Initially, just the thought of leaving a gigantic pile of debt behind for my kids to deal with, upon my passing, was giving me goosebumps.
Even though, the kids are older now, they are definitely not prepared to chase rent checks, fix toilets, make sure mortgage payments go through without hiccups, etc. Their current focus is studying and finishing their education.
Since I was freaking out a lot about all the debt I took on, I decided to get some quotes for life insurance. The quote came back at $579 / month, which is almost
SEVEN THOUSAND DOLLARS a year!!!
I was shocked! My husband and I didn't have to think very long to decide that this price is definitely not in our budget. We've been chasing assets, which on average make $200 dollars a month, and are not in a position to set three assets aside to pay for the life insurance. It's just too expensive!
Dangers of Self-Diagnostics: Hire a Professional
Several weeks later, I met an outstanding financial advisor. I attended his talk, read his book, and scheduled a one-on-one consultation. It turned out that I was looking at insurance completely backwards!Instead of consulting someone knowledgeable and experienced and letting them guide me, I rushed to a decision. I had self-diagnosed my insurance problems and self-assigned a cure: that I must buy a huge coverage policy to pay off all my debt immediately, the moment something happens to me or my husband. Then I discovered that the huge policy was too expensive and left myself and my family in the same risky situation of not having a contingency plan in place.
Only after I talked to a real guru, I realized how much difference knowledge makes. There's a reason we have professionals who know exactly what they are doing! It's a shame I thought for a brief moment, I knew anything about insurance.
Lessons Learned
1) Start by Educating Yourself and/or Hire a Professional
Whenever you do anything for the very first time, it pays off to spend time on education and find experienced professionals who specialize in the field.
Having read the book by my advisor, I got a good initial understanding of key terminology and common problems, solutions, and use cases around insurance. This helped me ask good questions during my one-on-one consultation and discover what my personal insurance needs are.
2) Understand Your Own Needs
Surprise, surprise! After understanding how insurance works and what options would be suitable in my situation, I discovered that I don't need a huge policy to cover all my debt. It just doesn't make any sense. No wonder that would cost a fortune!
Instead, I realized that my needs are completely different. For example:
- Be able to stay home for a few months, if one of our family members gets sick
- Survive a sudden income interruption, in case my husband has to take a break from work
- Have a sufficient emergency fund to avoid a fire-sale of one or more assets
- Ensure that our kids finish their education, no matter what
- Establish a detailed plan for our executors and get their agreement on this.
What I realized is that insurance is NOT a lottery. There's no need to buy millions of dollars of insurance. All you need is sufficient to go through a life change without sacrificing your future financial and emotional stability.
Make sure you have enough for you and the rest of the family to still have your lives, businesses, and routine to come back to, after the storm is over, and carry on from where you've left off.
3) Understand Your Family Needs
It was interesting to me to work with my husband. During needs analysis, we drafted his and my estates. This means that we looked at:
- what my husband will need, should I become disabled or die; and
- what I'll need in case he dies or gets sick.
I'm actually a lot more demanding aka vulnerable at the moment, because my husband covers most of our day-to-day bills, while I work on building our future wealth.
In other words, a brief interruption to my husband's work schedule, would cause a sudden financial shock to the family. While if I am out of pocket for a few months, no major collapse would happen. In this case, we'd just need to adjust our long term strategy.
With this in mind, as of now, my estate needs to be insured at a lower amount, compared to my husband's.
With this in mind, as of now, my estate needs to be insured at a lower amount, compared to my husband's.
Being Prepared Feels Great!
Even though it sounds very creepy to be discussing in so much detail what will happen when one of us gets sick or dies, I feel great having gone through this discussion!
Here are some of my take aways:
- Statistically, the chances of being out of pocket are pretty high!
- Basically, almost everyone will be sick in the next 10-20 years. So it helps to plan ahead how to afford to stay home while you recover and/or stay home with a sick relative.
- Dying is easier than being sick. Sickness is hard on the person recovering and those who take care of him or her.
- If you plan your insurance coverage well, you'll have a much higher chance to weather a storm and reach your long term goals after it.
Being prepared feels great! If you'd like a referral to the awesome financial advisor I'm working with, ping me and I'll connect you. No obligations and no referral bonuses for me! I honestly think it's super helpful to know more about this stuff and make educated decisions about how to best protect yourself and your loved ones.
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