While we don’t know when or where an emergency will strike, there’s a good chance you’ll have to deal with one eventually - that’s life. So it’s best to plan ahead for various types of crises that you may encounter. The foundation of your plan should be to establish an emergency fund that will cover at least three months of living expenses. However, there are a number of other steps that you can take to help protect yourself from difficulties you may face:
Health Crisis. You may have a health insurance plan sponsored by your employer, but do you understand your coverage? How much will you have to pay in terms of your deductible before expenses are covered, and what percentage will be paid for afterward? What about coverage for specific types of illnesses, including mental health problems and cancer? Additionally, do you have any dental or prescription eyeglass benefits? Knowing the answers to these and other questions should help guide your decisions about how much you should put aside for health emergencies. In addition, find out whether your employer provides disability insurance. If not, you could consider purchasing such a policy privately in case you become unable to work due to injury.
Job Loss. If you qualify for unemployment, how much would your benefit be and how long would you receive it in the state in which you are employed? COBRA (Consolidated Omnibus Budget Reconciliation Act) payments can allow employees who lose their jobs to continue to pay privately for their health insurance, but are usually substantially higher than employee contributions and are an additional expense that must be budgeted for in the event of job loss. Alternatively, you can research what healthcare options would be available to you through the Affordable Care Act (ACA)?
Vehicle Accidents. Auto insurance is another type of policy that many people have, but far too few understand in sufficient detail. It’s important to sit down with your provider and go through the types of coverage you have for damage to your vehicle, damage you cause to other people’s property and bodily injury for you, your passengers or anyone you might injure. You should also know your deductible. Lowering your coverage can save you on policy premiums but comes with increased risk — and the need to set aside additional money in an emergency fund.
Property Damage or Loss. Whether due to theft, storm damage or vandalism, you may someday face the prospect of having to repair or replace your personal property. A good homeowners insurance policy can go a long way toward mitigating this risk. However, there can be deductibles depending on the cause of the loss — as well as limits to your coverage. Additionally, many policies require specific riders for valuables such as jewelry, antiques, musical instruments and computer equipment.
Lawsuits. We live in a very litigious society, and the possibility exists that you’ll be faced with a personal lawsuit at one point or another in your lifetime. This is an area where it’s good to speak to a lawyer and a financial advisor as there are some specific ways to protect your assets depending on your situation, such as trusts, umbrella policies, business entities, retirement accounts and homestead exemptions.
While all risk can’t be eliminated or planned for in advance, there are many steps you can take to cushion the blow of the difficult events life may deal you. A conversation with your financial advisor regarding your assets and how to best protect them is a good place to start. And having that talk before you’re faced with a crisis can keep more of your options open.