Read:Preparation is a powerful gospel principle. The Lord promises that “if ye are prepared ye shall not fear” (D&C 38:30).
After our obligation to pay the Lord first through tithing and other offerings, our second obligation is to work to protect our families from hardship. We can do this only if we develop a long-term perspective. In this chapter we will learn two steps to protect our families from financial hardship:
Develop a one-month emergency fund
Acquire adequate insurance
Discuss:Take a few moments to look at the Financial Stewardship Success Map. Why do you think that protecting your family from hardship is the second priority after paying tithes and offerings?
2. Build a One-Month Emergency Fund
Read:By tracking your expenses for at least four weeks, you should have now identified the amount of money required for one month’s worth of living expenses. Your one-month emergency fund should equal this amount.
For your one-month emergency fund, you should save cash in a safe and accessible place such as a bank account. Do not use this money for anything other than emergencies. If you have an emergency and must use money from your one-month emergency fund, immediately begin putting money back into the fund until it is full. Later, after you have paid down all of your consumer debt, you will begin to save enough money to cover your expenses for three to six months (we will cover this step in chapter 9).
You should work to build a one-month emergency fund as fast as possible. Put any extra money you have toward your emergency fund until it is complete. Even if you have debt, make only the minimum required debt payment until you have built a one-month emergency fund. To help speed up this process, you may want to find extra or better work, sell some things you can live without, or eliminate some unnecessary expenses.
Discuss:What blessings can come to your family from having a one-month emergency fund? Why should you build an emergency fund before paying down debt?
3. Acquire Adequate Insurance
Read:How would it impact you or your family financially if one of you became very ill or disabled, or perhaps even passed away? What would be the financial impact of something like a house fire or a serious car accident? These types of hardships happen, and if we are not prepared, they can cause major financial problems. A good source of protection against possible hardship is insurance. Insurance is an arrangement in which an organization (typically an insurance agency) guarantees to compensate an individual for specific hardships in exchange for a fixed payment.
President N. Eldon Tanner taught, “Nothing seems so certain as the unexpected in our lives. With rising medical costs, health insurance is the only way most families can meet serious accident, illness, or maternity costs. … Life insurance provides income continuation when the provider prematurely dies. Every family should make provision for proper health and life insurance” (“Constancy amid Change,” Ensign, Nov. 1979, 82).
Discuss:Why is insurance so critical? What blessings can come from having adequate insurance?
Benefits of Insurance
Read:Insurance can help protect you from the financial devastation that accidents and other hardships can bring.
Type of Insurance
Read:You do not need to insure all things—that is why you are building an emergency fund and other savings. However, it is critical that you protect yourself from hardship that could be financially devastating. President Marion G. Romney taught that “we have … been counseled [to] have a reserve of cash to meet emergencies and to carry adequate health, home, and life insurance” (“Principles of Temporal Salvation,” Ensign, Apr. 1981, 6).
There are many types of insurance, but the four most common are these:
Property insurance: Property insurance, such as homeowners, renters, and automobile insurance, can help cover the cost to replace or repair property in the event of serious damage, theft, or destruction.
Health insurance: Health insurance can help cover the cost of health care, from covering well-care visits and treating illness to paying for major medical events. Depending on your location, health care may be a government service and your need for health insurance may vary.
Life insurance: Life insurance provides a family with a sum of money if an insured family member dies.
Disability insurance: Disability insurance guarantees that a portion of the insured person’s income will be paid if he or she becomes disabled and is unable to work for an extended period of time.
Insurance Costs
Read:Now that we have a basic understanding of insurance and some of its potential benefits, let’s discuss some of the costs. The two primary types of costs or expenses associated with insurance are the premium and the deductible.
A premium represents the price of the insurance—or the money you pay directly (often monthly or annually) to the insurance company in exchange for the coverage.
A deductible represents the amount of money that you pay toward your expenses (such as medical expenses or automobile repair costs) before the insurance company will cover the remaining costs.
Cost-Benefit Analysis
Read:When comparing insurance plans, you are essentially trying to compare what the plan could potentially cost you versus what it could potentially provide in coverage. It may be helpful to compare best-case to worst-case scenarios.
Annual Minimum Cost (The Best-Case Scenario)
To calculate the annual minimum cost, simply multiply your monthly premium by 12 months (12 x the monthly premium), or look at the annual premium if you are billed just once a year. This scenario assumes that you do not have an insurable event in the year.
Annual Maximum Cost (The Worst-Case Scenario)
To calculate your annual maximum cost, add your annual minimum cost to the annual deductible ([12 x the monthly premium] + deductible). This scenario assumes that the expenses of the insurable event exceed your annual deductible.
With this information you can now compare the expense ranges of different plans. The following example demonstrates a way that you can compare plans.
Considering Other Benefits
Read:In the activity we just completed, we were evaluating one type of property insurance plan (renters insurance). We can use the same kind of process when comparing other types of insurance. However, there are often other factors to consider, beyond just the potential minimum and maximum costs. Here are some additional questions to ask when analyzing different insurance plans:
What services or events are covered?
What are the types and limits of the coverage?
What is the reputation of the insurance provider?
Are there discounts you might qualify for?
How likely is it that you would pay close to only the minimum out-of-pocket expenses?
How likely is it that you would have to pay the maximum out-of-pocket expenses?
Discuss the Emergency Fund and Insurance in Your Family Council
Read:In your family council this week, discuss ways to build your one-month emergency fund. Also determine which insurance plans are important for your family, and investigate insurance policies. You may want to use the “Sample Family Council Discussion” outline below.