Insurance

[AdamA]

What are people's opinions as to what type of insurance one should buy?

I know it's a broad question, and will obviously vary depending on individual circumstances, but I curious to hear opinions.

I'm thinking:

Auto (obviously), home (but I don't own a house--renters?), disability, and term life insurance.

[Xan]

Auto is obvious, yes, but there are a lot of variables within that.  The main one being, do you go for liability only, or comprehensive/collision to protect your (for lack of a better term) investment?  What about "gap" insurance, for cases where you owe more on your totaled car than it was worth?

I would definitely recommend renter's insurance.  In my experience, it's pretty much dirt cheap, and all your stuff is then covered against things like burst pipes, theft, any number of things.

Disability seems like a good idea.  It's something I'm looking into now.

Life insurance yes, but only if other people depend on your income.

[Ad Orientem]

What are people's opinions as to what type of insurance one should buy?

I know it's a broad question, and will obviously vary depending on individual circumstances, but I curious to hear opinions.

I'm thinking:

Auto (obviously), home (but I don't own a house--renters?), disability, and term life insurance.

I would add a low cost high deductible health plan. What they used to call catastrophic health insurance. A straight $5000 deductible with no co-pay and no co-insurance. You pay the first $5k and they cover 100% after that. Also if you have significant assets you may want to consider an umbrella policy. Most home owner and car insurance is not enough to shield you from a really big lawsuit anymore.

[Xan]

Oh, for sure on the "catastrophic" health policy.  If only because that lets you do an HSA!  (Make sure you get one that's HSA-compatible.)

[Pointedstick]

I removed the comprehensive and collision coverage on my car insurance because I can always dip into PP cash to pay for car expenses. And in the meantime, the savings go right into the PP!  Then again I don't drive anything that's very expensive.

If you or someone on your health insurance policy is planning to deliver a baby in a hospital, it may be more economical to go with the cadillac coverage for a while. Baby delivery can get mighty expensive if there are any complications; you'd blow through your $5,000 deductible easily, wuich would eliminate many years of savings from using the HDHP.

Of course, if you want to be hardcore and do it at home with a midwife, that's another story! 

[Xan]

As a self-employed, there existed zero insurance that covered maternity.  But, my high-deductible policy DOES cover pretty much anything that goes WRONG with a pregnancy.  It's just that they don't cover the expenses of the normal path.

Which I'm 100% fine with.  If it did, that wouldn't be insurance, that would be a cooperative.  (Which, I suppose, is where all medical insurance is going very soon...)

In any case, maternity is one of the few medical issues that you have plenty of advance warning about.  You can shop around for the best deal from hospitals.  Especially if you can pay cash on the day services are rendered, they are really incited to cut you a great deal.

Also, there are co-ops out there that are very good about maternity coverage.  For example, Christian Healthcare Ministries (http://www.chministries.org).  If you qualify, then you can get a great deal on almost-insurance that does cover maternity.

[moda0306]

I think long-term care coverage should be considered.  If only to protect some assets for your spouse from the Medicaid spend-down (if your state has a "Partnership" program).

I'd definitely focus, also, on amounts of liability coverage, not just that you have it.  You probably want to get umbrella coverage on top of your auto/home liability.

I've also been contemplating the appropriateness of the use of permanent life insurance for people that are maxing out their other options and have "legacy" goals anyway.  Maybe that's for a separate thread, but I think some of you would be surprised at some of the numbers I've had my friend run (both in guaranteed contractual value, and projected based on dividends).

[FarmerD]

If you have a fairly substantial amout saved or are a high income earner (like a doctor) you have a target on your back so you really need an umbrella policy.  It doesn't cost that much and gives you protection against any litigeous shark you might encounter in life.  I've had one with USAA for several years now. 

[Pointedstick]

Does it strike anyone that the escalation of "defensive" insurance such as umbrella policies is a pretty damning indictment of our legal system? If our courts were sensible, they would throw out these nonsense lawsuits and tell the plaintiff to grow up and stop wasting the court's valuable time.

Or maybe it's an indictment of us. If we were sensible, we wouldn't sue each other when we get our feelings hurt or someone accidentally stubs our toe.

Or maybe it's both: we sue each other for nonsense because we believe the court will humor and reward our ridiculous behavior.

[moda0306]

PS,

Well there is a chance that if I drive neglegently, if I hit a surgeon, that I've done the damage of a lifetime's worth of income to him.  That's a HUGE liability, and if we're being honest, I'm at fault for that loss and am technically liable.

So even in a perfect world there is huge exposure there.

Not that we don't live in a litigious society... I just don't think umbrella insurance is an indicator of it.  Plus, the stuff is DIRT cheap.

[Pointedstick]

Having liability insurance for a car I can understand. Cars are really dangerous, and you can be injured through no fault of your own by a negligent driver. But lots of lawsuits are generated by people who had some role in their fate--often a large role. Say, the person who, while walking briskly ensconced in a texting conversation, slips and falls on a freshly-washed floor, breaking their leg right before an important business trip. That's a lot of lost income... but was is really the fault of the person who owned the floor or washed it?

Maybe I'm just a crotchety old man who thinks that people should grow up and stop assuming everything bad that happens to them is somebody else's fault.

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[One day at a time]

One thing to add, in the PP spirit, counter party risk ca be a significant issue with insurance.  I chose to use mass mutuals, since they are investor owned like Vanguard.  For an insurance policy where there is the issue of interpretation, ie. disability, I think this is particularly worth considering.

Also, about insurance as a form of risk mitigation, I thought the financial historian Peter Bernstein put it best.  To paraphrase, when people think about risk, they overweight probability and underweight consequence.  Instead of thinking about the likelihood of something happening, it is better to think about the consequence if it did.  Maybe this is why the unexpected health event is a leading cause of bankruptcy. 

[Tyler]

Also, there are co-ops out there that are very good about maternity coverage.  For example, Christian Healthcare Ministries (http://www.chministries.org).  If you qualify, then you can get a great deal on almost-insurance that does cover maternity.

Thanks for the CHM reference.  Interesting model.

Are there any more notable co-ops or non-insurance models out there for health coverage?  I can see how one side effect of rapidly rising rates is that some people eventually say "screw it" and start figuring new systems like this out for themselves.  Going health Galt.

[Xan]

There are some other Christian "ministries", something like CHM, each with its own twist on the model.
Christian Care Ministry: http://mychristiancare.org/medi-share/
Samaritan Ministries: http://samaritanministries.org/

They all have some version of requiring active membership in a Christian church, the idea being to put the Christian directive to bear each other's burdens into reality.  I think somehow that also helps qualify them as a co-op rather than being in the insurance business.

As far as Obamacare, these were all grandfathered in, and membership counts as being insured for purposes of the mandate.  I believe it wouldn't be possible to found one now, which is weird and seems wrong.

[Pointedstick]

[...] which is weird and seems wrong.

That's how the whole law looks to me, the more I learn about it. This should be its tag line!

Obamacare: it's weird and seems wrong

[Tortoise]

What are people's opinions as to what type of insurance one should buy?

I know it's a broad question, and will obviously vary depending on individual circumstances, but I curious to hear opinions.

I'm thinking:

Auto (obviously), home (but I don't own a house--renters?), disability, and term life insurance.

The Bogleheads' Guide to Investing has a chapter that discusses which types of insurance most people should and shouldn't buy, how much coverage to buy, etc. I found it pretty informative.

One type of insurance I only recently purchased was renter's insurance. For some reason I always thought the main reason to have it was to cover loss of one's personal property, and I just didn't have that much stuff. Only recently did it finally dawn on me that an even more important reason to have renter's insurance is for liability coverage. Lawsuits are the real black swans that renter's insurance protects you from.

[MachineGhost]

Auto (obviously), home (but I don't own a house--renters?), disability, and term life insurance.

Long term care.  Get it while its still cheap.  10,000 baby boomers are retiring every day and Medicare does not cover it.

[rocketdog]

Long term care.  Get it while its still cheap.  10,000 baby boomers are retiring every day and Medicare does not cover it.

Back when my wife and I were working with a NAPFA-registered financial advisor, he advised us against long-term care insurance.  He said it's too expensive, there are too many loopholes, and the chances that you'll actually need it and will benefit from it are extremely slim. 

Since you mentioned term life, I'm assuming you're married?  If so, you and your spouse should insure each other for the amount of lifetime earnings you'd need to replace if the other one died.  You can scale that back a bit based on how close your house is to being paid off, and how much you have accumulated in retirement savings.  Shop online for a 10- or 20-year policy, but avoid SelectQuote -- we went through them and they botched our policy and it took them months to remedy it.  We finally had to contact our state insurance watchdog agency to get it resolved. 

[MachineGhost]

Back when my wife and I were working with a NAPFA-registered financial advisor, he advised us against long-term care insurance.  He said it's too expensive, there are too many loopholes, and the chances that you'll actually need it and will benefit from it are extremely slim.

I wonder what crack pipe that guy was smoking?  All insurance probabilities are "extremely slim" and not "needed" -- thats why it is insurance!  Nursing homes cost $70K+ a year and thats lower-tier.  You feel like slummin' it in a el cheapo Medicaid/Medicare drop off?  I've seen enough of those roach motels to run, not crawl, away at warp speed.  The average drop off is dead within 2-3 years and also dead broke.

He may be right in that the baby boomers are not going to stand for it so by the time anyone under 40 gets into a similar incapacitated situation (if at all), it will have been "fixed" long ago (by the government).

[AdamA]

Thanks to everyone for the great information.

Here's an interesting piece if correspondence regarding Valuable Personal Property insurance as it relates to gold coins, for those interested.  (This is different than what I had thought to be true, and the policy is very cheap).

We received your follow up message regarding your interest in our Valuable Personal Property (VPP) policy for your coins.

To answer your question, yes a renters policy will qualify you for a VPP policy. You asked about insuring the coins at market value. If the item was purchased within the last five years, then we base the scheduled value on the purchase price including applicable sales tax. If the item wasn't purchased within the last five years, we base the value on a current appraisal, one which is five years old or less. We can accept an appraisal established from standard numismatic reference manuals or catalogs.

While reviewing your first inquiry, we noticed we didn't address one of your questions. We aren't able to insure the coins if they are kept in a safety deposit box. They will need to be kept at your primary residence, in your custody.

[rocketdog]

What a weird coincidence -- I just got an e-newsletter from NewRetirement.com.  They mention long-term health care.  Here is an excerpt:

---

Health and Long Term Care: Research indicates that Medicare only covers about 60 percent of your total healthcare bill in retirement and that households should probably have somewhere between $100,000 and $400,000 set aside to fund the out of pocket health costs.

Prepare for a Long Term Care Need with 4 Easy Steps

Research indicates that 7 out of 10 Americans will need long term care at some point after they reach age 65. This means that you are very likely to require long term care. However, only one third of Americans have a plan for this pricey reality.

Here are four steps you can take to make sure you get the care you want:

1. Imagine Yourself Old and In Need of Care: Research indicates that people who see a computer generated picture of themselves as an old person are more likely to create an adequate plan for their old age. You can recreate this experience by just visualizing yourself as your oldest relative. Imagine what you will need and want in the future.
2. Decide What Kind of Care You Want: An important part of retirement planning is establishing an Estate Plan. Part of an Estate Plan is a living will. A Living Will is a legal document that outlines specific instructions for your medical treatment if you cannot make those decisions yourself. You can also include details about how and where and by whom you would prefer long term care treatment.
3. Establish a Plan for Paying for Long Term Care: Long Term Care is expensive. The cost for a nursing home averages more than $6,700 a month – this is likely higher than your guaranteed retirement income. So, how to pay for the care? Long Term Care Insurance is one choice. Deferred Lifetime Annuities is another. However – for better or worse -- draining your savings and then qualifying for Medicaid remains the most popular option.
4. Talk with Your Family About Your Decisions: When you require long term care, it means that you need assistance to live your life. It is therefore important that your loved ones be informed of your preferences so that they can help you achieve them.

---

Of course, the e-newsletter also has a convenient link to "Talk with a Prescreened Broker About Long Term Care Insurance".  Hmmm... conflict of interest?

[Pointedstick]

You feel like slummin' it in a el cheapo Medicaid/Medicare drop off?  I've seen enough of those roach motels to run, not crawl, away at warp speed.  The average drop off is dead within 2-3 years and also dead broke.

Unfortunately, that also describes the $85k nursing home my grandmother rotted away in. Dead in three years and rendered penniless and utterly humiliated.

Personally, avoiding nursing homes entirely is extremely high in my list of things to do. Those places are death houses where you go to get the dignity, wealth, and life sucked out of you.

[moda0306]

If there is a concept that would do people a world of good, it would be this statement:

If there is a risk that has a low likelyhood or frequency of occurence, but a high financial impact, transfer that risk by buying insurance.  For almost everything else retain the risk and attempt to avoid it.

Insurance is not based on need.  There are plenty of things I need that I don't insure (food), and plenty of things I insure that I don't need (my specific home).  Insurance is simply a tool to transfer a financial risk to another party.

This means, when I say "Get long-term disability insurance," you can't say "but I don't think I'll get disabled!"  Because to that I'd say, "neither do I... that's why you use insurance and not a Disability Savings Account."

I don't know how many people I meet that have insurance on their $12,000 car, their wife's $3,000 wedding ring, buy warranties for said car and a bunch of other electronic stuff, and then don't have LT disability insurance coverage (an exposure of hundreds of thousands if-not millions of dollars depending on the individual) because they either "can't afford it" (no such thing... actually you can't afford NOT to have it), or "they don't need it" (you don't insure based on need, you insure based on value and risk), or "they don't think it will happen to them" (neither do I... which is why we use insurance).

It amazes me how few people understand this relatively simple financial principal.

So it takes a bunch of schmucky insurance salesmen to "sell" a bunch of yahoos based on fear rather than sound decision making.  It's a chicken/egg thing IMO.  The consumers are as bad as the salesmen.

[moda0306]

You feel like slummin' it in a el cheapo Medicaid/Medicare drop off?  I've seen enough of those roach motels to run, not crawl, away at warp speed.  The average drop off is dead within 2-3 years and also dead broke.

Unfortunately, that also describes the $85k nursing home my grandmother rotted away in. Dead in three years and rendered penniless and utterly humiliated.

Personally, avoiding nursing homes entirely is extremely high in my list of things to do. Those places are death houses where you go to get the dignity, wealth, and life sucked out of you.

PS,

Not disagreeing with you, but that doesn't change the fact that unless some uncomfortable end-of-life decisions are made (and even if they are you still can end up with risk), there is a lot of care that needs to happen.  Home care I've heard is getting very popular.

Family can always help and I think it has to in some significant ways, but you're still looking at a huge financial exposure, cuz if Mom's taking care of Grandma in the house she's not working... and I definitely think that having a dignified relationship with an aging parent (rather than having to bathe and assist them in toiletting) is something to be desired... of course you don't want to replace that with a miserable existence in a nursing home.  I don't think it's a easy as the nursing-home-haters make it out to be though.  I think home care is going to be a pretty huge thing going forward.

[rocketdog]

The LT insurance business is getting ugly:

http://www.cnbc.com/id/100669104