‘Insurance poor’ was an expression from 30 years ago, that people would say when it seemed like too much of their money was being paid to insurance companies. What are the right kind of policies to buy? Outlined here are the 5 highest priority types, and the 5 other major types people consider.
If there is one general governing approach to one’s insurance portfolio; be smart with the amount and types of insurances that you purchase, you can’t insure against every kind of risk, and don’t spend an inordinate amount of your budget on insurance.
It is easy to feel insurance poor these days, even when you just have the three most common kinds of insurance: health, homeowner’s and auto. The insurance premiums from just these three can add up to thousands of dollars per year. However, if you take the Dave Ramsey Financial Peace University, or other financial education classes, you will learn all about other types of insurance too, like disability and cancer insurance. If that isn’t enough, you’ll learn about life, long-term-care and umbrella insurance. It is no wonder that we worry about not having insurance as well as spending too much on it.
From a priority standpoint, your first obligations are to those people who depend upon you because you are their provider earning a paycheck or stay-at-home parent. They usually are you and your spouse, and too employees if you are self-employed. Equal in priority, is the law (requires auto insurance), and responsibility to your community. Community responsibility is the risk you take to bodily injury and death every time you drive your car, you could cause hundreds of thousands, to millions of dollars of damage to people or property. The lack of insurance or under insurance, forces the debt to fall to society (government, non-profits and other social service organizations like church). A similar example is if you do not have enough life insurance, and you and/or your spouse die, then the cost of caring and raising them falls to society.
Starting with your family, the law and property, since they are intrinsically related, are the needs of health, home, auto, disability and life insurance. Therefore, these are top on financial planner’s recommend list. Medical bills (health insurance), income replacement if you are sick or injured or die (disability and life insurance), and vital personal belongings (homeowners or renters, and auto insurance). Lastly, insurance for big lawsuits (called umbrella or personal catastrophe liability insurance), or when you are old or severely disabled an unable to care for yourself (long-term-care insurance LTCi), are probably the next things in line to consider.
The following list is probably the best prioritization of the types of insurances that you need, based on what you can afford. The more you make, have to protect, the more you have at risk, and can afford them. Keep in mind, this is an article, to help guide you, and start the discussion with a professional insurance agent or planner. This article does not replace professionals, and is not insurance advice.
5 highest priority types of insurances
- Health Insurance is usually best if acquired through an employer. If you are self-employed, be sure to purchase the type that is required by law, with an amount you can afford. If you don’t have group health insurance, consider purchasing cost-sharing plans, as an alternative to health insurance, e.g., Medi-share.
- Auto Insurance if you own an automobile. My son lives in NYC, and can skip this, gladly. You can too, if you only commute via public transportation, and rent cars (buy the insurance if you do not have it) or take Lyft or Uber when needed. I recommend high limits of liability and around a $500 deductible. Some advisors recommend liability only (no coverage for your car replacement or repair if you are at fault) if you have an old car, but price the cost difference. Usually it is only a very small difference; if so keep ‘comprehensive’ too, if your car is worth a few thousand dollars and you do not have that in savings.
- Homeowner’s insurance if you rent or own a home. Make sure that your coverage is for replacement value of the structure if you own a home, and replacement cost of the content of your home too called personal property. This insures that you are protected at current replacement values, not at depreciated valuations. Check with your insurance carrier for other important riders, such as if you have a basement, for sewage backup or sump pump failure. Shoot a video and back up on the cloud, images of your belongings.
- Disability Insurance, if you are working, and your employer does not provide long-term disability insurance replacing 60% or more of your income, consider purchasing this. This is usually not cheap; however, your chance of becoming disabled versus dying is greater. This insurance is also more expensive related to the riskiness of your occupation. Insurance experts recommend this coverage before life insurance.
- Life insurance if you have dependents such as a spouse or minor children, to replace your income, repay debts, and fund college. Term insurance is usually the most affordable type for the vast majority of people’s budgets.
The following 5, are the optional types of insurance, and would be less important for most people than the 5 preceding types just outlined. These are highly dependent on one’s affordability, financial net worth, need and personal preference.
- Umbrella or personal catastrophe liability insurance covers you for extra personal liability above the limits on your homeowner’s and auto insurance. You can purchase several million dollars’ worth of coverage for only a few hundred dollars. Most financial planners recommend people have this, in our litigious world in which we live.
- Cancer or named-illness insurance provides lump sum benefits and or income, for specific diseases such as cancer or heart attack. These are usually offered through payroll deduction. Most experts advise against these, because the chance of benefiting from them is very low. However, a co-worker benefited greatly from it, as did my brother, when they both got cancers. In these days of high deductibles, sometimes this insurance is a low-cost substitute or addition to disability insurance. However, it falls short of that in many ways.
- Long-term-care insurance (LTCi) covers people if they cannot care for themselves and need to be cared for in a nursing facility, or at home by medical professionals, and caretakers. This usually comes into play in old age, but many times, people get afflicted at younger ages too, prior to age 65. I really struggle to recommend this kind of insurance in the last few years, unless it can be purchased through an employer, or if your family has a history of needing this kind of protection. The reason I hesitate, is that this coverage usually gets very expensive as you age, even if purchased when young. Secondly, many insurance companies are increasingly finding this coverage difficult to estimate claims, thus they do not know how to price it. Many insurance companies even have gotten out of the LTCi market entirely. I recommend that people consult professional advisors and long-term-care professional prior to purchasing it.
- Retirement income insurance is how income annuities are being marketed these days. Annuities can guarantee a stream of income, which cannot be outlived (as long as the insurance company remains solvent). Some people in their retirement years fear that a fluctuation in the bond or stock market could wipe out their savings, and since safe bank accounts only pay a few percentage points in interest, income annuities can be attractive. Income annuities are perfect for some people, for a portion of their investable assets, while others they consider their costs to be too high (fees). Consult several annuity, investment and financial advisors before purchasing, and only purchase from well-rated insurance companies. If putting a lot of money in annuities, consider using more than one insurance company.
- Extended warranty is insurance offered on cars, furniture, cell phones, electronics and Cell phones. Again, almost every advisor I have ever heard recommends against this kind of coverage. I too recommend against it, however it doesn’t hurt to price it, for things like lap top computers, expensive leather furniture (for example), and Cell phones for children who are prone to breaking things. If the coverage is cheap, and the items could easily be damaged, based on one’s lifestyle and family makeup, then it might be worth considering. I usually do not buy it, but a few times I did, I was glad so, but a few times I regretted it because it was never needed (e.g., from Costco on a TV).
Don’t forget, of vital importance is prayer and self-care!
In conclusion, carrying the right amounts and types of insurance that you can afford is wise Godly stewardship. In addition, two other areas are very important too. Prayer and personal responsibility. In this fallen world in which we live it, it is important to pray for good health, against accidents, sicknesses, diseases and death, along with praying for protection of our personal property. Lastly, as mature Christian stewards, we have a responsibility to be caring and careful. Caring for our bodies, by controlling our weight, eating, sleeping, working and drinking healthfully. Having manageable levels of stress and activity are as important. Driving safely is important too, being aware at all times (not looking at cell phones), helps to insure safety for everyone. The vast majority of accidents and health problems relate to our behavior. Monogamous faithful marriages eliminates the risk of STDs. Low weight, non-smoking, less stress, and avoiding sugar, lowers the risk of cancer, diabetes, and heart disease. Exercise helps with strength, balance, and well as mental and emotional health. Lastly, research indicates, that people who attend church are happier and more joy filled. Being in a growing relationship with Jesus helps us in every area of life, from decisions, to life management. All things that will contribute to a better life.