It’s been a jam-packed fun week talking about insurance – car/home/umbrella, and health/disability/life. Isn’t it great to think about all the things that could go wrong? (Oh wait, no it’s not).
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.
Car Insurance
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!
Home Insurance
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!
Health Insurance
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
Disability Insurance
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.
Life Insurance
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!
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Great article, CMO! For families with young children at home, I would also suggest disability insurance for the non-working parent, or the parent taking care of the kids. My husband is a SAHD and we are in the process of getting disability insurance for him. If he were to fall ill, we would need to put our two young children (2 and 4) in daycare which is very expensive in our area. His disability coverage is meant to protect us from this type of risk.
I wish I had thought of that before my husband was ill! He was caring for our two boys at the time, and I needed to pay for daycare for months. It was quite a hit on the budget for several months. Wise choice getting the insurance!
Good round up of the various insurance types. The disability insurance is probably the only one I’m lacking as we choose to self insure. I believe I have one through work, but my wife as a stay at home mom has none. I might add one more piece of advice. Try to get these insurances, life and disability, in your twenties. It will be cheaper and if you have a medical incident it might even not be possible.
Good tip!
Thanks for the great insurance round up. I’m actually surprised that your insurance didn’t cover you on the hit and run under UMPD. That would have potentially lowered your deductible from collision since they didn’t know who the driver was. At least that’s how policies are set up in VA.
Unfortunately my state doesn’t offer UMPD-only UM/UDM. That’s a state by state coverage. It would have been nice though!
Great post…. and thanks for sharing your family’s story. With all of the strife surrounding the ACA, I think people need a reminder of why health insurance is SO important!
One business related insurance I didn’t see was data breach insurance, which is typically separate from general and professional liability, I’ve learned. Very important if you’re working in any IT field or consulting for companies that share their data or private information with you electronically.
Great add! Definitely a must if you’re working in technology. A lot of agreements make you responsible for fines and other costs related to a data breach-at least that’s true of companies I contract with at work. That could be a tremendous expense.
Knock on wood, we haven’t needed to use much of our various insurance coverage. Minor car accidents (we also have AAA), that time the pipes sprung a leak in our last house, and shoulder surgery.
We both purchase short and long term disability insurance through work. We also purchase life insurance through work, although I see a diminishing need for that as our kids are essentially adults (17 and 18) and our net worth is in good shape.
It’s great that you haven’t had a big need for the various insurance policies you carry! Definitely agree life insurance is one that you only need for a while, until you can either self insure or your dependents become self sufficient.
I lived in an apartment and had renter’s insurance when another apartment in the building had a fire, and my unit suffered water damage. I had to buy things and then submit receipts, but replaced all the essentials. It’s odd because most of the time when people move put you have your old ____ from home or college…spare towels, blankets, guest pillows, or you’ve accumulated them over time. It was weird to start from zero. Guests would ask, don’t you have another towel? I had 4 bath (sheet) towels, hand towels , wash clothes but hadn’t thought of a smaller towel (like gals use for their hair). I was grateful for how much was ok, and then for insurance to cover the rest.
The silly car insurance thing was I got a cracked in my windshield from a rock while driving. I called safelite, and they had to put it through insurance even though I knew it was under my deductible amount. Which insurance then told me, but it still shows up as an open & closed claim. I did have my car repaired when someone ran into my rear bumper, while my car was in the shop and I borrowed mom’s mini van, I got rear ended again! No damage that time, but that’s why I wanted the repair so my car and I would be safe just in case.
Because I am single I don’t carry disability or life insurance other than what is offered through work. I should look into both separate disability and umbrella insurance this year. Thanks for the reminder.
Stay safe everyone!
Great post, I wish we had pick up life insurance for my wife before she got too pregnant. Now we will have to go through all the medical checks with a newborn. Even though she isn’t the prime breadwinner, my job takes me all over and daycare is worth 30k easy. If she were to pass away a policy would keep us covered.
That’s definitely true! My husband is a stay at home dad, and the cost to replace everything he does would be significant. Daycare for three kids, pickups/dropoffs at activities, cleaning, etc. Not to mention- coverage for when you travel for work is both hard to find and expensive!