Insurance is one of the few things you buy with the hope you won’t have to use it. So how do you decide what kinds of insurance your family needs – and how much?
If you’ve had changes in your life situation, such as a new baby, major home improvements or diagnosis of a chronic health condition, you may need to make adjustments in your insurance coverage. If you have an insurance agent or financial advisor they should be able to provide you guidance in this area. In general, it’s a good idea to review your coverage at least once a year.
Maintaining health insurance for your family requires extra attention, especially with prices going up every year. If your employer provides coverage as a benefit, reevaluate your coverage during your annual enrollment period and try to estimate what care each family member is likely to need. If you decide to lower premiums by increasing the deductible, plan ahead by setting aside the deductible amount in a separate fund or a tax-deferred medical savings account.
If you have dependents, you’ll also want to consider life insurance. You may want to ask about annual renewable term life insurance, a “pay-as-you-go” policy that costs more each year as you get older. According to American Century Investments founder James E. Stowers, Jr. in Yes, You Can... Achieve Financial Independence, “The cost of protection is least when the need for it is greatest” – when your family is younger and more dependent upon the income you can generate.
When you save and invest wisely, you’ll eventually be able to self-insure and redirect your life insurance premium amount toward retirement or maybe travel. In the Stowers’ book, “self-insured” is defined as, “When the assets accumulated are equal to or greater than the amount of money needed for future security.”
According to the Social Security Administration, chances of becoming disabled for some period during your career are as high as 30%. With that in mind, you might want to explore purchasing disability insurance. While an emergency fund can come in handy if you’re unable to work for an extended period, disability insurance can provide you with a modest income stream to limit how much of your emergency fund you’ll need to use.
Your homeowners insurance also needs to be reviewed annually. You’ll need more insurance as values go up, so ask about credits for adding deadbolt locks, carbon-monoxide detectors and other protective measures. Some insurance providers offer a discount, perhaps up to 15% on your premiums, for buying multiple lines of insurance – such as car, home, life and medical – through them.
Insurance premiums are often paid monthly or bi-annually. When you set up your monthly spending plan, make accommodations for the expenses. Simply add up how much you’ll pay over a year’s time, divide by 12, and set aside that amount each month in an escrow account. Then rest assured – you’ve ensured you’re properly insured!