- Insurance is an affordable way to protect yourself and your family against risks - like a large financial loss
- Your coverage should be tailored to you – evaluate your situation, know your risks, and then find appropriate insurance
- The four types of insurance are health, disability, life, and insurance on the things you own
- Insurance coverage should be reviewed periodically and adjusted with every major life milestone
Insurance is more than protection. It’s peace of mind. While it protects you, your family, and your property (like your home and car) from the risk of a large financial loss, it also allows you to know that if the unexpected happens your family will be OK financially.
And while insurance won’t make you a hit at your next cocktail party, it will help you sleep better at night knowing that you have a plan in place to protect the people you love. The good news is that insurance is a simple and cost effective way to take the risk of a large financial loss that your family faces and to transfer it to an insurance company.
Here’s what you need to know about four essential insurance policies you need to keep your family safe and sound.
The Right Insurance Starts With Evaluating Your Risks
The amount of insurance that is right for you is a very personal matter. The type of insurance and the amount of coverage depends on:
- Your family situation
- Your income
- The things you own, like your home or cars
- The amount of your savings and investments
- The amount of debt you carry
The single biggest mistake people make with insurance is to assume that because they have insurance in place they are properly protected. The truth is that you need to evaluate your situation, understand the risks you face (and what that would mean financially for your family), and get the right insurance.
The Four Types Of Insurance We All Need (Especially Parents)
Here are the types of insurance policies you need to protect your health, income, and your family from the unexpected in life.
Most of us get our health insurance through our employer. The big decision is typically between a traditional health plan which gives you access to flexible spending accounts (FSAs) for dependent care and general healthcare and high-deductible plans that give you access to a health savings account (HSA).
For most families, especially those with younger children, the traditional plans can make more sense as they may have lower deductibles and will cover more of your expenses even before hitting the full deductible. If you choose a traditional plan, make sure you take advantage of the FSAs to cover dependent care (like daycare) and other expenses with pre-tax money.
Another benefit provided primarily by employers. Most companies will offer both short-term and long-term disability options. Short-term benefits replace your income for a few weeks or months until your long-term benefits kick in. If you have a strong emergency fund, you may be able to skip the short-term coverage.
Long-term disability insurance is a must for everyone. You need to know what part of your income is covered (base pay or base and bonus), what the maximum monthly payment is, how long you would have to wait for benefits to start, and whether or not your benefits would be taxable (you can choose in some cases).
Term Life Insurance
If you have children, especially if they are younger, you need life insurance and likely more than you think. The rule of thumb says you should have at least 10 times your annual salary and possibly more. The amount of life insurance that is right for you will vary based on your income, the age of your kids, the assets you own (car and home), your debt, and your savings and investments.
The biggest mistake that most parents make is thinking that their life insurance through work – group coverage – is sufficient. Group insurance is typically limited to a multiple of your salary like four or six times your annual income. That is often not enough and you likely need to look for your own insurance coverage.
Insurance for the Things You Own (Property & Casualty Insurance or P&C)
There are three types of policies most families need. These are automobile, homeowners (or renters) and an excess liability policy (also called an umbrella).
For automobile and homeowners, you are essentially looking to protect against damage to property – your car, the other driver's car, or your home – and liability due to an injury – aptly called liability coverage. The amount of coverage you need should be discussed with an insurance agent or a financial planner that can help identify your risks and appropriate coverage.
An umbrella policy provides liability protection above and beyond what your auto and homeowners might provide. These policies are typically very affordable given they are like back-up plans for your home and auto coverage. They usually come in $1,000,000 increments so you can get a lot of coverage quite easily.
Evaluating, And Adjusting, Your Protection Over Time
Your insurance coverage needs to be evaluated periodically, and when there are any major life events or milestones (marriage, kids, new home or car), to make sure you and your family are properly protected. Reviewing your coverage at least once per year is a smart move. You don’t want to find out you have a shortfall or gap in coverage after you experience a financial loss.
Insurance isn’t the most thrilling topic. Buying something you hope to never use can feel strange or unnecessary, but insurance gives your family a safety net and essential protection for what matters most. With proper insurance in place, you can live worry-free and spend your time planning for and living the life you want for your family.