Month: April 2016

In finance, holding a long position means you profit if a security you own goes up.  By contrast, holding a long position means you lose if the value of the security goes down.

Admittedly not exactly the same, but I like to generally use the long-position analogy to refer to your ability to earn an income, to the value of your tangible assets, and to the preservation of your net worth. You’re financially probably all good if your income rises, or your tangible assets remain intact, or your net worth isn’t attacked in a lawsuit.  So you hold “long” positions in those elements of your financial status (to be clear, those things are not securities and this is just an analogy).

If you no longer had the ability to bring home a paycheck, or you lost your tangible assets to an unfortunate event, or you owed someone money because of a lawsuit, that “long” position means you’ve just lost to an occurrence you didn’t prepare for.

Insurance works similar to any other financial product that aims to limit the impact of certain risks to your financial position.  It’s not a short because there’s no profiting from insurance, but it’s predictably able to reduce the consequence of loss on “long” positions.  My point is that the smartest consumers think of their insurance this way because it defines the scope of how they make their insurance-buying decisions.

I’m a little squeamish about telling insurance horror stories because trying to motivate thru fear isn’t cool.  Unfortunately, bad things do happen and giving real-life examples of everyday scenarios that put wealth at risk can be a good counterpoint to apathy and an unwillingness to believe that anything bad will ever happen.

So here are just three actual claims where, had the families not carried a sufficient umbrella, they’d be liquidating other assets to satisfy a judgement of negligence.

A babysitter left a 5 month old infant unattended in a walker. The infant toppled the walker, struck her head on the floor and suffered brain damage. The parents of the infant sued the teenage babysitter and her parents. The court awarded the infant’s parents $11,000,000.

An insured’s daughter hated math class as well as the teacher. The daughter made several “disparaging” and false remarks about her teacher online. The teacher sued the parents for personal injury and $750,000 was paid.

The insured’s tenant claims she became ill from carbon monoxide poisoning resulting from a faulty furnace. The tenant claimed permanent brain damage and demanded $750,000.