A good waste of my money
Sometimes we waste money by buying things that we either don’t need, or get little benefit from, or that don’t last, or that don’t add to our wellbeing. Sometimes it’s all these things.
But sometimes it’s good to ‘waste’ money, and that includes buying human insurance that you never make a claim on. Human insurance is an insurance policy which pays out if you can’t work due to illness or disability, or you get a critical illness, or you die.
It’s human nature to avoiding thinking about getting ill or dying. After all it’s hardly inspiring or energising. That’s why many people downplay the risk and tell themselves ‘It won’t happen to me’ or ‘I’ll take my chances.’.
I won’t bother to set out the facts of how many people end up off work sick for more than three months or how many people die before 65 (but you can see the statistics if here you want for illness and death), because that would be trying to appeal to your logical brain. Instead I want to appeal to your emotional brain. The part that says you want to feel in control, you want to feel secure, you want to feel that you’re doing the right thing for those you love.
Recently two of my life insurance policies reached the end of their term. I took one of the policies out 20 years ago and it cost me about £10,000 in total premiums. The other I took out 10 years ago and it cost me about £12,000 in premiums.
That’s about £22,000 that I couldn’t use to invest in my portfolio, spend on nice holidays, new clothes, or buy new things for my home.
But what did it give me?
The £750,000 of life cover the two policies provided gave me peace of mind that my family would be financially secure if I died. They also made me feel I was doing the right thing for my family and that my wife would have choices and options in the event of my early death or disablement.
It also gave my wife comfort to know that she would have enough money to raise our children without having to worry about money – the money that I would not earn - if I was dead or seriously ill.
As a rule, if you are working and still building wealth you need to make sure that you have enough human insurance in this order:
Income protection – to pay you a proportion of your gross salary in the event of a prolonged illness or disability (if you are employed check what your employer provides).
Life insurance – to repay any debts not covered by assets or to provide for anyone who is financially dependent on you.
Critical illness insurance – to pay out a lump sum in the event you suffer a serious illness like cancer, stroke or heart attack or a permanent disability. This is often available as an optional extra to a life insurance policy.
Private medical insurance – depending on the quality of your local health service and your available income, this is a nice to have, not a must have.
I’m very pleased that I spent £22,000 on that human insurance because, as well as providing a financial safety net over the past 20 years, the fact that I haven’t claimed means that I’m still alive, and that makes me very happy indeed!