Insurance is a necessity nowadays. It's like a seatbelt, you make use of it very few times in your life, but when you do need it, it can save your life. In the insurance industry, there are plenty of insurances. All sound very attractive, but which ones should you get? Let's dive in.
1- Health Insurance
Did you know that cancer is one of the leading causes of bankruptcy in the US. Sad but true! Even with a good health insurance policy, a diagnosis of cancer can break the piggy bank, leaving you and your family broke.
Going "bare" (no health insurance) is not an option in my opinion. If you, like the other 28 million people in the US, are without a health insurance or don't have an employer backed health insurance, the options are limited. Here are a couple of options:
a) Some individuals use a model called Direct Care Primary Care which sounds good. You pay a monthly fee and get unlimited access to your PCP. That being said, you still would need to have a high deductible health plan. Who will pay if you need to have your gallbladder removed? This can easily get in the 30k-40k ordeal.
b) The Affordable Care Act or "Obamacare" is also another choice. There are various choices but it's not optimal.
Health insurance gets expensive very quickly. Whatever route you take, do not go "bare". Explore your options and get some coverage.
2- Car Insurance
What would you do if you get into a car accident, injure an individual that cannot work for 1 month and you happen to be the guilty party? Who will pay for all of this? Usually most, if not all of it, will be covered by the car insurance. If you do not have car insurance, your financial situation could turn dire very quickly. Do not skimp put on car insurance.
One thing that has saved me hundreds, if not thousands of dollars, is to switch insurance company every 2-3 years. Most insurance companies jack up the rate. If you are too comfortable, you will end up paying a higher rate than what you have initially signed up for. You can always compare offers from different companies and you most definitely can negotiate and bargain to save money!
3- Gap insurance
If you get into a car accident and destroy or totaled your new car, gap insurance covers the difference between what your car is currently worth (what your standard insurance will pay) and the amount you actually owe on the car to the bank.
For example Bob buys his car and owes the bank $20k. The minute he drives out of the car lot his car will decrease in value, how much is difficult to tell. Bob totals the car a few days after driving out of the lot, he owes $20k but the car is actually worth $18K, the car insurance will pay $18k (what the car is actually worth), but he still owes $2k to the bank which he will have to pay out of pocket.
Gap insurance is only for new cars. This is usually offered in the car dealership or some car insurers. The price is just a few dollars added to your monthly bill. It is worth it especially is you are making car payments.
4- Homeowners Insurance
Let's face it. Due to global warming, we are witnessing more fires, hurricanes, and natural disasters! If your home gets caught in one of these and your roof leaks or worse, your home gets destroyed, homeowners insurance will give you some financial protection. Everyone dreams of the day they own their own home. Some choose to stop paying homeowners insurance since they own their property, I caution against that. Protect your most valued investment!
5- Life insurance
For the love of your family please get term life insurance. Nowadays a 1-2 million dollar policy is as cheap as it gets. Term life insurance as the name implies is usually for a term or a period of time, usually 20-30 years time. If you die in that time your family gets a lump sum of 1-2 million dollars. If you have young children and a spouse depending on your income, an outstanding mortgage, life insurance will cover the cost of these things and leave your loved ones with a cushion of cash.
There are many types of life insurance out there, but I like to keep things very simple and this is one of them.
*** If you are a high income earner I would consider these additional insurance policies-
6- Umbrella Insurance
So you have never heard about umbrella insurance. Don't feel bad, neither did I.
This is an absolute must!
Suppose you have an enormous tree in your backyard that you want trimmed or cut. You call Bob's Landscaping company to cut it. While Bob and his team are cutting it, a large branch falls on one of his employees gets injured, spends 1 month in the ICU and dies. Not only are you going to get hit with the medical bills but you will most likely end up with a lawsuit from the family of the guy because you are a "high earner". Lets say the judge settles for 1 million. So who pays? Well Bob's Landscaping company will get sued and pay a part of it, let's say $300k. Your homeowners insurance will pay some of it, let's say $300k. What about the rest of the $400k? Well that my friend will be your responsibility, putting your property at risk! Here comes the umbrella insurance. This insurance will cover those damages after the insurance companies reached their limits. You can insert a similar scenario if you have a pool, backyard trampoline etc and god forbid someone gets seriously injured or dies in your property.
7- Long Term Disability Insurance
Also an absolute must if you are a "high earner".
Bottom line, you need to protect your income. You and your family need the peace of mind in case the unthinkable happens. I run a busy practice and I have seen cases of successful middle age individuals that are now disabled due to a catastrophic health event like a stroke or an accident. Assuming that your spouse does not work and you lose your only source of income, who will pay the bills now?
This type of insurance is bit more expensive than life insurance but well worth the weight in gold. Disability insurance varies in price. For example if you choose a policy that will start kicking in at 90 days after injury/disability, your yearly premium will be cheaper than starting the benefits at 30 days after injury. This is not usually offered by your employer; you will need to shop around on your own or your insurance agent.
There you have it. If you have any suggestions, please let me know and I will be happy to discuss.
Till next time,
Disclaimer - This blog is meant purely for educational discussion of finance. It contains only general information about financial matters. It is not financial advice, and it should not be treated as such.