Protect Your Most Valuable Asset
(Hint: It Isn’t Your House)
By Lee Bellinger
In 1993, my home and office burned down, and I had too much of the wrong insurance and too little of the correct insurance. Big mistake on my part!
The fact is, far too many people make the simple mistake of letting their insurance policies run on auto-pilot for years, even decades! It is important that you make sure that you have exactly the right amount of insurance for your circumstances – no more and no less. In today’s roller coaster economy, it’s critical that you constantly review any weaknesses in your own financial situation.
That means you need to periodically review and adjust your insurance policies at least once a year because life events can change your insurance needs at any time:
Marriage, divorce, or retirement.
Birth or adoption of a child or grandchild.
New driver such as a teenager.
Serving on a board of directors for a non-profit (or a homeowner association).
Changes in your or your loved one’s health.
Taking on the financial responsibility of an aging parent.
Buying, selling or renting a new home, or refinancing your current home.
Purchasing or selling a business.
Purchasing or investing in collectibles such as artwork or antique firearms.
Claiming an inheritance or even winning the lottery.
Any changes to the above could prompt an important update to your protection plans. Remember, once a loss or tragedy happens, no one will sell you insurance no matter how much you’re willing to pay. It must be done ahead of time.
The good news is if your insurance plan is already solid, the review takes a few moments. Here’s a checklist of important points:
What’s measured, improves.
While looking over your coverage, take the time to also review your debts, investments, savings, changes in your family and personal life, and financial goals as a whole. See how all the gears fit together in your financial life.
Make it simple, and it’ll get done.
Use a competent advisor to leverage your time, take away the tediousness of insurance, give you the highlights, and answer questions to your specific needs and wants. An independent agent who can bring to the table numerous agencies is my preference. Some insurance providers are strong on storm damage, but weak on car coverage, for example. Tying your insurance purchases to one single company should be avoided.
One common issue many people face is they’ve bought different insurance policies from different agents at different times of their life.
For example, you buy car and home insurance from one agent, health insurance from another, life insurance when expecting your first child from a third, and so on. Before long, you have lots of policies and lots of agents spread across too many years. With this patchwork approach, it’s easy to imagine cracks forming in your defensive wall.
Make sure your financial plan is sound.
Use an advisor who can look at the big picture or work in tandem with your other advisors (CPA, investment advisor, attorney). It’s more efficient and effective to have your insurance and financial instruments integrated and working together to reach the same goals.
Use insurance renewals as an easy and “automatic” reminder to look for savings.
This is simple to do with your auto, home, umbrella, and health insurance policies and only takes a few moments to request quotes.
However, shopping around each year doesn’t usually make sense with life or disability income insurance. Premiums are typically fixed, and are cheapest when you buy them while you’re young and healthy. What you want is to make sure you have proper protection as your life changes.
Consider maximizing your liability coverage on your car and home policies as well as getting an umbrella insurance policy. Imagine this scenario: you only have $50,000 in auto liability coverage (or your state’s legal minimum), get in an accident, and are sued for $1,000,000. The insurance company would cover the $50,000 after deductible, and you’re on the line for the rest.
If you flip the tables and protect yourself with the maximum amount that makes sense for your situation, the insurance company would now be on the line for the $1,000,000 instead of you.
Do you need umbrella insurance coverage?
You’ll have to talk it over with your advisor. But keep this in mind; you can often get $1,000,000 in coverage for a couple hundred dollars a year! It’s not expensive.
Protect your most valuable asset (it’s not your house!)
If you owned a goose that laid golden eggs, wouldn’t you insure it?
Many entrepreneurs and hard working people forget they are their own gold-laying goose! Your wealth and virtually everything you own is a result of your ability to work industriously.
If you lost your investments or your business, you could pick yourself up and build it again. But if you become disabled and can’t work, your and your family’s entire life could be turned upside down permanently.
Consider owning disability income insurance to protect your ability to earn and build wealth.
Here’s a simple way to determine how much life insurance for which to ask.
“Experts” have come up with many ways to calculate how much life insurance you need. Most are complicated.
Instead, one simple method is to look at yourself as a unique magic money making machine. The reasoning goes like this: Let’s say you have a magic machine that mints $100,000 in silver coins each and every year. If it were stolen, you couldn’t buy another one. If it broke you couldn’t repair it (it’s one of a kind and magic after all). But if you could insure it, how much would you insure it for?
The quick logic is to insure for an equal amount of capital you need to invest to generate the same $100,000 a year. In this case, let’s assume a rate of return of five percent. You’d insure it for $2,000,000.
At your next review, use the above checklist to look at all your insurance coverage along with your other financial instruments as an integrated plan – and close up any little cracks in your foundation that could undo years of hard work and sacrifice.
Lastly, consider putting all your insurance on a spreadsheet, including policy number, amount of coverage, a brief description of the coverage provided, monthly premiums, and all critical contact information, including claims. This makes for far more efficient reviews of your coverage by an independent agent of your choice.