Planning for the unexpected

Long-term care: services to help a person carry out essential daily activities like eating, bathing and dressing. Employee health insurance doesn't cover long-term care and, generally, Medicare doesn't either. Medicaid does cover it, but only after the patient—and, in many married-couple cases, the patient's spouse—has spent or transferred away almost all assets other than a home and cars.

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At any given moment, your household could experience an unforeseen financial emergency. Potential triggers include natural disasters—a fire, flood, tornado, hurricane or earthquake— or unexpected circumstances such as a car accident, an injury or illness or a job loss. But if you have a plan to safeguard your finances in an emergency, you improve the chances that you and your loved ones will be able to recover financially in relatively short order. Here are three important steps you can take to plan for the unexpected.

1. Insure properly
In the event of a financial emergency, having a comprehensive, personalized insurance program in place can help you stay financially afloat, meet your current financial obligations and continue saving for your short- and long-term goals. In developing a program, it's important to safeguard all your important assets, including yourself and your family members. Insurance can help you protect the following and more:

Your health
The high cost of medical care is well known. If you do not have health insurance through your employer, check with your state insurance department for a list of companies that offer private health insurance.

While life expectancy is on the rise, chronic diseases such as diabetes and Alzheimer's are increasing the need for long-term care. The costs of this care can pose a major threat to your financial security and quality of life. Long-term care insurance helps defray these costs, so you should consider such protection as you near retirement.

Your earnings
Your anticipated future earnings are your largest asset. If an interruption in your earnings may cause significant financial harm to you and your loved ones, think about how to protect against this risk.

Disability insurance provides income in the event that you are unable to work for an extended period of time due to sickness or injury. Check with your employer or state insurance department to learn more.

Life insurance provides a tax-free lump sum to your survivors in the event of your death. While your employer may offer a certain amount of group life insurance, depending on your needs both you and your spouse or partner should each own 10 times your annual salaries in protection. However, the appropriate amount of insurance for you depends on your needs and personal circumstances.

Your home and its contents
A homeowner or renter policy protects your home and its contents. Also, liability coverage for any property you own or rent is designed to provide funds in the event you are sued for an accident connected with the property. Some natural disasters, such as floods and earthquakes, may not be covered by a standard homeowner or renter policy, but you can check with your state insurance department about how to obtain coverage to help protect against such a disaster.

Your vehicles
Automobile, boat, motorcycle or recreational vehicle insurance protects you from financial loss if the vehicle is damaged or stolen. Such a policy also provides liability coverage to protect you if you are sued in connection with an accident.

2. Build a rainy-day fund
A rainy-day fund is a reserve of cash you can dip into in the event of a financial hardship. A general rule of thumb is to have enough cash set aside to cover at least six months' worth of living expenses.

The best place to keep a rainy-day fund is in an account where your money will be safe and easily accessible, such as a money market account at a bank. If and when you withdraw money from your rainy-day fund, try to restore the balance quickly so you'll have enough cash available for later use if needed. To learn more about the importance of having a rainy-day fund, as well as how you can get started, click on Start Saving and Investing Now.

3. Store essential documents in a safe place
It's important to keep certain documents and related items safe in the event you will need them in a disaster situation. One good option is to buy a fireproof, waterproof and portable safe and locate it somewhere in your home where you can get to it easily when necessary. Use the safe to hold things like:

  • A small amount of cash or traveler's checks (a disaster could shut down ATMs and banks)
  • A list of account numbers for bank and brokerage accounts
  • Copies of deeds, titles, wills, living wills, powers of attorney, birth and marriage certificates and passports. Generally, you should keep originals of these items in a safe deposit box at a bank, although originals of wills should be kept by your local registrar of wills or your attorney. Originals of wills should not be stored in a bank safe deposit box, because the box could be sealed temporarily after the death of the will's owner.
  • A list of emergency contacts, including doctors, financial advisors and family members
  • Insurance policies or names and contact information for insurance companies
  • A written inventory and photos or video of belongings inside and outside your home
  • The key to any bank safe deposit box you may rent

Consider copying at least some of your personal data and files onto CDs and storing the CDs in your home safe. You may also want to research storing your information in a secure environment online. Many Internet service providers offer these tools (but be sure to read the fine print; you want assurance that your information will not be easily compromised if stored in this type of area).

Explore further
Visit for broader Financial Education, including a variety of resources to help you improve your financial well-being.

The tax information contained herein is not intended to be used, and cannot be used by any tax payer, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. TIAA-CREF or its affiliates do not provide tax advice. Taxpayers should seek advice based on the particular circumstances from an independent tax advisor.

The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons.

TIAA-CREF Individual & Institutional Services, LLC, and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.

© 2014 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017