This is the sixth post in a multi-part series on how to manage your finances so you can build up your savings, have a safety net, and still live comfortably today without having to live paycheck to paycheck. Click here for part 5, which discusses saving for large purchases.
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Financial stability and peace of mind
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Insurance – it’s not the sexiest topic when it comes to money. Taking care of your insurance needs won’t help you buy that new car or get into that highrise apartment. But it will help you protect yourself against unexpected disasters, so that if they do occur, you’ll be able to handle them and move on.
In the same way that you use your emergency fund to provide a safety net for unexpected future expenses, you use insurance to protect yourself against catastrophic future events that could destroy your financial stability. Young professionals have less insurance needs than do those with more assets, or a family, to protect. Insurance is all about knowing what you have to lose and doing your best to protect it.
Insurance is absolutely necessary for everyone. But not all insurance is necessary for all types of people. Below, you’ll find some of the most common, and important, types of insurance – things that nearly everyone should have. For the average working professional, if you’ve got most, or all, of the following types of insurance, you should be good to go.
In any case, you should talk to a financial planner or other professional when deciding your insurance needs, as they’ll be able to let you know what you need for your own, personal situation. We do not claim that these are all you need for yourself, make sure to analyze your own situation and proceed accordingly.
Your five most important insurance needs
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- Health insurance
This is the most important type of insurance you should have. You may think that the monthly premiums are too expensive, but even a week in the hospital with the most basic of procedures will cost you exponentially more. Health insurance protects you from paying astronomical costs for what you hope will never happen.A trip to the ER can cost thousands. A sustained hospital stay can significantly wipe out all of your savings and future earnings. Don’t take the chance. If your job provides you with your health insurance and you quit or end up leaving, look into getting a COBRA policy.These policies, required by law, allow you to continue your old employer-sponsored health policy for quite a bit of time (upwards of 36 months if you need it). You’ll end up paying much more for your insurance than you did as an employee, but at least you’ll be covered.
- Short-term and long-term disability insurance
Did you know that between 20% and 25% of working professionals will be disabled for some amount of time at some point in our careers? Unless you have disability insurance, all of your living expenses that you incur while you’re out of work will come out of that emergency fund of yours, which will shrink extremely quickly as your expenses add up.Statistically speaking, you are more likely to be disabled than die before you retire. Plan for it. Your workplace may offer disability insurance. If it doesn’t, go with a private policy.
- Car insurance
If you have a car, you’re probably required to have car insurance by your state. Which is good, since driving a car is risky. There’s always a chance that something could happen, even if it’s not your fault, you could end up in an accident. There are a variety of options when it comes to car insurance. Someone that rarely drives could go with the most basic option, covering personal liabilities only. Someone that drives all the time, and really loves their car, may want to add additional insurance. Speak with your car insurance agent to find a policy that works best for you.
- Home or renter’s insurance
All of your important possessions are most likely in your house or apartment. Protect them. You don’t want a freak accident wiping out everything you worked so hard to purchase. On top of that, you may also want insurance to cover your liability in case someone gets injured on your property, though that applies more to homeowners than it does to renters.
- Life insurance
Why is life insurance last? Isn’t this supposed to be one of the most important types of insurance? The fact of the matter is, unless you have a spouse, kids, or someone else depending on you, you don’t need life insurance. If you do have any dependents, however, you’ll need to make sure they’re well cared for if you die. Make sure that any policy you purchase will provide enough coverage to handle your burial, cover any debts you owe to others, and can sustain your dependents for a few years after your death.
This may seem like a lot, but the total monthly cost of all this insurance can be very affordable, particularly if you get it through your employer. Some people may require more insurance than what was mentioned here, especially doctors and lawyers, who need liability insurance. If that’s the case, speak with a qualified professional about what you need, and avoid what you don’t.
Insurance is a grim topic, but one that had to be covered before we move on to the , meat and potatoes of this series, not to mention, the specialty of this site: growing your money through trading and investing. In the next post, we’ll show you why trading and investing are so important, and we’ll give you an overview of the different choices you have when it comes to increasing your available capital. Read on.
