Five Insurance And Financial Mistakes That Can Cost You

by Mary L. Stockton, LUTCF

Owner, Stockton Financial and Insurance

Everyone wants financial success for themselves and their families. The dreams that we spend long hours working toward – whether it’s a first home, a college education for the 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 – especially for gay and lesbian couples, who have to take additional precautions to ensure that both partners are properly covered. 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. They’re all potentially costly, and they 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 our goals, analyze what it will take to achieve those goals, and then implement a plan. The plan should include everything from savings and checking accounts, to longer-term vehicles like annuities, CDs, and IRAs, and the protection provided by life, health, and disability income insurance. As a gay or lesbian couple, it is also crucial to make sure that you always choose financial vehicles with “transfer-on-death” options and name one another as the beneficiary.

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.

   Of course, you should also be careful to make sure your investments will transfer to your partner in the event of your death. Products such as mutual funds, IRAs, and annuities will allow you to name your partner as the beneficiary, and avoid the unpleasant scenario of disapproving family members attempting to disinherit your partner.

3. Insufficient Life Insurance — We’re quick to insure our cars and our 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, especially because of a current trend among major employers refusing coverage for domestic partners. Be careful not to be overly dependent on group term, for these plans can be inflexible, may not be portable, and may not be available when you need it most – after age 65. Purchasing individual coverage will ensure that your unique needs as a gay or lesbian couple are met.

   How much life insurance is enough? That depends on a number of personal factors including income and number of dependents. It’s best for you and your partner 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 its potential cost, is simply too great to ignore.

   Once again, a company-sponsored plan may be too limited for you and your partners’ needs, or may refuse coverage to domestic partners. Typically, disability income insurance plans will cover 50 – 60% of your annual income for a pre-determined period of time. You’ll want to study the policy carefully to understand all of the provisions, including the definition of disability, the waiting period following disability before you can collect, and the length of the payment period.

5. No Estate Plan — Some people have the impression that estate planning is just for the rich. Unfortunately, that view can be costly to their 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% tax rate for large estates. Add in state death taxes and final expenses and 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. Be sure to protect your partner by explicitly naming him or her as the beneficiary; in today’s homophobic courts, the rights of gay and lesbian couples are steadily diminishing.

“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 and your partner can steer past those costly blunders and stay 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.

For more information about insurance and other financial products, contact Mary L. Stockton at 858-623-8945 or visit her website here

Stockton Financial does not provide tax, legal, or accounting advice. Please consult with your professional advisors regarding your particular situation.

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