Insurance and Wills

Misconception #15: You can't afford insurance.

We all hate insurance, until we need it. Planning for emergencies is part of the budgeting process, unless you are so rich you become self-insured. We were recently reminded of this once again when we were side-swiped by some teenagers who were fleeing from the police in a stolen truck. After not having to come up with over $10,000 for repair and medical bills, those premiums didn't seem so bad.

Although you should stay away from insurance products that pretend to be investments, there are some basic policies that you should have to secure your future:

  • Homeowners and Auto Insurance - If you create an emergency fund to cover a higher deductable, you can save a lot on premiums. Higher liability limits make these some of the best buys in the insurance world.
  • Life Insurance - Twenty-year level term insurance equal to about ten time your income is the best type to get.
  • Long-Term Disability - Did you know that a thirty-two year old is twelve times more likely to become disabled than to die by age sixty-five?
    Coverage through your employer is cheap. I have a friend who told me how his co-workers told him he was crazy to be wasting the money. But when he became disabled in his early fifties, he was very thankful he didn't listen to them. You never know what life is going to throw at you.
  • Health Insurance - Consider this: The number-one cause of bankruptcy today is medical bills and the number two is credit cards. A Health Savings Account (HSA) is the best way to go if available. You can choose a high deductible (covered by your emergency fund) and get a much lower premium. Plus, current tax law lets you save for medical expenses in a tax-free account.
  • Long-Term Care Insurance - If you are over sixty, buying this will cover you in-home care or nursing home care. Considering that the average nursing home costs $40.000 a year, and we tend to be living longer because of modern medicine, a nest egg can be depleted in just a few short years. Your parents should have it.

Misconception #16: If you make a will, you will die.

That may seem like a silly statement, but I've had people sit at my desk and tell me that. (Superstition is a strange thing.) This is always one of the subjects that I bring up with a new tax client that has children, because 70 percent of Americans die without a will.

Most people seem to think that a will just has to do with money. That is far as they get. They think that since they don't have any money, what's the sense in writing one. So I have to ask them, 'Do you want the government to decide what happens to your children?' They usually look at each other and then tell me that they hadn't thought of that. Well, the government is not known for making good decisions and that is what will occur if something tragic happens to both parents. A will is a gift you leave your family and loved ones, because it makes the management of your estate light-years easier.