How to Maximize Your Insurance & Minimize the Cost
Very few people get insurance right. They make two mistakes:
- Wrong amount.
- Wrong type at the wrong time.
As a result, people tend to be over-insured or under-insured. This makes sense, our natural tendencies pull us in both directions.
My view is that insurance is an extremely powerful tool that exists to partially protect against bad things. You absolutely need to proactively take steps to protect yourself. However, you also want to avoid signing up for expensive policies that over-protect you against low-probability events.
When you get my detailed plan I provide you with an overview of the major areas of insurance and give you some guidance on things to consider. Here is a summary of some of my general thoughts by category.
Health & Dental
You should have health insurance. You likely should have dental insurance as well. Typically these are separate policies.
You need very little life insurance when you are young and single. You need more of it when you have a family. You need less of it, if any, when you are over 60 or break through to financial independence.
Term insurance should be the starting place for evaluating alternatives. I like to think in ranges of reasonableness. I generally encourage people to consider the low-end of the range for some protection against what is a low probability event.
See related article:
How Much Life Insurance Do You Need?
Home & Auto
You must have auto and homeowners or renter's insurance. I encourage people to keep a good cash reserve and to consider high-deductible policies. The difference may not look look like much, but it adds up over time. You should get a quote at least once every three years.
See related article:
Why You Might Need Renter's Insurance.
Personal Liability Insurance
If your net worth is over $500,000, you should consider (must have) a personal liability umbrella policy for 1x your net worth through $10 million (starts at $1m and goes up in $1m increments).
For example, if your net worth is $750,000, you should have a personal liability umbrella policy for $1 million. If your net worth is $2.5 million, you should have a personal liability umbrella policy for $3 million.
Jewelry over $5,000 should be covered by a separate rider or by a separate policy.
Long-term care insurance
Generally, long-term care insurance is something to evaluate if you are in better than average health, your net worth is between $250,000 and $1 million, and you are between 40 and 60 years-old. This isn't to exclude those outside of these parameters, but they should be cautious.
Also, in order to partially protect, consider:
- A policy that covers no more than $150 per day
- No more than three years coverage
- A deductible of at least 6 months
If you follow my glide path you generally do not need annuities.
If you already own an annuity, you should look at upgrading it once every five to 10 years. Over time, costs get driven lower and benefits get better. When doing so, you need to ask for extremely clear fee disclosure covering all expenses, including investment expenses.
Key tip on fee disclosure:
You should ask any insurance sales person to disclose 100% of their fees, commission and compensation, of any type, on a single, signed sheet of paper.
"How much gross revenue is your firm making when I purchase this product? How much of that goes to you?"
If you have any difficulty getting this information with full transparency, you should work with someone else.
How may I help you?