﻿One of the most important steps to building a solid personal financial plan is to protect
our assets. And the right insurance policies will go a long way toward helping us safeguard
our possessions and therefore our wealth. Hi, if you are new to the channel, my name is Tae
from Financial Tortoise. Where we learn to grow our wealth, slow and steady. In today’s video,
we are going to discuss insurance. I know. It may not be the sexiest personal finance topic,
but it is crucial that we have the right insurance policies if we want to protect our wealth.
So we are going to discuss four insurance policies you must have in your personal financial plan.
And four that many people try to sell us, but I would recommend not buying. Alright, the number
one insurance policy that we must have is health insurance. And this probably is the single most
important type of insurance we will ever buy. ​​​A study published in the American Journal of Public
Health found that 66.5% of bankruptcies in the US are due to medical issues. Serious diseases or
injuries easily result in hundreds of thousands of dollars in medical bills. And when we don’t
have adequate health insurance, these bills can quickly wipe out savings and retirement accounts,
college education funds, and home equity. So if we don’t want to leave ourselves and our family wide
open to a money disaster, we must have health insurance. Choosing the plan that's right for
us may take some research, but it's important we spend some time on this because it serves as
our first line of defense against medical debt. For many Americans, we can get health insurance
through our employer or our spouse's employer. In this scenario our employers subsidize premiums,
meaning the employer pays the bulk of our premium, and we chip in a little with each paycheck.
However, even if we don’t have access to healthcare through our employer,
we can still acquire good health insurance through the individual market. And thanks to the
Affordable Care Act (or Obamacare), we may be able to buy subsidized insurance on a state or federal
exchange and get tax credits that help us afford the cost of monthly premiums. There are a wide
range of health insurance options. HMOs, PPOs, High Deductible Health Plans, etc.. The price
varies based on the level of option you select, so you will need to do some research on what care you
need and what’s available and offered to you. If you're someone who doesn't incur a lot of health
expenses, a high-deductible health policy may be the most affordable solution. But if you see
the doctor often for any number of reasons, get a policy with higher premiums but more
comprehensive coverage and a lower deductible, so you don't go broke paying for all your services.
Under Obamacare, every health insurance plan is required to cover certain basic services
before your deductible is met, like preventative care. Which is great if you and your family are
relatively healthy and all you need are checkups. The law also mandates insurance companies cannot
charge more for a health insurance policy if the person has a pre-existing condition. The bottom
line is that absolutely everyone needs health insurance because even a minor medical issue can
become extremely expensive and a single hospital stay or surgical procedure could cost many
thousands of dollars. If you would like to learn more about one of my favorite insurance plans, the
high-deductible plan because it gives you access to something called the Health Savings Account,
HSA, check out my video here. It's a clever way to save money on your investment and taxes. Alright,
the second insurance policy that we must have is auto insurance. And some level of automobile
insurance is required by law in most places in the United States. But even if you are not required to
have it, and you are driving an old clunker that has been paid off for years, automobile insurance
is something you shouldn't skip. If you are involved in an accident and someone is injured or
their property is damaged, you may be subject to a lawsuit that could cost you everything you own.
Accidents happen quickly and the results are often tragic. Having no automobile insurance
or purchasing only the minimum required coverage saves you only a tiny amount of money and puts
everything else you own at risk. Some ways to reduce your auto insurance cost is to understand
what coverage you need. If you drive an old beater and you wouldn’t be too concerned if it
was wrecked in a car accident, you might be able to reduce or even opt out of collision coverage.
Coverage that would cover the cost to repair or replace your car if it’s damaged or totaled in a
wreck. I actually did this with my older vehicles given I wasn’t too concerned if my 10 year old car
got banged up or totaled. Coverage you definitely don’t want to go without is Liability coverage.
If you’re responsible for an accident, your liability coverage will take care of the costs
of any injuries or property damage caused in the collision. And most states make you carry a basic
minimum amount of coverage. Another simple way to reduce your insurance premium is to increase your
deductible if you rarely use your car insurance. Typically you can choose a deductible of $250,
$500 or $1,000, but amounts can go as high as $2,500. Make sure to shop around for car insurance
or at least check with your existing policy holder to see if you qualify for any discounts.
The number three insurance policy that we must have is life insurance. And this is especially
true if you have individuals depending on you for livelihood. Life insurance provides for our
family if we unexpectedly die. If we were to die unexpectedly tomorrow, how would our spouse pay
for monthly expenses without our income? The last thing we want for our grieving spouse is
for him or her to worry about how to keep food on the table and make the mortgage payment after
we are gone. Or how about the funeral cost? The average funeral costs between $7,000 and $9,000.
Do we want our family to worry about the financial stress of burying us on top of the
emotional loss? But if we had a life insurance policy for 10–12 times our yearly income,
our family wouldn’t have to worry about making ends meet, losing the home,
or changing college plans if we are not there to provide for them. And I want to clarify,
when I’m talking about life insurance, I’m talking specifically and only about term life insurance.
Not whole, variable or universal life insurance that many sales people try to sell. There are many
unscrupulous life insurance salespeople who sell policies that earn them high commissions but are
not right for us. And most often if you need just basic life insurance, term is the way to go. And a
way to make sure we get the lowest cost to cover is to ensure that we are as healthy as possible.
We will typically need to undergo a medical exam when we apply for a life insurance policy
and answer a questionnaire about our hobbies and habits including whether we’ve ever been a smoker
or used illegal drugs. Ensuring that we are in tip top shape will not only make us feel better,
but also be good for our wallet. The recommendation with life insurance is
to get 20-30 year term life insurance, 10-12 times our income. And if you already have an insurance
company where you get your car and home insurance from, speak to them first. Most often you can get
a discount by getting all your insurances from one place. Number four insurance policy that we must
have is homeowner or renters insurance. Homeowners insurance is not required by state law. However,
if we have a mortgage, our lender will require homeowners insurance to protect the investment.
And we need this unless we can afford to pay out of pocket to replace every single thing we own.
Which most of us would have a hard time doing. And another more important reason you need homeowner
insurance is that it shields us from liability in case someone else gets hurt on our property.
Homeowners and renters insurance policies contain two different components: Liability coverage and
property coverage. Liability coverage pays for costs associated with an injury on our property.
If someone slips and falls on our steps, our liability policy will pay for our defense if
they sue us. It will also pay for any damages the injured person is awarded. Liability coverage also
pays out if our dog bites someone and we are sued. Property coverage pays if something happens to our
home or our possessions within it. If our house burns down or our roof is destroyed by a hail
storm or our belongings are stolen, our insurance will pay us. Typically, this insurance also covers
us if we are robbed outside of our home. If our laptop is stolen out of our car, the insurance
should cover it. We'll need to choose how much liability protection and property coverage we want
to buy. The more coverage we have, the higher the premiums. We will also need to choose our
deductible. As is typical for insurance, a lower deductible means higher premiums, while a higher
deductible means we pay more out of pocket if something happens, but our regular premiums
are lower. And finally when it comes to homeowner insurance, make sure we understand what our policy
covers and what it doesn’t. Based on where we live, some extras we might want to add are flood
insurance, hurricane insurance or earthquake insurance. Alright, now that we talked about
essential insurance policies we must have, let's talk about some that are highly marketed, but
we definitely shouldn’t buy. The first insurance policy that we don’t need is extended warranties.
Extended warranties are available on a host of appliances and electronics. You see them all the
time whenever you are purchasing electronic items. At the store and online. However, the reason so
many companies push them is because they are rarely used. A good example of this is with cell
phones. For a monthly premium of $4 to $8 per month and a deductible ranging between $25 for
basic phones and $200 for smartphones, cell phone insurance will replace your phone if it is broken,
lost or stolen. If you have your phone for a year with a cell phone extended warranty, you
would have paid about $48 to $96 in premiums. You will then need to pay the $25 or $200 deductible
and probably receive a refurbished phone as a replacement. You can purchase refurbished phones
for less than the insurance policy and deductible from eBay or any other phone resellers. Ignore
extended warranties. They make tons of sense for the company selling them, but not for us.
The second insurance policy that we don’t need is rental car insurance. Before you rent a car,
it's worth reviewing the coverage on your personal car insurance policy. If you have a personal car
insurance policy, it includes liability coverage and any additional coverage you've opted for,
such as comprehensive or collision. That coverage may extend to your rental car,
as long as you drive it for personal use. The coverage limits and deductibles on your personal
policy also apply to your use of a rental car. In other words, buying rental car insurance coverage
may duplicate what you already pay for. This may not be the case always, but make sure to check
before blindly buying rental car insurance because the salespeople at the counter are pushing it on
you. The third insurance policy that we don’t need is Private Mortgage Insurance, also known as PMI.
The infamous private mortgage insurance (PMI) is well-known to homeowners because it increases
the cost of their monthly mortgage payments. PMI protects the lender against loss when lending to
a higher-risk borrower. The borrower pays for this insurance but derives no benefit. PMI is required
if you purchase a home with a down payment of less than 20% of the home's value. The small
down payment is viewed as putting you at risk of defaulting on the loan. But PMI is expensive. PMI
typically costs between 0.5% to 1% of the entire loan amount on an annual basis. For a $250,000
home, the median price of US homes, a family could be spending around $2,500 per year on insurance
assuming 1% PMI fee. That’s as much as a small car payment. Unless you think you’ll be able to
attain 20% equity in the home within a couple of years, it probably makes sense to wait until you
can make a larger down payment or consider a less expensive home, which will make a 20% down payment
more affordable. The fourth insurance policy that we don’t need is life insurance for children.
Life insurance is designed to provide a safety net for your dependents. Because
children don't have dependents and, statistically speaking, are likely to grow up safe and healthy,
most parents should not purchase life insurance for their kids. Instead,
use the money that you would have spent on life insurance to fund an education plan
or an individual retirement account. That’s it guys thank you guys for watching. Insurance
isn’t an exciting topic to talk about, but it is crucial to protecting our wealth. If you like to
learn more about other types of insurance, check out my video here. Until next time, all the best.