Things about Insurance That You Should Know,
By Keith Bunn Jr.
August 24, 2015
There are a lot of people out there who think that insurance in general is a waste of money. And the agents who sell it are just rip off con artists. Well, I’m not sure about the con artist part, but there are diffidently agents out there that will sell their clients just about anything that will give them the highest commissions out there. But there are other agents, that have integrity and don’t care how much they make in commissions, as long as they treat their clients with dignity and respect and will educate and sell their clients the proper insurance product needed for them and their families.
Truthfully though, there are insurance products out on the market today that are trash and should never be bought. But there are some that are absolutely necessary too. Because these products are confusing and sometimes you really don’t know if you have a good one or not until its too late, for the next few weeks I’ll be going over this topic and sharing not only what I’ve learned going through and coordinating Dave Ramsey’s Financial Peace University classes (FPU), but what I also learned by studying for my Life Insurance license.
Now, Home Warranties aren’t really an insurance product, but they are treated like they are. They are normally sold through your local utility company and what it does is, you pay them a monthly fee and depending on the package coverage you buy, they will come to your home and either repair or replace everything from your household appliances and window air condition units, to your furnace and central air.
One company I looked up charges anywhere between $9 to $60 per month, with some fees attached to them, again, depending on the plan you buy. It doesn’t sound too bad does it? You pay one low monthly fee and just about everything in your home is covered, right? Well here’s the thing folks, this is a rip off and truthfully you should be self-insuring through these types of repairs with an Emergence Fund.
In FPU, you are taught that you should have at least 3 to 6 months worth of Household expenses saved up just for emergencies. Roughly $10,000 to $20,000 saved. “WHOA!! Where am I going to get that much money to just save for emergencies?!” That’s easy, you need to get out of debt!
The average household consumer debt in America as of July 2015 is $16,000 for credit cards, $33,000 for student loans, and $157,000 for a mortgage just to name a few. If you got rid of those monthly payments, you would have enough money to fund your emergency fund.
Why is it a Rip Off?
Now, lets do some math to show you why this is something you need to self-insure through. Let’s go with the $60 plan that I looked up. If you were to pay $60 per month for 12 months, you would have paid $720 for the year. And lets say you pay an extra $17 per month for a cash like saving account to go towards any appliances, furnace and central air units that can’t be repaired and has to be replaced. So now you’re paying $924 per year.
Now let’s say you live in Michigan and it’s the middle of January and your furnace goes out. You call the repair guy, he looks at it and determines that it needs to be replaced. Replacing a furnace is an easy $2000 bill. But you have this built in savings account to go towards the furnace replacement, only to find out the utility company will only give you $720 towards a furnace replacement, according to the plan you bought. That leaves you on the hook for the remaining $1280 bill.
But that’s not the worst of it. Let’s say you didn’t have anything go wrong for 3 years, that would mean you paid them $2,772 and they would still only give you $720 to go towards replacing a furnace. “What happens to the rest of the money?” That’s part of their profit. “But Keith, that’s the same thing with auto, medical, and life insurance. I pay thousands to those things too and don’t use them, what’s the difference?”
PLENTY! Two of those examples, auto and medical, if anything major happened in those categories, it could easily bankrupt you if you don’t have adequate coverage. On top of that, it’s the law to have some sort of coverage in those categories now. As for life insurance, if the coverage is on you, you won’t see the payout on that. Life insurance is for your family who will out live you, to replace any income you bring into your household.
The money you pay into home warranties could easily be used to fund your emergency fund, to pay for those repairs or replacements yourself. The way I look at it, I would much rather keep my hard earned money for myself instead of giving it to someone else.
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