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by: Eric R. Heckman, CFP, LUTCF
Don`t Forget to Fill the Moat!In the last issue we discussed the basic forms of insurance that protect your assets. However, what enabled you to get those assets? Most likely, unless you had a rich uncle who left you the farm, you purchased everything on your own by your ability to work. You can’t just protect your assets and leave them susceptible to other invading factors by your death or disability. Your ability to work is by far your most important asset. As the old saying goes, “Do you want to insure the goose or the Golden Egg?”Most employees in California get State Disability that pays a few hundred dollars each week for up to a year. If you are seriously & totally disabled, sometimes Social Security will help. However, that will be no where near what you earn right now. If you work for a medium to large size company, the odds are you have a group Long Term Disability (LTD) plan. These plans are cheap and the benefits are tax free if you pay for the premium with after tax dollars through your paycheck. However, the definition of disability is usually limited after 2 years, which means it may not pay out at that point. If you have no plan or have a small benefit, it makes sense to supplement it with an individual plan. You want to look for a plan that is guaranteed renewable & non-cancelable to insure that your rates will never change and the policy can’t be cancelled. Also, ideally you want a plan that has an “Own Occupation” clause that makes sure that if you can not perform your specific type of job, you would be considered disabled. This prevents a claim from being denied because you could work answering phones when you were an engineer previously. Legal protection is usually left out from insurance areas but having a Living Trust is essential to be fully protected. A Living Trust usually takes care of minor children, life support choices, and who should receive anything from your estate. The largest benefits are that it avoids the costly probate process and can’t be contested like a will. Far and away the most critical form of insurance is Life Insurance. You are the most valuable asset to society and to your family. You need to have a minimum of 5 times your salary but should strive to reach 15 times your pay. This rule of thumb is derived from the concept of human life value. Just like the courts calculate a person’s economic value in a wrongful death suit, you need to protect your human life value. A parent who stays home has an enormous economic value to the family and that needs to be protected in the same way as the spouse who takes home a paycheck. The are two types of life insurance: term & permanent. Term is meant for a short time, even though there are companies who sell policies that stay level for 30 years. A lot of people are being tricked into believing these policies are all they need when the odds are they will expire before you do. Term has very specific times it should be used but was never meant to be a long-range solution. Permanent insurance is either whole life or universal. In each case, you pay a premium that creates an excess reserve that is called cash value. This money is either invested by the company or in a selection of mutual funds. Whole life has a set premium for life and guaranteed policy values. Universal policies allow you to pick your premium and may have a guaranteed minimum interest rate. There is no way to discuss how life insurance can be incorporated into your financial plan in this article, but it can often add millions of dollars to your family’ wealth and to your retirement. Eric R. Heckman provides Financial, Insurance, Investment & Stock Option Planning Executive and Employee Benefits. He can be reached by email at: the@wealthcreator.com, or at 408-297-9800 Fax: 408-297-9899
For more information visit: www.leapsystems.com
Note: The information provided herein is of general nature, and should not be construed as personal investment, financial or legal advice. |
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