FINANCIAL WELLNESS with Richmond Kwame Frimpong: Don’t just invest, INSURE!

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Richmond Kwame Frimpong

Preamble: Insurance and Investments are crucial pillars of financial wellness, but they serve very different purposes and hence should not be considered interchangeably. Investing simply allows you to “put your money to work” over a period in either a real or paper asset for an expected return.  Inversely, insurance is ‘buying’ protection against an unforeseeable event bordering on life or non-life, to mitigate a potential adverse impact on your financial future.

In other words, Insurance primarily provides a financial safety net to take care of yourself and those you love when you need it the most.

Even though many people understand this level of importance, many postpone any conversation on insurance to a later date after investing. In some instances, past unpleasant experiences with insurance products by insurance agents make many shy away from anything insurance and describe it as a façade.

In many developing economies, more than 75% of the citizenry do not have any coverage. However, it is important to note that Insurance is a very important anchor in your financial wellness equation as it borders on life and wellbeing.

Nothing is more important than life and the ability to make a living. So, it makes good sense to know the four types of insurance everyone needs in addition to their investments for a financially comfortable life and strive to have them.

Life Insurance

Life insurance comes in two basic types. The traditional whole life and term life. In simple terms, 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 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 to factor in not only funeral expenses but also daily living expenses. These may include mortgage payments, outstanding loans, credit card debt, taxes, childcare and future college costs.

Health Insurance

Literally, you and your family are just one serious illness away from impoverishment. In a Journal’s survey by the American Journal of Public Health, of more than 900 people 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 alone should incentivise you to obtain health insurance or review and possibly increase your current coverage. But with rising co-payments, increased deductibles and dropped coverages, health insurance has become a luxury fewer and fewer people can afford.

The best and least expensive option may be participating in your employer’s insurance programme; but many smaller businesses do not offer this benefit. In the informal sector, it does not even exist. So, if you do not have health insurance through an employer, check with other associations about possible group health coverage. If that is also not an option in your country, then you will 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 research shows that 3 in 10 workers entering the workforce are likely to end up disabled and will be unable to work before they reach the age of retirement. Often, even for those who have health insurance, a nice nest-egg, and a good life insurance policy do not prepare for the day when they might not be able to work for weeks, months or ever again. While most health insurance schemes pay for hospitalisation and medical bills, you are still left with those daily expenses that your pay check generally covers.

Auto Insurance

On average, Ghana records nearly 12,100 road accidents in a year involving over 20,400 vehicles. In the US, there are approximately six million car accidents every year. An estimated 38,800 people died in car crashes in 2019 alone. The number-one cause of death for Americans between the ages of five and 34 was auto accidents, according to the Fatality Analysis Reporting System (FARS) in 2009 data (the last available data). Over two million drivers and passengers received treatment in emergency rooms in 2009, and the costs of those accidents – including deaths and disabling injuries – were around US$70billion.While not all states require drivers to have auto insurance, most do have regulations regarding financial responsibility in the event of an accident. States that do require insurance conduct periodic random checks of drivers for proof of insurance. If you do not have coverage, the fines vary by state and can range from the suspension of your licence to points on your driving record, to fines of US$500 to US$1,000.

If you drive without 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 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.

Seek Help

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 expensive, not having it could be far more costly. In sum, don’t just Invest, Insure!

You may send comments, questions or suggestions if any to [email protected] and @richmondkwamefrimpong across all social media platforms

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