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Risk Management at the Individual Level

June 28, 2010

All but one of the sevent ancient wonders of the world have fallen. Are you prepared for your potential disasters?

Out of the seven wonders of the ancient world, the Great Pyramid at Giza, is the only one still in existence.  The Hanging Gardens of Babylon, the Mausoleum of Halicarnassus, the Colossus of Rhodes, and the Lighthouse of Alexandria were all destroyed by earthquakes. Fire destroyed the Statue of Zeus at Olympia and the Temple of Artemis at Ephesus. 

These natural disasters eliminated some of the most amazing constructions of the human race.  These were monuments that could not be rebuilt after being destroyed. You may not be in charge of overseeing one of the great wonders of the world, but it is still important to protect yourself and your family against disaster.

            Insurance is one of only a few products we purchase hoping we never have to use it. It is used as a risk management tool to try to protect us a little from major catastrophes. While many people already have different types of insurance, sometimes it can be confusing to know what type of insurance to have and how much. This article will only hit the highlights; if you have more interest in this, see your own insurance agent for more detail.

            Life insurance: The last article talked about how life insurance should only be used to protect your dependents from your death and not to be used as an investment. With term life insurance, you can afford a lot more insurance for the same amount of money. Most common guidelines indicate you should have anywhere from seven to 10 times your income in life insurance. This way, if you die, your beneficiaries can invest the proceeds into some moderately safe investments that can provide for their care for the next 15 to 20 years.

            With this being said, there may be some variations. If you die and want to have your debts all paid off upon your death, you may want to have a little more. If you have children you want to pay for their college expenses, you may to include that amount in your life insurance. If there are other expenses you know the family will have upon death, it may be good to include that in the insurance.

There are a variety of factors to consider. This can be an important topic to sit down with an insurance agent, where he or she can show you how much insurance you may need based on what you want to provide for your family in the event of your death. It also is important to periodically review your beneficiaries if your family situation has changed.

Disability insurance: For individuals 32 years old, you are 12 times more likely to become disabled than to die by age 65. Therefore, it is important to have long-term disability insurance.  You should save enough money in an emergency savings account to provide for any short-term disabilities, but without insurance, a long-term disability is a double whammy, as it can destroy your earning potential while having increased costs for your care.

Health insurance: Medical bills are one of the top causes of bankruptcy today. Health insurance is expensive, but the alternative can be devastating if you have an unexpected injury or illness. If you are purchasing your own insurance and do not think you can afford large premiums, consider a high deductable health insurance with a health savings account.

Auto and homeowner insurance: After you purchase these types of insurance, it is important to review your coverage on an annual basis. If you want to save on premiums, raise your deductibles, but make sure you have enough in savings to cover the deductible. For auto insurance, if your vehicle is not worth much, it may not make sense to have comprehension and collision coverage. With homeowners insurance, if your house has risen in value, make sure your insurance has kept pace. In most cases, your home needs to be at least covered for 80 percent of its value to be replaced in case of disaster. If your net worth has increased a great deal since first purchasing insurance, you may want to consider increasing your liability coverage for added protection.

This covers a lot of topics in very brief detail. You need to protect yourself from disaster so the greatest wonder in your world – yourself – is protected. If you are not sure if you have adequate coverage in any of these areas or others, make an appointment with your insurance agent. They’re professionals and are there to help you out. 

There are a number of reputable insurance agents in Sterling, but make sure your agent is not just looking to sell you a policy, but also is willing to educate you on why you are purchasing the insurance. You are not just purchasing a product with your policy, but also a service in providing you peace of mind in case of disasters (that conclusion sounded a lot like an insurance commercial – and I’m not even being paid to say it).

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