September 17, 2018, 11:14 AM

Mom and Dad Mutual: What Level of Family Support are You Comfortable With?

By Peter J. McKenna, CFP®
Bride in an embrace with her mother. Parenting for better or worse.

Why does your mortgage lender require you to have homeowner’s insurance? The answer is simple and logical:  The bank/lender realizes that most homeowners would be financially devastated if they had to replace their home and contents. Without insurance, the bank would feel bad for everyone, but it would still want its money back. The homeowner would be financially responsible. If the home is insured, the bank gets its money back and all parties move forward.

In other words, you insure your home and contents properly, and the insurer covers the risk of something bad happening. You win. No insurance; no coverage. You lose.

Now, think about your adult children or anyone who might rely on you for some level of financial support. How would you feel if they had a significant loss and had to replace everything they owned? Are you the person they would turn to for help? If yes, then you have to consider the impact that helping them in a time of need might have on your financial plan. While it is impossible to know with certainty if someone will need significant financial help in your later-stage life, I want to share two real-life stories where the absence – and presence – of insurance made a huge difference on how your financial security might be impacted.

Empty Nesters

Friends of my family were finally enjoying their empty-nester lifestyle. Their sons were “off the payroll,” working and living independently. Unfortunately, two of their sons were roommates when a fire destroyed their apartment while they were at work. They lost all their possessions. They did not have renter’s insurance and had to move back home and start the process of replacing everything. Basically, they had to start over. The thought of having that kind of “life” disruption is overwhelming, even before considering the expense. In this case, not having renter’s insurance put severe financial pressure on the sons and had the potential to jeopardize the parent’s retirement plans if they wanted to help, especially if their savings were already impacted by college costs. 

Family Tragedy

The “good” insurance story unfortunately involves the premature death of a young father of two. In this scenario, the wife’s father inquired about the amount of life insurance the family had on the sole provider, his son-in-law. The son-in-law was doing well at work, but they were a young family. They had a mortgage to pay and had decided the wife would leave her job to stay home with the kids. There was life insurance in place, but the father’s instinct was that it was not enough, despite his son-in-law’s being in excellent health. Consequently, he purchased additional term life insurance on his son in law with his daughter as the beneficiary. Several years later, a terminal diagnosis was delivered, and his daughter and grandchildren were left without a husband and father. While this was an undeniably terrible outcome, how much worse would it have been without the father-in-law’s foresight to purchase additional life insurance to provide for college, mortgage payoff, etc.? The wife’s father was a career civil servant, and, while his retirement was comfortable, he couldn’t have provided for his daughter and grandchildren without severely compromising his own safety net. 

Your Involvement

In the situations described above, an old saying is appropriate: hope for the best but plan for the worst. In both stories, the younger generation was self-insuring for a risk they likely did not properly comprehend. Whether they under-estimated the risks or over-estimated the cost to insure is irrelevant. Without the insurance, everyone was at risk (the “youngsters” and their helpful parents).

It is prudent and appropriate to regularly think about the people in your life and discuss how much insurance risk they can realistically take. It is important to know if they carry adequate health insurance, auto liability insurance, renter’s insurance and life insurance. If not, ask yourself if it is in your best interest to encourage them to get the right amount of insurance coverage. Is it worth it for you to help with the premium to ensure their risk is adequately covered? While there is not a single right way to handle these risk discussions or determine involvement, simply ignoring the issue or hoping your family members are covered is much too dangerous an approach for most of us.

The advisors at Modera Wealth Management don’t sell insurance. All we have to gain when recommending insurance is the knowledge that we are helping clients protect their future. If you don’t know how to assess your risk, mitigate the impact, or initiate the conversation, speak with your Modera advisor. It is part of what we do every day for our clients. 



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