My Personal Insurance Priorities

I consider my insurance the defense of my financial plan.  I think of the ways my financial plan could be derailed, and then I look for the ones that would have the greatest impact and I buy insurance to fund the consequence of that loss.  So here are my insurance priorities (in order):

  1. Income – my future plans depend on me making an income, so I am most concerned about replacing it if I can’t work.  So I have really good life insurance and disability insurance (an individual policy that I control, NOT a group/employer plan).
  2. Health – The most frustrating insurance I own is my health insurance.  Expensive, confusing, and limited in coverage, I still consider this the second most important policy I own.
  3. Lawsuit – I used to manage the handling and resolution of tort-related lawsuits, so I am well-qualified to say that they are expensive, long, stressful, and affect every part of your life.  So I have significant protection against allegations of negligence in the form of an excess liability (umbrella) policy.  It also protects me the same way if someone injures me or my family (excess 3rd-party liability).  I also hold two very large liability policies for my business, primarily so that lawsuits don’t interfere with priority #1 above – keeping the income coming.
  4. Real Estate – Second to my business, real estate is a large single-asset holding and if something happened to it, I’d want it restored back to the way (and value) it was.  I have a full replacement guarantee on my home with no reconstruction limit, and I have unlimited coverage for additional living expenses for the time it’s likely to take to get it rebuilt.

When I design my own insurance, I keep these four priorities in the forefront and everything else matters very little to me.  I keep high deductibles because I’d rather fund my smaller losses with my own $1 than pay an insurance company $1.30 to do what I can do.  I choose my insurance company based on 1) the quality of the contract, 2) their reputation and passion toward claim resolution, and 3) their track record of consistency across all aspects of their company in doing what they say they will do.

Auto Premiums Still Rising

Auto insurance premiums have jumped significantly, and that trend will continue.  For probably quite awhile.  And probably in large numbers.

The insurance industry has credible evidence to support an increase in premiums.  The biggest impact is that cars are so much more expensive to repair these days.  It’s the gadgetry, most of which is meant to keep us safer.  Just like crumple zones many years ago helped keep passengers safe, innovations in technology that help to reduce the frequency and severity of passenger injuries are pricey to fix.

Many cars these days have automated systems that sense traffic around them and can drive, stop, and change lanes without driver input.  But when those sensors are damaged in an accident, the liability for correctly replacing and reprogramming those systems are extremely high because so much depends on getting it done right.  And when there’s liability for doing it wrong, there are high costs associated (mainly to buy insurance for the inevitable lawsuit down the road).

We had a client with front-bumper damage to a Tesla which in the “old days” (2 years ago) probably would’ve cost about $10,000 to fix, but they had the entire $95,000 car totaled because the sensor that read for forward obstacles was damaged and no one would/could repair it.  And since the whole concept of insurance is that neighbors pay for their peers’ losses, all insurance premiums have increased substantially to account for these realities.

This feels especially acute because of the rapid rise in consumer acceptance of this technology.  This hasn’t been a slow boil, but a rapid social change and it’s likely here to stay.  Even as driverless cars begin to enter the market, there will be accidents, and we’ll see auto premiums for those who drive their own cars have to respond.  If there are fewer car owners, there will be fewer people to whom the risk can be spread, leaving the supply of insurance-loss funders (policyholders) in shorter supply.  This will mean even higher premiums.