Thursday, December 7, 2017
You Think Insurance is a Waste of Money? 5 Reasons Why You Are Wrong!
One of the things I often hear from clients is that if you don’t use your insurance you are wasting your money. While there are many types of insurance, some being a total rip off, personal insurance is rarely a waste of money. Now I am not talking about insurance for your microwave or laptop, I am talking about insuring yourself and the ones you love. During this week I have been describing dumb money moves we all make and showing you why you should avoid them. Today I am going to focus on insurance and speak to the reasons why everyone should have some. Now before you click away, understand that the decision to buy insurance might be the most important you ever make. It could be the difference between living a normal life or losing everything. It isn’t fun to talk about, but the conversation around health needs to be had. Let’s get started.
1) Understand what insurance is and you will see it’s importance
When most of us think of insurance we think of home or auto insurance. It’s natural to be pissed about paying $200 a month for something you will never use. The Sad part is if you make an auto insurance claim your rates go up too. We even buy insurance for our gadgets like our phones and televisions. These forms of insurance have fooled us into knowing what insurance is. Insurance is “risk transfer,” pure and simple. You don’t want to bear the risk of the television breaking down, so you pay the $30 for the extended warranty. You don’t want to pay out of pocket for a new car should you get into an accident, so you pay a monthly fee for the insurance company to cover that risk. Well, where does personal insurance fit in? The loss of the ability to work or even worse, your life, is of great financial risk. So, you should pay smaller amounts to place that risk on someone else, the insurance company. When you think of it that way, it starts to make more sense. You can either pay out of pocket completely and go broke in the process when disaster strikes, or you can pay smaller monthly amounts and place that risk on someone else. That what personal insurance is, shoveling the burden on someone else, at a cost of course.
2) So what are the costs?
The costs can be huge when it comes to not being protected. The average group disability insurance policy only covers about 70% of your income and that is if your workplace has it. Employment Insurance only covers you for 55% of your income and that is only for 15 weeks. CPP-Disability is almost impossible to get, and it goes off what you have paid into CPP and also can affect your retirement planning. Worker’s Compensation is dicey at best and only covers you if you experience an injury at the workplace. Most injuries occur outside the workplace just to let you know. If you are making enough to get by now, what would a reduction in income by 45% do to you? Would you still be able to pay your bills? It only gets worse if you have a critical illness like cancer, heart attack or stroke. Our healthcare is not completely free like some would lead you to believe. There are many out of pocket costs such as transportation, lodging for loved ones, uncovered medication or rehabilitation, and of course sick leave from work. It gets even scarier if you pass on.
No Life Insurance Meant Learning to do Without – Life Happens
3) The stakes are huge
I often hear people mention, “Oh we will figure it out.” I’d love to know this plan of paying bills and coming up with cash out of thin air. It is something I would love to invest some money in. The truth of the matter is that what you are left with in life at any given time are choices. The only difference between being insured or not being insured is the quality of choices. For instance, if you do not have insurance your choice could be to continue working during chemotherapy or to not work and sell the house. When you have insurance, the choice could be to exhaust all the insurance proceeds to go out of the country for experimental treatment or to stay in the country to fight it. When a loved one dies, the choice could be to forego annual family vacations, so you can pay the mortgage, or to pay off the home and have life continue as before, albeit without a loved one. Insurance is nothing but an idea. The idea is that injury, illness or death will not prevent you from having the choices you were going to have before those things happened. Those are the stakes. The family home, the family goals, retirement goals, and education. I meet elderly people every week who had a traumatic instance define their life financially. Insurance helps mitigate that occurrence.
Life insurance is the Foundation of your Financial Life – Retire Happy
4) It can be more important than savings
For people in their income producing years, insurance can be far more important than savings. The reason is simple. You don’t have enough savings to cover the loss of the beforementioned traumatic events. The net worth chart is supposed to continue to go up, year after year. What can cause that to stop, is an event that brings down the plan. During the early years of accumulation, you will never have enough saved to make up the difference. This is where cheap and flexible coverage comes into play. Not having it can extend or even end certain dreams in life like business, adventure or retirement goals. You never want to be derailed before you even leave the train station. If I had only $50 dollars free every month and had to make a choice between putting that in savings and buying a life insurance policy, I would choose life insurance. The reason to me is simple. Health is the most important factor governing all our lives. We see it every day with loved ones, on the news, and in our community. Protecting my health comes before building for the future because there is no future if I am not healthy. Once I protect that, then I focus on savings. Sadly, in our society neither has been the focus.
5) You are worth more than you think
Every life out there is worth something. Now I am not trying to get all preachy here, but the is a dollar sign on all our heads. As mentioned before, money brings choices. Over your lifetime you will make more money than you think. Here is some simple math for you:
Ages 25 – 65 (40 years)
Annual income: 25K = $1,000,000 Lifetime
Annual income: 40K = $1,600,000 Lifetime
Annual income: 75K = $3,000,000 Lifetime
Annual income: 100K = $4,000,000 Lifetime
Yes, even someone making minimum wage for 40 years will make a million dollars in their lifetime. What does that number mean to you? When you look at it, you think about what you would do if you had it right now. You should really think about what you will do with it in your lifetime. A bigger thing to think about is what will the ones around you do without your ability to earn. I know I have some goals I would love to accomplish throughout my lifetime. Some of those include helping loved ones, giving to charity, and leaving a legacy. All those goals are predicated on me being around to accomplish them. The value on top of my head is priceless and all insurance does is tries to find a dollar amount to cover that. At a time of crisis, grieving is what should be the main focus, not bills and expenses.
10 Wealth Killers – Budget Boss
This is always a terrible conversation to have. No one likes to talk about death or sickness or injury. The truth of the matter is that we all roll the dice every day. It is not a matter of if, but of when. This isn’t to scare you, it’s just reality. I personally think I am worth a lot more than a television or an iPhone. I will cover myself before I cover them.
Thanks for tuning in today as Money Moron Week continues at Budget Boss. Don’t forget to tune in tomorrow as we discuss the greatest money mistakes I ever made. If you have any questions about insurance, please feel free to contact me at joe@budgetboss.ca. Don’t forget, our “2018 Financial Goal Setting Workshop” is next Tuesday, December 12 at 5 PM from Innovation Works in Downtown London, Ontario. Have a great day Bosses!
“Good health is not something we can buy. However, it can be an extremely valuable savings account.” – Anne Wilson Schaef
Email – joe@budgetboss.ca
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