Hans Kasper, MS-CPA, PS

Insurance for Individuals
 

This is not a total list of coverages available.  Talk with your insurance agent to determine what your needs are.

In finance, as in sports, you do not win unless you can play good offense and good defense.

In finance, a good offense is making a good income and having sufficient assets that will produce income for you.  A good defense is being debt free and using insurance to protect yourself and your assets, and to create wealth.

Insurance is the last thing that you will think of needing.  You will buy for your car or home because the lending institution or the law requires you to do so.  You will not buy it:

• on your life because you aren't going to die,

• on your income because you aren't going to become disabled in an auto accident,

• on your body because you aren't going to become injured,

• on your health because you aren't going to need to visit a doctor or need surgery,

• on your health because you aren't going to need home health care as a disabled person,

• because all of these are covered by your employer, all of the coverages are adequate, and you will always have your job, or

• because you are rich or you know someone who is and they will take care of you.

However, if some of the above do not apply to you, then you may want to consider buying some insurance as a good defensive play.  Remember, no one wins without a good defense and insurance is your first line of defense.

Let me spend a minute talking about the insurance coverage provided by your employer.  Often, it is inadequate as compared to your needs.  Also, it will not be there if you lose your job, the company goes out of business, or the company stops benefit coverages due to business losses in a bad economy.  With this in mind, you may want to pay for some of these coverages out of your own pocket and, thereby, secure your coverages no matter what happens to your employer.

Here is what I see in my business office.  The husband or wife dies, they have children, there are no wealthy relatives to provide financial assistance for the remaining spouse, and, due to the inability to pay the credit cards, the auto loans, and the home mortgage on one income, all is lost through bankruptcy.

The insufficient life insurance from the employer lasted a while, but it wasn't enough to satisfy the basic needs of the family for an extended period of time.

What would have been better?  A defined plan put together by a husband and wife who worked together and agreed on the end result.

But, hold it.  "We don't make enough to afford that level of life insurance," said one spouse to the other.  My comment is, "Find a way to make more money!"  Get yourself out of the box and stop limiting yourself.  I don't' care if you have to deliver pizzas--get the life insurance!

How much do you need?  There are more differing theories to this question than you can image based on the various facts and circumstances of each family.  However, here is the most basic one available.

Add up all your debt and subtract all of the life insurance you already have (excluding the insurance from you employer) and this will equal the most basic amount of life insurance you will need.

This will allow the above ground spouse to pay off all debts and not lose the assets.  It most likely will also allow that spouse to live on one income since there will be no debt payments.

There are also more financial issues that can be insured through life insurance which are:

• a nest egg for future living expenses,

• child care costs,

• college costs,

• retirement costs, and

• many more.

Only in special circumstances do I recommend variable life insurance.  I do not believe that insurance should be combined with an investment portfolio, and I do not like the high commission costs payable out of the premium to the insurance company.

For most people, I recommend term life insurance.  With term life insurance, you are buying pure insurance and nothing more.  You will get more insurance coverage for your premium dollar.  You can buy it through your insurance agent or via the internet.  Get multiple quotes from different sources and compare coverages and premium dollars.  Select the best coverage you can afford.  Then, you should earn more income and buy more coverage.

Life insurance can also be used to create wealth for a small premium or to pay estate taxes through an irrevocable life insurance trust in the event that you are asset rich and cash poor.

The chance of your home burning down is 1:100 and the chance of your becoming disabled during some time in your life is 1:4.  You would always insure your home, but you wouldn't think about insuring your income.  If you have disability insurance through work, your employer sure isn't going to continue paying you for not working--they can't afford it.

Here is what I have seen in my business office.

• Joe is driving down I-5 and is forced off the road by a semi-truck.  His SUV rolls over four times.  He breaks his arm so that the bone is sticking out, injures his shoulder, and is unable to work for three months.

• Jim's friend is helping him re-roof his house.  The friend falls off the roof, obtains a compound fracture in one leg, and is unable to work for two months.

• Al is healthy as a horse and strong as a mule.  One morning he has a headache that just won't go away until the aneurism is discovered.  It takes him six months to get back to work after brain surgery.

• Brian finished his shower, stepped out on the floor and slipped, hit his head on the floor, and that is the last thing he remembers.  He sits in a wheelchair and his wife feeds him.  Brian never does go back to the business he owned and loved.

These were not old men.  Joe and his wife lost their home and Brian's wife had to sell his business.  Three of these four people were insurance agents and had disability coverage that helped them financially.  I can only imagine the financial and emotional suffering had they not been adequately covered.

Disability coverage can be difficult to figure out and expensive to buy.  An employer's policy with a conversion option may be available.  If it is, then pay for it.

During the 1990s, I had coverage through a professional pool which was great coverage and inexpensive, but the attorneys in the pool ruined the coverage and the plan by going on disability due to mental stress.  In 2001, when searching for new disability coverage for myself, I found a fee only broker in Detroit who told me that Northwestern Mutual and USAA for ex-military persons were the best coverages.

Within each disability policy there are various coverages and riders.  You will need to become educated on each of these to make the most informed decision.  It will be the job of the agent to explain those options to you.

It is my best estimate that 1/2 to 2/3s of sole proprietors do not have health insurance because they do not make enough money to afford it.

Recently I viewed a show on TV about the worlds largest hotel located in Las Vegas.  The accountant was asked how long it was going to take to pay it off and he said, "Five years!"  That goes to prove that gambling in Las Vegas, while all of the lights and stars may get in your eyes, is not a winning proposition.

For many people, running a small business is just like that: a lot of stars in your eyes and not a profitable proposition.

While I do have medical insurance--the cost in 2004 is $800 per month or $9,600 per year which I think is expensive--many small business owners like to gamble by not having health insurance.  I think that the odds of losing money through a costly medical condition are greater than the odds of losing in Las Vegas.  At least in Las Vegas you can control how much you are going to lose.  In the medical arena, you have no control.

All I can say is: get the medical insurance and figure out how to make more money to pay for it.

Please read the links below about the new Health Savings Accounts that started 01/01/04

http://www.regence.com/hsa/101/FAQ.pdf

Health Savings Accounts Myth vs. Fact

Health Savings Accounts

Some people need this insurance and some do not.  Who doesn't need this insurance?  Anyone who is very rich or comes from a very wealthy family that will help them in the event they are in need of long-term care does not need long-term care insurance!  Everyone else does--especially as they become older. 

My wife and I have a long-term care policy because we do not have wealthy relatives who can pay for our care, we do not have any relatives in this area who can take the time off of work to take care of us, and we are just plain getting older.

These policies pay for home health care while you are incapacitated.  They have all kinds of options.  Find an honest insurance agent who handles these policies and have them educate you.  We went through AAA.  Give them a call to find when the next seminar is in your area.

Again, all I can say is: insurance is your first line of defense against a financial disaster.

This is the one policy that no one has, that you should have, and will wish that you did have when the wrong thing goes wrong.  The cost is cheap so get it now.

Back in 1989, I was always planning on getting such a policy, but I could never get around to it--there was always something else to do.  I had a bunch of wood that needed to be split and had a big teenage boy in my neighborhood come over to help me.  He was using a sledgehammer to hit a splitting mal.  A piece of the mal, the size of your little fingernail, broke off and went through his jeans an inch into his leg.  We took him to the hospital, it was taken out, and there was no long-term damage.  Now imagine if it had hit him in the chest.

The next day, I bought an umbrella policy.  An umbrella policy takes over liability coverage on all of your other insurance policies when the liability coverages on those policies are exceeded.  In the case above, had it been a significant liability issue, the liability coverage on my homeowners policy would have been insufficient and the liability coverage on my umbrella policy would have taken over.

Now look at the liability coverage on your auto policy and ask yourself if you have $2,000,000 or $3,000,000 in coverage.  It isn't there, is it?  Go out and get an umbrella policy now.  I'm warning you.

Top of Page This page was last updated on 05/13/2010