Most of us know what insurance is. The problem many people face is deciding what type of insurance to buy. There’s no shortage of choices on the market and all the different insurance providers are competing for your dollars.
So which do you choose?
The rule of thumb here is to first understand that insurance at its core is a ‘safety net for you’. When choosing insurance, you MUST insure items that will have the most devastating consequence should a possible eventuality of loss occurs.
That’s what insurance is for to prevent a financial catastrophe.
For example, if John has car insurance and meets with an accident, his insurance provider will help to pay for the repairs which could cost thousands.
Another example would be a situation where Mary is diagnosed with heart disease and needs expert medical care which runs into tens of thousands of dollars. With comprehensive medical coverage, the insurance company will cover the medical bills.
Insure the items that matter your health, your home, your car, your business, your future income and so on.
There’s no point in getting insurance for trivial items such as cell phone insurance, extended warranties for your new TV, etc.
Tips on buying insurance
Always shop around and look for the best deals. It’s recommended that you buy insurance from the provider directly. Very often, when you buy insurance through an agent, the premiums are inflated to cover their commissions. So you’ll be saving a lot in the long run by buying directly from the provider.
When purchasing insurance, always opt for the highest deductible you can afford. This is why it’s good to have an emergency fund saved up. A ‘deductible’ is the amount you will pay out of your own pocket.
For example, let’s assume you have a $2000 deductible on your car insurance. If you meet with an accident and the damages to the car totals $5,000, you’ll pay $2,000 out of your own pocket, and the insurance provider will cover the remaining $3000.
By doing this, you’ll show the insurance company that you’re capable of paying on your own. They’ll be less likely to raise your premiums.
Furthermore, you won’t need to file small claims for every little fender bender you encounter. People who constantly file insurance claims are usually denied and also see their premiums go up. They end up getting the worst of both worlds.
Always choose the most comprehensive health coverage you can afford. These days, medical bills are astronomical.
Avoid picking ‘narrow’ policies such as cancer policies. If you don’t get cancer, but encounter another serious health issue, the insurance provider will not pay out. Broader coverage is always better and make sure your policy covers the major critical illnesses.
Another point to note is that daily hospital insurance where the provider pays you a certain amount a day to cover your loss of income sounds good, but is not really that important if you have an emergency fund saved up.
A single day’s stay in hospital can cost thousands and the daily hospital insurance will barely have an impact on the bill. You MUST get major health coverage with your plan.
Disability insurance will cover any potential loss of income that you incur from a disability. This is definitely a type of insurance you should get to protect your future income.
It’s the reason why David Beckham’s legs are insured for $140 million and Julia Roberts’ smile is insured for $30 million. Despite the fact that they’re already millionaires, they’ve still taken disability insurance to protect themselves from any loss of future income.
Another type of insurance you’ll need is life insurance. If you have a family, not only will they be provided for to some extent with your life insurance, but the money will help to cover the funeral costs, estate costs and so on.
There are countless families who are left stranded when the breadwinner dies. Very often, there’s no savings and the families need to turn to sites like GoFundMe, etc. to crowdfund the funeral costs. Not only is it a traumatic time, but it can be embarrassing too.
At a glance, these are the 8 insurance policies you need:
- 1. Health insurance
- Disability insurance
- Homeowners insurance
- Car insurance
- Life insurance
- Long term care insurance
- Renters insurance (if you rent)
- Pet insurance (if you have a pet)
- Travel insurance (when travelling only)
If you’re renting, renters insurance will help to cover your personal property in case of theft or damage. Your landlord may insist you get it.
Disability insurance is a MUST. Illnesses and accidents can happen at any time. Studies will show that there’s a higher chance of disability than death. As long as you have a job, disability insurance will protect you should you be unable to work because of a disability.
Do NOT rely on employer-sponsored insurance. In some countries, this is known as workers compensation or ‘worker comp’. The coverage of these policies is usually insufficient because of the short duration the plans offer. Get your own disability insurance.
Pet insurance is useful because veterinary bills can be high. In fact, a trip to the vet because of a sick dog can set you back by $1000 or more. Pet insurance will help you cover this bill.
Travel insurance should be bought just before you travel. It’s often cheap and you’ll get it just for peace of mind. Should you lose your luggage or experience trip cancellations or need medical treatment overseas (which can be expensive for tourists), travel insurance will help to cover these unforeseen bills and inconveniences.
Last but not least, insurance is NECESSARY. Do not try to save on money here.
A health emergency can lead you to financial ruin, if you’re not adequately covered. Ensure that you have sufficient coverage. This is why you need both health and disability insurance.
When you’re sick, the health insurance will cover your medical bills, medical equipment, etc. that you may need. The disability insurance will help cover your other expenses (if you can’t work). such as childcare, household expenses, etc.
You may wish to get an endowment policy which has health coverage, but also has a maturity date. That said, insurance is NOT a vehicle of investment. Just because you have a few insurance policies does not mean you’re creating generational wealth. You’re just being protected from financial catastrophes.
If you wish to grow your money, you’ll need to invest it in stocks, funds, etc. over and above what you’re paying for insurance. Start thinking about what you wish to insure and take steps as soon as you can to protect yourself. Insurance is a necessity and not a nonessential. So, get insured before it’s too late.