THE BLOG
09/30/2014 10:16 am ET Updated Nov 30, 2014

6 Must-have Insurance Policies

Protecting wealth is probably just as important as creating it. Insurance remains a crucial part of a well thought out wealth strategy.

Poor planning in just one of these areas could be detrimental to your long-term wealth. It will only take one catastrophe to put you in a world of financial hurt. However, the natural tendency is to try to skimp or even self-insure with various types of risk.

Don't do it.

Make sure you have these insurance policies:

1. Disability
When I first began my career in financial services, I talked to clients about the benefits of long-term disability insurance. It was one of the hardest things to convince people to purchase. Why? First, it's expensive. Why is it so expensive? Because there is a very high likelihood that you will use this policy. You will have an accident at some point and it will keep you from working. Second, it was an awareness thing. It's hard to convince a perfectly healthy client that they need insurance for when they get hurt or sick. Maybe it's just denial. Don't do without this insurance.

2. Health
Health insurance is one of my biggest personal expenses. Second behind my mortgage! With medical procedures becoming more and more advanced, they also become more expensive. Paying out of pocket for a heart surgery or other major illness is nearly impossible. Make sure you have enough insurance to at least cover major health issues. To lower costs, you may choose a high deductible. Just make sure you have enough in your cash reserves to cover the large deductible.

3. Auto
In most states you are required to have some sort of minimum auto coverage. It's really important to have a good policy. If you have wealth, there is always someone that will want to sue to get their hands on it. Especially if you are involved in a car accident. Like I said before, who sues the financially challenged, right? You can also get umbrella liability coverage to handle larger amounts. All it takes is one big mistake and you could be fighting for your last shirt.

4. Homeowners
To me, homeowners insurance is an absolute must. There's just no way you would want to self-insure this large of a potential risk. You have to have coverage for fires and weather damage. But you also have to make sure you cover yourself if someone trips and falls on your property. If the injury is big enough, it could get very expensive. Plus, make sure your coverage is for replacement of the structure and the contents. You may also want to cover the expense of living somewhere temporarily while your home is being repaired.

5. Life
If you have people that are financially dependent upon you, then life insurance is a must. I've seen countless clients that were underinsured, or had no life insurance, and left their families almost destitute. I'm not saying go out and buy a multi-million dollar policy. I'm saying get all that you can afford to replace your lost income. Don't cut corners.

6. Long-Term Care
Long-term care is insurance for when you get older. I kind of refer to it as the retired's disability insurance. You probably will need LTC if you or your family members are over the age of 50. Boy has it become expensive! That's because about 50% of us will use if for several years. The average cost of long-term care keeps rising, and the average annual stay can run as high as $70-80,000. Yikes! So it's easy to see why you might need this to protect your wealth.

Make sure you shop carefully. You could really over spend when it comes to insurance. I've seen some clients spending over one third of their income in this area. Compare and look around. Find a good wealth advisor or property casualty agent that can show and compare multiple policies. Your wealth will thank you.

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