Unexpected expenses are bound to happen. Cars break down, roofs leak and faulty plumbing floods homes.
Yet 4 out of 10 adults would be unable to cover an emergency expense of $400 without borrowing money or selling possessions, according to a 2018 report from the Federal Reserve.
One way to be prepared is to build an emergency fund that is big enough to cover all of your living expenses for months so you could weather a job layoff without going into debt. You should also protect yourself by buying homeowners, health and auto insurance — among other financial products we cite in “10 Things You Need for Lifelong Financial Health and Wealth.”
Following are some of life’s most unpleasant expenses that can catch you off-guard, and more strategies for coping with them.
1. Automobile breakdowns
Vehicle breakdowns are hard to anticipate. Some drivers buy mechanical breakdown insurance or extended repair warranties for added peace of mind.
Mechanical breakdown insurance is supplemental insurance that covers repairs unrelated to accidents.
An extended auto warranty covers repairs after factory warranties have expired. The items such warranties protect vary, but they typically exclude wear-and-tear and routine maintenance, such as replacing tires, notes U.S. News & World Report.
Some warranties are backed by vehicle manufacturers and others are backed by car dealers or warranty companies.
Money Talks News founder Stacy Johnson weighs the pros and cons of extended repair warranties in “Ask Stacy — Should I Buy an Extended Car Warranty?”
2. Costly home repairs
Anyone who owns a home knows there are plenty of unexpected expenses. A flooded kitchen or a damaged roof easily can lead to thousands of dollars in repairs.
Aside from building an emergency fund, the best way to cope is to have a homeowners insurance policy.
Be sure to get quotes from several carriers and compare levels of coverage. If you don’t want to do the comparison shopping yourself, there are now companies that specialize in getting quotes for you. Gabi is one example.
Homeowners policies don’t cover normal wear and tear or damage to electrical systems, plumbing and household appliances, however. One way to guard against expenses associated with such wear and tear is to buy a home warranty, which is like a service contract.
You can learn more about the pros and cons of this type of protection in “Should You Buy a Home Warranty? How to Judge for Yourself.”
3. Funeral expenses
The national median cost of a funeral with viewing and burial is $7,360, according to the latest data from the National Funeral Directors Association. The average price of a casket alone is little more than $2,000, according to the Federal Trade Commission.
You can limit funeral costs if you shop for the lowest prices and beware predatory business practices.
Funeral providers are required by law to provide you with an itemized statement of the total cost of the funeral you’ve selected. This should include the cost of complying with any legal requirements. However, optional services and products can add to your costs.
For more ideas, read “11 to Make a Funeral Affordable but Not Cheap.”
4. Medical costs
The high cost of health care in America can deplete your bank account. According to the federal health care marketplace website, HealthCare.gov, the cost of treating a broken leg can reach $7,500, and the average cost of three days in the hospital is $30,000.
You can try to stay well by exercising and eating healthy foods. But the best way to protect yourself from unexpected medical costs is to have health insurance.
One way to lower prices is to negotiate with health care providers for reduced bills.
Another option is to buy catastrophic health insurance through HealthCare.gov or the state health insurance marketplace in 11 states and the District of Columbia. These catastrophic plans have low monthly premiums but high deductibles, the share of costs that you must pay, says Healthcare.gov. For 2019, the deductible for all catastrophic plans is $7,900.
Low-income Americans may qualify for Medicaid, a health insurance program run through state and federal governments.
People who are 65 or older generally qualify for Medicare, a federal health insurance program.
5. Totaled automobiles
Having your auto insurance company declare your damaged car to be a total loss can trigger a financial crisis if you don’t receive a large enough payout to buy a replacement vehicle.
It’s common for cars to be totaled when the damage exceeds the car’s market value. If your car is an older model, it may have a low market value even though it runs great.
If you believe your totaled car is valuable enough to justify repair costs, you can contest your insurer’s decision to total your vehicle. One way to do this is to demonstrate that cars like yours are selling for more than your insurer thinks yours is worth. Kelley Blue Book and the National Association of Automobile Dealers publish guides that you can use to judge car values.
Another option is to keep the totaled car and pay for the repairs yourself. If you want the car, typically your insurer will pay you the cash value of the damaged vehicle, minus any required deductible and the amount it could have sold for to a salvage yard. It will be up to you to arrange for repairs.
6. Lawsuit judgments
Losing a lawsuit can deal a serious financial blow if you’re found to be legally responsible for damages.
To help avoid that outcome, respond quickly when a suit has been filed against you.
“Failing to timely file an answer to a [lawsuit] can result in a default judgment filed against you,” Boston attorney Christopher Earley tells Money Talks News.
One of your first steps should be to contact an attorney. Make sure you understand how he or she will bill you.
Liability insurance is a good way protect yourself from the cost of a lawsuit. It will cover the cost of your legal defense and pay judgments against you, up to the limits of the policy.
Liability protection typically is included in a homeowners insurance policy to cover you in the event that someone is injured on your property, for example. If you own a business, you may need a separate policy to protect your business from liability claims.
Burglary victims often face serious expenses when it comes to replacing missing items.
After you’ve installed good locks and an alarm system, the best defense is to have an insurance policy for your home or business that will replace stolen items.
If you choose an actual cash value (ACV) policy, you may save money compared with a replacement cost protection plan. However, if a loss occurs, it will pay only what your property is worth at the time of the claim — meaning after depreciation. Under a replacement policy, however, your insurer pays the full cost of replacement.
Standard homeowner policies generally limit how much you can collect when high-value property is stolen or damaged. If you have expensive artwork, collectibles or jewelry, you may need to buy an insurance rider — a written agreement that increases your benefits to cover expensive items that your policy would not otherwise cover.
Have you been hit by a surprise expense? Share your experience and thoughts in comments below or on our Facebook page.
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