Module 8: Insurance Essentials

Protecting Yourself from Financial Disasters

Introduction

Welcome to Module 8! Let's talk about insurance – probably the least exciting part of personal finance, but one of the most important.

Here's the reality: You can do everything right – save diligently, invest wisely, pay off debt – and one uninsured disaster can wipe it all out. A major car accident. A house fire. A serious illness. These events can bankrupt you without proper insurance.

Insurance is your financial safety net for the truly catastrophic events that your emergency fund can't cover. It's how you protect everything you're building.

In this module, we'll cover:

Why insurance matters (real stories)
Types of insurance you actually need
Understanding coverage, premiums, and deductibles
How to shop for insurance smartly
Insurance you probably DON'T need
When to say no to insurance salespeople

Think of insurance as paying a small amount now to prevent financial devastation later. Let's make sure you're properly protected!

Part 1: Why Insurance Matters

The Reality of Uninsured Disasters

Medical bankruptcy:

66% of bankruptcies in the US involve medical issues
Even with insurance, major illness can cost hundreds of thousands
Without insurance? Life-destroying debt

Real example:

Sarah, 32, no health insurance
Appendicitis → emergency surgery
Bill: $45,000
Declared bankruptcy, credit destroyed for 7 years

vs.

John, 33, has health insurance
Same appendicitis and surgery
Out-of-pocket: $3,000 (deductible)
Insurance paid: $42,000
Life continues normally

That's a $42,000 difference.

The Cost of No Insurance

Without car insurance:

At-fault accident causing injury
Medical bills: $200,000+
Your car: $30,000
Other car: $25,000
Legal fees: $50,000+
Total: $300,000+ owed
Wages garnished for decades

Without homeowners/renters insurance:

House fire or apartment flood
Lose everything you own
No money to replace belongings
No temporary housing funds
Starting completely over

Without life insurance (if others depend on you):

You die unexpectedly
Family loses your income
Can't pay mortgage/rent
Children can't afford college
Family financial ruin

Insurance Philosophy

Insurance is for catastrophes, not conveniences.

✅ Buy insurance for:
Events that would financially devastate you
Legally required coverage
Protecting others who depend on you
❌ Don't buy insurance for:
Things you could pay for with savings
Extended warranties on small items
Duplicate coverage you already have

The rule: Insure what you can't afford to lose, self-insure what you can.

💡 Exercise 8.1: Your Insurance Reality Check

What insurance do I currently have?

☐ Health insurance
☐ Auto insurance
☐ Homeowners insurance
☐ Renters insurance
☐ Life insurance
☐ Disability insurance
☐ Other: _______________
☐ None of the above

Have I ever experienced an event that insurance could have helped with?

☐ Yes ☐ No

If yes, what happened and what did it cost?

What am I most worried about financially?

☐ Major medical emergency
☐ Car accident
☐ Death leaving family without income
☐ Disability preventing work
☐ Home disaster (fire, flood)
☐ Lawsuit
☐ Other: _______________

This module will help you protect against these risks.

Part 2: Health Insurance

Most important insurance. Period. Medical bills are the #1 cause of bankruptcy.

Understanding Health Insurance Terms

Premium:

Monthly cost to have insurance
Pay this whether you use insurance or not
Example: $400/month

Deductible:

Amount you pay before insurance kicks in
Resets annually
Example: $2,000 deductible = you pay first $2,000, then insurance starts

Copay:

Fixed amount per visit/service
Example: $30 for doctor visit, $50 for specialist

Coinsurance:

Percentage you pay after meeting deductible
Example: 80/20 = insurance pays 80%, you pay 20%

Out-of-Pocket Maximum:

Most you'll pay in a year
After hitting this, insurance pays 100%
Example: $8,000 max

Types of Health Insurance Plans

HMO (Health Maintenance Organization)

How it works:

Choose primary care physician (PCP)
PCP refers you to specialists
Must stay in-network
No coverage out-of-network (except emergencies)

Pros:

✅ Lower premiums
✅ Lower out-of-pocket costs
✅ Coordinated care

Cons:

❌ Less flexibility
❌ Need referrals
❌ Limited to network

Best for: Healthy people, those who want lower premiums, okay with limited network

PPO (Preferred Provider Organization)

How it works:

No PCP required
See any doctor (in or out of network)
No referrals needed
Pay more for out-of-network

Pros:

✅ More flexibility
✅ No referrals needed
✅ Out-of-network coverage

Cons:

❌ Higher premiums
❌ Higher out-of-pocket costs
❌ More expensive overall

Best for: Those who want flexibility, have preferred doctors, travel often

HDHP (High Deductible Health Plan) + HSA

How it works:

High deductible (typically $1,500-$3,000+)
Lower monthly premium
Paired with HSA (Health Savings Account)
HSA = triple tax advantage

Pros:

✅ Lowest premiums
✅ HSA contributions tax-deductible
✅ HSA grows tax-free
✅ HSA withdrawals for medical expenses tax-free

Cons:

❌ Pay more before insurance helps
❌ Need emergency fund for deductible
❌ Not ideal if you have frequent medical needs

Best for: Healthy people with emergency funds, want to save on premiums, maximize HSA benefits

Choosing the Right Health Insurance

Consider:

Your health status
- Healthy, no medications? HDHP might work
- Chronic conditions, regular doctor visits? PPO/HMO better
Your budget
- Can you afford high monthly premiums for low deductible?
- Or low premiums but have savings for high deductible?
Your doctors
- Are your current doctors in-network?
- Do you need flexibility to see any doctor?
Expected medical needs
- Planning surgeries or major procedures? Lower deductible
- Anticipating healthy year? Higher deductible okay

💡 Exercise 8.2: Health Insurance Analysis

My current health insurance:

Plan type: ☐ HMO ☐ PPO ☐ HDHP ☐ Other ☐ None

Monthly premium: $__________

Deductible: $__________

Out-of-pocket maximum: $__________

Is this through: ☐ Employer (how much do they contribute? $______)
☐ Marketplace (Healthcare.gov)
☐ Spouse's employer
☐ Parent's plan (under 26)
☐ Medicare/Medicaid

My annual health insurance costs:

Premiums: $________ × 12 = $________

Estimated out-of-pocket (copays, deductible): $________

Total annual cost: $________

Am I adequately covered?

☐ Yes, I have health insurance that protects me
☐ No, I have no health insurance (DANGER!)
☐ I'm underinsured (high deductible, no savings)
☐ I might be overinsured (paying for coverage I don't need)

Action needed:

Part 3: Auto Insurance

Required by law in most states. Protects you from massive liability.

Types of Auto Coverage

Liability (Required in most states)

Two components:

1. Bodily Injury Liability

Covers injuries you cause to others
Pays their medical bills, lost wages, pain & suffering
Example coverage: $100,000 per person / $300,000 per accident
Get at least $100K/$300K, preferably $250K/$500K

2. Property Damage Liability

Covers damage you cause to others' property
Example: $100,000 coverage
Get at least $50K, preferably $100K

Why high limits matter:

Average new car costs $50,000
Medical bills can easily exceed $100,000
If you cause $300,000 in damages with $100,000 coverage, you owe $200,000
They can sue you, garnish wages, take assets

Collision

Covers damage to YOUR car in an accident
Pays regardless of who's at fault
Optional, but recommended if car worth >$5,000

Comprehensive

Covers non-accident damage to YOUR car
Theft, vandalism, fire, flooding, hail, animal strikes
Optional, but recommended if car worth >$5,000

Uninsured/Underinsured Motorist

Covers you if hit by driver with no/insufficient insurance
About 1 in 8 drivers is uninsured
Highly recommended, often cheap

How Much Coverage Do You Need?

Minimum (not recommended):

State minimum liability (often just $25K/$50K)
No collision/comprehensive
Risk: Financially devastating if you cause serious accident

Adequate:

Liability: $100K/$300K/$100K
Collision & comprehensive (if car worth >$5,000)
Uninsured motorist matching liability
Good protection for most people

Comprehensive:

Liability: $250K/$500K/$100K or higher
Full collision & comprehensive
Uninsured motorist matching liability
Umbrella policy (see below)
Best protection if you have assets to protect

Understanding Deductibles

What it is: Amount you pay before insurance pays for collision/comprehensive claims

Common deductibles: $250, $500, $1,000, $2,500

How it affects cost:

Higher deductible = Lower premium
Lower deductible = Higher premium

Example:

$250 deductible: $150/month premium
$1,000 deductible: $100/month premium
Savings: $50/month = $600/year

Strategy:

If you have emergency fund, choose higher deductible
Save the premium difference
Self-insure small accidents

💡 Exercise 8.3: Auto Insurance Review

My current auto insurance:

Liability limits: $______ / $______ / $______

☐ Collision (Deductible: $)
☐ Comprehensive (Deductible: $)
☐ Uninsured/Underinsured motorist

Monthly premium: $__________

Annual cost: $__________ × 12 = $__________

My vehicles:

Vehicle 1: _______________

Current value: $__________ (check KBB.com)

Owed on loan: $__________

Should I keep collision/comprehensive? ☐ Yes (worth >$5,000 or have loan)
☐ No (older car, not worth it)

Vehicle 2: _______________

[Repeat same questions]

My action plan:

☐ I'm adequately covered (do nothing)

☐ Increase liability limits to: $______ / $______ / $______

☐ Add uninsured motorist coverage

☐ Increase deductible to $______ (save $______/month)

☐ Drop collision/comprehensive on older vehicle

☐ Shop around for better rates (action: ____________)

Part 4: Homeowners & Renters Insurance

Protects your home and belongings from disasters.

Homeowners Insurance

What it covers:

Dwelling coverage:

Structure of your home
Attached structures (garage)
Built-in appliances

Personal property:

Furniture, clothing, electronics
Usually 50-75% of dwelling coverage
Can add riders for expensive items (jewelry, art)

Liability:

If someone is injured on your property
Legal costs if sued
Usually $100K-$300K

Loss of use:

Hotel costs if home uninhabitable
Temporary living expenses

Other structures:

Detached garage, shed, fence

Common exclusions:

❌ Flood damage (need separate flood insurance)
❌ Earthquake damage (need separate earthquake insurance)
❌ Normal wear and tear
❌ Intentional damage

How much dwelling coverage?

Replacement cost: Amount to rebuild home (not market value!)

Example:

Home market value: $300,000
Lot worth: $100,000
Replacement cost (rebuilding): $250,000
Insure for $250,000 dwelling coverage

Get replacement cost coverage, not actual cash value (ACV)

Replacement cost: Pays to replace items new
ACV: Pays depreciated value (much less)

Renters Insurance

What it covers:

Personal property:

Your belongings (furniture, clothes, electronics, etc.)
Typically $15,000-$50,000 coverage
Covers theft, fire, vandalism, water damage

Liability:

If someone is injured in your apartment
Damage you cause to the building
Usually $100,000

Loss of use:

Hotel if apartment uninhabitable
Temporary living expenses

Example scenario:

Apartment fire destroys everything
Without insurance: Lost $25,000 worth of belongings
With insurance ($15/month policy): Get $25,000 to replace everything

Cost: $10-$30/month for most people

Worth it? Absolutely. It's incredibly cheap for the protection.

💡 Exercise 8.4: Home Insurance Review

I am a:

☐ Homeowner
☐ Renter
☐ Live with family (no insurance needed)

FOR HOMEOWNERS:

My homeowners insurance:

Dwelling coverage: $__________

Personal property coverage: $__________

Liability coverage: $__________

Deductible: $__________

Annual premium: $__________

Type: ☐ Replacement cost
☐ Actual cash value (consider upgrading!)

My home:

Estimated rebuilding cost: $__________ (consult contractor or insurance agent)

Am I adequately covered?

☐ Yes
☐ No, need to increase dwelling coverage
☐ Need to add flood insurance (in flood zone)
☐ Need to add earthquake insurance (in earthquake zone)

FOR RENTERS:

Do I have renters insurance?

☐ Yes → Annual cost: $__________
☐ No → ACTION: Get quotes this week!

My belongings:

Estimated value of everything I own: $__________

Furniture: $__________
Electronics: $__________
Clothes: $__________
Other: $__________

Coverage needed: Approximately $__________

Action plan:

☐ Get renters insurance quotes from: ________________

☐ Purchase policy by: ________________

Part 5: Life Insurance

Only needed if someone depends on your income. Otherwise, skip it.

Who Needs Life Insurance?

✅ You NEED life insurance if:
You have children
Your spouse couldn't maintain lifestyle without your income
You have debt someone else would inherit (cosigned loans)
You provide care/income for elderly parents
❌ You DON'T need life insurance if:
No one depends on your income
You're single with no dependents
You're financially independent (have enough assets to support dependents)
You're a child (despite what some companies say)

Types of Life Insurance

Term Life Insurance (Recommended for most people)

What it is:

Coverage for a specific term (10, 20, or 30 years)
Pays death benefit if you die during the term
No payout if you outlive the term
Pure insurance, no investment component

Cost: Very affordable

Example: $500,000 coverage for 30 years, age 30 = $25-40/month

Pros:

✅ Cheap
✅ Simple
✅ Adequate for most needs
✅ Coverage when dependents need it most

Cons:

❌ No payout if you outlive it
❌ Not permanent
❌ Expires (though most people don't need it forever)

Best for: Young families, anyone with dependents, most people

Whole Life Insurance (NOT recommended for most people)

What it is:

Permanent coverage (entire life)
Combines insurance + investment
Builds cash value
Much more expensive

Cost: Very expensive

Example: Same $500,000 coverage = $400-600/month

Pros:

✅ Guaranteed payout eventually
✅ Cash value component
✅ Can borrow against it

Cons:

❌ 10-20x more expensive than term
❌ Poor investment returns (typically 2-4%)
❌ Complex and confusing
❌ High commissions for salespeople (why they push it)
❌ Better to buy term and invest the difference

Best for: Very few people; special estate planning situations

How Much Coverage Do You Need?

Method 1: DIME Method

D = Debt (mortgage, loans to pay off)
I = Income replacement (10x annual income)
M = Mortgage (remaining balance)
E = Education (kids' college)

Example:

Debt: $20,000
Income: $60,000 × 10 = $600,000
Mortgage: $200,000
Education (2 kids): $100,000
Total needed: $920,000 → Get $1,000,000 policy

Method 2: Income Replacement

Simple formula: 10-12x your annual income

Example:

Income: $50,000
Coverage needed: $500,000-$600,000

Why this works: Invested at 5%, provides annual income to replace yours

Method 3: Specific Needs

List what family needs to cover:

Replace income for X years: $__________
Pay off mortgage: $__________
Pay off debts: $__________
College fund for kids: $__________
Final expenses (funeral): $__________
Emergency buffer: $__________

Total needed: $__________

💡 Exercise 8.5: Life Insurance Assessment

Do I need life insurance?

☐ Yes, people depend on my income
☐ No, I'm single with no dependents
☐ Not sure

IF YES:

Who depends on my income?

☐ Spouse / Partner
☐ Children (Number: _____)
☐ Aging parents
☐ Other: _______________

Calculate my needed coverage:

Using DIME method:

Debt: $__________
Income replacement: $__________ × 10 = $__________
Mortgage: $__________
Education: $__________
TOTAL: $__________

My current life insurance:

☐ I have term life insurance:

Coverage amount: $__________
Monthly cost: $__________
Term length: _____ years
Remaining years: _____

☐ I have whole life insurance:

Coverage amount: $__________
Monthly cost: $__________
Cash value: $__________
Should I consider converting to term? ☐ Yes ☐ No

☐ I have no life insurance

My action plan:

☐ I'm adequately covered (do nothing)

☐ I need to get term life insurance:

Amount: $__________
Term: _____ years
Get quotes from: _______________

☐ I need to increase coverage

☐ I should convert whole life to term + invest difference

Part 6: Disability Insurance

Most overlooked, extremely important. You're more likely to become disabled than die young.

Why It Matters

Stats:

1 in 4 people will become disabled during working years
Average disability lasts 2.5 years
Without income + medical bills = financial disaster

Example:

Software developer, age 35, makes $80,000/year
Car accident, can't work for 2 years
No disability insurance
Lost income: $160,000
Medical bills: $50,000
Total financial impact: $210,000

Types of Disability Insurance

Short-Term Disability (STD)

Covers 3-6 months of disability
Typically 60% of income
Often provided by employer
Check if you have it!

Long-Term Disability (LTD)

Kicks in after short-term ends
Covers years or until retirement age
Typically 60% of income
Often available through employer at low cost

Key Features to Understand

Elimination period:

Waiting period before benefits start
Longer period = lower premium
Common: 90 days

Benefit period:

How long benefits are paid
Options: 2 years, 5 years, to age 65
Longer = more expensive

Own occupation vs. Any occupation:

Own occupation: Pays if you can't do YOUR job (better!)
Any occupation: Only pays if you can't do ANY job (harder to claim)
Get "own occupation" if possible

💡 Exercise 8.6: Disability Insurance Check

Do I have disability insurance?

☐ Yes, through employer
☐ Yes, individual policy
☐ No
☐ Not sure (need to check!)

My employer-provided disability:

☐ Short-term disability:

Benefit: _____% of income for _____ months
Elimination period: _____ days

☐ Long-term disability:

Benefit: _____% of income
Benefit period: _____
Own occupation? ☐ Yes ☐ No

My annual income: $__________

If I became disabled:

Without insurance, I could survive _____ months on savings.

This is: ☐ Adequate ☐ Not adequate ☐ Scary to think about

My action plan:

☐ I have adequate coverage (do nothing)

☐ Enroll in employer disability insurance (if offered)

☐ Get quotes for individual policy

☐ Increase emergency fund to cover elimination period

Part 7: Other Insurance Types

Umbrella Insurance

What it is: Extra liability coverage above your home/auto insurance

Coverage: Typically $1-5 million

Cost: Very cheap ($200-400/year for $1 million)

When you need it:

Net worth over $250,000
High income
Own rental property
Teen drivers
Pool or trampoline
High lawsuit risk (doctor, lawyer, business owner)

What it covers:

Liability above your auto/home insurance limits
Legal defense costs
Libel, slander, defamation
False arrest, wrongful eviction

Example:

Your auto insurance liability: $300,000
You cause accident with $800,000 in damages
Auto insurance pays: $300,000
Umbrella pays: $500,000
Without umbrella, you owe: $500,000

Pet Insurance

Worth it? Maybe, depends on pet and your budget

Pros:

Covers expensive procedures (surgery, cancer treatment)
Peace of mind

Cons:

Monthly cost ($30-80/month)
Deductibles and copays
Pre-existing conditions excluded
May be cheaper to save money in "pet emergency fund"

Consider if:

You couldn't afford a $5,000 vet bill
Your breed is prone to health issues
You want all treatment options available

Skip if:

You have emergency fund that could cover pet care
Your pet is healthy and you're okay with tough decisions

Insurance You Probably DON'T Need

❌ Extended warranties – Profit center for retailers, rarely worth it
❌ Credit card insurance – Better to have emergency fund
❌ Flight insurance – Credit cards often include this
❌ Mortgage life insurance – Term life cheaper and more flexible
❌ Cancer insurance / disease-specific – Health insurance covers this
❌ Child life insurance – Children don't have dependents
❌ Rental car insurance – Your auto policy + credit card usually covers
❌ Phone insurance – Save the $10/month and self-insure

Part 8: Shopping for Insurance

How to Get the Best Rates

1. Shop around

Get quotes from 3-5 companies
Prices vary wildly for same coverage
Use independent agents or online comparison tools

2. Bundle policies

Same company for auto + home = 15-25% discount
Ask about multi-policy discounts

3. Raise deductibles

Higher deductible = lower premium
Keep emergency fund to cover deductibles

4. Ask about discounts

Good student
Safe driver
Home security system
Paperless billing
Automatic payments
Professional association memberships

5. Maintain good credit

Insurance companies use credit scores for pricing
Better credit = lower premiums

6. Review annually

Your situation changes
Better deals become available
Shop around every 1-2 years

💡 Exercise 8.7: Insurance Action Plan

My total annual insurance costs:

Insurance Type	Annual Cost
Health	$________
Auto	$________
Home/Renters	$________
Life	$________
Disability	$________
Other: _______	$________
TOTAL	$________

As percentage of income: ________%

Typical range: 10-15% of gross income

My insurance optimization plan:

To add:

☐ _______________: Get quotes by _______

To review:

☐ _______________: Shop around for better rate

To adjust:

☐ _______________: Increase/decrease coverage

To cancel:

☐ _______________: Not necessary

Potential annual savings: $__________

Common Mistakes to Avoid

❌ Being underinsured
→ Saving a few dollars on premiums, risking financial ruin
❌ Buying coverage you don't need
→ Wastes money that could go to savings/investing
❌ Not reading your policy
→ Discover exclusions only when you need to file claim
❌ Choosing lowest deductible
→ Paying more in premiums than you'd ever claim
❌ Staying with same company forever
→ Missing better rates elsewhere
❌ Not updating coverage as life changes
→ Kids are born, buy house, change jobs = update insurance!
❌ Filing claims for small amounts
→ Raises premiums; use insurance for big disasters only

Key Takeaways

✅ Insurance protects you from financial catastrophes, not inconveniences
✅ Health insurance is non-negotiable – medical bankruptcy is real
✅ Auto insurance liability limits should be HIGH ($250K/$500K)
✅ Renters insurance is cheap ($15/month) and essential
✅ Term life insurance if people depend on your income; skip whole life
✅ Disability insurance is overlooked but crucial
✅ Shop around every 1-2 years; prices vary significantly
✅ Raise deductibles and self-insure small claims with emergency fund

Quick Wins You Can Do Right Now

Check if you have disability insurance through your employer – enroll if available
Get 3 renters insurance quotes if you don't have it (takes 10 minutes)
Review your auto insurance liability limits – increase if below $100K/$300K
Call your insurance company and ask about all available discounts
Set calendar reminder for 1 year from now to shop insurance rates

Before You Move to Module 9

Make sure you've completed:

✓ Exercise 8.1: Insurance reality check
✓ Exercise 8.2: Health insurance analysis
✓ Exercise 8.3: Auto insurance review
✓ Exercise 8.4: Home insurance review
✓ Exercise 8.5: Life insurance assessment
✓ Exercise 8.6: Disability insurance check
✓ Exercise 8.7: Created insurance action plan

Reflection Questions

What insurance gap surprised you most?

Which insurance makes you feel most protected?

What's one insurance change you'll make this month?

Looking Ahead

In Module 9, we'll cover Taxes for Beginners – understanding basic tax concepts, common deductions, and how to keep more of your hard-earned money legally.

See you in the next module!

Additional Resources

Insurance Quotes & Comparison:

Policygenius.com (life, disability, renters)
TheZebra.com (auto insurance)
Gabi.com (home and auto)
HealthCare.gov (health insurance marketplace)

Insurance Information:

NAIC.org (National Association of Insurance Commissioners)
Insurance.com (educational resources)
III.org (Insurance Information Institute)

Further Reading:

"Get a Financial Life" by Beth Kobliner (includes insurance basics)
Your state's insurance department website

"Insurance is like a parachute. If you don't have it the first time you need it, you'll probably never need it again." – Unknown

"The purpose of insurance is to protect your wealth, not to create it." – Dave Ramsey

"Don't be penny-wise and pound-foolish with insurance." – Unknown

Module 8: Insurance Essentials

Protecting Yourself from Financial Disasters

Introduction

Welcome to Module 8! Let's talk about insurance – probably the least exciting part of personal finance, but one of the most important.

Insurance is your financial safety net for the truly catastrophic events that your emergency fund can't cover. It's how you protect everything you're building.

In this module, we'll cover:

Why insurance matters (real stories)
Types of insurance you actually need
Understanding coverage, premiums, and deductibles
How to shop for insurance smartly
Insurance you probably DON'T need
When to say no to insurance salespeople

Think of insurance as paying a small amount now to prevent financial devastation later. Let's make sure you're properly protected!

Part 1: Why Insurance Matters

The Reality of Uninsured Disasters

Medical bankruptcy:

66% of bankruptcies in the US involve medical issues
Even with insurance, major illness can cost hundreds of thousands
Without insurance? Life-destroying debt

Real example:

Sarah, 32, no health insurance
Appendicitis → emergency surgery
Bill: $45,000
Declared bankruptcy, credit destroyed for 7 years

vs.

John, 33, has health insurance
Same appendicitis and surgery
Out-of-pocket: $3,000 (deductible)
Insurance paid: $42,000
Life continues normally

That's a $42,000 difference.

The Cost of No Insurance

Without car insurance:

At-fault accident causing injury
Medical bills: $200,000+
Your car: $30,000
Other car: $25,000
Legal fees: $50,000+
Total: $300,000+ owed
Wages garnished for decades

Without homeowners/renters insurance:

House fire or apartment flood
Lose everything you own
No money to replace belongings
No temporary housing funds
Starting completely over

Without life insurance (if others depend on you):

You die unexpectedly
Family loses your income
Can't pay mortgage/rent
Children can't afford college
Family financial ruin

Insurance Philosophy

Insurance is for catastrophes, not conveniences.

✅ Buy insurance for:
Events that would financially devastate you
Legally required coverage
Protecting others who depend on you
❌ Don't buy insurance for:
Things you could pay for with savings
Extended warranties on small items
Duplicate coverage you already have

The rule: Insure what you can't afford to lose, self-insure what you can.

💡 Exercise 8.1: Your Insurance Reality Check

What insurance do I currently have?

☐ Health insurance
☐ Auto insurance
☐ Homeowners insurance
☐ Renters insurance
☐ Life insurance
☐ Disability insurance
☐ Other: _______________
☐ None of the above

Have I ever experienced an event that insurance could have helped with?

☐ Yes ☐ No

If yes, what happened and what did it cost?

What am I most worried about financially?

☐ Major medical emergency
☐ Car accident
☐ Death leaving family without income
☐ Disability preventing work
☐ Home disaster (fire, flood)
☐ Lawsuit
☐ Other: _______________

This module will help you protect against these risks.

Part 2: Health Insurance

Most important insurance. Period. Medical bills are the #1 cause of bankruptcy.

Understanding Health Insurance Terms

Premium:

Monthly cost to have insurance
Pay this whether you use insurance or not
Example: $400/month

Deductible:

Amount you pay before insurance kicks in
Resets annually
Example: $2,000 deductible = you pay first $2,000, then insurance starts

Copay:

Fixed amount per visit/service
Example: $30 for doctor visit, $50 for specialist

Coinsurance:

Percentage you pay after meeting deductible
Example: 80/20 = insurance pays 80%, you pay 20%

Out-of-Pocket Maximum:

Most you'll pay in a year
After hitting this, insurance pays 100%
Example: $8,000 max

Types of Health Insurance Plans

HMO (Health Maintenance Organization)

How it works:

Choose primary care physician (PCP)
PCP refers you to specialists
Must stay in-network
No coverage out-of-network (except emergencies)

Pros:

✅ Lower premiums
✅ Lower out-of-pocket costs
✅ Coordinated care

Cons:

❌ Less flexibility
❌ Need referrals
❌ Limited to network

Best for: Healthy people, those who want lower premiums, okay with limited network

PPO (Preferred Provider Organization)

How it works:

No PCP required
See any doctor (in or out of network)
No referrals needed
Pay more for out-of-network

Pros:

✅ More flexibility
✅ No referrals needed
✅ Out-of-network coverage

Cons:

❌ Higher premiums
❌ Higher out-of-pocket costs
❌ More expensive overall

Best for: Those who want flexibility, have preferred doctors, travel often

HDHP (High Deductible Health Plan) + HSA

How it works:

High deductible (typically $1,500-$3,000+)
Lower monthly premium
Paired with HSA (Health Savings Account)
HSA = triple tax advantage

Pros:

✅ Lowest premiums
✅ HSA contributions tax-deductible
✅ HSA grows tax-free
✅ HSA withdrawals for medical expenses tax-free

Cons:

❌ Pay more before insurance helps
❌ Need emergency fund for deductible
❌ Not ideal if you have frequent medical needs

Best for: Healthy people with emergency funds, want to save on premiums, maximize HSA benefits

Choosing the Right Health Insurance

Consider:

Your health status
- Healthy, no medications? HDHP might work
- Chronic conditions, regular doctor visits? PPO/HMO better
Your budget
- Can you afford high monthly premiums for low deductible?
- Or low premiums but have savings for high deductible?
Your doctors
- Are your current doctors in-network?
- Do you need flexibility to see any doctor?
Expected medical needs
- Planning surgeries or major procedures? Lower deductible
- Anticipating healthy year? Higher deductible okay

💡 Exercise 8.2: Health Insurance Analysis

My current health insurance:

Plan type: ☐ HMO ☐ PPO ☐ HDHP ☐ Other ☐ None

Monthly premium: $__________

Deductible: $__________

Out-of-pocket maximum: $__________

Is this through: ☐ Employer (how much do they contribute? $______)
☐ Marketplace (Healthcare.gov)
☐ Spouse's employer
☐ Parent's plan (under 26)
☐ Medicare/Medicaid

My annual health insurance costs:

Premiums: $________ × 12 = $________

Estimated out-of-pocket (copays, deductible): $________

Total annual cost: $________

Am I adequately covered?

Action needed:

Part 3: Auto Insurance

Required by law in most states. Protects you from massive liability.

Types of Auto Coverage

Liability (Required in most states)

Two components:

1. Bodily Injury Liability

Covers injuries you cause to others
Pays their medical bills, lost wages, pain & suffering
Example coverage: $100,000 per person / $300,000 per accident
Get at least $100K/$300K, preferably $250K/$500K

2. Property Damage Liability

Covers damage you cause to others' property
Example: $100,000 coverage
Get at least $50K, preferably $100K

Why high limits matter:

Average new car costs $50,000
Medical bills can easily exceed $100,000
If you cause $300,000 in damages with $100,000 coverage, you owe $200,000
They can sue you, garnish wages, take assets

Collision

Covers damage to YOUR car in an accident
Pays regardless of who's at fault
Optional, but recommended if car worth >$5,000

Comprehensive

Covers non-accident damage to YOUR car
Theft, vandalism, fire, flooding, hail, animal strikes
Optional, but recommended if car worth >$5,000

Uninsured/Underinsured Motorist

Covers you if hit by driver with no/insufficient insurance
About 1 in 8 drivers is uninsured
Highly recommended, often cheap

How Much Coverage Do You Need?

Minimum (not recommended):

State minimum liability (often just $25K/$50K)
No collision/comprehensive
Risk: Financially devastating if you cause serious accident

Adequate:

Liability: $100K/$300K/$100K
Collision & comprehensive (if car worth >$5,000)
Uninsured motorist matching liability
Good protection for most people

Comprehensive:

Liability: $250K/$500K/$100K or higher
Full collision & comprehensive
Uninsured motorist matching liability
Umbrella policy (see below)
Best protection if you have assets to protect

Understanding Deductibles

What it is: Amount you pay before insurance pays for collision/comprehensive claims

Common deductibles: $250, $500, $1,000, $2,500

How it affects cost:

Higher deductible = Lower premium
Lower deductible = Higher premium

Example:

$250 deductible: $150/month premium
$1,000 deductible: $100/month premium
Savings: $50/month = $600/year

Strategy:

If you have emergency fund, choose higher deductible
Save the premium difference
Self-insure small accidents

💡 Exercise 8.3: Auto Insurance Review

My current auto insurance:

Liability limits: $______ / $______ / $______

☐ Collision (Deductible: $)
☐ Comprehensive (Deductible: $)
☐ Uninsured/Underinsured motorist

Monthly premium: $__________

Annual cost: $__________ × 12 = $__________

My vehicles:

Vehicle 1: _______________

Current value: $__________ (check KBB.com)

Owed on loan: $__________

Should I keep collision/comprehensive? ☐ Yes (worth >$5,000 or have loan)
☐ No (older car, not worth it)

Vehicle 2: _______________

[Repeat same questions]

My action plan:

☐ I'm adequately covered (do nothing)

☐ Increase liability limits to: $______ / $______ / $______

☐ Add uninsured motorist coverage

☐ Increase deductible to $______ (save $______/month)

☐ Drop collision/comprehensive on older vehicle

☐ Shop around for better rates (action: ____________)

Part 4: Homeowners & Renters Insurance

Protects your home and belongings from disasters.

Homeowners Insurance

What it covers:

Dwelling coverage:

Structure of your home
Attached structures (garage)
Built-in appliances

Personal property:

Furniture, clothing, electronics
Usually 50-75% of dwelling coverage
Can add riders for expensive items (jewelry, art)

Liability:

If someone is injured on your property
Legal costs if sued
Usually $100K-$300K

Loss of use:

Hotel costs if home uninhabitable
Temporary living expenses

Other structures:

Detached garage, shed, fence

Common exclusions:

❌ Flood damage (need separate flood insurance)
❌ Earthquake damage (need separate earthquake insurance)
❌ Normal wear and tear
❌ Intentional damage

How much dwelling coverage?

Replacement cost: Amount to rebuild home (not market value!)

Example:

Home market value: $300,000
Lot worth: $100,000
Replacement cost (rebuilding): $250,000
Insure for $250,000 dwelling coverage

Get replacement cost coverage, not actual cash value (ACV)

Replacement cost: Pays to replace items new
ACV: Pays depreciated value (much less)

Renters Insurance

What it covers:

Personal property:

Your belongings (furniture, clothes, electronics, etc.)
Typically $15,000-$50,000 coverage
Covers theft, fire, vandalism, water damage

Liability:

If someone is injured in your apartment
Damage you cause to the building
Usually $100,000

Loss of use:

Hotel if apartment uninhabitable
Temporary living expenses

Example scenario:

Apartment fire destroys everything
Without insurance: Lost $25,000 worth of belongings
With insurance ($15/month policy): Get $25,000 to replace everything

Cost: $10-$30/month for most people

Worth it? Absolutely. It's incredibly cheap for the protection.

💡 Exercise 8.4: Home Insurance Review

I am a:

☐ Homeowner
☐ Renter
☐ Live with family (no insurance needed)

FOR HOMEOWNERS:

My homeowners insurance:

Dwelling coverage: $__________

Personal property coverage: $__________

Liability coverage: $__________

Deductible: $__________

Annual premium: $__________

Type: ☐ Replacement cost
☐ Actual cash value (consider upgrading!)

My home:

Estimated rebuilding cost: $__________ (consult contractor or insurance agent)

Am I adequately covered?

☐ Yes
☐ No, need to increase dwelling coverage
☐ Need to add flood insurance (in flood zone)
☐ Need to add earthquake insurance (in earthquake zone)

FOR RENTERS:

Do I have renters insurance?

☐ Yes → Annual cost: $__________
☐ No → ACTION: Get quotes this week!

My belongings:

Estimated value of everything I own: $__________

Furniture: $__________
Electronics: $__________
Clothes: $__________
Other: $__________

Coverage needed: Approximately $__________

Action plan:

☐ Get renters insurance quotes from: ________________

☐ Purchase policy by: ________________

Part 5: Life Insurance

Only needed if someone depends on your income. Otherwise, skip it.

Who Needs Life Insurance?

✅ You NEED life insurance if:
You have children
Your spouse couldn't maintain lifestyle without your income
You have debt someone else would inherit (cosigned loans)
You provide care/income for elderly parents
❌ You DON'T need life insurance if:
No one depends on your income
You're single with no dependents
You're financially independent (have enough assets to support dependents)
You're a child (despite what some companies say)

Types of Life Insurance

Term Life Insurance (Recommended for most people)

What it is:

Coverage for a specific term (10, 20, or 30 years)
Pays death benefit if you die during the term
No payout if you outlive the term
Pure insurance, no investment component

Cost: Very affordable

Example: $500,000 coverage for 30 years, age 30 = $25-40/month

Pros:

✅ Cheap
✅ Simple
✅ Adequate for most needs
✅ Coverage when dependents need it most

Cons:

❌ No payout if you outlive it
❌ Not permanent
❌ Expires (though most people don't need it forever)

Best for: Young families, anyone with dependents, most people

Whole Life Insurance (NOT recommended for most people)

What it is:

Permanent coverage (entire life)
Combines insurance + investment
Builds cash value
Much more expensive

Cost: Very expensive

Example: Same $500,000 coverage = $400-600/month

Pros:

✅ Guaranteed payout eventually
✅ Cash value component
✅ Can borrow against it

Cons:

❌ 10-20x more expensive than term
❌ Poor investment returns (typically 2-4%)
❌ Complex and confusing
❌ High commissions for salespeople (why they push it)
❌ Better to buy term and invest the difference

Best for: Very few people; special estate planning situations

How Much Coverage Do You Need?

Method 1: DIME Method

D = Debt (mortgage, loans to pay off)
I = Income replacement (10x annual income)
M = Mortgage (remaining balance)
E = Education (kids' college)

Example:

Debt: $20,000
Income: $60,000 × 10 = $600,000
Mortgage: $200,000
Education (2 kids): $100,000
Total needed: $920,000 → Get $1,000,000 policy

Method 2: Income Replacement

Simple formula: 10-12x your annual income

Example:

Income: $50,000
Coverage needed: $500,000-$600,000

Why this works: Invested at 5%, provides annual income to replace yours

Method 3: Specific Needs

List what family needs to cover:

Replace income for X years: $__________
Pay off mortgage: $__________
Pay off debts: $__________
College fund for kids: $__________
Final expenses (funeral): $__________
Emergency buffer: $__________

Total needed: $__________

💡 Exercise 8.5: Life Insurance Assessment

Do I need life insurance?

☐ Yes, people depend on my income
☐ No, I'm single with no dependents
☐ Not sure

IF YES:

Who depends on my income?

☐ Spouse / Partner
☐ Children (Number: _____)
☐ Aging parents
☐ Other: _______________

Calculate my needed coverage:

Using DIME method:

Debt: $__________
Income replacement: $__________ × 10 = $__________
Mortgage: $__________
Education: $__________
TOTAL: $__________

My current life insurance:

☐ I have term life insurance:

Coverage amount: $__________
Monthly cost: $__________
Term length: _____ years
Remaining years: _____

☐ I have whole life insurance:

Coverage amount: $__________
Monthly cost: $__________
Cash value: $__________
Should I consider converting to term? ☐ Yes ☐ No

☐ I have no life insurance

My action plan:

☐ I'm adequately covered (do nothing)

☐ I need to get term life insurance:

Amount: $__________
Term: _____ years
Get quotes from: _______________

☐ I need to increase coverage

☐ I should convert whole life to term + invest difference

Part 6: Disability Insurance

Most overlooked, extremely important. You're more likely to become disabled than die young.

Why It Matters

Stats:

1 in 4 people will become disabled during working years
Average disability lasts 2.5 years
Without income + medical bills = financial disaster

Example:

Software developer, age 35, makes $80,000/year
Car accident, can't work for 2 years
No disability insurance
Lost income: $160,000
Medical bills: $50,000
Total financial impact: $210,000

Types of Disability Insurance

Short-Term Disability (STD)

Covers 3-6 months of disability
Typically 60% of income
Often provided by employer
Check if you have it!

Long-Term Disability (LTD)

Kicks in after short-term ends
Covers years or until retirement age
Typically 60% of income
Often available through employer at low cost

Key Features to Understand

Elimination period:

Waiting period before benefits start
Longer period = lower premium
Common: 90 days

Benefit period:

How long benefits are paid
Options: 2 years, 5 years, to age 65
Longer = more expensive

Own occupation vs. Any occupation:

Own occupation: Pays if you can't do YOUR job (better!)
Any occupation: Only pays if you can't do ANY job (harder to claim)
Get "own occupation" if possible

💡 Exercise 8.6: Disability Insurance Check

Do I have disability insurance?

☐ Yes, through employer
☐ Yes, individual policy
☐ No
☐ Not sure (need to check!)

My employer-provided disability:

☐ Short-term disability:

Benefit: _____% of income for _____ months
Elimination period: _____ days

☐ Long-term disability:

Benefit: _____% of income
Benefit period: _____
Own occupation? ☐ Yes ☐ No

My annual income: $__________

If I became disabled:

Without insurance, I could survive _____ months on savings.

This is: ☐ Adequate ☐ Not adequate ☐ Scary to think about

My action plan:

☐ I have adequate coverage (do nothing)

☐ Enroll in employer disability insurance (if offered)

☐ Get quotes for individual policy

☐ Increase emergency fund to cover elimination period

Part 7: Other Insurance Types

Umbrella Insurance

What it is: Extra liability coverage above your home/auto insurance

Coverage: Typically $1-5 million

Cost: Very cheap ($200-400/year for $1 million)

When you need it:

Net worth over $250,000
High income
Own rental property
Teen drivers
Pool or trampoline
High lawsuit risk (doctor, lawyer, business owner)

What it covers:

Liability above your auto/home insurance limits
Legal defense costs
Libel, slander, defamation
False arrest, wrongful eviction

Example:

Your auto insurance liability: $300,000
You cause accident with $800,000 in damages
Auto insurance pays: $300,000
Umbrella pays: $500,000
Without umbrella, you owe: $500,000

Pet Insurance

Worth it? Maybe, depends on pet and your budget

Pros:

Covers expensive procedures (surgery, cancer treatment)
Peace of mind

Cons:

Monthly cost ($30-80/month)
Deductibles and copays
Pre-existing conditions excluded
May be cheaper to save money in "pet emergency fund"

Consider if:

You couldn't afford a $5,000 vet bill
Your breed is prone to health issues
You want all treatment options available

Skip if:

You have emergency fund that could cover pet care
Your pet is healthy and you're okay with tough decisions

Insurance You Probably DON'T Need

❌ Extended warranties – Profit center for retailers, rarely worth it
❌ Credit card insurance – Better to have emergency fund
❌ Flight insurance – Credit cards often include this
❌ Mortgage life insurance – Term life cheaper and more flexible
❌ Cancer insurance / disease-specific – Health insurance covers this
❌ Child life insurance – Children don't have dependents
❌ Rental car insurance – Your auto policy + credit card usually covers
❌ Phone insurance – Save the $10/month and self-insure

Part 8: Shopping for Insurance

How to Get the Best Rates

1. Shop around

Get quotes from 3-5 companies
Prices vary wildly for same coverage
Use independent agents or online comparison tools

2. Bundle policies

Same company for auto + home = 15-25% discount
Ask about multi-policy discounts

3. Raise deductibles

Higher deductible = lower premium
Keep emergency fund to cover deductibles

4. Ask about discounts

Good student
Safe driver
Home security system
Paperless billing
Automatic payments
Professional association memberships

5. Maintain good credit

Insurance companies use credit scores for pricing
Better credit = lower premiums

6. Review annually

Your situation changes
Better deals become available
Shop around every 1-2 years

💡 Exercise 8.7: Insurance Action Plan

My total annual insurance costs:

Insurance Type	Annual Cost
Health	$________
Auto	$________
Home/Renters	$________
Life	$________
Disability	$________
Other: _______	$________
TOTAL	$________

As percentage of income: ________%

Typical range: 10-15% of gross income

My insurance optimization plan:

To add:

☐ _______________: Get quotes by _______

To review:

☐ _______________: Shop around for better rate

To adjust:

☐ _______________: Increase/decrease coverage

To cancel:

☐ _______________: Not necessary

Potential annual savings: $__________

Common Mistakes to Avoid

❌ Being underinsured
→ Saving a few dollars on premiums, risking financial ruin
❌ Buying coverage you don't need
→ Wastes money that could go to savings/investing
❌ Not reading your policy
→ Discover exclusions only when you need to file claim
❌ Choosing lowest deductible
→ Paying more in premiums than you'd ever claim
❌ Staying with same company forever
→ Missing better rates elsewhere
❌ Not updating coverage as life changes
→ Kids are born, buy house, change jobs = update insurance!
❌ Filing claims for small amounts
→ Raises premiums; use insurance for big disasters only

Key Takeaways

✅ Insurance protects you from financial catastrophes, not inconveniences
✅ Health insurance is non-negotiable – medical bankruptcy is real
✅ Auto insurance liability limits should be HIGH ($250K/$500K)
✅ Renters insurance is cheap ($15/month) and essential
✅ Term life insurance if people depend on your income; skip whole life
✅ Disability insurance is overlooked but crucial
✅ Shop around every 1-2 years; prices vary significantly
✅ Raise deductibles and self-insure small claims with emergency fund

Quick Wins You Can Do Right Now

Check if you have disability insurance through your employer – enroll if available
Get 3 renters insurance quotes if you don't have it (takes 10 minutes)
Review your auto insurance liability limits – increase if below $100K/$300K
Call your insurance company and ask about all available discounts
Set calendar reminder for 1 year from now to shop insurance rates

Before You Move to Module 9

Make sure you've completed:

✓ Exercise 8.1: Insurance reality check
✓ Exercise 8.2: Health insurance analysis
✓ Exercise 8.3: Auto insurance review
✓ Exercise 8.4: Home insurance review
✓ Exercise 8.5: Life insurance assessment
✓ Exercise 8.6: Disability insurance check
✓ Exercise 8.7: Created insurance action plan

Reflection Questions

What insurance gap surprised you most?

Which insurance makes you feel most protected?

What's one insurance change you'll make this month?

Looking Ahead

In Module 9, we'll cover Taxes for Beginners – understanding basic tax concepts, common deductions, and how to keep more of your hard-earned money legally.

See you in the next module!

Additional Resources

Insurance Quotes & Comparison:

Policygenius.com (life, disability, renters)
TheZebra.com (auto insurance)
Gabi.com (home and auto)
HealthCare.gov (health insurance marketplace)

Insurance Information:

NAIC.org (National Association of Insurance Commissioners)
Insurance.com (educational resources)
III.org (Insurance Information Institute)

Further Reading:

"Get a Financial Life" by Beth Kobliner (includes insurance basics)
Your state's insurance department website

"Insurance is like a parachute. If you don't have it the first time you need it, you'll probably never need it again." – Unknown

"The purpose of insurance is to protect your wealth, not to create it." – Dave Ramsey

"Don't be penny-wise and pound-foolish with insurance." – Unknown