Insurance Understood: 2023 Clean Up
This past summer my family had a sewer backup in our home. To make matters worse it was the night before we went on a two-week vacation to the Maritimes.
Have you ever had to deal with something like this? Let me tell you, it is no fun. When we got back from our trip, we lived in a hotel for two months and although we’re back in our home now, it’s not all restored quite yet. Something interesting came of it though. It forced us to deal with our storage room. You know the thing that nobody wants to really tackle because its hidden anyways. We had a lot of totes labelled by seasonal decorations but also had a lot of random items and even some surprises. Why were we keeping items that are no longer relevant or that didn’t fit into our stage of life anymore. Well, this got me thinking of life insurance and how many people have insurance but aren’t quite sure how it fits anymore or if it does at all.
Let me take you through a basic journey of how to clean up your insurance storage room in 2023. First, take everything out and get all your policies in front of you. Whether you dig in your filing cabinet, go to your safety deposit box, ask your insurance advisor, your parents, or the HR person at work it may take a bit of time so don’t get discouraged. While those policies are coming in you can assess what you need in the first place. Like anything, you can do this alone, with a partner, friend or even hire a professional organizer (ie insurance specialist).
A primary need is often income replacement. You simply look at the amount of income that your dependents need to maintain their lifestyle and for how long they need it. This is different for everyone so its ok not to have the same answer as everyone else. For example, some people need family income replaced for 5 years as a surviving parent may be able to generate sufficient income quickly whereas another situation may need 20 years due to the difference in income of the parents. Just think, that is why there are so many sizes of tote boxes out there.
A secondary need is often debt coverage. Some larger items are mortgages, lines of credit, student loans or credit cards. Usually people want to take care of these large items as they take a lot of pressure off the family should death occur. You can add these up and take a snapshot of the total.
Some additional needs to consider may be education costs for children or funeral expenses. I find that they are usually smaller in comparison to income replacement and debt coverage, but they are worth factoring in.
At this point, you should feel pretty good about your organization. However, there is still room to make some decisions on what else you want insurance to do. Do you want to leave a gift to a friend or charity? You can get pretty creative with this part. One of the neatest examples I had was when a client who became terminally ill chose to update one of the beneficiaries to someone not related to the family. It was a representative from a carpet retailer that had helped with a carpet selection during a renovation the year before. Wow did that ever make an impression on the beneficiary. You can make an impact if you want in so many ways.
Now that you know what you need and want, compare it to what you already have. Is it too much, too little, or just right?
This above may seem basic but it feels so good when you get it all sorted. One last thing, remember to do a review once in a while to make sure everything is still relevant in your life. It’s a lot easier when you check in on the storage room regularly, too.