The benefit of insurance

Doug Horn

The cost to own a home is not just the mortgage payment. And for the business person, there are more costs to running a business than just the cost of its inventory. When budgets are stained due to less income or when expenses are increasing faster than the income, the natural thing we all do is evaluate where the money is currently going and then determine which items can be reduced or eliminated.

An area of expense where reduction or elimination should be done with extreme caution is insurance. The sole purpose of insurance is to protect the insured against a financial loss that cannot be covered out of cash flow or easily from reserves. Today, almost anything can be insured including pets. For individuals, the basic four that come to mind are home, auto, health, and life. For renters instead of homeowner’s coverage, most companies offer a plan for those who rent their homes. However, it does not stop here.

Before I go any further though, it can be easy to become insurance poor. That is not the objective and if it begins to feel that way, an evaluation of benefits, costs, and the value of the assets protected should be completed.

Flood insurance coverage should be considered by those living near a lake, river, or in a floodplain. Similarly, earthquake insurance should be added to the policy if the property is on or near a fault. In both of these cases, the probability of an event occurring should be considered and be a part of the decision to purchase coverage or self-insure. Be sure to remember, not all floods come from rivers and lakes. Poor drainage and a drenching rain or a water-main breaking can cause flood damage too.

In addition to these coverages, individuals should consider disability insurance and then adding or transitioning to long term care coverage as they approach their sixties. The cost of this protection can add up over time. While many individuals or businesses may never place a claim, the ability to sleep worry-free because the protection is there may be sufficient benefit.

There are ways to have this coverage but reduce the costs. Most policies have a number of features that can be included with the policy or left off. Additionally, the amount of coverage or the deductible can be tailored to meet specific needs and thus may reduce the cost of the plan. While paying for damages is never enjoyable, and depending upon the amount of damage, it can create a financial hardship that could be difficult to recover from. Thus, keeping insurance in place but designing the policy to protect against the more catastrophic occurrences will permit the insured to avoid financial ruin, although the insured will still be responsible for the smaller events.

Once the design of a policy has provided the lowest cost for the specified coverage, it never hurts to obtain competitive quotes. Insurance is one of those products whose costs generally increase year after year. And if it goes unchecked, the current premium could be ten to fifteen percent higher than a comparable carrier’s plan.

Property damage, a disability, or a premature death does not always happen to the other person. ABC’s program Extreme Makeover: Home Edition is generally about a family who has incurred a loss and there was not sufficient life insurance or an extreme illness and the health insurance was inadequate or not in place. Clearly, each story is tragic and it is wonderful that each of these lives can be at least partially mended with a new home. But, had there been adequate insurance in place, perhaps these families could have avoided the extreme financial hardship and managed without the benefit from the television program.

For assistance with portfolio allocations, insurance, estate planning, or investment management contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.

© 2011 All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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