Last week I shared ideas about unemployment – while I am not scared of unemployment, being unemployed is really, really inconvenient. The tips that I offered up are how I minimize the duration of the inconvenience. I use similar tactics in other areas of my life.
Insurance can appear expensive until something serious happens in your life. If something serious happens then you want to be focusing on solutions, rather than worrying about details. Here’s my list of things that are often overlooked by my pals, and peers.
I use a high deductible policy and pay extra to increase the maximum limit for the policy life. The plan we are on is $5,000 deductible with $5 million policy limit. I include the full deductible in my annual budget and that means that any financial surprises are positive.
In most years, we either pay nothing or blow right through the deductible. Over a lifetime, it would be unusual for a family not to experience large, unexpected, medical payments. Being surprised is the norm – I know many triathletes that can been caught out by a bike crash.
Similar to health insurance, it would be unusual for a business not to experience accidents over a long term time horizon. Accidents can create liabilities and here’s what I do to mitigate:
Operate safely – common sense goes a long way, especially when backed up by appropriate training and written safety policies. Make an effort to educate your customers about safety procedures. This isn’t just a CYA exercise – it will result in less accidents and that’s good business.
Professional advice – My approach may be unconventional:
- List the things could go wrong in your business – think as broadly as possible;
- Share that list with an experienced litigation attorney;
- Disclose your personal/corporate structure to the attorney; and
- Insure and restructure your operations to address avenues of recovery.
In some cases, you may discover that a certain line of business simply isn’t worth the risk. I’ve exited a few situations that were great fun but unacceptably run. By the time the inconvenient truth arrives, it’s too late to exit. By the way, the same policy works well for speculative bubbles.
As well, insure your clients/employees to protect them from ordinary accidents. Many professional bodies (USA Triathlon for example) offer protection to members/coaches. Read the policies and be warned that “for profit” businesses are rarely covered by professional bodies. I spent quite a bit of time assembling three additional policies for Endurance Corner LLC (D&O, General Liability and Participant Medical).
Death, Disability and Life(style)
At some stage in the future, I’ll be worth more dead than alive – at least financially. Until that point, I like to self-insure my life.
To protect my family from the effects of an unexpected early exit… I purchased a two-unit income property. It wouldn’t been all the comfy but Monica could move in and live “free” on the rental income from the other unit. Living expenses, and my daughters education, would be covered from renting our current house. Not as good as keeping me around but it would reduce the severe inconvenience of my departure.
When making real estate purchases, look for deals that create options for you to live free. Even better, look for deals that will subsidize your cost of living. Here’s an example…
Before I had Monica & Lex in my life, my housing set-up in New Zealand was used for lifestyle insurance. I purchased a large house (5 bedrooms, US$110,000 entry price). I rented the a few rooms out in the house so my overheads were covered. Combined with a small coaching business – it was my fallback strategy. With the mess that we have in many housing markets, similar deals are available today.
If you didn’t save capital over the last decade to take advantage of today’s opportunities then make changes so you can take advantage tomorrow. Cycles repeat themselves. I’ve seen great buying opportunities at least once each decade and we only have to do one good deal, per decade, to have a successful investment career.
Back to life insurance. For many of us, the worst thing that can happen is permanent disability requiring expensive and on-going medical care. I haven’t cracked the code on insuring that risk but I do the following to reduce it’s likelihood:
- Wear a helmet when I ride;
- Wear a seatbelt when I drive;
- Don’t drink – and certainly don’t drink & drive; and
- Don’t speed – people make jokes about my driving speeds.
If you have ideas on the disability insurance front then I’d love to hear them. It’s a topic that I’ve been considering since I started riding the open roads.
Follow up Nov 20, 2010: Mark wrote to remind me that the deductible for healthcare should run through an HSA and TR shared that for the self-employed Long-Term Care insurance can be an effective way to insure against unexpected disability.