Life is full of risks, even for those who try to live their lives as safely as possible. Wouldn’t it be a shame if a person’s hard work to gain financial stability was lost due to some random, unforeseen event? Dealing with a serious injury, a house burning down or the premature loss of a loved one is bad enough. But not having adequate insurance can make these bad situations even worse, and make them almost impossible to recover from financially.
National Insurance Awareness Day, on June 28, is an important annual reminder to protect yourself and to protect your stuff. Everyone should evaluate their insurance needs on a regular basis – ideally annually – to make sure they (and their family) have the right type and amount of insurance. This review is particularly important after a major life event such as a child moving out of their parents’ house, starting a new job, getting engaged or married, having a child, or entering retirement.
Evaluating one’s existing insurance policies can also save some serious money. One of the biggest mistakes people make with insurance is not shopping around, especially as prices vary from company to company. People can shop around using online comparison sites and quote generators, or by reaching out to an insurance agent, or insurance and finance experts to find the best insurance policies to suit their needs.
In his new book, What Insurance Companies Don’t Want You to Know: An Insider Shows You How to Win at Insurance, Professor Todd Erkis discusses all major types of insurance and how to get the best price for them. He also provides an action plan for identifying the insurance products a person needs and, just as importantly, the products they do not need. Here are a few of his tips to help evaluate insurance needs.
- Protect against the largest risks first — Insurance is designed to protect against financial ruin from an unexpected event. An estimated half a million people in the U.S. will file for bankruptcy this year alone. 1According to a Harvard University study, medical expenses account for approximately 62 percent of personal bankruptcies in the U.S.2 Even if the possibility of something bad happening is small, insurance protection is an important investment to protect the future.
- Don’t purchase unnecessary or unneeded insurance products — If a bad event will not lead to financial difficulties, then insurance is not needed. For example, parents probably don’t need life insurance policies on children, as the children are financially dependent on the parents. Instead, it’s the parents that need life insurance. Insurance should only be purchased to protect against significant financial risks, otherwise it is a waste of money.
- Everyone needs health insurance — Health insurance acts like a discount program for medical services, so those without insurance pay significantly more for these services than those with it. Children are usually covered under their parents’ insurance until the age of 26 and have numerous options to get the health insurance they need – either at work, or by purchasing a separate healthcare plan (individual health insurance) through insurance companies or the state’s health insurance marketplace.4 Regardless of which option people choose, everyone needs health insurance, even if they are healthy.
- Young people need long-term disability insurance —One of the biggest mistakes young people make is waiting too long to purchase disability insurance. Some people receive disability insurance through their companies, but more and more jobs don’t offer long-term disability insurance. Sadly, some will get seriously sick or injured to a point they are unable to work for a long period of time. In fact, over twenty-five percent of today’s twenty-year-olds will become disabled for some period of time before they retire, 5and for someone who is twenty-five years old, the probability of becoming disabled before retirement is more than three times the probability of dying.6 For those who rely on their income to survive, which is pretty much everyone, long-term disability insurance is a must.
- The minimum, legally-required car insurance is not enough protection— Over 2.35 million people are in car accidents each year in the U.S.,7 and it’s important for people to protect themselves and their cars in the event of an accident. Most people don’t know that minimum car insurance policies only protect the other person in an accident; not the policy holder or their car. Unless people have enough money to replace their car if it’s totaled, they need more than just the minimum car insurance. Make sure car insurance is comprehensive and covers the policy holder, their car and the other car, should a collision occur.
- Consider increasing the deductible amount on car and homeowner’s insurance policies —It’s a common belief that an insurance deductible increases the cost of insurance, but this is not the case. Many people will save money on their insurance by actually increasing their deductible. This is because the premium paid is lower, and people only need to pay the higher deductible amount if an accident occurs.
On National Insurance Awareness Day, it’s important to reevaluate one’s insurance needs. Equally important is being able to complete this review armed with sound, objective advice about how insurance works, the purpose of insurance, how to identify the insurance needed, and how to get the best price.
For more information and to eliminate the mystery surrounding insurance, check out Professor Erkis’ new book, What Insurance Companies Don’t Want You to Know: An Insider Shows You How to Win at Insurance.
Todd Erkis is an FSA, CERA, MAAA, and professor of finance and risk management at Saint Joseph’s University in Philadelphia. Prior to becoming a professor, he spent more than 25 years as an actuary, developing insurance products and helping set prices for insurance. His book, What Insurance Companies Don’t Want You to Know: An Insider Shows You How to Win at Insurance, provides a guide to everything you need to know about insurance and is now available on Amazon.
1 “How Many People File for Bankruptcy Each Year,” Bankruptcy Truth. 29 Jun. 2016.
2 “Top 10 Reasons People Go Bankrupt,” The Huffington Post. 24 Mar. 2015.
3 “If you don’t have health insurance: How much you’ll pay,” HealthCare.gov. 24 Apr. 2017.
4 “How to Buy Individual Health Insurance,” Insure.com. 13 Jul. 2016.
5 “You, Disabled? What Are Your Chances?” Disability Can Happen. 2015.
6 “Death vs. Disability,” Affordable Insurance Protection. 24 Apr. 2017.
7 “Annual Global Road Crash Statistics,” Association for Safe International Road Travel. 14 May 2017.