For most types of insurance, we are thinking about protecting others and removing ourselves from the liability of other’s harm. It’s not about a big payout for us, it’s about preventing a big payout from us.
Insurance is often viewed as protection for us and our possessions, but the true goal of purchasing insurance is often to protect others because that’s where the larger liability lies. So much so that we have started to address it from a societal standpoint and many types of insurance aren’t optional:
- Some insurance is legally required. Car insurance is required if you want to drive. The liability to the other parties is so large that as a society we decided to make it mandatory so it would be less likely for someone to have no recourse after a bad accident. The cost of replacing the car is less substantial than the damage that could be caused to another driver.
- Some insurance is not legally required, but mostly unavoidable. Homeowner’s insurance is not required in any state, however most lenders will require that you show proof of a homeowner’s policy in order to take out the mortgage. If you lapse your policy, your lending institution may be able to purchase insurance for you and charge it to you based on the existing mortgage agreement. As a stakeholder in your home, they need to protect the asset and liability that could come from injury on it.
Who is liable for me when something happens? Will someone else’s insurance cover that?
We all take personal responsibility for ourselves, so unless the other person is responsible for that harm you will be liable for yourself. That’s actually a very large liability, and one that many people overlook.
Imagine that you had a magic toaster, and every morning you wake up and go to make breakfast, it launches out $100 at you instead of toast. That would be a wonderful toaster, but you may fear that one day it’ll break down and there’s no one that can repair this unique amazing toaster. So much for the goose that laid the golden egg.
Now imagine that there was a technician that said if that toaster breaks, I’ll keep paying you the $100 each day, but in return, you must give me $5 each day out of that $100 you receive. Does that sound like a good deal?
Although no one’s job is as easy as picking up cash that gets spit out of a toaster, everyone who is working is producing income for themselves and their families. Every day you launch into your job and create value and make money, even if it’s not spit out of a toaster, and people don’t come with a warranty. However, we’re often the last to look after ourselves, and so overlook the insurance that has to do with us not being able to continue. Insurance such as life insurance, long-term care insurance, and disability insurance.
These insurances are personal, not legally required, but still advisable.
There is no legal mandate or penalty for taking out life insurance; however, the liability of not having the primary earner continue to provide for their spouse or children is substantial. It is one of the largest losses that can occur, especially when younger, is becoming less optional in the minds of many.
Should an accident happen that prevents you from working, disability insurance could provide a continued income. It could be an inexpensive short-term policy that steps in as you recover, or you could have a policy that lasts for the rest of your life. Especially if you’re younger, the longer-term policy may represent a very large sum that would be required for continued care over many years.
It’s not only death and taxes that are certainties in this life, but that we are constantly aging as well. Tomorrow always comes, even if we yearn to return to yesterday. As our age rises, so do our healthcare costs. We don’t realize how valuable we are to ourselves, so when we need to export that care from ourselves to another it’s hard to see that cost coming. A long-term care insurance policy can help pay nursing home or assisted living costs, or even costs incurred when you are disabled and confined to your home. This means that you’ll be able to maintain more of your independence and dignity, preserve more assets to distribute as you see fit, and avoid familial anxiety regarding who is going to take care of you.
When assessing all the different types of liabilities that you and your family are facing, it can be helpful to speak to a client advisor, such as those at Arvest Wealth Management. They will be able to help you develop objectives, assess your resources, and identify which insurance choices may be best for you and your family.
This content has been prepared by The Merrill Anderson Company and is intended as a general guideline.
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