An essential piece of every financial safety net is insurance. Yeah, I know. Could there be a less exciting topic?
Exciting or not, if you find yourself slipping off your financial tightrope, a well-planned insurance strategy can catch you before misfortune becomes catastrophe. Without insurance, a disastrous event could wipe out your savings, use up your net worth, keep you from your goals, and leave your family in a tenuous financial position.
I’ll be the first to admit I’m not an insurance expert. I can’t offer any earth-shattering secret on insurance products or companies. I do, however, know the coverage and limits of our own policies fairly well, the reasons we chose them, and why we don’t carry other types of insurance. In an extension of “personal finance made public,” today we’ll talk about insurance made public.
Insurance We Have, and What We Don’t
Our current insurance coverage includes:
- Health insurance
- Auto insurance
- Renter’s insurance
- Life insurance
- Errors & Omissions insurance (attorney malpractice insurance)
We don’t currently have:
- Disability insurance
- General liability (umbrella policy)
- Long-term care insurance
Health insurance will be handled in its own post. Even under the Affordable Care Act, the options are broad enough to merit treatment as a separate issue. As for the others:
1. Auto Insurance ($97/month)
We have two vehicles and an auto policy for each. Every one of the United States requires at least a minimum level of insurance coverage for any registered vehicle. Those minimums vary by state. California law requires that private vehicle owners carry liability insurance in the minimum amounts of:
- $15,000 for injury/death to one person,
- $30,000 for injury/death to more than one person, and
- $5,000 for damage to property of another person.
We carry substantially more than the minimums, at
- $50,000 for injury/death to one other person,
- $100,000 for injury/death to more than one other person,
- $50,000 for damage to property of another person,
- collision coverage (for an impact with something other than an animal) with a $250 deductible,
- comprehensive coverage (for damage caused by something other than another vehicle) with a $250 deductible,
- towing and labor, and
- a disabled wage earner stipend, a minimal disabled non-wage earner stipend, and an additional death benefit.
It’s hard, when looking through the coverage options, not to include a few items that aren’t bare essentials but do add a few cents or dollars to each premium payment. This is the mix we’ve come up with, and it’s served us well for now. Thankfully we’ve never had to make a claim for injury or death, but we have made claims against our comprehensive coverage several times, including several collisions with animals, one unfortunate meeting with a rock, and one break-in, where the damage to the car and the car-related items that were stolen were covered. We’ve also had to use the towing and labor benefit several times. Sometimes older cars just don’t start, or unexpectedly stop, and a tow is the only real option left.
Over our driving lives, we’ve paid more in premiums than we’ve pulled out in benefits, but I’m just fine with that. When something really bad happens, I expect we’ll even up. If nothing really bad ever does happen, that’s even better.
Our auto insurance is with USAA. Stephanie accuses me of being a USAA zealot, but I believe there is good reason for it. Not only have I never had a bad experience with USAA in my insurance or banking services, I consistently have better service than I expect, and they keep improving their online access to everything, which I love. If you meet the military service requirements, either through your own service or that of a family member, USAA is worth looking at.
2. Renter’s Insurance ($14/month)
That day a few years ago that we cancelled our homeowner’s insurance and replaced it with renter’s insurance was a sad day. We look forward to reversing that in a few years, but for now, we’re just happy that renter’s insurance provides great coverage at such a minimal cost.
Our renter’s policy, like most that I’ve seen covers damage or theft of property at our residence, or any other place, like from the car, or from a storage unit. Like a homeowner’s policy should be based on the replacement value of your home, a renter’s policy should cover the replacement cost of your personal belongings. Our coverage includes:
- personal property replacement up to $30,000,
- personal liability coverage (if someone else sustains personal injury or property damage while on our property) of $100,000 per occurrence, and
- medical payments to others (persons other than family injured on our property or as a result of our actions away from home) of $5000 per occurrence.
There is a $250 deductible for any claim, except for a 15% deductible for any earthquake damage.
We have never been without either renter’s or homeowner’s insurance since our marriage. During that time, we have made exactly one renter’s insurance claim, for the cost of replacing items stolen from my car. Even so, we’re happy to have the safety net there should something happen to our property or to someone else on our property.
Like our auto insurance, we also have our renter’s insurance through USAA.
3. Life Insurance ($56/month)
Shortly after we were married, Stephanie and I decided that it would be prudent to buy life insurance. As singles, it mattered less, but with a family, the death of one spouse would leave the survivor with the dual burdens of child-rearing and providing income for the family. Our life insurance amounts were estimated to take care of any outstanding debts and cover the costs of providing for the family for a few years until the survivor can make other arrangements. Our financial situation and family size has changed somewhat since then, but our initial chosen benefits still seem to work so we keep them. Coverage includes:
- a payout on my death of $935,000,
- a payout on Stephanie’s death of $250,000,
- a disability rider that keeps paying our premiums if either of us is unable to work because of disability, and
- the option to convert the term policy, in whole or in part, to permanent insurance if we ever want to.
We could have opted for a hybrid insurance/investment product, but as young, healthy people on a budget, concerned more with protection than growth, we couldn’t beat a 30-year term policy. When that expires, we’ll be in a different age and stage in life, and decide then what our best life insurance move will be.
Our life insurance is through Northwestern Mutual. It’s not the least expensive company as a rule, but at the time it was a good option. Because we purchased the policies when we were young and in good health, the premiums over thirty years remain quite reasonable.
4. Errors and Omissions Insurance ($0/month)
The firm carries errors and omissions insurance to cover any liability of an attorney that arises from that attorneys’s professional work. This is also often called malpractice insurance. I don’t pay anything out of pocket for it, but I wanted to include it in the line-up because professional liability could wipe out our family finances as easily as an auto or health disaster. If your employment or self-employment situation could create liability for you, it’s worth it to consider several kinds of business insurance. Depending on your business that might include:
- professional liability
- general liability
- premises liability
- “key man” insurance
- life insurance to facilitate a buy-sell agreement between partners
- crop insurance
- other insurance products specific to your industry.
5. Umbrella Policies, Disability, and Long-Term Care Insurance
We do not currently carry any insurance in these areas. For many people, especially people with substantial assets or substantial risk factors, an umbrella policy that covers those risks and protects those assets might be worth considering. For us, it’s just not the time.
Disability insurance is often offered by employers, at least to a minimal degree, and when it was, we enjoyed the security it provided, but my current employer does not, and while disability could strike at any time, for now, it’s a risk we’re willing to live with.
Many of my older clients could have benefited from long-term care insurance, but never purchased it. Some had purchased it, but had to abandon it when annual premiums skyrocketed. Others self-insure. Many just hope they won’t need it, and know that public benefits are available if it should become necessary. This is one type of insurance that’s worth a good look for folks who are getting a little older, but are still in reasonably good health.
And that’s our insurance picture. What kinds and levels of insurance you have should depend on your family, health, and financial situation, and on your risk tolerance. It would be nice to have every risk insured, but we’re comfortable with our coverage right now. Don’t forget that we’ll cover health insurance in the next Financial Safety Net post.
It’s your turn
- What insurance coverage do you carry? Why?
- Do you have an insurance story, good or bad, that might be educational for the rest of us?
-Mr. SixFiguresUnder
Other posts in the Financial Safety Net Series
- Intro to Financial Safety Nets
- Why a Durable Power of Attorney is Part of Your Financial Safety Net
- Creating a Cash Buffer
Linked to Thrifty Thursday, The Thrifty Couple, One Project at a Time
We carry auto (much higher values though) and renter’s for the moment (to be converted back to homeowner’s when we finally have our new house). We also carry life insurance on both of us – since each of us has good income potential and could financially carry the family on our own, we chose to pretty much cover 50% of our house for each of us, and that’s it. We also have life insurance through our jobs at 2x salary – the company pays for it, but it ends up being imputed income 🙁
Living in Pennsylvania, we also have another insurance that’s not common elsewhere (except maybe WV and Kentucky): Mine subsidence insurance. We already have it on our property, and it’s available through the state. We don’t have a mine below our property, but there is one in the hill above us, and the insurance covers us if that mine fills with water and floods our property. At $150/year, we figure it’s worth it, at least for a while.
We carry very similar policies to you. I also have a minimal disability policy through work. Reading about your errors and omissions policies makes me wonder if I’m missing something with some of the cpa work I do. Gotta look into that!
In regards to your car insurance, I think you should re-evaluate the amounts you have.
$50,000 for injury/death to one other person,
$100,000 for injury/death to more than one other person,
$50,000 for damage to property of another person,
That coverage is just as worthless as the state minimums to be honest. My parents had their limits at
$100,000 for injury/death to one other person,
$300,000 for injury/death to more than one other person,
$100,000 for damage to property of another person,
They were just driving along a normal road one night and some new driver (17 years old) just turned into them. He hit them directly in the driver side A pillar. Well, that $300,000 was gone in 2 surgeries. There were leftover medical bills that had to be paid, and after a long 5 year lawsuit, ruined credit scores, and massive amounts of credit card debt from being unable to work, they finally got a small settlement. After paying the lawyers, the medical bills, credit card bills, and whatever else there was, there wasn’t much left. They certainly ended up with far less than if they had both had never been out of work over those 5 years.
For that reason, I now keep my limits at the maximums they allow me. The premium increase over what you have is about $40/6 months. The peace of mind knowing that I am in a better position should something like that ever happen is worth that small amount to me. I don’t want to go through a ridiculous
lawsuit like they did.
Mine are
$250,000 for injury/death to one other person,
$500,000 for injury/death to more than one other person,
$100,000 for damage to property of another person,
Hope that gives you a new perspective.
Great post on insurance. Simple explanations and it covered most of the topics I would discuss.
I’ll have to disagree with the decision not to insure for disability. Your rationale behind taking that risk is weak. The chances of you or your husband having a disability is greater than you think and just because an employer does not offer at least minimal coverage does not make it worth not having.
Let’s say you have a machine that can print money. It sits in your garage and prints out $3,500 every month on the first. This machine is designed to continue printing the money every month for the next 30 – 40 years with adjustments every year to print 2-3% more dollars each year. Your family gets used to having this machine printing the money and its great because you have a mess to clean up with your finances. You depend on this machine for the livelihood of your children and spouse. The cost of insuring that machine if something were to happen is expensive. It runs about $150 every month. That $150 per month insurance would pay your household $2,275 per month until either the machine was fixed or 30 years go by. Since that machine is the livelihood of the family and it pays for the food, health insurance, utilities, rent/mortgage and clothing you would not think twice about insuring that machine.
This machine represents you or your husband’s occupation. You may think that you can’t afford another insurance expense in your budget, but my challenge to you is you probably can’t afford not to have it. 1 in 4 adults over the age of 25 are likely to have a long term disability happen to them in their lifetimes. Self insure to protect your family. Heck, you’re not even paying rent right now, you can put this in your budget.
That’s my $0.02.
Thanks for blogging about your life and journey. It’s encouraging and I appreciate your transparency.
We also have USAA for auto and renter’s insurance (one of the few U.S. insurance companies who will insure us overseas) and although state-side we found USAA to be a little more expensive when compared to other companies. As you said, their customer service is AMAZING! We were in Belgium last summer and our car had to be towed on a Sunday (nearly everything closes on Sundays in small villages in Belgium). Well, the 3-mile tow cost us over $300!!! USAA didn’t even blink an eye and reimbursed us within days. We have our life insurance through the military. We could probably get a slightly less expensive premium with a private company, and probably will when/if we need more than a $400K & $200K policy, but for now it works for us.
We decided recently to get Umbrella Insurance. Our reasoning is because we have 2 young adult drivers and there is always the possibility that we could be sued due to a car crash. Our premium is pretty low, $40 a month, so for now we think this coverage is worth it. When they are completely independent from us, we will most likely eliminate it.
We both have life insurance polices, but it really took my husband a while to buy into the idea. In his mind, he couldn’t understand why we’d profit at his death. It took a sermon series to convince him that buying life insurance doesn’t make me automatically rich, but instead puts me in a position where I don’t have to make a hasty decision about how to provide for our children in the case of his death. Our children are mostly grown now, and we’ve had the policy for a number of years, so for me this post is a reminder to ask how long the term is and to follow up with that. Thanks.
As for the long-term care insurance, both my FIL and my good friend’s father have Alzheimer’s. My in-laws are paying for care through their own funds, but my friend’s father had the long-term care insurance. Seeing the similarities/differences in how these two men and wives have had to deal with the health issues is eye-opening. I know that in the beginning Mrs. P. was not happy that her husband had bought the insurance because of the expensive premiums, but when they needed it she was very grateful it was there. Because Alzheimer’s has been a part of my husband’s family for at least 3 generations we may need to look into this in the next several years to see how it fits in our budget.
Here is the reason for life insurance.
Last week, an acquaintance of mine (my son’s friend’s dad) was killed in an automobile accident. While talking to the widow, we found out that there was no life insurance. As he was the major income earner in the family, my heart was broken when she said “I don’t know how I’m going to pay the mortgage next month. I’ve lost my husband, and now I’m going to loose my house.”
I can’t imagine what it would be like to try to go through the grieving process of loosing a spouse, and being worried of loosing your home.
Interesting, you’ve taught me a few things I didn’t know about insurance. Whenever I’ve suggested renter’s insurance to my husband, he tells me it isn’t worth it because we own nothing of significant value (we also live in an area with a very low crime rate). I didn’t realize it also is a protection for injuries on your property. Health insurance of course is a different beast–with a minimum $300/month payment and 10,000 deductible (through ACA) there is just no way for us to pay for health insurance. Thankfully since we make less than is technically taxable, we don’t have to pay the penalty. My husband had an appendectomy last summer, and the irony is that even an emergency surgery and a few days hospital stay ended up costing less than the deductible alone of a health insurance plan–in this instance we were better off without health insurance! (I do hope that down the road we’ll be able to afford it though!)
Life insurance is definitely something we need to look at, too. I’m surprised at the premium you listed, I had always assumed life insurance would cost far more than that.
I strongly encourage renters insurance. Dave Ramsey tells the story of a fire in a house he owns and rents out. The tenants came up to him after their house burned down and asked when they would be getting their check from his insurance. He told them they needed to have their own insurance. They were screwed. You may think you don’t have anything of value, until you have nothing and have to replace it all.
I had assumed that renter’s insurance would function similarly to auto insurance, with your damaged property being assessed at a certain value for which you would be reimbursed. Are you suggesting that you actually get a check without having to prove to the insurance company that you have property of value?
I’m afraid we’ve learned to think of insurance as gambling, not because bad things may or may not happen (they do at some point to just about everyone) but because insurance companies may or may not pay out in the event of need. Family and friends have not had good experiences with insurances. It’s hard for us to justify paying insurance companies each month, knowing that they will find any reason to get out of reimbursing you should something actually happen, especially when you struggle to meet basic needs (food, rent, energy).
This is true, particularly of travel insurance. My husband was caught up in a civil disruption some years back which necessitated him being evacuated from the country. When he filed his travel insurance claim, he was told that it was classed as “civil war” instead so his policy did not cover it – never mind it was nothing even close to approaching civil war!
Still, when we travel (especially when we travel to the US) we make sure we have travel insurance, because the cost of a broken arm in the US could bankrupt us.
Very interested to read more on how you handle health insurance, always enjoy reading your posts
We purchased our life insurance when we were older, so our premiums are pretty high, but the peace of mind is worth it. Also we opted to pay more for our premium so that, at the end of the 30 year term, we will get everything we’ve paid in back.