The unexpected happens every day in life. Insurance helps protect you from these hazards. From fire to car accidents to physical injury, the bills can add up quickly. You can’t stop disaster from happening, but with insurance, you protect yourself financially. Generally accepted principle is, ““Insure the risks that you cannot afford and retain the risks that you can reasonably afford.”
Planning for the future and protecting your most important assets is a sign of financial responsibility. Here are five policies that should be part of your responsible financial plan.
1. Long-Term Disability Insurance
Long-term disability (LTD) is a prospect that can be so frightening that it’s often ignored. But the reality is, relying on hope to protect your future earning power is not a sound strategy. This is where long-term disability insurance steps in, providing enough coverage to maintain your current lifestyle even if you can no longer continue working.
Long-term disability provides a monetary benefit equal to a portion (e.g., 50% or 60%) of the insured’s salary for covered disabilities. Long-term disability typically begins when short-term disability ends. To receive benefits, the disability must have occurred after the policy’s issuance and typically after a waiting period. You must provide medical information, often confirmed by a physician, to the insurer for consideration.
Most long-term disability insurance policies categorize disabilities as one’s or any occupation. Own occupation means the insured is unable to perform their regular job or a similar job due to disability. Any occupation means the insured is unable to perform any job for which they are qualified.
Similar to short—and long-term disability insurance, workers’ compensation pays a monetary benefit to workers who become injured or disabled at work or while performing their jobs. Most states require employers to carry workers’ compensation insurance for their employees. In exchange, employees may not sue their employer for negligence.
While long-term disability insurance and workers’ compensation insurance pay for disabilities, long-term disability insurance is not limited to disabilities or injuries occurring at work or while working.
2. Life Insurance
If your parents, spouse, children, or other loved ones would face financial hardship if you died, life insurance should be a top priority. Consider how much you earn each year and the number of years you plan to remain employed, then purchase a policy to replace that income in the event of your untimely demise. A general rule of thumb is to buy 10x your current income. Even if you have a non-working spouse, they should also have life insurance. For instance, if your wife stays home to care for your kids and elderly parents, her passing would necessitate hiring someone to take on those duties. Despite not actively earning income, she still needs to be protected.
Are you curious about the difference between term and whole life insurance? Read here.
Not to get too morbid on you, but be sure to factor in the cost of burial, too. The expense can be an extreme hardship for your family.
3. Health Insurance
The rising cost of medical care can be a significant financial burden . Even a routine visit to the doctor can result in a hefty bill. More serious injuries that require hospitalization can lead to bills that surpass the cost of a luxury resort stay. However, with health insurance, you can breathe a sigh of relief, knowing that you’re protected from these potential financial burdens.
If you are not planning to use your health insurance much (i.e., you’re healthy), consider a high-deductible plan and contribute to an HSA (Health Savings Account).
4. Homeowners Insurance
Replacing your home is an expensive proposition. Having the right homeowners insurance can make the process less complicated. When shopping for a policy, look for one that covers the replacement of the structure and the contents and the cost of living somewhere else while your home is repaired.
Remember that the cost of rebuilding doesn’t need to include the price of the land since you already own it. Depending on the age of your home and the amenities it contains, the cost to replace it could be more or less than the price you paid for it. To get an accurate estimate, find out what local builders charge per square foot and multiply that number by the space you need to replace. Don’t forget to factor in the cost of upgrades and unique features. Also, be sure the policy covers the cost of any liability for injuries that might occur on your property.
Renters Insurance
Renters also need peace of mind that they will be made whole in the event of a loss. Fortunately, renters insurance is a type of property insurance available to people who rent or lease properties. This insurance covers personal belongings, liability, and additional living expenses for covered losses.
There may be two types of property coverage for one property: homeowner’s insurance and renters insurance. However, homeowners insurance does not cover the tenant’s personal property. Therefore, lessees need to obtain renters insurance to protect their assets.
Although renters insurance differs from homeowners insurance, they have the same components: coverage A for the dwelling, B for other structures, C for personal property, D for additional living expenses (also known as loss of use), E for liability, and F for medical payments. Because renters are not responsible for insuring the dwelling or other structures, coverages A and B are often set to $0.
Coverage C covers the renter’s personal property. Coverage D provides additional benefits for living expenses in the event of a loss. For example, if the renter is displaced from the home due to a fire, Coverage D covers the cost of living elsewhere, such as hotel and food expenses. Coverage E covers injuries and property damage caused by the insured, and Coverage F covers medical expenses for the renter’s guests on the property with permission.
Pro tip: With both renter’s and homeowner’s insurance, if you need to replace your belongings due to theft or disaster, the insurance company will need an inventory of what you had. Take a few minutes to walk through your home with your camera and video what you own.
5. Automobile Insurance
Some level of automobile insurance is required by law in most places. Even if you are not required to have it, and you are driving an old clunker that has been paid off for years, automobile insurance is something you shouldn’t skip. If you are involved in an accident and someone is injured, or their property is damaged, you may be subject to a lawsuit that could cost you everything you own. Accidents happen quickly, and the results are often tragic. Having no automobile insurance or purchasing only the minimum required coverage saves you only a tiny amount of money and puts everything else you own at risk. Also, did you know that approximately 14% of drivers are uninsured, 1 out of every seven cars on the road? You can protect yourself from an uninsured vehicle for a little bit extra.
