Do You Insure the Goose that Lays Golden Eggs; or, Do You Insure the Eggs?

If you owned a goose that laid golden eggs and you could only buy one insurance policy, would you insure the goose or the eggs?  Most people are likely to answer this question by stating that (obviously) they would insure the goose.  So, let’s consider a variation on this question.

Have you thought lately about your most prized possessions; your most valuable assets?  Do you know what they are?  Most people are likely to answer this question by saying “yes” and then listing items such as houses, cars, boats, jewelry.  These things are valuable and that’s why people buy homeowners insurance, car insurance, and boat insurance.  However, let’s consider another asset that is, without a doubt, far more valuable than any of those things mentioned above … your ability to get out of bed each day and go to work and earn a living.

If you get sick or are hurt and incapable of working, how do you protect the paycheck upon which you and your family depend for food, shelter, water, electricity, and clothing?  Prudence dictates that we cannot rely upon the good will and charity of others to care for our loved ones.  That responsibility is ours and ours alone.  Surely there must be a way to protect ourselves and our families from this potential calamity!  Fortunately, there is!  It’s called Disability Income Insurance (DI for short).

DI pays a percentage of your income while you are unable to work due to accident, injury, or illness.  Generally speaking, that percentage is 60% to 70%.  People often ask why it doesn’t replace 100%.  After all, most people today rely on all 100% of their income to keep the bills paid and food on the table.  The reason is really very simple.  Consider a person we’ll call Mark.

Mark is one of those fortunate people who really enjoys his job.  He wakes up each morning with a smile on his face and looks forward to the interaction with others that his job provides.  That’s not to say that Mark doesn’t have hobbies and interests that he’d like to pursue.  Oh no!  There are days he’d love to go fishing if only he didn’t have to go to work.

Now, let’s suppose that Mark gets hurt one day.  It’s bad enough that he can’t do his job; but, not so bad that he can’t go fishing.  If Mark is collecting 100% of his income while he goes fishing, he has no real incentive to get better quickly.  But, if he’s only receiving 70% of his normal pay, he has a great incentive to recover as quickly as possible.

Disability insurance can be a very real financial life saver and should be a part of everyone’s financial protection portfolio.  In the days to come, we’ll take a look at key components that should be considered when purchasing Disability Income Insurance.


While discussing the difference between saving and investing, it was suggested that “risk” influenced where the money was “stored”.  So, let’s explore what risk is.
Simply stated, when talking about investing, risk means that the asset could lose value … that it would not be sufficient to pay what it is needed for.  But, simple never really tells the whole story, does it?  For this reason, let’s take a little deeper look at the kinds of risk that an investor has to face.
•        Credit Risk – also known as default risk, this is the possibility that someone to whom money has been loaned will not be able to repay the debt as promised.  This risk is most common when someone has purchased bonds.  Example:  you have loaned money to a friend.  When the day on which the loan was to be repaid, your friend tells you that he/she does not have the money and cannot repay you as promised.
•        Interest Rate Risk – this is another risk faced by someone who has purchased a bond.  It is the risk that the lender has tied up his or her money in a loan paying a low interest rate and, when interest rates rise, the lender will not have that cash available to lend at the higher, more profitable, interest rate.  Example:  you have loaned money to someone at 5% interest.  This was all the money you had available to loan.  Now, someone else approaches you and states that, if you will loan them money, they will pay you 6% interest.  Since this would be a profitable business deal, you would like to make the loan.  However, you have not yet been repaid by the first borrower so you are unable to make the more profitable loan.
•        Market Risk – this risk can be faced by someone who has either invested in stocks or bonds.  It is the risk that you will not be able to sell something for at least as much as much as you bought it for; or, the item cannot be sold at a profit.  Example:  you bought an asset for $5,000 and, now, no one will pay you more than $4,000 for that same item.
•       Liquidity Risk – this risk can affect anyone who buys any asset; stocks, bonds, real estate, any asset.  This is the risk that your asset cannot be turned into cash when cash is needed.  Example:  ten years ago, you purchased trading cards that you hoped would go up in value.  Today, you find out that these cards are no longer considered valuable and no one will buy them from you.
•       Inflation Risk – this may be one of the most insidious risks people face because it means that money won’t buy as much in the future as it buys now.  Example:  imagine that you had a $100 bill ten years ago.  Because you knew that you would need it and could not afford to lose it, you had it sealed in a can and buried it in the back yard.  You clearly marked the point where it was buried and guarded it to ensure that no one dug it up and stole it from you.  To understand the impact of inflation risk, ask yourself how many bags of groceries you could have purchased with that $100 bill ten years ago; then, ask how many sacks you could fill with that same bill if you took it to the store today.
Clearly, there are different kinds of risk and there are steps that can be taken to protect yourself against those risks.  Managing risk is a topic that we will explore in another article.

Saving vs Investment

In all of the financial counseling sessions I’ve conducted; and, in all of the personal finances classes I’ve taught, the subject of saving inevitably comes up.  While discussing the importance of “saving for a rainy day”, one class participant asked me to explain the difference between saving and investing for the future.

Both involve deferred consumption … not spending money today so that it is available for use at some unspecified time in the future.  So, what does differentiate one from the other?  I believe that the distinction is found in two things … where the money is kept and the amount of time that is expected to elapse before the money will be used.


Let’s talk about time as it relates to where we keep our money.  Saving usually implies that the money will be needed in a relatively short period of time; for example, saving money for a new refrigerator or for a new set of tires for the car.  Both examples imply that the money will be needed relatively soon, possibly within the next year or so.  Since the money will be needed soon, it must be kept where it can be accessed quickly and easily; it must be a liquid asset.  Since it will be needed soon, the saver cannot take risks that might lead to less money being available than will be needed; the asset cannot be subject to possible depreciation.  For these reasons, some assets are far more suitable for savings than other assets.

Cash is certainly an asset that can be kept in a variety of locations.  It can be kept in grandma’s old sugar bowl or under the mattress.  Unfortunately, these carry the risk that the funds may be stolen since neither location is secure; and, sadly, there is no way these funds can grow since they earn no interest.

Suitable places to keep savings include savings accounts, money market funds, and certificates of deposit (CD’s) at their local bank or credit union.  All three are low risk; i.e., the value of the account cannot go down.  All three pay interest with CD’s paying a somewhat higher interest rate in return for the depositor’s promise to leave the money untouched for a specific period of time.  All three are designed for the short-term storage of money.  This is why they are good for saving.


Investing, by its nature, carries risk … the chance that the value of the asset might decrease … risk that there may not be enough money when it is needed.  There are many kinds of risk which will be discussed in another article.  For now, suffice it to say that the risk of loss makes many investments unsuitable for short-term financial needs.

Investments such as stocks, bonds, mutual funds, real estate, and real estate investment trusts (aka REIT’s) are much better suited to long-term financial goals.

What Your Family Needs to Know When You Die (Part 3)

When you are gone, your family will need to know a great deal about your personal finances.  They’ll need to know about your assets and your liabilities.  Today, we’ll look at assets.

Assets are the things you own that have value; perhaps generate income that can be used to support your dependents.  Your family will be helped tremendously if you assemble an inventory of your assets.  Consider the following …

  • Bank and Credit Union Accounts – do you have a checking account; savings account; certificate(s) of deposit; safe deposit box?  If you have any of these assets, list the name of the financial institution along with its address; account number(s); and, the name of the individual with whom you most frequently do business.
  • Stocks, Bonds, and Mutual Funds – if you have investment accounts, your family will need to know what assets your accounts hold; i.e., the names of any individual stocks, bonds, or mutual funds you own along with the name of the Registered Representative and firm with which you do business.
  • 401(k) – if your company offers a 401k … other qualified retirement plans include 403(b) plans, tax-sheltered annuity plans, and 457 deferred compensation plans … be sure to include the name of the plan administrator with the administrator’s address and telephone number; the name of the person at work who is your primary contact regarding the plan; and, a recent statement showing how the funds are invested and current balances.
  • Real Estate – obviously, the first item on this list would be your house.  Be sure to include a current estimate of the property’s value.  You can obtain a current value from a Realtor; or, do an on-line search by typing in the question “what is the current value of my house”.  Your search should yield a number of websites that will help you estimate its current market value.

The list of assets above is certainly not all-inclusive.  You may own art, collectibles, firearms, jewelry, and many other things.  Be sure to include these items in your list of assets along with their current market value.  If these items have been professionally appraised, include the most recent appraisal.

The days, weeks, and months following your death will be trying times for your family.  They will be grateful for any help you provide for them that will help them put together the financial pieces of their lives.

An Old Idea is New Again

Once upon a time, in a time and place long ago, Santa never bought presents for all of the good boys and girls with plastic money.  He only used green pieces of paper with pictures and numbers on them.  When he didn’t have enough green papers, Santa would tell the store what he wanted to buy and ask the store to hold it for him.  Each week, when he got paid, Santa would go to the store and give the manager some money as a partial payment on the toy that the store was holding.  When the toy was completely paid for, Santa would take it to the North Pole and have the elves wrap the present and put the name of the child for whom it was intended on the package.  The North Pole was a very happy place.

One day, an ogre gave Santa a piece of plastic and told him that he no longer had to take green paper to the store.  He could fill his sleigh with all the toys it could carry and not worry about the green papers.  In fact, he wouldn’t need green papers for a long time.  Over time, the North Pole became a very sad place.  There was never enough green paper and Santa received calls at all hours of the day and night from angry people demanding that he give them green papers immediately; lots of green papers that he didn’t have.

Finally, the head elf approached Santa with an idea … stop using the plastic … give the angry people green papers until all of the plastic bills were paid in full.  Then, ask the stores to hold the toys and allow him to bring a few pieces of green paper to the manager every week.  When the manager had received enough of the green papers, Santa could bring the toy back to the North Pole and have the elves wrap it in bright paper with shiny ribbons and bows.

On the day after Christmas, with no plastic swords hanging over his head threatening to make the coming year unpleasant, Santa could begin planning for the next year and getting presents ready for the good boys and girls.  The North Pole was once again a happy place and Santa could enjoy each day of the year as he looked forward to the next Christmas Eve.

How can I save money at the grocery store?

Recently, my good friend and client Carol asked me to review her family’s budget with her to determine if there were any opportunities she was missing for saving money and getting the most value for every dollar she spends.

While going through the budget, I noticed that she was spending far less at the grocery store than she had in the past.  I asked her how she had managed to cut her grocery bill while prices seem to keep going up nearly every day.  She shared her strategy with me … here it is.

  • Every Sunday, she sits down and plans her menu for each meal for the week.  Once the menu is set …
  • She creates a shopping list that lists out everything that is needed to put those meals on the table.  She then …
  • Takes the list to the pantry and crosses off those items that she already has.  With the list pared down to the items that she must buy, she …
  • Becomes the “Queen of the Coupon Clippers”.  Finally,
  • Carol goes to the store with her shopping list; and, if an item that looks good is not on the list, she does not buy it.  She sticks with her plan.

Sounds easy, doesn’t it?  Planning ahead helps avoid impulse buying.  It also ensures that all of the required ingredients are on hand when it’s time to make dinner.  Planning also helps save money!

It’s certainly well worth trying … it just might help you get more for every grocery dollar that you spend!

What happens to my money if my bank fails?

I had the pleasure of meeting with a group of “adult learners” on Wednesday and was asked a great question by a gentleman we’ll call Rob … “If my bank got shut down, would I lose all of my money?”  The short answer is “NO” … with a few provisos.  Let’s examine a hypothetical situation.

Let’s assume that Rob has a savings account at the Greatest Ever National Bank (GENB).  After his paycheck was direct deposited on Friday morning, the balance is $1,200.

At 6:00 p.m. on Friday afternoon, GENB closed and locked the doors as they have always done.  However, this day was unlike any other because at 6:01 p.m., the FDIC came in and declared the bank to be “insolvent” and closed it down … forever.  Now what happens?

The first and most likely possibility is that the FDIC will have a bank that is solvent (called the assuming bank) take over the insured deposits that GENB held … including Rob’s savings account.  We’ll call this assuming bank the First Bank of Deliverance (FBoD).  When Rob’s bank opens on Monday morning, it will be doing business as First Bank of Deliverance and Rob will be their new customer.  For Rob, life goes on as usual with no interruptions to his cash flow … his $1,200 balance is safe and available for him to pay bills, make withdrawals. or whatever else he planned to do with it..

Of course, if no healthy bank is willing to take over the Greatest Ever National Bank’s customers, then the FDIC will issue a check to each depositor for full balance of the customer’s account, up to the insured limit.  The FDIC’s goal is to pay these depositors within two business days.

The current insurance limit is $250,000 per account.  If Rob has more than one account; and, if these accounts have different legal ownership (for example, one account is in Rob’s name alone; and, Rob and his wife have another, joint, account), Rob’s deposits could be insured for more than $250,000 so long as neither account has more than $250,000 in it.

There are some wrinkles if the money is in a trust or is being managed by a fiduciary; but, for most people, the scenarios above answer Rob’s question.  For more information, visit:

GREAT QUESTION, ROB!  Thanks for asking.