Disaster Planning or the Worst Case Scenario

in Case Study, Disability Insurance, Employment Insurance, Family, Health Insurance, Insurance, Opinion, Plan, Procrastination and Financial Planning

End of Year Financial Ideas

Any financial planning you may be doing for next year, needs to include a Disaster Recovery plan. I have had a few folks tell me that this is morbid, but as a Project Manager I have learned that you are being naive if you do not have some kind of disaster recovery plan in place, to deal with unexpected events in your life, in general, and in your financial life, in specific.

What kind of catastrophic financial events? Some simple examples might be:

  • Bread winner loses job, if your household’s main income earner loses their job, what might happen? If you don’t have a plan in place for that, and an emergency fund to deal with this, you are asking for trouble. I used to think I couldn’t lose my job, but it eventually happened, and luckily I was taken care of, but I was not prepared, and it could have been much worse. Different experts suggest 3-6 months pay in reserve, I’d say a year’s pay is your ultimate goal, having lived through it. If you think you don’t need an emergency fund because your company pays severance, that is what I thought, but then I saw what happened to my Co-Workers when Nortel went very south.
  • Bread Winner passes away, again, if you have a family and don’t have Life Insurance, or a big packet of money hidden somewhere, you are living on the edge. Does your loved ones know whether you have life insurance and what to do should you die? They need to know (as well). As soon as you get married, get life insurance (Term in my opinion), yes it’s an expense, but you need it. Is there an up to date will? Hope there is, or there could be a big mess financially to follow.
  • Bread Winner disabled, disability insurance is a tricky topic with me. I have it through work, and bought it at my former employer, and my opinion is that you should get it, if you don’t have it, but I have seen compeling arguments that simply building up savings enough is just as good a way to deal with this contingency (I don’t agree, but it is another option). What about a power of attorney? Once someone is disabled mentally getting a power of attorney is a lot harder to put in place.
  • Stuff Gets Broke, a generic topic covering stuff like Home Insurance, Car Insurance and the like. Again, you need this insurance if you care about your stuff, and in most instances in a lot of places you must have these insurances (Car Insurance at least). If your house is paid off do you need Home Insurance? I think so, if just for the liability side of things, but for unforeseen things like fire and such as well.

Why Have These Stop Gaps?

Having these financial stop gaps in place you are protecting yourself and your family’s interests, but it is worthwhile doing a plan about each of these scenarios, to see how things might work. You don’t need to go into gross detail, but if you walk through the scenario you might learn the importance of:

  • Keeping your loved ones informed on where things are. If your spouse doesn’t know about your banking, or where your insurance is with, how will he or she find out? Where is your will or power of attorney? Again, are they up to date?
  • Are you sure you have enough insurance coverage? If you run through a scenario you might realize that you need both spouses incomes, and thus you might need to have the same coverage on each spouse.
  • If you go through the scenarios and feel confident you are prepared, you then have given yourself the great present of peace of mind, and that is important.

Saying that you did this 10 years ago and it was fine is asking for trouble as well, many things change over 10 years, review it and make sure your plans are still up to date and current.

{ 4 comments }

  • 101 Centavos December 19, 2010, 9:14 AM

    All good points. It always pays dividends to have Plans B, C and D in place, just in case. Stuff happens.

    Reply
  • Sustainable PF December 15, 2010, 11:14 AM

    Couldn’t agree more.
    Some other disasters include: home is destroyed and falling for financial scams

    Reply
  • Forest December 15, 2010, 5:49 AM

    No one relies on me right now so I don’t have disability or even life insurance. Obviously the minute I even think about getting a family they will be priority.

    I do have a long term girlfriend and we live together but do not rely financially on each other.

    Luckily I earn most of my cash from blogging so in most cases this could continue in some form and if it doesn’t then the UK (my home country) provides reasonable benefit for people with long term disability and problems.

    Reply
    • bigcajunman December 15, 2010, 5:57 AM

      At least you have a plan, which is a very good thing.

      Reply

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