Know the types of insurance and learn how they can protect your financial health
Insurance is often misunderstood as a luxury. For working American households, insurance can viewed as an expense only for those who have the expendable income to pay for insurance premiums. But, as too many Americans have experienced, the lack of insurance can do far more financial damage than the cost of monthly premiums.
Working American households are usually living paycheck-to-paycheck, with little to no savings. When faced with an unexpected financial event (car breakdown, health problem, house fire, etc.), they don’t have the money to deal with it, even if the event is minor. As a result, they exhaust their savings, often borrow from short-term lenders who charged high interest rates, and find themselves knocked back in their financial progress to harder times. They may have to “start from scratch” in order to get to where they were before the event, but this time they may have increased debts.
In the extreme (which is unfortunately very common today), for many Americans even dying is no longer affordable. Nor is a serious injury to a working family member, or car repairs, or… Insurance is a tool to protect you from financial disaster. To help you learn how to use insurance to your advantage, here is a brief overview.
Life Insurance
In the event of your passing, life insurance helps ensure your surviving family members or beneficiaries will not be burdened with debts because of the financial repercussions of your burial and the loss of your working income. The costs of a death in the family can be devastating: burial costs of more than $7,000, the loss of annual income, the need to replace services such as child care from a deceased stay-at-home mother…
Ranging in cost and coverage, life insurance can offset these financial burdens and prevent long-term debt. Additionally, some policies include an accelerated death benefit, which allows policyholder to receive cash advances if they are diagnosed with a terminal illness.
AD&D (Accidental Death and Dismemberment)
AD&D is a limited form of insurance that pays out to your beneficiary(ies) if you should die or become seriously injured in an accident. AD&D covers only certain types of death and accidents, so it should be considered as a supplement to your regular life insurance policy.
Disability Insurance
Your ability to earn money is your most significant asset. If you suffer an injury that disables you to the point of not being able to work, how will you cover your living expenses, save for your future, cover your health costs? Disability insurance is designed to mitigate these financial issues. Often, employers provide disability insurance for long-term disability, between 60% and 70% of your current gross salary. The two primary types of disability insurance are:
- Short-term: Coverage usually begins after one week of disability, and will pay for up to six months.
- Long-term: Coverage usually begins after six months of disability, and can continue until age 65.
Health Insurance
Health insurance is probably the most well-known type of insurance. The policies can be private (provided by an insurance company) or public (provided by a government agency). The plans range from Health Maintenance Organizations (HMOs), Preferred Provider Organization (PPOs), Point-of-service (POS) plans and more. Likewise monthly premiums range according to the type of plan (e.g. HMOs tend to have lower premiums than PPOs). The details of what they cover are too varied to list here, especially as health coverage needs change from person to person according to their state of health, age, income, etc.
The key point to remember, however, is that if you think you can’t afford a health insurance premium, you probably won’t be able to afford getting sick and receiving medical care.
Long-Term Care Insurance
If you are ill and need long-term care, the three ways long-term care can be paid for are out-of-pocket, Medicaid or long-term care insurance (health insurance and Medicare will not pay for it). The costs of long-term care insurance increases as you get older, and so does the likelihood of needing it. Although you may not know exactly when you’ll need it, getting coverage close to when you will use it is the most effective way to purchase it. Often people get coverage after age 50. However, after age 80, coverage is not available.
Auto Insurance
If you own a car and drive it, you are required by law to have auto insurance. The type of auto insurance will depend on the value of your vehicle and your state’s laws, but it is mandatory. Most policies cover some or all of the costs that may be incurred from accidents or theft.
Homeowner’s Insurance
Like auto insurance, if you own a home and have a mortgage, you are required by law to have homeowner’s insurance. Mortgage companies requires homeowner’s insurance, and even if you own your home outright, you will still need it to cover the costs of home maintenance and repairs. As every homeowner knows, there is always something to replace or repair when it comes to home maintenance.
Renter’s Insurance
Renter’s insurance is designed to protect personal property in a rented apartment, condo or home. If you experience unexpected circumstances such as a burglary, fire or accident like a sewer backup, renter’s insurance can help cover the costs. Renter’s insurance can also help protect you from liability if someone is injured on your property.
Liability Insurance
Your auto and homeowner’s insurance provide some liability protections, but additional liability insurance may be needed to help cover medical and legal fees if you’re held legally responsible for someone else’s injury, or damage to someone else’s property. For example, your auto insurance may cover damage to your car if you are in an accident, but not the medical expenses for the other driver if the other driver was injured and you were at fault.
Contact Us
Insurance can get complicated. This overview is meant to provide some basics about the types of coverage available and how it can protect you. Do you have specific questions about insurance? Contact us at maximilian.weiner@imresilient.co.
