Maintaining the appropriate amount of insurance is always a difficult task. The amount of insurance products is overwhelming and knowing how much to insure can be a mind-numbing calculation. A process that I have learned to appreciate is breaking insurance down into several categories and then ranking them in order of importance. This narrows down insurance into more manageable pieces and hopefully brings clarity to the insurance process.
Making sure you and your family are covered for healthcare is always where I like to start. For better or worse, medical costs are one of the bigger financial risks in America. From Medicare to PPO’s to High Deductible plans with HSA’s, health insurance is very diverse and it is important to find the plan that works best for you and your family
2. Liability: Homeowners (Renters) and Auto Insurance
The next place to review is your liability insurance. This type of coverage usually involves insuring against risk to property in order to provide protection for you and for others if you accidentally harm someone else. While it is tempting to always get the most basic and cheapest policy, this can leave gaps and exposures that might be inappropriate in your situation. This is also where you should consider adding an umbrella policy to extend beyond the underlying insurance.
3. Life Insurance
Especially in the early years, one of the biggest risks to your family is the loss of future income if you were to pass away. For those with a tight budget, term is the cheapest and easiest ways to protect against the unexpected. Remember this insurance is for replacing the lost income. As you near the end of your career it becomes less important if your savings can sustain your family.
4. Disability Insurance
Very similar to Life Insurance, but more commonly ignored, disability insurance will help protect you if you become unable to work. In your 30’s you are four times as likely to experience disability versus death. Often only minimal coverage is available through work.
5. Long-term Care
The last insurance in terms of priority is Long-term Care (LTC) to guard against potentially large medical bills at the end of life during a “long-term” event. LTC is one of the younger and faster-evolving parts of the industry and premiums have been rapidly increasing in the last few years. Typically this does not need to be explored until your 50’s.
Insurance can be complicated and admittedly is sometimes an imperfect science. However, with the right framework, it can make the decision process easier and hopefully more beneficial. If you need help analyzing your situation, never hesitate to reach out. Our advisors are always happy to help.
*a version of this article was first published on Oct. 5, 2015.
The JHA Disability Fact Book -2003/2004 Edition - Need For Disability Insurance