Emergency Funds & Home Warranties Three-tier Emergency Preparation for ClientsHow many times have we seen our clients dip into their emergency or retirement funds to cover the cost of a broken home appliance? Though a common source of funds in these instances, can it be an emergency when the average life expectancy of appliances, like dishwashers and washing machines, are well-known? One idea to help clients navigate these expected expenses is by recommending home warranties and establishing the financial structure needed to ensure they have cash on hand for any areas not covered by the warranty. What to look for in warranties Many of the items your clients buy will come with their own warranties and it’s critical for them to do their due diligence to determine if the coverage will be sufficient or if it’d be more financially prudent to opt for a home warranty. Home warranties are ideal for clients who want one broad plan to cover multiple home elements. Many companies have plans that cover appliances only, systems only, and plans that cover both systems and appliances. Regardless, this may be a less expensive option than purchasing an extended warranty plan for each appliance and system individually.Remind clients to investigate the average lifespan of appliances and systems to gauge what they might need or want in a policy and research and compare those policies. Suggest they ask technicians, real estate agents, and other people in these fields about the warranties they’d recommend. Don’t fear the horror storiesIt’s no surprise clients can be hesitant to invest in home warranty policies – after all, they’ve just made an expensive purchase and they have every intention of taking great care of it to expand its lifespan. Perhaps they’ve even purchased an extended warranty on an individual appliance and think they’re completely covered. Don’t be afraid to share horror stories to get your clients in the mindset to be prepared!I’ve had a few experiences myself when something went wrong through no fault of my own and my home warranty saved me thousands of dollars. Last year, my washing machine, which wasn’t older than eight or ten years, flooded. While it was a simple fix, the parts required for the repair were unavailable. My warranty enabled me to fully replace the machine. Beyond warranties Even when a home warranty has been chosen, it is not always enough to cover everything that arises. That is when clients may turn to emergency funds, which also may not be enough to cover the cost of major appliance repairs or replacements. In these instances, clients turn to credit cards, home equity loans and even retirement accounts to cover these repairs. But an appliance breaking down and needing a repair shouldn’t be a surprise that financially weakens your clients. It’s important for us to work with our clients to help them work these necessary expenses into their budgets, setting them up for a more secure financial future. For my clients, I recommend a multi-level fund that allows financial growth while also ensuring they’re prepared for any emergency. The tiers are as follows:Tier One: Conservative investments geared to providing immediate emergency fundsTier Two: Moderate investments that won’t be touched for about three to five years after the first tier is exhausted.Tier Three: Long-term investments of 10 years or more.This multi-leveled contingency plan is successful because the earnings or dividends of each tier feed into the next, promoting long-term growth, while also helping to ensure clients are prepared for larger expenses that may arise further down the road. Don’t let your clients fall victim to the trap of nonexistent or insufficient warranties on their expensive appliances and home systems leaving them vulnerable to unwise financial decisions. Along with home warranties, the three-tier contingency plan keeps your clients’ retirement funds untouched, and their assets protected.About the Author Damon S. Winter LUTCF®, CFS®, FSCP®, RFC® is Co-Founder of OnMark Asset Management, LLC, a boutique financial planning firm in Lake Oswego, OR. Damon is a Life & Qualifying Member of MDRT and Past-President of the Northwest Oregon chapter of the National Association of Insurance and Financial Advisors.