Uncommon Thinking: Protection First

Law school exams typically present seemingly simple fact patterns which, remarkably, implicate a multitude of issues. Many times, they are based on real world cases. In my third year, during the pendency of the actual court case involving the Celtics’ attempt to pry Danny Ainge from the Toronto Blue Jays, one professor, who was a maniacal Celtics fan, wrote his exam to consist of only one question on that case. But, that’s a story for another day.

Anyhow, while it is important to be able to address the different issues, believe it or not, the biggest challenge is often just identifying them. Some things jump right out, but others are far more subtle, and the ability to uncover those “hidden issues” ultimately goes a long way towards distinguishing a great lawyer from a good one. It’s amazing how many things that seem unrelated really have an impact on the main question.

Planning for retirement, for example, can be approached the same way. All the decisions we make have an impact on everything else we do but frequently, like the law school question, some of the connections are not apparent at first blush. Consider a “typical” car accident, which provides an example of something that could happen to any of us.

Gail, a single mom, gets creamed from behind on her way from work--and slams into the car in front of her-- by a guy who fails to notice that a whole line of cars have stopped in front of him. Concerned about her teenage son, who is waiting for her to pick him up, Gail declines an ambulance ride to the hospital despite being hurt pretty badly. Fortunately, she’s not critically injured but she misses several weeks of work and her car sustains a lot of damage. The driver of the car in front of her is taken to the hospital by ambulance and his car also sustains lots of damage. Gail thinks her car is totaled and, though it turns out not to be, it ends up in the body shop for over a month. At the scene, the police tell Gail the guy who hit her has no insurance.

Like the real life law school exam question, the above fact pattern raises many issues—some not so obvious—and, just as important, provides a stark reminder of how unexpected life’s events can be, and how far reaching an impact a simple car accident can have. This common occurrence also illustrates the way in which many of the financial decisions we make are interdependent, and how the ripple effect can become like a tidal wave when one unexpected life event is thrown into the equation. Finally, it demonstrates how critical it is to be “protected first” and to have full protection.

 “What” you might ask, “does any of this have to do with planning for a secure retirement?”  I invite you to stop reading for a minute and think about the issues you see arising or potentially arising out of this accident. Then, return to the article and see my brief list, which is by no means exhaustive but, hopefully, at least gives an idea of what I mean.

Among the issues that this accident raised are:

1. Is Gail’s auto insurance adequate? Her car is two years old so her collision coverage is, wisely, for “full replacement value”. Does she have coverage for substitute transportation? If not, while her car is being repaired, she must either do without transportation or pay out of pocket for a rental car, and hope to be reimbursed by the other guy at some point. What is her liability coverage for injury to someone else? If she caused a serious accident severely hurting someone, or worse, is she protected properly or are her assets exposed to a potential “cash-ectomy” by the injured party’s attorney? What if she is hurt so severely that the other guy’s coverage is insufficient to compensate her? What if he is uninsured completely, as she originally was told—what coverage does she have to compensate herself? Though she was pushed from behind into the car in front of her, that person might make a claim against Gail. If she does not have proper protection, her assets and income—essentially her life’s work-- are potentially at risk. Does she have an umbrella policy? What is her deductible for damage to her own car? How much does she pay for insurance? Although they never intend to make a small property damage claim, thereby guaranteeing an increase in their rates, many people inefficiently pay high premiums for deductibles that they will never use when they could be redeploying those funds for better use elsewhere.

2. Is Gail’s medical insurance adequate? She has health coverage through work but no coverage for disability income. How will she provide for her son and pay her bills if she misses work while having no income? Even if she has some disability coverage, it only pays a percentage of her income anyway—does she at least have the most coverage she can get? While some people have partial disability coverage through work, that benefit might be taxable, further reducing what they receive for usable funds. If you do have some group coverage, do you know the details of what it will provide? Is your benefit taxable? How big is the gap between your after tax benefit and your actual income? Can you live on that? What if you are hurt so badly you need long term care while you rehabilitate—how will you pay for that and how will your family handle the burden of managing it? If you are disabled long term, how will you be able to continue to save for college, other life events and family dreams?

3. Does Gail have the proper amount of life insurance? She has insured her car for full replacement value, but what about herself? If something tragic happened to her, how would her son survive financially?

4. Does Gail have a will and a trust? As a single mom with a teenage son, if something tragic happened to her, who would be responsible for taking care of, educating and raising him and managing any funds she left him? Has she ever talked to a family member or friend about taking on this responsibility? Has she even thought about it?

Gail’s answers to these question might make her run, not walk to review: her liability insurance coverage with her property and casualty insurance agent; her employment benefits; her lack of legal documents with her attorney; and, the lifestyle she would want her son to enjoy if something happened to her and explore the types of coverage she can obtain to provide for it.  Like most things in life, balance and efficiency are critical in organizing one’s finances. As the above situation shows, one expected but relatively common life event can cause many problems, thereby upsetting someone’s best laid plans.

At Bulfinch Group, we engage in “uncommon thinking” to help our clients plan for a secure retirement while protecting their hopes and dreams. Our holistic approach brings a macro economic perspective rather than a limited, micro economic one. By enabling our clients to see a “big picture” view of everything they are doing and stress test alternative strategies, we help them move toward achieving and maintaining financial balance and efficiency in the face of the uncertainties and impediments we all face every day. Fundamentally, it makes no sense to work on building assets if what you have is at risk so, unless today is protected first, protected fully, and protected forever, the dreams of tomorrow might never become reality. For Danny Ainge, that dream meant winning a Championship with, and ultimately becoming General Manager of, the Celtics.  What’s your dream?

Ken Perlow is a graduate of Tufts University (B.A., Economics) and Boston University School of Law (J.D.). He is an agent of The Guardian Life Insurance Company of America (Guardian), New York, N.Y. and is not practicing law for Guardian or any subsidiaries or affiliates thereof. The Bulfinch Group is a Needham based firm focusing on helping clients build and preserve their wealth. Life insurance offered through The Bulfinch Group Insurance Agency, LLC, an affiliate of the Bulfinch Group, LLC. The Bulfinch Group LLC is not licensed to sell insurance. Ken lives in Marblehead with his two sons, Sam and Matt, and their three Boston Terriers: Moe, Larry and Curly. He can be contacted at 781-864-8279.