When Creating Wealth “Maximum” Protection Matters.

For all you movie buffs I want you to think back to a movie entitled Trading Places.  It came out in the 1980s and starred Eddie Murphy, Jamie Lee Curtis and Dan Ackroyd.  It was a movie about wealth creation and wealth uncreation (for lack of a better term).  The basic plot surrounded a bet made between two highly regarded commodities brokers on what would happen when you make a poor person rich and a rich person poor.  While the movie plays out around this premise recall a line that Eddie Murphy made in the movie (paraphrasing) “the best way to hurt a rich person is to make them poor.”  Sounds like it could apply to the times in which we currently live (insert your own Goldman Sachs punch line here).

The current debate taking place around health care really has to do with how people can lose everything when they fall ill and have to seek medical attention without insurance or insurance that does not cover a major health event that might take place.  It got me thinking about one of the tenets of wealth creation…keeping the money you made over the years.  We’ve all heard the old adage of “it’s not how much you make its how much you keep.”  Nothing could be farther from the truth. I simply wanted to take a closer more far reaching look at that notion.  After all what good is having a lot of money if you can lose it all…right?

September, as you might recall, was Life Insurance Awareness Month (LIAM) , a month dedicated to making people more aware of their potential need for life insurance or a reminder to take a second look at the coverage one might already have.  If you stop and think about it, insurance plays a major role in the lives of everyday people so much so that many believe it to be a major obstacle to actually building wealth.  I know it sounds absurd but think about how much you spend for the insurances you already have and then realize that in order to have proper insurance coverage you possibly need:

1. Auto insurance – protects you if you get into an accident caused by you or somebody else
2. Home Owners Insurance – protects your home in case something was to happen (fire, theft, etc…)
3. Liability Insurance – protects you in case you are the cause of a major incident to someone else or property
4. Health Insurance – protects against the cost of a major medical event
5. Life Insurance – protects against loss of income from the death of a person
6. Disability Insurance – protects your income in case you become disabled and can no longer work
7. Long Term Care Insurance – protects against the cost living in a nursing home,  assisted living facility or requiring home health care (averages about 80k per year and rising)
8. Legal Insurance – protects you in case on a lawsuit

So when you look at this list and see all of the insurances that are recommended (some even required) a person wonders how they can ever save money when it is going out to all of these places?  Therefore the typical person tends to forgo coverage in one of these areas in lieu of saving (or investing) during their lifetime.  Remember “it’s not what you make …it’s what you keep.”

Truth be told an event that takes place in any one of these areas has the potential to wipe out the average American’s savings or retirement plan.  Statistics (and the media) tell us this on a daily basis.  The leading cause of foreclosure is disability.  One of the leading causes of bankruptcy is medical bills.  So when approaching the need for insurance coverage you should look at obtaining the “maximum” coverage not the minimum allowable or least expensive coverage you can get.  I realize that cost will always play a factor but you must find a way to get the protection you need!  Failure to do so could wipe you out… literally.

Think about your retirement plans and how much you will have contributed over your lifetime in an attempt to “build wealth.”  Now think about the protections listed above…is it not scary to envision that at any point during your lifetime one event has the potential to erase all of your life savings?   Imagine doing everything right (i.e. building that million dollar portfolio) then someone sues you and takes it all?  Or perhaps you become disabled during your working career and don’t replace 100% or more of your income through disability insurance.  Your house burning down because the dryer vent was not cleaned out (true story happened to a friend of mine).  Having a stroke and staying in the hospital for weeks without medical insurance then getting the bills in the mail a couple weeks later.  How about losing 50% of your retirement account the year before you were scheduled to retire?  The list goes on and on…

The point I am trying to make is that having proper insurance protection protects you from losing your wealth. The conversation should begin with what is the MOST protection you can get AND then you work back from there to what you can afford.  I realized this not too long ago with my auto insurance.  When I initially obtained my auto insurance I had the “minimum required by the state” I believe it was 100,000 for bodily injury (capping at 300,000 per occurrence) and 100,000 for property damage with deductibles at $500 comprehensive and $500 collision.  Then this thought occurred to me…how much extra would it cost to get the most insurance coverage my company would allow me to have?  You see I have already been in that major car accident years ago, falling asleep while driving and going off a cliff waking up upside down in my car.  I know the unexpected can happen.

So I call up my insurance company and simply asked ”how much extra would it be for me to get the MAXIMUM coverage you will allow and what would that be?”  It was as easy as that.  The lady on the phone told me essentially I could get 2,000,000 across the board for everything and my monthly premium would increase by around $11 per month.  Yes ONLY $11 PER MONTH!  Needless to say I increased my insurance coverage (with $1000 deductibles) and immediately thought about the insurance agent who initially recommended my coverage and how exposed I had been left for a measly extra $132 a year.

Note: Raising your deductibles is a good way to get maximum protection and keep the costs down at the same time.  Remember a deductible (or waiting period) is your out of pocket expense and where applicable should be as HIGH as you can afford.

So could the same thing be happening to you?  Do you have maximum protection through your insurance policies?  We are all simply one event away from a financial disaster and obtaining proper maximum insurance protection in all aspects of your financial life will allow you to keep what you have worked so hard to acquire.