People usually crinkle their noses when you mention the word insurance. And for good reason. From the products themselves to the way they’re sold to us, to the purpose behind them, insurance can totally feel like a scam.
Here’s the bottom line with insurance – you’re basically telling a company, “Here, you take the financial risk on this potentially catastrophic thing that could happen to me so I don’t have to worry about paying for it if/when it happens.”
Usually, the kinds of events that insurance covers have not only the potential to financially destroy you, but also emotionally break you down. If you can take away the financial worry, then you can focus on addressing the emotional stuff.
This is insurance in theory.
In practice, you hear about claims not getting paid, people not being properly covered, and people being sold too much insurance.
So what the hell are we supposed to do?
The best thing you can do is educate yourself before you talk to an agent.
By having some baseline knowledge about the types of insurance you’re going to talk about, it will help keep you from being swayed by stories, attempts to tug at your vulnerability, and getting confused by all the details.
It’s much easier to keep a level head about very emotional scenarios when you have facts and information to hold on to.
Here are some basics for you to start with and you can also catch last week’s radio show for more info:
HEALTH INSURANCE: This is the one you’re probably most familiar with because you’ve most likely been dealing with it your whole life. It’s what you use to go to the doctor, get your shots, and buy prescriptions. Since the Affordable Care Act, the penalties for not having coverage are going to get more and more expensive.
DISABILITY INSURANCE: Think of this insurance as protecting your income or earning potential. Basically, this insurance kicks in after a certain number of days where you can’t work because of a disability. This is a pretty important thing to protect, especially if you don’t have a savings cushion, so put this near the top of your list. The most important things to pay attention to with a disability policy are:
– Benefit: usually, you’ll get up to 60% of your current income covered under a disability policy. If you have it through an employer and they pay for it, the benefit is taxed. If you pay for it, the benefit payment is tax free.
– Waiting/elimination period: this is how long you have to, well, wait, for the disability to kick in. For long term disability, it’s usually between 90-180 days. You can also get short term disability, which usually has between 0-14 days. Mind the gap! If you have a short term policy that ends after 60 days and your long term doesn’t kick in until 90 days, you’ll have to make up that 30 day window with your own funds.
– Own Occupation vs. Any Occupation: Make sure your has Own Occupation coverage. This means that the insurance will kick in as long as you can’t do your own job. Any Occupation coverage means the insurance will only pay out if you can’t do ANY job. Use your imagination on that one.
– Inflation Protection/COLA: This is an optional (read – it will cost more) rider where your insurance benefit increases each year to keep up with inflation or Cost of Living Adjustments (COLA!). If you have the extra money to spare, go for it.
Overall, I say start with getting a basic policy. First check if your job offers it. If not, or if you work for yourself, check out Freelancers Union for a very inexpensive group policy (you can become a member for free) or Low Load Insurance Services to get a quote for an individual policy. I like them because their agents are all salaried, so they’re not paid for how many policies or the size of the policies they sell.
RENTERS/AUTO/HOMEOWNERS: Insurance that covers your stuff is also called property & casualty insurance (if you want to feel fancy about it). If you are renting an apartment, get renter’s insurance PLEASE! It’s so cheap ($20-$25/month) and covered tens of thousands of dollars worth of your stuff.
If you have auto insurance, check with your insurance carrier to see what it would cost to add renter’s insurance. Because you’d be packaging two policies, I’ve seen the discount cover the entire cost of renter’s insurance and you’re basically getting tons more insurance for the same amount of money.
LIFE INSURANCE: This type of insurance is always difficult to talk about. Thinking about dying is never fun and then thinking about what you’re going to leave to your family is, well, yeesh.
So let’s cut right to the chase – the only situation where I feel you absolutely NEED to have life insurance is if you have kids. Get a basic policy that’s known as a 20-year term (that’s how long the policy stays active or “in force” if you keep paying the premiums), which will cost you a few hundred dollars a year, depending on the death benefit.
Are there other good reasons to get life insurance? Yes, absolutely, but this is a much more complicated conversation that ties into your goals, your values, and how much you want to take care of your loved ones when you pass.
One word of caution on life insurance – if someone tries to pitch you a policy that sounds like it’s also a great investment, make sure you 100% understand exactly how it’s going to work and what it’s going to cost you before you buy it. Mixing investments with insurance is always a tricky (and lucrative) business and often, those types of policies are a black box. You’ll run into words like whole life, universal life, variable universal life, etc. These products make sense for some people, but to be honest, not most people.
Okay, take a deep breath.
You don’t have to do this all today. Or next week. Now that you’ve seen these words for the first, second, or third time, they’ll hold a different place in your brain. Next time to see these words, you’ll understand what they mean a little more.
This way, by the time you’re faced with having to make a decision about them, you can feel good knowing that you know.
Starting a new hashtag – #MoneyNeedsMe! Tag it when you feel empowered about taking control of your finances!
All of January on Bondfire Radio, we are going into serious detail about the guts that go into making a financial plan. It’s definitely a pen and paper kind of month because we’ll be going over tons of info.
Then, in April (financial literacy month!), we’re going to kick off a huge, year long event – The 52-week Financial Plan! I’m going to spend a year with you to help you put together and implement your financial plan! Most of it will happen right here in this newsletter!
Changing your money habits takes time. Real time. Time to have set backs and bounce back from them. Time to let new ideas sink in. Time to experiment and see what sticks.
Please feel free to share it with someone who you know is ready to tackle their finances and wants some guidance and support. It’s going to be one awesome year! #MoneyNeedsMe