You pay for it and usually never use it! Is this just a waste of money, or is there a purpose to insurance? What if I genuinely can’t afford it? What then?
Why You Need Insurance, and What to Do When You Think You Can’t afford it.
This content was shared on Debt Free Wealth RADIO. Listen as you read.
Life, health, long-term care, property, business, liability: These are just some of the types of insurance out there. No question, it is an expensive monthly commitment that many feel angry to pay, and some just decide not to, and some worry that they cannot afford to. The insurance issue is hotly debated and even more so with the ambiguity surrounding ObamaCare. In many cases, insurance is not an option to legally ignore. This will not be an Obama Care discussion per se, although it will come up. Instead, let us look at the concept of Insurance, why we need it, and what to do when we think we can’t afford it. At some level, this show is for YOU! If you are over 18 and driving – insurance is a question that has come up in your life, and as we get older and include more life experiences and directions, the insurance question and the variety of insurances come up for you. This show, is for YOU! A friend of mine posted her recent hospital bill on facebook and here is what she shared: People need insurance for a variety of reasons. In some cases insurance is required by law; however, there are policies that, though not mandatory to have, do give you necessary protections should you suffer a financial loss. And when you do have an insurance policy, there are certain rights and protections you have under your state law. Different stages of your life will require different insurance needs, so it is important to review your policies at least once a year to make sure you have the best policy to fit your lifestyle. There are many types of insurance; and this show is not focusing on any specific type, just the general issue of the need for insurance all together. There is a home on the street I live here in Tampa, FL that burned a few years ago killing the owner. He came home tired from work, set some food to cook and fell asleep in his sofa waiting for that to happen. The house burned and he actually died of smoke inhalation rather than being burnt because the neighbors called in to 911. He had no wife or children, so his father was the sole beneficiary of the house, now free and clear, paid off by the policy he had. With repairs totaling less than the policy payout, his father made a small profit reselling the renovated house. My grandmother was a frugal woman all her life and saved her money for a rainy day. However, her extended lifespan, high health care deductibles, and finally the plummet in the value of her investments due to the recent recession took away all her financial cushion to the point where her care became my financial burden, and her burial the result of family and friends chipping in to cover expenses. Here is a burden I carry that pains me till this day. When my grandmother came into my care, the first thing I did was review all her paperwork and policies. She insisted she had life insurance, but when I checked, it was only a policy against her life that would pay out only if she died in an accident. Ignorance and maybe budget may have influenced her decisions at the time that she purchased it, but when I realized the problem, it was too late. She was too old and even with a willingness to pay any amount, there was no carrier that would insure her. Another painful story comes from my adventures in insurance sales – yes, I hold these licenses but because of my focus on sharing the message of debt free wealth, those licenses serve me more for my credibility to share with you on this topic than my insurance sales activity of my income sources. So, when selling insurance was my main income focus, there was one single mom in her late 20’s that took out insurance on her life and her two young children in a bulk policy. However, upon review of the medical files, the MIB – (no, not men in black – the Medical Information Bureau) decided that her 4 year old would not qualify for life insurance at all. You see, he had a medically documented history of repeated hospitalization for seizures. AT 4, this child did not qualify for life insurance. Under Obama care, he would not be denied health insurance, but life insurance is another matter. You see, unless his health changes dramatically in the coming years, this young man will move into adulthood without the ability to purchase life insurance, and when the inevitable happens, he or his family will have to bear the entire cost of his burial from their pockets and the cheapest funeral today is $10K or more, unless you opt for cremation. Which brings me to another point, this single experience changed my perspective on why you need to consider getting life insurance on your young children. I can tell you, before I got qualified in this industry, I did not carry life insurance on my children. In my mind, I rejected that idea vehemently and I used to say that I did not want to profit from my child’s death. However, children do die, unfortunately, and unless you have the funds to afford that funeral, a life insurance policy is very helpful during that painful time. More importantly, the earlier you secure a policy on your child, should life unfold to show a debilitating health issue as in the case of that 4 year old with seizures, as long as you do not let that policy lapse, that child is usually able to move into adulthood with at least that minimum coverage on their life. So if you buy a $100K policy on their life, and later the MIB decides they are a risk for further insurance, as long as you do not let that life policy lapse, the child can move through life with that minimum coverage – folks, you may be doing your child an incredible favor that will pay off in the future when you secure a life policy early in their life. Here is another story, and the reason why I shifted in my view on term life insurance. You may have heard some of the gurus in this space such as Dave Ramsey and Suze Orman say, buy term and invest the difference. Well, I wont take on those financial giants, however, I will say this – that strategy is fantastic IF, repeat IF, you are under 45 years old at the time of taking out your policy. AND, you did not go through a recession like the one the world just endured during 2006-2010. My mother bought term life insurance from me several years ago. She had investments and my parents were financially secure. However, the lure of the real estate bubble coaxed my parents to pull substantial equity from their home and their investments to invest in the real estate market. That plus the balance of their investments taking a hit with Wall Street fall during that era, left my folks in a bad way. As we reassessed the damage, one of the things we reviewed of course was their various insurance policies. You see, my parents were now approaching their 70s and term life policies lose their affordability right around that mark. The idea of term life is buy very affordable term and invest that $ you would otherwise have spent had you bought a whole life policy which is of course, more expensive. Well, my mother’s term life policy was up for review and the $180/month payment my mom was making at the time was scheduled to jump to $1300/month if she intended to keep her policy beyond age 70. I was her agent and apart from the fact that I knew she could not afford that kind of payment, the aha button went on for me that while term insurance has merit, it has merit within limitations. Had the recession not taken her retirement cushion away, my mother would have been a poster child for buy term invest the difference, because she would have been able to afford her retirement, however, that money evaporated with the recession and now term insurance was no longer the way for her to afford life insurance. The little funds she had left needed to go to financing her life, not her burial, and to pay the exorbitant premium for term beyond age 70 made no financial sense. While she could still qualify, we rolled her into a whole life policy for less than $450 that would carry her for her whole life, till the day she died and that was significantly less than $1300. Term life is for younger people who will diligently set their retirement funds aside so that at age 70 they no longer need a life insurance policy because they have enough funds to carry them through the rest of their lifespan and pay for their funeral. If this does not sound like you – if you do not have enough years ahead to agressively create a retirement cushion that will last your whole life, and pay for your burial, a term life policy is not the best option. On top of that, the longer you wait to buy a whole life policy, the more that policy will cost you. Had my mom held a whole life policy years ago in her young adult life, her premium may not have been more than the $180 she was paying for term and it would have carried her until she passed away. Now, if you are on a very tight budget and you are years away from age 70, then term life is better than having no life policy in place. Think of it this way. You can get a term life policy for – and I am just using numbers here because quotes are unique to each person, but for $25/month a person could be covered for $50-$500K depending on when you take out the policy. If you died before age 70, no matter how long you paid into that policy you would have actually seen a profit on your money. Let’s say you pay $25/month for 45 years, that calculates to a total expense of $13,500 during that time, so a payout of $50K will pay for a funeral and leave something behind for your family. I would never say an insurance policy is an investment in the true sense, but where do we find investment payouts like that? $13500 slowly paid over a long period to return $50 – $500K to your family Indeed, term life is better than having no life policy – but you have to die before age 70 for them to see that benefit. Commercially, you will need insurance to protect your business as well. Again, many policies are mandatory. In real estate and insurance for example, we must carry errors and omission insurance. My church just got hit with lightening for the 14th time in 20 years and I heard church elders talking about getting rid of the steeple, an icon of the church in the community, but it seems to be the conduit for their troubles. The reason for the urgency is because they have been dropped by the third property insurance company and not only was it getting more difficult to find a carrier but their premium escalated with each new policy. However, to not carry the insurance is not only not an option, but also, to bear the full cost of restoring all the computers, audio equipment, airconditioning and more would be more debilitating that paying for a policy. My sister-in-law lives in Boston, the Mitt Romney state that has carried an Obama care like mandate for some time. The hardship for her is, before the mandate, she opted not to hold health insurance, she was a health nut who lived a careful life. However, with the mandate, she had to carry the insurance or be fined and possibly imprisoned. Here is the problem, at $2500 deductible, my sister-in-law pays for health insurance and still never uses it because she cannot afford to pay the deductible. She is healthy and the few times she may have considered going to the doctor would put her out of pocket to meet the deductible before the policy kicked in – so she self medicates still to this day and resents having to pay the policy. However, as she gets older she is finding more value in holding the policy.
So what do you do if you truly cannot afford to pay for insurance?
If you are an entrepreneur, instead of operating your business under your social security number, incorporate or become an LLC to limit your liability. When shopping for a car if you cannot afford the higher premium then do not choose a red sports car. Did you know your zip code can impact your auto policy premium? If you need to relocate, ask your insurer about zip code quotes and see if you can find accomodations in better zip codes. If your family has a history of diabetes and heart disease then work on keeping a healthy weight and better food choices. Shop around for better quotes and more. Ultimately, you can try to keep a low profile, play it safe, and cross your fingers that all goes well – but we know life does not work that way. Those who work hard to stay healthy, may become a victim of a drunk driver. You do everything to avoid risk and someone decides to sue you. There are some things you can do to minimize your risk but there is no way to totally eliminate risk and disaster from your life, and ignoring things and sticking your head in the sand won’t make them go away. In some cases, some of us are playing with fire then crying when we get burned. Long and short of it – if you cannot afford insurance, then you will have to pay the piper. If you do not have the funds to pay, then plan to defend your personal assets in bankruptcy court. The only people who seem impervious to the costs of insurance are those whose existence is courtesy of Uncle Sam. If the governement gives you medicaid, a free cell phone that they replace when you lose or damage it, gives you cash assistance for miscellaneous expenses, a free or virtually rent free home via section 8, food stamps, and pays you back more than you earned at tax time, then you my friend, are fully covered. Even if you deserve to be sued, any lawyer doing an asset assessment will determine you unable to pay and dissuade their client from pursuing you. For the rest of us who work for a living, unless you are fully funded where you can write that check to cover every loss – you need insurance. It is as simple as that.