In our previous post, we discussed building up an emergency fund for unexpected expenses such as rent hikes, car repairs, medical bills, or as a buffer in a job transition.  But what happens when the amount of money you are at risk to lose is much larger than the recommended six-month’s expenses as a cushion?

For example, substantial financial duress can be caused by:

  • Market Volatility
  • Death
  • Injury or Illness
  • Legal issues
  • Outliving Money in Retirement
  • Need for long-term care services

Although these potential risks seem daunting, with a proper strategy in place, you can feel reassured when things go awry.

Market Uncertainty

Diversify, and consider your timeline when you’ll actually use the money.  For example, if you invested funds for your child’s college tuition, consider the age of your child. Is the child 1-year-old or 17-years-old? The closer you are to using the funds, the less risk you should consider taking.  In addition, consider working with a professional money manager. He or she will help you to make decisions rationally, rather than emotionally, keeping you on track towards your personal goals.

Death

Life insurance replaces lost household income when one dies. It is not something people like to talk about, but, consider what would happen if your spouse/partner/parent suddenly passed away.  Most think of life insurance as a gift to help to cover immediate costs such and funeral expenses.  It can also help cover outstanding debt, such as mortgages, medical payments, car payments, and other loans.  Accompanied by the sudden death of a person, is the sudden loss of income. Life insurance allows a family to continue to the lifestyle they’ve grown accustomed to and allows for some peace of mind in an emotionally challenging time.

Injury or Illness

Disability income insurance (DI) is similar to life insurance but the benefits begin upon an injury or illness.  Unlike Workers Compensation, to receive DI benefits, the injury may not need to be workplace-related. DI insurance is often designed to replace 45 to 65% of your gross income on a tax-free basis in case your injury or illness prevents you from working — which prevents you from receiving your usual paycheck.  When your medical bills start to add up on top of your regular expenses, DI can be a true game changer.

Getting Sued

If you or your business is sued, liability insurance can come in handy during your time of need. Liability insurance is able to cover libel, slander, copyright, third-party property damage, product liability, and third-party bodily injury. Often liability insurance can help pay for legal expenses, including attorney’s fees and settlements.

Outliving Money

An annuity can be a strong piece of an overall retirement portfolio. An annuity is similar to social security or a pension. An insurance carrier will guarantee a set amount of monthly income for as long as you live. This, coupled with social security and other retirement assets, may allow retirees to enjoy their golden years without worrying that they will run out of income.

Long-Term Care

As people enter their senior years or encounter life-altering illness such as Alzheimer’s, they may require long-term care to help with daily activities. However, long-term care is often expensive and not covered by health insurance, Medicare, or Medicaid. For example, in the New York City area, long-term care can cost an outstanding $20,000 a month, which is way out of most people’s budgets.

To help ease the costly burden, long-term care insurance can offer financial relief. Long-term care insurance is a type of health insurance that will help cover long-term care expenses. Without it, the burden typically falls on the children to care for the ill family member — which is not only expensive but in some cases, forces them to leave work for care for a family full time.

To learn how you can safeguard your finances from unexpected hardships, you can contact Adam at AdamTau.com
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