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):
- 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).
- 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.
- 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.
- 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.