How to Buy Insurance

I recently ran across a copy of a letter in my files dated October 1991. Although it’s been more than ten years, it is still one of the most impassioned letters I have ever written. I sent it to one of my closest associates pleading with him to pay attention to his health insurance needs. At the time Jeff had just dodged a bullet that could have cost him his life. His father had died of cancer a few years earlier, and it had appeared that the son also might have the disease. Thankfully, Jeff got good news. But through the ordeal, it became obvious that he did not have adequate health coverage.

Because of the closeness of our families, I decided to write Jeff urging him to get the insurance as soon as possible. He needed the protection not only for himself, but also for his wife and three children. As one who battled heart disease, I was convinced that having proper health coverage was one of the most important acts of love Jeff could show his family. I had personal experience with the high cost of medical care, and the difficulty of getting good coverage after an illness is diagnosed. Thankfully, Jeff decided to buy the insurance he needed.

The Philosophical Question

If I were writing primarily to a secular audience, I probably wouldn’t include this section. However, because of the Christian worldview many of us hold, I want to address the issue of buying insurance and its relationship in trusting God to provide.

I still remember a Christian radio program I heard a number of years ago. On this particular day the host was visiting with an evangelist who traveled the country preaching the Good News of Jesus. While I admired much of what he had to say, I was really disappointed by part of his presentation. At one point in the conversation he began to brag about the fact that he carried no health insurance and that he simply trusted God to provide. With that, he told a story about some health expenses that his family had incurred, and then, gleefully told about how other Christians had paid their bills.

Boy, that fried me! Didn’t this good man know about the Biblical mandate to care for one’s own family? Also, what about his witness to the outside world? What does this say about a Christian’s sense of duty and responsibility?

I realize that there are those who differ with me on this point. Some people feel that it is more spiritual simply to trust God to provide rather than to depend on the “devices of man.” But I find it curious that these same people are often willing to accept the devices of other men when they can’t afford to pay their own bills. It is also interesting to me that some of these same people are willing to selectively use other “devices of men” like locks on their doors, seatbelts, and so forth.

I wonder if what presents itself as a form of super spirituality isn’t sometimes something else. At best, it may simply be a misunderstanding of faith. And, at worst, it is an irresponsible refusal to accept the appropriate (and, even God-ordained) responsibility that comes with the headship of a home.

Our Goal

We are going to look at some of the basic types of insurance: life, health, homeowners, auto, etc. My goal is to give you a broad overview of these primary insurance products. Of course, there are other types of insurance that may be appropriate for you. For instance, I believe that most employed people should consider disability coverage. And, as we reach middle age and beyond, long-term care insurance may be a viable consideration.

When it comes to insurance, there is not a one-size-fits-all approach that’s right for everyone. My goal here is to open your eyes to the benefits of insurance so you will be encouraged to learn more. Remember—knowledge is power. The more you know about insurance and your coverage options the better able you will be to protect your family from unforeseen loss. Like the insurance people say, insurance isn’t just for the living—it’s also for those who are left behind.

Life Insurance

Experts tell us that most people don’t have nearly enough life insurance protection. In America only 45% of all adults have individual life insurance, and of those who do—over 65% are woefully under-insured. I believe that a lot of this has to do with confusion about what life insurance does and what it cost. And, in many cases the folks who sell life insurance are a big part of the problem. Most of us would rather take a bullet to the head than to be locked in a room with an insurance salesman. But a little bit of education can go a long way here.

To begin with, you need to understand that life insurance falls into two very broad categories: Whole and term. For as long as they have both been around, there has been a debate over which is the best. Let’s take a snapshot of both types of coverage:

Whole Life Insurance, also known as permanent insurance, is designed to give an individual coverage throughout life assuming premium payments are made properly and other provisions are followed. When an individual buys a whole life policy he pays a regular premium and gets the promise of a certain amount of money payable upon his death. Whole life cost more than term for a comparable amount of coverage because the premium you pay for whole life covers two expenses—the actual insurance protection itself as well as a separate cash account that is expected to grow over time. Some of the earnings that an insurance company makes (over those needed to pay the death benefit) are put into the policy’s cash value account, which the policy holder can borrow from, use to pay the premiums, withdraw, or allow to accumulate for retirement or other purposes.

Much of the debate revolves around the actual value of this cash account. Some experts argue that whole life makes better sense only if one plans to keep the policy for over twenty years. They explain that high front-end costs and commissions make whole life terribly expensive unless the cash value is given time to grow and increase in value. Other experts in the field make the case that whole life cash value growth is often paltry compared to many other investment options, and almost never makes good financial sense.

Term Life Insurance is the other broad category of life insurance. Frequently referred to as “pure insurance protection,” term insurance doesn’t include the cash value feature that distinguishes whole life. Accordingly, term is usually significantly less expensive than the same amount of whole life coverage. This form of insurance covers you for a specified period of time (often 10, 20 or 30 years), and then it expires. If you are still alive, you get no money.

In recent years there have been a number of changes (better term life products, a generally more astute public, and a greater assortment of investing options) that have diminished the appeal of traditional whole life insurance for many people. In my judgment, term insurance is the way to go for most people. I see the purpose of life insurance to be just that—to insure a person’s life, nothing more and nothing less. I prefer to do my investing separately. The old adage, “buy term and invest the rest,” is usually good advice. Granted, it requires a little more discipline to send a second check to a brokerage house, mutual fund, or other investment. But, many people feel that the rewards greatly outweigh the extra effort.

I like to tell people that there are at least 3 important things to look for in a term life insurance policy. The book No Debt No Sweat! discusses all 3 of these elements. It also covers a number of other points that can save you a lot of money and possible disappointment:

• Do Unemployed Mothers Need Life Insurance?
• The Different Types of Health Insurance Policies & How They Work
• What To Lookout For With Homeowners Insurance
• Preparing for the Worst
• A Word To Renters: What You Need To Know About Insurance
• Auto Insurance: How It Works & How To Find The Best Deal
• Six Basic Parts of An Auto Policy
• Money Saving Pointers
• Lookout! Not All Insurance Companies Are Created Equal
• How To Find Out If Your Insurance Company Is Safe

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