Insurance is a form of protection
from financial loss in case something goes wrong, also known as risk management. This is a tool in which the insured tranfers a risk of loss to an “insurance” company that covers the risk in exchange for monetary compensation known as a premium. Insurance policies, a contract between the policyholder and the insurance company can be of different types depending on the risk they mitigate. Broad categories include life, health, motor, travel home, rural, commercial and business insurance.
Insurance can protect you and your family from significant risks such as damaged property, theft, illness, accidents, or death. As you consider the types of insurance which are appropriate for you, ensure that you have adequate healthcare and that you can protect your family from a catastrophe. One thing for sure, the unexpected happens. Insurance coverage helps protect families in such situations.
How do you select insurance coverage?
Protect the things that matter most. It would be difficult and expensive to cover every possible catastrophe, so protect yourself from hardships that would be financially devastating. Your emergency fund will help cover replacing small things. Health, life and property insurance are the big three. Some forms of insurance are required by law, like homeowners and auto, while others are optional.
There are many insurance plans available
Contact a trusted insurance advisor and discuss your needs and your budget. An independent agent will be able to compare several insurance companies’ options and give you different options, varying on premium costs, deductibles and the amount of coverage provided. A premium represents the price of the insurance or the amount of money you pay directly to the insurance company in exchange for the coverage. This premium can be paid anually, semi-annually or monthly. A deductible represents the amount of money you pay toward your expenses before the insurance company will cover the remaining expenses.
Nearly everyone will need medical help or access to health care services throughout their life. Health care costs can be financially devastating. Health insurance can protect you from that heavy burden. Choosing an insurance plan can be difficult. Most people will have several options available depending on whether they are purchasing insurance on their own or deciding on options offered by an employer or government plans.
It is difficult to predict how much you will have to pay each year for medical expenses. To get an idea, you should do a cost-benefit analysis. Create a best-case and a worst-case scenario to predict how much you will pay. For a best-case scenario, calculate the minimum cost of health care by simply multiplying your monthly premium by 12 months (12 x monthly premium). This scenario assumes that you will not use any medical services for the entire year. To calculate the maximum cost (worst-case scenario), add your annual premium cost to your annual deductible (12 x monthly premium + deductible). This assumes that your medical expenses will exceed your annual deductible. With this information you can now compare the expense ranges of different plans. The actual likely out-of-pocket cost of each plan is difficult to project, but knowing the range of possible expenses can be very helpful. Now compare a high deductible plan with a traditional plan. In the best-case scenario, a high deductible plan will save you more money annually, if you don’t need any medical care. IN the worst-case scenario, the traditional plan will save you more.
Insurance plans offer a wide variety of benefits. Based on the age of your family members, you will need to decide what benefits are most important to you. Some things to consider: what medical services are covered; primary care, emergency care, hospital care? What doctors are in the “network”, what hospitals, clinics or doctor’s offices are covered by each plan? How about prescriptions and physical therapy?
Life insurance provides a family with a sum of money should an insured member of the family die. The death of an income earner can be financially devastating to a family. If your family depends on you for your income, you have an obligation to provide for their support by having adequate life insurance. How much should you have? Advisors recommend coverage equal to 10 to 15 times your annual salary. Review your finances and decide what amount you can afford.
There are two general types of life insurance: permanent and term. Permanent or “whole life” insurance, provides coverage indefinitely and typically contains a built-in retirement fund, but it has much higher premiums, and the returns on the investment portion of the plan may not be as high as other available options. Term life insurance has much lower premiums and provides coverage for a specific term or number of years, like 10, 20, or 30 years. Term life insurance is much less expensive than permanent life. Enrolling in a life insurance policy at a young age may result in smaller long term premiums. Be sure to select a provider that has a good reputation.
If you become disabled due to an accident or illness during your working career, disability insurance will provide some income for a time. Since you know your monthly expenses, you will be able to determine an appropriate coverage to meet your family’s needs and that you can afford.
Homeowners, Renters, and Automobile insurance
Property insurance covers your belongings in the event of a disaster. Homeowners and renters both can cover replacing your possessions should they be stolen or destroyed. Homeowners insurance can also cover the cost of repairing or replaceing your home, if it is damaged or destroyed. Fire, hurricanes and tornadoes can cause serious damage. If you have a home mortgage, it is often a legal requirement so that the cost of your home loan is covered. If you drive a vehicle, it needs to be insured as well. Auto accidents can be a financial liability as well because your vehicle and whatever you hit will need to be repaired as well. Property insurance gets renewed each year. It is a good idea to compare rates between companies before renewing.
3. Personal Finances for Self Reliance, 2016, The Church of Jesus Christ of Latter-day Saints, p 96. – 100.
Billie Nicholson, Editor