As your wealth grows over time one of the fundamental things you worry about is “losing it all” and having to start all over again with nothing. The best way to mitigate “losing everything” is to buy insurance for your assets.
Additionally, if you have a spouse, children or others that you serve as a source of income, you may choose to buy insurance on your life to help fill the loss of income gap. It’s important to note that no one buys an insurance policy with the intent of ever cashing that policy in because it serves to offset losses not generate new income. Here is a list of things I buy insurance for to give you an idea.
Life Insurance
I have multiple life insurance policies. The first one I bought was right after my wife and I got married. It was a term life policy with a whopping value of $250,000. At the time we bought it, $250k was actually a sizable sum of money nearly 25 years ago. I think the premiums were about $50 per month. This policy has expired or close to expiring so I don’t really consider it a policy in my portfolio anymore.
The second policy I purchased was much higher at $750k with a monthly premium at $70 or so but I also have life insurance through work that is close to $1m.
I am in the process of revisiting all these policies because they no longer are needed to serve their original purpose which was to fill an income “gap” in the event that I died. Our kids are now grown and have jobs so that gap isn’t really a gap. Additionally, my wife has amassed a large investment portfolio too and doesn’t really need the income however a good potential use of these insurance funds would be to pay the taxes on an inherited IRA (if I die) so she could convert all my IRAs/401ks to Roth IRAs and withdraw tax free income for the rest of her life.
Home & Rental Properties
Next to your life, your home is likely the most valuable asset in anyone’s portfolio so it makes sense to have enough insurance to recover losses. I am lumping in rental properties here because they also provide income and would be a huge loss if not insured.
It’s important to note that flood insurance is a separate policy that must be purchased if you live in a flood prone area. There may be other insurance policies needed depending on where you live and the risks for those areas.
Insurance costs for home owners insurance have gone crazy in recent years and some insurance companies have stopped issuing policies in some states (Florida, Texas, California) all together. Many people blame “greedy” insurance companies but the issue is far more complicated. The fact that home values have appreciated tremendously since COVID, supply chains got more expensive along with labor and state limits on how much premiums can be raised have created the “perfect storm” of insurance issues.
Investment Portfolio
Many people don’t seem to know or understand that it’s possible to buy “insurance” on your investment portfolio. The type of “insurance” depends on the type of investments.
For stocks, I recently wrote about buying puts and then cashing that “policy” out and earning income to offset a market correction.
For bonds, some bonds come with insurance built in but you must research to make sure the type and quality of insurance on that bond. It’s also possible to hedge your bond portfolio that serves like an insurance policy.
For precious metals, like gold, the best thing to do is to buy a heavy safe to keep the gold secure.
Share The Wealth
Do you have comprehensive insurance plans? Let me know in the comments below!