Two of the benefits of Fixed Indexed Annuities I talk about daily in my practice are
1) their ability to protect retirement accounts from market volatility, and
2) protection from ever running out of income during retirement. Of course, this is retirement asset protection.
But something that has been lost over the past several years is the practice of protecting all of your assets with the proper homeowners and auto policy coverages.
Many years ago, insurance companies started running advertising campaigns based solely on premium savings. “People who switched to us saved an average of $342 per year,” one ad said. There are three insurance companies that irk me the most. They have a gecko; a dumb brunette woman and blond man wearing aprons; and an emu with an even dumber male sidekick, giving advice on how you can save money on your home and auto insurance premiums, with no regard for financial exposure.
Let me explain the problem. And believe me, it’s become a financial epidemic. Let’s say the bodily injury liability protection limits on your auto insurance policy are 100/300. This means you have bodily injury liability limits of $100,000 for one person and $300,000 for multiple people. This coverage protects you when you are at-fault in a car accident, and therefore, are liable for all the injured persons medical losses, in addition to the potential of a pain and suffering lawsuit.
Add up every asset you are at risk of losing in a worst-case scenario. This means the equity in your house, your 401(k)s, annuities, IRAs, bank accounts, car equity, etc. Hypothetically, you’re surprised to see it all adds up to $681,000. Using our example with the bodily injury portion of your auto insurance, you have paid an insurance company to assume $100,000 of the $681,000 you at risk of losing. You’re partially insured and have a $581,000 financial exposure.
So, heaven forbid, it happens. You are at-fault in a bad accident involving one other person in the other car. He or she ends up in a wheelchair; can no longer work; or worse. Not only are you responsible for all their medical losses, but you are sued for $1,000,000 as well.
You are served. You lose sleep for six months. It impacts your health and your social life. Finally, there is a judgment for $850,000. Your insurance company pays $100,000 and you have to come up with the $750,000 difference. You liquidate your house, retirement assets, liquid assets, and they garnish your wages to cover the remaining balance. Oh… and you have to keep working until you’re 80, instead of retiring at 65 like you planned, because there are no remaining retirement assets.
But, it’s okay, because you saved $342 per year on your insurance premiums.
If you are uncertain you are insured properly, call your agent right away to have this discussion with him or her. If your agent is a millennial, who doesn’t know how to use their words, feel free to call me.