How to Prepare for Financial Hardship

When life throws you a curveball, or two, or several, the best thing you can do is weather the storm and tap into your resources. Because you’ve worked hard for everything you have, it would be a shame to lose a great deal of money or assets. Here’s how to prepare for financial hardship.
Financial Hardship

Supplemental accident and illness plans

If you lose your job, become ill, or the economy takes a downturn, you’ll need to be prepared to mitigate financial disaster. To do this, having an emergency fund—enough savings to cover your bills for at least six months—is a standard recommendation. But the reality is that six months’ savings might not be enough to cover medical costs, particularly if an unfortunate situation drags out long term. Even the most diligent saver may find their reserves depleted and need to start over.

If you’re considering how to prepare yourself for unexpected expenses long term, consider supplemental insurance policies that will pay you cash directly if you are injured or ill and have to be out of work or in the hospital. These policies are generally much more straightforward than health-insurance policies and can be cost-effective. Also, claiming on these types of policies can be as easy as having your doctor sign off on the claim. Having this insurance pre-organized will mean that if illness strikes, you won’t have to dig as deeply into your savings.

Keep in mind, these policies DO NOT take the place of health insurance, and should be purchased in addition to your monthly insurance plan.

Health savings accounts

Health savings accounts (HSAs) are gaining in popularity, and can generally be opted into through your employer, if you have a high-deductible health plan. These plans allow you to contribute a certain amount of money per month that can be utilized should you have health expenses that aren’t covered by insurance. Not to mention, these accounts are what’s called “tax-advantaged,” meaning you don’t pay taxes on the money you contribute.

Though good for everyone, these plans are particularly beneficial for people who participate in action sports like skiing, mountain biking, and rock climbing, since injuries in these sports are common and an HSA will help you to mitigate the cost of high deductibles.

One thing to remember—having your finances in order is important if you set up an HSA. If you end up needing to use funds set aside in your HSA for expenses outside of what your plan allows, penalties can be enforced.

Gap and rental insurance

Picture this: You’ve just purchased the car of your dreams. You worked, you slaved, and you saved for it. But, accidents happen, and when they do, insurance companies may only pay out the car’s actual cash value, rather than what you paid for it. Here’s where gap coverage comes in. Gap coverage is optional coverage for newer cars, and can be added to standard collision insurance. This optional insurance can help to bridge the gap on your auto loan between what the car is currently worth and what it was worth when you drove it off the lot.

Rental insurance is another popular and good option for those who are renting a home, and own expensive items, such as high-end electronics and furniture. However, keep in mind that most rental insurance does not cover flooding. So, if you’re concerned about natural disasters, you’ll need to look into different or additional coverage.

Know your rights and employee benefits

Should you find yourself needing a great deal of time off for a health or family issue, knowing your rights and employment benefits at your current job is hugely beneficial. If you have a human resources department, be sure to talk with them and see what benefits might be available to you and your family. Don’t just try to go it alone, since there may be ways your employer is willing or is required to help.

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