Transferring Risk

I'm not an insurance agent. I am a guy with an opinion. Insurance is for the purpose of transferring risk from you to someone else. That's it, whether it is life, health, auto or any other insurance. Try to do anything else with it and it will cost you money. The insurance company is betting something bad won't happen and you are betting it might (no one thinks it will). When you buy life insurance it should be to provide the economic value you create to those who rely on you. It is not an investment. You should buy term insurance and avoid whole life, return of premium or other similar products. Invest the difference in premium between the two yourself, you will be way ahead. By the time your kids are grown, you will not need insurance if you have invested steadily. I have allowed my life insurance to lapse. I don't need it. I have a pension from a prior job that will pay until we both die and we have substantial assets in retirement accounts and savings. Our home is nearly paid for. The lovely Ms. Sneed will be fine financially if I die. Another thing folks don't know is that when you die whole life pays your death benefit only. They keep your cash value. The cash value is what they give you if you terminate the policy prior to your death. You can't get both. I was talking to a young guy today about insurance. He was asking me about buying additional life insurance. We checked online and found out that he could get $500,000 in insurance for $23 per month. That is what he needs right now. That much whole life will cost many times $23 per month. He can get term and cancel his whole life and he will be way ahead. He also asked me to look at his auto policy. He had on $25 / $50 / $10 liability coverage. His uninsured and underinsured coverage was capped at those limits by statute in our state. This means that if he were to injure someone in an accident his policy would only pay $25,000 per person or $50,000 per accident. Not much. He is risking his family's financial future with these limits. If he is sued or if he is hit by an uninsured motorist, he is screwed. Remember, this is about transferring risk from you to someone else. I suggested he call his agent today and raise his liability limits to $100,000 per person and $300,000 per accident at the minimum. I also suggested he raise his deductible for comprehensive and collision (damage to his can caused by him). If you can set aside $500 or $1000 in a special fund to pay a higher deductible in the event of a claim, you can save some money. He came back later to say he had talked to his agent. The net result is that he has better liability coverage, $100/$300/$50, and a higher deductible for less money per year than he pays now. Take a look at your insurances to be sure you are getting the best deal for your money. Remember, for all the talk of good neighbors or good hands, an insurance company is an insurance company. Don't be loyal to the point of paying too much. Tag: Personal Finance Tag: Daily Life