Protect Your Loved Ones By Preparing for the Unexpected
From the title of this article, one may be asking how they can prepare for the unexpected. While we never know exactly what the future holds, we can do our best to plan for it and ensure that our loved ones are protected.
Create an emergency fund.
According to a Bankrate survey, only 40% of people could pay out of pocket for a $1,000 emergency. The majority would be forced to put that expense on a credit card which only pushes us further from our financial goals.
While we never know when a major car repair will occur or when a hot water tank will stop working, the best way to prepare for “life happening” is to set money aside in an emergency fund. I suggest starting with at least $1,000 in a separate savings account. This way money is not commingled in one checking account but instead has a well- defined purpose. The end goal is to have three to six months’ worth of living expenses in an emergency fund. When, not if an emergency arises, you will be able to use these funds to cover the expense. Be sure to refill your account as you use it to maintain your three to six months of expenses.
Purchase (Term) Life Insurance.
It’s necessary to consider life insurance if someone financially depends on you, such as your spouse and kids. There are several types of life insurance available, but I want to focus on Term Life Insurance because I believe that it is the right policy for most people due to its cost-effectiveness. The reason it is most affordable is that you only pay for insurance as it does not have an investment or cash value component.
You generally will pay a monthly premium over the course of a specified time period (usually 10-30 years). If you were to pass away during this term, your beneficiary (chosen by you) will receive a benefit that is selected when you purchase the policy. If you are able to afford the premiums, a common rule is to buy a policy with a benefit ten times your earnings. For example, if you make $50,000 per year, you would purchase a $500,000 policy. This would provide income to your loved ones and potentially pay off debt during the grieving process and allow them time to adjust to their new situation.
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