How To Master Disaster

There are many twists and turns on the way to wealth. Here's what you need to cope with the worst of them.

"O, I am fortune's fool!" (Shakespeare, Romeo and Juliet)

"Fortune makes him fool, whom she makes her darling." (Francis Bacon)

Life is inherently uncertain: we live in a world bristling with risks and threats, both minor and major. Indeed, one thing that history teaches us is that the greatest fortune can be destroyed by a single chance event or misfortune. Without a doubt, the more you have to lose, the more you have to worry about!

Naturally, most of us aim to increase our wealth, but first we must make plans to hang on to what we already have. These ten steps will help you to keep unwelcome fate and fortune at bay:

"Fortune truly helps those who are of good judgment." (Euripides)

1. Make a Will

"Fortune rules life, not wisdom." (Cicero)

If you have a spouse, partner, child or anyone else who depends on you for financial support, dying without a properly drafted Will could leave your dependants facing the bureaucratic nightmare of intestacy. Without a Will to explain how to share out your assets on death, your family's fate lies in the hands of the government and the courts -- and you don't want that!

Don't add financial worries to your family's grief: get a professionally drafted Will drawn up by a member of the Society of Trust and Estate Practitioners.

2. Look after your life

"His success may be great, but be it ever so great, the wheel of fortune may turn again and bring him down into the dust." (Gautama Buddha)

If you are young, free and single, you have no major financial responsibilities and, therefore, don't need life insurance. Still, mortgage lenders will try to sell you life insurance to cover your mortgage, although if your property can be sold after your death to pay off any home loan, then you don't need life cover.

However, if you have dependents, then you need life insurance, because around one in twenty adults (5%) dies leaving behind dependent children. Buying life insurance is a real minefield, and it's easy to make simple and costly mistakes. To avoid these, read Oops, You Bought The Wrong Protection and More Buying Blunders To Beware Of.

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3. Build a savings safety-net

"The prudent man really frames his own fortunes for himself." (Plautus)

If you can learn to save sensibly (these tips will help), then you can create your own emergency fund to fall back on when times are hard. This cash cushion has two benefits: first, you don't have to rely entirely on employee and state benefits in times of trouble and, second, you don't need to buy expensive and unnecessary insurance policies, such as rip-off extended warranties and the like. Once you have, say, six to twelve months' living expenses on deposit, you can look to the future with confidence!

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4. Insure your income

"Chiefly, the mould of a man's fortune is in his own hands." (Francis Bacon)

If you make a reasonable living from work, then your most valuable asset is likely to be your earning power, rather than your home, car or other item. Indeed, replacing your income for life could require a lump sum of up to twenty times your annual wage.

Thus, if ill-health or injury prevents you from working for an extended period, you could struggle to make ends meet. You can meet this challenge by buying an income protection policy which pays a tax-free monthly benefit until you resume work or reach retirement age. These ten tips will help you to choose the right policy to suit your needs.

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5. Shield yourself against serious illness

"All our advantages are those of fortune; birth, wealth, health, beauty are her accidents; and when we cry out against fate, it were well we should remember fortune can take naught save what she gave." (Lord Byron)

Serious illness is a major worry, especially as one gets older and the likelihood of having cancer, a heart attack or stroke increases. Hence, we buy around a million critical illness policies each year, which pay a lump sum on diagnosis of the above medical problems, plus other serious medical conditions such as organ failure, permanent paralysis and so on.

Although critical illness cover provides valuable peace of mind, buying it from your bank or mortgage lender is a mistake, and it can be difficult to make a successful claim. Hence, it's not at the top of my insurance list, and if I were to buy a critical illness policy, I'd take advice from a specialist broker before choosing a policy.

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6. Consider stand-alone payment protection insurance (PPI)

"Fortune confounds the wise, and when they least expect, it turns the dice." (John Dryden)

In my 3½ years as a personal finance writer, I've criticised payment protection insurance more than five hundred times, so you may be surprised that I'm mentioning it to you! However, the main problem with this accident, sickness and unemployment cover is that it is usually sold alongside mortgages, personal loans and credit cards at sky-high prices, thanks to commission rates which can exceed 80% of premiums.

The trick is to shop around for a stand-alone PPI policy which offers a much better balance between premiums and payouts. Best Buy independent providers include Best Insurance, British Insurance, Burgesses, Helpupay, mortgageprotect and the Post Office.

7. Cover your car

"Men's fortunes are on a wheel, which in its turning suffers not the same man to prosper for ever." (Herodotus)

Driving a car on UK roads obliges you to buy motor insurance, with third-party cover being the minimum legal requirement. According to The AA, if you fail to shop around for your cover each year at renewal time, you could be paying £294 a year too much for comprehensive cover, or £411 a year for non-comprehensive cover. Thus, a little time spent getting competitive quotes could earn you hundreds of pounds per hour! These ten tips will help you to find the right cover for your car.

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8. Buy bargain breakdown cover

"Anyone who is prosperous may, by the turn of fortune's wheel, become most wretched before evening." (Marcellinus Ammianus)

The market for roadside recovery plans is dominated by three household names: The AA, the RAC and Green Flag. However, these firms charge much higher premiums than lesser-known rivals offering a similar service. Why pay £100 a year when you can pay £32 with Best Buy provider AutoAid?

9. Protect your home

"Remember, no human condition is ever permanent. Then you will not be overjoyed in good fortune, nor too scornful in misfortune." (Socrates)

According to one report, two in three of us automatically renew our buildings and contents insurance without seeking out alternative quotes. Again, according to The AA, this means waving goodbye to an average of £133 a year in overpaid premiums, so read these ten tips and be sure to shop around!

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10. Safeguard your travels

Each year, around two million Britons run into trouble while abroad (anything from a stolen wallet to a serious injury), yet around a quarter of these unfortunate people don't have travel insurance. Uh-oh! These days, there's no excuse for not buying travel insurance, because a fierce price war has slashed the cost of this cover. But be warned: don't buy it from travel agents or tour operators, which charge astronomical premiums!

Compare terrific travel insurance quotes in our Insurance centre!

Finally, if this article has left you feeling anxious, take comfort from these words from A A Milne, creator of Winnie the Pooh: "Whatever fortune brings, don't be afraid of doing things."

So, have fun -- and be lucky!

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