Money Commandment #8

The book The 10 Commandments of Money: Survive and Thrive in the New Economy lists money commandment #8 as follows:

The old-school rules: Buy plenty of insurance. You never know what will happen.

The bubble economy rules: Buy insurance so you don't have to pay out of pocket. Make claims whenever you can -- why have insurance if you never need it?

The new rules: Reserve your insurance for catastrophic expenses. Make a claim only as a last resort.

Insurance is a funny thing -- you spend money on something that you hope you never use! ;-)

• I agree 100% with the final statement. We buy insurance to cover potentially catastrophic problems and we make claims only as a last resort.
• We also set our deductibles pretty high as a result -- and have bumped up our emergency fund to cover the high deductibles if need be.

Here's what we try to cover/protect through insurance:

• My career -- Your career is your most valuable financial asset, worth millions of dollars over a lifetime, so you certainly want to protect it. So we protect it with medical insurance (you can't work if you're sick), disability insurance (you can't work if you're physically unable to), and life insurance (you can't work if you're dead.)
• Our house -- Obviously, you need to cover your big assets from potential destruction. A home certainly falls into this category, so we have homeowner's insurance (with the largest possible deductible our insurer has, BTW.)
• Our assets -- Even bigger than our house is the value of all our assets. We protect these with umbrella insurance and car insurance. Yes, I see car insurance as more of a liability coverage that the coverage of an asset (which it is as well, of course.) If one of us was in a car accident and totaled a car, replacing it ourselves, if we had to, would not be financially devastating. Having a $2 million lawsuit against us for a car crash is another thing entirely. That's why car and umbrella insurance work well together to protect our assets.
• My wife -- Though my wife doesn't work, what she contributes to our family financially is not meaningless. In fact, it's quite important. That's why we have life insurance on her as well.

The one thing we're missing is long-term care insurance. I'm in the beginning phases of learning about this type of insurance and what works best for us in this area.

Comments

[Jonathan]

I've long held the view that people should treat health insurance the same way as all other insurance - buy it, but hope you never need to use it. However, most people treat their health insurance plans as payment plans for health costs - then they wonder why insurance (and health service) is so expensive! Health service is expensive in large part because people are detached from the actual costs because it's covered by insurance. If routine health costs were all paid out of pocket and health insurance just covered catastrophic illness (in the same way as auto maintenance is paid out of pocket but accidents are covered by insurance) then costs would go way down on all fronts.

[Joe]

Insurance companies have just gotten so ridiculous to deal with that most people fervently HOPE to never have to deal with them.

[andrew]

I am sure you covered this in another post, but it is worth reiterating.
Life insurance on the low wage earner is not just to replace that person's income, but also to aid the high wage earner's grief processing. The high earner is likely to need time off, possibly lots.

[Matt]

Insurance is risk management. You are betting that if something does happen to you the insurance company will help you out. The insurance company is betting on you not needing it.

Either way you need to protect yourself.

[KH]

I agree with the last "new rule" too. That's why buying "insurance" to repair a laptop or other small electronic device is usually just a waste of money. If you would have the money to fix it if it breaks, why not wait to pay until when, and if, you actually need to do so? Why take the chance on paying ahead of time to repair something that might not break?

Also, I treat my computers like they're made of fragile glass and I'm very careful never to spill coffee or coke on them. It's not hard-I haven't killed a computer by spilling something on it in over 10 years of constant use of more than 8 hrs per day!

I'm always amazed by people who say they "have" to buy repair insurance for their laptop because they "always" spill stuff on it and break it. That's like saying that you can't avoid crashing your car each year during normal use. Dude, you need to be more careful.

If you are a person who can't stop spilling junk on your computer, why not just make it a habit to never drink anything when you're using your computer? Problem solved!

[KT]

Do any of you receive professional liability insurance through your employer? If so, how does that influence the amount of umbrella insurance to obtain?

[Sarah]

@Jonathon - I think the main problem with that viewpoint is that it is the catastrophic coverage that many people find out isn't covered. People think they have good health insurance because it covers their doctor visits only to find out that it doesn't cover the big stuff when they need it. or it does, but it has a cap, and once you've reached that cap you're SOL.

When the new rules say "make a claim as a last resort" what does this mean? Don't check to see if your insurance will cover something, even though you are paying into it every month / year? I agree with having a high deductible, but why wouldn't you make a claim on something that is covered?

[Jonathan]

Sarah,
You're correct, with the health insurance system in place you should certainly make a claim when warranted (and I do). My rant was actually about the way system itself is set up, and I think a part of that is the consumer's fault for going along with it.

[Joseph@TLI]

Great tips on taking care of your health in relation to how much money you'll make over your lifetime. Protecting you/your family with medical, disability and life insurance should be no brainers for anyone with financial means to pay for the premiums. That's not to say you need a million dollars in life insurance coverage or the cream of the crop medical insurance. Talking with a financial advisor can be helpful and or discussing things over with your family. These things should be well thought out and not jumped into.