A tough medical diagnosis. The sudden loss of a breadwinner or family figurehead. Our own inevitable deaths.
No one likes to talk about these things, and I hope they aren’t present–even as the elephant in the room–at your Christmas gathering this year.
You may not want to talk with your family or other relevant parties about “if/when the worst happens,” but it is very important to do so.
Do it soon, but not at Christmas dinner!
My husband and I are matter of fact with each other, so this isn’t hard for us. But many people avoid these topics, putting their families’ well being in danger.
Ask your spouse, parent, or child: What are your biggest fears? What would be the worst thing to happen for our family?
Common responses are:
- Death
- Job loss
- Disability causes inability to work
- Major illness, including dementia
- Lawsuit
- Fire or other physical catastrophe
After we had children, our family’s priorities changed. We entered into “protective” mode. For example, before we had kids, we did have some life insurance. But when Precious Babies 1 and 2 arrived, we beefed up our coverage.
In the Watson household, we also have long-term disability insurance on both spouses. We own the policies, as they are not employer paid. I got my policy a few years ago, and my husband enrolled recently after switching to a smaller employer that did not offer a group plan.
The premiums for disability insurance exceed those we pay for life insurance. However, the odds that one of us becomes disabled are higher than the odds that one of us will die super early.
Clients who are working on how to pass on their wealth tend to have a special list of concerns that also require some frank conversations and probably formal planning.
These often include:
- How can I prevent my children (or their spouses) from squandering their inheritance?
- How can I minimize fighting among my heirs?
- What legal strategies can I use to avoid or delay taxes?
- How can I balance planning for a long-term care incident for myself while still leaving something to my loved ones?
The “protective” mode I mentioned above is the risk management side of financial planning. In discussions about insurance and liability, we say there are risks to avoid, reduce, transfer, or retain.
If you cannot insure against or eliminate a risk, then you keep it. Sometimes a client cannot qualify for long term care, life, or disability insurance due to a preexisting condition. They are forced to do their best to self-insure.
One low-cost risk prevention measure for dealing with inheritance and guardianship problems, and to some extent long-term care and tax issues, is to have an experienced estate planning attorney develop a plan to address your wishes and concerns. Complex strategies may cost a few thousand dollars to draft, but that’s a pittance compared to the time and suffering your heirs might endure if you don’t prepare well.
Another low-cost step in risk management is adding an umbrella liability policy on top of your car and homeowner’s insurance. Anyone with substantial assets should consider such a policy, but especially those with pools, dogs, raucous parties where alcohol is served, and teenage drivers (to name a few). My policy costs a few hundred dollars a year.
Just as important, remember the English proverb “Health is not valued until sickness comes.” Try to eat enough vegetables, drink lots of water, and get plenty of fresh air and exercise. This is a top-notch risk reduction strategy that pairs well with risk avoidance techniques including not skydiving or riding a motorcycle without a helmet.
Last but certainly not least, the onset of the COVID pandemic revealed that many Americans felt the need to bolster their savings. The household savings rate skyrocketed in the late spring of 2020. It makes sense, as we faced three major fears at once: illness, death, and job/income loss.
Money doesn’t solve every problem, but some cash and a well-stocked pantry can smooth the ride through a bumpy stretch!
If you have the “what if something happens” discussion before something happens, you will be able to prepare as best you can.
I challenge you to reflect during the holidays about big problems that could happen in your life. Could a parent become financially dependent on you? What about your adult children–are they draining you financially? Could you have to provide care for a loved one in the foreseeable future?
Resolve you’ll address your worries first thing in the New Year.
So long as you live, planning for life to “happen” is never really over. My attorney schedules a “peace of mind” review every three years. There are always beneficiary forms to keep updated, and legal changes to monitor.
Your financial planner’s office is a good place to start a discussion about your own “What if something happens” scenarios. We provide an independent perspective and can call out the strengths and weaknesses of your current situation.
Next in the Kitchen Table Economics series: "Thinking about home prices," followed by "Thinking about stuff."
Previously: Thoughts on rising food prices
Beth Henary Watson is a Certified Financial PlannerTM at Corner Post Financial Planning.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Neither Corner Post Financial Planning nor LPL Financial provides legal or tax advice.