five steps: step 4 insure yourself adequately and no more

This is the fourth in an irregular series on the five steps to solid wealth. Step 1 was spending less than you earn, step 2 was paying off consumer debt, step 3 was to grow an emergency savings account. Step 4 is to insure yourself adequately and no more. I'll discuss the areas in which you need to consider insurance below.

The key principle in deciding whether insurance is adequate is to think about the things that you need that you don’t have the resources to replace or fix.

Most people in the beginning or middle of their plan to get rich and end life as a lad/lady of leisure are reliant on income from working (either for themselves or someone else) to not only keep on the plan, but also pay the bills. If you fall into this category, then you probably need to insure yourself against an accident or illness that means that you are unable to work. For this you need income protection and permanent health insurance (also known as short and long term disability insurance)

Anybody with dependents who rely on them for provision of housing, food etc also need to consider having a serious amount life assurance (or life insurance if you’re a Yank). The key word here is rely. If your husband / wife / partner currently earns their own income and you have no children, you probably don’t need major life insurance. On the other hand if you have a non-working spouse / partner you probably need some and if you have children, you probably need a lot.

i'm gambling on not getting sick

I’m not getting critical illness insurance at the same time as purchasing my house. Under pressure from my mortgage advisor, I signed up for both life assurance and critical illness cover. It was just easier to do this than to have to defend a decision to go without. Within a fortnight however, (and before I’d handed over any cash) I cancelled my applicaton.

I decided not to go ahead for two main reasons. The first one is that I’m reasonably certain that the policy offered to me by my mortgage broker was not the cheapest available. They only offer policies from one company and it’s a truth universally acknowledged that shopping around will give you a better deal.

The second reason, and the one that explains why I’m not purchasing it at all, is that I don’t believe I need it.

The type of critical illness cover I was quoted for pays out a lump sum if you are diagnosed with one of a list of illnesses of disabilities. These are generally life-threatening or seriously life-altering diagnoses such as cancer, paralysing spinal injuries, etc. Its assumed that you will use the lump sum to pay off the mortgage so that you won’t have that to worry about.

In my case, I have no dependents and I have accident, sickness and unemployment (ASU) insurance already. This means that if I got one of the illnesses on the list, I would get a monthly income from the ASU insurance and no one else is relying on me to provide for them. I would also get this if I was diagnosed with a critical illness not on the list.

To me that’s a better benefit than paying off the mortgage completely, after all, I’ll still have other bills to pay. Knowing my luck I’d be bound to get something not on the list at all and then I’d have paid out the premiums for nothing.
So I’m gambling that I won’t get one of the illnesses on the list – and it seems like a pretty reasonable bet.