Time For A Financial Tune Up?

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In the front window of the bike store near my home, there’s a big sign that reads, “FREE LIFETIME TUNE-UPS!” When you buy a bicycle, as I did recently for my daughter Jenny, you can bring it back anytime for a free tune-up. Having a tune-up at least once a year is a great way to keep your bicycle in top working condition.

A few weeks ago, I brought my wife’s and my own bicycle in for a tune-up. Unlike our daughter’s brand new bike, ours were covered with dust and cobwebs. The handles were chewed up and needed to be replaced. The tires were old and flat. But once our bikes were tuned up and everything that needed to be replaced was replaced, they were as good as new.

Last night, as I was driving by the bike store, I noticed the “FREE LIFETIME TUNE-UPS” sign and I began thinking about the similarities between tuning up a bicycle and tuning up people’s financial affairs.

At first, I thought, “Why would a bike store offer free lifetime tune-ups?” There are a number of good reasons. First, it gets their clients thinking about the need to keep their bikes tuned up, in good working order. Second, it tells clients that they’ll be there for the life of their new bicycle. Third, it encourages its clients to come back year after year for tune-ups, parts that need to be replaced, bike-related equipment (helmets, racks, water bottle holders), and new bicycles.

Your financial affairs are a lot like a bicycle. You need to have all of the right parts, and each part needs to be in good condition and work together to provide you and your family with a smooth ride through life. And just like your bicycle (and your automobile), you should have a financial tune-up on a regular basis, at least once a year.

Getting Started

Like my old bicycle, your wills, trusts, and insurance policies might be covered in dust. They’re probably sitting in a drawer or filing cabinet and haven’t seen the light of day in years. You might not even know where they are, but do your best to find them. Collect all of your wills, trusts, home and auto policies, life, health disability, and long-term care policies. If you’ve ever had a written financial plan prepared for you, you should get that out as well, although it is probably outdated and obsolete.

You might be wondering why I have not yet asked you to gather documents and information pertaining to your investments. That’s because, at this point in your financial tune-up, that information is less important.

Many people believe that the primary reason to work with a financial planner or advisor is to improve their investment performance and maximize their retirement savings. That assumption is not only wrong, it is also dangerous to your financial health and security. The single, most important reason to work with a financial planner (and do financial planning) is to make sure that you and your family remain financially secure at all times. Market-beating investment returns won’t do you or your family much good if you or a member of your family are held liable for a fatal automobile accident and you don’t have adequate auto insurance or an adequate umbrella

policy. Investment returns won’t help you or your family if you become disabled or terminally ill.

Proper insurance planning is the only thing that can ensure your family’s financial security in the event of death, illness, disability or a catastrophic event for which you or a family member are held liable. That’s why it’s the first and most important step in the financial planning process.

No one likes to talk about death, illness, or disability, and no one enjoys buying insurance. But each is a reality of life that must be addressed. If you love your family and care about their comfort and long-term financial security (as well as your own), you will want to make sure that you and your loved ones have adequate insurance protection.

Evaluating Your Insurance Needs and Policies

Now that you’ve found all of your important documents, take a look at each insurance policy and ask yourself the following question:

“Do I still need this insurance policy?”

• If you drive a car, you need auto insurance.
• If you own a home, you need home (and earthquake) insurance.
• If you have a mortgage, you may want mortgage insurance or enough life insurance to pay off the mortgage in the event of your untimely death.
• If you have substantial assets, you need a sizable umbrella policy.
• If you own a business, you probably need business liability and overhead insurance.
• If you have partners, you will probably want insurance to coincide with a buy/sell agreement or any business succession planning you may have (and should have) done.
• If you have a spouse or dependents whose lifestyle, income, financial security, and independence would be affected by your untimely death, then you need life insurance.
• If you have a spouse or dependents whose lifestyle, income, financial security, and independence would be affected by your untimely illness or disability, then you should have disability and/or long-term care insurance.

Please note that this article is not intended to provide you with in-depth insurance planning advice and information. My objective is solely to identify the critical issues that should be addressed in your financial planning and reviewed at least annually as part of your financial tune-up.

If you don’t think you need one or more of your old policies or are unsure, I recommend that you consult with your insurance agent to confirm that you do or don’t in fact need the insurance coverage. If it’s determined that you don’t need some of your old policies, your insurance professional can help you determine the best way to convert or terminate any unneeded policy.

If you’ve discovered that you have a need for a specific type of insurance but have not yet obtained coverage, you should consult with your insurance agent to confirm the need, determine how much insurance is needed and obtain the best, most cost-effective coverage.

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