Different seasons of life call for different insurance needs. Remember back when you were in your early 20s and didn’t seem to have a care in the world? Life changes quickly (in a good way!) as we age – we find that special someone, buy a home, have kids, maybe reluctantly get that minivan. Things move on, and we focus on our health, and our toys suddenly become bigger and more expensive. Perhaps you were able to run a successful business during your working years too.
All of these life events and accomplishments require risk management. That is where insurance fits in. When we think about building wealth over time, we automatically jump to investment returns and the markets, but protecting our assets from losses is a key piece of the financial planning process.
Two over-arching areas that require different insurance needs are your financial capital (your assets like an investment portfolio, a business, a car & house, etc.) and your human capital (your knowledge and ability to continue working – your future income). Your financial capital can be insured with traditional insurance products we all know about – think auto & home insurance.
Business insurance can be a tricky situation when it comes to determining how much and what types of insurance you need. The Small Business Association offers some quick guidelines on the matter. For your human capital, disability & life insurance come into play and even supplemental disability insurance can be useful.
It is always difficult to balance the cost of monthly insurance premiums versus the benefits of coverage. Insurance premiums can be significant and a hit to your monthly cash flow. At the same time, you want to be able to sleep at night, not worrying about if one event of misfortunate will severely impact your future. That is where we come into play here at TFC. Sit down and strategize with us about the most optimal solution that fits your personal situation.
Risk management planning is a key facet of the financial planning strategy. Another curveball in the insurance buying decision process is that some insurance products are ‘sold’ rather than ‘bought’. What does that mean? It means that some salespeople are more interested in making a quick commission rather than working in your best interest. TFC is your fiduciary, and we don’t take commissions; we will make sure we are helping you buy the best product for you.
For every significant life event, you need to review your fundamental needs for insurance. The graphic below from Kitces.com show just how often we should review your insurance plan. It should be revisited often.
Here’s the point:
- The more complex your situation, the more insurance needs you may require.
- Think about the different insurance products for your financial and human capital.
- Make sure you have an unbiased fiduciary guiding you through the buying process and consider the importance of a broad-based risk planning strategy.
Action Items:
- Speaking of strategy, TFC can help you buy the right types of insurance and the right amounts tailored to you. Talk with us about this key piece of the financial planning picture.
- Review your current insurance policies – they often grow stale as our life circumstances change.
- Shop around for the best cost versus coverage for you – some insurance premiums and coverage may have changed since you first purchased them.
Photo by Ulises Baga on Unsplash