Key Takeaways
- When you’re examining your finances, risk management is an important part of the big picture.
- We have insurance for a number of things in our lives, but might be overlooking some that could have devastating effects if you need them and don’t have them.
- Disability, health, and life insurance are key for peace of mind.
If you take a look at a flow chart that outlines financial management, you’d expect to see steps regarding money, cash flow, and budgeting. What might be missing, though, is risk management.
Indeed, the way we handle our personal finances may mirror this flow chart: a focus and concentration on cash flow, debt, investing, budgeting…but little, or maybe even no, thought to risk management. But risk management is crucial because it is related to all the things that can (and, unfortunately, do) go wrong in our lives.
Life is Full of Surprises
Death, disability, accidents, health issues…there are a number of types of insurance policies and plans that help you manage these risks and issues that come up in life. As we age, we seem to become more aware of the things that go wrong, whereas when we’re younger, we may not give them much thought because we don’t have as much exposure to them and don’t experience them ourselves.
Why are they important?
None of these types of insurance are important…until they are. It’s like trying to buy insurance once the barn’s on fire—it’s too late by then. So it’s important to think ahead and ask yourself where the biggest risks are.
Consider Your Risks
For most young people, the biggest risk is disability. If you become disabled, your earning potential is gone. That could be 30, 40, or 50 years of earning potential that goes away, equating to millions of dollars. Without a policy to cover you, that’s it.
Life insurance is another big one. If you have a young family and you die, the financial implications can be devastating. It’s likely that you need one million or more in coverage, depending on your situation and whether you’re the breadwinner, in order for your family to be able to make ends meet through the years.
Health insurance is one that a number of younger people don’t carry. Obamacare was put in place so that this wouldn’t happen, carrying penalties if you didn’t participate, but that no longer applies, as of the 2019 plan year. But health insurance is important, because health costs can be astronomical for the uninsured.
There are a lot of risks in life. It’s important to pay attention, examine your risks, and be realistic about them. Observe what others are going through in their lives and ask yourself what you need to protect. Yes, it’s something you’ll need to budget and it affects your cashflow, but it’s not that expensive, in the scheme of things. Do the smart planning that’s required, identify what’s important to you, and make sure you get coverage. So until next time, enjoy.
Gary
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