Financial Checklist Plan Part 3:
Insuring We're Properly Insured
The Financial Checklist Plan: Insurance Checklist
Insurance You Need
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Insurance You Don't Need
Life Insurance that is not Term Insurance
Disease Care Insurance (Cancer, Heart Attack, etc) Private Mortgage Insurance Extended Warranties Water Line Coverage Credit Card Insurance Mortgage Life Insurance Accidental Death Insurance |
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Insurance You Don't Need:
Once you've taken the time to cover yourself with all the types of insurance you do need, it's now important to not waste your money on all the many insurance types you don't need. These include:
Life Insurance that is not Term Insurance: Sometimes known as Universal or Variable Life, these insurance policies attempt to blend insurance and investing into one product. While this may seem enticing, the financial benefit is usually geared more toward the insurer than for you. Also, this type of insurance usually costs substantially more than term insurance and the investment returns are usually far below market averages. Use Life Insurance to cover what you need for a specific time and not for the rest of your life. Remember, the goal is to get to a place where financially you are so far ahead you are able to self insure with your built up wealth.
Disease Care Insurance (Cancer, Heart Attack, etc.): Why buy insurance for a specific disease when your health insurance covers you for all health issues. Every so often you will hear of someone who long ago bought a cancer policy, for example, who then saw a financial benefit from their policy when they then had cancer, but for the vast majority of us, guessing as to what diseases, if any, will affect us is a losing bet. Good health insurance is a far better buy and blankets us through all our health needs.
Private Mortgage Insurance: This is insurance that home buyers must pay until they reach a position of owning 20% of their homes. Private Mortgage Insurance is paid by the home buyer, but only covers the Mortgage company if there should be a default with the loan prior to the 20% ownership rate. The best bet is to wait to buy a home until putting 20% down is possible (or purchase a lower cost home so that this threshold can be met). You as the buyer get no benefit from this monthly insurance cost, but it will cost you about $100 per $100,000 borrowed per month until 20% ownership is met.
Extended Warranties: These are sold by almost every retailer everywhere and salespeople are quick to tell you of their value. All an extended warranty is is an extended insurance policy for an item. If you were really worried that an item you were buying were going to need a repair in the first 2-4 years, then maybe this could be a good buy, but you'd mathematically likely do better to keep the cost of this insurance in a fund (and not buy the insurance) - and then if you need to make a repair, you have some funding readily available. If you don't need to make a repair, then you get to pocket the money plus any interest earned. Consider also buying high quality items when you purchase and see what warranties are already offered and included at purchase. Usually these are more than sufficient.
Water Line Coverage: This insurance covers your water lines from your home to your water utility provider. While these policies may seem inexpensive and a safe buy, how often have you heard of neighbors or family having water piping problems from their homes to the curb? This is insurance for a problem that almost never happens. Have a good Personal Reserve Fund and you should be well covered if any water piping issues should ever occur.
Credit Card Insurance: First, it's best to not have active credit cards in the first place and second not to have a balance. Credit Card Insurance is a product that offers to help you with your balance if you should have some sort of financial challenge (such as losing your job or sickness or death). This insurance is very expensive and the odds of these life events being worth the insurance cost are highly unlikely. Eliminate Personal Debt as quickly as possible and use your Personal Reserve Fund to cover you if these life events should occur. Insure only for what you can't handle, not what can be dealt with if opportunity requires.
Mortgage Life Insurance: Why again buy insurance for a specific need, when you can buy life insurance cheaply that can cover you for all costs, including your mortgage. As you pay off your mortgage balance over time, this insurance cost still remains the same, but the benefit decreases with the balance of your mortgage. It's an insurance loser and should be avoided.
Accidental Death Insurance: Life insurance is a catch all life insurance and covers accidents and non-accidents. Accidental Death Insurance only pays for one death possibility - and if you die not by accident, then this insurance doesn't pay. Get good term life insurance and you'll be doing great!
Once we've conquered all the insurances we need and don't need, (and we've eliminated all Personal Debt in Step 2), it's time to begin saving for retirement and college.
Once you've taken the time to cover yourself with all the types of insurance you do need, it's now important to not waste your money on all the many insurance types you don't need. These include:
Life Insurance that is not Term Insurance: Sometimes known as Universal or Variable Life, these insurance policies attempt to blend insurance and investing into one product. While this may seem enticing, the financial benefit is usually geared more toward the insurer than for you. Also, this type of insurance usually costs substantially more than term insurance and the investment returns are usually far below market averages. Use Life Insurance to cover what you need for a specific time and not for the rest of your life. Remember, the goal is to get to a place where financially you are so far ahead you are able to self insure with your built up wealth.
Disease Care Insurance (Cancer, Heart Attack, etc.): Why buy insurance for a specific disease when your health insurance covers you for all health issues. Every so often you will hear of someone who long ago bought a cancer policy, for example, who then saw a financial benefit from their policy when they then had cancer, but for the vast majority of us, guessing as to what diseases, if any, will affect us is a losing bet. Good health insurance is a far better buy and blankets us through all our health needs.
Private Mortgage Insurance: This is insurance that home buyers must pay until they reach a position of owning 20% of their homes. Private Mortgage Insurance is paid by the home buyer, but only covers the Mortgage company if there should be a default with the loan prior to the 20% ownership rate. The best bet is to wait to buy a home until putting 20% down is possible (or purchase a lower cost home so that this threshold can be met). You as the buyer get no benefit from this monthly insurance cost, but it will cost you about $100 per $100,000 borrowed per month until 20% ownership is met.
Extended Warranties: These are sold by almost every retailer everywhere and salespeople are quick to tell you of their value. All an extended warranty is is an extended insurance policy for an item. If you were really worried that an item you were buying were going to need a repair in the first 2-4 years, then maybe this could be a good buy, but you'd mathematically likely do better to keep the cost of this insurance in a fund (and not buy the insurance) - and then if you need to make a repair, you have some funding readily available. If you don't need to make a repair, then you get to pocket the money plus any interest earned. Consider also buying high quality items when you purchase and see what warranties are already offered and included at purchase. Usually these are more than sufficient.
Water Line Coverage: This insurance covers your water lines from your home to your water utility provider. While these policies may seem inexpensive and a safe buy, how often have you heard of neighbors or family having water piping problems from their homes to the curb? This is insurance for a problem that almost never happens. Have a good Personal Reserve Fund and you should be well covered if any water piping issues should ever occur.
Credit Card Insurance: First, it's best to not have active credit cards in the first place and second not to have a balance. Credit Card Insurance is a product that offers to help you with your balance if you should have some sort of financial challenge (such as losing your job or sickness or death). This insurance is very expensive and the odds of these life events being worth the insurance cost are highly unlikely. Eliminate Personal Debt as quickly as possible and use your Personal Reserve Fund to cover you if these life events should occur. Insure only for what you can't handle, not what can be dealt with if opportunity requires.
Mortgage Life Insurance: Why again buy insurance for a specific need, when you can buy life insurance cheaply that can cover you for all costs, including your mortgage. As you pay off your mortgage balance over time, this insurance cost still remains the same, but the benefit decreases with the balance of your mortgage. It's an insurance loser and should be avoided.
Accidental Death Insurance: Life insurance is a catch all life insurance and covers accidents and non-accidents. Accidental Death Insurance only pays for one death possibility - and if you die not by accident, then this insurance doesn't pay. Get good term life insurance and you'll be doing great!
Once we've conquered all the insurances we need and don't need, (and we've eliminated all Personal Debt in Step 2), it's time to begin saving for retirement and college.