The journey to financial freedom is all about eliminating worry and stress from your life. And one of the most important ways to do that is through a smart insurance strategy.
There are three different kinds of financial worry people deal with regularly: Worrying about immediate expenses; worrying about debt; and worrying about disaster.
Hopefully you’re already taking steps to alleviate the first worry — paying an immediate expense. A good budget how much money you have coming in every month and where it should all be going. The budget will also give you confidence that you can cover future expenses and help you craft a plan for tackling the second area of worry — your debt.
That leaves the third area of worry — disasters. Sometimes bad things happen to good people, and they can cost you hundreds of thousands of dollars.
This kind of worry can keep you up at night, but it doesn’t have to. You can eliminate this risk by purchasing insurance to protect you. A smart insurance strategy won’t stop disasters from happening, but it will keep them from bankrupting you. So we’re going to discuss what kinds of insurance will protect you best.
But first, I want to tell you about Stress-Free Finance, a free program we have created to help you make sense of your overwhelming financial life. This five-part video series has short, simple lessons to help you solve money problems so you can stop worrying and build a better future.
Here’s a preview of the free video series:
Now, back to the topic at hand:
There are a host of insurance plans and policies on the market. Some are really helpful, and others are practically useless. Here are the five types of insurance that will protect you well without wrecking your budget.
1) Health insurance
A hospital stay can cost hundreds of thousands of dollars. Everyone in your family needs health insurance to cover medical emergencies. Get it at work, apply for it through a government program or buy it on the open market. You might even consider joining a health-sharing co-op. It’s not exactly insurance, but functionally similar. Whatever it takes, make sure you’re covered.
2) Auto insurance
You take big risks every time you drive. You could damage or destroy your vehicle and you’re also liable for injuries or property damage you cause others. Auto insurance is a legal requirement. Make sure your auto policy protects you and everyone who might be impacted by an accident in your car.
3) Homeowners or renter’s insurance
Fires, floods and even hailstorms it can cause significant and expensive damage when they hit your home. If you own your home and have a mortgage, you’re required to carry homeowner’s insurance. If you rent a home, your landlord’s insurance only protects their property — it won’t cover any of your losses. You need your own renter’s insurance to protect your belongings.
4) Life insurance
If anyone depends on your income, you need a life insurance policy to replace that income in the event that you die unexpectedly. Buy term life insurance worth at least 10 times your annual income. This will pay your final expenses and provide your family a sustainable income stream after you’re gone.
5) Disability insurance
If an injury or sickness leaves you unable to work, your family will lose a valuable source of income. Disability insurance protects you from this loss. You may need both short-term and long-term disability insurance to keep your cash flow steady in case you become incapacitated.
Carrying five insurance policies is going to take a chunk out of your monthly budget. But skimping on insurance exposes you to financial disasters. It’s better to live modestly with great insurance than worry about unexpected emergencies.
After all, anything you can do to eliminate worry will bring you one step closer to freedom.
