About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area, that works with clients virtually across the country. Lamar's work with his clients focuses on budgeting, employee benefits, paying down debt, buying their first home, and investing. Lamar is the Founder of Dream Financial Planning, a virtual financial planning firm specifically designed to help young professionals and minorities take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the The DREAM Financial Planning Process ™ to help our clients achieve their goals.
Insurance is one of those things most people don't like to spend money on. However, when disaster strikes and you don't already have coverage the results could be catastrophic. I see this often with my clients in their 20s and early 30. Whether it's a lack of renters insurance, life insurance, disability insurance, or umbrella insurance. If you're in your 40s or 50s it might be time to start shopping for Long-Term Care Insurance. As a Fee-Only firm I don't sell any type of insurance. However, I do understand the importance of helping my clients maintain proper insurance coverage as part of a well crafted Financial Plan. If you have any questions about your insurance coverage feel free to contact me to schedule an insurance review.
Short-term and Long-term disability insurance
One of the major pieces of insurance I see clients overlook is short-term and long-term disability insurance. This insurance will replace a portion of salary, typically 60% if you become disabled.
Umbrella Insurance Coverage
If you're net-worth exceeds the liability limits of any auto or home owners insurance you have you should strongly consider an umbrella insurance policy that will provide additional coverage. This coverage is offered by virtually every insurance carrier and is usually very cost effective. Check with your current insurance advisor to see if it makes sense for you.
TERM LIFE VS. WHOLE LIFE INSURANCE
As a Fee-Only Financial Planning firm in Reston VA, we don't ever charge commissions or sell Life Insurance. However, we are qualified to help you analyze the best coverage for you and your family. The majority of the time, we recommend Term Life Insurance as the most cost-effective way to get coverage that doesn't have high or hidden fees. We usually recommend that our clients stay away from Whole Life Insurance and Annuities. Before you buy insurance, make sure you're working with a Fiduciary and ask about the agent's fees and commissions, which are often very high or hidden for Whole Life Insurance products and Annuities. I've included 2 PDFs below that can help you evaluate your insurance needs.
Having at least a basic insurance plan is essential for anyone. While many jobs cover your insurance needs, not all of them do. It's important to figure out what insurance plans you need and what works best for you and your family. Choosing an insurance plan can be complicated, so when doing so, try to avoid these mistakes.
Mistake #1: Not Having Insurance
Whether you're trying to save money or think you're young enough to get by without it, foregoing basic insurance coverage can be an incredibly costly mistake.
When it comes to health insurance, you have options. If your employer does not provide coverage, you can choose to obtain a policy through the Marketplace. There are different levels of coverage, from catastrophic (cheapest) to gold (typically the most expensive). If cost is an issue, even obtaining catastrophic coverage can be better than nothing. As you compare plans, look into what premium tax credits may be available to use, as these can help offset your monthly premium costs.
Mistake #2: Not Having Enough Insurance
Less comprehensive coverage or basic insurance plans can equate to lower premiums every month. The problem is - you’re likely to make up the difference anyway when it comes to your deductibles and out-of-pocket expenses. By not giving yourself enough insurance coverage upfront, you’re taking a gamble of whether or not you’ll actually need to use it. One broken bone or a fender bender could quickly cost you more than if you had paid the higher premiums upfront.
Mistake #3: Over Insuring Yourself
Talk to an insurance agent to figure out the right amount of insurance for your specific circumstances. Just as you don’t want to under-insure yourself and your possessions, over-insuring could be equally as costly.
Mistake #4: Not Asking for Discounts
If you don’t ask for a discount, then you may never know if you would have gotten one or not. There are possible hidden discounts you can qualify for, but if you don’t tell your agent and ask what you can get, they will never know that they need to apply them to your account.
Mistake #5: Not Looking Around for New Policies
You should be shopping around for a new basic insurance policy every few years. In some instances - especially if certain circumstances have changed - you can save money by updating your policy or switching providers. Some insurance companies may even offer discounts based on things like where you work or where you went to college.
Mistake #6: Misunderstanding Your Policy
Make sure that you understand what your policy covers, under what circumstances it can be used and what you can still expect to pay out-of-pocket. Having a thorough understanding of your policy now means avoiding unwelcome surprises when it’s time to file a claim.
Mistake #7: Opting Into Group Life Insurance Automatically
If you choose to take advantage of your company’s group life insurance policy, remember that your rates aren’t locked in - they could go up. Consider any additional life insurance offerings provided through the workplace carefully before signing on. You should know exactly what you’re paying for, and if the premiums are worth the potential benefits in your particular situation.
Mistake #8: Getting Rid of Long-Term Care Insurance
If you’re notified that your premiums are about to rise, you may be inclined to drop your long-term care policy. However, it’s important to remember that purchasing a new plan may cost even more, especially since you are now older than when you first purchased your original policy. And foregoing long-term care coverage altogether puts you and your family at greater risk of future financial turmoil.
Mistake #9: Picking a Health Policy on Premium Alone
You may think that you are saving money because the premium is low on your insurance. Insurance companies, however, can sometimes find less obvious ways to make their money back.
Some examples include:
- Higher copays during doctor visits
- If a doctor’s visit is out of your network, out-of-pocket costs may be higher
- Prescription drugs may be more expensive
Consider how often you visit the doctor’s office annually and any prescriptions you’re currently on. This can help you find an insurance policy that covers what you need without breaking the bank.
Whether you’re looking at health, auto, life or any other insurance policy, there are plenty of considerations to keep in mind. If you are choosing a plan through your work, make sure you are speaking to someone who works at the insurance provider to get all the answers you need. If your work does not cover your insurance, speak to representatives at the insurance company and your financial advisor to help make these decisions.
Dream Financial Planning Process ™
Whether you're managing student loan debt, starting a business, or considering buying your first home, the DREAM Financial Planning Process™ is tailored to the unique needs of busy professionals is their 30s and 40s. This process focuses more on short-term goals while you grow and evolve in your personal and professional life. If you're looking for guidance on: Financial Planning, optimizing employee benefits, budgeting, student loans, and managing your 401k or investments we can help.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your own savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio feel free to send me an e-mail.
On the first Thursday of every month I send out a monthly newsletter with tips and tricks to help you manage your Finances. In the August Newsletter I discuss why I started Dream Financial Planning and the foundational principles of my firm. There's also an article from Time.com about money market funds. If you have questions about what to do with a large cash balance, you might find this article helpful. I've also been getting a lot of questions about how to invest money you'll need in 5 years or less. You can view my thoughts here.
One article from U.S. News & World Report discusses when it might make sense to work with a Financial Advisor and the additional value we can provide beyond just managing investments. I also included two downloadable PDFs. One highlights what you should consider when paying off your student loans. The other provides guidance on Income-Driven Repayment ("IDR") Plans, which can be an attractive option for federal student loan borrowers.
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Disclaimer: Dream Financial Planning, LLC does not warrant that this information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall Dream Financial Planning, LLC be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if Dream Financial Planning, LLC or a Dream Financial Planning, LLC authorized representative has been advised of the possibility of such damages. Please consult with your own advisor before making any changes to your Financial Plan, Investments, or Insurance coverage.