Creating a solid financial protection plan
It's important to take measures to protect you and your family from unforeseen events that may put your financial future at risk. Whether it's a natural disaster or an accident, there are steps that can help you safeguard against financial loss with proper protection planning.
Emergency fund
Your best bet to ensure you are adequately prepared for unexpected events in the short-term is to create an emergency fund equal to at least three to six months of living expenses. This will assist you in paying costs that are not covered by insurance, as well as urgent or unexpected expenses, including those that may be reimbursed later through insurance policies. For long-term protection, a comprehensive insurance plan will help ensure that you're prepared to meet the challenges ahead.
Health insurance
Ask people what their most valuable personal asset is and many will say their health. A serious illness or injury that impairs your health can temporarily or permanently affect your ability to earn an income, and potentially create the need for intensive and expensive nursing care. Adequate health insurance is essential for everyone - it helps protects you whether you need preventive care or acute care due to injury or illness. If you don't have access to an employer-sponsored plan, consider an individual policy. Your financial advisor can help you explore the options.
Disability income insurance
While many employers offer group disability income insurance coverage, many others do not or employees opt not to enroll. Even if you have enrolled in available group coverage, you may benefit from supplementing your coverage with a personal disability income insurance policy to cover potential plan limitations. This is especially important in times of uncertainty, when unemployment rates are high.
Twenty-seven percent of all males and 31% of all females between the ages of 35 and 65 employed in a professional occupation, will experience a disability lasting 90 days or more.1 If you become one of these statistics, your disability may not only result in a loss of income but also lead to expensive medical bills, modifications to your home or car, and other unplanned expenses. Disability insurance can replace a portion of the income lost (typically 60% - 70%), so you don't have to sell your assets or take other measures to pay your bills.
Life insurance
It's essential to protect those who matter most to you from financial hardship in the event of your death. That's one of the reasons life insurance is considered a necessity for parents with young children. Life insurance pays an income-tax-free death benefit directly to your beneficiaries and helps ensure they have adequate funds to meet their living expenses and other future goals, such as college education and retirement.
Parents with minor children aren't the only ones who need life insurance. This type of protection can also be used to help ensure a surviving spouse or partner can maintain his or her lifestyle after you're gone. Or it may provide funds for the care of a disabled adult child or elderly parent who is dependent upon you for food, shelter and support. It can also provide survivors with the financial resources they need to pay estate taxes, funeral costs and other debts, and it can be used to help you meet wealth transfer and legacy planning goals.
Long-term care insurance
Health insurance doesn't cover the expenses associated with caring for a chronically ill individual who is on a prescribed plan of care. That's why you need long-term care insurance. Whether the care is provided at home, in an assisted-living/residential-care facility or a nursing home or in long-term care can greatly impact your finances and the quality of life for both you and those you care about most.
Long-term care protection should be included in your financial plan if you are near or in retirement. In fact, at least 70% of those age 65 and older will require some long-term care services at one point in their lives.2 An average nursing home stay lasts 2 1/2 to 3 years, with an average cost close to $200,000 for a private room.3
Of that, Medicare typically pays on average 14% of the costs4 with Medicaid kicking in only after you've depleted your personal assets. Long-term care policies, which typically provide benefits starting after 30 to 90 days, can prevent you from depleting a lifetime's savings and becoming dependent on Medicaid or family members.
Auto, homeowners and renters insurance
It is often said after a home fire or car accident that "the most important thing is that no one was hurt." That's unquestionably true. Nevertheless, replacing stolen, damaged or destroyed property can cause a financial burden.
Auto, home and personal liability insurance policies are designed to help you deal with such burdens. They also help cover your liability or legal responsibility for any injuries and property damage you or your family cause including related legal expenses. Some homeowner's policies even cover losses as a result of identity theft.
Some forms of protection are not just options, but legal obligations. This includes auto insurance, which protects you against a financial loss if you have an accident. This is especially important coverage when you consider that in 2007 alone, more than six million traffic accidents occurred, resulting in the deaths of 112 people per day.5
Although the majority of Americans who own vehicles and homes have auto and homeowner's policies:
- Many homeowners are underinsured. In fact, 58% of homeowners don't have enough insurance on their homes.6 This can happen when you neglect to update your coverage to reflect the growing value of your home, improvements to your home or the possessions inside. Also, certain valuable possessions you keep in your house - jewelry, art and memorabilia - will be underinsured unless you request and pay for specific coverage.
- Many renters often lack property insurance on their personal belongings and household goods. A landlord's insurance policy typically pays to repair the building after water damage, fire or other destruction but will not pay for damages to your personal property. It's important to have renters insurance to help protect your property against fire, theft and vandalism.
Personal liability insurance
This type of umbrella protection provides additional coverage for expenses you are responsible to pay that exceed the amount of coverage on your auto, homeowners or renters polices. These include claims that may not be covered on other policies, such as libel or slander, punitive damages you may be responsible for as the result of an at-fault accident, and most jury awards that exceed coverage provided by other insurance polices.
Consult your financial advisor today
To help you identify the right amount and type of insurance to meet your needs, consult with your Ameriprise financial advisor. Your advisor can help you create a protection plan specifically for you and your family or help update your protection solutions to fit your current situation.
1 Life and Health Insurance Foundation for Education, "The Real Risk of Disability in the United States," life-line.org (2007)
2 U.S. Department of Health and Human Services, National Clearinghouse for Long-Term Care Information (September 2008)
3 MetLife Market Survey of Nursing Home & Assisted Living Costs (October 2007)
4 Kaiser Commission on Medicaid and the Uninsured, "Medicare and Long-Term Care" (July 2006)
5 National Highway Traffic Safety Administration, nhtsa.gov (2007 data)
6 Marshall and Swift/Boeckh Replacement Building Cost Data (2008)
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services described may not be available in all jurisdictions or to all clients.
Annuities and life insurance products are provided by various insurance companies and are offered through Ameriprise Advisor Services, Inc. Insurance services are offered in Massachusetts through Ameriprise Insurance Agency of Massachusetts. Insurance services are offered in California through H&R Block Financial Advisors, Inc.