I feel like standing on a bit of a soap box today (and I’m even continuing it next Saturday!!!) – why? I will be “yelled at” by overzealous insurance agents. I will be told I am wrong by people who have had their 1-in-a-million situation cost them their life savings. I will be dismissed because I am not a licensed insurance broker. My real reason: I want to bring a good dose of reality to a discussion so filled with hype, emotion and confusion so those of you who are trying to figure this mess out will have a place to start. I also want to have this discussion so others can chime in.
Since there are literally volumes that could be written about each of the various insurance types, I will simply list out several of the more common ones and give you my BASIC take on each’s validity and utility. You’re welcome to agree or disagree based on what’s going on in your life. If you have something to add to the conversation (not just rhetoric), comments are open and welcome. Help us to all learn something!
When it comes to business insurance, there are many different insurance policies that you can find out there. At first, it can seem unclear, and the amount of information out there about different options can put people off doing any research, taking their time and finding a deal that’s right for them.
Before I get started, let me make mention that I brought up this subject early last year discussing Faith-Based Health Sharing Plans. It may be of help to look at that post for some additional info. Also, as you go through the list today, I’m sure some are missing from what you want to know about. Next Saturday, I’ll discuss more insurance types (list at the bottom of the post).
Life Insurance
You’re going to die one day. If someone, other than you, today depends on your income to make ends meet, you need life insurance. Otherwise, when you’re gone, they go hungry. What kind of life insurance? Term – level term, to be exact. Why? It’s cheaper than any other life insurance type, it’s stable, and your goal is protection, not investment. You’re trying to make sure your family is cared for. How much should you get? About ten times your annual salary. How long of a term should you get? Long enough that when the term is up you’re either ready to swallow whatever the premiums will be for a renewal or prepared to be self-insured by having a big nest egg for your family to live off of if you don’t wake up one morning.
Health Insurance
At a bare minimum, you need major medical insurance coverage. The number 1 cause of bankruptcy in America is medical bills. While even in my family there is an awesome story of God’s providence in taking care of huge medical bills, that is not the norm. You NEED health insurance. Otherwise, your health will suffer due to lack of basic preventive care, you may hesitate to be tested for potentially major medical issues and you may receive sub-standard care if you have a medical emergency. You NEED health insurance. It is expensive, can be a pain to deal with, and very political. But I repeat – you NEED health insurance.
Auto Insurance
In most states (maybe all of them now), basic liability auto insurance is required by law. If you plan on owning a car, insure it. Unless it is a really old car and you have the money to go buy another if you crash it, get full coverage (covers whatever you hit + your car’s repairs) – don’t just settle for liability (covers whatever you hit but not your car’s repairs). The cost difference is usually not that much. There are lots of little add-ons available for car insurance like towing, trip discounts, rental reimbursement, etc. Pick and choose these carefully, knowing that each has a cost. I’m a minimalist when it comes to most of these things.
Specialty Disease Insurance
You can get insurance for cancer, heart attacks, hospital ICU stays, and just about everything else you might imagine. With almost no exceptions, I think these are all gimmicks. I say that even knowing personally that some of these insurances have benefitted family members who had them and came down with the covered disease. With these, you must weigh whether you NEED the extra income vs. just saving/investing what you would spend on premiums and using it later whether or not the negative life event occurs. The common thing I want you to remember with all these insurance types is that, as long as you have medical insurance, these incidences are generally covered in some manner. If you get cancer and have health insurance, are you covered? Yes. If you have a heart attack and have health insurance, are you covered? Yes. Before buying one of these policies, ask that question and make sure of the answer.
Next week, I’ll tackle at least four new insurance types:
- Homeowner’s/Renter’s Insurance
- Disability Insurance
- Long-Term Care Insurance
- Pet Insurance
If other questions come out of the comments from this post, I may address those as well. As I said at the beginning, you’re welcome to agree or disagree with my assessments based on what’s going on in your life. If you have something to add to the conversation (not just rhetoric), comments are open and welcome. Help us to all learn something!
Hanna says
We have owned our own business for 5 years and find it difficult to even navigate where to begin to shop for health insurance. We pay out of pocket mostly. We don’t visit it much, but after paying over 1200 this past tax season as a fine it’s making us want to look into the health share option you mentioned. Do you know if the pricing is any cheaper than that fine? What if we go all year and don’t use it?
Stacy says
The FAQs on the insurance websites are super helpful. And we’ve found that they are so nice when you call to ask questions.
Diane says
Under Insured on our auto insurance policy would have saved us a lot of headach and frustration when we were in a major car accident about 10 years ago. The cost is minimal and well worth adding to your policy.
Barry says
Agreed. Uninsured motorist is a great deal just in case.
Elizabeth Smith says
I am in ALMOST 100% agreement with your assessments so far. Let me start out by saying that I am a licensed life and health insurance agent in Kentucky, so that may color my perceptions just a bit. 🙂 With regard to the specialty insurance plans — critical illness, cancer plans and the like — I agree with your assessment in most cases. However, if you have a medical history personally or a family medical history of a certain condition and you are anxious about what would happen if it hit you, I’d suggest the coverage. Paying the premium is well worth it if it gives you peace of mind, and if you ever needed it, you’d sure be glad that you had it.
I’d love to add a comment about life insurance: INSURE YOUR CHILDREN. Coverage on children costs very little and will pay off BIG if, Heaven forbid, something happened to your child. If you don’t have $7-$10k lying around in an emergency fund to pay funeral expenses for a child, you need life insurance on them. It breaks my heart when a family tragically loses a child and has a double-whammy because they have no life insurance and can’t afford to bury the child.
Barry says
Thanks for adding to the discussion, Elizabeth. I have family who has benefitted from critical illness plans and they do have a benefit, but I’m not sold on the benefit vs. the cost in most cases. You do bring up the right situation for everyone considering those types of plans to consider, though – if there is a good likelihood you’ll get one of these diseases and the insurance company won’t punish you too heavily financially for that family history, I won’t beat you up as a financial counselor if you decide to get that policy.
As far as insuring your children, I have to disagree that they need their own policy (if that’s what you’re saying). Yes, I firmly believe you need to be prepared to bury them if the worst happens. You can do that with a child rider on your term policies. It is MUCH cheaper than another individual policy and 95% of the time when an insurance agent says to insure your children, they are trying to sell a whole life policy that is overpriced and provides way too little coverage for the money. BUT…a rider on mom or dad’s term policy is a good plan for the little ones.
Alicia says
Any thoughts on how much to add for a rider or policy for a child? My husband and I are expecting our first child at the end of August, and we’re trying to decide what kind of policy to take out on the baby. (My primary concern would be if something happened and we were left with significant medical bills.) We can add a $50,000 rider to our policies that would cover baby for about $15 more a month, or we can have a separate $250,000 25-year term policy for less then $40 a month. (Those are preliminary numbers, as we haven’t filled out all the paperwork and I haven’t called other agents yet to compare prices.) Thoughts?
Barry says
To answer that we need to look back at the reason for life insurance – to INSURE against financial disaster in the case of a death. Assuming you have decent medical coverage, there would be a maximum out of pocket amount you’d get to when insurance would start paying at 100% and so you shouldn’t end up with significant medical bills. Funeral expenses should be no more than $5k-10k, so a $10k rider should be PLENTY for a child. The only real purpose of that insurance would be to wrap up any financial liabilities upon the child’s death (medical bills or burial expenses) so that smaller amount should cover it. Cost should be only a few dollars a month as a rider on your policy. In our case, the main policy I’ve had for a while now is only $32 per month so another $15 seems pretty steep for a rider.
John Chiasson says
Hi Barry,
Good advice! It’s a bit different north of the border – we don’t need health insurance in Canada – but what about drug plans and that sort of coverage (like Blue Cross)? It’s too late for me as none of them will cover pre-exsisting conditions, but I wish I had Blue Cross before I started getting sick and needing a lot of prescriptions.
One other point that applies in Canada (not sure about US) you need at least a million dollars liability coverage for your auto or the courts will consider you equally liable along with the insurance company.
Barry says
Good points about Canada. I think drug plans are a good idea if you don’t have that type of coverage already. Most US health plans include this but you’re right to bring up the point. Medications can be outrageous!
Adrienne @ Whole New Mom says
Speaking as a previous health, life and disability insurance agent (I also worked in employee benefits for a good while), you are completely right.
The only thing I would add really is something that goes w/ your Faith-Based Sharing post. Those plans, from what I understand, have a pretty low limit on auto accidents, so if you get one of those, you really need to up your medical limit on your auto to the maximum.
Look forward to next week.
Barry says
Good point. Anyone considering insurance needs should make sure of the overall risk or exposure to risk and not just a single aspect. Thanks for adding this comment.
Shannon says
You mention getting 10 times your annual salary in life insurance coverage. What about stay-at-home moms? I firmly believe they need life insurance, too, as their husbands would need money to cover the tasks they usually complete (childcare, housecleaning, etc.). How much should be taken out for them?
Barry says
Excellent question. I wore about this last year and think it should address your question. Feel free to chime in if not. http://www.stacymakescents.com/life-insurance-for-a-stay-at-home-mom
Abby says
Barry, do you have advice for those who are not offered group major medical coverage?
Barry says
Faith-based plans are always an option to consider as well as individual plans. While they will cost more, you might be surprised at what you can afford for basic major medical coverage. Don’t rule it out until you get a quote or two.
Heather says
We use Samaritan Ministries for our health care needs. It isn’t insurance, but it is wonderful for those who are practicing Christians (of any denomination) and has been a real blessing to us. With us a family plan with maternity coverage was going to cost way more than we could afford, would have only covered after a very large deductible and the maternity would not cover for the first year, which is when we ended up pregnant and with an emergency c-section. Not to be a total commercial, but SM has allowed me to be a stay at home mom, directly help other families and have all our big medical bills paid without driving us to the poor house!
Barry says
Faith based plans are often a great alternative to traditional health coverage. Glad it works for you!
Mom says
Though Faith Based Plans are great for some families they are not always a smart idea. Being a young women born with a congenital heart defect these plans do not offer a guarantee nor do they show any proff of cretiable coverage when transftering back to a PPO plan. I am not overweight, am very active and can have a normal pregnancy yet my yearly ‘check ups’ cost anywhere between $2100 – $5000, which we would have to pay out of pocket on a Faith Based Plan(being that it is considered preventavie/routine).
The BIGGEST issues with them is that they are not an insruance company – so thanks to Obama people using Fiath Based Plans will still have to pay for a ‘regulated’ insruance in January or be slapped with more fees! I do not think this is fair but is something people should really think about before switching.
Barry says
Good points you make. I can’t think of a situation where I would choose a faith-based plan over traditional health plan if the traditional plan were available. I’m sure there are exceptions to my thought on that, but traditional insurance generally does provide better coverage. That being said, faith-based plans are a good ALTERNATIVE. I actually think the fact that they’re not an insurance company is a good thing – the members decide on what gets covered and what doesn’t. As far as Obama’s plan causing issues, that’s already been dealt with. Directly quoting from Samaritan Ministries (one of the better known plans out there): “Starting in 2014 the new law requires individuals to purchase health insurance or pay a penalty. However, the law also contains a provision that members of health care sharing ministries are not subject to the insurance requirement. Therefore, the new law does not hinder current or new members of SMI from participating in our ministry.” (http://samaritanministries.org/how-it-works/faq/ question 32).
Cheri says
I’d like to add as a thought to life insurance, that even if no one depends on your income, a small life insurance policy will pay for funeral expenses etc.
Barry says
I knew someone would bring this up. Funerals aren’t cheap, but everyone should have an emergency fund and I think that may be a better choice than a burial policy of sorts. Usually small policies like that are too expensive for the coverage you get.
Elizabeth Smith says
True… But if you don’t have the emergency fund saved up yet, buy the insurance. It will be the best gift you can give your loved ones in their time of grief.
Barry says
There is a point at which we all have to decide whether to buy an insurance policy for something or to be self-insured by having an emergency fund for that life event. If you focus on insuring for every potential risk factor by buying several insurance policies, you’re detracting from the real purpose of insurance – a buffer against financial disaster. A good emergency fund is just that – an EXCELLENT buffer against financial issues and unlike a specific insurance policy which will only cover that one type of event, an emergency fund is cash – and it will apply to any situation where money is needed.
Danielle says
thanks for writing- this is the kick in the pants that I need- I am SAHM now and my husband doesn’t have life insurance.
Barry says
Glad I could provide my boot. 😉
Anita says
I would like to know how much home owner’s insurance is recommended. Enough to rebuild? Enough to pay the mortgage? Some amount in between? My mortgage balance is far less than the cost of rebuilding and I’m not sure that I would want to rebuild.
Barry says
You’re getting ahead of me. I’ll discuss in more detail next week but the key words here are “replacement cost.” On other words, whatever it costs to replace your home if it is destroyed.
Erica says
I Think it depends on where you live too. Tornado Alley Oklahoma, HI is a MUST! Hurricane prone areas a must! We need to up our home policy. We were spared in the recent OK tornadoes, but that doesn’t mean we will next week or next year.
Barry says
I agree completely on homeowners. Ill tackle that next week. Stay tuned. 🙂
Barry says
One more thought. Just because they pay you to rebuild doesn’t always mean you have to rebuild.
Carole says
What do you think about “umbrella insurance”?
Barry says
Good topic to add for next week. In many situations it is a very helpful thing. Biggest of those being when you have a lot of assets or are more exposed to risk based on your life situation. More to come on that next week.
Sally says
Hi Barry,
Great post. What do you think about long-term disability?
thanks!
Barry says
Ill be talking about long term disability next week. Stay tuned!