Preparing for Illness or Injury
No one can plan for every variable in life, but a key part of financial planning is to build a safety net to prevent financial disasters caused by catastrophic illness or other personal tragedies. Below is a list of the different types of insurance coverage that should be considered, depending on your circumstances. We also discuss the importance of disability and life insurance in greater detail:
- Medical Insurance
- Homeowners and other property Insurance
- Auto Insurance
- Umbrella Liability Insurance
- Life Insurance
- Disability Income Insurance (if needed)
- Long Term Care Insurance (if appropriate)
Long-Term Disability Insurance
The purpose of long-term disability insurance is to replace your income if you are unable to work due to illness or injury. Many people consider this coverage a luxury, when in fact, it should be considered a necessity for those who don’t have other financial resources they could tap in the event of an illness or injury.
Although your chances of having a disability increase as you get older, illness and injury can happen at any age. In fact, you are much more likely to become disabled than to suffer a premature death. Car accidents, sports injuries, back injuries, pregnancy, and disease are just a few examples.
Ask yourself this question: could you live without your income for three months? Six months? A year? If the answer is no, you need disability insurance. Even if you do have other financial resources, would you want to use them to pay your monthly bills? If you saved 5% of your income each year, a 6 month disability would eat up 10 years of savings!
Employers often offer this coverage via a payroll deduction, which may be tax-deductible.
Life Insurance
Life insurance is necessary if you have dependents who will suffer financially if you die (children, for example). If you have no financial dependents, it’s probably not necessary, although many people also use insurance as part of their estate planning and cash accumulation regardless of their dependent status.
If you plan to buy insurance other than term insurance provided by your employer, you should educate yourself about the pros and cons of term, whole life, and other types of insurance. You may also want to talk to an adviser about how much insurance is enough. Refer to our insurance calculators to find out how much life insurance is right for you.
Emergency Fund
Financial advisors suggest having enough savings in an easily accessible account to cover your living expenses for six months in the event of illness, job loss, or other serious emergency.
Summary
Once you’ve protected your income-generating ability with disability insurance, protected your dependents with life insurance, and protected your other assets by having a six month emergency fund, your financial safety net is in place and you’re ready to turn to the task of accumulating wealth.
Financial planning is an evolving plan that changes as you grow in your career path and move on in your life stages, it is a plan that needs to be reviewed as the circumstances changes for example getting married, buying a house and raising a family.
As your life goals and financial status changes you will need to review your financial plans to see if you will achieve your financial goals within the given time line. Give Johnson Financial Advisors a call and we would love to help you 602-242-4000.