Having grown up in an age of real fireplaces and having done some old-school camping, I also helped gather firewood. I then patiently watched my dad quickly buck it into lengths using his chainsaw. Until I learned how to use it, it scared me! A chainsaw is a powerful, useful tool but dangerous in careless, inexperienced and uninstructed hands. Slowly, once I learned the proper safety precautions, I became comfortable cutting wood on my own.
Insurance planning and power tools are related! Insurance is a powerful tool that can absolutely help to make everything okay when tragedy strikes. Without proper planning though, improper use of insurance can really mess you up.
I often get blank stares when I ask people what method they’ve used to plan and implement their insurance coverage. The most common response is “It sounded like a good figure.”
This is strange. Would this person insure his $1,000,000 house for $100,000 or over insure it for $10,000,000? Of course not! The house should be insured for its assessed value. The question we must ask is “What is your assessed value?” Do you have a method for determining the present value of your future income? Do you have a method of determining the cost of the obligations you have should you become sick, hurt or die?
There is no shame in admitting you don’t have a plan. Very few people have received training in how to properly assess their life insurance needs. Becoming aware of the need is the first step.
A formal written financial assessment is the next logical step. This assessment should identify cash needs and ongoing income needs in event of death, disability or critical illness.
You can spend a lot of your precious time trying to figure it out alone, or you can work with a professional. One way or another, learn how to use those power tools!