Are You Ready for the Unexpected?

 

Jane Young, CFP, EA

Jane Young, CFP, EA

The recent fires remind us how crucial it is to plan for unexpected financial misfortunes.  An important part of financial planning is ensuring you are adequately protected from life’s calamities.  You can’t control what life throws at you, but you can ease the blow by being prepared and keeping your financial life in order.

This may seem obvious, but we have a tendency to procrastinate when it comes to insurance and other precautionary measures.   You should always maintain an emergency fund of three to six months of expenses.  Even with good insurance, it may take time for the insurance company to reimburse you for a loss.   You should review your insurance coverage on a regular basis.  While most of us have home and auto insurance, things change and you may need some adjustments.  I encourage you to meet with your insurance agent at least once every three years or when there is a major change in your life.  Even if you are adequately insured, it is advisable to periodically get quotes from several reputable insurance companies. This can lead to considerable savings as your life circumstances change.

Make sure that you have adequate insurance to cover the current replacement value of your home and your personal property.  This is especially important if you’ve made significant home improvements.  You also need adequate insurance to pay for a place to live until you can buy or build a new home.   You may need a rider or additional coverage if you do business out of your home or you have collectibles, jewelry, art, or firearms.  It is prudent for most to have an umbrella liability policy equal to one to two times your net worth.  A good insurance agent can help you assess the risks that are unique to your situation and ensure you are adequately covered.

In addition to insurance you need an emergency plan to help you react quickly, should a disaster strike.  I recommend keeping all of your important documents in a safe deposit box.  Be sure to back-up important computer files at an off-site location.  Document all of your personal belongings and special features of your home with a video or pictures; this should also be kept in safe deposit box.

You also need to be prepared should something happen to you.  If others are dependent on your income, consider term life insurance to help them get by without your assistance.  If you are a primary wage earner, consider long term disability insurance to provide income if you are unable to work.  You should have a current will and health power of attorney.   When reviewing your will, be sure to review beneficiary designations for your retirement plans, annuities, and life insurance policies.

Generally, if you live within your means, stay out of debt and save 10–15% of your income, you will be better prepared to handle financial disasters that may arise.

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