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Financial Planning Tip February 2023

We've written many times that we view insurance as a transfer of risk. Thanks to the changes wrought by the pandemic (and just as a good habit), we think now is a good time to review the risks you're insuring against.

For starters, you're probably aware that construction costs and vehicle prices have risen quite a bit during the pandemic. Review your coverage to confirm policy benefits are sufficient to replace your houses or cars. You should look for full replacement cost, and be sure coverage limits have grown enough to keep pace with the outsized inflation we've experienced. Backlogs may force you to keep a rental car or temporary housing longer than you would have otherwise. Check this coverage as well.

If you are working, you might want to consider a disability policy. Short-term disability policies replace your income for three months if you are temporarily unable to work. Long-term disability policies replace income if you are disabled for the remainder of your career. We usually recommend a “rainy day fund” rather than a short-term disability policy.

However, a long-term disability policy is appropriate if you couldn’t afford to retire right now. If you have one of these policies and no longer need it, it is time to cancel.

While you're digging through your insurance files, consider life insurance including policies you may have forgotten about or ignored. Life insurance is an important tool, but its importance diminishes for individuals who are retired or close to retirement, or for those with significant savings. It may be time to cancel old policies.

We always favor term life insurance. One reason is that some cash-value policies can result in surprising (and painfully expensive!) tax consequences as a result of unpaid premiums or policy loans. If you think you may have abandoned whole life insurance or other cash-value policies, please gather details on the policies and contact us to discuss the matter in greater detail.


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