Last Updated: July 11, 2011
This checklist is the second in a two-part series regarding times when it is appropriate to review insurance coverages. Last month’s list captured five periods change: a new job, purchasing a home, loss of a loved one, birth of a child, and estate distribution planning. This article will identify five other events when you should review your coverage: marriage, divorce, receipt of a financial windfall, ownership in a business, and the onset of an illness or accident.
Whether it is a first marriage or combining households from a previous marriage, marriage absolutely requires the review of insurance coverages. There are concerns as it relates to physical property – is there enough liability coverage, homeowner’s coverage, umbrella coverage, and personal property protection. Reviewing the property element is just one part of the equation.
Another key item that should be reviewed is health insurance. Questions to consider are things like which employer offers the greatest subsidy, which employer offers the most robust benefits and how will you go about accessing care. If you obtain health insurance outside of an employer relationship, this analysis becomes easier in as much as you have multiple providers in the marketplace to consider. If there is one spouse in the household who is earning income while the other is not gainfully employed, the decision becomes easier as well. The most complicated decision is when there are multiple employers that each offer health insurance benefits.
Other insurances that should be reviewed include life insurance, disability insurance and perhaps long-term care, depending upon the age. Sufficient life insurance should be in place so that financial goals are accomplished upon the death of the first spouse. Disability insurance is important for minimizing income shortfalls so you can pay current bills or make progress on meeting future financial goals. Think of your income as an ATM machine and disability insurance is the protection of that machine. If a couple is in their 50s, in particular if it is a second marriage, long-term care becomes very important. Long-term care can be an asset protection tool and should be given serious consideration. Often children have a tough time digesting the concept that their potential inheritance may be depleted for extended care of the second spouse.
The event of a divorce prompts many of these same issues. There is a need to identify what gaps in coverage now exist as a result of a divorce. It is likely that the couple will live apart, so each should review the property and casualty coverages outlined above. That should prompt a thorough analysis of life, disability and long-term care insurance. Divorce can be complicated and may take time, but it is important that each of these items is readdressed. It is very likely that the divorced couple’s financial goals have changed over time and reviewing all forms of insurance will allow you to make sure that existing coverages line up with your existing goals. To the extent that goals have changed, you will need to make changes to your insurance.
Receipt of a Financial Windfall
We all dream of a financial windfall at some time and pleasantly enough, this to creates a need to review your insurance. Coverages that were in place may no longer be necessary if the financial windfall is sufficient to accomplish one’s financial goals. Things like disability insurance may be less important since one can now financially handle the loss of income by way of the windfall assets. Life insurance may need to be decreased, and possibly terminated altogether, but long-term care usually remains a worthwhile coverage to hold onto. With increased assets comes increased exposure and liabilities and as such, the property and casualty coverages should be reviewed. Basic policies may not cover extensive assets or special assets, so find a qualified property and casualty insurance broker who can help you reevaluate your situation.
Ownership in a Business
Ownership in a business prompts reviews of coverage on two fronts: the personal planning and the corporate. With business owners, financial security is often tied to the business. If the business was to go under, so does their financial security. There should be sufficient business coverages in place, such as life and disability insurance, so at the death of an owner, the surviving partner can obtain the deceased partner’s interest in the business while the surviving spouse is able to see worth for their deceased spouse’s business interest. Having a buy-sell agreement that identifies the value of the business and the right type and amount of insurance allows for a transfer of ownership, and thus avoids disputes among remaining partners and the surviving spouse. Again, all of the personal coverages and personal casualty coverages should be reviewed here too. In addition, consideration must be given to any property and liability exposure that exists as a result of the business being operated.
Onset of an Illness or Accident
Insurance is one of the few things you cannot obtain once it is too late. By way of example, someone diagnosed with cancer will find it very difficult to obtain life insurance. Nonetheless, if there is a sense that something has developed medically that might affect your insurance planning, it is prudent to actively review your insurance policies while you still have the ability to do so. Any of the policies that are affected by your health status should be reviewed, such as life insurance, disability insurance, health insurance, and long-term care insurance. Sometimes it is possible to obtain or modify these coverages when a formal diagnosis has not yet been received. Time is of the essence, however, and you may find it impossible to make any changes if you have already been diagnosed with a condition or disease.
There are countless events when it is opportune for you to review your insurance. Keep in mind this is a fluid process. Just like retirement planning, things change with respect to your insurance planning. As you would reallocate your investments, you should revisit your insurance planning. Do not put insurance on the backburner, especially when there is change on the horizon.