As parents, we all want only the best for our children, and for our children to have even better lives than we did. I see families on a weekly basis who struggle financially. Some from having made past mistakes, some from just never knowing better and some from having been through a devastating event or loss. It’s critical that no matter what your situation is, you take the 7 steps listed below to make sure that in the event of the last, a devastating event or loss, your family is well protected and taken care of. I’ve tried to place these in the order of importance. I’d like to say if you don’t have the first 3, run like your pants are on fire to get those taken care of. If it all seems too overwhelming after that, take it day by day, or week by week and get the following things in place for your family.
Medical bills are the number one reason for bankruptcy in America. Yes, health insurance can be expensive, but it’s even more expensive to be in an accident or become severely ill without it.
Look at these options if you don’t have health insurance due to the cost. It’s important to at least have some level of coverage. First, check with your employer to see what they might offer. A lot of employers will pay a portion of your healthcare after you’ve been with them for a certain period. Check to see if you can up your deductible, change the copay from the standard 80/20 to 70/30 or move to an HSA. These options all have their pros and cons but are ways to help lower your premiums. Personally, I’m a huge fan of the HSA if it’s available to you. Lastly, if it’s all still too much for your budget, at minimum, look into a medical cost sharing option. There are several out there including but not limited to: Medi-share, Christian Health Ministries, Samaritan, and Trinity Healthshare.
At minimum, you need to carry liability on all vehicles you own. Liability coverage is legally required in most states and will cover medical costs and property damage to others within limits if you’re found at fault in an accident.
Collision insurance is usually a good buy, but it is not mandatory. However, consider the cost of the collision vs. the cost of having to replace your vehicle should you need to. Do you have enough in your emergency fund to do so?
In any case, to lower your auto insurance, make sure you get a minimum of 3 quotes (and ensure you’re comparing apples to apples), try pairing with your homeowner's or renter’s insurance and see what raising the deductible will do to the rates. If it drops the cost significantly to raise your deductible, then it might be worth it to take on some of your own risk.
HOMEOWNERS OR RENTERS INSURANCE
If you have a mortgage on your home, there’s not a lender in town who will allow you to skip on the homeowner’s insurance. Homeowner’s insurance is there to protect your biggest asset. There are different levels of homeowner’s insurance and what it covers, so be sure to read the fine print. You may be able to lower your premiums and do without the bells and whistles to save money. Most people don’t even file claims for much of what their homeowners would or could cover. Coverage also depends on the age of the home, location, buildings surrounding, etc. There’s so much that goes into It, it’s hard to say what to expect in cost. But my experience has generally been an average sized home can be covered for $700/year to $1200/year.
If you’re a renter, you’re not home free here. Get it? Renter’s insurance is important to cover all your belongings. A landlord not only doesn’t but can’t insure your belongings in the case of a fire, vandalism or theft. Renter’s insurance isn’t required legally, however imagine trying to replace the contents of your home. Renter’s insurance is a very small cost, usually under $150/year.
TERM LIFE INSURANCE
Money doesn’t bring someone back, but having it there in the worst-case scenario, allows them to sit back and properly grieve as long as necessary. It’s one less stress at a time when you’re not sure if you can handle any more. We never know what tomorrow brings and I’ve seen it happen in young families. Car accidents, motorcycle accidents, cancer, tumors, etc. It’s sad, unfortunate, heartbreaking and plain old not fair. But it does happen and the least you can do is leave your family with enough term life insurance to allow them to properly grieve and replace your income.
So, who needs term life insurance and how much is enough? Term life insurance should be attained by both parents, even if one stays at home. Think about it. Wouldn’t you need to hire Mary Poppins if your stay at home parent were to pass? Proper coverage is 10-12 times your income, and for the stay at home parent, somewhere between $250,000 and $500,000 in coverage depending on your household income and needs.
How long do I need coverage? When deciding on how long to get coverage for think about these three things. How old are you children and when will they “be off your payroll”? How many years are left on your mortgage? How much other debt do you have, how old are you, what other retirement or savings do you have in place? Here’s an example: Mom and dad are 35 and 40, with two kids, 2 and 6. They have some debt, they have 13 years left on their mortgage and dad makes $80,000 and mom makes $25,000 and stays at home part time. In this case, dad needs between $800,000 and $1,000,000 in coverage and mom needs between $250,000 and I’d go as high as $400,000 in her case. If they got 20 years term coverage, by the time it ran out and nothing thankfully happened, they’d have their debt paid off, their house paid for, and the baby would be graduating college the year it ran out. They likely would be more than self-insured by that time, provided they were being intentional with their money. In addition, there’s always the ability to add on more coverage (as long as you remain healthy) as your income goes up, or children come along.
What if I have life insurance through work? Am I covered? The short answer is yes, you’re covered, but it’s not enough. It’s not typically enough monetarily (usually just a small percentage of your income) and when you leave that job, you can’t take the insurance with you. At that point, it’s possible that you will become uninsurable. So, if you need it now, get additional coverage outside of work.
I know, so far, I just seem to be a negative Nancy, right? The fact is, we’re talking about protecting your family and your valuables today. Trust me, in real day to day coaching, we talk about the positives! All the good we can do with our money once it’s under control! But the cold hard truth is that every single person over the age of 18 needs to have a will. This is your opportunity to have a final say in what you want with your possessions, your money and most importantly, your children.
It doesn’t need to be fancy dancy, you can go to U.S. Legal Forms or LegalZoom and get a will kit, fill it out and have it notarized, and it will do the job. The thing about wills is that it must be state specific. You need to remember to update your will anytime you move to a new state or have major life changes including but not limited to: marriage, divorce, birth of children, etc.
If you should die without a will, the state you live in essentially gets to decide what happens to your money and life possessions. Only assets in which you have previously named a beneficiary or trust (think 401K or Roth IRA) will go to those persons. Otherwise, they typically look at most scenarios in this order. Do you have a living spouse? Some or all goes there. Children? Some or all remaining goes there. Parents are next in line, then siblings, then nieces and nephews and other kin. Then, if they can’t find anyone, it becomes property of the state. There are much better breakdowns that you can find online for each state, but that’s the gist.
But most importantly, what happens to my children if we both die without a will? Won’t they just give them to my brother or parents? Most likely, yes. But we all know most families have drama. What if they give them to the “wrong” sibling in your family. What if it causes fights after your death? Is that what you really want? Your kids getting in the middle of something because you didn’t take an hour to get your will done? Do your entire family a favor and lay things out as you wish them to be. Talk to the members who are directly involved. Heck, talk to those who aren’t directly involved and let them know upfront what your last wishes are, and how you’d like things to be handled in the worst-case scenario of your death.
LONG TERM DISABILITY INSURANCE
Long term disability (LTD for short) insurance is the most cost-effective way to protect your income in the case where you’re unable to work. Did you know that 1 in 4 people become disabled at some point before they retire? LTD will typically pay about 60% of your income when considered disabled and unable to work for a long period of time. Policies vary on how long you must wait in order to be able to collect, how long the policy will pay for and how much it will pay, but on the overall, it’s a great buy and one that no working parent should be without.
What about short-term disability? I don’t often recommend short term policies. Rather, I recommend you follow good money management behaviors, get out of debt, and use your emergency funds to cover any short-term losses.
The benefit and length of your policy will determine the cost of the policy, but the best buy is usually from your employer. Check with them first to see if you can pick it up, or even if they provide it to their employees a no cost. Otherwise, make sure to shop around with an insurance broker, get at least 3 quotes and aim to spend between 1-3% of your income on this insurance.
POWER OF ATTORNEY
A power of attorney allows someone to act on your behalf. Imagine if your spouse was in a car accident and became incapacitated. You could just act and sign on their behalf, right? Wrong. There are cases and instances where not having the power of attorney can still cause problems. This can be the case in transferring, selling or refinancing jointly owned property, changing retirement benefits and sometimes even making healthcare decisions. I’ve personally lived this one with a family member, and while it’s not financially devastating, it’s just heartbreaking and time consuming if something should happen before you have one in place.
Take these 7 steps to protect your family and sleep well knowing that they’re covered in case something happens to you. I know it’s a lot, but once it’s in place, it’s generally good until you make a change in your life. Remember that the point of insurance (which is most of this list) is to transfer risk. Not having any one of these can be financially devastating to your life in the case of an injury, theft, illness, accident or death. By getting these coverages in place, you will protect your home, vehicles, yourself, but most importantly, your children.