Money Talk: Financial Well-Being — the Four Pillars of Asset Protection
Part 1 of 6
Your retirement savings is only one part of financial planning — there are many more factors to consider. For example, your asset protection strategy is essential for safeguarding your finances in the event of death, property damage, disability or long-term illness. In this article, we’ll explore the four main ways you can protect your assets.
1. The Critical Role Of Life Insurance
If you were to die tomorrow, you’d want your family to be able to maintain their standard of living, be prepared for unexpected expenses, and if you have younger children, you’d want them to have resources to pay for college. A critical part of protecting your family is to purchase life insurance that meets your family’s unique situation and needs. You will also want to review your policy regularly to ensure it stays current as your family’s needs evolve.
2. Property And Casualty Insurance
This insurance protects your home, car and business. Typically, homeowner’s insurance covers your home, its contents and your personal possessions, “loss of use” (living expenses if you’re forced to vacate), and personal liability for damages and injuries due to accidents on your property. While any settlement is helpful if disaster strikes, you’ll be in a better position to recoup your losses if you upgrade your policy from actual cash value to replacement cost coverage. Replacement cost is what you would pay to replace the damaged items at today’s cost; actual cash value factors in the depreciation of your possessions.
The total cost of your policy depends on the replacement value of your house, plus whatever endorsements or riders you select. Expensive valuables should be covered by separate amendments or riders, and a business rider may be needed if you maintain an office in your home. You may also choose to increase your personal liability coverage, which usually provides up to $100,000 of coverage per occurrence. It’s good to check with your insurer to see if you can pay a lower premium if you take certain safety precautions.
3. Disability Insurance
Your potential earning power — how much you expect to earn throughout the remainder of your career — could very well be your most valuable asset. According to the Social Security Administration, a 20-year-old worker has just over a one in four chance of becoming disabled at some point before age 65. By purchasing disability insurance, you can insure your earning power, replacing cash flow if you’re unable to work due to an unexpected accident or illness.
Employer-provided disability insurance can be short-term, long-term or both, but you may want additional coverage. Many people might find it difficult to live on 60 percent of their salary, the level typically provided by employer policies, whereas a private individual disability insurance policy can cover up to 70 or 80 percent. Also, benefits from an employer-provided policy are subject to income tax, while private individual disability insurance policy payments generally are not.
When choosing a private disability insurance policy, there are a few things to consider: the waiting period before payments begin, whether payments will be reduced by other benefits you may receive, the cost of the policy in future years, inflation adjustments, if any, and the policy’s renewal provisions.
4. Long Term Care Insurance
An extended illness requiring home care, assisted living or a nursing-home stay could be a severe financial drain on you and your family, because these types of care generally aren’t covered by health insurance or Medicare. A long term care policy can protect your assets by helping to pay for the services and support you may need if you are chronically ill or disabled for a long period.
Often, these policies will pay for custodial care after a waiting period, reimbursing expenses up to a set limit. Policies can be expensive, but you may be able to reduce costs by choosing a longer waiting period. Also evaluate the amount of benefits provided per day of care, the length of time the policy will cover and whether the policy includes inflation protection.
The Key To Financial Well-being
Protecting yourself financially in the face of an unexpected loss of property, illness or death is essential to ensuring financial well-being for you and your loved ones. A review of your current resources and protections will help you determine how much and what type of life, property and casualty, disability, and long-term care insurance makes sense for your personal situation and overall financial well-being.
— By Erin Eddins
Erin Eddins is a Certified Financial Planner and Chartered Financial Consultant with Stancorp Investment Advisors in Lynnwood.