How Insurance Can Prevent Debt

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A home is often a person's most valuable investment. Historically, the value of houses in America have continued to steadily increase. Unfortunately, as the years go by many people do not readjust the level of their homeowner coverage to keep pace with their home's value. In the event that the house is lost due to a fire the insurance money will not be enough to replace the home. This would leave the homeowner with two choices: settle for a lesser replacement home or pay the difference out of their own pocket. Many people would choose to pay the difference and if the money was not available would incur debt to do so. Another factor is the replacement of the possessions within the house. (i.e. jewelry, furniture, collectibles) If this figure is not current and up to date out of pocket replacement costs will increase. What about those that don't own their own home? Insurance can also help prevent debt for renters as well. Those that rent apartments, condos, houses or townhouses can cover themselves from the high replacement cost of personal items through renter's insurance.

Insurance regulations vary by state, however, in some areas (no fault states) insurance claims go through each individual's insurance company regardless of who was at fault in an accident. This means that even if you are an extremely cautious driver the insurance payments would come from your company in the event of an accident even if you did nothing wrong. If your car has limited coverage and it gets totaled then you take a big financial hit. Proper coverage would cover the cost of the vehicle and prevent a large personal debt from being incurred.

The passing of a close family member brings about several financial considerations. Burial expenses can be very costly often tallying well into the thousands. Many companies offer non paid bereavement time which suspends income over the length of the absence. If the deceased was the primary bread winner then the main source of income is now gone. If the deceased was the child care provider then day care expenses might become necessary. For all of these reasons and more it is a prudent idea to obtain adequate amounts of life insurance for family members. Proper amounts of insurance can prevent debt during tragic situations. The alternative could be severe financial problems.

Mark Carney is a professional consultant with First American Debt Consolidation and Loans, a debt consolidation service specializing in financial education, credit counseling, and debt management services nationwide.