicting opinions on how to proceed. Please don’t ignore this.

Tax laws are costly at death. You probably wish to pass on your life’s accumulations to those you care about instead of to the government. An estate plan helps you do that.

Start the New Year by protecting your future

The start of a new year is a great time to accomplish all those items on your to-do list that keep getting pushed back. Before you fall into the February mode of dropped resolutions, take the time to conduct your annual financial and insurance review. Trust me, it can take a whole lot of stress off your plate.

Please note:

By clicking "continue" below you will be taken away from the AMA Insurance Agency, Inc. website.

Do you wish to leave this site?

cancel Continue