Posted by Robert on July 9, 2012
Not everything with the word “insurance” in its name is actually insurance. Sometimes, it might simply be a cost recovery plan. Here’s how you can tell the difference and why I’m opting into an insurance plan.
Insurance protects against unforeseen costs. Cost recovery reimburses planned costs. If we know that out of every 1000 workers, 5 are likely to be injured on the job, we can put in place accident insurance. It will cost 5/1000ths of a dollar for every dollar of benefit (plus admin). That is an example of insurance, and it makes economic sense. Where I worked, we had a cost recovery plan that paid for eye exams. An eye exam is something that people can get every year, not only as needed. The cost of offering the benefit (eye exams) is the cost of one exam per employee. There is no savings to individuals.
I have just begun a master degree at the University. There is a graduate student association with an insurance plan. In order to function as insurance, membership is mandatory for all full-time graduate students. It offers health and dental benefits to students and their families. Because I’m a distance student, I can choose whether or not to opt in.
The math is pretty easy. The coverage costs a little under $500 per year and it covers me, my wife and our three children. The benefit includes up to $900 of work (in one visit) each per year. For $500, I can access from $0 to $4500 of dental work. Personally, I need a crown ($1000) and my middle child needed a $350 visit. The other family members need checkups, and I don’t know how much that costs. Already, we’ll get our money’s worth, and with some luck, we’ll get reimbursed more than the cost of the coverage. That feels like a rebate on my tuition.
Do you health or dental coverage? Do you feel it’s economically worthwhile
Posted by Dave on June 12, 2012
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
I have tons of insurance. I have house and liability insurance, car insurance, CAA (accident/roadside assistance), health insurance through work and life insurance. Additionally, I have a fairly sizable amount of cash in savings, which would allow my household expenses to be paid for almost 8 months if anything changed employment-wise. Essentially, just about anything that would substantially affect my financial goals is insured against (probably too much).
I am generally not one to sit around worrying about worst-case scenarios, I don’t freak out thinking about possible future happenings, but one thing that I have been thinking about in the past little while (perhaps due to reading or listening to too many post-apocalyptic stories) is what would happen if money couldn’t fix the problem? One instance of this is the power outage experienced in Ontario in 2003.
For those outside of the Southern part of the province, the power went out for over 3 days in this period. For me, and most people involved, this turned into a pretty good time. I went to a friend’s place with the meat in my freezer and we had an enormous barbeque and drank warm beer. Eventually, the power came back and everything was fine. When I look back though, I’m wondering what would have happened if the power had remained off for longer, say a week to 10 days….
I would have run out of food, in fact I was basically out of food at around the time the power came on. At some point, I’m guessing city water would stop running and that would result in some problems as well. I could have left the city and headed north but there weren’t any gas stations available to fill up my car, which had only 1/4 of a tank of fuel in it. I would have had some troubles if the issue had continued and I don’t think I was the only one.
Think of your own family – do you have people who have food allergies and can’t just eat any food? Is anyone dependent on refrigerated medication, or something like that? What about pets – how much food and water do you have available for them?
The government of Ontario has a website listing items that should be included in an emergency kit that probably nobody has ever looked at or thought about (I know I hadn’t until a few weeks ago). Some of the stuff that should be included in the kit is obvious, but the amounts needed should be kept in mind (for example 4 liters of water per person per day), along with just ensuring that you have at least some of the stuff that is on the list.
We in the developed world are heavily reliant on each other, even though we don’t even talk to our neighbours anymore. We need the transport trucks full of food (which I swear at when trying to get somewhere on highways) and grocery stores because we don’t grow our own anymore. Most of us depend on taps of water to deliver our cooking, cleaning and drinking water because we don’t have wells in our backyard and the water in our rivers and lakes is not safe to drink. In essence, we don’t really look after ourselves all that well.
While I have no vision of some catastrophe that would require any such emergency kit – isn’t that the point of insurance? I also don’t think my house will ever burn down or I will be in a car accident, by I pay quite a bit of money per year to cover these eventualities. At some point maybe all these different kinds of insurance are overkill, but then again I’m reminded of newscasts showing people after a fire who didn’t have house insurance and don’t want to feel like that.
Do you have any sort of Emergency Preparedness plan? Do you ever foresee a situation that you would need one?
Posted by Dave on August 9, 2011
Have you ever noticed that people who have no financial plan tend to be surprised when disaster hits? For example, their two-vehicle household has two vehicles break down on the same day, at the same time their air conditioner breaks down. Now admittedly, this is just terrible luck, but it’s weeks/months like these that put people into a debt-spiral that takes some time and dedication to get out of.
In contrast, I assume that at some point all of this stuff will happen to me, and possibly all at the same time. This may be seen as a very pessimistic way of looking at the world, but realistically my main goal is to ensure that I do not experience a financial “hit” that puts me into poor financial shape. Beyond putting the brakes on my goal of early retirement or financial independence, such an event would be very stressful for my wife and I (or anyone) to take on, which for the most part with adequate planning can be totally avoided.
Here are some techniques my wife and I employ for avoiding financial disaster:
1) We keep our monthly expenses low: In doing so, such things as prolonged unemployment or disability (to a certain extent) can be mitigated as our expenses are set up so that the low-earner can cover our total monthly expenses.
2) We have a decent-sized amount of savings: Since we cleaned out entire savings account buying a car in March, this has been our number one goal. Having no savings means that something as small as a car repair would cause us to utilize debt, which we would like to avoid at all costs. Our end goal for savings is to have an entire year’s worth of “fixed” expenses (around $10,000).
The reason for this is two-fold – the first being insurance against unknown expenses, the second is if we don’t really feel like working at our current job / career, there is a buffer we have built into our finances to allow for a job-search or lower wages if the new job doesn’t pay as much.
3) We have a bunch of insurance: Car insurance, life insurance, CAA for automobile breakdowns, as well as health insurance through my workplace which provide a cushion for expenses that if we incurred them at 100% would put significant strain on our finances. I don’t really like to pay for the insurance, but the peace of mind it provides is worth it when I examine what would happen if I didn’t have it in place.
I don’t really think there are many financial disasters that can’t be planned for, I just don’t think many people think about the downside or have the same pessimistic viewpoint as myself or others with a robust financial plan.
How do you plan against financial disaster? Do you think you have a negative viewpoint in thinking up a financial plan?