Finance: Insuring Your Present and Your Future
By Sandra Fletcher
Have you ever wondered where insurance actually started? Who were the first people to offer it – and why? The basic idea of insurance has always been the same: protection in case you lose something. There are different kinds of insurance, some of which may be familiar, with like life insurance. But there are other types that you might need, depending on your life and lifestyle, that you may not know about like critical illness and disability insurance.
Why should insurance be a part of your financial plan?
At different stages of your life, you have different needs depending on your financial situation and your style of living. As a single person you will need only the basics. You need disability insurance in order to make sure that if you suffer from an accident, you would be able to afford to take care of yourself. If you were unable to work, disability insurance would make sure you have an ongoing income.
As a single person you may be renting an apartment. If you are, be sure to have content insurance so that you can replace any contents. Your landlord will have insurance to protect the building but his insurance won’t cover your possessions. You’ll need to replace anything lost in a fire or robbery from your own insurance.
A couple of things
When you settle down with a spouse, your needs will change again. That is the time to purchase life insurance! Purchasing life insurance would allow your spouse to continue enjoying the quality of life you have both started.
Life insurance pays an amount upon death to your beneficiaries (you can name your spouse and add any children) – helping to replace your lost income. A common rule of thumb is that you buy life insurance equal to 8 to10 times your salary.
When you apply for life insurance you will be asked to provide evidence of insurability. This lets the company determine if you are a good “risk”. Someone healthy for their age will receive a lower price than someone who is not. Rates vary and an agent can help you choose the best deal.
At this time in your life it might be a good idea to meet with an agent or broker. (Agents work for one specific insurance company and Brokers represent several insurance companies). A trusted advisor will help you buy the correct product for you. Asking friends and family for recommendations is a great way to find one.
Protect your family – how much is enough?
As your children and family grow, so does your need for more security. Does your spouse need insurance? Yes. Do your children? Likely.
Without the right insurance coverage in place, your home, your savings and income could all be put at risk. You need enough insurance to: maintain your family home and pay for day-to-day expenses; pay for your children’s education; pay off outstanding debts and cover final expenses such as funeral costs.
As your family grows, it’s common to carry some debt. Creditor insurance is a way to make sure your family doesn’t become liable for that debt if something should happen to you. As a parent, you probably need most of your income – and/or your spouse’s income – to cover the cost of running your household and meeting short- and long-term financial goals.
Disability or critical illness could put unmanageable pressure on your ability to provide for your children. Disability insurance replaces your ability to earn an income. Critical illness insurance gives you additional resources to help you focus on your recovery – without putting a financial strain on your family if you were diagnosed with, and survived, a covered illness such as cancer, heart attack or stroke.
As you move toward retirement your needs and your family’s insurance needs will change as well. You will no longer need creditor insurance as your debts are paid off.
You will no longer need disability or critical illness insurance once you stop working. You may not need to carry the same amount of life insurance coverage that you once had. It’s important to have a trusted insurance advisor to help you decide on the type and amount of coverage for your stage of life.
After all, insurance is a sophisticated gamble. If luck is on your side you might never need it – but it’s important to be prepared!
|Type of Insurance||What loss does it cover?|
|Life||Provides payment to your family in case of your death|
|Contents||Provide reimbursement to you if all or some of the contents of your rented or leased home are stolen or destroyed
|Home||Insures the home you own should the contents be stolen or building destroyed|
|Creditor||Creditor insurance (including Mortgage insurance) insures your debts if you are unable to repay them due to loss of income or death|
|Disability||Provides protection against specific disabilities and provides benefits to you if they affect you to help pay for cost of living|
|Critical Illness||In a very similar way to disability insurance, critical illness provides benefits to provide for you if you are diagnosed with specific illness|