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Step 5 - Protect Your Financial Resources

January 31st, 2008 at 02:53 pm

Fear of the unknown can produce a sense of scarcity. Since no one can predict the future, insurance products help protect us from financially catastrophic events. Properly using insurance can protect your financial resources, keeping this fear in check.

For most people, the need for automobile and home owner’s insurance is fairly well understood. However, by increasing your deductibles, you can often cut insurance premiums significantly. As an example, if you have a $500 deductible on your auto insurance policy, you might consider raising it to $1,000.

If you have a loss that is slightly more than $500, it may be better to pay for the loss yourself and not report it. Sometimes, reporting a small loss can significantly increase your future insurance premiums. If you will likely not report a smaller loss, why pay the additional premiums required for the lower deductible?

Life insurance is a requirement for any family member that contributes financially to the family. Typically, term insurance is the most cost effective type of life insurance. Consider a term period which will last until you no longer require life insurance. If you are in your thirties, this may mean a thirty-year term. To determine how much life insurance you require, go to http://www.finabguide.com/ for the free life insurance estimator under the “Advice” tab.

Many people fail to understand the critical need for a long term disability insurance policy. Under age 65, you are more likely to become disabled than you are to die. As Peter Ubel, well known professor of psychology states, “If people are smart, they will invest wisely in disability insurance.” A serious, long-term disability can destroy even the best financial plan.

Another protection to consider is an umbrella liability policy. In our litigious society, the liability limits of your home owner’s and auto policies may not be enough to protect your hard earned assets. For a relatively small additional premium, you can increase your liability coverage by $1 million or more.

Protecting yourself from catastrophic financial risks will help reduce the fear of the unknown, a necessary step to obtaining financial abundance.

3 Responses to “Step 5 - Protect Your Financial Resources”

  1. scfr Says:

    Thank you for posting the link to the life insurance calculator.

    2 Questions:

    - How does one estimate Postmortem Expenses? I inputted $10K, but that was just a shot in the dark.

    - If the "Additional Life Insurance Needed" amount is a NEGATIVE number, am I correct in assuming it suggests we don't need life insurance? [We had concluded on our own that we don't need life insurance, but it's always nice to get confirmation.]

  2. finabguide Says:

    Postmortem expenses include funeral costs, last illness costs, and any other one time costs that would be associated with the death of the individual. This can vary greatly depending upon health insurance coverage, funeral preferences and other costs. For most people with health insurance, $10K - $20K is probably sufficient.

    You are correct, a negative number means that you need no additional life insurance... congratulations!

  3. scfr Says:

    Thank you.

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