Insurance
It was August 2018, and my life was in flux. Some drama broke out in my work life, I had just gotten back from a Thailand vacation, and I was in need of a job. This is a little uncomfortable for me to retell because of how long the fallout from this period of my life was. That being said, this period has also been a treasure trove of content and learning and development. This is arguably where I got my start in the world as a professional. From 2018-2019 I was a life insurance agent. I worked for one of the best companies in the New York tri-state area, if not the whole of the United States. Ultimately the business model did not lend itself to my success, however, it has made a lasting impression, Life with Ken wouldn’t be a thing without this season of my life, or at least not like it is now, and I am an advocate for personal life insurance.
I am not going to exclusively focus on life insurance (though I will go into more detail about it later on), but I divulge my time in the industry to lay a foundation for this topic. Insurance is a guarantee of compensation or support in the event of a specific loss or damage to something. It’s a product that allows you to be made whole in the event of being deprived of something by a life event. You can ensure almost anything; common types of insurance include life insurance, car insurance, and home insurance.
When you have insurance your insurer or the company that gave you your policy will pay for the cost to have the thing you lost replaced. An insurance company will charge you a premium to have a policy with them and to keep the policy active. A premium is an amount of money you pay monthly or in full in relation to the coverage time period and is determined based on several factors relevant to the type of insurance you get. In most cases insurance is a luxury product. Unless it’s required of you, you don’t fundamentally need it. With a car you typically always need insurance to protect yourself and someone else from damages in the event of an accident. If you’re a renter or pay a mortgage your leaser or lender may require you to have renter’s or homeowner’s insurance, that way you and they are both protected from unforeseen property damages.
The value of insurance is the peace of mind that comes from knowing that you and your things are protected. Insurance claim payouts often come in the form of a check. You receive a cash payment for your loss. That money is supposed to make you whole by being a fill in for the thing you lost and by enabling you to be able to replace that thing. Living is expensive. Everything you need in life costs money. Your average American doesn’t have $400-$600 lying around idle. If you were to incur a loss of thousands of dollars and you were on the hook for all of it, that kind of stress and concern could be unbearable. If you can’t afford to buy a new house without insurance, you may have nowhere to live in the event of a disaster. If you can’t afford a new car, without insurance, you may lose your livelihood on the account of not being able to travel.
Regarding life insurance, it could cost a person around $15,000 for final expenses (funeral and burial or cremation). A survivor of the deceased could also end up having to sort out any bills or expenses the deceased left unpaid. Not to mention the pain and suffering that person dying may cause. Life insurance provides a death benefit (cash payout) on behalf of a covered person who has died. Everyone dies eventually. Being the recipient of a death benefit can greatly change your reality and the legacy of the deceased. When my mother died there was no gravestone placed on her grave. My family couldn’t afford one at the time. If I were to visit my mother’s grave, I’d have to guess and flip a coin to figure out where she is. When my aunt passed, she left me a death benefit. That money went towards me being able to afford to pay for college.
Insurance of any kind can have real life practical implications and potentially insulate you from undue hardships. Life insurance, as is the case with other types of insurance, can also be modified or enhanced. If you work for someone your employer may provide you with life insurance. It’s usually a standard policy with a minimal benefit to cover funeral expenses maybe. When you buy your own insurance, you can sometimes have an option for things called riders. An insurance rider is an add on to an insurance policy that provides additional coverage in various, albeit niche, scenarios. Examples of riders include, cost of living rider, disability rider, return of premium rider, and term insurance and or term conversion rider.
Riders can make an insurance policy a more lucrative investment by providing more types of benefits and payout scenarios. You can also get insurance products like whole life and variable life insurance. Your average life insurance policy is a term policy. A term policy is a cheap policy that costs a negligible amount and covers you for a set period, whether it be 10 or 20 years. A term policy can be valuable if you need or would like some coverage for a specific amount of time. After that time is up however, that policy is gone along with its death benefit. People are attracted to term policies because they cost little and promise a lot. You can get a term policy for $250,000 in a death benefit for a monthly premium around $100 depending on certain criteria.
Brokers who deal in these types of policies exclusively can give the insurance industry a bad name. If you’re a healthy 20-year-old for example, and you get a term policy for 20 years for $40 a month; but the average mortality age for someone in your demographic is 75, unless you are living a hardcore lifestyle, by the age of 40 you just wasted $9,600. Whole life policies are policies that cover your entire life meaning they never expire (so long as you pay your premium). The earlier in life you get one the more affordable it is and the more beneficial it is. Depending on who you get your policy from you can get a whole life policy with cash value. Cash value is money you can borrow from the death benefit.
Let’s say you get a whole life policy that has a $50,000 death benefit. After you pay into it for 10 years, you’re eligible to take out from it $3,000. You can get a check cut for yourself for $3,000 by borrowing against your death benefit. This means you’ll have $3,000 cash, and your death benefit will be reduced to $47,000. If you pay that money back your death benefit goes back up to $50,000, if you don’t, $47,000 is still enough money to cover your final expenses. Also, in certain scenarios your death benefit will increase over time, and as it does so will the policy’s cash value. With a variable product your cash value is invested into stocks and bonds on your behalf; so, your policy’s value increases or decreases with stock market conditions.
At this point there are other insurance-like products that I could go over like annuities and Long-Term Care, but I’ll reserve that right for a different time. One more type of insurance that I want to touch on is health insurance. Health insurance is insurance that covers your medical expenses. You pay a premium to a health insurer, and they cover what it would cost for you to visit a doctor, or go to an emergency room, or get medication. Most developed countries in the world have universal healthcare meaning, taxpayers to a country pay into a healthcare “pool” if you will, where any citizen of that country can seek medical attention without paying out of pocket. America is one of if not the most notable country to not have universal healthcare. So far, the closest thing America has to universal healthcare is Medicare. Medicare is federal health insurance for individuals 65 years or older.
Healthcare is a hot topic in America because fundamentally it doesn’t make sense for the richest country on planet earth to not have healthcare for all its citizens. People who contest that point may say that private healthcare is of a better quality. In America you either must pay for your own healthcare insurance out of pocket, or typically your employer will provide you with health insurance as well. As already mentioned, employer-based insurance can be shotty. Employer healthcare insurance can sometimes be the bare minimum with a co-pay (you pay some money out of pocket when you visit the doctor), only providing coverage for certain kinds of care. America has made strides in healthcare with the passing of the Affordable Care Act or Obamacare in 2010. Obamacare is private public healthcare where you can get healthcare on a marketplace for an affordable cost.
Insurance is a modern civilization creation. 2000+ years ago there was no insurance. People used to be insured by the goodwill of others and or the law, but it wasn’t a nearly $2 trillion industry like it is today. If you died you died and hoped someone would bury you in a rock somewhere. If you lost a possession by natural causes you would hope, pray, and work to get it back. If someone caused you to lose something that person would have to compensate you, or you would just go without it. Insurance is morally fine, the question is, whose responsibility is it? Is prevention of loss your responsibility to secure or is it the responsibility of the group or society that you belong to?
While insurance is valuable, as I mentioned earlier, it is a luxury. A luxury by nature is something that not everyone can afford. While the purpose of a group is to provide a general sense of safety and security, I don’t think the group should be responsible for a person’s personal obligations. That being said, however, governments should also represent their citizens in a way that addresses their needs and concerns. If a citizenry unanimously or plurally wants certain guarantees, then their government should be inclined towards the will of the people. Ultimately, as it relates to your finances, whether you need it or would like to have it, insurance of any kind can be a worthwhile investment for wealth preservation and should be seriously considered in your financial decisions.
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