Protect You and Yours

Understanding and dealing with the risks that life throws your way is a key preventative measure in building your wealth. Some of those risks include: loss of assets due to divorce or financial institution failure; loss of income; accidents; lawsuits; health issues; loss of ability to care for yourself or your family; physical harm such as those resulting from break-ins, fires and accidents; and online privacy invasion and loss of identity.

Protect your assets.

Statistics on marriages lasting a lifetime are pretty dismal. According to Faststats  the 2008 US marriage rate was 7.1 per 1000 total population and the divorce rates was 3.5 per 1000 (44 states and D.C. Reporting).

Consider the use of a pre- or post nuptial agreement in cases where you go into the marriage with wealth, think you will come into wealth during the marriage or live in a community property state. Divorce is a huge asset reduction tool, except for the lawyers of course.

Think about the protection your financial institutions give you on your assets. Bank accounts are covered by FDIC insurance, but only up to defined limits. Brokerage accounts may or may not be be covered by Securities Investor Protection Corporation (SIPIC), but mutual funds may not be. Check what is covered before you invest and make sure you can stand the loss if there is not adequate coverage.

Protect your job and income.

If you are relying on an hourly wage or a salary paid by your employer to live and build wealth, then you can take steps to lessen the risk of losing the job and increasing the odds of advancing on the job. Some of these steps can include:

• Understanding and adhering to company policies
• Giving your full measure of work effort for the money and benefits you receive
• Taking advantage of company training and educational incentives to continually increase your value to the company
• Learning to negotiate for a) bigger opportunities b) bigger paychecks c) more exposure to top brass
• Keeping your ear to the ground and learning your way around company politics and
• Learning to recognize the needs of the company and find ways to meet those needs.

Protect against financial loss from things insurance can cover.

Not everyone needs all kinds of insurance, but everyone should review their needs and buy appropriate types of insurance. One uninsured health problem or car accident can have devastating financial impacts.

Health.

If you are employed, your company probably provides a group health insurance plan as part of your benefits package. It may also include coverage for vision and dental. If you don’t have coverage, look into buying group coverage from an association to which you belong or can join. Pay attention to what is covered and what is not.

Typically you will pay a monthly premium plus a co-payment amount per incident plus whatever is not covered. Learn the difference between preferred provider organizations (PPO) and health maintenance organizations (HMO). In most plans you will pay more if you don’t use a physician or hospital in the plan’s provider network.

Sometimes it can be of benefit to use medical savings accounts (pretax accounts setup by an employer for you to use for medical expenses). At this writing, however, if you don’t use the money up each year you lose it. The benefit is that you pay medical expenses pre-tax.

Life.

If you have dependents you probably should consider buying life insurance. Your company may offer some free life insurance coverage and some paid life insurance coverage. Life insurance premiums increase as you age (if you wait to buy life insurance you pay more and some policies have a built in increase as you age). Life insurance often involves a physical exam in order to get coverage.

Term life insurance costs less than cash value life insurance, for the death benefit provided. However, it can be typically be canceled by the insurer at the end of the term. Cash value life insurance (whole life or universal life) has a more expensive premium but is usually in effect for your life and will usually build up small amounts of cash value that you can borrow against or cash out.

Once you get to the point in your life where you don’t have dependents counting on you for support, consider canceling term insurance. Some wealthy families use life insurance as part of their estate planning. If you are one of those – check out second to die insurance. It pays when the second spouse dies, is typically cheaper than insuring both spouses and can help cover an estate tax bill for your heirs.

Most life insurance policies offer an accidental death and dismemberment clauses at extra cost. Carefully weigh the benefits of these. It may be an extra unneeded cost unless you partake in very risky endeavors. Some companies will routinely cover employees for accidental death.

Liability.

Anyone who drives a car should be covered by some kind of liability insurance, unless of course you are already rich enough to pay off anyone with whom you may have an accident. Property owners, corporate executives, landlords and business owners may want to consider an additional umbrella liability policy. This policy will cover additional amounts if someone injures themselves on your property, sues you and etc (as covered under that specific policy). If you have employees, you  may also want to consider buying employer’s liability  insurance.

Home owners.

Anyone who owns a home should consider carrying home owners insurance. Anyone with a mortgage is usually required by the mortgage holder to carry it. Be aware of what it will and won’t cover. A lot of policies have limits on specific categories of things (like firearms, jewelry and art). As with other types of insurance, the higher your deductible, the lower your premiums – just make sure your emergency fund can handle the higher deductible. The best policy will cover the market value of the replacement costs of your home.

Mortgage life.

May not be worth the price. These policies pay the remaining mortgage on your home if the insured dies. Consider term life insurance instead, unless the policy you are considering has other benefits.

Renters insurance.

May or may not make sense. If you have a lot of expensive things, then you might think about the cost vs. the payout on those possessions. Renters insurance typically covers the contents of your apartment, or rented condo or house.

Disability.

Anyone who has dependents relying on their income might consider disability insurance. If you are employed, your employer may offer either short term or long term disability or both. You may have free sources of disability coverage, such as workman’s compensation, social security disability, veterans insurance and state disability programs.

Other insurances.

Older individuals who fear loss of capacity may want to consider long term care insurance. Home or property owners may want to consider extra insurance such as added coverage for fire, theft, wind, flood or earthquake depending on where their property is.  If you fear inappropriate release of your private information, you may want to consider Identify theft insurance.

Protect against your own incapacity.

Being a responsible adult includes making sure that your dependents are cared for even when you can’t be there. If you have children or even adult dependents who need daily care, you should have a will. A will is the only means by which you can specify who you want your dependent’s guardian to be. Read more about wills here.

In addition, you might consider establishing a financial and a medical power of attorney. A durable financial power of attorney allows you to name someone to act in your stead financially if you become incapacitated. Even if you own your house jointly with your spouse, it is sometimes difficult to get a real estate sale done with only one signature. So if you are incapacitated and your family needs to move or obtain money from the house, a durable power of attorney should help.

A medical power of attorney allows you to designate someone to make health care decisions for you when you are incapacitated. Currently most medical personnel and facilities will allow a spouse or close relatives to make those decisions without a medical power of attorney.

Protect your physical safety.

Train your family to know how to handle emergencies. Practice the procedures with your family. This can include things such as making sure your young toddler knows their first and last name and the name of the city where they live; making sure your pre-schooler can dial 911 and request emergency assistance; knowing how to escape a fire in the building; having a plan if an intruder enters your home; knowing where to go in the event of tornado, flood or hurricane; locking your car and home doors as a habit; fastening your safety belts; using proper child restraints; learning how to swim, and etc.

Protect your online privacy.

We are all painfully aware of the dangers inherent in sharing private information online. Identity theft has become one of this century’s more prevalent crimes. Even something as simple as posting a Facebook entry saying how much you will enjoy your vacation to xyz city this coming weekend can alert a thief that you will not be home. Checking in via mobile to a certain place of business can also alert a car thief that you may be busy for awhile. Use difficult and ever changing user names and passwords to your online accounts and use discretion in what you share and with whom. Keep close track of all activity on your financial accounts and credit cards.

Sources:

Making the Most of Your Money by Jane Bryant Quinn, copyright 1997 published by Simon and Schuster

Power of Attorney Handbook 6th edition by Edward A. Haman Attorney at law, copy right 2006, Published by Sphinx Publishing Naperville Ill

Quicken WillMaker Plus – Estate Planning Essentials, published by NOLO