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Guarding Against Uncertainty
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We all like to think that we'll live long, healthy and prosperous lives. But to base our financial plans on that assumption would be foolish. When it comes to financial planning, you need to prepare for the unexpected. You need a plan that will help ensure your family's financial security, no matter what road bumps you hit along the way.

Protection & Security products form the foundation of a sound financial plan. These products should protect you from common risks we all need to think about and plan for:

  • Losing your job
  • Becoming sick or disabled
  • Living too long
  • Dying too soon

In its simplest form, the base of the financial planning pyramid consists of emergency savings and insurance. Here are some things to consider as you build the foundation of your financial plan:

Emergency Savings - Most financial professionals will tell you that it's a good idea to always have enough money on hand to pay your everyday living expenses for a period of three to six months.

This money could tide you over if you lose your job, or if you get sick or injured and need to cover expenses before your disability insurance kicks in. Consider your personal and family situation, job security, and other factors in determining how much to set aside.

Ideally, your emergency savings should be in vehicles like savings, checking and money market accounts where you'll have access to your money penalty-free.

Insurance - Insurance forms the underpinning of your financial plan. If your home gets seriously damaged, where would you find the tens of thousands of dollars it might cost to pay for the repairs? How would your family make ends meet if you became too sick or injured to work for an extended period of time? And what if the worst happened and you died? Would the money be there to keep the family home, pay everyday living expenses, and fund college and retirement savings plans for your survivors?

Insurance provides a financial safety net to make sure your family's financial situation won't fall apart if the unexpected strikes. Here are some of the main kinds of insurance you may want to consider as part of the foundation of your financial plan:

Life insurance - Life insurance helps protect your family and loved ones against financial difficulties in the event of your premature death. If someone you know depends on you financially, chances are you need life insurance. How much and what kind you need can best be determined by having an insurance professional help you conduct a thorough insurance needs analysis.

Many employers provide their employees with life insurance coverage, but it's often not enough to ensure the financial security of your loved ones. And if you leave your job or change jobs, you usually can't take the coverage with you.

For more information about life insurance, see the Life and Health Insurance Foundation for Education (LIFE).

Disability insurance - Disability insurance replaces lost income in the event that you become ill or disabled and can't work. Short-term policies typically provide coverage from 13 weeks to one year, while long-term policies may provide benefits up to age 65 or even for life.

Keep in mind that some policies pay benefits if you are unable to perform the duties of your customary job, while others pay only if you are unable to engage in any gainful employment at all.

Again, many employers provide some form of disability coverage, but it may not be sufficient to help your family make ends meet in the event of disabling illness or accident. That's why you should at least consider whether an individually purchased policy might be right for you.

For more information about disability insurance, see the Life and Health Insurance Foundation for Education (LIFE).

Health insurance - Helps pay for the ever-increasing costs of medical care. Choosing the type of health insurance coverage that's right for you requires careful consideration of the tradeoffs between flexibility and affordability.

At one end are Health Maintenance Organizations (HMOs), which are generally the most affordable option but usually require members to obtain care only from within a given plan's network of providers.

At the other end are indemnity plans, which allow for virtually unlimited choice of providers but are often the priciest option.

In between are Point-of-Service plans, which operate like HMOs but members can pay extra to see out-of-network providers, and Preferred Provider Organizations (PPOs), which function like indemnity plans but provide more favorable reimbursement rates when care is sought in-network.

For more information about health insurance, see the Life and Health Insurance Foundation for Education (LIFE).

Long-Term Care Insurance - Goes beyond medical care to include all of the assistance you could need if a chronic illness or disability leaves you unable to care for yourself for an extended period of time.

When most people think of long-term care, they think of nursing home care. But most policies will also provide coverage for care provided at home, in assisted living facilities or even in adult day care centers.

Since there's a 50/50 chance a person will need long-term care at some point in their life, it's an important consideration for most people.

There are two exceptions. Medicaid will typically pay for care for people with less than $2,000 in assets. So if you have modest assets, purchasing long-term care insurance might deplete your assets before care is needed. Conversely, if you have substantial assets and can afford to pay for care without significantly affecting your net worth, long-term care insurance is usually not recommended.

There are lots of different factors to evaluate when considering a long-term care insurance purchase (e.g., daily benefit, maximum benefit, elimination period, inflation protection, etc.). For more information about these and other key considerations regarding long-term care insurance, see the Association of Health Insurance Advisors (AHIA).