It’s not something anyone wants to think about, much less discuss. But the reality is that your financial strategy needs to protect the assets and lifestyle you’ve worked so hard to create.
Here are some events that can have serious financial consequences, along with suggestions on preparing yourself:
Loss of employment – If you were to lose your job, your family might have to struggle financially to make it until you’re employed again. To protect against this potential threat, try to build an emergency fund containing three to six months’ worth of living expenses.
That’s a lot of money, of course, so it will be challenging to build such a fund. But try to contribute something each month to a liquid, low-risk account. Without such an emergency fund, you might be forced to cash out your retirement savings to pay for your living expenses during your period of unemployment.
Loss of health – If you become seriously ill or injured, you might be out of work for weeks or months. Your employer may offer you some type of disability insurance as an employee benefit, but it might not be sufficient. So you may also want to purchase an individual income replacement plan to cover as much of your after-tax income as possible. You’ll have the flexibility to create a policy that is tailored to your needs, budget and overall financial goals. However, policies vary widely in cost and benefits, so you’ll want to shop around for the coverage that best meets your needs.
You may also want to consider critical illness insurance to help protect assets and provide cash to offset lost income by providing a lump sum payment in the event of a major illness.
Loss of life – Death may be an uncomfortable topic to discuss.
However, if you were to die, it would be emotionally devastating to your loved ones. But it could also be financially catastrophic. Would your family still be able to pay the mortgage?
Could your surviving spouse afford to send your kids to college or university? Without life insurance, your death could leave your family without the ability to cover financial obligations.
The exact amount you require depends on a variety of factors, such as your family’s expenses, size of family, savings needs over time, and so on. Generally speaking, you can choose between two broad categories of insurance: term and permanent.
Term insurance, as the name suggests, is designed for a specific number of years and only provides a death benefit to meet short term needs. Permanent insurance is in place for needs greater than 20 years. It provides coverage to meet all your permanent insurance needs such as funeral expenses, charitable requests, and legacy planning. A financial professional can help guide you through your options to determine which type is most appropriate for your needs.
Loss of property – If you own a home or car, you already have insurance, but it doesn’t hurt check your policies annually to make sure they’re appropriate to meet your needs.
If you’re under-covered, and had to pay out of pocket for some major damage, you might be forced to dip into your long-term investments.
Building a what-if clause into your financial stategy can mean the difference between successfully moving on from life’s unexpected events or being over whelmed by them.
Bruce Shepherd is a financial advisor with Edward Jones. This article is provided for information purposes only. Consult with a professional advisor before implementing a strategy.
