Part 9: Protect Your Finances

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Now that you’re well on your way to improve your finances, this is a good moment to evaluate how you have protected yourself financially. Take a couple of simple steps described below that will greatly ensure that the wealth you build and continue to accumulate will be safeguarded even in adverse situations or setbacks.

Part 9: Protect Your Finances

When talking about financial protection, one of the first things that come to mind is the topic of insurance. Most people will at least need the following five types of insurance:

  • Life Insurance – protects others around you financially if you passed away. This is especially recommended if you have others who rely on you financially (children, a partner). 
  • Health Insurance – covers medical bills to ensure you can afford the care you need.
  • Disability Insurance – pays out money in the event of a disability that prevents you from working in the future.
  • Homeowner / Renter’s Insurance – covers damage to you house and often has a liability component to cover damage you inflict upon others or their property.
  • Car Insurance – covers costs and liability issues in case of a car accident both if you caused the accident or if somebody else was at fault. 

I highly recommend reviewing your contracted insurance policies once a year and making sure they are up to date, as your personal situation might have changed since you took out the policy. Have a look at all your insurance policies to ensure you’re well covered and check whether to contract any more (or less) insurance if needed. 

Another important part of financial protection is estate planning. Estate planning covers a couple of different things which are too important to overlook, but due to the complex and emotional decisions that often need to be made this is a topic that can be tempting to postpone.

  • A will or trust – determines what will happen to your assets upon your death.
  • A health care proxy – stipulates who should make important health care decisions about you should you no longer be able to do so mentally or physically.
  • A power of attorney –  identifies who should make financial and legal decisions if you no longer can.
  • Beneficiary designations – some of your assets will allow you to name a beneficiary for when you pass away, such as your insurance policy or savings or investment accounts. Be careful that whoever you name on these assets should correspond to the information you have in your will. 
  • Guardianship designations – possibly the most difficult decision of all a guardianship determines who will become the guardian of any underage children you have. 

Talk to the various people you would like to appoint as guardians or decision makers to allow them time to think about taking on those responsibilities. Then set up a meeting with a notary or estate attorney today and to discuss the arrangements you want to make. 

Lastly, take some steps today to protect your finances online. With the increased internet access we have nowadays, it has also become significantly easier for those with bad intentions to gain access to your money. A few ways to increase your security:

  • Choose difficult passwords and change them often
  • Use two-step verification
  • Enable email notifications when you log in to your accounts or withdraw money
  • Check your accounts regularly
  • Don’t use public WiFi accounts or public computers to access your accounts

Schedule in a few minutes today or tomorrow to implement these measures and ensure your accounts are well-protected. 

The above is an adaptation of part 9 of the 10 parts in the guidebook to Financial Independence100 Steps to Financial Independence: The Definitive Roadmap to Achieving Your Financial Dreams where you can find more details as well as action plans and guidelines to each of the 10 parts. Available in both ebook and paperback format!

Get your FREE sample of the 100 Steps to Financial Independence Book here

Coming up next: Part 10 of the Journey to Financial Independence!

Step 59: Home & Renter’s Insurance

Step 59 of the 100 steps to financial independence: Home & Renter's Insurance
Step 59: Home & Renter’s Insurance
If you own a home, you really can’t do without having a home insurance or homeowner insurance. Apart from the financial protection of probably your greatest asset, it is often also a requirement for getting a mortgage. If you don’t own a home but rent, getting a renter’s insurance is often worth considering as it includes the liability as well as the belongings protection in the same way as a home insurance does. In that case the insurance of the property would be the responsibility of the home owner however, not the renter.

Why Home Insurance

Home Insurance covers you against such things as theft or damage, so that if anything happened, you get financial compensation in order to replace or repair what is needed.

What is included?

What is and isn’t included in your home insurance obviously depends on the company and your specific policy, but usually three main things are generally included in a homeowners insurance:

  • Damage to your house, such as the structure of your house as well as the functioning of or damage to parts of your house or equipment.
  • Theft of your belongings, both inside the house as well as outside of the house such as when you are on holiday or if something was taken from your car. Bear in mind that for off-site loss of or damage to your belongings the payment might be substantially lower however.
  • Liability – many policies include liability insurance which is any damage you or other family members might inflict on others or on their property or house.

What isn’t included

In general the following items or situations are often not included, although many can be added to your insurance as an extra against a higher premium:

  • Damage to your house or belongings due to poor or deferred home maintenance, i.e. issues you have neglected.
  • Certain natural disasters such as earthquakes and land flooding are often not included, though many policies do include hurricanes and storms.
  • Normally the liability insurance includes all members of your household, and this means that even your pets might be insured. Not all dog breeds are insured however when it comes to dog bites as some are considered to be very aggressive and are therefore excluded from the standard policy.
  • Some of your valuables such as jewelry, silverware and electronics might have a limit in terms of what is covered, meaning that the insurance will only pay out up to a fixed amount if any of it gets stolen or damaged.

Types of cover

You can often chose from the following types of cover:

  • Cash value coverage – this is the cheapest option and stipulates that you will be covered for the current value of your property or your belongings, instead of what you originally paid. This takes into consideration that your belongings experience a certain degree of depreciation, i.e. value loss with time.
  • Replacement cost coverage – more expensive than the cash value coverage option, this coverage pays the original price you paid for your belongings or property without deducting depreciation. It covers you up to the original price you paid as long as that is within the policy limits so you can replace it completely for the same price as you paid.
  • Guaranteed or extended replacement cost coverage – the most expensive option of them all, this coverage gives you even more protection so you can replace your belongings or rebuilt your home even if it goes above the policy limit, although this will be capped at a certain percentage, usually at around 25% above the limit. This means that you are protected against inflation as well an any increases in your property value for example.

Step 59 – Home Insurance – in detail

  • Pull out your insurance policy with its details and payments.
  • If you are a renter and haven’t got a renter’s insurance request policies from various insurance companies to compare.
  • If you are a home owner and have a home insurance, or if you haven’t got one anymore because you have paid off your mortgage, you are also going to request policies to compare them and see if a change in insurance or insurance provider is worth considering.
  • Compare the quotes you receive on the following:
    • Annual premium
    • Inclusion of cover of belongings, both in your house and outside of the premises (e.g. on holiday).
    • Whether there is a deductible (i.e. amount you need to pay first before your insurance comes in) and how high this is. Note this might be different for different belongings.
    • How much the limit of coverage is for belongings (check the various categories) as well as for your house.
    • What circumstances are excluded from your insurance (earthquakes, sewage problems etc).
    • Whether you dog is covered.
    • Check how much extra you would need to pay in order to get extra coverage for items or situations you deem essential.
    • Customer satisfaction with the insurance company and / or specific policy.
  • Once you’ve decided on the insurance to take out or change to, do so as soon as possible.
  • Make an inventory of your possessions, keep receipts of valuable possessions and consider taking photos or a video with your camera or phone of your different rooms, so you have an overview of your possessions. This will be required for a claim, so doing this at the same time as contracting, changing or simply checking your insurance makes sense!

As with any insurance, one hopes never to need to use their home insurance as damage can not only be expensive, it is also a hassle to deal with. Yet not having a home insurance for your house, your belongings, as well as the liability coverage might mean that your financial planning turns completely useless and irrelevant if you can’t pay to replace or rebuilt your home or belongings or if you are faced with a bill for damage you have inflicted on others. So be sensible and sort out your home or renter’s insurance now!

Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.