In some circumstances, insurance may seem like something forced upon us. For example, in most states, you are required to have auto insurance to operate a motor vehicle. In order to get a mortgage to buy a house, the mortgage company will require you to maintain a home owner’s insurance policy.
However, insurance is much more than just a necessary evil. Insurance is a way of managing risk in our lives. When you purchase an insurance policy you are transferring the cost of a potential loss to the insurance company. In exchange for the transfer, you are required to pay a fee, known as a premium.
Insurance provides us with the opportunity to:
- Own a home. As mentioned above, a mortgage company will require you to insure your home. Without it being insured, they would never lend you the money to buy a home and take the risk of the house being lost to a disaster and never recouping their money.
- Drive a vehicle. Also mentioned above, it is the law in most states that drivers maintain an auto insurance policy. Few people could afford the costs involved with an accident including damage to a vehicle as well as potential health care costs.
- Provide for you family after your death. Life insurance removes the financial risk involved with the breadwinner or breadwinners passing away in a home, allowing the family to continue on without severe financial burden.
- Cover health care costs. Everything from routine health exams to prescriptions, vision care, dental care, and emergency room visits can be covered completely or partially by health insurance.
- Run a small business. Insurance helps to manage the risks involved with owning your own business.
- Protect yourself from disability. Disability insurance protects you and your family from both the loss of income as well as additional health care costs involved with you becoming disabled.
The last one might be the most important, and yet disability insurance, especially long-term disability insurance, probably gets talked about the least. Own a home, driving a car, and having your own business are luxuries, not necessities. Life insurance is certainly important for those you leave behind if something should happen to you.
Think about if you become disabled. I’m not going to argue about the emotional impact of losing a loved one versus them still being with us but disabled. I understand that given the choice, we would rather have that loved one among us than not among us.
However, if you just look at disability versus an untimely death from a financial point of view, one could easily argue that becoming disabled puts a much bigger financial strain on your family. Your family suffers the same loss of income if you are unable to continue working, but now they also need to support you and perhaps additional medical needs.
That is why protecting your income with disability insurance is so vital.
To understand the basics of disability insurance, take a look at these articles.