While driving to see a client not too long ago, I heard a commercial for a local investment advisor on a local radio station, ostensibly a recording of some thoughts on how his firm might plan for a young couple in the event the husband was to die in the near future. Both husband and wife were employed. They had two young children.
His analysis would include questions of whether the then widow would have to sell the house, be unable to send the children to college and all of the other problems and issues that arise when a young father dies.
His stated solution to the problem was to begin an investment program that would meet their long term goals. Period. And, that is what they should do...as one starting point.
But, what would the result of an investment program be, even a successful one, if one of the spouses died in a year or two (yes, the wife could be the first to die). Certainly, the same problems would arise, albeit in a slightly less dramatic form.
He forgot the value of life insurance. At the least, the couple should consider insuring each with a term life insurance policy that replaces lost income for some period of time and, maybe, covers college costs. If they can afford it, they might consider some permanent life insurance as part of a long range... yes, investment portfolio. It will help offset swings in the market over the years of accumulating investment growth.
And, while we are at it, don't forget protection against a disabling accident or illness that would bring about a significant loss of income. Many employers offer short and/or long term disability insurance. That said, there may be provisions that protect only for the short term, or reduce the benefit for Social Security Disability Benefits. Or, simply the plan does not provide enough income to replace what is lost. A professional who is familiar with disability income should review benefits and discuss any shortcomings.
By the way, the advisor on the radio was right in that two few people have a long term plan that is being implemented. It is important. It is just as important, if not more so, to have a short term "disaster" plan in place.
PS. While MKA focuses on life and disability insurance plans, we are always recommending to clients that a financial planner/investment advisor be part of their planning team.
If you would like more information on this subject, or have a client who might benefit from a discussion about it, please contact Barry Koslow at bkoslow@mkaplanners.com or (781) 939-6050.
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