How to Prepare for a major financial emergency
Studies show we will all experience a major emergency in any given 10 year period. Sounds ominous, doesn’t it? If you don’t think you need to be prepared for a financial emergency, maybe you should talk to the thousands of Midwest residents dealing with the aftermath of major flooding right now. Our thoughts and prayers are with those who lost their homes to the floods. With these events in our minds, this is a good time to examine our own situations to make sure we are prepared for the worst.
Here’s what I recommend to be prepared financially:
Flood insurance. Flood insurance is now regulated by FEMA (Federal Emergency Management Administration). One important thing to note about flood insurance is that personal property located in a basement is generally not covered, except for furnace, washer/dryer, freezer and a few others. As with any insurance it’s important to review the policy guidelines before purchasing the coverage.
Disability insurance. You need insurance to replace your income in the event you are injured and unable to work for longer than six months. Premiums depend on your occupation, and the maximum coverage is usually 60% of your current income.
Life insurance. Life insurance is necessary to replace your income so your family can continue to live if you die. I generally recommend coverage in the amount of 8 to 10 times your current income. If you have no dependents, you probably need only enough to cover funeral expenses. In many cases, your estate will cover funeral expenses.
Health insurance. Enough said. If your employer does not provide health insurance, consider a high deductible plan with a Health Savings Account (HSA). The money you save on the premiums by having a high deductible can grow tax free inside the HSA and provide an emergency fund to cover medical expenses.
Emergency fund (self insurance). The best Murphy-repellent is cold, hard cash on hand. Keeping three to six months of expenses in a money market savings fund ensures you are prepared for most short term emergencies. It allows you to pay the bills if you lose your job or are temporarily disabled. It allows you to fix the transmission without using the credit card. It allows you to repair the roof when it springs a leak. But the strangest thing happens when you have money set aside for emergencies: emergencies don’t seem to happen as often. Murphy is afraid to come near because he knows you’re ready for him!
The bottom line: You can’t afford not to be insured. Take time today to prepare yourself and protect your family.