TIP 30
PROTECT YOUR STUFF
You don’t need to pray to God any more when there are storms in the sky, but you do have to be insured.
Given Murphy’s Law (Sod’s Law if you are English), if you have insurance, you’ll never need it, but if you don’t, disaster will strike. I am always amazed at the number of people who don’t have major medical insurance. I know it is expensive, but so is getting hit by a bus. No joke. One of my friends was recently hit by a bus and survived with a broken knee and no front teeth. She was lucky. It is bad enough when disaster hits, but worse when you have no insurance.
Renter’s or homeowner’s insurance is a must. Major medical is a must. Life insurance is not. You only need life insurance if you have a spouse or children who will need a lump sum if one of you unexpectedly dies, or if you are going into business with a partner and rely on his or her assets. If that person dies, will you be able to buy out the business? Make sure he or she has life insurance that covers the business investment. Whole-life, universal life, and variable life insurance are generally a waste of money—go for term, which provides no build-up of cash value. With any cash value policy, your early payments go primarily to sales commissions and overhead, so in most cases, you would be better off investing the difference in premiums yourself. If you have no confidence in your ability to save and want to be sure there is money for your family when you die, then you might want one of the permanent whole-life or flexible policies. However, as Burton G. Malkiel, professor of economics at Princeton University, explains in A Random Walk Down Wall Street, if you have the discipline to save, buy renewable term insurance so you can keep renewing your policy without an annual physical. In this excellent book, Malkiel states, “So-called decreasing term insurance, renewable for progressively lower amounts, should suit many families best, since as time passes (and the children and family resources grow), the need for protection usually diminishes.” Malkiel cautions that “term-insurance premiums escalate sharply when you reach the age of 60 or 70 or higher. If you still need insurance at that point, you will find that term insurance has become prohibitively expensive. But the major risk at that point is not premature death, it is that you will outlive your assets.” Of course, always shop around for the best deal as policy rates vary widely from company to company.
What does insurance have to do with attracting what you want? Peace of mind is very attractive. Plus you don’t want to lose your hard-earned cash reserve unnecessarily. A single-engine plane crashed in Phoenix, Arizona, and with all the beautiful insured homes around, it just happened to land on an uninsured home. The pilot bailed out, and no one was home, so thankfully no one was hurt. However, the homeowner’s insurance that came with the original mortgage didn’t exist because the mortgage had been paid off. The owner of the small plane didn’t have insurance either. The house was left black and ruined, the roof covered with a plastic tarp, for years. The homeowners were plain out of luck and out of financial resources. One of the best ways not to court disaster is to have insurance. Always insure what you can’t afford to lose.
Let’s not forget the most important insurance of all, protecting your children and your estate with a will or a revocable living trust. As every state has different laws, it is wise to consult an attorney or a certified financial planner (CFP) to make sure your trust or will is valid and written so that your intentions will be properly executed. Have you legally identified guardians for your children in the event that you and your spouse both die? Prepare for the worst possible disaster, and you will be more relaxed knowing that your children will be well taken care of. A good attorney or CFP will help you address these and other issues in your trust or will. Even if you are single, you may want to set up a living will so that if something should happen to you and you are unable to make decisions for yourself, you will not remain on life support against your wishes, depleting whatever resources you might have had.
Another commonly overlooked item is disability insurance for self-employed people. When you own your own company, you are the most valuable asset the company has. If you become disabled, you may be unable to perform the functions necessary to run your business. Most employees who work for a company have some disability insurance, but this doesn’t provide coverage if you leave to start your own business. And one thing that people may not realize is that it is harder to qualify for disability insurance once you are self-employed, so make sure that you have your own disability insurance a few months before you leave your company to start your own business.
Protect your valuable documents as well. Most of us have our own peculiar ways of storing important papers and valuables. This is all well and good until a pipe bursts and floods the basement where all the papers are stored in cardboard boxes, there’s a fire, or a tree crashes through your house. Unfortunately, only then do most people discover just how valuable those documents are. Don’t wait until lightning strikes. Mark your calendar and set aside a Saturday morning to protect your stuff, and do it right this time. If you are running a business from your home, do the same for all of your business documents and important records.
Make copies of all your valuable documents, including your birth certificates, car titles, property deeds, lease agreements, legal documents, wills, and financial records, including all your bank account numbers, credit cards, investments, loan documents, retirement and pension plans. Make copies of your property and life insurance polices, passports, citizenship papers, and social security cards. Keep your copies separate from the originals and store your originals in a fireproof home safe or bank safe-deposit box. If you travel frequently keep your passport handy at home and put the photocopy in the safe.
While you are at it, make an inventory of your valuable possessions, including those gold coins, the antique armoire, your grandmother’s diamond wedding ring, and all your electronic and other appliances—computer, television, stereo—with the serial numbers. List the approximate value of each item and save the receipts as proof of value. If you don’t have the receipts or if you think something is now worth more than the receipt shows, obtain written appraisals for artwork, antiques, and jewelry that you want to insure. It is very difficult to prove the value of something once it has disappeared. As a final measure, photograph your valuable items. Organize the list of possessions and the receipts, appraisals, and photographs in a binder and store this at the bank or in your secure and bolted safe. Banks don’t always offer insurance on your stored valuables, so make sure your homeowner’s policy covers any items there as well.
The next step is your computer. It is very unlikely that anyone would come into your home or office and steal all of your paper files, but it is likely that someone would steal your computer. Even if your computer is insured, the data on it may be irreplaceable. Make a regular backup of all your important files. Store one copy at the bank and another at home and remember to update weekly or as necessary. You may want to make your computer harder to steal with a security cable that locks to your desk.
Check your fire extinguisher. Is it past its functional date? Does everyone in the family know where it is located? Keep a fire blanket in the kitchen for putting out grease fires. Are there first aid kits and emergency blankets in the car?
One last reminder: let someone whom you trust know where your valuable documents are stored and how to retrieve them in the event of disaster. This will take only a few hours, and once it is done, you can easily do an annual update to include any new valuables, changes to your will, and so forth. Take these preventive measures, and, given Murphy’s Law, you are less likely to get hit. There’s no point in saving all your money to watch it go down the tubes because of some unfortunate event.