A good budget covers all your usual expenses. However, no budget can cover every unexpected event: a house fire, a broken bone, a car accident. Few people have enough money on hand to deal with any of these emergencies at any given time.
Enter insurance, where instead of paying for each event, you pay based on the risk that such an event will happen. The insurance company takes on the risk for you, and you pay a flat fee every month. This cushions your savings from sudden emergencies and frees you from the anxiety that a sudden expense will plunge you into financial ruin.
Insurance is a vital part of any financial plan. Some kinds of insurance are required, some are a good bargain, and some may not be necessary. A financial advisor can help you weigh the costs and benefits of the options available to you.
Types of Insurance
There are a number of types of insurance that you might need to consider as part of your financial planning. Let’s take a closer look at those you should consider and will likely need.
Health insurance is the most vital type of insurance. Even if you’re healthy, an accident can rack up bills in the thousands–and sometimes hundreds of thousands–of dollars. The premiums are likely to be a large portion of your budget, because the expenses they cover are so high.
Many employers offer health insurance. If yours does, it’s likely the most economical option because the company pays part or all of your premium. If not, you can turn to your state’s marketplace to find an individual plan that covers your needs and fits within your budget. Luckily, if you are low-income, you may be eligible for insurance subsidies or Medicaid. The exchange will tell you whether you qualify.
Every member of your family needs insurance. It may or may not make sense to cover them through the insurance you get from your employer. Adult children up to age 26 may be on your insurance. If you are low-income or have a large family, CHIP (Children’s Health Insurance Program) is a free program which can insure your children.
When you are shopping for insurance plans, you will have options to buy different tiers of insurance. The lower tiers have lower premiums, but in the event that you need care, you’ll be paying a greater proportion of the cost. The higher tiers have higher premiums, but the deductibles and coinsurance are much lower. It may be tempting to choose the very lowest premium you can get, but if you need medical care often, you’ll end up paying more in the long run.
Life insurance can provide the needed protection for your loved ones when you die. It can provide a lump sum payout so they can continue to live in the house and maintain their current life. Whether you are a breadwinner or a care provider, your family relies on you. They will need a fund to provide for them in your absence.
There are two main types of life insurance: term life insurance and whole life insurance. Term life insurance lasts for a certain number of years, covering you only if you die during the term. Whole life insurance continues as long as you keep paying for it. The cost will depend on your age and health.
Life insurance can also be used for an investment. The money grows over time, tax-free, and can be used as collateral against a loan.
If you drive, car insurance isn’t just a good idea, it’s a legal requirement in most states. Liability insurance pays for harm done to the other driver in an accident where you are at fault. All drivers must carry it.
But a car accident can also be a major financial blow. Imagine the sudden expense of replacing your vehicle, plus medical bills. A comprehensive policy can cover your injuries, repair or replacement of your vehicle, and even a rental car while you wait for your own to be repaired. If you rely on your vehicle, insuring it is a wise choice. And if you still owe money on your vehicle, the loan holder may require you to insure it.
The cost of insurance will depend on a complicated array of factors, most of which are outside your control. How many miles a week you drive, how many vehicles you own and their value, your age, how many drivers in the family, and the zip code you park it at night may all affect your premium. However, you may be able to pay less by driving safely. Some insurance companies offer discounts to safe drivers, while getting tickets or having accidents will increase your premium.
Homeowners insurance protects the investment you make in your home, which for many is the biggest investment they make in life. It protects you from loss in the event of a disaster, like a fire or a break-in.
If you don’t own a home, renter’s insurance covers the contents of your home, plus emergency expenses like temporary lodging. Some landlords may insist you carry it, but even if they don’t, it’s a smart choice if you have valuables you would need to replace.
Other Types of Insurance to Consider
Beyond these, there are several other types of insurance to consider. These include:
- Disability insurance
- Liability insurance
- Long-term care insurance
No one is guaranteed good health and the ability to work indefinitely. Looking at your options, you may find you can afford to plan for these eventualities.
A Financial Planner for Insurance Too
A comprehensive financial plan for the future considers all aspects of your life that involve your money. Insurance demands can certainly impact your financial picture. It’s a steady payment now, but it can prevent large expenses down the road.
A financial planner can help you consider your needs and how they will affect your future. Contact us today to set up a meeting to get started on planning your financial future.