Disasters like fires, accidents, and unexpected deaths are not subjects we enjoy contemplating. This discomfort may explain why many investors overlook the importance of regularly reviewing their insurance policies. However, insurance is critical in protecting wealth, and periodic assessments ensure coverage aligns with your current needs. Through our work with clients, we often find that life, home, auto, and umbrella policies are left unchecked for years.
Planning for life’s uncertainties through well-structured insurance is a wise risk management strategy. It is essential to understand what insurance is, why it is needed, and how to evaluate and select the right policies.
Insurance protects against financial ruin in the event of significant losses. A large group pays premiums to an insurance company, which provides financial compensation when a covered event occurs. For example, life insurance for a primary income earner can replace lost income and provide financial security to beneficiaries.
Consider common risks for which people seek insurance:
- Death
- Disability
- Theft
- Fire
- Lawsuits
- Loss of income
- Debt repayment
- Health expenses
- Liability for accidents
Among these, life and disability policies are often overlooked. Regular reviews help ensure coverage reflects your lifestyle, family situation, and financial goals.
Common Insurance Mistakes
Determining the right type and amount of life insurance can be complex. The process should involve your financial advisor and lawyer to ensure it aligns with your estate plan. Analyzing the income to replace is critical. Understanding your needs helps you decide between whole life and term insurance, as well as the amount and duration of coverage. A frequent mistake is failing to choose the type of life insurance that best suits your goals.
Underinsuring is another common error. Many families face a decline in living standards after losing a primary income earner. Whether you aim to fully replace income or provide a financial cushion, life insurance should be reviewed regularly as family needs evolve.
Be cautious when considering whole life insurance. These policies often have high premiums, which may benefit the selling agent more than the policyholder. While they can suit some needs, reviewing them ensures they align with your situation.
Employer-provided disability policies also require attention. These can protect income in the event of a workplace accident. Even a single disabling injury could have financial consequences. Reviewing your policy to ensure it covers a sufficient portion of your income is critical. Speak with your human resources department to clarify your coverage.
The Importance of Regular Reviews
Insurance is a cornerstone of wealth protection. Reviewing policies regularly or after major life changes, such as a new job or home purchase, ensures coverage remains appropriate. Regular reviews also help identify and close gaps in protection.
If you have questions about insurance or how it fits into your financial strategy, contact your Empirical Advisor for personalized guidance.
