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 Fiduciary 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 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.
Life has likely felt like a whirlwind since the pandemic started. While adjusting to the new normal, it’s possible your insurance coverage has not been top of mind. But in reality, you could be missing out by not reevaluating your current coverage. Here are four insurance areas you should reevaluate right away.
#1: Health Insurance
This one may seem like a no-brainer. Your health insurance can protect you from sizeable, unexpected expenses due to serious illness. With new cases of COVID-19 each day, it’s important to make sure that your insurance is up-to-date for anything from routine check-ups to an unexpected emergency.
This is especially important if you obtained your coverage through the workplace, but your employment was impacted by COVID-19. If you have a Flex Spending Account, you should read the Wall Street Journal article below where I was quoted.
Can a Health Savings Account Help?
To be eligible for an HSA, you must be enrolled in a High Deductible Health Plan (HDHP). Not only do these plans offer a tremendous tax benefit, but they also serve as another avenue for retirement savings. These accounts offer a win-win situation by balancing today’s savings and planning for the future. In exchange for lower premiums, an HDHP has higher deductibles. If you have large unforeseen medical expenses, you may have sizeable out-of-pocket expenses.
What qualifies for a high deductible health plan?
For 2021, the IRS defines a high deductible health plan as any plan with a deductible of at least $1,400 for an individual or $2,800 for a family. An HDHP'S total yearly out-of-pocket expenses (including deductibles, copayments, and coinsurance) can't be more than $7,000 for an individual or $14,000 for a family.
The tax advantages of an HSA are as follows:
- Contributions to an HSA are pre-tax or tax-deductible. Just like a 401(k), 403(b), or IRA.
- Earnings grow tax-deferred, just like a 401(k), 403(b), or IRA.
- Withdrawals for eligible medical expenses are tax-free.
When using HSA funds for non-qualified medical expenses before age 65, you’ll owe tax plus a 20% penalty.
Maximum contribution amounts for 2021 are $3,600 for self-only and $7,200 for families. The annual “catch-up” contribution amount for individuals age 55 or older will remain $1,000.
#2: Auto Insurance
Throughout COVID-19 lockdowns and working remotely, we’ve spent less time traveling and more time at home. Therefore, it is likely that your driving habits may have changed over the past year. If you’ve found yourself spending a lot less time in the car commuting or traveling, you can potentially save money on your car insurance. Report your updated mileage to your insurance provider and see if they can lower your premiums.
#3: Life Insurance
You may not want to think about it, but it is important to reevaluate your life insurance policies - especially amidst the pandemic. America has surpassed 500,000 COVID-related deaths, and you want to make sure that your family is taken care of should something happen to you.1
Also of note, the past year or so may have included some big life changes. You may have gotten married, divorced, or had a child, for example. Make sure that you are evaluating how these changes may impact your life insurance coverage needs.
TERM LIFE VS. WHOLE LIFE INSURANCE
As a Fee-Only Financial Planning firm in the Washington, D.C. area, 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. Most 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.
#4: Identity Theft Insurance
Protecting your identity may seem like a less obvious area to look over, but COVID has caused us to spend much more time online. From online shopping to working from home, there are more opportunities for your identity to be stolen by online hackers. There are even scammers using COVID-19 to get your information. For example, they may pretend to be contact tracers or offer early access to a stimulus check. If you don’t have any protection currently in place, now would be a good time to consider identity theft insurance. I've included a helpful PDF below.
This checklist covers:
- Ways to minimize cyber threats
- Tips to identify common scams
- Steps to take if a client suspects unlawful activity
Take some time in the coming days to reevaluate your current insurance coverage and identify potential gaps. If you’re unsure whether you should change your coverage, work with your financial planner or insurance broker to review your options.
Dream Financial Planning Process ™
Whether you're managing student loan debt, starting a family, or considering buying your first home, the DREAM Financial Planning Process™ is tailored to the unique needs of busy professionals in 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.
If you're looking for guidance on your investments, you'll want to read this month's Newsletter. In my April Newsletter, I discuss Gamestop, market speculation, long-term investment returns, and 9 investing mistakes you should avoid.
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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.