We can't prevent the unexpected from happening, but sometimes we can protect ourselves and our families from the worst of the financial fallout. Being insured is a situation whereby a company undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium. Selecting the right type and amount of insurance is based on your specific situation, such as children, age, lifestyle, and employment benefits.
Various types of insurance everyone needs include:
1. Life Insurance
According to a 2021 study by LIMRA, formerly known as the Life Insurance and Market Research Association, more than half of U.S. households rely on dual incomes. The study also found that a quarter of families would experience financial hardship within one month of a wage earner's death. The two basic types of life insurance are traditional whole life and term life.
Whole life can be used as an income tool as well as an insurance instrument. It includes a death benefit and also a cash value component. As the value grows, you can access the money by taking a loan or withdrawing funds and you can end the policy by taking the cash value of the policy.
Term life covers you for a set amount of time like 10, 20, or 30 years and your premiums remain stable. Commonly the most affordable type of life insurance, a term policy can work to cover the years during which a mortgage loan is outstanding or throughout your children's college years. Life insurance is especially important if your family is dependent on your salary. Industry experts suggest a policy that pays out 10 times your yearly income.
2. Health Insurance
Health insurance is a type of insurance that helps cover the cost of an insured person’s medical and surgical expenses. Insurers use the term “provider” to describe a clinic, hospital, doctor, laboratory, healthcare practitioner, or pharmacy that provides treatment for an individual’s condition. The “insured” is the owner of the health insurance policy or the person with the health insurance coverage.
Health insurance can be obtained through your employer, the federal health insurance marketplace, or private insurance you buy for yourself and your family by contacting health insurance companies directly or going through a health insurance agent. If your income is moderate but doesn't stretch to insurance coverage, you may be eligible for subsidized coverage under the federal Affordable Care Act.
3. Long-Term Disability Coverage
Long-term disability insurance supports those who become unable to work. According to the Social Security Administration, one in four workers entering the workforce will become disabled before they reach the age of retirement.
While health insurance pays for hospitalization and medical bills, you are often burdened with all of the expenses that your paycheck had covered. Many employers offer both short- and long-term disability insurance as part of their benefits package. This would be the best option for securing affordable disability coverage.
If your employer doesn't offer long-term coverage, here are some things to consider before purchasing insurance on your own:
A policy that guarantees income replacement is optimal. Many policies pay 40% to 70% of your income.
The cost of disability insurance is based on many factors, including age, lifestyle, and health. The average cost is 1% to 3% of your annual salary.
Before you buy, read the fine print. Many plans require a three-month waiting period before the coverage kicks in, provide a maximum of three years' worth of coverage, and have significant policy exclusions.
4. Auto Insurance
Auto insurance is a unique insurance policy meant for vehicle owners to protect them from incurring any financial losses that may arise due to damage or theft of the vehicle. Whether you have a private car, a commercial vehicle, or a two-wheeler, you can purchase a motor insurance policy. Despite years of improvements in auto safety, several people died in traffic accidents on highways. Almost all states require drivers to have auto insurance and the few that don't still hold drivers financially responsible for any damage or injuries they cause. Here are your options when purchasing car insurance:
• Liability coverage: Pays for property damage and injuries you cause to others if you’re at fault for an accident and also covers litigation costs and judgments or settlements if you’re sued because of a car accident.
• Comprehensive and collision coverage: Collision insurance pays to repair or replace your car after an accident, regardless of fault. Comprehensive insurance covers theft and damage to your car due to floods, hail, fire, vandalism, falling objects, and animal strikes. When you finance your car or lease a car, this type of insurance is mandatory.
• Uninsured/underinsured motorist (UM) coverage: If an uninsured or underinsured driver strikes your vehicle, this coverage pays for you and your passenger's medical expenses and may also account for lost income or compensate for pain and suffering.
• Personal injury protection (PIP): PIP insurance helps reimburse you and your passengers for costs such as rehabilitation and lost wages.
• Medical payment coverage: MedPay coverage helps pay for medical expenses, typically between $1,000 and $5,000 for you and your passengers if you’re injured in an accident.
Understanding the benefits is critical when analyzing the need for insurance and helps insureds justify the purchase of insurance. Insurance benefits individuals, organizations and society in more ways than the average person realizes. Some of the benefits of insurance are:
- The major benefit of insurance is the payment of losses. An insurance policy is a contract used to indemnify individuals and organizations for covered losses.
- It manages cash flow uncertainty. Insurance provides payment for covered losses when they occur. Therefore, the uncertainty of paying for losses out-of-pocket is reduced significantly.
- Insurance is complying with legal requirements. Insurance meets statutory and contractual requirements as well as provides evidence of financial resources.
- It promotes risk control activity.Insurance policies provide incentives to implement a loss control program because of policy requirements and premium savings incentives.
- The efficient use of an insured's resources. Insurance makes it unnecessary to set aside a large amount of money to pay for the financial consequences of the risk exposures that can be insured. This allows that money to be used more efficiently.
- It supports for the insured's credit. Insurance facilitates loans to individuals and organizations by guaranteeing that the lender will be paid if the collateral for the loan is destroyed or damaged by an insured event. This reduces the lender's uncertainty of default by the party borrowing funds.
- It also provides a source of investment funds. Insurance companies collect premiums up front, invest those premiums in a variety of investment vehicles, and pay claims if they occur.
In conclusion, being insured is the best way to resolve unnecessary financial crises. Get insured and save yourself the waves of financial crises.
© Olarewaju Aishat Olamide
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