Can you insure yourself?

Question Can you insure yourself?

Answer Yes.

Complete Answer  To insure yourself is called self-insure.

The underlying principle of insurance is shared risk/loss. As an example: For every 100 people, one person will have a financial loss of $1,000 during a year. It may be you or one of the other 99, we don’t know. If everyone pitches in $10 ($10 x 100 = $1,000) there will be enough money in the insurance pool to cover the loss of $1,000 for that unlucky person. The other 99 people, each will be out $10 – shared loss. If you decide not to pay $10 to participate in the insurance pool, you instead set aside $1,000 to be used if you become than unlucky person, you are insuring yourself.

Please Note: If you choose to self-insure, you are still exposed to any potential risks and are financially responsible for damages or losses you may cause.

The most common form of self-insurance is an insurance policy with a deductible clause. Generally, the higher the dollar amount of a deductible, the lower the cost of the insurance policy. It would be prudent to set aside the amount of the deductible into a savings account to be used if you suffer a loss. As with other types of savings, I have found that having money automatically deducted from my paycheck and placed into a savings account is one of the easiest ways to save money.

Financial Literacy Knowledge/Skill

A person can self-insure by setting aside money for potential losses.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: Should personal finances be discussed before you are married?

Do you need insurance?

Question Do you need insurance?

Answer Only you can answer that question.

Complete Answer  Your answers to the following questions will help you determine if you need insurance:

 1. What are your financial responsibilities?

  • You are financially responsible for your medical care.
  • Most states will require you to carry automobile liability insurance. Liability insurance covers the medical and property loss and damages you may be responsible for if you cause an accident. Additionally, if you borrow money to purchase as car, as a condition of the loan, the lender may require you to carry collision insurance to pay for damages, including total loss, of the car you have financed.
  • You are responsible for your personal property. As a renter, most landlords will not cover the loss of your personal property caused by a fire or theft.
  • As a home owner, mortgage companies will require you to carry homeowner’s insurance which covers the loss of real property.
  • As a pet owner, your are responsible for the damages or harm your pet may do to others or their property.
  • Your are responsible for the harm you personally do to others or damage to their property.

2. How much of a potential financial loss can you afford? 

You could conceivably insure yourself against every possible kind of financial loss. The cost, however, would be prohibitive. You have to determine how much of a financial loss you could afford and are willing to take the risk.

Examples: I do not need health insurance to cover the cost of a doctor visit for a common cold. On the hand, I am certain that I could not cover the cost of a kidney transplant. I can afford the cost of a new coffee pot if mine wears out. I could not afford to replace all of my personal possessions if they were destroyed by a fire or flood. I probably could afford a new transmission for my car. I could not afford to replace my car if it was totally destroyed in an accident.

A trusted insurance agent could help you determine risks, potential losses and cost of insurance.

Words of Wisdom The best type of insurance is a policy you never use. The worst type of insurance is a policy that you need and don’t have.

If St. Peter calls you home early, will there be enough insurance, money and/or assets in your estate to settle your debts and pay for a proper funeral service? Don’t pass on those financial responsibilities to your loved ones.

Financial Literacy Knowledge/Skill

Determine if and the amount of insurance you may need.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: Can you insure yourself?

Should you lend money to a family member or friend?

Question Should you lend money to a family member or friend?

Answer No, give them the money.

Complete Answer  When you lend money to a family member or friend, you change the relationship with that person. You are now a lender and they become the debtor. Additionally, your and their values are involved, “What’s important to them may or may not be important to you” and vice versa. Remember that we tend to spend money on things that are important to us.

We all will, at some time in our lives, have a financial crisis and will need some help. When and if a family member or friend asks for help in the form of a loan, use this occasion to really help them. In education will call this a “teachable moment”.

Ask them “What happened?” Follow up their answer with “What will you change in the future so this does not happen again?” Then, if you can afford to, demonstrate the virtue of charity12 and give them the money they need with the condition that they will not ask you again.

Financial Literacy Knowledge/Skill

Be charitable for those in need.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: Do you need insurance?

How do you get out of debt?

Question How do you get out of debt?

Answer Stop spending more money than you take home.

Complete Answer  When you have mastered the three most critical elements of managing your money; know your income and expenses, live below your means, and save (Financial Literacy Knowledge and Skills), you will be in a position to get out of and stay out of debt.

Step 1 in getting out of debt is to stop spend more money than you take home each month – live below your means.

Step 2 is to list all your debts from the smallest to largest balances.

Debt Balance
Credit Card A 300.00
Credit Card B 1,500.00
Credit Card C 3,500.00
Car 18,000.00
House 103,000.00

Step 3 is to determine the amount of minimum monthly payment for each.

Debt Minimum
Monthly
Payment
Credit Card A* 25.00
Credit Card B* 37.50
Credit Card C* 87.50
Car 500.00
House 1,100.00

*Minimum payment of $25.00 or 2.5% of unpaid balance, 18% interest on unpaid balance.11

Step 4 Pay extra on the debt with the lowest balance while paying the remaining debts at the minimum or required amounts each month.

If only the minimum amount ($25.00) was paid each month for Credit Card A, the total interest would be $33.27 and take 14 month to pay off. On the other hand, by adding an additional $75.00 each month (total $100.00), the debt would be paid off in 4 months, with total interest of $9.32.

Step 5 When the first debt is paid off, add that money to to pay off the next debt, then the next,  and so on until you are out of debt.

Please Note: The process of getting out of and staying out of debt only works if you are living below your means – spending less money than you take home. If you continue to spend more money than you take home, you will never get out of debt.

Financial Literacy Knowledge/Skill

How to get out of and stay out of debt.

Comments or Questions

Thank you for visiting the Financial Literacy Life Skill site. Please feel free to submit comments and/or questions you may have about managing your money (Financial Literacy).

Next week’s topic: Should you lend money to a family member or friend?