Protecting family assets: Part 2
Sources of family financial risk and possible solutions.
This is part two of a two-part series on protecting family assets. Regardless of our family situation, each of us desires the peace of mind that comes with knowing that our financial situation and our assets are protected from serious harm or loss. Part one started us thinking about the types of financial losses that might happen and then we took a look at the options available to us to reduce the impact of the losses. This month, we will discuss the different types of insurance in more detail and how each helps to protect family assets.
There are several types of insurance that can be purchased to protect families against devastating events that can cause financial stress. These are: health, homeowner’s/renters, auto, liability, life, and disability. Each one of these insurances has a common purpose and that is to protect the policyholders from losing all their assets from a major catastrophic event. Let’s talk a little about each type of insurance that is available.
Health insurance is a major topic of conversion currently with the next phase of the Affordable Care Act (ACA) going into effect on January 1, 2014. Why is health insurance so important? It is very expensive and one major medical issue could wipe out a family financially. Another purpose of health insurance is to provide preventive care to help keep the cost of medical care down. Health insurance coverage is often offered as a benefit through your employer. With ACA, individuals and families that do not have health insurance can purchase insurance through the Marketplace. Different forms of managed care available are: Health Maintenance Organization (HMO), Point of Service (POS) and Preferred Provider Organization (PPO). Michigan State University Extension offers a program called Smart Choice to help families choose the best plan for them that they can afford.
Homeowner’s and renter’s insurance provides a combination of property and liability coverage into a single package. The property insurance protects you from financial losses resulting from the damage to or destruction of your property or possessions in the home. The liability protects you if someone is hurt or their property is damage while on your property. There are different forms of homeowners insurance depending on your living situation and or dwelling (own home verses renting or condo owners). If you have mortgage on your home, you are required to have homeowners insurance.
Auto insurance is important to cover auto repairs and replacement in an event of an accident. It is also to cover auto-related lawsuits against you. In Michigan, no fault insurance is required by law in order to obtain license plates. Often called liability insurance, this coverage must include personal injury protection, property protection insurance and residual liability insurance. You may also purchase full coverage which will also include collision, comprehensive and uninsured motorist coverage.
Life insurance is to protect others by compensating for income loss due to death. It can potentially provide funds for household expenses, death expenses, education etc. People who benefit the most are those who depend on the insured’s income for a desired standard of living. How much is needed in life insurance will depend where you are in your lifespan. Young families with children may need more coverage verses a family where the children are out of the house and the house mortgage is paid in full.
Lastly but surely not the least important of insurances is disability insurance. This insurance replaces part of your income if you become disabled due to injury or illness and you are no longer able to earn an income.
All these types of insurance are ways you can reduce risks to you and your family’s financial well-being. As you think about what insurance to purchase and what types of coverage you want keep in mind the following:
- Purchase insurance to cover situations and or losses that threaten you financial wellbeing.
- Do not purchase insurance for items you can afford to pay for out of pocket.
- Read policies carefully and understand the coverage you are buying.
- Take advantage of insurance options available through your employer or group affiliate.
- Review and update your policies periodically.
- If choices are necessary, cover risk that are the most likely to damage you financial wellbeing.
Insurance is one of the basic elements in a solid family financial plan. For more information, visit the MI Money Health website.