Let's be honest: discussing insurance policies probably won't make you the hit of your next cocktail party. However, there is a quiet confidence that comes from knowing the people you love are financially safe no matter what life throws your way. It's not just about protection; it's about sleeping better at night so you can focus on living the life you want today.
Start by evaluating your specific risks
The amount of insurance that is right for you is a deeply personal matter. There is no one-size-fits-all number because your life looks different from everyone else's. To find the right fit, you need to look at your family situation, your income, the things you own (like your home or cars), your savings and investments, and the amount of debt you carry.
The single biggest mistake people make is assuming they are protected just because they have some insurance in place. The truth is that you need to evaluate your specific situation to understand the risks you might face and what that would mean financially for your family.
1. Health insurance
Most of us access health insurance through our employers. The big decision here is usually choosing between a traditional health plan and a high-deductible plan.
A traditional plan typically gives you access to flexible spending accounts (FSAs) for dependent care and general healthcare. High-deductible plans usually provide access to a health savings account (HSA).
For most families, especially those with younger children, traditional plans can make more sense because they may have lower deductibles and will cover more of your expenses before you hit that full deductible. If you do choose a traditional plan, we recommend you take advantage of the FSAs to cover dependent care (like daycare) and other expenses with pre-tax money.
2. Disability insurance
Disability insurance is designed to protect your most valuable asset: your ability to earn an income. Most companies offer both short-term and long-term options.
Short-term benefits typically replace your income for a few weeks or months until long-term benefits kick in. If you have a strong emergency fund built up, you might be able to skip the short-term coverage and rely on your savings instead.
However, long-term disability insurance is a must for everyone. When reviewing your policy, you need to know exactly what part of your income is covered (is it just base pay, or base plus bonus?), what the maximum monthly payment is, how long the waiting period is before benefits start, and whether your benefits would be taxable.
3. Term life insurance
If you have children, especially young ones, you likely need life insurance—and you probably need more than you think. A good rule of thumb is to have coverage that equals at least ten times your annual salary, and possibly more depending on your situation. The exact amount will vary based on your income, the age of your kids, your assets, your debt, and your current savings.
The biggest mistake most parents make is thinking their group coverage through work is sufficient. Group insurance is typically limited to a multiple of your salary, like four or six times your annual income. That is often not enough to fully protect your family, which means you likely need to look for your own private insurance coverage to fill the gap.
4. Property and casualty insurance (P&C)
P&C insurance protects the physical things you own. Most families need three specific types of policies: automobile, homeowners (or renters), and an excess liability policy, which is often called umbrella insurance.
For auto and homeowners policies, you are essentially looking to protect against property damage (to your car, the other driver's car, or your home) and liability due to an injury. We recommend discussing the specific amount of coverage you need with an insurance agent or a financial planner who can help identify your risks.
An umbrella policy provides liability protection above and beyond what your auto and homeowners policies provide. Think of it as a backup plan for your backup plans. These policies are typically very affordable and usually come in $1 million increments, allowing you to easily add a significant layer of protection.
When should I review my insurance coverage?
Your life changes, and your insurance should change with it. To ensure you and your family stay properly protected, you should evaluate your coverage periodically and specifically when you hit major life milestones like marriage, having kids, or buying a new home or car.
Reviewing your coverage at least once per year is a smart move. You don't want to discover a shortfall or a gap in your coverage only after you experience a financial loss.
The Facet difference: Objective advice without the commissions
At Facet, we believe that financial advice should be objective and focused on your well-being. Unlike many traditional firms, we don't sell insurance products or earn commissions on the policies we recommend. Our goal is to help you build a comprehensive financial roadmap that reflects your values, ensuring you have the protection you need without being oversold on products you don't.
