In life, sometimes the unexpected happens. Accidents, injury, illness, and sometimes greater tragedies. It’s common that these are things people don’t like to talk about, let alone plan for. But the reality is, if something happens to you, there are financial obligations that still need to be settled. Do you know if your loved ones are protected if something ever happened to you that would make them responsible for your property, assets, possessions, etc.? This may come as a surprise to you, but more than half of Americans do not have a plan in place in the event of an unexpected tragedy.1
Insurance is a way for us to transfer risk to protect against financial loss. An insurance company promises certain financial safeguards against unplanned events such as death, illness, injury, etc., in exchange for a premium or financial payment. Without insurance, we (or our loved ones) would be liable for any and all expenses related to catastrophes or accidents.
It’s easy to overlook the importance of insurance coverage when making a short- or long-term financial plan if you don’t understand the value. There are three types of insurance that are important when considering how to best care for yourself and your loved ones: life insurance, medical insurance, and disability insurance.
Life insurance is important because it takes care of debt or financial obligations so that our loved ones don’t have to, and in a sense, leave a legacy and not a liability. There are two main types of life insurance: term insurance and permanent insurance.
Term insurance covers a specific time period for a set dollar amount. Term policies are useful for people that cannot pass a medical exam or who may want coverage for only a specific amount of time. For example, if you were to choose a 10-years term policy for $500,000, and if you were to pass away within 10 years, your beneficiary would receive the death benefit of $500,000. However, if you outlive those 10 years, while you have the good fortune of being alive, it is without the coverage of the term policy. Typically, when one outlives a term policy, they would buy another term policy, and the process starts over.
On the other hand, permanent life insurance (often called whole life) lasts your whole life. In this instance, the policy matures when you pass away. Unlike term life insurance, permanent insurance typically requires a medical exam before the insurance policy is issued. Don’t be deterred by the prospect of a medical exam! Your primary care physician knows how to deal with insurance paperwork, and an exam will only add an extra 15 minutes to a normal doctor visit.
Many salaried employees receive some life insurance coverage from their employer. However, this may not be the case if you are self-employed, hourly, or contractual. Thus, you will want to take a moment and review your life insurance coverage. If you have life insurance through your employer, you can easily obtain extra coverage without a medical exam for an additional charge per pay period. If you are self-employed or a contract employee, you can still have a life insurance policy, but it will take additional steps to obtain coverage.
Buying a life insurance policy, no matter your employment situation, can be as easy as finding an insurance agent online, through personal referrals, or by contacting your state’s insurance department. When considering a life insurance policy, you will need to remember to do your homework: pick an insurance company with good ratings (from A+ to D, with A+ being the best), make list of everything you’d want to have paid off when you die, and any extra amount of money you want to be left to your beneficiary. Some insurance agents say you should have 10 times your annual income in life insurance, but consider what fits your wishes and needs best. Additionally, if you are in relatively good health, you should be able to find a permanent or whole life policy cheaper than someone who engages in risky hobbies or has excessive tobacco or alcohol consumption; the fitness instructor will probably get a cheaper policy than the skydiving chain smoker! 
You may not think of medical insurance as useful in future planning or protection, but think about this: your income now is your biggest asset. Meaning, your ability to work and earn is essential! What happens if you are injured on or off the job, or have an illness that requires any amount of professional or prescription help? Medical care isn’t getting cheaper, so what do we do? Well, we make sure that we and our loved ones have regular, comprehensive medical coverage. This coverage can be purchased through an employer or separately. A licensed insurance agent can talk to you about health insurance (in addition to that life insurance) and what coverage will be right for you and your family or significant other.
Lastly, disability insurance seems to be coverage that falls by the wayside. Unfortunately, disability insurance is commonly undervalued or misunderstood until it’s time to use it. But the reality is, it is a way to pay for therapy, rehabilitation, medical expenses, and even lost wages if you are injured on or off the job. Whether you’re hurt by a falling crate in a warehouse or hit by a car over the weekend, being unable to perform your job functions and earn a living can be a serious situation. Disability insurance policies protect against lost wages and medical expenses due to injury in both the short-term and long-term. Short-term disability coverage lasts between three to six months on average. Long-term coverage can last up to three years and covers the time period after the short-term policy ends.
Providing and caring for not only ourselves but also the people we care about is essential. Are you budgeting properly, saving in your retirement account, and working hard? Great! Don’t forget that caring for yourself and your family also includes making sure that you have the right level of insurance protection. An easy way to access information about insurance can be found by contacting your state’s department of insurance or a licensed insurance agent. Proper life insurance, health insurance, and disability insurance coverage is essential to make sure that you and your beneficiaries are secure in the event of any accident or catastrophe.
Be sure to check out our upcoming FIT4Learning webinar where I will not only discuss more about the importance of insurance, but you will have the opportunity to ask me questions about it as well.
Wednesday, August 31
John Poole, CRPC
Financial Fitness Consultant
Source: 1. Insurance Information Institute, “Facts + Statistics: Life Insurance”, https://www.iii.org/fact-statistic/facts-statistics-life-insurance#:~:text=According%20to%20the%202022%20Insurance,it%20was%2012%20years%20ago. 2. Bankrate.com “What are AM Best ratings?”, https://www.bankrate.com/insurance/am-best/