What’s at Risk
- Most of us tend to be underinsured and unrealistic about how many terrible, unexpected things can happen to us in life.
- Life and disability insurance are essential for protecting your family if the breadwinner(s) die or cannot work due to a serious accident or illness.
- Some risks you can control, such as what happens to the Three Ps—your person, property and portfolio.
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As advisors, one of the toughest things we have to deal with is a client calling to tell us that his or her spouse has died. It’s especially tough when the spouse is young. We ask tentatively, “Did they have insurance?” All too often the answer is “No.” The person has left a spouse with two small children. It’s hard enough on two-income families, but devastating if the person had been the family’s main income earner. Without life insurance, the family could be thrown out on the street.
It’s really sad, and it’s one of those risks that we don’t think much about. “Nobody’s going to die,” we tell ourselves, especially when we’re young. We seldom think about our mortality, but you’re never too young to do a risk review. As a firm, we do this every year for all our clients. Today I want to focus on the Three Ps: your person, your property and your portfolio.
Now let’s look at the risks related to the Three Ps:
- Your person. I already mentioned life insurance. It’s very important to replace lost income if the family breadwinner dies. There’s also health insurance, which includes medical insurance and long-term care insurance. Finally, there’s disability insurance. That’s really important, especially for professionals and other businesspeople, because it covers the family breadwinner if he or she has a serious illness or injury and can’t work for an extended period of time.
- Your property. Most of you know about auto and homeowners insurance, but many of you don’t have umbrella insurance-—that’s added protection that sits on top of your car, home or renters insurance. The umbrella policy covers you if you are sued or involved in a serious accident and makes sure your assets and property are not taken away. Finally, if you rent out a property or own commercial real estate, you want to set up separate protection for those holdings—such as by forming a limited liability corporation.
- Portfolio risks. You want to protect yourself from inflation, interest rates and taxes. Inflation cuts into our buying power, rising interest rates lower the value of your bonds and, of course, taxes eat into everything you own. You want to move as much as possible into tax-deferred or tax-deductible areas. Finally, there’s market risk—not just the stock market, but volatility in the bond market, the cash market and the real estate market. There are numerous ways to diversify your portfolios to protect against these various risks.
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Until next time, enjoy.
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