Most people know they need sound financial management. It starts with establishing a budget and then using it to set and meet financial goals. There are short-term and long-term goals, and it takes hard work and discipline to achieve them.
Financial Safety Net
Insurance can be seen as a wager. You’re betting that you’ll need it, and the insurance company is betting you won’t. It’s the least favorite expense most people have.The result is many people ignore insurance. Over 100 million Americans are uninsured or underinsured when it comes to life insurance. And 65 percent of the private sector has no long-term disability insurance. These people don’t have a financial safety net.
If you are prepared for the unexpected, you’re less likely to be set back financially. An unexpected illness, property loss or death has hijacked many financial goals.
Insurance Diversifies Portfolio
Some people use insurance to diversify their portfolios. This is especially true for those in a higher tax bracket who have maxed out their retirement plan contributions.Many individuals will use cash-value life insurance to spur tax-deferred growth. But beware that if you withdraw any amount of cash more than the total premiums you paid toward the cash value, it will be taxable.
Insurance Provides Quick Liquidity
Many people have illiquid assets like real estate, long-term investments or businesses. This causes problems in wealth transfer taxes and costs. Life insurance provides immediate liquidity upon the insured’s death.Types of Insurance Needed
There are five types of insurance that most people need to protect their finances:- health
- life
- disability
- auto
- home
The remainder of Americans receive their health insurance from Medicare, Medicaid, or the Affordable Care Act.
Long-Term Disability Insurance Protects
The Social Security Administration says one in four workers in the workforce will become disabled before retirement age.You might have health insurance for the medical bills, but long-term disability covers everyday expenses. In other words, it becomes your livelihood. Policies pay 40–70 percent of your previous income.
Why People Avoid Insurance
Most people know they need insurance, but it’s not a priority for some. Instead, building a savings account or making investments is the chief focus.It’s difficult to think about the worst-case scenario. Fear sometimes creates paralysis.
Lack of education is another reason people avoid insurance. It can be confusing trying to figure out what risks you have and what insurance policies are needed to cover them.
Update Insurance Yearly
You don’t make investments and then ignore them; insurance is the same way. Insurance policies aren’t set it and forget it contracts. They should be reviewed yearly. Life changes need to be accounted for.You may have a higher income than the previous year and need to adjust the disability policy. Or a new baby may warrant increased life insurance limits.
When was the last time you updated your homeowner’s policy? If you’ve increased the square footage of your house or are about to, it’s time to call the insurance agent.
A new dog or building a pool may also mean increasing liability limits.
Life constantly changes. Just like your finances are fluid, so are your insurance needs.