Why do we need insurance?

Why do we need insurance?

By Keith Bunn Jr.

July 29, 2012

Is insurance really needed?

There are all different kinds of insurances out there. Two kinds of insurance, home and auto are mandatory to have especially if you have loans out on them. But what about the others, are they really needed? For some people it is an absolute must have, for others maybe not so much.

The purpose of insurance

The purpose of insurance is to transfer the risk of something happening to you, your family, or your property to the insurance company. It also protects you from any liabilities you may have in case someone is injured on your property or in any accidents you are involved in. To put more simply, if something were to happen and it will put a serious financial bind on you or your family or even cause you to go bankrupt, you need to have insurance on it.

What should you have and what should you drop

As I said above, some people absolute need to have some or all the different kinds of insurance and for others maybe not. Below are a few of my thoughts of the different kinds of insurances and whether or not it makes sense to have them.

·         Health and Dental: In my opinion, these kinds of insurance are a must have (especially health insurance) no matter what! Medical debt is the number one cause of bankruptcy in the U.S. today. You don’t necessarily need health or dental insurance for check-ups or booster shots but you do need them for cancer treatments and orthodontic care. It’s the major things that need to be done that you need to transfer that risk on.

·         Life Insurance: This is a big deal! To put simply, if you have a family that depends on your income to financially survive, you need life insurance. As a matter of fact, you need 10 times your annual income worth of a good 15 to 20 year level Term insurance. And if you have a spouse that stays home to take care of the household while you’re out working, you need to get anywhere between  $300,000 to $400,000 in term insurance on them as well, because they have an economic value too with all the cooking, cleaning, shopping, caring for the kids, etc… In both cases, the working and the stay at home spouse, the surviving spouse can take the insurance pay out and invest it to replace the lost income or to pay someone to do everything the stay at home spouse did. As for life insurance for your children… Most kids don’t earn an income so a simple rider policy in your work’s life insurance policy should be plenty to have on them. Now, if you are single and there is no one that will miss your income or if you will have a surviving spouse and family, that will be fine without your income due to having investments, and a high net worth, etc… then there is really no need to have life insurance. Now if you want to get some life insurance through your work to cover any burial expenses, that’s fine too.

·         Life Insurance In and Outside of Work: It makes sense to get some insurance through your work, but it also makes sense to get some Term insurance outside of work too. Let’s say you only have insurance through your work and you’ve had it for years. Then you have a heart attack or your doctor tells you have diabetes or some other major medical condition. As long as you’re still working and you’re paying your premiums, you’re covered, but as soon as you lose or quite your job, you are now uninsurable. So it makes sense to get some insurance outside of work.

·         I.D. Theft Protection: Identity theft protection is one of those must have insurances for everyone. Identity theft is the #1 blue collar crime in North America and seeing how there is no way to prevent it 100%, it makes sense to get it. But when you shop for the right one for you and your family, make sure that part of the insurance coverage it states that it will assign a case worker to your case to clean up the mess for you. If you don’t, you’ll have to spend an average of 600 hours to clean it up yourself.

·         Long Term Care: This insurance is a must have but not until you reached the age of 60 years old. This insurance is to cover any in home care or nursing home stay. The cost of in home care or nursing home stay can scramble any nest egg you may have and leave any surviving spouse with nothing once the other passes on. The reason I say not to get it before 60 years old is that the chances of you needing in home care or nursing home stay is almost zero, but the odds are against you every year you don’t get it past 60.

Summarize

I know this was a lot to go through so let’s summarize...

1.    You need to get health/dental insurance either inside or outside your work because those types of debt could bankrupt you if you don’t.

2.    You need 10 times your annual income worth of a good 15 to 20 year level Term life insurance (TERM ONLY). Get some for the stay at home spouse because they have economic value as well. Rider policies through your work are good enough to have on your minor children. If you're single and don’t have any dependents or if your family will be financially fine with the loss of your income, there is really no need for life insurance, but you can still get it if you want.

3.    Get some life insurance outside of work. If you get some major medical issue and then lose your job later, you will then be uninsurable.

4.    Identity theft is the #1 blue collar crime in North America and there is no way to protect yourself 100% so get a policy that cleans up the mess for you.

5.    Get long term care insurance on your 60^th birthday to cover any in home care or nursing home stay you may have later. If you don’t, it could scramble any nest egg you may have and leave any surviving spouse with nothing once the other has passes on.

Questions

1.    Do you have adequate health/dental for you and your family?

2.    Do you have enough life insurance for you and your family?

3.    Do you have too much or too little on your minor children?

4.    Is there life insurance on the stay at home spouse?

5.    Do you really need life insurance?

6.    Do you have life insurance outside of your work?

7.    Do you have identity theft protection insurance? If so, does it clean up the mess for you or is it left for you to do?

8.    Is it time to get long term care insurance yet? If it is, what are you waiting for?

I hope my posts inspire you to look at what you’re doing financially and if needed, make some changes that will cause you to win financially. I also look forward to reading your views on any articles or postings that I may post. For more money news, facts and ideas, follow me on Facebook, or Twitter. Thanks you!