Many people cut corners on insurance in an effort to save money. They don’t buy policies that they should have, or they are underinsured on the policies they do have. They think that paying a smaller premium is a way to save money and do better financially. Technically, this is a way to save money. But only until you need the insurance and then you learn that all the money you saved on premiums is peanuts compared to the amount that you have to pay out of pocket if you don’t have good insurance.
One of the ways that we have remained out of debt is by not skimping on insurance. It sounds counterproductive. We spend around $5,000 per year on insurance premiums for our home, our cars, umbrella insurance, life insurance, flood insurance, disability insurance, and long term care insurance. This doesn’t count the health insurance through our employers, of which we pay a portion. Our policies are not basic. We’ve bought as much liability as we can afford and we’ve added several options to many of our products to deal with some special cases we have. It’s a lot of money to lay out every year, but without several of these products we would be deeply in debt.
The auto insurance came through in a big way twice: Once on a wreck that wasn’t our fault but was caused by a driver with no insurance (there was massive damage and some injuries), and again when the accident was our fault and there were injuries that had to be paid for. Had we not had insurance or been underinsured, we would be in debt to the tune of over $100,000 right now. But because we paid for the added liability insurance and the protection against an uninsured motorist, our assets were never touched.
The home insurance came through during a hurricane when a tree fell on the house. Not only was there structural damage, but some rare items were also damaged. We’d paid extra for a rider to cover those rare items and were able to get them repaired and restored. Had we not paid extra, they would have been a loss or we would have incurred debt to fix them. The flood insurance also came through that day because water got in the basement and damaged carpet and some other items. Our homeowner’s insurance would not have paid for that, so we would have needed to foot the bill on our own.
We hope to never need the life insurance, disability insurance, or long term care insurance, but as neither of us is getting any younger, we recognize the probabilities that at least one of those policies will probably save our bacon one day. Without them, if one of us dies, becomes disabled, or requires long term care, any and all of our savings could be eaten up trying to replace income or pay for care.
Having insurance that covers all of our needs keeps us out of debt. Yes, we pay a lot per year and we could probably cut back on our policies and save some money. But that would be gambling. Saving $100 per year is nothing if we are ever faced with $100,000 in long term care expenses or sued for a million dollars. That $100 or even $500 per year that we saved wouldn’t even put a dent in those kind of expenses. And we would end up in debt. The kind of debt that is almost impossible to ever pay off. The kind of debt that derails your financial plans forever. That’s just not a risk that we’re willing to take. Insurance has saved us more than once and, while I hope it never has to again, I’m glad that it’s there to keep us out of massive debt.