Risk Management by the Decade

September 15, 2017 · Written By Amanda L. Marcello, CFP®

Over the course of one’s life, both the definition of risk and one’s approach to risk management undergo a series of changes.  The reality is, what one has to lose changes over time, and different types of assets call for different types of protection.

As your life continually evolves, you’ll face new and unforeseen events that require periodic assessment of insurance coverage.  Here is a basic guide of which risk management considerations you can expect as new life stages emerge.

Your Twenties—Don’t Assume You have Nothing to Lose

As more people stay in school well into their late twenties and postpone marriage, starting a family, and even moving out of their childhood home, it can be easy to assume that twenty-somethings have little to no need for insurance. In fact, even with limited equity, people in their twenties are well advised to start thinking about risk management.

Of course, if you lease or own a vehicle, it is essential to have auto insurance. For those renting their home, protecting personal belongings with renters’ insurance is just as important. Many young renters assume they have nothing to lose—that is, until they experience a break in—and in many regions, renters are far more likely than home owners to experience a burglary.

Your Thirties—Disability and Life Insurance Needs

By their early thirties, many Americans have started to settle down, focus on work, family and home equity. At this point, one’s sense of risk typically undergoes a drastic change. If disability or life insurance once appeared unnecessary, growing responsibilities for other dependents, including one’s spouse, children and in some cases aging parents, now make both types of insurance essential.

If you are seriously injured or pass away prematurely, disability and life insurance provide peace of mind that you won’t leave your family struggling to pay the bills as expenses continue to grow.  The question, of course, is how much is enough insurance? As a rule of thumb, if you have children, the amount should cover your lost wages through to the end of their college years and cover any significant one-time costs (e.g., college tuition). If your spouse does not work or makes significantly less than you, the value of your disability and life insurance policies should provide sufficient funding to support them over their lifespan.

Your Forties—Protect Your Hard-earned Assets

As you enter the second decade of your working years, you’ve likely made considerable progress in paying down debt and accumulating healthy savings. The higher your net worth and more personal resources at stake, the more likely an umbrella liability policy is recommended.  In our litigious culture, if you happen to be sued, an umbrella liability policy offers an additional layer of protection for your family and your assets.

Umbrella insurance provides additional protection beyond standard coverage—like auto or homeowners policies—shielding you from potentially devastating liability claims.  Unlike many forms of insurance, an umbrella liability policy, also referred to as “excess liability coverage,” typically costs less than $500 annually. If you have built up significant assets, an umbrella liability policy should be considered an essential rather than optional insurance product.

Your Fifties—Plan Ahead for Long-term Care

By the time you reach 50, it is highly advisable to think about the impact of aging. Recent statistics from the Department of Health and Human Services show that 70% of people turning age 65 can expect to use some form of long-term care during their lives, which may include home health care or a residential long-term care solution.

Given that the daily cost of long-term care is $200 on average (and often much higher), planning ahead is absolutely critical. Remember that the earlier you purchase long-term care insurance—and the healthier you are when you buy your policy—the lower your rate will be. Also, the decision to purchase long-term care insurance will not only make your final years more comfortable but also have a notable impact on the financial health of your children, who will not be saddled with the cost of your long-term care just as they are attempting to build up their own equity.

The Retirement Years—Prepare for Rising Health Insurance Costs

As you enter your post-working years, you might not feel like a greater risk than you were 40 years ago, but statistically speaking, you are. In your sixties, seventies and beyond, you should expect to see your insurance policies grow increasingly expensive.

Now that you’re out of the workforce and less likely to have your employer picking up some of your medical expenses, it is important to constantly review your Medicare coverage. A Medicare supplement can at least help offset some of the cost not covered by your other forms of health care, including high co-pays. Some retirees may also choose to purchase Medigap policies that provide coverage above and beyond what is offered through Medicare, or Medicare Part D prescription drug coverage.

No matter your age, assets or type of coverage you’re seeking, it’s always wise to shop around and get multiple quotes before deciding on the best policy and provider.  A Certified Financial Planner (CFP®) can help you look at all types of risk exposure and make recommendations based on your life circumstances and long-term goals.

As a Senior Lead Advisor for JFS Wealth Advisors, Amanda has over 10 years of experience developing and monitoring tailored financial strategies for affluent individuals, families, and businesses.  If you have questions relating to this or other investment and financial planning topics, contact Amanda at amarcello@jfswa.com.