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Today’s Discussion:

2 Protect Your Family from Hardship

Financial Stewardship Success Map

1. Protect Your Family from Hardship

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.

Activity (5 minutes)

As a group, review the two scenarios below. Then discuss how insurance was beneficial in these situations.

Scenario 1: You were in an automobile accident and it was your fault. Your car was severely damaged, as was the other driver’s. Both you and the other driver suffered some injuries and had to receive medical care. The total cost to repair both vehicles and to pay the medical bills ends up being over 15,000.

	Without Insurance	With Insurance
Total cost	15,000	15,000
Cost covered by insurance	0	12,000
Cost you must cover	15,000	3,000

Scenario 2: A 45-year-old father has worked as an electrician and has earned 3,500 per month. He is the sole provider for his wife and three children. He injured his back and will no longer be able to work as an electrician. He won’t earn any money until he can get a different job, which may require school or other training.

	Without Insurance	With Insurance
Monthly income from employment	0	0
Monthly income from insurance	0	3,000
Total monthly income	0	3,000

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.

Activity (3 minutes)

Pair up with your spouse or action partner, and share your understanding of property, health, life, and disability insurance. Discuss what types of insurance coverage would be important to have in your circumstances.

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.

Calculator Exercise

Step 1: Divide into small groups of two to four people.

Step 2: Read through the following scenario as a small group. Each person in the group should use his or her calculator, as directed. Help each other as needed, and ensure that every person is able to get the right answer.

Note: See the “Resources” section at the end of the chapter for answers.

Read:Imagine that you are comparing two renters insurance plans: a plan with a high deductible of 2,000 that costs 10 each month, and a plan with a lower deductible of 500 that costs 40 each month.

Calculate:Each person in the group should calculate the annual minimum and maximum costs for each plan. Write your answers below.

Calculate:How much money will the high-deductible plan save you in the best-case scenario (assuming you pay only the annual minimum cost)? Write your answer below.

Answer:

Hint:(Low-deductible plan annual minimum cost) – (High-deductible plan annual minimum cost)

Read:Notice that in the best-case scenario, the high-deductible plan will save you 360. This means that even if you have to cover up to 360 in renter property-related expenses out of your own pocket, it is still less expensive to go with the high-deductible plan, for this situation. However, this is not true in the worst-case scenario.

Calculate:How much money will the lower-deductible plan save you in the worst-case scenario (assuming you had to pay the annual maximum costs)? Write your answer below.

Answer:

Hint:(High-deductible plan annual maximum cost) – (Low-deductible plan annual maximum cost)

Read:In the worst-case scenario, where you had to pay out the maximum annual cost, you would save almost twice as much (over 1,000) by choosing the lower-deductible plan. As you try to decide between insurance plans and options, consider your situation or that of your family in order to choose the plan that best fits your needs.

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.

Sample Family Council Discussion

Be sure to begin and end with a prayer to invite the Spirit.

Part 1: Review

• How are you doing on following your budget?

• Do you have adequate insurance? What insurance policies do you need in your circumstance?

Part 2: Plan

• If you don’t have adequate insurance, which insurance coverage should you obtain? Conduct a cost-benefit analysis of the plans available (see pages 97–98).

• What can you do to quickly build your one-month emergency fund?

Annual Checkup

I used to sell insurance, and I know that rates rise over time. I don’t sell insurance anymore, but I compare rates across insurance plans every year to make sure I am getting the best deal. Every November I review my plans and get quotes from other companies. This keeps my costs as low as possible.