Many people don’t understand why insurance is important. They just see insurance premiums as another monthly bill they have to pay without appreciating its value. Just as an emergency fund needs to be part of your financial success strategy, you need insurance to protect your assets in the event of a disaster. Insurance is important as part of your long-term financial strategy.
Insurance protects your savings as well as your home, your possessions, and your health. It only takes one disaster to create a financial crisis. For example, 530,000 families go bankrupt every year because they can’t pay their medical bills, making up 66.5% of all bankruptcies. When a family breadwinner dies, one in three families can’t pay their bills in the first month. Five percent of insured homes have an annual claim, including identity theft, and 98.1% of those are damage claims, Without sufficient insurance protection, a crisis can wipe out your savings.
It’s important to have the right types of insurance as well as enough coverage. An insurance professional can help guide you and make insurance part of your overall financial plan.
Are You Uninsured or Underinsured?
When considering your insurance strategy, it’s best to start with an inventory of your assets to see where you need protection. What is your most valuable property, such as your home, your car, jewelry, artwork, or other possessions? Do you need to protect your income in case you become ill?
Some possessions, such as your home and your car, require that you have insurance. The question is, do you have enough insurance? You need liability insurance to protect you from legal liability in case of an accident in which someone else is hurt. What about coverage beyond liability? For auto insurance, do you want to be able to replace the car if you are in an accident? If it’s an older car, is it worth carrying the added insurance for major repairs and replacement? If you have renters insurance, how much coverage would you need to replace everything you own? Do you need that much coverage, or are you only worried about valuable items?
One area of confusion is homeowner’s insurance. Many Americans are underinsured because 49.4% think their homes are covered based on their current market value. However, most home insurance policies cover the cost to rebuild the home, not sell it, and even then they may not have enough to pay for reconstruction, so make sure you have sufficient coverage.
Health insurance is another matter. Even with the Affordable Care Act, more Americans say they can’t afford doctor visits. In 2018, 44 million Americans were underinsured, an increase of 17% since 2010. Whether you get health insurance through your employer or you pay for it yourself, there are a lot of ailments and costs that may not be covered. And what happens if you become too ill to work? Employer disability insurance is seldom enough to cover living costs, and according to the Social Security Administration, if you were born in 1997, you have a 25% chance of being disabled in some way before age 67. That’s why more people are buying supplemental health insurance and disability insurance.
Insurance to Consider for Financial Security
There are insurance policies available for virtually any type of personal liability or risk. The question is, what types of insurance best suit your needs? Here are some of the most common types of insurance to consider to protect yourself and your savings:
Term Life Insurance
Term life insurance offers the highest coverage for the lowest costs. It’s best to shop for a policy that will cover your debts and annual income for one year. Depending on your age, you might want long-term coverage for up to 30 years, or you may want a short-term policy to handle a financial gap. Note that term life policies have no cash value, unlike whole life insurance policies.
If you are injured and unable to work, disability insurance can cover 60-80% of your pre-disability income. Your occupation, age, and where you live will affect the premium costs.
If you are worried that your insurance policies aren’t adequate, umbrella insurance can fill in the gaps. It doesn’t cover everything, but an umbrella policy can make up the difference for auto, homeowners' claims, and personal injury. An umbrella policy is recommended for high net worth individuals and families.
Having health insurance is no longer mandatory, but given the cost of healthcare, you really shouldn’t be without it. If you don’t have employer-provided health insurance, you can get a policy from a state healthcare exchange, such as the exchange for Washington or Oregon. If you have a healthcare plan with a high deductible, you might also qualify for a health savings account (HSA).
If you have a home loan, then you must have homeowners insurance. Make sure you understand the terms of coverage for both liability and property protection so you know if you have enough coverage. Insurance covers the structure of your home, but you might also consider a home warranty to cover appliances such as your water heater, furnace, and refrigerator.
If you rent rather than own, consider renters insurance. Many landlords require renters insurance, but even if they don’t, it’s worth it to protect yourself and your possessions.
We already touched on having enough auto insurance liability coverage in case you are in an accident. It is also important to have enough collision and comprehensive coverage to protect your vehicle and passengers.
Most people overlook travel insurance, but taking out a policy before a trip can be a lifesaver—literally. Travel insurance not only covers lost luggage, trip cancellation, and interruption, but it also covers emergency medical assistance and evacuation.
Your insurance needs depend on your financial plans and your lifestyle. Including insurance as part of your financial strategy makes it easy to manage your insurance as part of an overall financial plan. If you can consult with your financial advisor about your insurance needs, then they will know how best to guide you to protect your assets for the future.
Here at iQ Credit Union, we know why insurance is important for our members. We created insureQ as a resource for members so they can build insurance into their financial plan. InsureQ is owned by iQCU, a Trusted Choice Agency, and offers policies from leading carriers so we can create plans tailor-made for our members. Why not contact an insureQ agent to learn how we can help you?