Starting a Family? What's Your Risk Management Plan?
When planning for a family, most parents like to think of all the new possibilities family life will bring. Unfortunately, those new possibilities can include things they don’t expect, which can wreak havoc on their finances. The odds of something going wrong - a job loss, a medical emergency, a major repair, or a debilitating injury – are fairly high for two people. Many young families live paycheck to paycheck, so any financial setback could be devastating. Young families must address all the possible risks that could impact them financially. With some thorough planning and a good insurance agent, most risks can be transferred or mitigated to reduce or eliminate the financial impact. This would include:
- Property and casualty insurance to cover your cars, your home and your possessions. The most critical component of this insurance is the liability coverage. You should purchase the maximum liability coverage available on your auto and homeowners coverage.
- Life insurance to protect your family in the event one of you should die. At minimum, each parent should buy enough coverage to replace 10 years of their income.
- Disability income insurance. Between two parents the odds are 1 in 4 that one of them will have an accident or an illness that will keep them for working for an extended period of time. Some employers offer disability income coverage; but if yours doesn’t, you should consider individual policies for both of you. Not everyone can qualify for disability insurance so, if you can, you should buy some.
- A cash reserve fund. Your top priority as a young family should be to ensure you have enough liquid assets to cover six to twelve months of living expenses. A cash reserve fund is essential to cover temporary work interruptions, big repairs, a major medical emergency, or anything that life throws at you.