A catastrophic financial risk is anything that can negatively – and irreversibly – change your financial future.
They are the financial landmines that ideally, you’ll avoid. But even carefully watching your step can’t guarantee you don’t step on one.
Below are those catastrophic risks and how to protect yourself in case you step on one.
1. LAWSUIT. If you lose a lawsuit, you can lose your entire life savings AND future earnings – i.e. money you haven’t even made yet. You can protect yourself with a Personal Umbrella Liability Policy.
2. INJURY. If you get injured badly enough that you can’t do your job, then you can kiss all those paychecks you were depending on goodbye. You can protect yourself with long-term disability insurance (aka income protection).
3. DEATH. It rhymes with disability insurance. If you’re dead, you’re definitely not earning any paychecks, so anyone who was depending on you financially is up the creek. You can protect yourself with term life insurance.
4. TOO MUCH COMPANY STOCK. Yes, all that company stock you own represents a potentially catastrophic risk – as much so as getting sued, getting permanently disabled or dying.
Just ask First Republic employees. A year ago, First Republic was trading at $153/share. Yesterday it closed at $0.37/share. You can protect yourself by reducing your company stock exposure to less than 10% of your total investments.
Financial landmines can’t always be avoided. Thankfully your hazmat suit looks like just a little insurance and diversifying.
