Here’s another scenario. You and your spouse used your savings and bought a house you could afford. (See Chapter 8 for what’s involved in the purchase of an affordable home.) Both of you are working, and you have kids so you’re putting away savings in a 529 account for your children’s education instead of being faced with taking out student loans. (Chapter 7 discusses student loans in detail.) Your spouse passes away so income from your spouse’s job is gone. If you have no term or other type of life insurance proceeds, any nest egg you’ve saved will likely be decimated. If your spouse made $50,000 a year, then your family has lost $500,000 of income over the next 10 years. You can see the importance of having life insurance.
As an attorney, I have to carry professional liability insurance in the event (heaven forbid) that I or one of the attorneys working for me miss something important in a document and a client is negatively affected. If a client is harmed because of our error and that error results in a million dollars worth of losses to the client, I don’t want to devastate my savings to cover the client’s losses. Therefore, I carry professional liability insurance in the unlikely event that something like this happens. Now my whole business won’t go under due to an inadvertent error because I’m protected by my liability insurance.
The same principle must be employed for the business of your life. Save as much as you can, put away money in your retirement account, and for everything else you can’t realistically save for, obtain insurance.
You must have auto insurance because if your car is stolen or you get into a car accident, you want to cover those losses with insurance so you can buy another car or get yours fixed. Plus, you may be liable for damage to the other person’s car. Even though state laws require car insurance, I can’t tell you how many uninsured drivers I encounter.
You need homeowner’s insurance because if your house burns to the ground, you’ll need money to pay the mortgage, if any is outstanding, or to rebuild the home if you have no mortgage. If you’re renting, you purchase renter’s insurance because if your apartment burns to the ground, your landlord’s insurance will pay to rebuild the apartment but you will receive nothing for your personal belongings unless you have renter’s insurance. You will need money to replace your furniture, computer, clothing, books, and so on.
Again, you must carry life insurance so if your spouse dies, your life and the children’s lives won’t be turned completely upside down financially on top of your emotional trauma. And if you become ill or need surgery, any savings you have in the bank can all be wiped out, so you must also carry health insurance. I know it seems expensive, but if you go into the hospital and have major surgery, you could easily incur a bill of $100,000, and that could wipe you out lickety split.
Plus, to insure against income loss, you need to carry short-term, and if possible, long-term disability insurance. Short-term disability would cover a portion of your salary for 90 days or less, and long-term would cover up to two years. You also have the option to buy long-term care insurance, which would cover you or your spouse if either of you ended up in a care facility.
Remember, you are the CEO, COO, and CFO of your own life, and you need to make the best business decisions for the business enterprise that is your life.
This may seem like an insurance commercial, but that’s not the intent. I just want to drive home the importance of insurance. Too many times, I’ve heard of a death in someone’s family or an illness, accident, or some other calamity causing financial hardship that could have been easily and inexpensively prevented had the family planned for and purchased insurance. You’ve heard it before: An ounce of prevention is always better than a pound of cure. You can’t avoid death or occasional mishaps, but you can prevent, or at least lessen, the financial havoc they can cause.