All Things Financial Planning Blog

The most important structural aspect of any house is, of course, the foundation. Yet when it comes to people’s financial house the foundation is often overlooked. In this case, your foundation is risk management, or, as it’s commonly called, insurance coverage.  This coverage includes life, health, disability, long-term care, and personal liability, as well as automobile and homeowners insurance.   Without these elements to build a strong foundation for your financial house, you are bound to have big problems along the way.

Insurance is important and you can expect your financial adviser to talk about this issue in addition to the first and second floors of the financial house, such as investment, retirement and taxes. Insurance isn’t as glamorous as stocks, and for many, it’s an uncomfortable topic to broach.  The unfortunate result is that many in the United States are vastly underinsured and unintentionally putting their financial future at severe risks.  

As we become drivers we naturally get automobile insurance, since it’s the law. Most people would get that coverage anyway, even if it weren’t the law, because they have seen or experienced the damage that is done in an automobile accident. Similarly, when one buys a house they get the home insured, not only because the mortgage company tells them they must, but also because they know the replacement of such an expensive asset is generally not one that could be done without such protection. The cost of health care dictates that once people join the workforce, they sign up for health insurance.  Surprisingly, when it comes to protecting income, which makes all other asset purchases possible, the vast majority of people avoid purchasing life insurance, contrary to their own best interest. 

Studies have shown that 75 percent of Americans believe in the benefit of life insurance protection, yet 34 percent have not purchased any coverage themselves and 18 percent don’t have any coverage at all. Many people rely on “group term” coverage through their employer, which is very risky. They might lose their job, change employers to one who doesn’t provide benefits, or become self-employed. Often these group policies don’t even provide adequate amounts of coverage.

Disability income insurance, which protects our income in the event we become injured or ill and are unable to work for extended periods, is the least owned insurance coverage in the economy. Often, people believe they have coverage through work, which they often do, however this type of coverage was not meant to last as long as most disabling conditions do. Just as it is for life insurance, our health often declines with age and the cost of the coverage increases, if we can get it at all.

The best prescription to fix your faulty financial foundation is to see your financial planner and ask for a complete risk management review. Be sure to include all areas, life, health, disability, long-term care, and liability along with your auto and homeowners coverage. There is no better security than knowing you have a rock solid foundation!

Find a financial planner.

Jim Barnash, CFP®
Senior Partner
Stride Consulting, Inc.
Chicago, IL