Why is insurance needed?

Part of my job is to help families think about—and prepare for—bad things. It can be tricky because humans mostly don’t like to think about bad things. After all, they’re bad and it’s unpleasant to think about them.

The point is not really that you must do this one thing in response to the bad stuff. The point is that &%#@ happens. It’s prudent and yes, adult, to consider the sort of &%#@ that could happen to you and consider what you want to do about it. Often you have a few choices. One choice always is, “I will do nothing and hope for the best.” I don’t believe this is the best choice, but it’s a choice plenty of folks choose.

Here are a few bad things your really should think about:

• What happens if you die tomorrow? Will your family be in a jam because they are counting on your earnings? Will they have trouble paying rent or the mortgage without your income? Will your spouse need to pay for additional childcare?
• What happens if your spouse dies tomorrow? Will your family be in a jam because you are counting on the spouse’s earnings? Will you have trouble paying rent or the mortgage with the reduced income? Will you need to pay for additional childcare?
• What happens if you or your spouse is disabled tomorrow? Will your family be in a jam because you are counting on two incomes? Will you have trouble paying rent or the mortgage with the reduced income? Will you need to pay for additional childcare? Will you need to help pay for additional healthcare expenses?

It’s pretty common to miss work due to illness or injury.

• More than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach the normal retirement age, according to the Social Security Administration.
• 6 percent of working Americans will experience a short-term disability (six months or less) due to illness, injury, or pregnancy on average every year, according to the Integrated Benefits Group. Almost all of these are non-occupational in origin, according to Group MarketShare.

Most people know they should have life insurance, but it’s actually much less likely that you will die unexpectedly than miss work for a disability. In fact, 5,147 workers died on the job in 2017, according the Occupational Safety and Health Administration. That’s about 3.5 per 100,000 full-time equivalent workers.

While it’s interesting to know the odds, it’s not really the point. In my conversations with families, we talk about important goals and family priorities. How important is it that your family be able to meet its goals, even if some really bad thing happens?

Part of the process of managing these kinds of risks is to keep perspective. It’s rare that these things would happen, but it’s really bad when they do happen. So we can share the risk among a large pool of people and in the rare case that somebody needs help, we have the resources of the common pool to help make things right. This is the definition of insurance. That’s why insurance products are such a popular and effective tool to manage these risks.

But what insurance product is best? How much benefit is enough? How can you compare? What about alternative strategies?

It can be tricky to get the best answers for your family, so I recommend getting some help. Here is a suggestion on what to look for:

• Training in understanding these risks and how to effectively manage them.
• Experience in this area over many years.
• An advocate for the client in the process instead of just a sales representative of an insurance company.

I suggest your best bet would be to start by looking at a CERTIFIED FINANCIAL PLANNER™ professional.

To find a CFP® professional near you, start your search here.

As you visit with financial planners, I suggest a couple things to check:

• Is the advisor always the client’s advocate – a fiduciary advisor?
• Is the advisor only paid by clients, not any financial product manufacturer or distribution network? That would be a fee-only advisor.

These two points help assure that you are working with a professional who is committed to your best interest at all times. It seems sort of obvious to me that a professional would work in this way, but it’s not automatic.

A fiduciary, fee-only, CFP® professional can help you make great retirement income choices and develop a comprehensive financial plan that is driven by your goals and priorities and addresses all aspects of your financial life. With a big-picture approach, you will be better prepared to understand your options at every step along the way.

Yes, I am a CFP® professional. I’m always a fiduciary and I only work on a fee basis. And yes, I’m still taking on a few great families to be part of my financial planning practice.

If this article has you thinking about your own circumstances, contact my office at rdunn@dunncreekadvisors.com. I am always happy to meet with people who are working on their retirement plans. Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.