Welcome to Part Two of our fun educational “Back to Basics” series original started here with Part One “The Emergency Fund” and continuing with this part, Protection Planning!
The goal of this series is to cover the most important Foundational Financial Planning items in not only order of importance but also order of technical difficulty. Once complete we expect to have a foundational, almost college like course of Financial Planning topics and goals that can be shared all at once in Netflix series drop like format for any that may be in need or interested. Longtime clients will most certainly find a repetition of items we have spoken or written about before but may occasionally uncover a topic that needs addressing due to a change in our situation.
Protection Planning – Health, Home/Auto (PLUP – Umbrella), Life
We could easily spend hours on each of these topics but in order to cover as much ground as possible we’re going to have a high-level discussion that fits neatly in our series as you will see that we will immediately refer back to Part One. “The Emergency Fund” as it affects our Protection Planning.
The following are in order of importance:
Never go a day without it as one accident could be devastating to your net worth!
Those of us lucky enough to have a large employer you probably have the best coverage at the most reasonable price. On that note if as we have mentioned in Part One “The Emergency Fund” you have a healthy one and you do not have any chronic or pending health conditions, it may be worth looking at a high deductible type of plan.
Those self-employed, it is a struggle, we understand, and your coverage will likely not be as good and cost more. Again, depending on your situation, a high deductible plan may work well for you. One of our favorite tricks for the self-employed is to try and have coverage via your industry of specialization. As an example, if you are a producer or pilot, you may have special insurance coverage through an organization, we find that specialty organizations offer the most reasonable prices and the most comprehensive coverage.
Home and Auto and Umbrella Protection:
When dealing with your home protection, again never go a day without coverage!
This may seem logical, but loss or lack of coverage can sometimes accidentally occur if you have no mortgage on your residence. If you do have a liability against your home the bank or financial institution will mandate you have good coverage at all times showing the importance of coverage. With our good emergency fund, we like high deductible plans as over the long term they will generally pay for themselves in the savings of premiums.
On our auto insurance, you guessed it we like a high deductible plan and in certain situations once the car is of extreme age it may be worth looking at dropping full coverage as it is easy for our annual premium to more than pay for what the residual insurance coverage would pay should your car be totaled. This situation changes and takes some continued monitoring.
The PLUP or Umbrellas policy is one additional insurance that is tied to our home/residence and auto and is a personal liability umbrella policy which we like anyone that could be seen as a target for whatever reason from bad guys out there that may want to sue us for whatever reason. Umbrella policies are relatively inexpensive and have the good effect of making sure your other coverages are comprehensive enough before the umbrella policy is established
The need for life insurance grows as your liabilities increase especially with the primary breadwinner of the family.
Liabilities could include business loans, large mortgages, children or other dependents, or another outside solvency that needs to be replaced should you pass away. As a person or family’s net worth grows there can be an inflection point where there is less of a need for life insurance. Long term life insurance needs can vary on a very personal basis. With various types of life insurance is there are possibilities for very large policies at very reasonable amounts given the specific circumstance.
It is almost impossible to cover every aspect of each of these topics and as such this is not exhaustive, but we think very helpful!
Have a Great “Back to Basics, Protection Planning” Day!
John A. Kvale CFA, CFP
Founder of J.K. Financial, Inc.
A Dallas Texas based fee only
Financial Planning Total Wealth