Always Use Protection!

Let me be clear, we are talking about insurance here. This is a financial blog after all! How great would it be if we lived in a world where bad things didn't happen, a world with no illness, no car accidents, no tragic acts of mother nature and no untimely death. Perhaps that would be a lot more relaxing, but that obviously not the world we live in.

When we look at all of our dreams and goals, we try to plan out exactly how we will get there. We determine how much we need to save each month for that Tesla or how much we need to invest so we can retire when we are ready. The problem is that there are so many things that can potentially derail our progress. I am not saying it's not important to have plans and know what you're working toward, but it is important to be flexible and to protect your plan.

This is where insurance comes into the picture. Insurance is a way to transfer risk that we are not willing to accept to a large company. By doing this, we protect ourselves from often catastrophic events that could otherwise send us in a tailspin that ends in financial ruin. As you look at your goals and plan for the future, even if it's just the next year ahead, review your insurance coverages and make sure they are adequate to keep you on the path you are headed down.

Here is a list of each kind of insurance you may need to consider, but there are also other types of insurance available that are not listed here. You may also want to consult a professional before buying any. Here are the basics:

  • Life insurance

  • Health insurance

  • Disability insurance

  • Homeowners insurance

  • Auto insurance

Let’s break these down a little further.

Life insurance – This provides a sum of money (called a death benefit) in the event that you die. There are several types of life insurance with many varying features. It is important to make sure you are adequately covered so that your family can maintain their standard of living if the unthinkable happens. Review your coverage amounts and make sure your premium still fits your budget.

Health insurance – Health insurance protects you from the financial risk of medical bills. Medical bills are consistently found to be one of the most common causes of bankruptcies in the U.S. This is often due to the untimeliness and expensive nature of medical bills. Health insurance helps limit your total loss. Review things like your deductible, out-of-pocket maximum, and premiums to make sure they are still aligned with your situation.

Disability insurance – Okay, so you went to school so you could get a good, high-income job, you figured out how much you need to save for retirement, and your job has allowed you plenty of room in the budget for additional expenses. What happens if your income suddenly stops? Will you still be able to pay all those expenses? Will you still be able to retire eventually? Disability insurance mitigates that risk. This insurance pays you a stream of income if you can't earn it any longer. Be sure to know what your waiting period is. This is the amount of time that you are disabled or not working before the insurance begins to pay you. You need to be able to cover your expenses during this time period from your emergency fund.

Homeowner’s Insurance – Mother nature is unpredictable. Once you buy a house, you will probably see just how unpredictable she is. With homeowner’s insurance, your house is covered in case extensive damage is done to it. Make sure you know what perils (the cause of the damage or loss) are covered and that you can afford to pay your deductible at a moment’s notice.

Auto Insurance – If you own a car, it is required by law to have auto insurance. This protects you from liability if you were to cause damage to someone else or their property. There are many types of coverages that can be purchased. However, it is especially important to check your liability limits. These are displayed with three numbers and represent, in thousands, what liability you are covered for, they will be displayed like this: Injury liability for per person/bodily injury total per accident/property damage liability.

Insurance isn’t always a fun topic to review but it can be of the utmost importance when you least expect it. And sadly it is not typically retroactive so you have to protect yourself before the unthinkable happens. Take a second and use protection for your financial wellbeing.

-Joshua Payne