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Navigating the World of Insurance

Updated on March 2, 2015

Most people are under insured and do not know it. They are opening themselves and their families up to risk that can easily be avoided by properly insuring their assets. By getting the right insurance you can protect yourself from a lot of the "what ifs" in life. Below is a list of the must have insurances with explanation of when you need them. After reading this you should have a clear understanding of the world of insurance.

Homeowners/Renters Insurance

If you have a mortgage you are required to have mortgage insurance; however, once home is paid in full, keeping the insurance is totally optional. If you have the money to replace the home in the event of loss (i.e. natural disaster or fire) then keeping or dropping this insurance is totally up to you; however, if you do not have the money to replace the home then you need to keep this insurance.

Renters Insurance is typically required to cover the rental property in case of loss; however, the landlord is not responsible for your personal property. You should have renters insurance to replace your personal property if something happens.

Both insurances can be combined with auto and/or life insurance for a discount with most insurance agencies. Please contact your insurance agency for more details.

Health insurance

Everyone needs health insurance. It only takes one costly emergency trip to the hospital to take you from financially secure to bankruptcy. Without health insurance you are putting yourself in financial harm’s way for no reason. If you are working and cannot get healthcare through your job then you can get it thru the marketplace. (You may be able to get Medicaid if you meet certain income restriction.) No matter what, you need to have good healthcare in place as your health can change at any minute.

Auto Insurance

Like homeowners/renters insurance, auto insurance is required. If the car is paid in full you can drop the collision portion of the insurance. If you have the money to replace your car in the event it is totaled this may be the best option for you once your car has lost the majority of its value; however, if you do not have the funds to replace the car you should keep the collision even if the car is paid in full. If you have a fully funded emergency fund you should raise your deductible to $1000 so that the premium will go down.

Again, you should combine this with your life and/or renters/homeowners insurance to receive a discount.

Life insurance

Life is unpredicted. You never know when you could be taken away at any moment in a freak accident or rare disease. If you have dependents and you have not built up ten times your income in wealth then you need to get life insurance. If your plan is to leave your family destitute, then you need to question if you actually love them. If you do not have this insurance or are under insured you need to get this today as you do not know what tomorrow brings.

Below are the guidelines for life insurance:

  • Only buy term insurance
  • Buy ten times your annual income
  • The insurance benefit should be invested and your beneficiaries should live of the return
  • Keep policy with estate planning documents

Disability Insurance

There is about a 25% chance that you will become (temporarily or permanently) disabled at some point in your life. If you are not financially independent, what will happen to your family? You need something to replace at least a portion of the income until you are able to work again. Disability insurance can be the backup plan for you. Since you only need long term insurance (because your emergency fund will take care of short term disability), this should be inexpensive through your employer. Make sure it is brought with after tax dollars so that your benefit is tax free.

Long term care

If you are poor and something happen where you were unable to care for yourself, the government will cover the expense; however, if you follow my plan for a few years you will have built up substantial wealth which means you will need to cover this expense yourself.

Consider the following statistics:

  • At least 70% of people over 65 will need long term care services and support.
  • The average cost for a private room at a skilled nursing facility is $ 87,600 a year and the average yearly cost of a home health aide working 44 hours a week is $45,188.

You don’t want all your hard work to be eaten up by this expense; thus, you need Long Term Care insurance. The most cost effective way to buy this insurance is to purchase a policy that is no more than 5 years as the average length of claim (if more than 1 year) is 3.9 years at age 55. Purchasing this policy early than age 55 will be a waste as you can invest this money instead; however, purchasing after this point will make your premiums a lot more expenses as your health pays a huge part in your premiums.


Do you have all the insurance you need? If not, get quotes. See how you can adjust your financial plan to fit these in.

If you have whole or cash value life insurance, drop it today.

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