Insurance is a Waste

Insurance is an absolute and complete utter waste of money.

Unless something bad happens.

While I do not sell insurance, I am a big proponent of it.

Insurance is a form of risk management. It is used to prevent life events from causing a financial catastrophe. If you can afford the tens or hundreds of thousands or millions of dollars of costs associated with life’s various problems, then great, ignore insurance. For the other 98% of you, you’ll either purchase insurance, or risk bankruptcy or worse. If you ignore your needs you are potentially messing up 1) your lifestyle, 2) your ability to educate the kids, and 3) your retirement savings.

The first type of insurance covers property. You don’t have to cover everything, just what is 1) needed, and 2) too expensive to replace otherwise. Additionally, on any property that you own you need liability insurance in case what you own hurts someone else.

If you own a home and it burns down, you need another one. If you smash up your car, you need another one. If your car smashes someone else, even if you don’t care about your car, you need to take care of them. So, as a minimum, you’ll want insurance on your home (or the contents if you are a renter), and anything that moves (cars, boats, planes, etc.). Since you never know the size of a claim against you, you should also discuss an umbrella liability policy with your agent.

And while you are not property, you can break. What if you need a heart operation or cancer treatments? If you are alive, you need health insurance.

Now that you’re out of the hospital, maybe you can’t go back to work due to a disability. If you are injured and can’t work, what will you or your family do to make the mortgage payments, put gas in the car, and afford food for the table? That’s where disability insurance comes in handy. Disability insurance is there to replace your earnings if you can’t work. It’s needed by pretty much anyone who works.

What if your disability requires long-term care? Now you don’t just need a way to replace your earnings, you also need a way to pay for the extra care you’ll need. That’s not covered under health insurance, so you now need to look at long-term care insurance. Most experts say you should have this type of insurance by your mid-50’s. I got mine in my late 40’s.

Then there’s the ultimate illness – death.

That won’t cost you anything. But what about those you leave behind? Life insurance can fill the financial void.

I’ll admit that figuring out if you need a particular kind of insurance takes some work. Figuring out the kind and amount you need takes more. Then there’s the added joy of paying for it. But to ignore the task just because it’s not fun is a disservice both to yourself and to those who depend on you.

Gary Silverman, CFP® is the owner of Personal Money Planning, a financial planning and investment management firm located in Wichita Falls. You may e-mail him at Gary@PersonalMoneyPlanning.com