Why does insurance often provide peace of mind?
Here’s the thing about insurance; I don’t think anything bad is going to happen to you. But if it did, the impact would be catastrophic. Because of that, we buy insurance.
When we know we have insurance coverage in place, we feel safe and secure. We have peace of mind.
So much of life is uncertain. In fact, we don’t have any control over the majority of things that happen to us. We do have control over how we respond, as well as how we position ourselves.
Insurance plays a critical role in our financial foundations, and that’s what I’m going to focus on today. I want you to enjoy financial peace of mind.
As a financial advisor, I’ve been helping people find financial security for 20+ years. I’m honored to be named to Investopedia’s list of the top 100 financial advisors many years running.
Here’s what we’ll cover:
- What triggers the purchase of insurance
- Your financial foundation
- Important insurances to own
Let’s get started.
What triggers the purchase of insurance
Why do we buy insurance? When we’re young, single, and feel invincible, it’s a pretty tough sell. When we get a little older, and have more responsibilities in life, it starts to make more sense.
We’re legally obligated to buy some types such as auto insurance. When we buy a house, we need to get homeowner’s insurance. Sometimes, the trigger to buy insurance is when something bad happens to someone we know. Other Times, it’s our own bad news that motivates us to seek out coverage.
Sadly, many people wait until it’s too late to try and buy insurance. I’ve spoken with far too many people who have been diagnosed with cancer, and are now wanting to buy life insurance. It sounds awful, but that’s like trying to get car insurance after you’ve been in an accident.
While there’s never a perfect time to buy insurance, the best time to look into many coverages is when you’re young and healthy.
Your financial foundation
We’re all unique individuals, but we go through the same three stages of our financial lives; protection, accumulation, and distribution.
The protection phase is where we’re setting our financial foundation. This is a critical step because it gives you financial security. And without financial security, it’s extremely difficult to reach financial prosperity.
Your financial foundation is built on these key areas:
- Legal documents
Let’s go through them one at a time.
It’s important for you to have a good understanding of your cash flow; your money coming in, and your money going out. Far too many Americans are living paycheck-to-paycheck, which makes it difficult to get ahead financially. Make sure you’re logging into all your financial accounts and reviewing the transactions at least once a month.
You should also consider saving up an emergency fund. Start with $1,000 and work towards getting six month’s worth of expenses saved up. Aside from insurance, this will provide you the greatest peace of mind.
Budgeting is having a plan for your money. When you keep a budget, you’ll know if you’re on track to meet your financial goals and objectives, or if you’ve gone off track and need to make adjustments.
The key to successfully budgeting is finding a method that works for you. There are great apps like Mint, programs like YNAB, and spreadsheets like Tiller Money. Find what works for you and make sure you’re monitoring your budget on a monthly basis.
It’s valuable for everyone to create a will, and powers of attorney for healthcare and financial matters. Should you start a family, you’ll want to decide on a guardian for your children should something happen to you. One of our Certified Partners, Trust and Will is a great resource in this area.
If you’re a business owner, it’s prudent to create a legal entity for your business like an S-Corp or LLC.
The final piece of your financial foundation consists of your insurances.
Important insurances to own
When it comes to insurance, there are several kinds I recommend you consider purchasing.
Most Americans get health insurance through their employers as an employee benefit. I encourage you to spend some time understanding your policy so you can become a good consumer of your healthcare.
Property and casualty insurance
Property and casualty is a general term for several important coverages; homeowners, vehicle, and umbrella. Homeowners insurance protects your physical house as well as liability from accidents. Vehicle insurance protects your vehicle as well as liability. An umbrella liability policy provides additional coverage at a very affordable rate.
Life insurance pays a death benefit to your beneficiary should you die. There are many different types of life insurance, the two most common being term and permanent. A rule of thumb for the right death benefit is 10 times your annual income.
Disability insurance protects your income should you become sick or injured and are unable to work. Like health insurance, many of us obtain this coverage from our employers. It’s also possible to buy an individual policy directly from the insurance company.
Long Term Care insurance
Long Term Care insurance pays for the cost of skilled nursing care should we need it when we’re older. It allows us to stay in our homes and receive the care we need for a long as possible.
Identify protection insurance
Today, much of our lives are online, along with our sensitive information. Identity protection helps protect our identities from being stolen, or will provide financial compensation should we fall victim.
If you’d like to dig deeper into this, check out our The Right Coverages course.
Financial peace of mind is one of the most valuable things we can get. Setting your foundation and making sure you’ve got the right insurance coverage goes a long way to helping you feel safe and secure.
If you’d like assistance with any of the information that’s been covered, you can connect with one of our Certified Partners to get any question answered.
If you’re ready to take control of your financial life, check out our DIY Financial Plan course.
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