Protect Your Assets - ch 21 Bogleheads Series at Catch a Gideon

December 8th, 2006 by digerati

This is Chapter 21 in the Bogleheads series here at Catch a Gideon. We are going through each chapter in the book and letting you know what we learned from reading it. You should buy the Bogleheads Guide to Investing. It has more examples and more depth than I’m giving here, and is overall an excellent investment book.

Protect Your Assets by Being Well Insured

Bad stuff happens. Make sure to carry insurance to protect your financial assets in case of disaster. Types of insurance you may need:

Life insurance - for anyone in your family on whom others depend for financial support
Health care - coverage for everyone in your family.
Disability - insurance on any breadwinner whose future income is vital
Property - insurance in case of fire, theft, or other disasters
Auto
Liability - protection against expensive lawsuits
Long-term care - for older family members to prevent nest-egg erosion

Common Insurance Mistakes

Being a good investor means managing risk well. Managing risk means covering the downsides that can happen.

Common mistakes are:

Insuring the unimportant (TVs?) while ignoring the crucial
Insuring based on the odds of misfortune
Insuring against specific narrow circumstances

Insuring a TV against braking or failure may protect an expensive item, but a TV is unlikely to cause financial ruin if it breaks. Insuring against liability in a lawsuit is a better option.

Never fail to buy insurance because of the slim chances of something happening. Protect yourself from disaster regardless of the chances. If it is unlikely to be needed, then take the highest deductible you can afford so the premiums are lower.

How to be properly insured

Only insure against big catastrophes and disasters that you can’t afford to pay for out of pocket.
Carry the largest possible deductibles you can afford.
Only buy coverage from the best-rated insurance companies. You need to be able to depend on them when you need to file a claim.

You should buy the Bogleheads Guide to Investing.