Sure, insurance is the thing you don’t like to think about until you need it. But that’s why it’s a key part of the second tier of financial freedom. You don’t want to build your freedom on top of sand, letting it collapse at a disastrous moment in your life. Insurance helps protects against those things that would be catastrophic.
Today I’m going to share my stories about the three kinds of insurance I’ve had the pleasure (displeasure?) of using, and the two times I wish I had two others. Then I’ll talk about business insurance-if you’re a blogger, self-employed, or have rental property, you’ll want to stay tuned for that overview!
The Three Kinds Of Insurance I’ve Used
Ah, those times when you come out to your car in the parking lot at Walt Disney world and find a giant dent from a hit & run driver. Or those times when your shower pan decides to give way and leak all over your ceiling. There have been a few times I’ve used insurance, and I’ll share them today in all their gory details so you can see the impact the right kind of insurance has on a real person.
Maybe you’ve always been a fantastic driver and never needed to use your car insurance. If so that’s great – but not me. I’ve had multiple times when I needed to use my car insurance. For example, here’s a few notable events in my car driving career of over 20 years:
- I was T-boned at an intersection when I was in my early 20’s. Not only did my car need to be towed (towing and labor) but the side was horribly damaged. My car insurance covered this damage and repaired my car
- Once I was on the highway and my car broke down. Towing coverage to the rescue!
- I was at Walt Disney World with my family and when we came out one morning, our car had clearly been sideswiped by someone who didn’t bother to stop and leave a note. That damage was fixed thanks to my collision coverage
- A few weeks after I got a new job, I was driving into the office on an icy day (I live in CT-it can get very icy at times). On a hill my car suddenly skidded out of control, turned around in the road several times, and hit a pole. $5k in damage, covered by insurance
- After getting a haircut, I backed up my car-right into someone elses bumper. Oops! The damage to my car was covered by Collision, and theirs by my Property Damage coverage
So although over time I know I’ve paid much more for car insurance than I got back in claims, I’ve definitely seen how it’s worth it to be covered. You just never know what’s going to happen!
You’ve likely noticed that your home insurance costs about the same – or slightly more/less than – your car insurance, despite your house being worth much more than your car. Why is that? Because you don’t make claims against your home insurance very often.
The one time I used my home insurance was when I had a shower pan that broke, flooding the ceiling and causing damage to the wood floor and the ceiling itself, in addition to repairing the shower. It was a few thousand dollars after the deductible. Back when I made this claim, we were newer homeowners without a lot of emergency cash laying around. Nowadays I probably wouldn’t claim it.
So homeowners insurance, while worth it to protect against a catastrophe like a burglary, fire damage, lightening, storms, etc., won’t pay back a lot in claims. That’s fine with me – I just want to be protected if something goes horribly wrong!
I’ve told this story before when talking about emergency planning, but here it is again.
Almost five years ago now, my husband walked into the hospital to have a surgery. I remember he was nervous because he never had surgery before, but I and the doctors assured him he’d be fine. After all, he was young – 37 – and the surgery would be helping him in the long run. What could go wrong?
Five days after the surgery, he wasn’t doing well at all. A CAT scan showed that he needed another emergency surgery, and he was rushed in (and I mean rushed-I’ve never seen a hospital move so fast) at 8 AM on a Sunday. After that surgery, his blood pressure and oxygen both crashed and he was again rushed to the ICU where he was put on a ventilator in an induced coma for the next five days. 30+ IV’s of fluids and all kinds of medications were being pumped into an IV in his neck. Did you know they made IV’s for necks? I didn’t. Septic Shock was the diagnosis, which is fatal a majority of the time.
He was one of the lucky ones that made it through. But he was badly damaged and horribly weak. He couldn’t walk even a few steps. He had fluid around his lungs that required draining. An abscess that caused him to hallucinate, that needed a CAT scan and to be drained. Daily x-rays while on the ventilator to make sure he wasn’t getting pneumonia. His surgical site was infected so had to heal open, using something called a wound vac (it’s a vacuum for large wounds-did you know they make those? I didn’t)
After a week in the ICU, still on oxygen, he was moved to the hospital floor. But guess what? He had an ecoli infection on top of other infections. Special expensive medications were needed. He was eventually moved to a rehabilitation center about 30 minutes from our home, where he would stay for a while to recover. He had to go back to the hospital eventually for infection symptoms.
He was away from home over a month. Once he finally came back, it was still far from over. Doctor visits, visiting nurses, medications, the wound vac, physical therapy, another surgery-that year set some records for costs
What did this year cost our family? $7,000. That was our out of pocket maximum at the time.
What did it cost the insurance company? Around $200,000.
What would it have cost without insurance discounts? Around half a million dollars.
Health insurance combined with an emergency plan saved our family. I’ve of course used health insurance at other times in my life, but this is the kind of catastrophe it’s meant to protect you from. DO NOT GO WITHOUT HEALTH INSURANCE.
The Two Kinds of Insurance I Wish I Had
Now that I’ve told you my horrible story, think about how grateful I would have been had my husband been covered by disability insurance. Unfortunately he was unemployed at the time-laid off during the Great Recession when his factory closed – so he wasn’t eligible anyway.
I often think about other women who aren’t the breadwinners like me – perhaps they work a flexible job, or stay at home, and depend on a partners income. If my husband had been working at the time he would have been out of work for over a year at a minimum. Really he’s been permanently disabled from working in a factory, given that he’s unable to lift anything heavy. What if we were depending on his income? It was difficult enough to make it through on my income. If our household depended on his, and he wasn’t able to work for over a year, how would we have survived?
Disability insurance on whoever’s working in the family is a must. If a crisis happens, you don’t want to be panicking on how to replace that income or how you’re going to eat that month. Make sure you’re covered by a good disability policy in addition to your emergency fund.
Like most people in our early – mid 30’s, we didn’t think much at the time about life insurance. I was covered by a policy at work, and my husband wasn’t covered anymore due to his unemployment. The medical crisis got me thinking a lot about the importance of life insurance.
I know people who work in the health industry see this every day, but my husbands experience was the first real realization for me that this stuff does happen to real people. It’s not just people you read about on the internet. These are real people, with real families, who have tragic early ends you can’t predict. After my husbands illness I sadly saw two young friends with families – one with a newborn, the other a single mother of two – pass away from cancer. This reinforced the importance of life insurance, or confidence in your self-insurance plan.
Wait, What About Umbrella?
I’ve been fortunate to never have anything happen that required an umbrella policy. Nor have I had that much in assets to protect, so I haven’t carried it. This renewal on my car/home insurance I’m planning to get a quote and see how much it would be.
Bonus: Run a Business, or have Rental Property?
Now that we’ve been through all the kinds of insurance you need in your everyday personal life, what about your business? Business insurance is much less standardized than personal insurance-every company is different. But if you’re a solopreneur or own some rental property, you definitely need to be thinking about certain kinds of insurance:
- Rental Property Insurance – Now, if you rent out your home only a few days a year, you don’t need special coverage. But if you buy a rental property, or if you rent out your home more than about two weeks a year (check your policy for the specifics), you need insurance. Why? Well rental property insurance protects you against two things:
- Damage to the property. If the home/apartment catches on fire, or a tree falls on it, you will want coverage to rebuild
- Liability. Say your renter sues you. You want to be covered, and that’s where your liability kicks in
- Note – Your umbrella policy will typically be over rental properties too. Make sure to check this out when you shop for insurance
- Liability Insurance – Are you a blogger saying potentially inflammatory things on the internet? Do you have a home based business? You need liability insurance. Don’t think that you’re automatically covered because your business is small.
- Start with your homeowners/renters insurance-sometimes they’ll cover a very small business, or they’ll offer coverage for an extra premium
- Investigate general and professional liability insurance so you’ll be covered if someone tries to sue you for something you said (or didn’t say) online
- Commercial Property Insurance – Did your business take off and you bought an office space, factory, or storefront? This kind of insurance will cover your business property (as opposed to your personal property, covered by your homeowners insurance). In addition to covering your property it will also usually cover loss of income, business interruption, and other kinds of business risks
Have an insurance story to share? Amazed at all the different kinds of things you can insure against? Join the fun & exciting insurance conversation in the comments!
Missed the earlier posts in the financial pyramid series and want to catch up? Find out why it’s important to know your balance sheet (along with my 2016 report!), your cash flow, and your dreams to reach financial freedom. After you’ve set that foundation and moved onto the second tier, make your plan to get out of non-deductible debt. We’re now talking about all the different kinds of protection you need to put in place to set a solid foundation for you and your families financial independence. Follow me for more as we work our way up together!