One aspect of financial planning that receives little attention is avoiding an unexpected depletion of your assets. It involves dull, boring stuff like insurance and taking care of yourself. Far more exciting are graphs showing the exponential growth of compounded savings and glossy magazines featuring lifestyles of those retirees who planned well. But in financial planning, a good defense can preserve the wealth you took so much effort to build. Consider the following.
INSURANCE. Okay, few things in life are as nauseating as insurance. Most of us would rather see the dentist than review our insurance coverage. But insurance protects our finances when bad things happen.
Health insurance provides the means to get medical care. Health problems, not credit card craziness, are the number one reason why people end up in bankruptcy. Insurance doesn't necessarily prevent bankruptcy, but it makes it much less likely. A good health insurance policy also opens doors at the emergency room, and ensures that you get good care. Your recovery may be faster and you suffer less stress over availability and quality of care.
Disability insurance provides income when you can't work. More often than you might think, people suffer from disabilities. Social Security disability isn't easy to qualify for, and the process takes a long time. Private disability coverage is often easier to qualify for and more generous.
Life insurance protects your family if you're no longer around to provide for them. Not everyone lives to 75, 80 or older. Life insurance feels like the biggest waste of money imaginable, unless your family needs it. Term life is usually the best choice. Permanent, whole, or universal life typically involve high commissions and other costs. Most people are better off buying term coverage and saving for retirement in other financial vehicles.
Auto insurance is required by law, but the amount of coverage you have to buy is often pretty low. Boosting your liability coverage will make sense as soon as you have any sort of respectable net worth. Without good liability coverage, a single accident can wipe out a lifetime of saving.
Homeowners/renters insurance provides liability coverage, and in the case of homeowners coverage, the funds to rebuild if your house burns down. Get a flood rider if there's any significant chance of flooding (and not just from a river, but also from sewer backups and the drainage ditch in the back yard). Buy earthquake coverage if you're in a high risk zone.
Umbrella policy. An umbrella policy provides liability coverage above and beyond your auto and homeowners policies. You can buy protection up to $10 million and perhaps even more. Umbrella coverage becomes a good idea once your net worth reaches a level you wouldn't be embarrassed for others to know about. Remember, a single car accident can wipe out a net worth of $500,000, $1 million or more, even if you have $300,000 of liability coverage from your auto policy. The umbrella policy puts a lot more protection over your head, and is worth thinking about if you start to get attached to your six or seven figure net worth.
Business liability coverage may make sense for those who are self-employed and work in circumstances where a customer or other person might be injured. For example, if you operate a catering business out of your kitchen, buy some insurance that covers the possibility of customers getting food-borne illness from your products. Accidents happen.
MAINTAIN YOUR HEALTH. As mentioned above, the single most common reason for personal bankruptcy is a health problem. Health insurance doesn't cover all expenses, and significant health problems can prevent you from working. Even if your uninsured health care expenses are modest, you still confront the mortgage, grocery bills, gas expenses, etc. So exercise, eat a balanced diet and avoid/quit smoking. Keeping your health as good as possible can make a real difference in your financial well-being.
Showing posts with label disability insurance. Show all posts
Showing posts with label disability insurance. Show all posts
Wednesday, June 29, 2011
Wednesday, June 6, 2007
Aaaaagh!!!!! Insurance!!
Given a choice between visiting a dentist and buying insurance, most people would opt for the dentist. At least, you can get novocaine for the worst moments.
But if you’re serious about building wealth, it's important to protect yourself from risk. We’re not talking about investment risk. You know that stocks, real estate and other assets can decrease, as well as increase, in value. We’re talking about personal risks, and risks to your property.
What happens to your finances if you’re seriously injured and can’t work for months? What if a guest slips and falls in your home? What if you or your spouse dies, and leaves you to raise the kids alone? What happens if the next Katrina heads your way and turns your house into a pile of kindling? These are all examples of situations that could drain away your savings. How do you protect yourself?
1. Get health insurance. The most common reason people declare bankruptcy isn’t reckless spending. It’s unmanageable medical expenses. If you’re uninsured, do your best to get coverage. Be willing to sacrifice a lot of lifestyle in order to be protected. If you’re uninsured and have a health crisis, you won’t have a lifestyle. If you have trouble finding coverage, contact your state health authorities. Some states have programs to assist residents to get coverage.
Also, take care of your health. Avoiding a health problem is better than treating one, even if you have to eat some fruits and vegetables.
2. Get disability insurance. According to the Social Security Administration, something like 8.6 million workers and their dependents received Social Security disability payments in 2006 (www.ssa.gov/OACT/STATS/OASDIbenies.html). This figure doesn’t include people who received private disability payments, but no Social Security. Disability is a fairly common problem. Look for a policy that defines disability as your inability to work in your field or profession (and, indeed, your specialty within your field or profession). A policy that defines disability as your inability to do any kind of work (flipping burgers, anyone?) doesn’t provide much protection.
3. Get homeowners insurance. Make sure the policy limit is high enough to cover the current cost of reconstructing your home. Also have plenty of liability coverage, in case a guest slips and falls on your property--$300K is not too much. And think about whether you should get optional flood coverage--you don't need a Katrina to have a flooding problem (a sewer backup is all it takes).
4. Bulk up your auto policy. Make sure you have plenty of liability coverage--$1 million is rational in these litigious times. And don’t overlook the property damage coverage. Some luxury cars today cost over $100,000. Having $100,000 of property damage coverage isn’t a bad idea.
4. Consider life insurance. If you have dependents, life insurance may be a good idea. There’s no fixed rule of thumb for how much you need. Add up your other financial resources (savings, Social Security survivors’ benefits, any employer’s benefits for survivors, and your spouse’s income if he or she would work even if something happened to you), and then figure out how much insurance you’d need to get the little ones through college. Increase the amount if you want your spouse to stay home and take care of the kids.
5. Consider an umbrella policy. An umbrella policy provides additional liability protection, above and beyond your auto and homeowners’ policies. You can buy millions of dollars of coverage. It’s a good idea if your net worth is six or seven figures.
6. Consider a long term care insurance policy. This type of insurance covers nursing home expenses and other long term care costs (including some care at home). Medicare doesn’t cover most of these expenses. Medicaid does, but you need to spend down your savings to qualify for Medicaid. Long term care insurance is a way of protecting your savings. It could make sense if you have a six or seven figure net worth. Look for a policy with level premiums and an inflation adjustment in the amount of coverage. This stuff is expensive if you wait until your 60s (we’re talking thousands a year). If it seems to make sense for you, buy as early in your life as you can because it's much cheaper if you start when you're younger.
Okay, enough already about insurance. Here’s the story for your inner artist if you’re thinking of a career change. http://www.cnn.com/2007/SHOWBIZ/05/31/lego.artist/index.html.
But if you’re serious about building wealth, it's important to protect yourself from risk. We’re not talking about investment risk. You know that stocks, real estate and other assets can decrease, as well as increase, in value. We’re talking about personal risks, and risks to your property.
What happens to your finances if you’re seriously injured and can’t work for months? What if a guest slips and falls in your home? What if you or your spouse dies, and leaves you to raise the kids alone? What happens if the next Katrina heads your way and turns your house into a pile of kindling? These are all examples of situations that could drain away your savings. How do you protect yourself?
1. Get health insurance. The most common reason people declare bankruptcy isn’t reckless spending. It’s unmanageable medical expenses. If you’re uninsured, do your best to get coverage. Be willing to sacrifice a lot of lifestyle in order to be protected. If you’re uninsured and have a health crisis, you won’t have a lifestyle. If you have trouble finding coverage, contact your state health authorities. Some states have programs to assist residents to get coverage.
Also, take care of your health. Avoiding a health problem is better than treating one, even if you have to eat some fruits and vegetables.
2. Get disability insurance. According to the Social Security Administration, something like 8.6 million workers and their dependents received Social Security disability payments in 2006 (www.ssa.gov/OACT/STATS/OASDIbenies.html). This figure doesn’t include people who received private disability payments, but no Social Security. Disability is a fairly common problem. Look for a policy that defines disability as your inability to work in your field or profession (and, indeed, your specialty within your field or profession). A policy that defines disability as your inability to do any kind of work (flipping burgers, anyone?) doesn’t provide much protection.
3. Get homeowners insurance. Make sure the policy limit is high enough to cover the current cost of reconstructing your home. Also have plenty of liability coverage, in case a guest slips and falls on your property--$300K is not too much. And think about whether you should get optional flood coverage--you don't need a Katrina to have a flooding problem (a sewer backup is all it takes).
4. Bulk up your auto policy. Make sure you have plenty of liability coverage--$1 million is rational in these litigious times. And don’t overlook the property damage coverage. Some luxury cars today cost over $100,000. Having $100,000 of property damage coverage isn’t a bad idea.
4. Consider life insurance. If you have dependents, life insurance may be a good idea. There’s no fixed rule of thumb for how much you need. Add up your other financial resources (savings, Social Security survivors’ benefits, any employer’s benefits for survivors, and your spouse’s income if he or she would work even if something happened to you), and then figure out how much insurance you’d need to get the little ones through college. Increase the amount if you want your spouse to stay home and take care of the kids.
5. Consider an umbrella policy. An umbrella policy provides additional liability protection, above and beyond your auto and homeowners’ policies. You can buy millions of dollars of coverage. It’s a good idea if your net worth is six or seven figures.
6. Consider a long term care insurance policy. This type of insurance covers nursing home expenses and other long term care costs (including some care at home). Medicare doesn’t cover most of these expenses. Medicaid does, but you need to spend down your savings to qualify for Medicaid. Long term care insurance is a way of protecting your savings. It could make sense if you have a six or seven figure net worth. Look for a policy with level premiums and an inflation adjustment in the amount of coverage. This stuff is expensive if you wait until your 60s (we’re talking thousands a year). If it seems to make sense for you, buy as early in your life as you can because it's much cheaper if you start when you're younger.
Okay, enough already about insurance. Here’s the story for your inner artist if you’re thinking of a career change. http://www.cnn.com/2007/SHOWBIZ/05/31/lego.artist/index.html.
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