Title: Insurance for Hidden Financial Obstacles.
Earlier this year a former high school classmate, a couple of years behind me, and his son were killed in a motor vehicle accident. The emotional impact on those families involved must have been devastating. My thoughts went to a woman that lost her spouse and her son, children that lost their father and their grandfather. A couple of days after the accident the news released that the other driver was charged with driving while intoxicated and was uninsured.
Insurance is used to protect from catastrophic financial loss due to an unwanted event. It’s transferring the consequences of covered loss from the individual to the insurance company. Most Americans can be fully insured for 20% of their income.
Life insurance
Life insurance is for anyone that has others that depend on their income. The least expensive way to get the most coverage is through term life insurance. A person would have coverage for a set period, for example 20 years. The downside is the older one is when they purchase the policy the more expensive, they become. Whole-life plans cover the entire life of an individual and build up some equity because a portion of the premium is invested. Universal life is a combination of term and whole life insurance. A rule of thumb is the face value of the policy should be 10-12 times the annual income of the insured. Age, health, and tobacco use can affect the cost of premiums.
Auto insurance
Auto insurance’s main coverage is broken down into collision damage (things that are your fault), comprehensive damage (things that are not your fault, hail, hit a deer, etc.), liability property/medical coverage (my fault, covers medical and other people’s property). There is also uninsured/underinsured coverage (additional coverage for things that are not your fault). Premiums are based on coverage, driving record, location, and deductibles. Higher deductibles can save money if there are emergency funds or savings available.
Health insurance
Health insurance covers the cost of medical care. Don’t put financial health at risk by not having it. About 2 in 3 bankruptcies are due to extreme medical bills. Consider a higher deductible plan and an HSA (Health Savings Account) to reduce overall costs.
Homeowner’s/Rental insurance
Homeowner’s/Rental insurance both have coverage for liability (someone is injured at the residence), loss of use contents loss or damage due to a covered peril such as fire, lightning, wind, or hail. Homeowner’s insurance covers the structure itself against named perils. One of the principals of insurance is called Indemnity, which means loosely, the insured should be no worse or better off after a property (only) loss due to insurance.
These four types of insurance are required or recommended, others to think about: long term care insurance; pet insurance; Long term disability insurance; indent theft protection; and an umbrella liability policy.
There are some things in life that can’t be prevented. Insurance can lessen the financial impact of them.
