Safety Net

THERE IS A CERTAIN pleasure associated with saving for retirement, college or a house down payment. You get that enjoyable sense of progress as you watch your account balances balloon, plus the goals themselves are exciting. There is, alas, no such pleasure when rigging up your family’s financial safety net. It’s all about thinking through the bad stuff that might happen and then playing defense as best you can.

That brings us to a crucial notion many folks fail to grasp: When we talk about protecting loved ones, we’re talking about fending off major financial threats to you and those who depend on you financially. For instance, the death of a child is a terrible thing. But unless your children are Hollywood stars, probably neither you nor anybody else depends on them financially. That means it doesn’t make sense to buy insurance on your children’s lives. Insurance salves financial wounds. It doesn’t fix broken hearts.

Similarly, it would be bad if your television went kaput. But in all likelihood, you can afford to purchase a new one, so you probably shouldn’t buy the extended warranty. Insurance is about getting somebody else to shoulder risks you can’t afford to shoulder yourself. A bum television doesn’t fall into that category.

Your goal: Rig up a safety net that protects your family against major financial threats—and then stop there, knowing that money devoted to your safety net is a cost that will leave you with less for other goals. So what steps should you take to protect your family? Consider focusing on four areas: preparing for financial emergencies, getting the right insurance coverage, protecting against lawsuits and organizing your estate. The first three topics are tackled in this chapter. Estate planning is dealt with elsewhere.

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