disablity insurance

Insurance: Everyone’s Favorite Topic

by mike on December 17, 2009

Now don’t get too excited, but I’m going to discuss insurance this time.  I know it isn’t the most thrilling topic, but it is an extremely important part of a good financial plan.  I had someone e-mail me a great question just today.  She said that her and her husband cannot afford all the insurances that are recommended, so she asked if there is a way to prioritize them.  The following is my answer in order:

1.      Auto/Home. Auto and home insurance are the most important.  Mostly because they are required.  The law requires you to have auto insurance and you do not want to get into a situation where you cause an accident and don’t have liability insurance.  Also, in order to get a home mortgage, the lender will require you have home insurance.

2.     Health Insurance. You may have heard some discussion about this one in the news recently (unless you live under a rock!).  It is the most expensive of the insurances, but it is vital.  Medical bills are one of the main reasons for personal bankruptcy.  If something major happens medically, you want to have insurance there to cover most of the costs.  You can reach the tens of thousands and even the hundreds of thousands of dollars very quickly with an unexpected medical event.

3.     Life Insurance. Unfortunately ,most Americans do not have life insurance.  It is easy to look over and it can be very confusing.  Also, I hate to say it, but many life insurance salesman sell you stuff you just don’t need.  Keep in mind that the whole point of life insurance is to replace your income if you were to die.  So, if anyone relies on your income (or if it would cost money to replace what you do: i.e stay at home mom), you need life insurance.  If you get 10 times your yearly income in a 20 year level term policy, your family will be taken care of.  The best part is if you are healthy and don’t smoke, it is very affordable.

4.     Disability Insurance. Even less Americans have long term disability insurance than have life insurance.  Again, the idea is to replace your income if all of a sudden you were unable to work.  Trust me, you do not want to rely on social security disability (SSI).  I have met with many clients trying to make it on SSI and it is tough.  The least expensive way to get disability insurance is through your employer.  If they don’t offer it, then you can buy it on your own.  Either way, long term disability insurance is an important part of your financial plan.

5.     Identity Theft Insurance. Identity theft is an ever-growing problem.  It is an unbelievable hassle if someone happens to steal your identity.  You won’t be liable for any of the charges, but it takes a lot of work to restore everything back to normal.  It’s worth looking into getting as most policies will do all of the work for you if your identity gets stolen.

Although this is a priority list, I emphasize how important it is to have all of them (especially 1 through 4).  Even if you think you cannot afford it, you cannot afford not to have them.  Not having the proper insurances in place can make a bad situation much worse.  These insurances fall into your “four walls” budget, meaning they are a necessity (like the four walls of your home).  I urge you to make them a priority so that you won’t ever be in a situation where you wish you had them.  Let me know if you have any questions about more details on what to look for when purchasing these insurances.