What Makes Insurance So Important?
There are lots of expenses in life that we deal with. Most of them involve a tangible or useful thing–gas for the car, service for the cell phone, food in the refrigerator. Because these items seem to get more expensive all the time, we are always in pursuit of things that we can eliminate from the budget, and the ones that don’t provide a visible benefit are often at the front of the line for the chopping block.
A good example is insurance. Many of us have put money into insurance for years, if not decades, and often ended up with nothing physical to show for it. We just send our monthly payment on car insurance or homeowners insurance, and otherwise, we feel like we’ve got nothing in return. Once things are paid off, it can be tempting to kick the insurance policies to the curb, or at least to drastically reduce the coverage.
This can be a very costly mistake! While insurance policies occasionally do yield us a financial benefit that covers a loss of some kind, they otherwise don’t provide the type of benefits people expect. What we aren’t taking into consideration in those situations is peace of mind. The reassurance of knowing you have something to help you out in case of a loss is very valuable indeed.
An easy way to frame that is health insurance. Given the importance of preventive health care, the ability to cover routine sick visits, and the high cost of hospitalization and outpatient treatment, most people are easily convinced that health insurance is worthwhile.
As we get older and our bodies deteriorate the need for health insurance becomes clearer. That’s why senior citizens are well-served to investigate the best medicare advantage plans so that they can get the best possible options for their health care coverage. Those options include prescription drug coverage, dental care, vision care, wellness, and many others that can treat conditions as well as helping to prevent or improve them. Balancing the cost of these specific coverages with the needs you have and anticipate having is easy to do with a good plan finder, and it will help you make the best choice.
Note: Medicare Advantage is a type of health insurance that provides coverage within Part C of Medicare in the United States. Medicare Advantage plans pay for managed health care based on a monthly fee per enrollee, rather than on the basis of billing for each medical service provided (fee-for-service, FFS) for unmanaged healthcare services. Most such plans are health maintenance organizations (HMOs) or preferred provider organizations (PPOs). Medicare Advantage plans finance at a minimum the same medical services as “Original Medicare” Parts A and B Medicare finance via fee-for-service. Part C plans, including Medicare Advantage plans, also typically finance additional services, including additional health services, and most importantly include an annual out of pocket (OOP) spend limit not included in Parts A and B. A Medicare Advantage beneficiary must first sign up for both Part A and Part B of Medicare.
Life Insurance
Nothing can replace a father or a mother but what life insurance can do is replace the economic value of a human life.
Homeowners’ Insurance
Homeowners’ insurance is sort of at the other end of the spectrum. If all goes well, our homes are never damaged by fire, flood, earthquake, wind, or lightning. However, it is always a possibility so mortgage lenders require that you have coverage so they won’t get stuck with a few charred timbers and a borrower who skips town. But once the mortgage is paid off, some homeowners consider stopping coverage. Although, it’s understandable that eliminating that mortgage payment plus the monthly insurance cost can create a nice windfall, but it’s important to remember that the end of mortgage payments will make the insurance even more affordable. You should think of insurance as “a small payment now to prevent a possible large payment later”. Imagine, just getting your house paid off and having it destroyed by fire. You would have to start a new mortgage all over again and your Net Worth would instantly drop by the value of your house.
Homeowners are much better off to keep their coverage and simply review it for ways to save. They’ll pocket more money without the worry of what they’d do if the home was destroyed–which goes right back to the peace of mind issue.
Car Insurance
A similar issue is seen with automotive insurance. Most people carry full coverage while they owe money on the car, then drop back to just liability after it’s paid off. If they feel that they can shoulder the cost of repairing the car after an accident for which they’re found at fault, that’s workable.
However, if the car still has most of its value when it is paid off, an accident that “totals” it would cost thousands of dollars in replacement costs. So a high-value vehicle–or an owner who simply doesn’t have cash available–is a situation where full coverage is preferable to saving a little money each month. It’s a very individualized situation that takes a detailed review.
Economizing your personal expenses is always a good idea. It’s worth the effort to clip coupons, to carpool, and to repair instead of replacing. However, there are some things that should be in the budget no matter what, and insurance is one of them. Shop around, make adjustments, and try to lower your risk, but always be sure to get appropriate insurance for your needs.
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