I have always been one of those advisors who is a reserved skeptic when it comes to insurance.
I am currently taking a few classes working towards the Certified Financial Planner designation and one of them is a risk management course. I went into the course excited to learn more so I could really make a great debate against insurance products… isn’t it funny how those are the famous last words in so many arguments?
I should prefaces this article by saying that I do not sell insurance, nor do I anticipate selling insurance any time soon. So I am really not trying to convince any of you that you should call me up to buy some. I do have a couple friends who would be more than happy to help you out though!
When it comes to insurance I think the over arching motto to remember when thinking about a policy is: never buy something you do not understand. With that being said, here is my list of insurance policies that you should never be without.
Renters/Homeowners Insurance – You cannot stay in good graces with your mortgage company if you don’t have a homeowners policy but many renters think that they can get away without it. Don’t be silly, a renters policy costs about $20 a month and is well worth it. If your building burns down, if you are burglarized or if someone is hurt in your space you will wish you had this.
Automobile Insurance – I think every state requires that you carry insurance on your vehicle to register it. Most people don’t understand how much coverage they have or need. Review your policy to make sure you have enough coverage, the last thing you want is to be in a terrible accident and not have enough insurance.
Health Insurance – If you are young and healthy, good for you. But you still need some form of health insurance, even if it is just a catastrophe policy. The leading cause of bankruptcy in this country is due to medical bills. Don’t be a statistic, get some health insurance – oh by the way, you will be required to have it in 4 years any way thanks to the new health care legislation.
Disability Insurance – The odds are that you will not die prematurely, but the odds are fairly high that you will either be temporarily or permanently disabled. In terms of the impact on your finances disability is far worse than death. Loss of earning power and increased medical expenses will cripple your assets. This leaves your family with the responsibility to pick up the slack. You need this policy, check with your employer benefits program, often they have an affordable policy available.
Life Insurance – There are a bunch of different types of life insurance policies out there. Most people are fine and dandy with a term life policy. Remember what you are insuring against here, premature death. You want to have a policy that covers your present debt obligations such as your mortgage and covers your future earning potential. Whole life policies are where insurance agents get a bad wrap, most people do not need these types of policies but they are pretty profitable for the agent. Remember, only buy what you understand!
The definition of insurance is: “a financial arrangement that redistributes the costs of unexpected losses.” It’s not an investment guys! If you meet with an insurance agent and they try to sell you a policy under the pretense that you are buying an investment – run away as fast as you can.