Sometimes we don’t like to think about all the terrible things that might happen to us and our dependents, but one thing is true: it’s better to think about it now before the worst occurs.
We believe everyone should go through an annual risk assessment to make sure they have all the bases covered. It’s worth thinking about what has changed in your life over the past year and what may change going forward. Once you have done that, you can discuss whether you are adequately protected from major risks with your financial advisor or insurance professional. Here are some general risks to consider:
Risks to income – Who depends on your income? Are there new children or spouses that need protection in the event your income ceases due to death or disability? What about potential job loss or salary reduction: do you need to prepare a larger emergency fund?
Risks to physical assets – Do you have new physical assets that need protection? Think about artwork, jewelry, expensive musical instruments, classic cars, and the like. Has your homeowner’s insurance kept up with the potential replacement cost of your home and major possessions?
Risks to financial assets – Take a minute to review your potential liability to lawsuits. Assuming you already have adequate homeowners’ and automobile liability coverage, are they enough to cover your total financial picture? Are you involved in any business or personal activities that have increased your potential for being sued?
Risks to important personal records – Where and how do you keep important documents such as wills, marriage records, birth certificates, passports, inventories of possessions, family histories, etc.? Are they vulnerable to loss? Should they be copied, should copies be given to others, should they be backed up electronically?
Risks to investments and savings – If a financial reversal occurs like the massive bear market of 2008, is everything you have exposed or do you have enough money to support yourself for a number of years in a stable place ready to be used? On the other hand, does your investment allocation protect you from loss of purchasing power due to inflation?
We live in a contingent, unpredictable universe and it is impossible to protect yourself from every future bump in the road. But asking questions like these can help you ensure that you and your family will have a better chance of being prepared for life’s unpleasant surprises.
Richard Schroeder, CFP®
Chief Investment Officer