How Solid is Your Financial Portfolio?

A Solid Financial Portfolio Begins with a Solid Foundation

The basic building blocks of creating financial security include saving and investments, but there’s an important piece that can help provide a strong foundation of stability that is often overlooked — insurance.

While stocks and bonds usually make all the headlines when it comes to building a nest egg, choosing the right insurance is a key component in helping protect the assets you already have. No matter how diligently we build our savings, just one piece of everyday bad luck could potentially wipe it all out. Insurance helps lower that risk and protect your financial future.

Help protect your income

During your working years, one of the biggest threats you face is a sudden loss of income. That happens more often than you might think: More than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach the normal retirement age, according to a 2018 report by the Council for Disability Awareness.

When that kind of misfortune hits, many people feel forced to stop contributing to their retirement accounts or even start emptying them just to get by.

So an important piece of insurance to consider is disability insurance — sometimes called “paycheck protection.” Some workers are lucky enough to get modest disability coverage through their jobs, but many others can’t get that safety net — including consultants, independent contractors, freelancers and plenty of regular payroll employees.

Disability insurance comes in two types: Long term and short term. Both versions replace a percentage of your income when you’re unable to work. Short-term disability typically covers one year or less for a prolonged illness, a pregnancy or an injury that keeps you off the job. Long-term disability usually kicks in once you’ve been disabled for more than six months for issues such as cancer, heart attacks, other major medical events and mental disorders.

If you’re self-employed or you don’t get employer-provided coverage, or if you need more coverage than your workplace plan offers, you can purchase your own disability insurance. The advantages include being able to buy exactly as much coverage as you need and being able to maintain the policy when you change or lose jobs. Also, the payments from disability insurance that you purchase on your own are tax-free to you, while money from employer plans are considered taxable income.

Help protect your portfolio

Beyond disability insurance, you may need other types of insurance to help protect your portfolio, too. Good auto, home or renter’s insurance may prevent one bad accident from possibly draining your investments. After that, another key area in creating a solid foundation for your financial plan is to look at life insurance.

For a single person, simple term life insurance helps cover your final expenses and pay off your debts. It can be less expensive to buy coverage when you’re younger, and some policies allow you to buy more coverage later or convert your policy to whole life insurance, which offers many other benefits. Term insurance policies typically charge lower premiums but expire after providing coverage for a set number of years, with no refund of your premiums.

Once you have a family, life insurance can help protect your loved ones by replacing your income, covering expenses and giving them time to cope with your loss and provide for the future. Typical considerations include getting enough coverage to pay off all your debts, including a mortgage, if you have one; providing a year’s worth of living expenses so your loved ones can adjust; and leaving enough money to support children through college and, if your spouse doesn’t work outside the home, enough money to support him or her through to retirement.

Another option is whole life insurance, also called permanent insurance. Unlike term insurance, this coverage lasts for as long as you pay the premium, and can include a saving and investment component that builds cash value over time. Whole life policies can include riders for long-term care coverage and other options that can make them valuable investment tools as well. They can also be used to extend coverage for disabled dependents and deal with business and estate tax issues.

Savvy investors know that a sound financial plan balances risk and return. While a sound financial plan may provide the growth you are looking to achieve, insurance can help keep your future safe from the potentially devastating risks we face every day.

Mutual of Omaha and its representatives do not provide tax advice. Please consult your tax advisor with specific questions about your individual situation.

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.