Have we ever thought what would happen financially if we were to get sick or badly injured? Have an expensive car accident or lose our job? Would we be financially ruined? Would we lose everything, our house, our investments, go bankrupt or resort to borrowing money?
What this blog is about
In this steemit blog we will try to cover some foundational principles of security and simple ways we can protect ourselves against "total financial destruction". Now this doesn't mean going out and buying every type of premium insurance for every possible situation but it does mean looking at things in a logical way that maximizes our protection and minimizes our expenses so we find the right balance for our financial situation.
financial crisis in today’s world can be daunting if you don't know what to do
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Things can destroy us financially
• Car accident, excessive damage to property/other people (third party)
• An injury or illness that prevents us from working long term
• Serious health issues that requires expensive treatment
• Natural disaster that completely destroy our home eg. fire or hurricane
• A sudden death (only if we have a partner or kids that depend on us)
What’s not included and why
There are plenty of insurances on the market but we are only going to focus on the absolute essentials (luxury items are not classed essential and will not be covered in this blog).
We want to cover the basics and skip on all the rest and there is a very good reason for this and it’s because we want to maximize our income as much as possible for investing or collecting assets that increase in value over time eg. bitcoins, gold/silver, property, antiques and high interest bank accounts.
For everything else we are going to create 2 emergency saving accounts, these accounts will be used mini emergencies, paying insurance excesses and supplementary income during waiting periods of insurance policies.
1. (Safety Account) - $2000-$4000
The first one will be a mini-emergency account for things like car break downs, dental or small medical emergencies, temporary loss of job, paying off insurances excesses or buying cheap replacement car.
2. (Security Account) - $10,000 or 3 Months of Income
This second account is going to be a temporary income protection account. This is for when something really serious happens like a medical surgery that going to take many months to recovery and it results in us losing our jobs for more than 3 months. This security account will be equal to 3 months’ worth of our regular income.
Insurance Philosophy (high excess = low premiums)
When looking at insurances we want the lowest possible premiums available which mean high excess at the time of making a claim. This is ok because we are only concerned with things can “completely destroy us financially” and besides we have already put away some money for situations rainy days.
It’s important that we maximize our income as much as possible as this money can be used to start working for us rather than us working for money or trading our time for it. Our time is limited and there are only so many hours we can work. Invest, Invest, Invest.
If we don’t have the skills to master money, money will be our master
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Biting the bullet and going ahead with protection
I hope everything has made sense so far, I would like to elaborate more on each section but it’s not worth the risk of potentially boring you to death with details. I don’t have insurance for that but I do for the following and I’ll explain why.
Car Insurance – (3rd Party Liability)
Being a minimalist kind of guy my car value is quite low compared to my friends. I don’t have any fire/theft or comprehensive insurance because I want to keep my premiums down. If my car dies I’m more than happy to buy another cheap one with my emergency account. Besides I’ve never been a fan of collecting “expensive liabilities” (things that decline in value over time).
What we can’t control is the amount of damage the car does to somebody else. If we accidently hit someone it cost hundreds of thousands in compensation. Or what about if we accidently reverse to a brand new Lamborghini and their insurance company wants to sue us for $50,000 just to replace the hood? It’s not a situation we want to find ourselves in.
the evil bankers have lawyers and they are coming for blood
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For this reason we should have 3rd Party Liability Insurance for our car. On selection choose high excess and a once off annual payment to reduce cost. After a bit of Google research I found myself one that cost about $130 USD for the whole year. Winner winner, chicken dinner!
Health Insurance – (Hospital Only)
This is definitely the most expensive insurance and it gets tricky trying to recommend a “type” of health insurance that works for everybody. Now depending on what country/region we live in the government may have a good/bad public system, private or a combination.
We will be only concerned with health issues which can “kill us financially” these are things like cancer, terminal illness, spinal injury or an expensive hip replacement or accidents that prevent us from working for periods of time. If our public health system has a huge waiting list we may want to consider having private if can’t afford to be away from work for too long.
What we don’t need cover for is less expensive items or “alternative extras” like dental and physio for back massages. Pay for them out your own pocket or use the safety/security account if you have to. If you live in Australia like I do, you can probably get away relying on the public system till you are 31 years of age because at that point health insurance gets more expensive as you get older.
At some we will have to move on and look after ourselves
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Assuming we don’t have any special medical needs, we should be selecting a cover that is relative to our age. Get a hospital cover only, choose high excess and co-payments if possible… all this will reduce the premiums and put more money back in our pockets.
Look for health insurance Company that is for “members only” and not a capitalist company on stock exchange that makes money from denying claims. It’s a complete conflict of interest if you ask me.
Income Protection, Death & Home Insurance
Income Protection
• We want a long cover period up to the age of 65
• Long waiting periods of 90 days to reduce premiums
• These premiums should come out of our superannuation to maximize income
There is where our ”Security Account” comes in, having short waiting periods on income protection will drive up premiums dramatically. This is why we need $10,000 saved in a high interest bank account will allow us to survive the 90 day waiting periods without financial destruction.
For example we can get income protection for about $40 USD per month and our $10,000 Security Account pays us $20 in interest every month (3% interest annually). That’s right that $20 pays for half the premiums straight up,
”combining long waiting periods and interest earned we get income protection for price of a coffee once a week.”
In the Face of Death
what would happen to our family when starring death in the face?
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Consider the following;
Death insurance is cheap, starts about $5.00 a month for $100,000 worth of cover
Also can be deducted from superannuation
Make sure you trust your partner with your life O.0
Home Protection
We may want to consider having home protection in case of natural disaster. Would I have contents insurance in case of a break in? No… I would prefer to have a dog and upgrade my locks if I was concerned about theft. Just think of this way, we just need one more additional lock on our door than our neighbour’s door :D
If I think about the contents in my home I probably don’t own a single item over $1,000. After that it would be my dear computer or PlayStation 4, my partner said she paid $2,000 for the washing machine???(I still can’t get it to make sandwiches for me). It sits down stairs open to the public eye and is yet to be stolen…
Maybe a house fire instead? Better get a fire proof safe and put all valuables in there. Everything else is just possessions, it may hurt the “ego of attachment” but we will be financially ok and we will be able to push through it. Try adapting a Zen life and go through the house and purge everything that is not essential or haven’t used for the last 12 months or better yet and have garage sale and get started on the safety and security accounts.
The best protection is free
Being an ethical/moral person is one of the best ways to protect ourselves financially. There was one time in my early 20’s where I got drunk and hit someone in a nightclub and they suffered a serious injury as a result, I was sued for $35,000 for criminal compensation. It was a really big kick in the balls at that time in my life.
So my best advice is to stay true, ethical to ourselves/others and keep the good karma vibes coming in, these days I work in a criminal detention facility and it’s really easy to see the quality of life people have based on their moral choices. We need to keep our intentions pure and conscious clean if we want a good chance at a happy and abundant life.
Picture of myself (Hiking Mountains in New Zealand 2017)
Conclusion
Also Check Out
The Barefoot Investor Survival Guide
Investment Education, Choosing to be a Learner
all written content in this blog is original and created by me.