Financial Wellness with Richmond Kwame Frimpong: Insurance as a financial wellness anchor

Richmond Kwame Frimpong

Insurance is based on two basic principles; risk transference and the law of large numbers. It is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. An entity that provides insurance is known as an insurer, insurance company, insurance carrier, or underwriter. For every insurance account; the insurance firm which you pay regular amounts of money (they call premium) and they agree to cover your costs if a certain unfortunate event occurs, for example, a traffic accident, damage to property, or illness. Insurance, however, may also be arranged for a common event, e.g., if you reach a certain age.

An event covered by insurance is referred to as an insurance event. The person to whom such an event occurs or may occur is called the person insured. When an insurance event occurs (you get ill, suffer an accident, reach a certain age), the insurer will pay you a certain amount of money referred to as an insurance benefit/claim paid. The insurance benefit/claim paid will help you or your family to overcome the financial difficulties or increased costs that may arise from an insurance event. This means that by arranging insurance you obtain insurance cover against a certain risk.

The Insurance Industry

Insurance companies largely fall into three categories:
– Life Insurance
– Non-Life Insurance
– Composite Insurance (a combination of Life and Non-Life insurance)

Four Types of Insurance Everyone Needs

Life Insurance

Life insurance is about your life. It is made up of two basic types; traditional whole life and term life. Simply explained, whole life can be used as an income tool as well as an insurance instrument. As long as you continue to pay the monthly premiums, whole life covers you until you die. Term life, on the other hand, is a policy that covers you for a set amount of time. There are other considerable differences between the two types of insurance, so you may want to seek the advice of a financial expert before you decide which is best for you. Factors to consider include your age, occupation, and the number of dependent children.

The greatest benefits of life insurance include the ability to cover your funeral expenses and provide for those you leave behind. This is especially important if you have a family that is dependent on your salary to pay the bills. Industry experts suggest a life insurance policy that covers 10 times your yearly income. But that’s a number not everyone can afford. When estimating the amount of life insurance coverage, you need, remember to factor in not only funeral expenses but also daily living expenses. These may include mortgage payments, outstanding loans, credit card debt, taxes, child care, and future college costs.

Health Insurance

Statistically, every family is just one serious illness away from bankruptcy. The American Journal of Public Health in their Journal Survey of 900 Americans in 2019 who filed for personal bankruptcy between 2013 and 2016; more than two in three bankruptcies were caused by medical problems—from bills, income loss due to illness, or both. These numbers which are worst in developing economies should incentivize you to consider health insurance or review and possibly increase your current coverage if you do not have presently. But with rising co-payments, increased deductibles, and dropped coverages, health insurance has become a luxury fewer and fewer people can afford. When you consider that the national average cost for one day in the hospital was $2,517 in 2018, even a minimal policy is better than none.

The best and least expensive option may be participating in your employer’s insurance program, but many smaller businesses do not offer this benefit. The average annual premium cost to the employee in an employer-sponsored health care program was $7,188 for single coverage and $20,576 for a family plan in 2019, according to research published by the Kaiser Family Foundation. If you don’t have health insurance through an employer, check with trade organizations or associations about possible group health coverage. If that’s not an option, you’ll need to buy private health insurance.

Long-Term Disability Coverage

Long-term disability insurance is the one type of insurance most of us think we will never need. Yet, according to labour statistics, three in ten workers entering the workforce will become disabled and will be unable to work before they reach the age of retirement.
Often, even those workers who have great health insurance, a nice nest egg, and a good life insurance policy don’t prepare for the day when they might not be able to work for weeks, months, or ever again. While health insurance pays for hospitalization and medical bills, you’re still left with those daily expenses that your paycheck generally covers.

Auto Insurance

Between January 2020 and October 2020 alone car crashes in Ghana numbered 12, 096 with about 20,408 vehicles causing 2,080 fatalities and 12,38-0 injuries 2019.  Globally, the number one cause of death for ages of five and 34 are said to be auto accidents, according to the Fatality Analysis Reporting System (FARS) data.

In many developed economies, if you drive with auto insurance and have an accident, fines will probably be the least of your financial burden. If you, a passenger, or the other driver is injured in the accident, auto insurance will cover the expenses and help guard you against any litigation that might result from the accident. Auto insurance also protects your vehicle against theft, vandalism, or a natural disaster, such as a hurricane or other weather-related incidents. Again, as with all insurance, your individual circumstances will determine the cost of auto insurance. To make sure you get the right insurance for you, compare several rate quotes and the coverage provided, and check periodically to see if you qualify for lower rates based on your age, driving record, or the area where you live.

The Bottom Line

Most experts agree that life, health, long-term disability, and auto insurance are the four types of insurance you must have. Always check with your employer first for available coverage. If your employer doesn’t offer the type of insurance you want, obtain quotes from several insurance providers. Those who offer coverage in multiple areas may provide some discounts if you purchase more than one type of coverage. While insurance is said by many to be expensive, not having it could be far more costly.

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