When building your wealth management plan, much of the focus is on how to generate wealth, how to ensure you have enough savings for retirement, and how to optimize your returns and strategies in anticipation of your future needs. With such a focus on increasing your pool of funds and the direct risks posed by fluctuating markets and other factors, it can be easy to overlook risks everyday life can present to your finances. While they may not be a market force you can track in charts and dashboards, the potential impact of these other risks cannot be understated.
So- as in all financial risks- what’s a savvy investor to do?
Manage them appropriately.
Common key considerations of financial risk management include:
AUTO INSURANCE
Do you know your deductible for repairs? Do you know the caps on your auto insurance coverage? When is the last time you reviewed what protection you were receiving in exchange for your hard-earned dollars? Take the time to review your policy and shop around – odds are you can get similar coverage or an improved rate from another vendor or by contacting your insurance agent.
Consider raising your deductible to reduce your premiums so you can invest the difference. You should also explore options for adding uninsured motorist coverage, so you won’t be left in the cold if an uninsured driver totals your car.
HOMEOWNER’S INSURANCE
Do you have the full replacement value of your home? What extra coverage do you need? Is your sump pump covered? What about water damage? There’s a large difference in coverage and premiums between water damage and flood protection – you should make sure you understand that and have the coverage you need before your basement starts turning into a swimming pool.
As with auto insurance, explore ways to lower your premium so you can invest the difference. That liquidity can be key in setting yourself up for success and having a large enough emergency fund to help cover the unexpected.
UMBRELLA POLICIES
Whether you have renter’s insurance or homeowner’s, you should consult your insurance agent to add an umbrella policy. These add-ons to your larger policies cover additional items such as injury, personal assets, and more to extend coverage in case of a disaster. These largely affordable policies can lower the amount of money that you would be responsible for in case of an injury incurred on your property or other incidents.
LONG TERM DISABILITY COVERAGE
Disability protections help replace your income in case of a catastrophic injury or disability that keeps you from working for an extended period of time.You should consider purchasing your full economic value in disability protection. The added premiums are worth the peace of mind knowing that your income and your family’s well-being will be protected should something happen to you. Explore what coverage is offered by your employer and look for opportunities to supplement that amount to help lower your premiums.
You should also explore extending your elimination period, or the period of time before benefits take effect, to lower your premium. Only do this if you have the liquid assets to cover more than 90 days without income. The elimination period is effectively your deductible for disability policies and you should explore its potential impacts similarly.
Other spaces you should review your risk and determine if your current strategy is optimized include life insurance, wills and estate planning, living wills, and more. We’ll take a deeper dive into those complex and emotionally-charged topics in a later post.
Need help understanding what coverage is appropriate for your economic needs? Contact us to help us better understand your economic situation, and we’ll help you manage your risks together.