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3 biggest financial fails

Even the most financially savvy among us trip up from time-to-time, especially with insurance. It’s easy to ignore the need for proper coverage and to justify away why you don’t have to buy a certain product. Here are three of the biggest financial fails I, and friends of mine, have experienced when it comes to not being prepared.

No disability insurance

I’ll admit, I don’t have disability insurance – yet. The lack of disability insurance is a dangerous game as the Social Security Administration states more than one-in-four 20 year olds will become disabled before reaching retirement. While many people think of a major accident being a cause of disability, it could also be illness, such as cancer.

There are two main types of disability insurance:

  • Short Term Disability: provides a portion of your salary for three months to a year after your illness or accident (depending on your policy).
  • Long Term Disability: provides income for the maximum benefits period, which may be two years, five years or to the age of 65 (depending on your policy). It generally does not start until after an elimination period of 90 to 180 days.

Because of how long it takes for long term disability to kick in, short term disability can be incredibly beneficial. Your employer may offer a long term policy, but not short term. So, unless you have a significant emergency savings fund, that 90 to 180 day elimination period, can be a painfully long time to go without income.

Not only does disability insurance help keep you from financial ruin if you’re unable to work for long-periods of time, but can also provide breathing room for expectant mothers. If you have a short term disability policy in place before getting pregnant, it may help ensure you’re receiving payment while on maternity leave. If your company offers paid maternity leave, it may be in the form of short term disability.

Renting a car without coverage

I’m embarrassed to say: “Been there, done that.” As a New York City resident there’s really no need for me to own a car. On the rare occasion I need to drive, usually because I’ve traveled to an area with no public transportation, then I rent. Because I don’t own a primary auto insurance policy (many of which would cover me in a rental car), I spent a couple years driving those rentals without insurance coverage. At best, I would have a little collision coverage from my credit card provider but no personal liability, personal injury or personal property. Once I started to learn more about insurance, I immediately started purchasing supplemental liability coverage. Now, I’m covered if I cause an accident and the victims experience bodily harm or property damage. Fortunately, the situation has never occurred, but I’m much less anxious on the road.

Blindly buying “just any old” life insurance

It’s easy to get talked into taking an upsell, especially when you feel relatively ignorant of or confused by the product.

A friend of mine decided a couple years ago that it would be prudent for him to have a life insurance policy. A few articles had been in the news about parents who were on the hook for their child’s student loan debt after the child had died unexpectedly and prematurely. This friend, we’ll call him Luke, had $30,000 in co-signed student loans. His private student loan servicers policy did not have a death discharge, so in the case of Luke’s death, his servicer would go after his parents for payment. Luke’s parents couldn’t afford that kind of financial burden, so Luke decided to sign up for a life insurance policy and name his mom as his beneficiary. That way, if Luke died, there would be more than enough to cover both the student loans and his funeral expenses.

Problem was, Luke didn’t do much research about which policy made the most sense for him. He just called up a company and spoke to a representative who pushed him to take on a whole life insurance policy, which not so coincidentally comes with a higher commission for that life insurance agent.

This policy cost Luke $52 a month and got him $50,000 in coverage. Except for Luke, whole life isn’t the ideal type of coverage and $52 a month is a big hit to his tight budget. Instead, a term life insurance policy could cost him less than half his $52 payment and get him significantly more coverage. Luke ended up switching and now pays $24 a month for a $100,000, 30-year term life insurance policy.