The importance of insurance in a healthy financial plan

Last week in my post on the 14 Major Components of a Health Financial Plan, five of the fourteen components deal with important insurance products to have in place.

These various insurance products are important to protect your family finances against unexpected catastrophes such as death, medical problems, disability, car accidents, natural disasters, ID theft, and the need for long-term care. It's all about putting a hedge of protection around your money, major assets, and ability to earn money.

In review, here are the five insurance products to have in place as an important part to a healthy financial plan:

1. Life Insurance. This is critically important for young families in case of the accidental death of the primary income earner. The primary income earner of the family should carry a term life policy equal to at least 8-10 times their annual income for 15-20 years. A stay at home mom should carry a term policy as well in case of her own accidental death. The father will need the money in order to provide childcare resources so that he can keep working and providing for his children.
2. Health Insurance. If you don't have health insurance through your workplace, you need to seek out a good plan that you can purchase, independently. Yes, health insurance is expensive, but if you have a major medical emergency in your family, you will end up financially bankrupt! Unpaid medical bills are the leading cause of personal bankruptcy in the United States. Don't become a statistic.
3. Disability Insurance. According to the May 2000 Norton Bankruptcy Adviser, 326,441 families that filed for bankruptcy protection in 1999 identified an illness or injury in their family as the major reason for the bankruptcy. That means 1 in 4 debtors in 1999 were attributed to a disability. Still not concerned? According to the US Housing and Home Finance Agency only 3% of home mortgage foreclosures are due to a death of the breadwinner. 48% of all foreclosures are due to a disability. So what do you think is more important during your working years, life or disability insurance? Disability insurance truly is a foundation product, it is the foundation of any solid financial plan [Source: About-disability-insurance.com].
4. Auto Insurance. If you own a vehicle, you must have auto insurance in order to legally operate it. Take this week to review your policy and make sure that you have the proper coverage. Also, if you're not happy with your current rates, go online and make a few phone calls to see if you can get a better deal.
5. Homeowner's or Renter's Insurance. Fires, tornadoes, floods, and theft strike without warning. Be sure you have the proper coverage to replace your home and belongings.

Here are a few more important insurance considerations:

1. Emergency Funds. Having 3 - 6 months of expense money in savings is not for investing. Having this liquid cash is self-insurance. When a major emergency comes along, you have the cash reserve to pull you through instead of going into debt.
2. ID Theft Protection. Identification theft is a major, growing problem, that can cause you long term financial problems. A number of companies have developed over the last few years that offer excellent services at a very low cost. Dave Ramsey recommends Identity Theft Protection through Zander Insurance. The family plan is only $12.50/month. This is a no-brainer for me.
3. Long-term Care Insurance. The life-expectancy rate continues to climb. People are living longer. Major medical advancements can keep people alive for long periods of time. The only problem is that many times, quality of life is called into question because these people need to enter long term care and pay thousands of dollars a month or be cared for at home by family members. Long-term insurance will help protect your finances at the end of your life. Because of cost analysis, it's not worth purchasing this insurance until age 60.