One Common Mistake When It Comes to Family Finances

Your family budget looks great. For one thing, you have an emergency fund that has enough money to tide your family over for three to six months in case of a job loss or similar situation. Moreover, your budget makes provisions for expenses incurred and how much cash flow there is. It also allots money for items such as vacations, college savings accounts, and retirement accounts. However, there’s one potential area of weakness, and it comes in the form of a word that many people dislike: insurance.

Why Some People Fall Down on Insurance Coverage

There are many reasons that people neglect or ignore insurance coverage. It can be confusing and complicated. Some companies seem greedy, interested in only making more money at the expense of being fair and aboveboard. However, the fact remains that a single event such as a car crash or death has the potential to undo all of your family’s careful financial planning. Having adequate insurance in place is part of a smart financial approach.

Types of Insurance Your Family Needs

At a minimum, most families need a few basic kinds of coverage. They are:

  • Home insurance (or renter’s insurance)
  • Car insurance
  • Health insurance
  • Life insurance

Many families also opt for long-term care insurance and disability insurance. For a few more dollars a month, you can also choose an umbrella policy that provides more coverage once your basic policy limits have been used up.

Why Current Coverage May Not Be Adequate

No doubt your current financial planning strategy does make room for some insurance. The problem still remains that a single event could upend all that hard work. For instance, if you have a mortgage loan on your home and made a 20 percent down payment, the bank may have required your home insurance coverage to be only for the mortgage amount.

If your home cost a relatively low $100,000, that is still $20,000 you are out of if your home were destroyed, say, by a tornado or fire. And that is even assuming your homeowner’s insurance makes provisions for these types of disasters; many times, they are not part of a basic homeowner’s insurance plan.

Similarly, if a wage earner in your family got into a bad car accident and there is no umbrella insurance in place, basic insurance coverage could max out at, say, $50,000. While it is true that getting more than the minimum recommended amounts of coverage for many types of insurance can add up, you have even more peace of mind that your family’s financial future is stable no matter what.

Searching for Coverage

Don’t let a fear of insurance stop you from getting the coverage that you and your family deserve. It is important to consider more than one insurance agency when you meet with potential insurers. How well does an agent break down a complicated issue? Is the agent honest? Take extra care if he or she says things like, “It’s complex, but trust me, you’ll be okay if so-and-so happens.”

It may be time to take a second look at your family budget. Often, putting $5 less per month in individual categories such as vacations and college expenses is all you need to do to ensure your family has excellent insurance coverage.

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