A few weeks ago I wrote a guest post on one of the biggest personal finance blogs around, Free Money Finance, about the ten insurance policies that everyone should own. There is a fine line with having too much insurance.
I took some heat in the comment section of the post from people who said that the ten different types of policies I listed would leave me insurance poor. Maybe they would do that, but maybe they wouldn’t. How many policies are too many?
How Many Policies Do You Need?
Do you need ten different insurance policies? Maybe you do need them, and maybe you don’t need that many. One commenter actually listed a few policies that you should have that I didn’t write about. Everyone needs some types of homeowner’s insurance or health insurance policies.
I did not want to list those in the article because I felt that it was fairly obvious that you should own those types of policies. I say this, but one of my coworkers recently lost a lot of items from her home when it was burglarized and she had no renter’s insurance. This is so sad because renter’s insurance is so cheap. For as little as $15 per month, you can have thousands of dollars in protection.
Everyone should have renter’s insurance, but so few own the protection. When I asked my coworker why she wasn’t protected, she told me that she didn’t realize that it was so cheap.
Can You Have Too Much Insurance?
Can you actually own too many insurance policies? I guess you can. You can make your insurance poor. The beauty of some wide-ranging policies is that they are inexpensive. For example, a one million dollar umbrella insurance policy can cost you only a few hundred dollars per year. One reason that umbrella insurance is fairly inexpensive is that the likelihood of a payout is extremely rare.
You could go a lifetime without needing a payout. Hopefully, that is the case, and you are never sued. But, would that mean that you have too many policies if you truly needed its protection? I would almost rather err on the side of caution and have too much than not enough if I needed it.
I Like Those Ten Policies
I really like those ten policies that I listed in the guest post. I think that everyone should really consider owning those ten policies. Many people simply do not realize the risks that they are taking by not having adequate coverage.
Do you have flood insurance for example? Did you know that over 30% of all the homes damaged by flooding were not even in a flood zone or plain? That is incredibly sad to see how flood insurance for a home outside of a federally designated flood zone is incredibly inexpensive.
There seems to be a fine balance between not having enough policies and being overinsured.
How many insurance policies do you own? Are ten different types of policies too many? How many different types do you own?
Personally, I don’t think that’s important for everyone to hold every insurance product on the market. The overkill, in my opinion, is when people spend on insurance just for the sake of having it “just in case”. People who don’t have families really don’t need life insurance, the same way people who aren’t near fault lines or flood zones don’t need those coverages. Health, auto, home/renters, disability should be carried by everyone (whether from an employer or on their own), but the rest are pretty subjective and not always beneficial.
Eric,
You have a point to a certain degree. But, both articles point out that over 30% of all flood damaged homes are not even in a flood zone. Flood insurance for homeowners who live outside of a zone is very cheap and may well be worth the purchase. Simply saying that you do not need insurance because you live outside a flood zone may not be the best course of action.
I understand the reported percentages Hank. My issue is still the fact that just because that number may be high to some, it doesn’t mean that everyone should pay for coverage. 30% of the claims may be from outside of the designated zones, but if you look at the number of flood claims versus total insurance claims in those areas, flooding would most likely be a significantly lower cause of damage relative to the total. I just despise the practice of making blanket statements with regards to anything related to investing/insurance/money management, as one statement almost never applies to all cases, which just makes it irresponsible in my opinion, even if it’s just a suggestion and not a sales pitch.
Hank,
Nice post! As a Canadian healthcare worker (public sector), many of these insurances are inlcuded as part of my benefits – even better than what private insurance companies offer. Even private sector employess can have a good benefit package depending on the company. It’s one thing that is different here in Canada. Believe me I don’t take it for granted 🙂
For example, my medical, dental (virtually 100% coverage for basics), and extended health (prescriptions, etc.) are employer covered. There is also basic life, accidental death, and the disability is excellent. Excluding our home insurance, I could probably add some additional life insurance.
If I had to pay for these insurance benefits seperately, it would be several hundred dollars, and I couldn’t even begin to imagine what they would cost in the U.S. Nice post Hank!
Cheers
The Dividend Ninja
I think you present a pretty good argument for the ten insurance products. However I don’t think everyone needs all ten of them. It comes down to personal risk exposure and lifestyle.
Is an umbrella policy nice to have, is it necessary for most people, absolutely not. Flood insurance is essential, unless your location has never flooded, plus only FEMA designated areas can purchase flood policies. LTC insurance has payout caps, limited to 5 years, and only a minute portion of the 70% you mention in your guest post will need the expensive nursing home care. Most people in that 70% group may need a nurse or hom-help to visit them in their own homes once a week. The family members of these people can easily step in to help out, and save the cost of LTC insurance.
It’s very easy to over-insure and many people that visit financial planners are advised to purchase the full suite of products. It’s an impossible situation. If the planner doesn’t recommend the products, they open themselves up to legal action for failing to adequately protect the customer. The customer can refuse, but are forced to sign waivers. They sell a lot of insurance that is never likely to be needed.
I have never really thought about this before. When I think of the insurance we have, all of the plans are necessary. We each have a life insurance plan, car insurance, house insurance, and liability and disability insurance at work. These are all essential.
I think majority of people are on the side of too little insurance. This could be due to the fact that many people are in debt and are busy paying it off. They cannot worry about getting protecting themselves with insurance when they do not have enough savings. For me, I think I am in the middle somewhere. Although I do not have the 10 insurance policies, I do have the important ones.
I had no idea that you could have too much insurance. I’m look into getting homeowners insurance for the first time. I’ll definitely have to make sure I find a policy that works perfectly for me.