Insurances – Buy or Ignore?

For most creatives, we’re comfortable working without a net. Many of us have gone months or maybe even years without a stable income. Some are amazingly agile at finding just the right resource at the perfect time. Like a trapeze artist on the high wire, we find a way to make it work.

That’s why the concept of insurance is so foreign to most of us. When you’re a high wire artist, your first thought probably is, “Why waste the money?”

Unfortunately, just because you’re comfortable on the high-financial-wire, those around you may not be. Today’s column is too short to go over ALL of the things you need to know about insurance, but we can cover the basics that most people should know:

Car Insurance: You must have it if you’re driving. If rates are a problem, look online. Many times companies such as Amica, Geico or Progressive will beat traditional insurance firms while keeping the quality of your coverage high.

Tip: Ask for a full list of available discounts. You may qualify for multi-policy, association and safe driver discounts, among others. A friend’s child has good grades in school, so Progressive awarded him a discount when he began driving.

Homeowners/Renters: While it’s the law to have homeowners insurance in most places, many renters avoid rental insurance. Don’t. Homeowners policies don’t cover your belongings. If there’s water damage, a fire or theft, all of your possessions are at risk. Homeowners should choose their deductibles and coverage levels carefully. Only choose a high deductible (the amount you will pay before the insurance company satisfies your claim) if you have an emergency fund.

Tip: Make sure you request replacement value coverage. This ensures that the policy won’t cover only what the item is worth now, but how you use it. With replacement value, your computer, appliances and other electronics will be replaced with new ones, rather than what you would receive for yours at the time of the claim (imagine how little a three year old computer will be worth if you don’t have replacement value coverage!)

Life insurance: Most single people without dependents can ignore life insurance if there aren’t any specific bequests you’d like to gift to others. If you have children or a spouse, calculate how much money they’ll need to satisfy their goals (education, pay off debt or provide an income stream). For most families, term insurance is going to be a good match. Only use a whole life or universal life policy if you think you’ll still need life insurance after age 65 or you have an irregular financial situation, like a large estate.

Tip: Shop life insurances through brokers rather than through captive agents. By asking someone who sells many different companies, you’ll be able to choose a top rated insurer for a lower cost.

Disability insurance: Own it. Your number one asset of all is your ability to earn an income. If that goes away, how will you support yourself? Disability insurance is expensive, but don’t let that deter you. The reason it’s expensive is simple: insurance firms think you’re going to file a claim. Why? They have professional actuaries who know the statistical probability that you’ll use the policy. Sadly, many people end up suffering a disability, which drives premiums up.

Tip: Don’t assume you’re adequately covered because you have disability insurance through a side job. Workplace policies often include caps that limit the amount the policy will pay. Understand what your workplace policy covers before deciding whether to supplement it with your own coverage.

Other insurances: pet, fire, earthquake, etc.: I’ll lump these coverages together because the vast majority of people don’t need them. They cover specific instances which rarely happen to the average person. Plus, many of these are covered in the insurance policy types listed above. I often have people ask me about these insurances and say, “But they’re cheap!” Of course they’re cheap. Remember, insurance companies are in business to make a profit. A policy is only cheap when the company knows they can make an easy buck. Companies price coverage cheaply when they know the chance of having to satisify a claim is low. Instead of buying policies because they’re cheap, think about this through the eyes of the insurance company: the most important types of insurances to own are the most expensive ones. The cheap insurances you should usually avoid because there’s little probability this insurance will ever be used.

That’s my quick-and-dirty look at insurances. Hopefully, you’ll be able to use this list to decide if you need to explore further on any of these areas. If so, don’t be afraid to shoot me an email at I’m always happy to help!