A mortgage is the single largest debt the average individual will ever take on. However, most new homeowners don’t take into consideration the cost of protecting that debt in the event of death or serious illness. The same can be said of our unsecured debt (credit cards, loans and lines of credit). Simply put, the average individual doesn’t have enough insurance to adequately protect themselves or their loved ones if something happens to them.
With the current turbulence in the market it is even more vital to ensure that your debts are protected. Listed below are some things to keep in mind when you consider the amount of insurance coverage you might require:
- The total amount of your debt. It sounds obvious, but too many people are under insured. Having insurance for a lesser amount than your debt load isn’t doing your family any favours!
- When determining how much insurance to purchase remember to include employment benefits. However, you should also be mindful that if your employment ended your insurance coverage would also end. Too many of my clients decline additional coverage claiming “I’m covered through my work plan.” This leaves them under insured.
- Ensure that you also have an adequate disability plan in place. If you were unable to work, would your disability insurance cover all your monthly obligations?
- When considering insurance amounts also consider the impact the loss of your income would have on your family. Would they be required to sell the house to maintain their standard of living?
- Remember that insurance is never cheaper than it is right now! As you debate how much coverage you require the cost of your premiums is going up.
- Future insurability. If you’re injured or suffer and illness, or a family member suffers a serious illness you jeopardize your ability to get coverage. Many of my clients indicate they want to research other options. Most of them do nothing about it. This delay puts them and their family at risk. Don’t be that person.
- Protect temporary debt obligations with temporary insurance. Protect permanent obligations with long term insurance.
- Include insurance costs in your budget. In other words plan for something bad to happen and then pray for sunny days.
Remember that there are a variety of products available to you. Talk with your financial and insurance experts to ensure that you have the most appropriate plan in place for you.
Do you have thoughts on protecting debt? Share your experiences below.
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cave2626 10.29.08 at 10:09 pm
I find the real trick for me is debt control. I have a mortgage, car payments, and investment loans, and as far as I’m concerned these kinds of expenses are unavoidable. The debt that I can keep under control is the credit card debt. After a little credit card chaos in my younger days, I try to use my credit card more like a cash convenience card. I try not to charge things I can’t afford to pay off at months end. It’s tough but it keeps me out of trouble and I don’t throw away money unnecessarily on interest payments. And in the unlikely even that something happens to me I’m not stuck with a huge credit card bill that I can’t pay off.