Back in May, I wrote a post about my personal “money rules.” For me, money rule #1 is to be well-insured, so I thought I’d delve a little further into this “money rule” in a post of its own.
Having a huge emergency fund is certainly a type of insurance, but purchasing actual insurance that is appropriate to your life’s needs is absolutely vital to a sound financial plan. Don’t get me wrong – it can be very tempting to cut corners and skimp on insurance that’s not mandatory. Driving without car insurance, for example, is a crime. It’s mandatory to have car insurance if you own and operate a car. But it’s not a crime to not carry renter’s insurance or health insurance (well, starting in 2014 you’ll have to pay a fine if you don’t have health insurance, but for now you can skate by without it). So when your monthly budget is really, really tight, it might seem like an ok idea to opt out of some types of insurance to save some cash. But from my personal experience, this is a really, really bad idea.
Two incidents have happened to me in my young working life that have proven to me how important it is to be properly insured: my boyfriend’s apartment got robbed and I was hospitalized twice within a week’s time with a serious infection in my colon. I wrote briefly about both of those events when they happened, but I’ll recap them quickly here. Fist, the robbery. To make a long story short, my boyfriend came home from work one day to find his T.V., X-box, computer, and several credit cards and some cash stolen from his apartment. And, you guessed it, he had no renter’s insurance. He was out thousands of dollars. Second, the hospitalization. About a year and a half ago I got this bizarre infection in my colon and was in the hospital, being pumped full of antibiotics, for three days. Then I went home, got sick again, and had to go back to the hospital for three more days. Total cost for all that care? $20,000. Total cost to me, because I was insured? $75. Without insurance, this would have been a financial disaster. And trust me, when you’re that sick, the last thing you feel like worrying about is how you’re going to pay for your care.
So yeah, having insurance is very important.
Of course, the tricky part of the equation is the “appropriate to your life’s needs” bit. How do you know what type of insurance you should have? I would strongly recommend speaking to an insurance agent if you’re not sure what type of insurance you should purchase or how much you need, but I’ll detail the types I have and why:
1. Health insurance
I would argue that this might be the most important type of insurance you can buy. Your health is truly your greatest asset and needs to be protected. I pay $90 out of each paycheck for my health insurance and I really think it’s worth every dime.
2. Renter’s insurance
The corollary to renter’s insurance is, of course, homeowner’s insurance which I would definitely have if I owned a home. A lot of people think they can go without renter’s insurance because they live in a safe neighborhood and are unlikely to get robbed…but renter’s insurance doesn’t just cover robberies. What if a pipe bursts or there’s a fire? Renter’s insurance will cover those types of losses, too. I pay $10.75 each month for my renter’s insurance, so it’s hardly a financial hardship for the peace of mind it provides.
3. Pet insurance
This one is controversial, but a recent health crisis with my late kitty convinced me that pet insurance is worthwhile, especially if you adopt an older pet. Pet insurance is a little complicated and could probably be a post of its own, but I pay $23 for a policy with Pet Plan and have been very happy with it.
4. Car insurance
Again, driving without car insurance is a crime. It is not optional to not have car insurance! But you should definitely shop around – different companies could give you radically different quotes, even with the same car and driving record. Also, the price of your insurance will definitely be impacted by the state you live in. I happen to live in a pretty low-cost state, insurance-wise, so I only pay $69 per month.
5. Long-term disability insurance
Long-term disability insurance is probably a type of insurance which doesn’t immediately jump to mind, but it’s just as important as all the others. If you become seriously sick and can’t work, long-term disability insurance can save your butt. I get mine through my union for only $5.75 per paycheck, but this type of insurance is usually pretty cheap if you’re young and healthy, no matter where you buy it.
Other types of insurance I will definitely be buying later in life include: homeowner’s insurance, life insurance (term, of course!), long-term care insurance, and short-term disability. Again, if you’re not sure what type of insurance you need, it’s best to contact your insurance agent, but for right now do a brief inventory of all the things and people you value in life: your home, your car, your pets, your health, your children. Will all of these priceless items/people be protected in the event of a disaster? If not, you’re probably under-insured.
What type(s) of insurance do you carry? Why?