Friday, September 16, 2016

Financial Planning Part 3 (of 4): Death and Taxes

In my recent post in the financial planning elements series, I talked about preparing for emergencies, debt, and investing. In this post, we will look at a couple more elements that should be included in your overall plan.
People look forward to talking about death and disability about as much as they look forward to talking about taxes, so we decided to talk about both of them here! Both are incredibly important to address as part of your financial plan.

Insurance

It is a good idea to review all of you policies, including auto- and home-owner’s (or renter’s) insurance to ensure that you are comfortable with the amount of coverage. In this section, we are going to specifically address disability, life, and long-term care insurance.
One of our greatest assets is our ability to work, earn, and save. It is something that should be protected.
Many people find a gap when evaluating their disability insurance. It is somewhat complicated. Some policies provide coverage if you can’t work inany occupation, whereas others cover you if you can’t work in your occupation. A lot of employers offer some form of disability insurance – in general, it covers about 60% of your income. When evaluating the potential gap in insurance, you need to think about how long you can go without income. It is worth reaching out to HR to get details if your employer has coverage, and then perhaps to an insurance specialist to explain your options.
Insurance in general is something that is often pushed to the side, but especially life insurance. Nobody wants to talk about our loved ones dying. It is a conversation that needs to happen sooner rather than later. Life is short and you never know when someone’s time is up. You want to ensure that your loved ones aren’t left without an income stream.
There are many types of life insurance out there, but they can mainly be broken down into term or permanent. One of the most popular and economical types is term life insurance. It is inexpensive and covers you for a certain amount and for a specified term. After the term, whether it is 10 or 20 years or something different, it either expires or can be converted into some form of permanent life insurance for a higher premium.
Permanent life insurance has several varieties, including whole-life, universal, and variable universal life. Due to various guarantees offered with permanent insurance and the ability to accrue cash value in the policy, these policies are more expensive.
Whether you go with term or permanent, it is important to determine the right amount for you. Try to think in terms of economics vs. emotion. That is easier said than done, but it’s worth mentioning.
Another type of insurance that people often consider is long-term care insurance. It is a way to mitigate the costs of extended medical care as we age. If you decide to go with long-term care insurance, it is probably worth adding an inflation rider to it to make sure the money goes as far as you need it to. As with most insurance, the younger and healthier you are, the lower the premiums.
There are a lot of moving parts in insurance. If you decide that you need help navigating insurance, then it is a good idea to interview a few agents to make sure you find one with the right knowledge and fit for you. As always, make sure you understand what you’re buying, the risks, and the fees associated with it.
One way you may be able to find extra money for your budgets and premiums is through effective tax planning.
Your tax strategy should be driven by your overall financial goals.
It is something that a CPA can help you with throughout the year. It is not a set it and forget type of thing. It can help you plan better by accurately predicting cash flow and potentially shifting current and future tax liabilities.
That’s all for this section of our financial planning series. In the last part of the series we are going to talk about retirement strategies and estate planning. Have a great day!