During our most recent FREE Monthly Teleconference, questions were raised about insurance.  This led to an interesting discussion I thought best to share here.

But first, let me share some personal opinions on insurance. These are based primarily on an insurance class I took as an undergraduate engineering student. Although not a technical class, looking back it was one of the most valuable courses I took for the common sense advice it provided. Here were my general takeaways:

• Be sure to insure the big risks. Buy what you need, but make sure you cover major risks that might bankrupt you. Consider umbrella policies, which are often inexpensive for the extra coverage they provide.
• Self insure small risks. Take the largest deductible you can afford. Use the savings to add coverage at the high end if needed.
• Shop around. Brokers can be helpful as they can search many companies. Dedicated agents can often save money by bundling policies, particularly personal insurance.
• A good agent is worth their weight in gold. I consider my personal insurance agent a member of my business team, and am willing to pay a reasonable premium for service. Just as I do for other advisors — accounting, legal, financial.

Business Insurance – two types to consider – typical purchase options include business insurance brokers or professional societies.

–General Liability-– AKA business liability insurance, it covers costs for property damage claims against your business, and medical expenses if someone gets injured at your company. It does NOT cover malpractice (see below.) Often required by clients if you are going to be on-site. We carried this insurance.

–Professional Liability– AKA malpractice or “errors and omissions” insurance, it covers you and your company if you make a mistake in your professional services. On the advice of our attorney, we did not carry based on the nature of our work. But be sure to discuss with your attorney to determine if you need it.

Personal Insurance – four types to consider – typical purchase options include personal insurance agents or professional societies. The first will likely offer individual policies,  while the latter may offer group rates.

—Medical Insurance — In my opinion, everybody should carry medical insurance. A catastrophic illness or accident could wipe you out. But don’t insure the small stuff. Instead go for the highest deductible you can afford. Consider “health savings accounts.”

Group plans are usually cheaper than individual plans, so check for plans though professional societies or similar organizations. If married with an employed spouse, simply go with their plan. Many of my consulting colleagues do the latter.

In my case, I went for an individual family policy with a high deductible. It was still pricy, but necessary. When I became eligible for Medicare, it was like getting a raise. One of the few benefits of growing older 🙂

–Life Insurance-– The goal here is to cover survivor needs for the foreseeable future. If you have dependents, yes, you need this. If not, or if you are older and/or financially independent, then may no longer be needed.

In my case, I carried two large term life policies when younger, but decreased coverage as I aged, the kids left home, and the mortgages were paid off. I have one remaining term policy with my professional society that decreases in value each year. It is relatively inexpensive so I keep it, although it may not make sense.

–Disability Insurance– Like life insurance, the goal is to provide income if you become incapacitated. A good idea if you have dependents, or if you are not financially independent and could not survive financially without your business income.

There are two flavors — short term and long term — the difference being the “waiting period.” I never carried short term, but carried long term with a six month waiting period. When I approached 62, I dropped it as I could apply for Social Security disability if needed.

–Personal Liability– Not business insurance, but good to have through your homeowner’s and auto policies. For extra coverage, consider a liability umbrella. Even several million dollars of umbrella coverage is pretty inexpensive. I consider it worthwhile to protect my net worth that I have worked hard to achieve.

The bottom line – Don’t fret about insurance. Rather, consider it a cost of doing business and a way of managing risk. The business premiums are normally tax deductible. Shop for rates – don’t over insure, but rather buy what you need at a comfortable level of risk.

Hope this very basic insurance review was helpful. More information here:

• Insurance Questions (2011)
• More Insurance Comments (2011)
• Do I Need Client Insurance? (2016)

Disclaimer – This is not professional advice. If you have questions, ask your attorney or accountant for advice. (Always a good idea anyway.) Finally, don’t rely solely on insurance agents. As my financial advisor always says, “Never ask a barber if you need a haircut.” That said, I have found my insurance agents to be honest and helpful.

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