Monday, October 31, 2011

My Insurances

This, possibly above my hating of credit column, may face the most opposition within our culture. Admittedly, even I groan at using a sinking fund to pay for those expected cute little things called annual and monthly premiums. At the very core of it drives the main question: What is insurance? To me insurance provides peace of mind against inevitability at a cost. I will get sick, (odds and percentages are in my favor that) I will take a medical leave of absence from work within any given 10 year span, Home repairs will be needed and I will die, these are the inevitabilities people! The wildcards are for how long, to what extent and when.

First and foremost my general approach to insurance fundamentally requires a six month liquid emergency fund to be intact. Though informal, I consider the emergency fund in itself to be insurance. Rather than being invested in a mutual fund, the emergency fund earns close to nothing in interest in today’s environment and, like insurance coverage – having the emergency fund costs me. The importance of the padding that the emergency fund provides is that it allows you to raise deductible amounts and lower premiums. I cannot stress enough that the emergency fund is crucial to having higher deductible amounts on insurance plans. With a higher deductible you will have to pay more out of pocket for incurred expenses, which can be easily found in your (duhn duhn duhn!!) emergency fund. Now, onto the types I currently carry:

·         Medical
·         Long Term Disability
·         Term Life
·         Renter’s
·         Dental

The last piece that I will elaborate on is Term Insurance. I currently carry a 30 year level term policy and the face value is around 10X my annual income. I do not combine this insurance vehicle with savings, which is what whole life insurance products promote. I despise these guys and anyone selling/pushing/salivating at the idea of you buying whole life insurance, and here’s why.

The concept behind whole/variable life insurance policies is that you build savings in addition to paying monthly premiums. What they won’t tell you and what you have to read for yourself in their policy, is that WHEN you die your beneficiary (family..right!!) will receive only the face value of the insurance policy and the savings that you will have built up becomes property of the insurance company and they pocket it for themselves. If that were not reason enough, these clowns can run circles around and dizzy you with their fee structures “as you are building your (their) savings account.”

The alternative that I have chosen is to have a term life insurance policy whose premium for me comes out to just under $30 a month. I then invest/save for myself without paying stupid fees. This is done so that when I die the savings accumulated will go to who I want it to go to, and I mean it when I say insurance companies that push whole/variable life will never be listed as my beneficiary. Of course what happens when my term life policy end date comes? Well, let’s say (and I’m being very modest here) that I stock away $100 a month in a good growth mutual fund for 30 years/the length of my term life policy that averages 12% growth annually. At the end of my policy, that $100 a month put away for 30 years will worth $352,991.10 and NONE of that will go to an insurance company more interested in fees than my financial peace.

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