It’s a fact, many financial catastrophes could be avoided or at least lessened with proper insurance. Regardless of how you feel about the subject of insurance, you owe it to yourself and the security of your financial future to determine areas where you are vulnerable and the types of insurance coverage that might offer you some protection if something unexpected occurs.
Everyone’s needs will be different because the exact types of insurance you choose and the amounts will depend on a number of factors, including your answers to questions like: How would you make up for the loss of income if you were unable to work? Do others depend on you financially – a spouse, a child, an aging parent? How would you replace your property if you were the victim of a fire, a theft, or an accident? What would happen if you were in an automobile accident? How would you pay for the medical costs? And the list of questions goes on. The point is to look at all of your major areas of vulnerability – to walk through scenarios of events that could derail your journey toward financial independence and then decide which ones it make sense to minimize with the use of insurance.
Once you identify the areas you want to insure, decide on the types of insurance you want. If possible, choose insurance types that offer you some flexibility in case your needs change. For example, life insurance offers you more flexibility than mortgage life insurance because it can be used in many ways
while mortgage life insurance will be paid directly to the mortgage company in the event of your death.
At a minimum, your protection plan should include the following basic types of insurance:
- Health insurance
- Auto insurance (if you own a car)
- Disability insurance (if you are working and depend on your income)
- Long-Term Care insurance (if you are retired and want to protect your assets in case of an illness)
- Life insurance (if someone depends on you or your income or you would like to leave a legacy)
- Homeowners or renters insurance to protect your personal property
- Umbrella Policy (if you have teenagers who drive or other activities that put you at risk for law suits)
Once you decide on the types of coverage you want, remember there are many different levels of coverage available. But beware, the more coverage or options you choose, the more costly it will be so buy only what you need, and always ask about ways to lower your premiums. Two common ways to decrease your premium while maintaining the coverage you want is to increase your deductible or delay the start of benefits on a disability policy, for example. In both cases this means that you will need to have savings on hand to pay the deductible or your expenses until your insurance payments start. As you build your wealth, don’t forget to build your cash reserves for emergencies as well. Having the ability to pay a portion of the costs can save you a lot of money on your premiums.
Having proper insurance is a good way to protect your assets and your ability to remain financially independent at any age or stage of your life. ps!