Insurance Planning & Risk Management
- Life — Both David and Marcia would want life insurance to cover the sum total of their indebtedness so the other party is not left with an overwhelming financial situation in addition to their grief. If children enter the picture, they will want to consider life insurance to cover the cost of raising children to age 18, the cost of college, and any other expense that would be affected by the loss of one income.
- Health — The Palmers case illustrated the need to become familiar with the specifics of your health insurance plans. Knowing what's covered and what's not is critical. Knowing what the catastrophic limits are is equally critical. We all know someone who has suffered a health setback. What we may not have known is the financial impact of that setback to the family. Health issues are often expensive even if we have insurance. Everyone should consider separate savings to cover health costs.
- Disability — It should go without saying, the Palmers case illustrates the need to have a disability insurance policy outside of that provided by your employer. Typically, employer-provided disability insurance plans cover 60-70%. But a policy that you buy on your own can be designed to meet your specific needs. In the case of the Palmers, much of their woes might have been prevented had Marcia a policy that did the following: Covered her income up to 70 percent with a short elimination period and disability definitions that were liberal enough so she can go back to her expertise vs. any position, even one she is not experienced in.
Income Tax Planning
The Palmers need to make sure they are using all available tax deductions including medical expenses.
Investment Planning
This is down the road when they get closer to paying off their debts. Then, this includes the basics of setting aside a certain percentage consistently, choosing low-cost investments that match their risk tolerance (what they feel they can tolerate) and risk capacity (what their financial situation and outlook can tolerate).
Employee Benefit Planning
They are currently maximizing employee benefits but should either change jobs, they'll want to review them again to make certain they are getting the full value of them.
Retirement Planning
They will have a couple of decades to save for retirement once their debt is paid off. If they dedicate themselves to the process with the same determination they are using to pay down their debts, they have a very reasonable chance at a comfortable retirement.
Estate Planning
- Wills — No matter what stage of life you're in, everyone should have a current will drawn in the state they currently live in.
- Trusts — Trusts can be written to do just about anything and as this couple's situation grows in amount and complexity, a trust may be useful to them.
- Healthcare Proxy — Everyone with a pulse should have a healthcare proxy or directive. No one likes to think about a time when they are not well but consider this: It is perhaps the most generous gift you can give to your loved ones. They are freed from the responsibility of deciding for you what should be done in an already stressful time. With your written wishes in this document, they can feel secure knowing they are simply carrying out your wishes.
- Durable Power of Attorney — The Palmers need to talk with an attorney about how best to use this tool of letting someone act on their behalf when either of them is unable to act on their own.
