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Be Prepared: Insure Yourself

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.

Auto Insurance

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.

Homeowners Insurance

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.

Disability Insurance

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.

Business Insurance

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

Extended Warranties

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.

Credit Insurance

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.

Flight Insurance

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.

{ 11 comments… add one }
  • Lewis_Family May 19, 2010, 7:33 pm

    We have a term life insurance plan that covers our kiddles. My dad sold insurance back in the day, he said you would hate to have to get a loan out to pay for your kids’ funerals and then remember it each time you made a payment. It didn’t cost more to add the kiddles, since hubs and I were both getting covered…so we prob have a good company?

  • Alison Moore Smith May 19, 2010, 11:08 pm

    I’ve never heard of a free life insurance policy (except the “open an account and company x will give you a free minimum policy and then they’ll try to upsell you for the next ten years”). If it’s really free, then it’s no problem. But generally paying for life insurance for a child is only paying for FUNERAL insurance. And it’s a big money-maker for insurance companies. Generally any insurance that is a cash cow for the company is a cash DRAIN for customers.

    Much more cost effective to put the same money in a savings account and self-insure, particular when almost no one ever NEEDS this service.

    Think of it like this, you’d hate to take out a loan to pay for injuries to your child when a TV fell on his head, too. But would you buy tv-falling-on-head insurance? 🙂

  • Lewis_Family May 20, 2010, 9:04 am

    Posted By: Alison Moore Smith

    Think of it like this, you’d hate to take out a loan to pay for injuries to your child when a TV fell on his head, too. But would you buy tv-falling-on-head insurance? 🙂

    Nope, that is called medical insurance 😉

  • Alison Moore Smith May 20, 2010, 9:18 am

    Generally speaking, true, but note that there are all sorts of specific health riders/policies in spite of available general health insurance. For example, what if this SPECIAL insurance also pays to replace your TV and carpet damage? 😉

    Then think of it like this: you’d hate to take a loan out to pay for wedding expenses if your child is deserted at the altar. But would you buy dumped-on-wedding-day insurance?

    The point being that buying insurance for things that are incredibly unlikely to occur and expensive when compared to the actual benefit in the event of the really unlikely event are a bad place to put money. The house always wins. 🙂

  • Lewis_Family May 20, 2010, 11:30 am

    oh, ha, I thought you meant insurance for the kid with the bump, not the broken tv, ha.

    And I guess it depends on the amount of life insurance. With ours, it truly does not cost us more to have our kids added, so for every depenedent we have under 18 years ( I believe it is up to age 18 ) they are covered 10k each. Now hubs and I are covered 250k each, that includes disability insurance which is a real possiblity with my hubs disease, so it is smart for us to have it all… actually I think we upped hubs to 500k.

    Another way my dad looked at it was, you don’t buy auto insurance expecting to get in an accident right? Some people will pay for it their whole lives and never have a single accident. Granted, states require it, and they should require life insurance. So many people lose not only a loved one but everything else because all of a sudden this huge expense occurs and sometimes breadwinner is now gone and bills pile up.

    Not that you said life insurance was bad, you said smart move to have, I just think if it isn’t much more to include your kiddles, I would do it. Maybe it is just front of my mind because I have seen SO many kiddles die the past few years that I see how it can be a relevant thing to have. I think death is a much more pressing and worthy issue to be prepared for than broken tvs or left at alters.

  • Alison Moore Smith May 24, 2010, 3:28 am

    If it makes you feel better or more secure, go for it. It may be worth the cost to you. 🙂

    I’m simply speaking statistically, not emotionally. One in about 3,000 children die. In a cost-benefit analysis you are wasting money if you insure things that are almost sure bets for the insurance company. Sure, you are glad you have it IF you end up being the miniscule percentage that needs it, but you are extremely likely to be throwing your money away.

    If ANYTHING happens to you — after the fact — you will be thrilled to get money to help pay for the event. No matter what the event is, when it is a KNOWN entity, it’s great to get a settlement. But given that we insure only with UNKNOWNS, the only reasonable way to weigh the opportunity cost of any given insurance over another, is statistically with a cost-benefit.

    Let’s say an insurance policy costs $10 per month. Statistically, you are way, way ahead to use that to (1) save for college, (2) invest, (3) increase PARENTS life insurance, etc., than to buy life insurance on a child.

    It’s like the extended warranties. Sure, if you have the one in every 2,000 dishwashers that is faulty, you’re glad when you can get it fixed on day 367. But 99.997% of owners are losers in the deal, not just because the event is extremely unlikely, but because even if the extremely unlikely occurs, the financial hit is extremely limited.

    BTW, it sounds like you actually have a rider for your kids, not their own policies. If the cost is negligible it doesn’t hurt and generally that would just be for burial expenses.

    Money Magazine‘s take on the issue.

  • Lewis_Family May 24, 2010, 12:54 pm

    I can see that, like, for sure have insurance on yourself first, and then if you can add kids, go for it. It’s not like we went out and sought “gerber life insurance” or what not. Then again, maybe I should have? I don’t know how much those are? Now no way would I get a policy over 10k for kiddles. They are not bread winners, it is strictly funeral costs. It is seriously mind boggling to think of getting a 250k policy on a kiddles, almost suspicious in this day and age.

    1 in 3000 huh, not the best odds when I have 2 of how many children?

    So random q, if it were not required, would you insure your car? I am a great driver, never been in an accident, why should I have to pay 1200 dollars a year to insure our two cars? Kind of same thought of insurance isn’t it? A sure bet that the insurance company is getting my money that I will never get back? It’s all a gamble right? Medical, we use quite often, so I don’t have any arguments there.

  • Alison Moore Smith May 27, 2010, 1:47 am

    Most property auto insurance doesn’t make good financial sense. Liability does, however.

  • Lewis_Family May 27, 2010, 9:51 am

    Saweet, we have liability only, so doing something right 😉

  • Alison Moore Smith May 27, 2010, 3:19 pm


    Most people don’t really know what their auto policy covers. When a car gets below a certain value, insurance is just money in the trash because the insurance company will total the car with very minor damage. The collision/comprehensive is what costs the most money, but is generally only requires if the bank owns your car. I’d still get it on a newer car — but with a high deductible, etc., and without all the add-ons. You can really slash your rate.

  • Lewis_Family May 27, 2010, 6:15 pm

    Yeah, we have bought both our cars with cash used from people. And they are older, so we were like, cheapest insurance possible :bigsmile:

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