We’re All Going to Die Someday: Making Informed Insurance Choices

This is a guest post from Amanda, a Colorado tech writer and an activist for children with congenital heart disease. This article is about Amanda's personal experience with insurance. It's not a prescription for other people, but insights into the value of insurance in her own life. It's her hope that it will get you thinking.

There was a time in my life when the thought of insurance made my eyes glaze over. I've never been one to want to read details in insurance contracts, license agreements, etc. I also don't always enjoy thinking through potential unpleasant situations. So, when it comes to buying and using insurance, I've learned some lessons the hard way.

I've made some mistakes with my car insurance, for instance. When I bought a second car to drive to grad school several years ago, I thought, “No, I don't want to pay $3 extra a month for rental car coverage because we have two cars.” A few months later, I rear-ended a woman on the highway going 45mph. It took a while to get my car back, and my insurance went up a lot. But it also made it difficult for my husband Jim to get back and forth to work while I used the other car for work and school.

I had thought I didn't need rental car coverage, because I figured, “Oh, I won't be the one to cause an accident.” Ha! There is a reason it's called an “accident.” So, lesson learned — I needed rental car coverage. I learned was to understand what I was buying.

Insurance details can be a pain:

  • How high of a deductible can I actually afford?
  • What kind of impact will that have on my emergency savings if I have to pay it?
  • How much will I save by trimming features?

Recently I got a notice that wet- and dry-rot are no longer covered in my homeowners policy — do they know something I don't? I'm still trying to figure out what this means to me, but I did notice that the price didn't go down. Also, it took me five months to update the beneficiary information with the insurance company; I finally got it done right before Christmas. So, I'm not an insurance expert by any means, but I am a consumer and I have to make choices.

You've got my back — right?
In the early 1980s, my dad had his left foot crushed in a construction accident, and he nearly had it amputated. He couldn't work for two years, during which our family of six lived on workers' compensation wages of less than $1000/month. My sister was still a toddler and my dad couldn't walk, much less care for her or pick us up from school, so my mom couldn't get a job that paid enough to cover daycare.

When I was 19, working at McDonald's I spent two months on workers' comp after a pot of McHot McCoffee broke open and burned the skin right off my left foot. I was paid 75% of my wages, but did not have to pay taxes. Still, it was really hard to live on what amounted to less than minimum wage that summer.

When I was 21, my dad was diagnosed with esophageal cancer. For nine months, he lived off of his paid disability insurance through work. For his last nine months, he lived off of Social Security. There was a substantial difference in coverage. I have never been confused by an AFLAC commercial — I know exactly what that duck is quacking about. I don't buy their product, but I appreciate what they're selling.

When they offer disability insurance at work, I buy the maximum allowed. It's a few bucks out of my pay check, but I ate enough government cheese in my childhood to know the value of this coverage.

At least I've still got my health
I could write a book on health insurance. (Maybe someday I will.) When my dad fought cancer in the mid-nineties, he had over one million dollars in medical bills. At the time, all but $4,500 were covered by his insurance. From 2003-2007, my own nuclear family paid out about $58,000 for insurance deductibles, copays and prescriptions; yet our insurance company has come closer to $3 million dollars (before their contractual discounts with hospitals and doctors). There are a lot of open-heart surgeries and a couple of c-sections, and an ambulance ride and a lap-coli in that tally, but as much as I might complain about my part:

  • It's not $3 million, and
  • At least much of it was tax-deductible.

Once when I was sitting in the waiting room with my son at the cardiologist, a woman asked the receptionist how much an echocardiogram costs. The receptionist didn't know; the nurses didn't know; the doctor certainly didn't know. It was early in my cardiology adventures, but now I could tell her it's roughly $900-$1200, with another $200 for the cardiologist visit and $300 facility fee; so at least $1500 to tell her where her son's murmur was on the spectrum of “let's watch this” to “he needs a transplant or he'll die.”

This woman, who ran a small business with her husband, had no insurance on her eight-year-old son. She had to talk to the finance department before she could decide whether she could afford to have this ultrasound to learn the secrets in her son's heart. I don't know what happened to her after that, but from what I know about congenital heart disease, she could easily be owing the hospital and doctors over a million dollars today. If their business was remotely successful they would not have qualified for Medicaid until a year after they went completely bankrupt. Today's bankruptcy laws make it even harder for families to recover from these setbacks.

Your money or your life
Growing up, my father always emphasized the value of insurance. I knew our family's insurance agent personally — he came to our house twice a year. When my dad was ten, his own father dropped dead of a heart-attack. My grandma lost the house, and they were forced to stay with relatives until she remarried. Like his father before him, my dad died young. He was only 48 when his battle with cancer ended — clearly cancer won.

My parents never had a lot of money, but my dad always made room in the budget for life insurance. My mother, who had been a stay-at-home mom since she was 17, had no work experience or job skills, but when my dad died, she was able to pay off their modest home and create retirement accounts for herself. Eventually, she used the care-giving skills she acquired as a parent, and taking care of my dying father, to start a career caring for the elderly. If my dad hadn't obtained solid life insurance, my mother would have struggled to keep her house, and wouldn't have had the luxury to try out a few different jobs before she found the right fit for her.

Those were my early life- and disability-insurance lessons. So, when we were 21 and 22, Jim and I bought our first life insurance policies. It's no coincidence that my dad was going through chemo at the time. We started with $100,000 each. For a 21-year-old non-smoking woman, that was pretty cheap! Now I have a little over $1,000,000 and Jim has about half that (work doesn't offer as much for the spouse as the employee). We pay about $80 a month for all of that life insurance.

I've worked it out, and with my son's heart condition and the cost of our mortgage, we may be slightly over-insured for me, but not for Jim.  If he died and I took a leave of absence (or worse if I were in an accident with him and incapacitated) that money could handle our mortgage until I was able to get back to work and childcare after it, but that's all. Also, if we both died, a trust would be created for our kids that would not be eaten up by our son's medical expenses, so at least our kids could still go to college and have essentials during the rest of their childhoods.

I think I'll always carry enough life insurance to pay for my funeral and settle immediate, because insurance usually pays out faster than investment funds. I learned this when both of my grandparents died last year. The insurance check came six weeks before the investment money. They had actually pre-paid for their funerals, but they were both in their late-70s and did that as a favor to their grandchildren (my dad was their only child) so we wouldn't have to deal with those details or expenses. This I wouldn't do at age 33, but I'd start thinking about it when I get north of 70.

We finally had our wills done last year, and it feels good to take care of that too. It cost $500, but that buys a lot of peace-of-mind knowing my kids will never end up in foster care while a court takes several months in probate to settle our estate.

Pick your poison
Everyone has unique insurance needs. These are my own family's experiences. If I had two cars again, I'd buy a used one and carry liability based on it. If I were a single woman with no kids, I would probably rent or own a small condo, and have only enough life insurance to pay for my funeral and settle my estate so my mom wouldn't have to do it for me. If we didn't have dependent children, I wouldn't have as much life or health insurance coverage as I do. When we're older and have more money in retirement, we'll carry less insurance.

None of this stuff is fun to think about. But it's a simple and unavoidable fact that we all die.

You may die from a car accident, a work accident, cancer, heart attack, infectious disease, or just old age. Most of the time, you don't get to chose when or how you check out. You also don't get to choose whether or not you or your children will get seriously ill. I've known lots of healthy people who've lived well and still gotten cancer, and I know great parents whose children have died from brain tumors, leukemia, and heart disease. You can control what you eat and whether you exercise, and that will mitigate your risk, but it doesn't eliminate it.

I think the trick is to choose all of your insurance coverage options carefully based on where you are in life today, and who would be impacted if you were hurt, fell ill, or died. But do not forget to update your coverage based on your own needs and circumstances as you move forward and experience changes. Sometimes you will need more; sometimes you will need less.

I didn't share all this to scare people into wasting money on insurance, but to encourage them to think seriously and realistically about what would happen if the roof caved in, the car got wrecked, a foot got lost, you find a lump somewhere it should not be, or you just never make it home one night. The most expensive mistake we can make is believing it won't ever happen to us or someone we love.

Amanda's previous articles at Get Rich Slowly include:

Look for more from her in the future.

Auto accident image by Incase Designs.

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Patrick
Patrick
12 years ago

I’ve never understood those AFLAC commercials. Your company pays for short and long term disability for you. It replaces between 60% and 80% of your salary depending on what company you work at.

What am I missing?

Andys
Andys
12 years ago

What a great and informative post and has made me want to get my insurance sorted out as soon as possible given I have kids. Thanks for all the information and personal anectodes Amanda. When I am done I’ll hopefully write a post about my experiences too.

John B
John B
12 years ago

Yes, having enough insurance is VALUABLE! And I’m learning it the hard way. When I got insurance on my car a year ago, I thought, “I’m a good driver, what could go wrong?” and got the minimum liability coverage. BIG MISTAKE! I live in Chicago, and I park my car on the side of the road. Well, it was sitting there last Thursday, minding its own business, when a guy comes barreling down the street the wrong way, hits another guy, and they both careen into my vehicle. The guy ran, and guess who’s left with the bill? So now… Read more »

Susan
Susan
12 years ago

I signed up for an AFLAC accident policy about nine years ago through work, and while I don’t remember all the various ins and outs of my coverage, I do know that what they say in their commercials is pretty much the gist of it…if you get hurt and miss work, they pay you cash to help fill in some of the financial gaps that you face. Obviously I’ll have to go back and check the exact numbers, but I seem to remember that it’s something like $150/day for every day I’m out of work…on top of the 66.6% of… Read more »

Bryce
Bryce
12 years ago

John (3), The basic rule-of-thumb that I have been told, and that makes sense to me, is that you don’t insure against risks that you can afford. If the same thing that happened to you happened to me (my car was destroyed), could I afford it? Yes, I could. I could replace my car. It would hurt me a bit financially, and I hope I don’t have to do it, but it wouldn’t come anywhere close to ruining me. As such, paying for insurance to replace the car for me doesn’t make sense. I’m also not the type that buys… Read more »

elena
elena
12 years ago

Thank you for your informative and well illustrated post. I like it when someone other than someone trying to sell insurance to me explains what it could be for.

john
john
12 years ago

Insurance…as a single guy I have a minimum amount, and since i have a lot of savings/investments if i had a family, they would be covered. the thing about insurance is that it’s great for unpreparred people, but in a way life insurance is for suckers.. the companies wouldn’t offer it if they didn’t win in the end.

Bryce
Bryce
12 years ago

John said: but in a way life insurance is for suckers.. the companies wouldn’t offer it if they didn’t win in the end.

Isn’t that true of anything you purchase?

Insurance companies are selling you peace of mind, and they are charging you for it. Of course they are going to “win in the end”. The insurance company isn’t gambling on your life, they are insuring it. Those things should not be confused.

kingking
kingking
12 years ago

Excellent advice, insurance does cost a bit out of pocket, but it’s priceless if you need it. Well done article.

Also, because I’m a nurse I can’t resist this one. It’s “lap-chole”, short for laparoscopic cholecystectomy, or having your gallbladder removed.

conner
conner
12 years ago

I work for an auto insurance company and deal with medical claims resulting from auto accidents. One thing that I have found is that most people don’t have any idea what types of coverage they have on their cars. I will speak to someone who was involved in an accident, and they don’t have any idea they have medical coverage under their auto policy. I really recommend checking out what sort of coverage is available to you as far as medical coverage in the state you are in. Most medical coverage on automobile policies does not have a deducible or… Read more »

Mary
Mary
12 years ago

I think this is a well written and informative post. I work in the insurance industry underwriting very high risk and dangerous businesses and the same tenets apply to all insurance–you can either keep the risk, or you can transfer it, through purchasing insurance. The key is knowing how much risk you can afford to keep. If you look at insurance as something to cover a major loss that you would be unable to pay for on your own, you’re on the right track. Auto insurance is one area I think where most people are overbuying. If a $250 deductible… Read more »

Anne Keckler
Anne Keckler
12 years ago

Reading this post, as well as the comments, it is clear that a lot of people make financial decisions from fear, rather than logically thinking things through. Those who said that insurance should only be for things you can’t afford to take care of without it is right on. Having a good savings cushion is much more important than insurance, generally speaking. Always figure the odds. Do the math. Determine what is best for you and your individual situation, rather than just paying for as much insurance as you can get, thinking this will save you from financial catastrophe. One… Read more »

Ms. Clear
Ms. Clear
12 years ago

The health plan offered at my work goes up to $1.6 million as a lifetime coverage limit per person. I don’t have the means to extend that in some way. I’m not even sure how I’d do so.

Willy
Willy
12 years ago

Hooray for sensationalistic titles!

Focus On Your Money Maker
Focus On Your Money Maker
12 years ago

I work in the auto insurance bizz. One thing that kills me is these agents aren’t really looking out for YOUR best interest. In fact, they are generally looking out for THEIR best interest. The only way to protect yourself is to be informed before you buy any insurance policy. Case in point. I was working with a couple that was making an auto claim. The lady had over 50k in medical bills. The person that hit her only had a 25k policy. After that 25k was maxed out we looked into her UIM. Well, her agent only sold her… Read more »

Kristina
Kristina
12 years ago

Insurance is necessary, but there is no need to go overboard with it. For example, single people without children do not need life insurance!! Having a few thousand dollars in an emergency or savings account will cover your funeral expenses, and you don’t need money to “settle your estate” — your debts die with you, no one else has to pay them. Then there are all the “gotcha” insurances – cancer insurance, insurance for specific types of car or home damage, etc. There are always anecdotes about people who were glad they had such insurance. But overall, these are a… Read more »

Amanda
Amanda
12 years ago

I try to stay out of the comments on my posts because I’ve had my say, but having gone through this with my grandma, I think it’s important that people understand the truth about what happens when you die — I’m not talking about purgatory before Heaven, but legal purgatory — aka probate. It is wise to speak with a lawyer in the state where you live and hold your assets to find out what happens to your money and your debt when you die and before it goes to your loved ones. I think we may need a follow… Read more »

Gunnar Tveiten
Gunnar Tveiten
12 years ago

Insurance is relatively simple to figure out. It is a way to transform a LARGE but very UNLIKELY cost into a smaller, but certain cost. Because insurers ain’t charities, you generally always pay more than the insurance is “worth” — sum total of premiums is always higher than sum-total of payouts. Thus, insurance only makes sense in precisely two cases: One, you know something the insurance-company don’t. You are, in reality, at higher risk for a certain happening than the general populace. Two, you cannot afford to take the financial risk of the LARGE but UNLIKELY cost yourself. It makes… Read more »

Mary
Mary
12 years ago

“I’ve never understood those AFLAC commercials. Your company pays for short and long term disability for you. It replaces between 60% and 80% of your salary depending on what company you work at. What am I missing?” AFLAC can actually fill in the difference between what you receive in disability and your salary. The AFLAC insurance (like the life insurance) will actually kick in and get sent to you faster then the worker’s comp checks, which can stem the tide betweenwhen you stop getting your normal check and when you start receiving worker’s comp. Also, we carry AFLAC more for… Read more »

Byron Udell
Byron Udell
12 years ago

Amanda – thanks for the great post and information. You really understand the value of life insurance and I hope because of your post more people now “get it” like you do. Thanks.

Michael
Michael
12 years ago

Gunnar makes a great point. If you can’t afford it you need to insure it.

It drives me crazy when the same people that think that disability or life insurance is unimportant or a rip off also think that purchasing an extended warranty on their DVD player is a good idea.

This article along with the comments is the best discussion about insurance I’ve come across on the internet in a while. Great comments everybody.

Daedala
Daedala
12 years ago

“One of the things that amazes me is people’s perception of auto insurance as something to fix every ding and scratch.”

I think that is because they think of it as health insurance for their cars.

I won’t even get started on health insurance.

Gunnar Tveiten
Gunnar Tveiten
12 years ago

Anne has a GREAT point. Insurance covers one particular kind of problem. Say getting sick, having a car-accident or having a fire at home. The money you save by -not- having insurance on stuff you can afford to take the risk on though, covers ALL cases. A $10000 cash-reserve will help substantially with ALL problems where cash is an issue (most of them) You also don’t have to argue with insurance-companies (sometimes for years, going trough several court-instances) to get the money if/when you decide you need it. I don’t have car-insurance. (For my own car, offcourse I have liability!)… Read more »

Robin
Robin
12 years ago

A lot of good information in these posts, I’m in insurance also (auto claims) and agree 100% with what Amanda said. My father died in September 2006, his estate finally settled in February 2008. That’s a long time to wait, and his debts got paid first. I, on the other hand, am almost out of debt (thanks to that delayed inheritance) and have no children or spouse. I have my niece and nephew listed as beneficiaries on the life insurance policy that my employer pays for. It’s more than enough to cover my remaining bit of debt and my funeral… Read more »

Senior Guy
Senior Guy
12 years ago

Great article.

Additional comments:

Visit the need for a living trust to allow for an AB exemption, if necessary.

For large estates, purchase life insurance in a ILIT, or Life Insurance Trust to avoid add-on Estate taxes.

For seniors, take a look at some of the premium financing for life options available for life insurance, and explore the latest: no cost immediate annuities. What will Wall Street think up next?

Jerry
Jerry
11 years ago

Picking the right insurance for your needs is really important. Some people risk not having insurance for vehicles but this is so risky and you never know where an accident may lead. Choose wisely and live simply.

Jerry
http://www.leads4insurance.com

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