Vacation Nightmare… How to know what to insure and what to self-insure

We experience risks every day whether you know it or not. In order to figure out what risks we need to outsource to an insurance company and which ones you can self-insure, you have to ask yourself two simple questions:

How much would it cost if I didn’t insure this? Would that be financially catastrophic?

Here is a situation to help you figure out what to insure and what to self-insure…

Let’s imagine you finally decide to go on your dream vacation with that special someone to the Caribbean with your brand-new iPhone that you just bought. After just boarding, and trying to take a selfie over the edge of the ship, you accidentally drop it into the water below. Sounds like one of the worst things possible especially if that was your only camera, right? As much as that sounds like it would be catastrophic, it would probably cost a few hundred bucks to replace. Now don’t get me wrong, that still hurts but for most people that would not be financially catastrophic and so they may be more inclined to skip the insurance plan that the cashier offers them at checkout.

After realizing that it was in fact your only camera and you had time before you departed, you run off the ship and drive furiously to the closest phone (or tech) store to get a new phone. On the way, you rear end a lawyer in his Porsche. It was a pretty bad crash and you totaled his new $280,000 (and appreciating) 911 GT3RS. Chances are that he is going to sue you for the price of the car as well as any medical expenses and time off of work that he incurs, right? This could be pretty financially devastating seeing as though most people’s car insurance only covers $100,000 of that. Anything over that amount goes to you personally. Since this is a risk that everyone is susceptible to, you should consider outsourcing that risk to an insurance company in the form of an umbrella policy and penny up the slightly larger monthly payment.

Now say you are a surgeon and you finally get back on that same cruise that you dropped your phone on and you are riding the fancy new zip line on the ship and you accidentally get your hand caught in the pulleys and severely damage your hand and can’t work for the next year. Now that is also potentially financially catastrophic. In this circumstance, you would want to consider outsourcing the risk of something like this happening to an insurance company in the form of disability insurance.

Even worse, what if Titanic round two happens and you don’t come home from that cruise? This obviously wouldn’t be financially catastrophic for you but who would it impact? Is someone you love, reliant on you and your income to survive? If the answer is yes, then you might want to strongly consider outsourcing that risk of you dying to an insurance company as well in the form of life insurance.

As ridiculous as some of these situations sound, don’t take my jovial tone on these quite serious threats lightly. Some things are out of our control and we are exposed to dozens of risks every day. The important thing is to become aware of these risks and make sure that you are prepared for the consequences of these things happening because you really never know what could happen.

Michael Foley, CFP®, CSLP®

Author: Michael Foley, CFP®, CSLP®

Michael works with professionals to establish harmony in their lives through tailoring comprehensive financial plans, while also providing a variety of investment and insurance services.

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