Mitigate Your Risk

Hopefully you’re finding extra time this summer to spend with family, tackle home projects, and refresh your financial plan. A good place to start refreshing your financial plan is to review potential financial traps – like uncovered risks. Risk mitigation can be an overlooked piece of your puzzle, but it will help you navigate around unexpected events.

Risk mitigation is a fancy way to say insurance coverage. Insurance is paying for peace of mind; but it is also a way to buy time to allow a person to self-insure. Self-insure, in this instance, refers to obtaining insurance coverage while building personal wealth – until the point that an investor can explore the idea of dropping insurance coverage because their accumulated assets and decreased liabilities would provide enough for their beneficiaries to continue living comfortably.  

There are many risks that can knock you off your financial path. To avoid a potentially fatal blow, here are three important insurance coverages: life, disability, and homeowners. While health, liability, long-term care, and car insurances are also biggies, let’s just keep it simple.

Life insurance – the two main players:  

  • Whole Life. As long as premiums are paid, the death benefit will be available when the insured passes away. There’s a cash value component of whole life insurance in which a portion of the premium is added to the cash value over the life of the policy. Whole life is usually more expensive, but permanent.
  • Term Life. As long as premiums are paid, coverage lasts for a specific amount of time. The death benefit will be paid if the insured passes away during the term of coverage but no cash value exists. If the insured passes away after the term expires, there is no benefit. Term life is usually less expensive, but temporary.

Disability insurance – Most people know to get life insurance; however, disability insurance is regularly overlooked, which can leave a hole in an earner’s ability to replace wages if a disability occurs. Ask your employer if you receive short- and long-term disability insurance as an employee benefit. If you’re not covered through work or need additional coverage, private disability insurance is an option. 

Homeowners – Did you know this is required by most lenders when you have a mortgage on your home? The requirement to have homeowner’s insurance is why most lenders automatically include the monthly premium in the escrow portion of your regular mortgage payment. Because this is usually a requirement to purchase a home, the important item here is to make sure you regularly meet with your agent to ensure your coverage is adequate for your most valuable asset.

Bite off small pieces of the “to do” list by focusing on these three insurance coverages and then expand your review to the other areas until the whole risk mitigation puzzle is solved.