One of the biggest components of a successful financial plan is having a plan in place that will protect your most important assets.
Having the right insurance policy can go a long way toward helping you safeguard your income and possessions. Nothing will throw you off the path towards financial independence faster than an unexpected emergency.
Don’t get confused about the different types of insurances you need. It’s important that you’re covered, but at the same time, you don’t want to be overpaying for insurance policies that take away from saving money. Deciding what insurance policies you need is one step, but deciding how much coverage you need is perhaps more important.
We’re going to cover five types of insurance that are important for everyone to have and discuss other types of insurance that may or may not be a good fit. Everyone has a different situation and what I share cannot be applied to everyone. But, hopefully, by the end of this article, you will have a clear idea of what type of insurance you need and how much.
This is a big one. Health insurance is any program that helps in the payment of medical expenses. As of 2017, the percentage of people living in America that are uninsured was 12.4%. Although you’re not required to have health insurance, there’s a penalty if you don’t. The penalty is 2.5% of your household
income or $695 per adult — whichever is higher. If you cannot afford health insurance premiums you may qualify for government assistance through either Medicaid or tax credits based on your income.
If your employer, or your spouse’s employer, offers a health insurance plan as part of your overall employment compensation package, consider yourself lucky! It can be burdensome for companies that pay for health insurance for their employees. If you don’t have that option available to you, you’re going to have to set up your own insurance through the Marketplace. Pay attention to enrollment dates. For most people, the deadline is Dec 15th if they want to have health insurance coverage the following year.
Also, if you’re below the age of 26, you’re most likely going to be covered by your parent’s insurance. But, there are cases when individuals will have to be responsible for their own insurance starting at the age of 18. As was my case. I’ve never had an employer offer health insurance and I’ve been responsible for paying for my own health insurance from the age of 18. There we some months that I didn’t have health insurance and others when I did. I never qualified for Medicaid but I was able to get lower premiums through tax credits for a few years which made paying for insurance easier.
I don’t believe there is a good solution for health insurance right now and it’s one of the single biggest expenses that families are having to pay. Which is why I decided to give up health insurance and move to a health share ministry. If you’re unfamiliar with what that is, it’s essentially a large group of people paying money into a large bucket of money and whenever someone from that group has a medical need they pay for it themselves and the health share ministry will reimburse them the cost.
If I was paying for a health insurance premium for myself and my newborn son (my wife is under 26), our premium would be $510 per month. Which is still below the family average of $833 per month. But instead, I pay $219 per month into a health share. That’s a $291 difference which adds up to a $3,492 per year savings! It requires more upfront work on my part to submit receipts and invoices and it can take a few months to get reimbursed for medical expenses, but so far I have been pleased with the service and I’m definitely loving the cost savings. We’re a healthy family and it is hard for me to justify the cost of insurance in 2018. If you’d like to learn more about health share ministries and who I use, reach out to me and I’d be happy to help you out!
Send me an email at email@example.com
If you live inside the states, you are required to have car insurance. Although it’s unlikely you will have to use your car insurance, normal people every day get in car accidents. Here are a few things to consider when you are considering purchasing a car insurance policy:
- How much coverage do you need? For those with an older car, no more than the bare minimum may be required. However, if you have a newer car or a car with high value, you’re going to need more coverage and you may want to insure it against theft.
- How much liability coverage do I need? Liability coverage is required on all insurance policies and it comes in two forms: bodily injury and property damage liability. These cover damage to others and their property. They do not cover the driver and the passenger, however.
- Do I need personal injury protection? This type of coverage will cover medical expenses related to driver and passenger injuries. Though you may have to pay a deductible, your health insurance should provide benefits for your medical expenses. However, if you have minimum coverage or no health insurance at all, personal injury protection could ensure you aren’t left with a mound of medical bills that could force you to file for bankruptcy following an accident.
- Do I need collision protection? Get collision insurance if you want your insurance to cover the cost of damage done to your car, whether you are at fault or not. I have always paid cash for my cars that are in the range of $2,000 – $6,000 cars. I’ve never needed to purchase collision because I owned the car and I’m willing the take the risk that if my car were to get hit and it was my fault I would front the cost to fix my own car.
- Do I need comprehensive coverage? Collision only covers damage done in an accident. For example, if hail destroys your car, you’ll need comprehensive insurance to get compensation.
- Do I need uninsured or underinsured motorist? This covers you in the event that the person who hits your car does not have enough insurance to cover the damage – or any coverage at all.
“I was driving down the highway when a car crossed into my lane. I suffered 15 broken bones and my car was destroyed. The other driver was uninsured. After the collision, I learned my car was under-insured. I also learned that the $25,000 wheelchair in my vehicle was not covered at all. Now, I have to make payments on a vehicle that’s destroyed while also finding the money to buy a new wheelchair.”
Homeowner’s and/or Renters Insurance
Homeowner’s insurance is essential for protecting your most valuable asset against damage and theft. If you own a home you’re required to carry homeowner’s insurance. But homeowner’s insurance sometimes isn’t enough to fully protect your home. Ask your insurance agent if you need additional insurance against flooding, earthquakes, fires, and other disasters. It also doesn’t protect the items inside of the home.
Renters insurance covers you against damage or theft of your personal items, (whether you are renting or not).
You’re not required to have this but the low cost can be well worth the peace of mind. The reason you would want renters insurance is to cover items such as your computer, bed, furniture, etc. It’s important to take an inventory of all of your stuff to make sure you’re adequately covered in the event of a fire or theft. You may not need to pay for coverage on every single item. Just the necessities. You may also consider purchasing separate coverage for higher ticket items such as jewelry. My wife’s wedding ring was pretty expensive so we pay a premium each month to cover that rock. Which is sort of weird if you really think about it!
Two questions you need to ask yourself when considering purchasing life insurance: 1. Do you owe someone and 2. Do you love someone? If you answered yes to either one of these questions then you need life insurance! Which is pretty much about everyone.
No one likes to think about it, but life insurance is an essential component of protecting your family in the event that you die. Did you know it actually costs money to die? Oh, and did you know that humans have a 100% mortality rate? I hate to break it to you, YOU’RE GOING TO DIE. No one is making it out of here alive. The question is when, and the longer you wait to get insurance the more expensive it’s going to be.
Sally is married to Rick. Rick dies shoveling manure and doesn’t have life insurance. Insurance agent Bob shows up to Sally’s house and says, “I’m sorry about your loss Sally, as we know Rick didn’t have life insurance, but it’s ok because I’m able to set up a life insurance policy called “After Death Life Insurance. How much coverage would you like?” If there was such a thing how much do you think Sally would get? AS MUCH AS SHE CAN. Sadly that’s not how it works. So when deciding how much life insurance you need the amount you can get is based on your income.
If you’re the primary breadwinner for your family, life insurance will help your family offset the lost income. Maybe you’re thinking, “I’ve never been able to borrow money and no one loves me.” Well, then you probably don’t need life insurance. But, who’s going to cover your funeral expenses when you die? For most people, if you haven’t taken the time to buy life insurance, let this be the motivation you need to start a life insurance policy today.
I’ve heard too many stories of people that kept putting it off and putting it off, and bam they were taken by the bus leaving their family in a horrible situation. Get life insurance!
This is similar to life insurance in that it reimburses you for income lost during periods of time that you are not able to work. For example, if you fall off scaffolding and break your femur, health insurance and/or workers comp will cover the cost of your medical bills, but what about your monthly income? If you don’t have disability insurance and you’re unable to work you’re going to really be feeling it financially.
Another example, let’s say a surgeon has to be able to use his hands to perform a surgery. If he breaks his thumb playing church basketball he will be unable to perform his job. So oftentimes, in that case, a surgeon may only purchase a disability insurance policy for his hands. If he breaks a leg it doesn’t matter he can still do his job.
Disability is hard to justify for a lot of people and this is usually the last type of insurance that people will pay for. But if you run the risk of getting hurt at any point and your income depends on your body functioning properly, you may want to consider getting this insurance.
In most cases, a long-term disability insurance policy will cost 1-3% of your annual salary and is the most cost-effective form of income protection you can get, starting at around $25 a month and going as high as $500 a month.
Insurance you don’t need
- Flight insurance: Flying is pretty darn safe.
- Life insurance for kids: Life insurance exists to replace lost income.
- Accidental death insurance: This can be a really hard one to collect on.
- Disease insurance: A good health insurance policy will do the trick.
- Mortgage life insurance: This is a redundant type of life insurance.
The nice thing about insurance is you can have the peace of mind of transferring risk to a third-party. It can suck to pay a bunch of money each month when you’re most likely not going to have to use it. But you never know what could happen and you’ll be glad you had insurance if something does happen. Based on the example I shared, you’re going to be paying around $724 per month to cover all five of these bases. Although it may seem like a lot, if something were to happen you’re good to keep reaching for financial independence because you were prepared and you worked it into your financial plan.
Here’s the conclusion. You need insurance. Policies can come in all shapes and sizes. Shop carefully, read the policies and make sure you understand the coverage and the cost.