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Three Big Financial Fails that People Make

Financial Fails

You are good at maintaining a healthy financial standing, are financially literate, and are generally good at planning and budgeting. This makes you financially savvy. However, even the savviest financial wiz kid will make mistakes from time to time. It’s easy, there are a lot of ways to goof up. Let’s take a look a three big financial fails that people make relating to their insurance. This is an area ripe for mistakes because people generally don’t take insurance as seriously as other financial instruments.

As you read through these three financial fails, you know you’re going to find at least one of these that you are currently doing.

1 | Don’t have disability insurance

It’s hard to get a young, healthy person to buy health insurance. It’s even tougher to get them to consider disability insurance. However, going without proper disability insurance can be a major financial fail. In fact, according to the Social Security Administration, more than one-in-four workers aged 20 years old will become disabled before retiring. This doesn’t necessarily mean you have suffered a major injury. No, a disability can also result from a debilitating illness like Cancer, Parkinson’s, or Lupus.

When shopping for private disability insurance, there are two main types of disability insurance:

  • Short-Term Disability: Depending on the policy your purchase, this form of disability insurance provides a portion of your salary for three months to a year after an illness or accident.
  • Long-Term Disability: This form of coverage provides income for a specific period. The period can be two to five years. In some cases up to age 65. The term of benefit will depend on the policy. Generally, this form of disability has an elimination period of 90 to 180 days after the policy is purchased. This means no benefits can be paid until that elimination period has expired.

The elimination period of long-term disability makes short-term policies a bit more popular. However, your employer may only offer a long-term policy. So, if you haven’t set aside sufficient emergency savings, waiting out the 90 to 180-day elimination period may not work.

Why should I consider disability insurance?

Well, disability insurance not only helps keep you from financial disaster when you’re unable to work for long periods but can also provide support for expectant mothers. In fact, if you have a short-term disability policy before getting pregnant, it may help ensure you’re receiving payment while on maternity leave.

2 | Renting a car without coverage

This is a frequent financial fail. Many people reject the insurance sold by the rental company when renting a car. Don’t do this. Renting a car without proper coverage can be a huge mistake. This is particularly problematic for those who don’t have their own auto insurance.  However, even if you have your own car insurance policy, there are good reasons to buy the coverage offered by the rental car company.

In nearly all states, if you have your own car insurance, the basic liability coverage will carry over to a temporary replacement. However, even if you have comprehensive and collision coverage, you may not be able to depend on that coverage for a rental car – even if they say you can.

How much coverage transfers from your car insurance policy when renting a car largely depends on the insurance company. Here are some of the things that may not be covered or limited by your car insurance policy:

  • Reason for the rental car: While some carriers may transfer comprehensive and collision coverage to a temporary replacement, the policy may exclude vacation rentals.
  • Diminution of value: Your car insurance policy doesn’t typically afford protection for a reduction in value when a car is involved in an accident. Since rental car companies sell their vehicles at the end of their use cycle, they may seek diminution in value if the damage changes the resale value of the vehicle.
  • Lost revenue: Rental car companies will seek to recover lost rent when the vehicle is out-of-service for repairs. If the damage was significant, repairs could take several weeks and lost rent will add up. Your insurance company doesn’t typically pay for these damages. 

Isn’t rental car coverage expensive?

If you don’t have your own car insurance policy then you should purchase both the liability and physical damage coverage offered by the rental car company. This may cost up to $30 per day. However, if you do have an auto insurance policy, and only need the physical damage coverage, that may be as low as $10 per day. 

3 | Not buying the right life insurance

Life insurance is considered a good purchase, and buying it at an early age is even better. In fact, many think life insurance should be your first purchase as a young adult. However, understanding your goals and the different types of life insurance is important when making this decision. For instance, if your goal is to cover student loan debt to prevent your parents or co-signers from this liability upon your death, then a term life insurance policy may be appropriate. With a term policy, you can select a limit to cover the balance and a term similar to that of the loan. However, if you are looking to cover your family and plan for a legacy, then whole life or universal life may make more sense.

Like other financial instruments, life insurance comes in different products that can be made useful for either short or long-term goals. Moreover, they come with different benefits and therefore different rates. You don’t want to select a high-priced long-term solution if you merely need the benefits of a fixed, shorter-term policy. The important thing is to understand which of these products works best for you, your goals, and your budget.

The bottom line

It’s easy to miss the small things when you’re navigating a complex financial environment. Frequently, a small choice may seem like a smart decision for your monthly budgeting but have huge implications if you’re caught unprepared. The best way to avoid the small gaps that create potential financial fails is to consult a financial advisor or insurance agent. If you have questions and want our help, we’re happy to lend a hand, call us at (877) 334-7646.

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