| Long-Term Disability Insurance Long-term disability
insurance helps replace your income if you are unable to work due to
illness or injury. Many people consider this coverage a luxury, when
in fact, it should be considered a necessity for those who don't have
other financial resources they could tap in the event of an illness or
injury.
Even if you do have other financial resources, would you want to
use them to pay your monthly bills? If you saved 5% of your income
each year, a 6 month disability would eat up 10 years of savings!
Don't think it could happen to you? Although your chances of having
a disability increase as you get older, illness and injury can happen
at any age. Car accidents, sports injuries, back injuries, pregnancy,
and disease are just a few examples.
Ask yourself this question: could you live without your income for
three months? Six months? A year? If the answer is no, you need
disability insurance. Employers often offer this coverage via a
payroll deduction, which may be tax-deductible.
Life Insurance
Life insurance is necessary if you have dependents who will suffer
financially if you die (children, for example). If you have no
financial dependents, it's probably not necessary, although many
people also use insurance as part of their estate planning and cash
accumulation regardless of their dependent status.
If you plan to buy insurance other than term insurance provided by
your employer, you should educate yourself about the pros and cons of
term, whole life, and other types of insurance. You may also want to
talk to an adviser about how much insurance is enough.
Emergency Fund
Financial advisors suggest having enough savings in an easily
accessible account to cover your living expenses for six months in the
event of illness, job loss, or other serious emergency.
Summary
Once you've protected your income-generating ability with
disability insurance, protected your dependents with life insurance,
and protected your other assets by having a six month emergency fund,
your financial safety net is in place and you're ready to turn to the
task of accumulating wealth.
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