In our last post, we talked about the effects many people had in 2020 caused by the global pandemic from Covid-19. We also talked about how too many people found themselves unprepared for those effects. We discussed how to be prepared for future emergencies by establishing an Emergency Fund of at least 3 – 6 months of expenses. Now, we will explore other things individuals and families need to accomplish to better prepare for life’s events.

Covid-19 and the related shutdowns, downsizing of business, the closing of businesses, shortages of inventory in grocery stores, healthcare issues, travel restrictions, and many other things made 2020 a year most of us will not forget. Since we are at the beginning of 2021, with the wounds of 2020 still fresh in our minds, it is a perfect time to take steps to prevent ourselves from being financially unprepared again. No one can prepare for every financial emergency we may encounter. We can prepare for the most common ones the average person experiences.

Some of you will be asking because I do not have any debt and sufficient savings, what future possibilities do I need to consider for my family and me? Should you be in that position, this is still an excellent time to look forward to the changes you can make now for 2021 to be a better year than any previous one. One consideration you can make is to review your retirement savings. Doing this will help you see if you are on track to retire and live a lifestyle that is not too different from the one you are currently living. There is no reason to reduce your lifestyle just because you are retired.

Another consideration is with life insurance. Do you have enough coverage that your family will not be placed in hardship if you are no longer here to provide for them? Having a sufficient amount of life insurance for you and your spouse is critically important. It will determine whether your family only has to mourn your loss or wonder where they will live. Without the right amount of life insurance, they may also worry about how they will eat when the family income drastically reduces to the surviving parent’s income.

I know the effect of having an insufficient amount of insurance because of what my mother, younger sister, and I went through following my father’s death when I was 16. He had enough insurance to cover his burial expenses and maybe a few other things, but that was it. Were it not for Social Security Survivor Benefits I am not sure how we would have made it since my mother was a homemaker.

When talking about life insurance, you need to have at least 10 – 12 times your annual salary of coverage. Should you be a homemaker, you also need to have an amount of insurance equal to 10 – 12 times the value of services you provide to your family by being a homemaker. Were something to happen to the home-maker, the other parent would need to hire someone to perform the tasks the home-maker did. Nannies, cooks, tutors, chauffeurs, house cleaners, etc. would all need to be hired, and their services will cost you a lot more than you may realize. The alternative is that the surviving parent would need to add these tasks to their schedule, and the strain can have harmful effects on their health and career.

Choosing the right type of life insurance is also critical. Term life insurance is the only wise choice because the rates are considerably lower than other life insurances. Whole Life insurance, Universal Life insurance, Cash-value Life insurance all promise to provide adequate life insurance. Their fees are higher than Term insurance. The cash value in the policy gets consumed over several years because the insurance costs significantly increase over time.

Also, most people do not need life insurance for the duration of their life. Once the children are grown, and you have saved up enough money to pay for your funeral, the need for life insurance disappears. The age of your children, and whether anyone relies on your income, you only need to buy a term life insurance policy for 20 years or less. Even with someone counting on your income, twenty years should be ample time for you to be out of debt, save and invest your income, so your assets will be able to provide sufficiently for your dependents.

There are a few more types of insurances that need to be obtained or updated. Those are long-term disability insurance, long-term care insurance, medical insurance (including dental and vision), identity theft insurance, and any other insurance is necessary to transfer the risk from your family to the insurance companies. Depending on you and your family’s net worth, you may also want to get an Umbrella Policy to protect your assets from liability claims against you or a family member. One other concern regarding life insurance is that children do not need a life insurance policy. Should you be out of debt and have a Fully Funded Emergency Fund, then you would be able to pay for funeral expenses should the unthinkable happen. Do not get taken by insurance agents playing on your emotions who want to sell you a life insurance polity for your children, especially a whole-life, or cash-value policy.

We talked about what insurances you needed to have, now we’ll talk about insurances that unnecessary and a waste of your hard-earned income. Wealthfit’s article “Stay Safe & Save: 6 Types of Insurance That Waste Your Money” by Jill Huettich ¹, says the following insurances are unneeded: Rental Car Insurance, Collision Insurance, Personal Injury Protection, Comprehensive Coverage, Comprehensive Travel Insurance, Pet Insurance.

While not an insurance policy, many people consider a home warranty a type of insurance against selected repairs or replacements in a home. Instead of being a form of insurance, they are a service agreement between the vendor and the purchaser to cover qualified repairs or replacements. Included in these warranties are water heaters, dishwashers, heating, and air conditioning systems, and many other things. Typically, most purchasers do not experience a reasonable return on the monthly fees associated with these products, making them an unwise purchase.

There can also be a home warranty offered by a Realtor or the seller guaranteeing certain aspects of the house for a specified period, usually one year. There are advantages to having one providing the buyer does not pay for it through their mortgage. This type of home warranty covers components not detected before the sale. These warranties can offer comfort to the home buyers and help persuade the buyer to purchase the home.

Since insurances are a broad and detailed subject, we do not have the time to examine all of them. It is best to do your due diligence when offered any insurance policy or service agreement marketed as insurance before purchasing any of them. Your ability to explain the benefits, risks, and costs is necessary before you buy.

Previously we talked about how the Year 2020, because of Covid-19, had affected so many people financially. Also, how many people were unprepared for what happened. This week we discussed insurances and which are good to have and which ones are not financially wise to purchase. Next week we will look into the necessity of having a Last Will and Testament, investing into your retirement savings, the importance of paying off the mortgage on your primary residence before considering investing in rental properties or other investments and becoming incredibly generous.

I hope today’s blog was encouraging to you and provided information to help you and others better handle their financial matters. My purpose through these blogs is to inform the reader about money and financial issues so we all can become better managers of the assets we’ve been given. If you like what you read, make sure to sign up so you can receive my weekly posts. The goal of Take Two Financial Coaching is to provide the necessary information to help families and individuals break the chains of debt, build lasting wealth, and become outrageously generous by changing their perspective around money and finances.

For those who are tired of being in the rat race or just want to better manage what they earn, I am available to have a Free 60 Minute Conversation to discuss your situation and how I can help you change it. Go to my calendar at https://ramseycoach.com/taketwofinancialcoaching to arrange a time that works for you. You can also email me at taketwofinancialcoaching@gmail.

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¹ https://wealthfit.com/articles/types-of-insurance-that-waste-money/