One of the topics during the June Meetup was insurance. What insurance do you need? Or can you go without? An interesting debate.
The question turns around the following: What insurance do you need as a couple when you know you can live of just one salary? This thus means that your life is organised in a frugal way so that you live life way below your current double income. On top of that, you have a nice emergency fund.
There are multiple insurances to consider. Let us focus on just two: health and housing.
As health can not be predicted, I want to be sure that the worst case events (black swan events) will not wipe us out financially. This means that I look for an insurance that covers me in case of a sudden health problem, accidents and chronicle diseases.
Even when you can live of one salary now, that does not mean you can live of one salary when one partner becomes ill, needs a lot of care and maybe in need of expensive treatments. Imagine that the healthy partner needs to take a work break to take care of the sick one, or that expenses double, because of treatment. I do not want that to screw up our FIRE.
So, being well covered here is a must. In some countries, you can pick a health insurance with a deductible. Playing around with this deductible can impact the premium a lot. I think it is worth exploring that. In Belgium, a big impact is the choice for a shared room or a private room. To keep costs down, I do not mind sharing a room while in the hospital.
This one is a double insurance.
First, there is damage to your house due to fire, burglars, nature. As this can be very expensive events, worst case requiring a rebuild of the house, I want to be protected against that.
One item to consider is the amount of insurance you want for the items in your house. This could impact the insurance premium. Often, FIRE people have not a lot of interest in material possession, so this could be a savings area.
Secondly, there is the damage your house can do to others? Really…?!? Imagine a storm and a part of the roof flies away and hits someone. I do not want to pay for that!
Insurance for us must be there to cover the black swan events that happen rarely and have a destructive impact on your FIRE plan. That is why I foresee budget for that in our FIRE plan. I can not get a reasonable insurance against a market crash or the sequence of return risk, I can get insurance for some other events. A low risk approach here as my preference. When you look around and compare, you might find the parameters that drive the price and take an educated decision on these ones.
How do you feel about insurance?
4 thoughts on “How much insurance we need.”
Well, we were glad we have travel insurance. As all our luggage had been stolen on our holiday we had a claim of several thousands of euro’s which were refunded without a problem. Since I travel quite a lot for my work I wouldn’t go without a travel insurance, so that’s a must for me too. Furthermore, it isn’t allowed to drive a car without a minimum insurance here in Holland.
Health insurance in mandatory in the Netherlands, so It’s not even an option to not insure.
As to the house(s), yup, definitely one to have! Car insurance (if you have one) is also mandatory.
And don’t forget personal liability insurance with coverage to €1- €2M, definitely one to have too.
The rest is pretty much optional, like you already indicate.
In a way you can gain insurance against a market crash, but it’s at the cost of investing in safer assets. The lost ‘opportunity cost’ of the riskier investments can be considered the insurance premium being paid.
I’m in the middle of changing my insurance (home / auto / umbrella – personal liability) too because the prices have gone crazy. But hopefully the payments will come down to more reasonable amounts when the dust settles.
Health insurance is foremost, ’cause some health issues can wipe you out financially! Car insurance is important, too, especially liability insurance. And, home insurance, especially if you have a mortgage, is crucial, too.
Accepting larger deductibles is a good way to save, especially if you’ve built up a solid emergency fund.
Another idea is to save the difference (due to having larger deductibles) and boost your emergency fund in case you have to cover a large deductible payment.