Before we move too far along on our investment plan, we need to check to be sure we have the protection we need to ensure we will have enough earning power to complete our plan. For example, we can create a plan which requires we contribute $100 or so per month to an investment strategy, but what happens to our plan if we become disabled or die? A good plan must anticipate not being able to proceed along our preferred path by having an alternative available should we need it. In the case of disability or death, our loved ones will be comforted by knowing the big-picture plan should not involve homeless shelters and soup kitchens. To avoid this, plan for contingencies.
Planning for Contingencies usually involves the help of a third party, in particular, an insurance person who is trained in evaluating and resolving the risks. Some risks may seem likely to occur when in fact there is very little chance of occurrence or vice versa. That is, some events may seem unlikely to occur when in fact there may be a fairly high probability of occurring or at least a higher likelihood than subjectively believed. Therefore objective and subjective risks need to be reconciled which is usually better done by someone who is not emotionally attached to the outcome.
The risks that we must face even before we commit our dollars to an investment program include:
- pre-mature death or disability
- loss of income due to acts of nature, economic forces, legal wrangling, ill health, divorce, job loss or the like
- protracted living or outliving our resources and our ability to care for ourselves. To combat the downsides of experiencing these situations, a number of tools and financial products have been developed. These include the standard products such as life, health and disability insurance.
No one wants to think about the disasters that might befall us but our loved ones would probably rest easier knowing that should a disaster strike, the family would have resources to carry on. That being said, there are some types of insurance that just don’t make sense to buy. It would be like buying flood insurance for your house that sits atop a mountain. Life insurance on children is one such product. Remember that insurance is there to compensate for economic loss. When a child dies, there actually is an economic gain.
Other products are just as inappropriate for certain situations. For example, there has been a debate for 30+ years about the efficacy of whole life insurance relative to the alternative of “buy term and invest the difference.” Unfortunately, sales reps muddy the issues to make it more, rather than less, confusing. Financial planners and investment people usually have a more practical approach, partly because they tend to have more products available to them to make the alternatives to whole life insurance work better. We recommend you call Greg at Benchmark Financial Services, 513-474-4190 to create a “Plan for Contingencies.”