Many say that an analysis of risk should be the first step of the financial planning process after you’ve compiled your financial statements and enumerated your dreams, goals and objectives.  The reason for starting with risk is because the occurrence of an unplanned risk may prevent your best laid plans from ever having a chance to become reality.

Perhaps the first risk would be to your income.  Perhaps you’ve received a pink slip or two in your life, and if you have, you understand better than anyone the value of having some cash stashed aside for your rainy day fund.  How large your rainy day fund should be depends, but somewhere between 3 and 12 months of living expenses is recommended for many. For those of us working now, what type of disability income protection insurance do you have?  Many have this coverage in the form of group coverage from an employer, but along with the pink slip comes the loss if group disability coverage in most cases.

Retirees also should look to their income sources, and learn about ways that you may increase, stabilize or protect your income.  Between low interest rates and losses on investment accounts, this issue is haunting retirees wishing to avoid digging into their principal.

Now we turn to protecting your health.  Beyond basic health insurance, which everyone should have, you may look to coverage for catastrophic injury or illness and then on to life insurance.  For catastrophic health care, long term care insurance is the best way to protect yourself.  Both the popularity and the cost of long term care insurance are rising.  As baby boomers age and care for their parents, long term care coverage seems to make sense.  Other factors such as low interest rates on the insurance company’s investments and the lack of cancellations from policy holders are amongst the factors contributing to skyrocketing LTC insurance costs.

For life insurance, your most important factor is the amount of coverage needed.  Start with knowing how much protection your family needs and then see if your coverage is adequate in amount.  Beyond the amount of coverage, is your life insurance the right type?  Do you need term or permanent coverage? You then need to evaluate your holdings against what you need and search for the type of product that fits the time frame, health and underwriting facts of your life and goals.

Lastly, a thorough evaluation of the protection in place for your stuff and general liability is mandatory. This may mean your home, business, car, valuables, toys or rental properties.  Unfortunately, this is the area most frequently overlooked by financial planners. Most of the problems in this area come under the category of limits or gaps in coverage.  Policy holders trying to cut costs may have cut out important parts of the coverage.

Don’t think that this part of your financial plan is easy or all set.  Get professional guidance to make sure that your down side is covered before you start counting on living your dream.

John P. Napolitano CFP®, CPA, PFS, MST is Founder and Chairman of Napier Financial in Braintree, MA.  Visit for more information. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investment and financial planning advice offered through US Financial Advisors, a Registered Investment Advisor.

By John P. Napolitano CFP®, CPA, PFS, MST Founder & Chairman Read More