With all the brouhaha over the appropriate role of government in regulating health insurance, it’s reasonable that first we should define what insurance, as a commodity, really is.
Insurance is a group pooling resources in order to protect individuals within the group. It’s risk management. It’s statistical analysis. It’s saying, “I’m willing to pay the insurance company more than I would probably ever need, in order to protect myself from financial ruin if I happen to be one of the very few (unlucky!) who actually does end up needing more than most people.”
When properly defined, it’s obvious that the idea of “insuring” people who are already sick, from getting sick, is ludicrous. You can’t insure people with pre-existing conditions because you are no longer averaging risk. Instead you are filling the pool with those who are already defined as the “few, unlucky” who require everyone else to overpay. It’s like buying car insurance after you’ve had an accident or buying homeowners insurance after the fire burns your house to the ground. The numbers just don’t work.
“Insuring” people who are already sick is really welfare, public assistance, or redistribution of resources. It’s saying, “I’m going to take money from those who make it to pay for the medical expenses of others.”
In order to truly insure, we need to plan (and purchase) before a need, before a crisis, before an emergency. There are many kinds of insurance. Which you choose will depend upon your circumstances.
Insurance You Probably Need
Term Life Insurance
If you have dependents, you must have life insurance. Consider getting enough to support them to adulthood, pay off your debts, etc. If you don’t have dependents, then a policy covering your debts and funeral expenses should suffice.
You can’t drive without auto insurance in most (all?) states. This is an area where comparison really pays. Covering a bunch of teens can be a drain on the wallet, but you really can find good deals for families if you compare before buying, and compare again every year or two.
Protect you home with a good policy. This should cover replacement value of your home, your belongings, and a liability policy should someone get injured in your home.
Unless you are independently wealthy (and therefore, self-insured), you need income to pay the bills if you are too sick to work. This is a vital, and often overlooked insurance need.
You can get quotes on most of the above online at Netquote. It will give you idea of what competing companies offer and how much it will cost.
Insurance You Might Need
Dental & Vision Insurance
While not necessary, such policies may make sense in a cost/benefit analysis. The “family plans” have a flat fee no matter how many kids you have. Generally speaking, we have found that the less expensive plans usually give us a good value because we have far more children than average.
If you have a business even a home business you need to have business insurance to cover your business assets. In some cases you’ll also need business liability insurance to protect you in case of a lawsuit over your product or service. These policies may be geographically specific, such as a policy for business insurance in New York.
Insurance You Probably Don’t Need
This is a huge money maker for the companies that push and provide this. Read that: not a good deal for you because you pay way more than you’ll ever collect.
This insurance pays your loans if you can’t. Instead, get a good disability policy or life insurance policy to cover those expenses. Even better, don’t incur debt that will be a huge burden to pay off if you run into financial difficulty.
You could take a plane trip every day for 26,000 years and, statistically, never be in a plane crash. Even then you’d probably survive. These aren’t the kinds of freak things you should spend money insuring.
Whole Life Insurance
Insurance mixed with investment? Pretty much across the board this is a stinker. Buy term life and invest where the investing is good.
Specific Illness or Service Insurance
Health policies that are limited to a particular disease (like cancer) or service (like a hospital stay) are almost always a bad deal for you. Your health policy is the way to get such thing covered at a reasonable cost.
Life Insurance for Kids
Kids don’t have debts or dependents to worry about. The only expense that kids will incur when they die is the funeral. Given the odds of a kid dying, this is a really expensive way to fund a funeral.