4 Questions About Risk We All Must Answer

4 Questions About Risk We All Must Answer
By: Brent Hines

This world is full of risk. Some risks are worth taking, while others are not.

Risk comes in many flavors and variations. Just to name a few that first come to mind…risks can be physical, emotional, relational, professional, or financial.

In the financial world, we hear the talking heads associate “risk” with “return”. In essence, if we are 100% risk averse, we will experience very little opportunity for growth. However, we might be willing to take on large amounts of risk with the hope of large upside potential.

Well, not everything is black and white in this world and consumers (or investors) don’t always act rational.

Distilled down to everyday language…each of have different goals, preferences and fears.

Please understand, I’m not here to tell you what specific risks you should mitigate or what insurance policies you should own, but rather, I want you to be well-informed, know the right questions to ask, and be able to put a plan in place that is tailored for you and your family.

John F. Kennedy said “There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.”

Regarding financial risk, there are 4 critical questions that we should all have answered:

What if I get sued? – You’re right to be worried. There are over 100 million cases filed each year in American courts and there are only 370 million people in the United States.  So, you do the math…in just 4 years’ time, there are as many court cases filed as there are citizens of the country.

What if I become sick or hurt? – This is an often-underappreciated topic. Take a moment to think through what next month would look like financially if the paycheck stopped. According to Bankrates Financial Security Index, only 39% of us have savings over $1,000. So, even needing to take just a week or two off without pay could lead to devastating financial consequences. 

What if I die younger than expected? – In our youth, we were invincible and would live forever. Now as adults with families we love and care for, it’s not unusual for us to begin contemplating “What if I die before I ever get a chance to grow old?”. So, forgive me for being Mr. Downer here, but over 40,000 Americans died in car crashes last year alone!  Not to mention the risk of heart attack, stroke, cancer and so on…So, if you were to die unexpectantly, what would that do to your family financially?

What if I need long-term care at some point? – The Alliance Health Policy research shows that 58% of men and 79% of women aged 65 and older would need long-term care at some point as they grow older; and it’s expensive. According to Genworth, in 10 years from now, the cost of 1 year of care will between $60,000 and $130,000 depending on the level care. If we don’t have a plan for this, the assets we worked so hard to save and build will be wiped out, rather than going to your family.

  1. Cover your Assets – An umbrella policy is typically one of the cheapest policies you can purchase and for the broad type of coverage it provides, generally speaking they are worth it.  Especially when you have ‘attractive nuisances’ like a trampoline that neighbor kids play on or you have a job that is prone to lawsuits. The first step is to make a list of your assets and liabilities. We help you with that in the next section…the good news is that you may find that you look a lot wealthier on paper than you feel in real life…but that’s also the bad news because that is exactly what an attorney who wants to sue you will see as well. Umbrella Insurance can be an important protection from someone injuring themselves on your property or even in the course of your professional duties at work.
  • You’d insure a money tree, wouldn’t you? –Even more than dying or being sued, the most substantial risk you face is your inability to earn an income due to an illness or an accident.  But here’s the good news; the risk of being sick or hurt is an “insurable risk”. It’s called disability insurance and often times is a group benefit offered through your employer. So, this week make it a priority to confirm with your HR person if you have long-term disability coverage. If you do, then confirm the eligibility period (the amount of time between the date of disability and when benefits begin), and the percentage of your income it covers. This is not a place to pinch pennies; crank up the percentage as high as they will allow (normally, you’ll be capped around 70%).
  • Build a plan, don’t just buy a policy –Here’s a question you’ll never hear asked in an insurance agent’s office, “Do you need insurance?”. Not everyone does. And, those of us who do need it, don’t always the need the same type. Through the Foundation, we teach a methodology that we call PURPOSE – PLANNING – PRODUCT. If the conversation begins with financial product (features, benefits, bells, whistles, etc.), politely excuse yourself and get out! Begin defining your purpose as it relates to life insurance and long-term care insurance. Start simple. Take three sheets of blank paper. On the first sheet, across the top, write “1-Year Perfect Day”, the second sheet write “5-Year Perfect Day”, and on the third sheet, write “10-Year Perfect Day”. On each sheet, now describe (free flowing, stream of consciousness, no boundaries, no rules) what your perfect day would look like on each of those milestone years. Then, below each of those descriptions, describe what your family members’ lives would look like on those same milestones with out you here and/or if you needed long-term care. This exercise in essence, is a gap analysis. What is the gap between your best-case scenario and your death and/or long-term care scenario? This is how you answer the question that should be asked, “Do you need insurance?”.