A Good Financial Strategy Requires a Good Defense

When engaging in financial planning, you have to consider many different factors to make sure that you are taking on the task from a holistic point of view. A popular cliche in the sports world is that “the best offense is a good defense.” In the financial planning world, the same is somewhat true. You have to protect your financial situation with the proper type of defense if you want to be successful over the long-term. A good financial defense consists of several important parts, including :

 Life Insurance

Having a life insurance policy is essential to ensure that your family is taken care of if you pass away. Protect your family with a solid life insurance plan. By doing this, the life insurance policy will pay the beneficiary that you choose a lump sum of money if you die while the policy is in effect.

Buying a life insurance policy that contains a cash value element can also be a good idea as it provides you with a backup source of money if you need it. For example, if you buy a whole life insurance policy, the cash value will continue to grow while the policy is in effect. Then you have the option of accessing the money by taking out a policy loan or by cashing out the policy at some point in the future.

Car Insurance

When you’re developing a financial plan, you also need to buy a car insurance policy, in most cases. If you have a vehicle, you’ll need a policy to protect you from financial damage. Shopping around for car insurance can help you save the most money on your annual premiums. Getting a cheap insurance quote will save you money that can be used to save more into your retirement plan.

At the very minimum, you will be required by law to get a liability insurance policy. This type of insurance protects you against having to pay for the damage that you inflict while driving a car. It will pay for the damage to the vehicle of another driver as well as any damage that you cause to personal property. It will also pay for the medical bills that are incurred as a result of a wreck that you cause.

On top of liability insurance, you should also consider buying collision and comprehensive coverage. With collision, your own car will be repaired or replaced if you wreck it. Comprehensive coverage protect your vehicle from incidental damage such as having a tree limb break the windshield.

Homeowner’s Insurance

If you are a homeowner, purchasing homeowner’s insurance is vital. This type of insurance coverage ensures that your home is protected from any sources of significant damage. For example, if your house burns down in a fire, your homeowner’s insurance will pay to replace it. This type of insurance coverage is required if you have a mortgage as it helps protect the lender’s interest in the property.

If your house incurs a significant damage, you will only have to pay a deductible to get the damage to the property repaired. It can also provide other benefits such as paying for a rental home while yours is being repaired.

Disability Insurance

One of the more overlooked types of insurance coverage is disability insurance. With disability insurance, you ensure your ability to earn money even if you are injured in some way. Most people would not be able to continue earning money if they were unable to work. Because of this, it is essential that you ensure this important need.

When you have a disability insurance policy, the insurance company will pay you a percentage of your normal salary if you become disabled. You have the option of buying a short-term disability insurance policy or a long-term policy. Short-term policies typically provide benefits for somewhere between a few weeks up to six months. Long-term policies kick in after that and can provide benefits for multiple years.

Many employers already offer some type of disability insurance for their employees as a benefit. If you work for someone else, check to see if you are eligible for disability insurance. In some cases, you may be able to buy a policy through your employer’s plan.

If you are self-employed, it can be more difficult to buy a policy because it is more difficult to document your income. Some insurance companies do sell self-employed disability insurance policies, so you will simply have to shop around if you need one.

Emergency Fund

Having an emergency fund on hand at all times is a good idea so that you don’t have to worry about unexpected expenses coming up and ruining your plans. At a bare minimum, you should keep at least $1000 in emergency fund for things that come up unexpectedly. After you reach the $1000 threshold, you should ultimately strive to put $10,000 away in case of emergency.

Regardless of how well you think you are doing financially, without the proper defenses set up, it could all change overnight. Spend some time analyzing your financial situation and making sure that it is well-protected.