Why Insurance is Important

Anytime we think of insurance, it can be a challenging. Either we are overinsured, or we are underinsured. We ask ourselves what do we need to insure anyways? What type of insurance can I get? What's the difference between a warranty and insurance? Do I need mortgage insurance? I just bought a pet. Do I think pet insurance would be good?

The point of insurance is to protect against catastrophes. It isn't an investment or even a way to save money. It is used to save your investments and other money. There are the 5 or 6 main pillars of insurance you need—everything else you mostly don't need. There are nuances, but I will focus on the main 6. I wrote them in some order, but you need all these for the most part. It isn't an either/or. It's all I need. There are seasons or specific reasons why you don't need some.

Emergency Fund and Sinking Funds

Why did I put this in? Isn'this savings? I put this in because it is one of the main ways you self-insure for unexpected purchases. This helps us not buy those warranties that eat into the budget. Warranties like apple care, home warranties, etc. Having a healthy emergency fund allows you to take on more risk and increase your deductibles, which can decrease your monthly cost.

Health Insurance

This could be a post in and of itself. You will always need this, and most folks will get it from their employer or their spouse's employer. If you are old enough, you could qualify for Medicare, and now the healthcare exchange exists.  There is an option to do a Medishare program if you qualify.  Sometimes this might be the best option but I would encourage everyone to get proper health insurance even though it cost a lot.  If you can get a high-deductible health plan and qualify for an HSA, it could be even better.

Identify Theft Protection

Another needed thing. With identity theft on the rise, having a good identity theft protection plan in place is good. You can purchase this or use credit cards over this, like my Apple Card or a Master card, and you can also buy it through other vendors.

Home Insurance/Renters Insurance

If you own a home, it is mainly required for you to have insurance. I don't think I need to talk through the importance of homeowners insurance, but I will talk about renters insurance if you don't own a home but rent. You should have renters insurance. It is so cheap and available to mitigate the risk of losing your personal belongings it is worth it. Your landlord is not responsible for your personal belongings, only the dwelling he owns.

Car Insurance

You are again required in most states. If the value of replacing your car is high, you need comprehensive coverage, but as the vehicle gets older, you could have liability coverage to make it cheaper. Yet another reason to have an older car. If you have a loan on the vehicle, they will require that you get comprehensive coverage, but you should be paying cash anyways.

Term Life Insurance

Especially when you are younger, you should enroll in a 30-year term life insurance. It will be the cheapest then, and I mean like dirt cheap, up to 10x your annual salary. After this term, the goal is to be self-insured once it expires, and you won't need it.  Life Insurance is meant to be an income replace for those relying on you.  As you investments grow and debts recede you won't need it.  As your kids grow up and become self sufficient they won't need it.  The goal would be eventually that your investments would be able to cover your estate and then some and therefore the need for this type of insurance goes away.

Warning: do not get any insurance that has investments in it. You hear the annuity, cash value, and growth by x%. If you've maxed your retirement accounts, paid off all your debts, and your income is so high, you must figure out how to mitigate tax liability when those policies "may" make sense. But be honest with yourself. Most folks aren't in that category.  And they are usually laden with fees.

1. Emergency Fund
2. Health Insurance
3. Identity Theft Protection
4. Home Insurance/Renters Insurance
5. Car Insurance
6. Term Life Insurance

Warranties

A quick note about warranties: don't pay extra for them.  Use your emergency fund as a hedge or put the money you would have put towards a warranty into a sinking fund.  For example, if you buy an Apple phone and want to get Apple care.  Put the monthly amount as a fund in a savings account or budget category.  Then if anything happens, you have money to pay for it. Suppose it doesn't keep that money and put it into the next fund.  On-the-service warranties seem like a good idea, but they are fraught with loopholes and not covering what you would expect to cover.  I would avoid them.  

Conclusion

In American Football, you need an excellent defense to win the game. Insurance is one of your defense and risk mitigation. There is always balance; you must put points on the board with your investments and savings.

If anyone wants to reach out please Contact Me!

As an Amazon Associate, I earn from qualifying purchases and I earn from links but not all

This article is informational; it should not be considered Health, Financial, or Legal Advice. Not all information will be accurate. Consult health, financial, or legal professional before making any significant decisions

Follow me on Twitter!

Books, Credit Cards, Software and Products I recommend

Update on 7/13/23