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Tuesday, April 24 News

Money Matters / Consider a financial crisis management plan

A sudden job loss, faulty investment or medical emergency can drive any of us into crisis mode. Although there's no surefire cure for every financial disaster, a personal financial crisis management plan may ease your efforts to minimize and resolve the mess.

Insurance considerations

When creating a personal financial crisis management plan, many people might understandably say, "I've already got one. It's called insurance." Granted, having the right coverage in place can provide critical protection in difficult situations. But policies purchased at one point in your life may not do all the things you need them to right now.

For instance, some homeowners insurance doesn't cover flooding. Or if your home has appreciated in value, your policy may not provide full coverage. Given the state of the housing market in recent years, this is no longer a common problem. But even an incremental increase in value could detract from the effectiveness of your coverage in a crisis.

The most important aspect of factoring your insurance coverage into your crisis management plan is ensuring you have an adequate amount of the right type of coverage.

That doesn't just go for your homeowners policy (assuming you have one). Also review your auto, disability and life insurance coverage. Annually assessing your insurers may reveal that your provider has a declining credit rating and is increasingly slow with its payouts, meaning it may be time for a change.

In addition, look carefully at your medical insurance. Expenses related to health care can quickly devastate someone in even a good financial position. Again, if you've had the same coverage for a while, assess whether it still does everything you need it to do. Maybe you're more at risk for a long-term illness or injury now and adding a long-term care policy might be a good move.

Money and possessions

Insurance is critical support in the time of any crisis, large or small. But insurers can take a while to approve claims and disburse payouts, so your plan should also account for immediate money needs.

You might open a savings or money market account specifically for this purpose, setting aside enough funds to cover at least three to six months of living expenses.

On an even more immediate note, having actual cash on hand can be a welcome relief in more extreme emergencies, such as a natural disaster. You could buy a sturdy, dependable safe and put, say, $500 to $1,000 therein for easy access.

Also account for your possessions in your crisis plan. Doing so relates to both insurance and theft protection. Create an inventory of your "home-based assets," itemizing it with information such as brand/model names and serial numbers. With photos or video, create a visual record of precisely what you own. Give a copy of this inventory and visual record to your insurance agent and perhaps a friend or family member who lives elsewhere.

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In addition, generate a detailed list of your bank accounts, investments, trusts, titles and deeds, mortgages and home equity loans, insurance policies, credit and debit cards, and tax records. Put this list as well as your asset inventory in that safe we mentioned earlier or a safe deposit box, and you should be in good shape.

Estate planning

If you were to die unexpectedly, your finances could be thrown into chaos, with your family the unfortunate victim of the resulting uncertainty and potential negative consequences.

Thus, an estate plan should play an important role in your personal financial crisis management plan. Pinpoint a calendar date to review your plan every year to verify that the beneficiary designations and titling of assets are consistent with your wishes. You should also review your plan anytime significant events occur that could affect it, such as births, deaths, marriages, divorces, or major changes in health or finances.

A key estate planning tool is a will, so if you haven't yet established one, do so immediately. Should you die "intestate" (without a will), state law generally will decide who gets your property regardless of your personal wishes.

Trust options can fortify your plan. A living trust, for instance, holds assets for your benefit during your life and distributes them according to your instructions after your death. The assets contained therein usually aren't subject to probate -- a legal procedure in which a court establishes (among other things) the validity of your will.

This has been a general discussion and is not intended as advice to anyone. Setting up a personal financial crisis management plan is a complicated matter and should be undertaken with the help of a qualified adviser.

Norman Grill is a certified public accountant and managing partner of Grill & Partners LLC, accountants and consultants to closely held companies and high-net-worth individuals, with offices in Fairfield and Darien. His " Money Matters" column appears monthly. He can be reached at: n.grill@GRILL1.com.