By Candace Bahr, CEA, CDS

“An ounce of prevention is worth a pound of cure.”
—Benjamin Franklin

It’s no coincidence that the wise and practical Mr. Franklin founded America’s first fire insurance company in 1757. He believed in preparing to face life’s calamities, as best one could. That meant making financial provisions for the future, banding together with fellow citizens to buy protection — in other words, insurance.

While you might not be able to avoid unpleasant events in your life, you can prepare to meet them head on by protecting yourself and your property. The purpose of insurance is to protect you against major financial loss. Different people at different stages of life face different risks. The best protection is an informed decision before you sign on the dotted line. Know what the basic kinds of insurance will do for you.

Life Insurance
With life insurance, you can provide funds to care for your dependents after you are gone. The proceeds can make up for the loss of the salary or other support you contributed to the household and also provide money to help your family meet future goals.How do you figure out how much life insurance you need? An old rule of thumb was that you needed five to seven times your annual salary. But that ballpark estimate doesn’t take into account your family’s specific needs, such as whether your spouse will continue to work, how your children will be cared for, and what college they will attend. We use a worksheet with our clients to help them determine their unique life insurance needs. What are your immediate expenses? Your children’s educational needs? Your spouse’s living expenses until retirement? Your spouse’s retirement needs? Calculating these amounts will give you a clearer idea of how much life insurance you will need to pay your family’s future bills. Once you know how much life insurance you need, you have to decide between term insurance or cash-value insurance. Term life insurance is generally the least expensive because it doesn’t build any cash value. If you die during the period covered by the contract, your beneficiary will receive the death benefit. If you are still alive at the end of the term, you will need to renew the contract if you still need the coverage. Annual term rates start low and increase as you age. If your family is young, term insurance is generally the best choice because the premiums are lower than cash-value life and you can discontinue the coverage after your children are grown and your needs for insurance are less. Permanent, cash-value, life insurance combines insurance with savings. The biggest benefit of permanent insurance is that you can borrow against the cash value or draw down the money as retirement income. But it can take more than ten years for the cash value to add up. Also, the premiums for permanent life insurance will be several times higher than comparable term contracts. Although these policies accumulate cash value, to tap that value you must cancel the policy or borrow against it. And when you die, the insurance company pays only the face value of the policy, not the face value plus the cash value.

Disability Insurance
Although we like to think it won’t happen to us, disabling accidents and illnesses can happen to anyone. At any point during your working life, you are more likely to become disabled than to die. For most people, disability insurance is a must. It will provide a steady income stream in the event you’re unable to work. In general, the policy benefits will replace about 60 percent of your annual earnings for as long as you are disabled. It’s great if your employer offers group disability insurance coverage as a benefit. If not, investigate private coverage, which probably will cost between 1 and 3 percent of your annual income.

Medical Insurance
A good medical insurance policy is a must, no matter what your age or income. Signing up for health insurance coverage through your employer is generally the cheapest and easiest route, and the premiums are deducted straight from your paycheck. If you and your spouse both work full-time, it is possible that you both have medical coverage through your employers. You may be able to cut costs and maximize your health care benefits by both enrolling in one employer’s plan. Compare the different plans for price, flexibility, and covered services. Make sure your spouse can enroll and understand the benefits for which he is eligible before canceling one of your policies. If you have to find a health insurer on your own, you’ll find that comparing the benefits of various major medical insurance policies is complicated business. Look at the upper limit on medical coverage (at least $1 million is best), the amount of the deductible (the higher your deductible, the lower the premiums), the coinsurance or percentage of costs you will be required to pay beyond the deductible, and what kinds of medical expenses are limited or excluded by the policy you are considering. Compare policies by estimating what each one would pay toward a typical year’s medical costs for your family.

Long-term Care Insurance
By 2030, one in five Americans will be a senior citizen, and the need for long-term care insurance will grow with our aging population. Insurance for nursing home care is especially vital for women, who live longer than men and typically have fewer assets. Long-term care insurance can help safeguard you and your family. We advise clients to begin shopping for this insurance coverage between ages 55 and 60.

Home Owner’s Insurance
If you own a home, you need home owner’s insurance to reimburse you in case damage is sustained to your house or personal property or someone is injured in your home. If you rent, your property and liability will be covered under a tenant’s policy or renter’s insurance. These policies protect you against loss from most common risks, such as fire, windstorms, and theft. For a higher premium payment, you can buy wider coverage to include events such as floods and earthquakes. To insure exceptionally valuable personal property such as jewelry or artwork you will need to add a “personal articles floater” to your policy.

Vehicle Insurance
If you own a car, you need vehicle insurance. There are four types of coverage: bodily injury liability, property damage liability, collision, and uninsured motorist. Bodily injury and property damage liability protect you against claims if your car injures someone or damages their property. Collision covers damage done to your car in a collision. Uninsured motorist pays for accidents in which you are not at fault and the other party is not insured. The general premium you will pay for auto insurance is based on your coverage, the location of your residence, your accident record, traffic violations, previous insurance claims, and the kind of car you drive. Call at least three insurance companies in your search for the best rates for your needs.

Carry an Umbrella
For our clients with significant assets, we suggest an umbrella policy. An umbrella takes over if an insurance claim exceeds your other policy limits, adding $1 million extra coverage to your personal liability and auto liability policies. The umbrella covers you, your spouse and any relatives living in your household and insured by your primary policies. The cost is only a few hundred dollars a year, and the peace of mind the umbrella policy provides is well worth the expense.Insurance coverage has come a long way since Benjamin Franklin’s day, but the basic concept remains the same–protect yourself and your family today with the ounce of prevention that insurance provides.

Candace Bahr is managing partner of Bahr Investment Group in Carlsbad (She is also a Registered Principal with and securities and financial planning offered through Linsco/Private Ledger, a registered investment advisor, member SIPC). Phone 760-431-9288. A financial consultant with over 24 years experience, Registered Rep Magazine named her one of the top ten “Outstanding Brokers for 2003.” She is co-founder of the nationally acclaimed non-profit Women’s Institute for Financial Education (http://www.wife.org/) and co-author of It’s More Than Money–It’s Your Life: The New Money Club for Women (John Wiley & Sons, Jan ‘04).