Insurance Is a Powerful Tool
Insurance can do powerful things for your financial life. While many people underestimate the value of insurance, there are some occasions when its power is easy to see. The most trying financial times tend to be the best times to have good insurance. Generally, bad financial times are the ones that most people can never see coming, and thus far too many people underestimate the potential risks of not having enough insurance in place. While the odds of having something seriously negative occur are fairly slim in most cases, the possibility is still there and you would still be wise to remember it.
Insurance can protect you against unforeseen problems. You never expect that lightning will strike a tree and have it fall on your home, but coming home to find your living room decimated by a fallen trunk tends to impose more than merely a psychological toll. If you do not have massive amounts of money on hand while waiting for the possibility of needing to pay for a lawsuit or make a substantial home repair, insurance is a valuable tool for avoiding serious financial hardships.
Another part of life that good insurance coverage can protect you from is sporadic costs. Without effective insurance coverage, you may find yourself in situations where you are quite unexpectedly being asked to pay thousands of dollars for something you did not expect. While a lot of the costs that insurance will cover are very mundane, the costs of having many "ordinary" issues fixed can be large. When you do not have proper insurance coverage, you have to pay these costs out of your pocket, and this can impose a lot of stress in your life as you struggle to find the money you had not anticipated having to pay.
Because insurance allows you to cover large and unexpected costs, it can be a valuable tool for preserving your savings and other investments. When you do not have to raid your investments every time a bad situation develops, you can plan your finances more efficiently and save yourself a lot of stress. Insurance can save you from having to destabilize yourself every time something bad happens. Even with a high deductible, you can keep yourself from large amounts of expense when an unexpected negative situation arises in life.By replacing infrequent, large, uncertain expenses with frequent, smaller payments, insurance allows individuals to plan their finances in an uncertain world.
Disability income replacement insurance is paid when an illness or injury prevents you from working. Disability insurance policies tend to pay out between 60% and 70% of your net income, and they are designed to maintain your basic expenses. While the lifestyle that such a policy's benefit covers is not often a pleasant one, it does generally afford you the option to maintain part of your lifestyle. While you may need to invoke cost-saving measures to keep your home, with a disability policy you at least have the option to continue living in your home instead of losing it to foreclosure. While no one wants to think about becoming disabled and being unable to work for months or years at a time, planning to deal with such a problem is responsible and prudent.
Like life insurance, disability insurance is a way of protecting your human capital. When you work, you draw a steady income. However, if you become sick or injured to the point where you can no longer work, you and your family would lose out on that income. Disability insurance is a way of safeguarding the value of your human capital.
Disability insurance is probably the most underestimated form of insurance. For working individuals, it rivals health insurance in importance. To pay your bills, you need to be receiving some sort of income, and a disability policy can be perfect for keeping your expenses paid during an already trying time. Government disability insurance is limited and may not meet your needs. Its payouts are between $500 and $2000 per month and are only available to individuals who have built up sufficient credits in the Social Security system. If you have a higher-paying job or if you have not contributed enough to Social Security to qualify for coverage, consider supplementing this insurance with additional disability coverage.
Life insurance is a type of insurance that pays the beneficiaries upon the insured person's death. This kind of insurance exists to cover your final expenses, and it can go toward paying your final medical costs, your funeral expenses, any debts you may still have at death, and anything else the beneficiary desires. The policyholder and the insured do not have to be the same person, but they often are.
There are two main types of life insurance: whole life and term life. Term life insurance is in force for a specific amount of time, and after that time the policy disappears. Whole life policies, on the other hand, have a cash value that never disappears and can actually be borrowed against. A life insurance policy is designed for the protection of the beneficiaries, and in the case of whole life policies it can also function as a form of forced savings. When the insured individual dies, his or her dependents will need a replacement source of funds, and life insurance is designed to replace the insured individual's income in the case of untimely death. Life insurance can provide for a dependent spouse or young children when a provider passes away.
Life insurance can stabilize the financial future of families and dependents. A person's job and future income are like an asset and are called "human capital" in financial planning. This "human capital" can be wiped out by a person's sudden death, leaving dependents at a financial loss as well as an emotional one. Life insurance can reduce or remove this financial risk and allow a breadwinner to provide for dependents even in the event of death.
Health insurance is all about the payment of your medical expenses by the insurance company. This can happen during your regular annual medical checkup, during a visit to the emergency room, or to any kind of visit to a medical professional when you get sick or injured. Health insurance is all about keeping you safe and healthy by paying the high costs of health care. If you don't have health insurance, you are taking on all of the risk of the medical problems everyone eventually has. With the right coverage, the insurance company pays for the bulk of your medical treatments.
Different plans may have different features. Some plans have co-pays and deductibles. These are fees that you have to pay before your insurance coverage covers the remainder of the cost. For example, if your plan has a $15 copay, you will pay $15 per treatment. If your plan has a $1,000 deductible, that is the amount of the bill you will pay out of pocket, and your insurance will cover the rest.
A very different feature is called co-insurance. Co-insurance plans will pay a fixed percentage of your healthcare costs. For example, a plan could state that you will pay 25% out of pocket and the insurance company will pay 75% of your bill. Co-insurance can be very dangerous since medical treatment costs have no upward limits.
Having health insurance is very highly recommended for financial planning. It allows you to replace large and unpredictable expenses with small, regular payments. It changes an expense that is almost impossible to plan for into one that can be paid in installments.
Buying insurance is smart, but you do not need to spend an excessive amount of money on it in the process. One of the best parts about insurance is that you have a large amount of flexibility with regard to what you buy and how much you spend in the process of buying it. While you can spend as much as you want, in a lot of cases there are ways you can cut costs dramatically without actually reducing your effective coverage. However, being without insurance is generally a bad way to save money.
You can begin the process of saving money by shopping around for different kinds of policies. Some people buy into the notion that you should get the absolute minimum level of insurance possible. While this will save you money and may provide for your needs during the most catastrophic situations, this level of insurance may not be enough for you. Knowing what you need is the first step to tailoring your own insurance solutions.
Once you have a clear vision of your needs, you can begin to shop around with a few variables in mind. Generally, two very important components of insurance are the deductible and the payment schedule. Both of these can factor into how large your premium is going to be. Paying your premium annually instead of monthly can save you 10-20% in some cases. Taking on a higher deductible simply means that you need to pay for more of your costs, which is also called your out-of-pocket expense, before your insurance policy comes into play.
Shopping around for insurance can be done through an agent or the internet in most cases. Going online and buying your policies directly will generally save you the agent's commission, but you have to balance this against the level of service the agent will provide you with. If you never file claims or your agent is not serving your needs effectively, you may want to shop around online for a policy that meets your needs and see how much you can save. In some cases, buying directly will allow you to purchase better coverage for the same price.
There are resources you can investigate for more information. For example, Healthcare.gov allows you to find information on laws, insurance details, and even how you can use insurance effectively. This is a complicated subject, and knowledge is power.