Clouded Insurance Quandaries Revealed

Dear Rich Lifer,

I was in New York City this week for the 2019 Paradigm Press Summit, where I delivered a presentation on my current market outlook and some of my favorite investment ideas for the upcoming year.

The biggest one has to do with insurance.

But I’m not about to steal my own thunder or even give you a synopsis of the speech right now. You’ll have to wait for access to the recording of the event if you didn’t watch it live to learn more about that particular recommendation.

For now, to whet your appetite, I’m going to answer several other big questions I get regarding the topic.

Let’s start with a really popular one …

Question 1

“Isn’t it simply better to forgo an insurance policy whenever you can afford to self insure?”

I think it’s safe to say that most of us generally hate paying insurance premiums or dealing with insurance companies at all.

I almost always recommend declining things like rental car insurance as long as you’re covered by your regular carrier and/or a credit card.

Likewise, I universally avoid things like item-specific insurance offered by retailers, cell phone companies, appliance sellers, etc.

And even in the major categories, you may be able to avoid having a policy.

Whether that makes sense for you depends on a number of financial and “mental comfort” factors.

For example, I know some people who own vacation homes outright and have decided not to carry homeowners insurance. That provides great savings every year … until a hurricane rips through town and they can’t afford to rebuild their dwelling.

Meanwhile, you MUST carry at least some liability coverage on your car. But many folks go without collision or comprehensive insurance on older vehicles that are paid off and not worth much money. That can be a very sound strategy … especially if you sock away the difference in premiums.

My broad recommendation is always trying to balance the value of your assets against the potential risks.

Just remember that although catastrophes are rare, they DO happen.

Case in point: Several years ago, a house two doors up from mine burned to the ground!

Question 2

“What about life insurance? Do you typically recommend it?”

Again, it depends on your age and personal circumstances.

I actually resisted getting life insurance for many years.

However, once my daughter was born I decided to get a simple term policy that would provide enough money for my wife to pay off all our outstanding debt and transition into a “life without Nilus.”

Given my age and good health when I bought the policy, the annual premium isn’t all that much and the peace of mind it provides my family is worth it.

A lot of folks also sing the praises of more complicated policies – such as whole life or variable life.

I recognize that those types of policies CAN benefit certain people, too. But given all the terms, fees, and other variables involved, I recommend doing A LOT of research before you jump into anything beyond basic term life insurance.

Speaking of research, here’s a topic that a lot of people ask about …

Question 3

“For car insurance, what’s the difference between full tort and limited tort?”

Some states give you the option to select either “full tort” or “limited tort” policies.

The simple way to explain the difference …

Full tort preserves your ability to sue anyone in any situation.

In contrast, limited tort policies essentially limit your ability to sue for anything above and beyond standard costs – in other words, nothing for “pain and suffering.” The only exceptions are really severe instances … such as an accident resulting in death or a drunk driving case.

From my own shopping experience when I lived in a state that offered buyers both choices, full tort might boost your annual premiums by 10% to 30%.

That’s because insurance companies really want you to choose limited tort. It saves them headaches and it saves their industry a ton of money.

Meanwhile, most lawyers emphatically recommend keeping full tort.

In the end, only you can decide which option makes the most sense. And that answer may also change along with your family’s circumstances.

Last but not least, here’s an interesting question that someone asked me when I last wrote about shopping around for car insurance (a task I recommend doing regularly and need to perform again myself very soon)…

Question 4

“Did anything really surprise you or catch you off guard while you were checking various quotes?”

For starters, the massive pricing discrepancies I found across different carriers for the same coverage basic terms!

On top of that, my car insurance company offered a very interesting proposal.

Essentially, they were willing to apply a discount to my quote if I agreed to have a monitoring device installed in my car. This device would feed them information about my driving habits – including how hard I applied the brakes. I assume it would have also monitored speeds travelled and other data points.

That wasn’t something I was willing to do. But it certainly gives us a sense of how technology might shape insurance in the future!

To a richer life,

Nilus Mattive

Nilus Mattive

The Daily Reckoning