Financial Fitness Challenge October�Assess Your Insurance Coverage

So many financial decisions hang on "what if." What if you lose your job? What if you get a big raise? What if you become seriously ill? What if you win the lottery? What if you lose the overtime you've come to rely on? All this year, the Financial Fitness Challenge has tried to help you be prepared no matter "what if."

Insurance is a broad personal finance category that's all about "what if": What if your roof sustains serious hail damage? What if a careless driver broadsides your car? What if you die, leaving a young family? What if a burglar makes off with a special heirloom?

One key to acquiring the right insurance, in the right amount, is to identify the financial losses you could not recover from without help. But that's not a decision you only make once: The variables that affect those decisions change all through your life.

For example, when you're young and footloose�no one is depending on your income�you likely don't need life insurance. If you couple up and make a family, you have requirements that only life insurance can cover.

In your later years, when the nest is empty and your spouse has a great job and a generous pension plan, plus the assets you've built together over your shared lifetime, you might decide that life insurance isn't necessary anymore.

When your car is new and it would be a big financial gulp to replace it if it's totaled, of course you want solid car insurance. When the car is many years old and the odometer reads in six figures, you re-assess collision coverage.

You get the idea. The variables you consider when making insurance decisions can shift, leaving you under or over insured. When you have so many options, you might fear making a financial mistake and postpone making any decision at all. The Insurance Information Institute Web site has useful Life Stages insurance tools. They won't tell you what to do but will sharpen your focus on what variables to consider.

I want to emphasize an important point: Your insurance coverage is not a substitute for having adequate savings. Using all the tools we've introduced in the Financial Fitness Challenge, your goal is to use prudent spending and regular saving to achieve a financial position that allows you to absorb small losses without making insurance claims. Insurance is protection from large losses, not from life's routine setbacks.

Monthly maintenance

This month's basic maintenance task harks back to April's Challenge, when we set up sunny and rainy day funds. Tally all your insurance policy deductibles and then see if your rainy day fund could handle several deductible hits. Call it your Murphy's Law fund�assume that what can go wrong will go wrong.

Some insurers are switching to a deductible based on a percentage of the value of your home�usually between 1% and 5%, and maybe higher in earthquake zones. This replaces the flat-dollar deductible where you pay the first $500 or $1,000 of damages. If your insurer uses the percentage deductible, keep in mind that your deductible will increase as your home value appreciates.

And there's another insurance-related use for your rainy day fund�to regularly set aside small amounts all year so that you can pay your insurance premiums when they come due. The Budget Blueprint calculator can help you figure those amounts.

That's the beauty of building your rainy day fund. Because you're using direct deposit and automatic savings transfers to continually build savings, you're prepared for whatever comes your way.

Together We're Better

International Credit Union Day, is a big deal for credit unions and their 172 million members all around the world. That's when you and your credit union join more than 46,000 credit unions in 97 countries "to celebrate our accomplished history, our shared values, and our bright future," in the words of this year's organizers. This year's catchphrase, Together We're Better, expresses the benefits accruing to all credit union member-owners. Congratulations, everyone.

ST
Susan Tiffany, CCUFC
[email protected]

Published October 1, 2007, Reviewed January 14, 2008