December 22, 2011

Money & Career, Personal Finance

Protecting Yourself Financially: Types of Insurance a Man Needs

Editor’s Note: This is a guest post from Jeff Rose. 

The day we were issued our IBA’s (Interceptor Body Armor or Flak Jacket), I could feel my knees and lower back aching already.   Having to lug around an extra 16 pounds everywhere we went, on top of all the other gear we were issued, was more than cumbersome–it sucked.

But the nature of the situation demanded it–we were at war. The Kevlar in our IBA and helmets, our up-armored humvees, and our weapons were there for one reason–protection.  Or stated another way: insurance.

For the entire year I was in Iraq, I hated wearing that stupid battle vest.  It was heavy; it was hot; it was just flat out annoying.  Despite my negative feelings towards it, I couldn’t deny that it saved lives.   As they say in the military, it was a “necessary evil.”

That same concept can be applied to insurance.

Raise your hand if you enjoy getting an insurance premium bill in the mail?  Didn’t think so.

There are some forms of insurance you just can’t live without. Car insurance is mandatory in all states, homeowners insurance is required if you carry a mortgage, and any parent will tell you that medical insurance is crucial.

Face it, insurance is a “necessary evil.”

With rising costs hitting all of these necessary protections, it pays to make the most of every dollar.

Here’s a look at the types of insurance every man should own.

Car Insurance

Since you have absolutely no choice about carrying car insurance, you might as well shop around to find the best deal. I know that there are many advertisements trying to entice you to change companies, but before you do that, compare what you are getting right now to what they are offering. Companies frequently “save” you money by providing lesser coverage; in my book that is no savings. Shop around and do it early, insurance companies will almost always match any legitimate offers you find.

The quickest and easiest way to drop those premiums is to raise your deductible. By increasing your deductible from $200 to $500, you can save 30% on your insurance premiums. Make sure to set aside the money needed if you do have an accident and need to produce the higher deductible.

Ask about discounts. Teen drivers usually get a discount for good grades or certain types of driver’s education programs. If you don’t drive much, or your job is just a couple of miles from home, you may be eligible to get a low-mileage deduction.

Also, consult your insurance agent when purchasing a new vehicle so you know in advance which cars cost less to insure. Some companies offer lower deductibles for each year you go without having a claim, so make sure you ask questions because it could save you money in the long term.

Homeowners Insurance

Just like auto insurance, increasing your deductible on homeowners insurance will decrease your premiums. Many companies will offer discounts to customers who purchase multiple policies with them, so bundle your car and homeowners insurance to save some money.

Only insure your home, not the land for replacement costs in case of disaster. This common mistake costs many people money. You won’t have to replace the land, just the building, so check your policy to make sure you are insuring only what you need.

Another thing to consider is staying with a company for the long haul since they may offer loyalty discounts. Improving your home’s security and disaster resistance will generally garner you some deductions as well.

Other Mistakes to Avoid

Not Buying Enough Homeowners Insurance: Many homes today are underinsured. There are many reasons for this; nonetheless, you do not want to be in this position in case a disaster strikes.  Our area was hit with an “inland hurricane” that caused millions of dollars of damage to our community.  I have heard of many horror stories where homeowners did not have the proper coverage and were left with paying all the bills on their own to get their home fixed.

Not Upgrading the Policy When Changes Are Made: One reason that homes are underinsured is because there is no attempt to upgrade the policy. Any time you make any major additions to your home, it’s a good time to review your policy and make sure you have the proper coverage.

Not Having a Current Home Inventory: When we were returning home from Iraq, we had to ship most of our personal things through a Connex.  We were required to make a detailed list of everything in our tote boxes in the event something was lost or broken.  Have you done something similar for the content of your home?  Most homeowners have not.

Without an inventory, you may only receive a tiny fraction of the value. Avoid this by taking a walk-through video of your home and talking about the larger items. Pictures will be needed, as well as a list of the cost and replacement value of each item.  One tip that I found really interesting is to upload your walk-through video to YouTube (private settings please–no reason to broadcast to thieves all the valuables in your home!).  That way you’ll always have the footage, even if your house is completely destroyed.

Medical Insurance

Many people simply can’t afford private medical insurance. Before you raise your hands in frustration and walk away, you need to realize that a major medical bill can bankrupt your family.  Something is better than nothing. Many states now offer basic health insurance based upon income levels; call your state offices for more information.

Again, raising your deductible will help if you have insurance but are struggling to pay for it. See what kinds of plans your company offers, and if you can get insurance through your work. Compare the health plans and make sure you are comparing apples to apples, even with the complicated wording of many policies. Also, take advantage of health savings accounts that let you put aside money to pay for medical expenses, tax free.

Since starting my own business a few years ago, we’ve been covered on my wife’s plan through her job.  With her recently making the decision to be a stay-at-home mom, we were forced to get private insurance.   Talk about an experience!

We called several local agents and also used eHealthInsurance.com to make sure we got exactly what we needed.   It took a lot of note taking, phone calls, and asking tons of questions, but we finally got what we were looking for.

Keeping on top of your insurance costs and options will save you money immediately and in the long run. The key is to do some comparison shopping.

Editor’s Note: Don’t understand how health insurance works? Check out our Young Man’s Guide to Health Insurance.

Life Insurance

According to a recent study, over 35 million U.S. household have no life insurance whatsoever. None.  Zilch.  Nada.  Really?

How do you know if you need life insurance? If someone would suffer financially if you died, you very likely need it.

For you men that don’t have any life insurance, face it: you are not Superman!   There is about a 100% chance you are going to die, so you might as well get used to the idea.

Most people don’t buy life insurance because they think it costs too much.  Not true!  A healthy 35-year-old man can get $500,000 of term insurance for 20 years for the price of 6 Double-Doubles per month at In-N-Out Burger.  While you won’t get the same immediate gratification when making the payment, you can rest assured that your family is taken care of.

If you think you’re all good because you have life insurance with your job, think again.   What if you lose or change jobs?   Now you’re at the risk of your new employer not offering it and then being forced to find it on your own.   It’s better to go ahead and buy a 20 or 30 year term life insurance policy now so that you’ll never be faced with that predicament.

Suggested Types of Insurance

While the types of insurance listed above are ones every man really should own, these next two are policies I know everyone is not going to go for, but that I strongly recommend having.

Disability Insurance

While I was easily convinced that I needed every insurance above, I initially balked at the idea of getting disability insurance.   I tried to convince myself that I didn’t need it, but let’s face it–statistics don’t lie.  Check out these stats:

One out of every seven workers will suffer a five-year or longer period of disability before age 65, and if you’re 35 now, your chances of experiencing a three-month or longer disability before you reach age 65 are 50%, according to the National Association of Insurance Commissioners (NAIC). If you’re 45, the figure is 44%.

How Much Disability Income Insurance Do You Need? The key to determining your needs is to assess how much you would be required to spend during each week or month that you would be unable to earn your normal pay. For example, if you would need 80% of your pretax earnings but your group policy would only pay an amount equal to 60%, then you may need additional coverage.

Disability insurance can be tricky, so it’s important to ask the right questions.  This article from the New York Times addresses the key questions to ask before purchasing the policy. Here are a few examples:

  • What percentage of my income will you replace if I become disabled?
  • Will you cover commissions or bonuses on top of a base salary?
  • Can the payout go up as my income goes up in the future?

Before purchasing my long term disability policy, I made sure to shop around and compare the features. One of the companies that I looked into would only get me a monthly benefit that was 40% less per month and whose premiums were twice as much.   So yes, it does pay to shop around.

Umbrella Policy

How many times have you been in a situation where a sudden downpour leaves you soaked and thinking about how much you wished you had an umbrella?  For me, too many.  An umbrella policy will give you that added protection and keep you “dry” from any major incidents.

How it works.  An umbrella insurance policy essentially rests on your existing insurance policies for your vehicles and your home. They provide extra protection in the event of a situation not fully covered by your normal insurance. Umbrella policies cover the gaps left by your existing insurance coverage.

For instance, let’s say you are sued for liability in an auto accident and the judgment is declared against you for $500,000, but you only have $200,000 worth of liability coverage. The rest of the money would have to come out of your own pocket unless you had the umbrella coverage to fall back on. Without the additional umbrella insurance protection, you are susceptible to losing all of your assets to pay off the outstanding debts, including your home.

Personal umbrella insurance policies are often misinterpreted by consumers and are surrounded by myths so often that people can fail to recognize the importance of having additional coverage when they need it most. I’m amazed at the number of people I come across that don’t really understand the basics and benefits of umbrella policies.

Umbrella insurance policies are thought to be too expensive to afford for average-income consumers and are too complicated to fit in with the insurance coverage you already have. But for many, the added protection of an umbrella policy may be just what your family needs.

Some real life examples.  It’s easier to illustrate how an umbrella policy would work using real life situations.   An article by CBS MarketWatch gives several instances that are very common.  Here are some of the examples that could easily happen to anybody.

  • You throw a party at your home where alcohol was involved and minors were present.  The minor has a few drinks without you knowing and drives home and gets in a wreck.   You could be on the hook even if you didn’t provide the alcohol.
  • You act as chaperone of young kids on a field trip to a park where one of the kids gets injured.   The parent of the child claims that your kid doesn’t like their kid and that’s why you let him get hurt.
  • You’re driving home from work and collide with a company truck hauling very expensive equipment.
  • Your child borrows a friend’s car to run to McDonald’s to grab something to eat.   While hurrying to get back they run a stop sign and hit a mini-van with a family of four.

The right umbrella policy could protect you from the incidents listed above.

What’s the cost? For $1 million in coverage, the cost should be around $150-$200 (mine was $180) a year. For each additional $1 million in coverage, you should expect to pay an additional $100.

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Think you’re less of man, because you have insurance?  Don’t.  In Iraq, all it took was one IED blowing up or a bullet whizzing by to appreciate the protection we had with our equipment.  Don’t get caught with your guard down and make sure you’re properly insured.

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Jeff is an Illinois Certified Financial Planner who authors the blogs Good Financial Cents and Soldier of Finance. He is a father of 3 awesome boys, husband to the coolest chick on the planet, In-N-Out Burger junkie and Crossfit addict.


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