This is one of those educational posts which I track under the whole story. As life contains a lot of risk I found some ways to mitigate some. This is why I want to talk to you about why I buy insurance and the insurance that I buy.
Why I buy insurance
There are some things in life for which there is nothing to prepare you, but insurance can remove part of the strain in these cases. I only look for insurance for situations why I cannot manage and where my emergency fund will not bring me the proper coverage I need.
I do not buy random insurance and there is a plan behind each of the insurance plans we have as a family. Even if my medical insurance is covered by the state, there are situations where going private for specific cases can dramatically increase your quality of life if calamity hits.
The bottom line for me is to know that my family is covered in case something bad comes our way and our emergency fund is not enough to support us.
The insurance that I buy
I do not recommend to buy all types of insurances, but I recommend that you assess your situation and your level of risk and take an informed decision. This is what I have and why I have it:
Mandatory insurance as per local legislation
Mandatory car insurance – Covers the damage that I caused in case of an accident where I am the culprit. This is non-negotiable and non-debatable and required by law.
Mandatory house insurance – Covers the damage caused by a natural calamity (earthquake, fire, flood, etc.) to our house and to our apartment. This is another insurance mandated by the law.
By having the above, you are mainly secured in case “shit happens” from a minimal standpoint. The damage you caused in an accident is covered so you are not liable for those payments and in case of a natural disaster you do not lose your hope.
Optional insurance that I buy
Life insurance – No matter what, my family needs to be able to move forward even in case I am no longer in the game. We use this also as a safety net in case something happens to one of us so that the other can get rid of the remaining mortgage payment and reduce some of the burden.
We currently have insurances with 3 different suppliers due to specific situations and things look like this:
|NN – Life accident||100,000||100,000|
|NN – Life disease||10,000||10,000|
|Groupama – any||206,000||0|
|Allianz – any||0||22,000|
Most of the life insurance will cover us 20 (for me) and 30 (for her) years and once that id done, my aim is stop any further extensions. If I reach my passive income goals and if my portfolio develops as hope it does, then in 20 years from now, we should have those assets on hand. This will help us reduce 1 yearly payment for each insurance as we have a decent portfolio to sustain the family if disaster hits.
Example: If i take the 37,000 EUR invested (without counting the apartment) from this point in time and assume no more investments are done and calculate the expected amount after 25 years with a conservative rate of return (7.5% after inflation) then we will have ~240,000 EUR. This should soften the financial burden at that time.
Apartment mortgage insurance – This was mandatory due to the bank policy for taking the apartment loan. It adds up to the value of the loan and is in the name of the misses and could be considered an extra to her life insurance. This also reduced a further gap from the difference in life insurance we have between the two of us.
Optional car insurance – Covers any damage that happened to my car. Even if I was the culprit or if I found it stolen or damaged. As long as your car is over 5,000 EUR and the insurance cots less than 7% I think you should also consider it.
Serious illness insurance – This is a key one for me, it only covers us in case we need an organ transplant, by-pass, neurosurgery or in case of cancer. These are situations which our emergency fund cannot sustain and they are over our current limits. I now that we have state covered medical insurance, but this gives us the option for private practice treatment, outside of our borders and covers up to 1,000,000 EUR per year or up to a total cost of 2,000,000 EUR.
Now you know why I buy insurance and the insurance that I buy. I hope this post was helpful for you to understand how I see things and understand that by having insurance my aim is to protect my family and myself from situations when our emergency fund is overwhelmed.
I would recommend that you consider the following types of insurance and assess them in the broad perspective of your daily living and costs:
- Life insurance (accident + disease)
- Serious illness insurance