Today’s the fourth episode of my “Back to Basics” series about being brilliant at the basics or core principles of finance. So far, I’ve covered the Thrift Savings Plan, cash flow, and saving smarter, and today, I’m going over another important topic that is often misunderstood: insurance.
Understanding insurance is essential for managing risk and protecting your financial gains and well-being, but it can also help you recover if there’s an unexpected life event like an accident or illness.
In this episode, I’m going over:
- Why insurance is important
- Types of insurance you need
- How to choose the right insurance
- Common mistakes to avoid
- Maximizing your insurance benefits
What is Insurance?
Insurance is a financial agreement where you pay regular amounts which are called premiums, to an insurance company. In exchange for those premiums, the company provides you financial protection against specific risks, like an accidents, illness, or property damage. If something covered by your policy happens, the insurance company helps pay the costs, which helps you avoid a major financial loss.Why Insurance is Important
Insurance is important because it’s a financial safety net that protects you from big losses from unlikely or unexpected events. Being in the military is serious business and means facing unique risks and challenges that make insurance even more important. Whether it’s health issues, accidents, or property damage, insurance helps you and your family cover the costs of those events so you don’t have to drain your savings or go into debt. That’s why you need insurance. Insurance also gives you peace of mind, allowing you to focus on your job, health, and family without worrying about the financial impact of unexpected events. You cannot control Mother Nature or what other people do, so insurance is a great way to protect yourself from things outside your sphere of control. You can keep a fire extinguisher in your kitchen, but that doesn’t mean other people will.Types of Insurance You Need
Several types of insurance are good before, during, and after military service. One of the perks of serving in the military is that some of your insurance is covered or greatly reduced.Health Insurance
Health insurance is so, so very important to cover your medical expenses. The military provides medical coverage for service members. Family members and retirees can use TRICARE, which has fees. You’ll want to understand the different plans available under TRICARE to choose the one that best suits your needs. I have a whole article on TRICARE that I’ll link in the notes. Veterans can get free health care if you meet the eligibility requirements.Life Insurance
Life insurance ensures your family is financially secure if something happens to you and they need your income replaced. The Servicemembers’ Group Life Insurance (SGLI) provides low-cost term coverage to eligible service members. Also, the FSGLI is for family members, and the VGSLI is for veterans. However, many purchase term life insurance from insurance companies to cover additional life insurance needs. Or for military spouses to replace their income in the event of their death or, if they are stay-at-home parents, to help cover childcare needs.Auto Insurance
Required by law, auto insurance protects you against financial loss if you have an accident. Look for policies that offer comprehensive coverage, especially if you live in areas prone to natural disasters.Homeowners or Renters Insurance
This type of insurance protects your home and personal belongings. Renters insurance is crucial for those living on base or in the dorms or barracks because it covers your possessions in case of theft or damage. Again, you may take precautions and not leave a candle burning when you leave your room, but that doesn’t mean the person next door does.Disability Insurance
This insurance provides income if you’re unable to work due to an injury or illness. This can be important if you’re the primary caregiver of a special needs child.How to Choose the Right Insurance
Choosing the right insurance involves evaluating your needs, understanding the coverage options, and comparing policies. Like everything else in personal finance, the decisions should be based on what you need, not what everyone else has. Here are some steps to help you make an informed decision:1. Assess Your Needs
Consider your financial situation, dependents, and risks. For example, if you have a family, life insurance is crucial. If you have a bunch of teenage drivers, you may need additional auto coverage.2. Research Options
Look into the different types of insurance available, especially those specifically designed for military personnel, like SGLI and TRICARE. You also want to consider your timing. For example, if you need additional term life insurance, you probably want to be looking at that before you’re over 40 and getting ready to get out of the military.3. Compare Policies
Don’t settle for the first policy you find. Compare coverage options, premiums, and benefits from different providers. There are plenty of free tools online for comparing policies. I’ll include links to some in the show notes. It can be time-consuming, but the pain of comparing can save you lots of money and heartache later.4. Read the Fine Print
Understand the terms and conditions, including exclusions and limitations. This will help you avoid surprises when you need to file a claim. For example, a life insurance policy may not pay out if you’ve missed payments. Make sure you understand everything. One of the beautiful perks of AI is that you can copy and paste anything you don’t understand into ChatGPT or your favorite AI platform and write the prompt to “explain this to me like I’m an 8th grader.”5. Seek Professional Advice
If you’re unsure, consider speaking with a financial planner or an independent insurance broker who understands the unique needs of military families. They understand the insurance world and can answer questions about your specific situation.Common Insurance Mistakes to Avoid
Mistakes, we all make them. Here are some to avoid.1. Underinsuring or Overinsuring
Make sure you have enough coverage to protect your assets, but don’t pay for more than you need. Review your policies regularly to ensure they match your current needs. And talk to a professional if you are unsure. It’s upsetting to hear that people don’t have enough money to cover their needs after a tragic situation.2. Not Updating Your Beneficiaries
You all know I love to bring this one up, and for good reason. It also sucks to hear that life insurance payouts are going to ex-spouses or the person you didn’t intend it for. If you have a life change, like marriage, divorce, or the birth of a child, you should update your insurance beneficiaries with a quickness.3. Ignoring Policy Details
You must read and understand your policy to avoid misunderstandings and denied claims. Always read the fine print, and if you don’t understand, don’t worry about it. Most everyone doesn’t under legal talk. Just be sure to ask someone or AI to explain.4. Missing Payment Deadlines
Late payments can result in policy cancellations. Set up automatic payments or reminders to ensure you don’t miss due dates.5. Neglecting to Shop Around
Insurance markets change. You might find better deals or coverage by shopping around periodically. Or if your situation changes, for example, you may love your car insurance plan but now have two teenagers driving and need to find another plan that has a lower cost.6. Lying on Your Forms
Don’t stretch the truth about your situation to get better benefits at a lower cost because it can cause your rates or quoted rates to go up. If you’re trying to get term life insurance and tell them you’re a non-smoker and never drink, but you really smoke and love a glass of wine every night, they are going to find out. Your medical evaluation and blood test will tell them the real story.Maximizing Your Insurance Benefits
To get the most out of your insurance policies, follow these tips:1. Bundle Policies
Many insurers offer discounts if you bundle multiple policies, such as auto and home insurance. We’ve all heard the commercials: save money when you bundle.2. Take Advantage of Military Discounts
Many insurance providers offer discounts to military personnel and their families. Always ask about available discounts.3. Stay Healthy
For health and life insurance, maintaining a healthy lifestyle can lower your premiums. Regular exercise, a balanced diet, and avoiding vaping and tobacco can make a significant difference. Not to mention, you’ll feel better4. Review Annually
Your insurance needs can change over time. Review your policies annually to ensure you have the right coverage and to make adjustments as needed.Recapping Insurance Basics
Now for the wrap-up on insurance basics. Having the right insurance coverage is a critical component of your financial life. By understanding the types of insurance you need, choosing the right policies, and avoiding common mistakes, you can protect yourself, your money, and everything you’ve built from hardship. If you want to explore insurance some more, I have some articles that I’ll link to in the show notes. Thank you to Navy Federal for providing support to the MILMO Show. You can also head over to milmo.co to get all of the resources and links from this episode, and while you’re there, be sure to sign up for the MILMO Memo newsletter to get all my updates. If you found this show helpful, please subscribe and share, please and thank you! I appreciate you listening. I’ll talk to you next week. Related episode: When and Why to Buy Life InsuranceInsurance Basic Resources
- Back to Basics Series Part 1- Thrift Savings Plan Basics for Service Members
- Part 2- Back to the Basics: Managing Cash Flow
- Part 3 – Back to the Basics: Save Money Smarter
- How to Get the Most Out of Your TRICARE Benefits
- Protect Your Health and Wealth with TRICARE Around the World
- The Zebra (compare home and auto insurance)
