I was introduced to the importance of insurance and different insurance types through the excellent book Retire Inspired by Chris Hogan, who is a protege of Dave Ramsey (you will be familiar with his name if you’ve read the getting out of debt part of this website). Here is a list of the 6 major types of insurance you should have to protect your hard earned money draining out due to accidents, sickness, disability, death, and unforeseen circumstances.
Home or Renters Insurance
Renters insurance not only covers your possessions within your apartment, but also personal liability, and in some cases identity theft too. Renters Insurance is very affordable with the average costing around $14/mo (read more about Renters Insurance here), and is available from most major insurance companies such as Geico, Progressive, Allstate, Assurant, etc…
For Washington State make sure to specifically get earthquake coverage. And check your policy regarding flooding and water damage, such as if a pipe or water heater beaks or floods; or if your neighbor overfills the tub/sink and it leaks into your apartment, etc…
For home owners, insurance is often required to be able to buy a home in the first place. To protect your home the following “emergency preparedness,” is recommended (from Kin website):
Homeowners don’t want bad things to happen to their houses because they’re expensive, sad, and a pain to deal with. Insurance companies also don’t want bad things to happen because bad things cost them money.
That’s why a lot of insurance carriers offer lower premiums for homeowners who mitigate their risk. Risk mitigation might involve:
– Having a smoke alarm with working batteries.
– Having a fire extinguisher.
– Living near a fire department.
– Having a home security system.
– Having a carbon monoxide detector.
– Maintaining plumbing and sprinkler systems.
A quarter of claims are due to water damage from burst pipes or leaking appliances. The average cost for these claims is $10,000. 65% of claims are from wind, hail, lightning, or fire damage. Even if the event damaging your house is not large, the likelihood of needing insurance is:
Miscellaneous property damage can take a million forms: a tree falling through your roof, a baseball shattering your window, a trash truck backing into your brand-new garage. Because of the sheer variety here, the average cost of these types of claims isn’t too informative. But for the record, it’s $6,598. (Again for the rest of the article, you can read it HERE).
Auto Insurance
Most dealerships will not allow you to buy a car without auto insurance. Make sure to have copies/ proof of insurance either in your car or on your mobile App. Be familiar with how to initiate a claim after an accident, so you do not have to figure it out in the stress of just being hit, etc… Know who, if any, are insured to drive your vehicle aside from you.
Medical Insurance
Medical Insurance is often part of the benefits package when employed. Washington State law under the Affordable Care Act (ACA) states that employers with over 50 employees have to provide medical insurance to its employees.
You can also buy a medical insurance plan – either temporary or long-term. Health insurance may seem expensive, but it’s more expensive not to have it. For example – get a case of appendicitis and have to have your appendix out (appendectomy) – an average bill would be around $18,000. Need to visit the Emergency Room – average cost per visit $500.
Medicaid – this is government issued healthcare insurance for those with low income or other special circumstances. In Washington state, Medicaid is also called Apple Health. If you are having a hard time obtaining health insurance please check their requirements and/or apply online.
Major hospitals also have financial advisors that can help. Washington State requires all hospitals to provide financial assistance (aka Charity Care or writing off expenses) to people and families who meet certain income requirements. You may qualify for financial assistance based on your family size and income, even if you have health insurance. Assistance is awarded if you meet the financial assistance guidelines which includes your household income is 300% or less of the federal poverty level. Charity Care/Financial Assistance coverage often follows similar coverage rules to Medicare.
Those covered by hospital financial assistance/ charity care are often too poor to afford Medicaid payments and/or are not legal citizens, and thus not able to obtain government healthcare. For King County, Harborview Medical Center has the, “mission mandate,” to serve the underserved populations including specializing in serving those with low to no income. Click HERE for UW Medicine Financial Care Assistance Application online.
Medicare is government issued healthcare insurance for those 65 and older unless you are on disability (SSI). There are 4 main plans and you can have more than one coverage plan. Each plan is assigned a letter (example: Medicare Part A, Medicare Part B, etc…).
Medigap – Medicare doesn’t cover everything. Most notably, glasses, contacts, hearing aids, dental care, and long-term care, such as in a nursing home. You can purchase a Medicare supplemental insurance through a third-party provider to help cover some of these gaps.
“It’s important to enroll in a Medigap plan during the six-month period that begins when you’re 65 or older and enrolled in Part B, because after this enrollment period ends, you may not be able to buy a Medigap policy or could be charged significantly more.” (Read more about Medicare here)
Long-term Care Insurance (LTCi)
Long-term Care Insurance (LTCi) is specifically designed to cover nursing home or in-home care, and is different than disability insurance (see below). The cost for long-term care in Washington state averages to $130,000 per year (private room).
You can purchase stand-alone LTCi or look into getting a rider, or add on, of LTCi to your Life Insurance policy. Contact your financial advisor or life insurance company to further discuss.
Washington Cares Fund: Washington State is putting into law a 0.58% payroll tax (anyone with a W22) for LTCi that has quite a lot of conditions on it, and only provides a benefit of about a third of the cost needed to cover a long-term care need. This is also conditional upon working years in Washington to be vested and retiring in Washington State. There is a one-time opt-out period if you can show you have your own LTCi coverage in place prior to 01 November 2021.
Long-term Disability Insurance (LTDi)
Long-term Disability Insurance (LTDi) helps provides income if you are not able to work for an extended period of time due to accident, illness, or disability. How long you have to be “out” before it kicks in depends on your policy. 60-90-120 days are common. Depending on what policy you choose, LTDi can replace 60-80% of your usual income month-to-month. Your plan also dictates how long LTDi will cover you. If you are the only breadwinner for your household, consider insuring that asset and purchasing LTDi.
Note that if you are injured at the workplace, then a Labor and Industries (L&I) claim should be filed to help cover medical costs. If you are injured at work make sure to get medical care and tell your employer.
Life Insurance
Let’s talk Life Insurance. Sometimes part of a work benefit package includes life insurance. How do you know you have enough life insurance? A rough rule of thumb is 10 times your income minus your current liquid assets, such as what’s in your savings or emergency fund account.
There are other items that can be wrapped into life insurance policies, such as Long Term Care Insurance (LTCi). Some Life Insurance policies can also be used as a type of long-term investment. There are many types of life insurance and working with a financial advisor is a good way to navigate all the choices.
Be Prepared Seattle 