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October 2022
AuthorJeff Venables is a Christ-follower, husband, father, high school chemistry teacher, Dave Ramsey certified financial coach, runner, and blogger. |
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Risk Avoidance1/1/2021 The beginning of the new year is a great time to take a look at the risks you take. Insurance represents the transfer of certain risks from ourselves to someone else. There are some types of insurance policies that we must have, others that are good to have, and others that are not necessary. Now that it is a new year, let's do a quick insurance check-up!
Here we will cover the must-have insurance policies. If you own a home, you need to have homeowner's insurance. The best way to make sure you are covered is to opt for guaranteed replacement cost. That way, if your home is completely lost, the insurance will cover rebuilding your home. Most homeowner's policies do not cover flood, so consider adding flood coverage. If you do not own your home, you should have renter's insurance. The owner of the home in which you live has insurance to protect their investment, but it rarely covers your belongings. So, you should purchase a renter's policy to cover your belongings in the event of fire or other disaster - it is relatively inexpensive. Next is auto insurance - if you drive a car, you are required to have insurance. Everyone carries liability coverage, but you can decide, based on the age and value of your car, whether to carry collision or comprehensive coverage. Liability coverage covers other people's property and injuries in the event that you are responsible for them in a wreck. Don't be cheap here - carry enough coverage to prevent you from losing everything if you are sued. Collision covers damage your vehicle in the event of a wreck that is your fault, and comprehensive covers damage to your vehicle from other events, such as a storm, falling debris, theft, or vandalism. You can experiment with different deductibles to determine how they affect your premiums. If you have a fully funded emergency fund, you may be willing to choose higher deductibles to lower your monthly costs. Life insurance provides your loved ones with income to replace your income in the event of your death. It is recommended that you have 10-12 times your annual income in life insurance. I only recommend term life insurance, not anything that includes any kind of cash value. We should separate insurance from investing, not try to combine the two. If you are a stay-at-home parent, you should still have life insurance. Your job adds significant value to the household, and that value should be protected with a life insurance policy. If the value of your investments becomes great enough to cover 10-12 times your annual income, then you are considered self-insured, and can consider dropping life insurance. Health insurance is a must. The leading cause of bankruptcy in America is medical bills. The two major types of health insurance are HMO (Health Maintenance Organization) and PPO (Preferred Provider Organization). Depending on your family's situation and overall health, you can consider an HMO, PPO, HSA (Health Savings Account, which can accompany high-deductible insurance policies), or even a health sharing plan. Choose the highest deductible you can afford based on your emergency fund. Disability Insurance replaces your income in the event you become disabled and cannot work. In general, you should consider a long-term disability policy that covers 65% of your income, and pay for it with after-tax dollars so that you will not be taxed on the income in the event that you need to file a claim. If you have an emergency fund, short-term disability insurance is not necessary, and you can choose a longer waiting period for your long-term disability policy, which will reduce premiums. Identity Theft Insurance protects individuals from becoming victims of identity theft, and helps individuals restore their credit. This is technically not insurance, but it fits my earlier definition of transferring risk, so I am including it here. The restoration process can take hundreds of hours (another full-time job), so consider a plan that includes restoration services. Long-Term Care insurance covers the cost of a nursing home, an assisted living facility, and in-home care. It’s a must for people age 60 and older. Individuals must have it in place before they need care and pay the scheduled premiums until they actually need care (so the policy isn’t invalidated). It’s expensive insurance, but it isn’t nearly as expensive as the cost of long-term care, which can easily drain an individual’s savings and wipe out their estate. There are other types of insurance policies, such as cancer, emergency accident, and critical illness, but we don't recommend them if you have a fully-funded emergency fund. There are so many choices out there - don't let it all confuse you. Find a trusted independent insurance broker who will help you shop policies. Zander Insurance is recommended by Dave Ramsey. If you would like help with a check-up on your family's insurance policies, or any other personal financial issues, schedule a complimentary consultation with us today!
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