Safety Net: Questions

Jonathan Clements

WANT TO MAKE SURE your family is adequately protected against financial disaster? Try grappling with these 10 questions:

  1. What’s the minimum dollar amount you need each month to keep your household running? That’s a useful number to know if you’re forced to slash living costs because, say, you lost your job or you need to cover a large, unexpected medical bill.
  2. How would you cope financially if you were out of work for six months? Think about where you would get the money to cover household expenses—and whether you ought to cut living costs, build up your emergency fund and open a home-equity line of credit.
  3. If you’re retired, should you bother with a separate emergency fund? The big financial emergency is getting laid off—and that isn’t a risk once you’re retired.
  4. Who would suffer financially if you died tomorrow? If you’re single with no children at home, or you’re married to somebody with a healthy income, the answer may be no one. But if you’re the main breadwinner, with a spouse at home and young children, your death could wreak financial havoc—and you may need substantial amounts of life insurance.
  5. Do you own the right sort of life insurance? A majority of policies sold are cash-value policies, which involve hefty premiums—and which can crimp your ability to fund superior investment vehicles, such as your employer’s 401(k) plan. A better strategy: Max out your 401(k)—and protect your family with low-cost term insurance.
  6. Would your homeowner’s policy pay enough to allow you to rebuild? Rebuilding may prove surprisingly expensive, because your new home would need to meet current building codes.
  7. If you required nursing home care, how would you cover the cost? Can you afford to pay out of pocket, should you buy long-term-care insurance, or are you planning to deplete your assets and then fall back on Medicaid?
  8. To reduce premiums, should you raise the deductibles on your health, homeowner’s and auto policies, and also extend the elimination period on your long-term-care and disability insurance?
  9. Thanks to your growing wealth, could you afford to drop various insurance policies and instead self-insure? If you have more than $1 million in investable assets, you might have enough socked away to handle life’s financial disasters without help from life, disability and long-term-care insurance.
  10. Which of your assets would be protected if you got slapped with a lawsuit or had to file bankruptcy? Federal law would likely protect much or all of your retirement account money. But what additional protections are offered by state law?

This is part of a series of 10 articles. You can find links to the other nine articles here. Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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