The Southwest Voice

By: John Border

Everyone wants financial success for themselves and their families. Dreams we spend long hours working toward — whether it’s a first home, a college education for children or a retirement home some place warm — are all goals on the path to financial security. Unfortunately, it’s all too easy to stumble on the way to your destination. I’ve compiled a list of what I’ve found to be the most common errors people make in achieving their insurance and financial goals. All are potentially costly and could mean the difference between financial success and failure.

1. Failure to plan. An old saying goes, “Most people don’t plan to fail, they fail to plan.” This is particularly true when it comes to insurance and finances. If any planning is done it’s on a piecemeal basis, but that’s just not enough. To have a shot at accomplishing what we want, we must first set goals, analyze what it will take to achieve them and implement a plan. The plan should include everything from savings and checking accounts, to longer-term vehicles like annuities, CDs and IRAs as well as protection provided by life, health and disability income insurance.

2. Insufficient diversification. Another old adage still rings true: “Don’t put all your eggs in one basket.” Diversification is generally considered a key to reducing risk and enhancing potential return. Some people believe that because they have CDs in three different banks they’re properly diversified. True diversification cuts across product types, lengths of maturity and asset categories. With a well-diversified portfolio, you’re never too dependent on how well one product performs.

3. Insufficient life insurance. We’re quick to insure our cars and homes, but too often we overlook our most important asset — ourselves. With mortgages, tuition, and bills to be paid, it’s important to have proper coverage on all income earners. Some people may have group term life insurance through their employers, but this alone may not be sufficient. Be careful not to be overly dependent on group term life insurance for these plans can be inflexible, may not be portable and may not be available when you need it most — after age 65. Look into purchasing individual coverage to suit your particular needs. How much life insurance is enough? That depends on a number of personal factors including income and number of dependents. It’s best to sit down with an insurance professional to go over your needs and look at the available options.

4. Inadequate disability income insurance. Your earning power is the generator that keeps the wheels of your household running smoothly. But what if that generator breaks down? The risk of disability, as well as potential costs involved, is simply too great to ignore. Once again, a company-sponsored plan may be too limited for your needs. Typically, disability income insurance plans will cover 50 to 60 percent of your annual income for a pre-determined period of time. You’ll want to study the policy carefully to understand all provisions, including the definition of disability, the waiting period following disability before you can collect and the payment period length.

5. No estate plan. Some people have the impression that estate planning is just for the rich. Unfortunately, such a view can be costly heirs. Your estate includes such items as your home, cash, investments, personal property and other assets you and your spouse may own jointly or as community property. These may add up to a lot more than you thought you were worth. Federal estate taxes apply to estates valued at more than $2 million in 2007 and 2008* and can climb to over a 45 percent tax rate for large estates. When you add in state death taxes and final expenses, your death can be quite costly to your loved ones.

You owe it to your family to have an estate plan in place. An effective will, a trust arrangement, and adequate life insurance are some of the options available to you to help your heirs get what they deserve.

“To err is human” is yet another pearl of wisdom. Sure, everyone makes mistakes, but all of the ones outlined above can be avoided. With proper insurance products and financial strategies you can steer past those costly blunders and be on the road to financial success.

*This amount increases to $3,500,000 by 2009. In 2010, the estate tax is repealed for one year only. It resumes in 2011 at $1 million.

Comments? Questions? Call John Border at 325-8113.