January 07, 2016
When it comes to ranking financial fears, worrying about how your family will fare if calamity strikes is probably at the top of your list. Yet for some reason, no amount of fear has pushed you to the point of (finally!) taking the steps to protect yourself and your family from the “what ifs” that can strike at any time.
I am not here to scold. Or guilt you. I just want you to get past this excruciating fear once and for all. Here’s how:
1. Create your 4 essential documents. A will is a good start, but a will only spells out your wishes once you die. A revocable living trust is a powerful document that can help your family carry out your wishes if you become unable to manage your affairs, and also streamlines how your money will be disbursed and inherited once you pass.
You also should have a financial power of attorney, so someone can step in and handle your affairs if you are unable. (Every trust should include an incapacity clause.) A durable power of attorney for health care appoints someone to be your “advocate” if you become unable to express your medical care wishes.
2. Buy Term Life Insurance for your dependents. If anyone is dependent on your income, you want to make sure that if you were to die prematurely, there would be enough money to continue to support your loved ones. That may be young children, or older parents, or a spouse.
In most instances you really only need life insurance for a finite period of time. Maybe until the kids are adults, or until you’ve been able to save up enough assets that your spouse or other dependents would be able to live off the income from those assets.
That’s why I highly recommend most families only need term life insurance. As its name suggests, it lasts for just a set term. That can be five years, 10 years, or 20 years or more. If you die during the term, the policy pays out a death benefit. Because of the finite length of the policy, term life insurance is incredibly affordable. I guarantee you will be amazed at how much protection you can buy for a very small sum.
3. Don't scrimp on basic home and auto insurance. Buying “just enough” home (or renters) insurance and auto insurance is one of the costliest mistakes you could ever make. You don’t really think going cheap is smart, do you? Just think how exposed that would leave you financially if you were in a serious accident or your home was severely damaged in a fire or other covered accident.