Today is an interesting day. Exactly five months ago, my sweet, beautiful, wonderful girl was born. Every day, I am so incredibly thankful that she is now part of my life. She is makes everything so much better for me, in every way I can imagine (and many that I can’t, prior to them happening). She is, quite simply, the best part of my world (with my wife being a very close second, in case you were worried).
As my daughter gets older, Sondra and I have been talking more and more about just how we should prepare for bad events, particularly now that we have someone besides the two of us to consider. One of the issues that has come up at several points, including this part weekend, is insurance. It’s not too surprising, I suppose, as I am a PF blogger who has talked about insurance in the past, and we find ourselves currently in the sort of rough financial state that could (theoretically) be avoided with the proper types of insurance.
So, I thought that while I am having these considerations, I might as well share them, since talking about insurance on a personal finance blog makes for a pretty good entry. With all that in mind, let’s consider
5 Types of Vital Insurance
1. Life Insurance – For Parents: This is possibly the most commonly cited insurance to hold for your financial health (I know I’ve brought it up), but it’s worth mentioning again, particularly in the context of how to prepare for your children. After all, if you and/or your spouse (or significant other or what have you) should happen to well, die, having a policy in place that will help fill the lose of income and provide the survivor with a chance to grieve.
The type and amount of insurance to choose will depend on many factors in your life; the typical personal finance blogger answers, which I tend to agree with for most people, would be a term policy covering to at least the age of 55 (or close to expected retirement age), for at least 5 to 10 times your current (combined) income for each parent. That said, you should make sure to review your financial situation and needs before making any final decisions (as you should for all these types of insurance).
-For Children: Another question that frequently comes up is whether you should get life insurance for children. The default answer from most PF bloggers (or other advisors) is no, as your children don’t earn any money and should (God forbid) they die, it won’t affect your income. However, as Evan of My Journey to Millions notes, there are reasons to consider doing so, from your need to take time off work to recover after your child’s passing to helping guarantee your child the ability to get insurance in the future. It’s definitely something you’ll need to consider.
2. Health Insurance – For Parents: There are sure to be health problems at some point in your life. If you have a good job, though, you’ll have a decent health insurance plan through your (or your spouse’s) job. If not, well, that’s where things always start to get tricky. With luck, you’ll be able to get health insurance privately, although until next year when the Affordable Care Act (aka, Obamacare) kicks in to full effect, you might have trouble getting insurance if you have a pre-existing condition. At that point, a lot of things will change, so it’s probably good to read up on those changes to know what to expect this time next year.
For Children: While we’re talking about the Affordable Care Act, it’s worth noting that starting back in 2010, children were able to be kept on their parents’ plan up to the age of 26. If you have a decent plan (a big if, I know), you’ll be able to provide your children with healthcare through your plan without much difficulty or expense. Good news all around, I’d say.
3. Long-Term Disability Insurance – For Parents: There’s a sadly high chance that at some point in your working life, you will find yourself unable to work. If you are the major (or sole) breadwinner in the household, you’ll want to ensure that as much of your income as possibl keeps coming in. Until you have enough in savings to provide for your spending on savings alone (that is, you could retire whenever you wish, and are working simply to add to your nest egg), you should be sure that any working parent has long-term (and short-term, for that matter) disability insurance to provide for disability-related losses of income.
For Children: Here’s a case where ‘children don’t bring in money and don’t need to be insured’ definitely rings true. Unless your child is bringing in a sizable amount of the family income, you don’t need to have any insurance on her or him. When she or he reaches working age, though, you should encourage them to look into this insurance, though, just in case they happen to run in a debilitating condition while working.
4. Auto Insurance – For Parents: Assuming you drive, which is pretty much the way of the world here in the U.S.A., you’ll need auto insurance simply to drive legally in most parts of the country. With a new passenger in the car, it’s all the more important to have a substantial policy that will cover the expenses that would arise from a serious accident. It’s important to consider not just the cost of the car, but of any other expenses that could arise, healthcare or otherwise.
For Children: For the first sixteen years (give or take a few months depending on when your state allows teens to get a driver’s license), you won’t need to cover your teen. Expect to pay significantly more when your kid is ready to drive, though, as teens tend to be less than ideal drivers, and the cost is thus higher. Be sure to teach your child how to drive well, so there aren’t any accidents (both for financial, and of course, health, reasons).
5. Homeowner’s/Renter’s Insurance – For Parents: Should something happen to your dwelling, it will be incredibly helpful in the process of replacing it if you had insurance to cover the costs. That’s what homeowner’s insurance handles for homeowners and renter’s insurance covers for, well, renters. (Many mortgage providers also require homeowners insurance on ‘their’ properties, so you might need to get it just to live in your desired home.)
This insurance will cover the costs of the items that are lost in events like burglary, fire, or flood. You’ll need to choose between ‘replacement cost’ insurance, which provides enough money to repurchase the lost items, or ‘actual cash value’ insurance, which provides only the depreciated (aka, significantly lower) prices. The premium on replacement cost is higher, although as you can tell, it’s definitely the better policy should you need to replace items lost in a catastrophic event.
One final note: there are frequently limits to the types of damage that are covered by homeowner’s policies. Flood damage is the most commonly cited, but water-damage and wind-damage are also sometimes excluded, particularly in areas inclined to such damage. (Crazy, I know.) The point being, you should be sure to check what is, and isn’t, covered on your policy before you need to use that coverage.
For Children: Until your children are old enough to have their own houses (or at least rent an apartment), you don’t need to worry about getting them coverage. You might want to check your parents’ coverage, though, to ensure that they are covered for anything likely to affect them (and anything that isn’t, while we’re at it).