Protecting Your Assets
How does insurance work? When might I need it and why? Does it make sense for me to hire an advisor or other type of financial professional? You aren't alone if you've asked yourself these questions! Read on to learn more about protecting your assets and supporting your financial well-being!
The most basic approach to navigating personal finances is easy enough to understand- Spend less. Save more. But what about the more complex money matters? Foundational knowledge is likely to get you only so far before you have to rely on specific products, policies, and professional help to protect your assets and ensure lasting financial well-being for years to come.
Utilizing insurance and obtaining guidance from professionals are among the most common ways folks protect their financial assets. This section aims to provide information on the role these two factors have on money management and personal finances, including:
- Types of insurance coverage available
- General process of how insurance works
- Types of financial professionals
- Considerations for seeking professional assistance
Having a reliable safety net is perhaps the most critical component when it comes to building your personal finance foundation and fostering your financial well-being: if you are faced with an unexpected bill or see a change in financial circumstances, you’ve essentially got a back-up plan that can get you through! Yet, while rainy day funds or emergency savings are great ways to support financial security initially, as your finances get more complex, the need to protect your assets becomes that much greater and may require a safety net that is more dynamic and offers better monetary security.
The best way to protect your assets and promote this level of financial security is by utilizing insurance. Insurance is a contract between an agency and an individual wherein policies or coverage can be obtained for a specific monetary amount that offers larger financial protection against losses or damages stemming from catastrophic events- these include things like natural disasters, accidents, and even death. Rather than face the possibility of having these types of incidences result in a major expense or loss of money that you must account for entirely on your own, an insurance policy will provide financial assistance to help cover the repercussions that oftentimes result from these occurrences. In short, the financial fallback that insurance provides can mean the difference between making it through a major hardship or succumbing to significant monetary distress.
Insurance coverage and the types of policies available vary based on the asset you are looking to protect:
Auto Insurance- Protects against car accidents, damage, or car theft. For almost all states, some type of coverage or car insurance policy is required for vehicle owners.
Notably, auto insurance coverage is oftentimes expressed with three monetary amounts separated by a “/”. For example, you may see on your policy: $25,000/$50,000/$25,000. These three notations dictate monetary coverage for:
- Bodily injury per person
- Total bodily injury per accident
- Property damage per accident
Learn more about how auto insurance works and what type of coverage is available at Progressive, an insurance agency offering several types of coverage and policies!
Disability Insurance- Type of coverage that can provide you with a modified income stream in the event sickness or injury stops you from working and earning a traditional paycheck.
You can learn more about disability insurance at Guardian, an insurance provider that offers various policies.
Health Insurance- Provides financial assistance to cover costs associated with medical needs and emergencies, such as illnesses, injury, and preventative care. About half of Americans have health insurance through their employer.
Learn more about health insurance at Healthcare.gov!
Interested in seeing an example of what an employer-sponsored health care plan looks like? Use the health insurance plans offered by Duke University as a reference!
Home Insurance- Mitigates financial loss for homeowners; coverage varies based on policy or plan, but common coverage options include monetary support towards repairing or rebuilding your home, some even include replacing lost or broken personal assets, in the event a covered incident (storm, fire, etc.) results in damages.
Though policy and coverage options will vary between insurance carriers and what types of protection an individual has paid for, most insurance plans will include a specific amount of monetary coverage in the event you need to rebuild or make significant repairs to your home. This is known as Dwelling Coverage and is usually offered at a defined price point- $250,000, $350,000, and $450,000 are among the most common dollar offerings for coverage.
Keep learning about home insurance through the Learn Center at Hippo, a home insurance provider!
Life Insurance- Similar to disability insurance, life insurance offers financial support for loved ones or dependents in the event of your death. Under this type of coverage, the insurer pays a sum of money to designated beneficiaries when the policyholder dies. Oftentimes, marriage, the birth or adoption of a dependent, or the purchase of a home will prompt conversations for the need of this kind of coverage.
There are two main types of life insurance-
- Term Life Insurance- A policy defined by a certain number of years of coverage (10, 20, 30, etc.) and if the policyholder dies within the specified term, the beneficiaries under the plan will receive the designated payout or coverage
- Whole Life Insurance- The policy lasts the duration of your lifespan and provides a greater guarantee that your beneficiaries will receive the designated payout or coverage (exclusions and exceptions aside!) However, with a larger coverage period, Whole Life policies will almost always result in a higher cost compared to Term Life.
Learn more about life insurance policies, what they cover, and when it might make sense to consider obtaining a plan at Aflac, an insurance provider offering a wide range of plans and coverage.
While there are different kinds of insurance policies an individual can obtain, there are three foundational components that these agreements for coverage and protection are comprised of: premiums, deductibles, and policy limits.
Premium- The insurance policy price; this is typically a monthly expense you pay to the insurance provider you are working with. Note that for many health insurance plans provided by employers, rather than directly pay the insurance carrier, you can usually opt for automatic withholding or deposits from your paycheck that your employer then sends to the insurance carrier.
The given price of a specific premium is dependent on a number of factors, oftentimes related to the type of insurance coverage you are seeking. For example, individuals that are older seeking to obtain a life insurance policy may see a higher premium rate than their younger counterparts due to the “risk” they present the insurance company- it is more likely they will have to pay on the policy compared to someone younger they are covering. Other variables that can impact the premium for different types of insurance are:
- Number of individuals the policy is covering (individual vs family)
- Degree of comprehensiveness of the policy- the broader the coverage, the more the insurance agency would have to pay, which means a higher monthly cost onto the policy holder
- Level of risk the insurer deems the policy and policyholder
- Deductible amount
- Credit history
- Medical history
Keep in mind that not every factor listed will impact the cost across all different types of insurance.
Deductible- The amount paid out-of-pocket before the insurer pays a claim, or the reported expense the incident costs. A high-deductible plan will have low monthly premiums, but will have higher expenses when a loss occurs. When deciding which might be a better option for you- a lower premium, higher deductible plan or a higher premium, low deductible plan- reflect on what your monthly budget would allow for as well as your current savings and the likelihood you could afford a significant bill before your insurance would cover the remaining costs.
Policy Limit- The maximum amount the plan or policy provider will pay for a covered loss. This may be a monthly maximum, per loss maximum, or lifetime maximum. Policy limit may also be referred to as Maximum Allowable Charge. Once you hit the policy limit or maximum allowable charge, any costs that remain would come out of your pocket.
The following insurance calculators can help you reflect on possible coverage needs and estimated costs under different types of policies:
Whether you are required to obtain certain insurance coverage or have decided to expand your safety-net to account for as many worst case scenarios for your finances as possible, when it's time to purchase coverage or enter into a policy, most if not all of the steps to acquire insurance occur online directly through the specific agency or plan holder’s website.
You will most likely be asked to provide personal information, financial information, and other supporting documentation as needed by the insurer. The most important considerations when obtaining insurance are likely to be:
- Monthly costs
- Overall coverage and protection
- Meeting requirements by state governments, lenders, or other impacted parties
You typically can set when the insurance coverage will go into effect and for how long, but be sure to give yourself enough time to research different providers to ensure you are getting the best plan to fit your needs as possible, especially if you must have a policy in place at a specific time- like when closing on a home or securing financing for an automobile.
At times, insurance may feel like an added expense that isn’t worth budgeting for. But even the best planners may not be able to account for all of the financial downfalls that life can bring. Insurance is the ultimate safety net, and can protect your assets in ways you never would have been able to prepare for otherwise.
Navigating your personal finances comes with questions, confusion, and oftentimes a sense that you might be in over your head. While the topics and resources outlined on this website may help to bridge some of the information gap, there is a likely a time during your personal finance journey that you feel it will be best to seek the guidance from a trained professional. Whether its needing assistance filing your income taxes, devising the right investment strategy, or preparing for end of life matters, there are many life events that warrant a need to work with a financial professional.
As noted above, the type of financial professional you will need to work with depends on the financial or life event you are preparing for. The most common types of financial professionals are:
Accountant- This type of financial professional examines and keep record of the flow of money, usually for a company or business. As a result of their typical employment roles, many accountants are able to assist with matters of tax filing, however this not the case for every accountant.
Broker- An individual or firm that acts as an intermediary between investors and the securities exchange. Since access to buy, sell, or trade overall on the securities exchange is limited, brokers allow access and act as third parties in order for their clients to engage in certain types of investments.
Certified Public Accountant- These professionals are types of accountants that have received additional education and training to perform specialized accounting tasks like auditing or forensic accounting. Due to the additional training, many CPAs are also able to assist in the tax filing process for individuals and companies alike.
Certified Financial Planner- A financial professional that receives training and must pass certification to advise individuals on a multitude of financial matters, including investment and savings strategies, retirement planning, education planning for dependents, and overall management of financial resources for you or your household. CFPs also tend to have fiduciary designation- though you pay a CFP for their services, any professional serving under fiduciary capacity must advise or act on behalf of their client and what is best for them.
Credit Counselor- A credit counselor offers advice and helps consumers come up with a debt management strategy. Many counselors work for non-profit organizations and can even come up with payment agreements or change the terms of your debt directly with your lenders on your behalf.
Estate Planning Attorney- This is a type of attorney that specializes in legal matters related to end-of-life planning and what happens to someone’s assets and financial interests upon their death. They would be responsible for helping you to write out a will, identifying and notifying any beneficiaries, and confirming tax obligations for your assets. Estate planners can also maintain and communicate health care directives and your desired plans for long-term care.
Financial Advisor- Similar to a Certified Financial Planner, a financial advisor provides information and advice to help their clients make financial decisions and better manage their money. However, a financial advisor does not go through the same type of training or have the same credentials as a CFP. Additionally, a financial advisor is likely to help with planning and decision making on a more immediate basis and may not be able to assist with a long term plan or continued money management.
Financial Counselor- This type of professional provides educational information and oftentimes emotional support as you navigate broad concerns with money management. Financial counselors typically do not advise or make decisions on your behalf the way a financial advisor or planner might do. They may help provide some direction as you make financial decisions or come up with action steps to better empower your money management journey, but much of the work is geared towards capacity building, resource referral, and instilling confidence with their clients.
Financial Therapist- At the crossroads of financial well-being and mental well-being are financial therapists: professionals who work with their clients to explore and identify behaviors, attitudes, beliefs, and values behind your financial habits or ways you think about money. Financial therapists can work with you as an individual, but can also provide support to couples or households dealing with financial stress in their relationship.
Investment Advisor- A financial professional that recommends specific investment strategies or decisions to their clients. Professionals within certain asset management categories are usually obligated to register with the Securities and Exchange Commission, and operate on fiduciary duty.
Wealth Advisor- These professionals provide the same types of services as financial planners, however they tend to work exclusively with high net worth individuals or households to navigate concerns or money management questions specific to someone with wealth or financial assets. This could include things like setting up endowments in their name, plan for tax obligations, and provide advice or strategic planning to ensure continued wealth growth.
Where does Personal Finance @ Duke fall within this scope of professionals?
The staff in the Office of Student Loans and Personal Finance aligns most closely with professionals serving as financial counselors- our team aims to provide educational information and a space for reflection to allow members of the Duke community with questions around loans and money management a supportive environment to address their concerns and create an action plan to foster their financial well-being.
When might it make sense to seek out a financial professional beyond the services provided by Personal Finance @ Duke?
The staff in the Office of Student Loans and Personal Finance serves first and foremost in an educational capacity. Due to constraints in professional scope, financial professionals outside of the Office of Student Loans and Personal Finance may need to be sought out under the following instances and circumstances:
- Assisting with the filing process of federal and state income taxes
- Strategizing investment choices
- Planning for retirement
- Creating long-term saving strategies
- Formulating significant debt management and/or credit rebuilding plans
For individuals with complex financial situations, significant financial assets, or in need of long-term assistance, it is likely to be more appropriate to seek out the services of a financial professional.
Just be sure to verify the legitimacy and confirm necessary credentials of professionals you hope to work with. The following agencies can be used to ensure the professionals you are working with are trustworthy and can perform the services they promote:
Additional Protection & Insurance Resources
Learn the Lingo- Commonly Used Insurance Terms
Understanding insurance and how it is utilized in protecting your assets is definitely confusing at times, in part because of the jargon that is used throughout the insurance industry. Read through some of the most commonly used insurance terms to increase your knowledge and become better prepared in the event you ever have to file a claim and actually use your insurance.