Back to Basics: Insurance

Insurance is one of those areas that has become increasingly complicated. Unfortunately, it leaves a lot of people throwing their hands in the air, not even really understanding what they’ve signed up for because they just want to be done with it.  It is important to assess your insurance needs carefully and take into consideration some key factors before settling on just anything.

Oftentimes, insurance companies will offer lower premiums if we are willing to accept a higher deductible.  With health insurance, a higher deductible may take the entire year to meet, which means each office visit will require you to pay out of pocket until you’ve reached the deductible limit.  Conversely, that deductible may also be met with one hospital stay.  But do you have that money in your emergency fund to pay the entire deductible if that happens?  When evaluating health insurance, this is an important consideration.  If your family is typically fairly healthy, those trips to the doctor may not be frequent enough to warrant the trade-off of a higher premium for the sake of having a lower deductible. 

However, for families who still have little ones, especially school-aged children, trips to the doctor can be more frequent than we would like and having the peace of mind of a lower deductible might be worth the higher premiums.  Another factor to consider is the back-up plan, the emergency fund.  If you struggle to keep the initial $1,000 in the bank because something always comes up that requires you to dip into the emergency fund, it might be worth paying higher premiums in order to avoid accruing credit card debt due to higher co-pays.

With auto insurance, there are typically only a few options for deductibles, but the same principle applies.  The lower the premium, the higher the deductible and the higher the premium, the lower the deductible.  The reason it’s important to understand this relationship is because if you have an accident, you are required to pay any amount up to the deductible before the insurance will pay their part.  Sometimes it’s not even worth making a claim if the deductible won’t be met. 

Again, it’s time to consider the emergency fund before signing up for a higher deductible in order to get that lower premium.  If this is a season of volatility and the emergency fund is frequently under attack, it might be worth investing in a higher premium to insure that you don’t have to cough up $500 that you don’t have.  It’s times like these that send us back to square one on our Money Map, paying off credit card debt and building up the emergency fund.

Something else to consider when shopping for auto insurance is how much coverage you actually need.  Granted, if your car is not paid off, you will likely need to carry full coverage. However, if your car is paid for, you are only required by law to carry as much insurance as your state has declared necessary.  In this case, it might be worth checking into the replacement cost of your vehicle and determining how much insurance you need based on that value.  We maintained full coverage on our vehicles even though they were paid for because their replacement value made it worthwhile.  We eventually dropped the coverage down to the state requirements because the replacement value did not warrant the amount of coverage we were carrying.  If you determine that this is the case for you, drop the insurance to the necessary requirements and save the difference in your auto savings account for a future car purchase.

Being good stewards requires some give and take.  When we’re thoughtful about our decisions, God will bless our Biblical stewardship efforts and help us to go forward on our journey to financial freedom.

“Moreover it is required of stewards that they be found trustworthy.”

~ I Corinthians 4:2