Cover your Assets: Manage Risks and Plan for Your Future
Below are the things you can do to keep what you've got safe from theft and accidents, plus how to safely take care of all the extra money you'll have now that you are sticking to a budget.
Keep a System for Personal Financial Records
It is a good idea to keep hard copies and digital copies of your financial records. If any financial records include your Social Security number, account numbers, or other information that is personally identifiable, make sure these records are kept secure in a safe or a password protected file.
Keeping a secure system for maintaining personal financial records will help you to handle your daily personal business such as bills, tax returns, FAFSA information, and/or other budget information.
Items to keep in a secured file at home or a safe deposit box might include:
- Employment records (keep for 7 years)
- Income tax records (keep for 7 years)
- Insurance records (update every year or when there are changes)
- Investment and bank account statements (keep for 1-5 years)
- Credit reports (update each of the big three once a year)
- Copies of FAFSA (update once a year while in college)
- Birth, marriage and death certificates and/or military and citizenship papers (keep indefinitely)
- Credit card statements (keep for one year)
- Insurance policy numbers (keep for the life of the policy)
- Investment records (keep for the life of the investment)
- Real estate records (keep until sold or updated)
- Serial numbers of valuables (keep while as long as you own the item)
Product warranty information or large purchase receipts should be kept in a file for the duration of their coverage or value. When you dispose of any personal records, make sure that you do not put them in the garbage; shred them, or take them to a reputable shredding company.
Keep Yourself Safe from Identity Theft
Identity theft occurs when someone steals your identity and uses your personal information to commit crimes, such as to obtain a credit card or rent an apartment in your name, charge things on your credit card or other accounts, or withdraw money from your bank account. Identity thieves can even get a driver's license, or get utility or medical services in your name. You may not find out about these crimes until you notice money missing, or charges you didn't make, or you may be contacted by a debt collector.
The best way to avoid identity theft is to safeguard your personal information and regularly monitor your personal accounts. For more information about identity theft and how to avoid it, visit the Federal Trade Commission's Identity Theft Prevention site.
Save Your Money and Invest in Your Future
Once you have met all of your immediate financial obligations, and you have saved enough money in the bank to cover at least three months of living expenses, you might want to consider investing your money. It is a good idea to start investing when you are young, because most investments earn you money over time. Here are a few kinds of savings and investment options to think about:
- Government bonds are essentially a loan that you make to the government and in turn, the government provides you with a written promise to repay the specified amount of money, with interest.
- Stocks refer to shares, or ownership investment in a company. When a company does well, the price of the stock increases and the value of the stock increases. Investors who own stock in a company are considered shareholders in that company.
- Mutual Funds pool money from many different investors (shareholders) to invest in a variety of different companies. The benefit to investing in mutual funds is that you actually invest in several different companies (diversification), instead of just one company.
- Real Estate can also be considered an investment with a lower rate of risk; however the return is often higher over an extended period of time.
- An Individual Retirement Account (IRA) is a retirement savings plan that allows you to save money towards your retirement. The money in your IRA is tax-deferred, meaning you do not pay taxes on money in the IRA until you start to use it.
- A Certificate of Deposit (CD) is a saving plan that requires a set amount of money to be left in an account for a stated period of time and will earn a specified interest rate. CDs offer rates of return, but there is a penalty for withdrawing funds before the specified time.
- Money Market Accounts are savings accounts that require you to keep a minimum balance and you are paid market interest rates on your money. A penalty is often imposed if you do not maintain the minimum balance.
For more information on establishing a financial plan, or how to begin investing, visit the U.S. Securities and Exchange Commission's educational site.
Minimize Risk: Insure Yourself and Your Property
It may be tempting to think about not purchasing insurance. After all, insurance companies charge a ton of money for a service that you might not need. And as a student, you are trying to keep your expenses down, so why pay for something you might not need?
There are several reasons why insurance matters, even to those on a student budget. Some types of insurance (for example, car insurance) are required by law. Additionally, some insurance can save you financially if a catastrophic event occurs (for example, a severe medical crisis, a severe car accident, or damage to your home or apartment).
Let's look at types of Insurance that may pertain to you and your situation:
All drivers in the state of Oregon are required by law to have and maintain basic liability insurance coverage. Liability insurance provides financial coverage in case of bodily injury and/or property damage.
Types of liability insurance that are required by the state are:
Bodily injury liability
Bodily injury liability coverage pays for damages other people incur if you or someone you allow to drive your car causes an auto accident. Examples of damages include medical expenses, rehabilitation, funeral costs, settlement of lawsuits, and legal expenses.
Property damage liability
Property damage liability coverage pays for damage to other people's property if you or someone you let drive your car causes an auto accident. It usually pays for repair or actual cash value (ACV) of others' property and your legal expenses.
Personal injury protection (PIP)
Personal injury protection coverage pays for medical, rehabilitation, funeral, and childcare expenses as well as for loss of earnings and in-home assistance if you and your passengers are injured in an accident, regardless of who is at fault.
Uninsured and underinsured motorist bodily injury
Uninsured and underinsured motorist bodily injury coverage pays medical, rehabilitation, and funeral expenses, loss of earnings, and other damages if you or your family are involved in a vehicle, bicycle, or pedestrian accident caused by an uninsured or underinsured motorist or a hit-and-run driver.
If you drive without liability insurance and you are caught, you may receive fines, your car may be towed (at your expense) and you could have your driving privileges suspended. Each month, the State of Oregon selects random drivers and asks them for proof of basic automobile liability insurance. If you don't respond with truthful information that you do have basic liability, you could have your driving privileges suspended.
Types of automobile insurance that are optional in the state of Oregon are:
Uninsured motorist property damage
Uninsured motorist property damage pays for damage to your auto caused by an uninsured driver. This optional coverage generally duplicates your collision coverage, but may be a good buy if you have a high deductible on your collision coverage or don't have collision coverage.
Collision coverage pays for repairing your vehicle in a collision or rollover.
Comprehensive coverage pays for damage to your vehicle resulting from theft, vandalism, windstorms, fire, hail, etc.
Check out the Official State of Oregon Department of Motor Vehicles insurance information webpage.
Health insurance is often seen as a luxury by those who don't have insurance through work or family. Health insurance can be expensive, and learning about options for affording health insurance, and different types of health insurance, can be confusing . The benefits of having health insurance can often outweigh the costs. If you are in a catastrophic accident, or contract a serious illness, you may be stuck with large medical bills. If you have an ongoing health condition that needs regular medical care, putting off receiving that care can hurt you more in the long run than the cost of an insurance premium now.
Some of the information about health insurance available now will change in 2014 when the next phase of the Federal Healthcare Reform Act begins. To learn more about the FHRA and how it may affect you, visit Health Reform Source.
Types of Health Insurance
Group health insurance through an employer
If your employer provides health insurance, be sure to read the informational materials your employer provides carefully and to ask questions about the coverage to make sure you understand the options and level of coverage.
Group health insurance not provided by an employer
Unions sometimes have member discounts on insurance or the ability to obtain insurance at group rates rather than individual rates. They may also have discounts on other types of insurance. Associations (professional, social/civic, etc.) may also be able to offer group rates for health insurance and other types of insurance.
Private health insurance purchased by an individual
There are many types of private health insurance companies and types of insurance coverage to choose from. If you wish to learn more about how to look for a plan that works for you and your family and is reasonably priced, check out the State of Oregon Office of Private Health Partnerships website.
The Oregon Office of Private Health Partnerships offers a program, the Family Health Insurance Assistance Program (FHIAP), which can pay a portion of health insurance premiums for those who are buying their own health insurance and who meet income guidelines. FHIAP is a state program that helps uninsured Oregonians buy health insurance. FHIAP is not an insurance company. Instead, the agency gives subsidies (grants of money) to help pay the monthly cost of your health insurance premium. This helps individuals and families pay for insurance at work or buy individual health plans if insurance is not available through an employer.
FHIAP members pay part of the premium. They also pay other costs of private health insurance such as co-payments and deductibles. Once approved for FHIAP, members are eligible to remain in the program for 12 months. Three to four months before the member's eligibility ends, FHIAP sends a new application and members may re-apply.
Oregon health programs
These programs are primarily for those who have healthcare needs but who cannot afford insurance. Check with each program to see if you are eligible for Oregon health programs.
Homeowner and Renter Insurance
If you rent, having renters insurance can protect you from financial loss if your possessions are damaged in, or if items are stolen from, your apartment or house.
Because renters insurance does not insure the building in which you are living, the premiums for renter's insurance policies are usually very low. Even though such policies don't cost much, if your stuff gets damaged or stolen, insurance coverage can help you to afford to replace the items that were lost.
Your landlord's insurance on the building generally won't cover damage to your property, so renters need to make sure they have covered themselves. Renter insurance can also protect you from liability if someone gets hurt in your home or elsewhere because of your negligence.
Homeowner insurance can be much more complex that renter insurance and will cost more since your actual home and property are being insured. Carefully review with an insurance agent the things that are covered and not covered by a homeowner insurance policy you are considering.
Usually standard homeowner insurance policies don't cover things like:
- Damage caused by earthquake, flooding, landslide, mudslide, earth movement, and nuclear accident
- Theft of valuables such as furs, jewels, coin or stamp collections, or antiques. These items may be covered on a limited basis for damage caused by events other than theft
- Damage or loss connected to a home business or storage of business goods
- Boats, jet skis, automobiles or other motorized vehicles. If any motorized vehicles are used on your property for maintenance purposes only, they may be covered by a standard policy
- Water damage that occurs over time and is not sudden and accidental such as damaged caused by a slow leak in the plumbing
- Damage caused by lack of routine maintenance and upkeep
- Intentional acts by the homeowner or a family member
For more information about Homeowner and Renter insurance, see the Oregon Insurance Division Consumer Guide to Homeowner and Tenant Insurance.
It may seem strange to think about life insurance when you are in school, but as the saying goes, the only two things you can count on in life are paying taxes… and well, the need for some sort of life insurance.
How much life insurance you need and what type of policy you get are really dependent on your role in life. If you are a provider for your family, you will likely need enough life insurance to provide your share of the contribution to family expenses for about 5 years. At the very least, if you are single and have no dependents you will need enough insurance or savings to take care of funeral costs. Here are some guidelines for how much life insurance to buy:
Your family should have about 5 years-worth
You should have enough to cover any outstanding debts, including credit cards, personal loans, car loans, student loans, medical bills, etc. If you don't have insurance to cover this, your estate might be held responsible, which could provide a hardship to your surviving loved ones.
Since this amount changes, you will want to adjust as you pay down your debt or increase your debt with a second mortgage or HELOC
If a priority is to provide money for your children's college education, you should figure at least $10,000/ year per student, so two kids at a 4 year college would be at least $80,000.
This should be about 10% of your current average salary.
When you add up all of the above expenses that apply to you, you have your recommended coverage amount.
There are four basic types of life insurance:
Term is the simplest form of life insurance. Unlike other types, it does not earn money. What you pay for is what your family will get, generally in a lump sum. Term life has three basic categories:
- Level Term - where the value of the policy and the premium (what you pay for it) remains the same for the life of the policy. If you purchase $100,000 of insurance on a 20 year term for $35.00/ month, as long as you pay your $35.00 every month you will have that protection until the 20 year term ends.
- Annual Renewable Term - for this, insurance the coverage stays the same, but every year you must renew it. As you get older or experience health problems, your rate will go up. Sometimes a lot, so be careful choosing this option!
- Decreasing Term - the benefit in this insurance decreases over time. This insurance is ideal for someone who wants to make sure that their property is paid off should they die. The idea is that each year what you owe on your property will be less, so the benefit available to pay it off can also go down.
Whole Life insurance works like term, but as long as you keep paying your premium, you stay covered. Whole life has two parts: a cash value, and a beneficiary value. The cash value is based on a portion of the premium (what you pay each month), and is kept in a fixed-rate interest savings account. The cash value will continue to grow at an even rate as long as you continue to pay your premium. If you decide to end your Whole Life coverage, you are entitled to the cash value that has accumulated. You may also borrow against this value without giving up the benefit. This type of insurance often cost more at the start, and provides a smaller benefit than Term Life, however it is also a forced savings (though you're likely to have better investment strategies) and as you get older (or less healthy), the premium stays the same.
Universal Life is a lot like Whole Life insurance. A primary difference is that Universal Life allows you to earn interest at market rates (with a guaranteed minimum), and the policy holder (you) has more control over when and how you access the cash value and what you pay for the premium.
Like Whole Life and Universal Life, Variable Life has two parts. The difference is each part is invested separately into market accounts. While there is a minimum death benefit, the actual benefit may be higher if the account is earning higher market returns. The cash benefit will fluctuate with the market. Unlike Whole Life or Universal Life, the policy holder assumes the investment risk on the cash benefit. Like Whole Life, the premium payments are fixed (which makes it different from Universal Life).
Did you know...
Information on all types of insurance: the State of Oregon maintains a website designed to help consumers make good choices when buying insurance! The site contains free publications, fact sheets and even an advice blog called "Ask Ron", where consumers write in with questions, and Ron Fredrickson, Manager of the State of Oregon's Consumer Advocacy Unit of the Department of Insurance, gives the answers.