Lessons Learned on Insurance

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After Jeff Rose’s life insurance awareness movement, a reader asked:

“Nords, what insurance do you carry?”

Hunh. I’ve never thought of myself as an insurance role model, unless you’re part of a dual-military retiree couple with just one kid. Technology has certainly brought down the price of the insurance decision, so in some situations it’s more affordable than even a decade ago. We’ve also made a number of mistakes over the years that, with today’s knowledge and experience, we wouldn’t make again.

Let me share what we’ve learned over the last three decades.

Last millennium when I left home to join the military, I didn’t carry any insurance. I didn’t need to– I was young, invulnerable, immortal, unmarried, and childless. My parents had their own financial independence so they didn’t need anything from me.

I didn’t see any reason to carry insurance for myself, either. The Navy was taking care of all my medical & dental needs. My personal property had negligible value. Most of my military gear was bought used and had little value. My net worth was probably under $500.

That’s probably typical for most teens leaving home. There’s no need to insure a life or property. Health insurance is coming from parents, school, or an employer.

In 1981, instead of getting a “midshipman car career starter” loan from one of the military-friendly insurance agencies, I borrowed $6000 from my grandparents. While many of my classmates were paying for life insurance (and loans) that they didn’t really need, I was paying back $100/month to the world’s best lenders. I’d borrowed enough to make sure that I could afford car insurance, too. (I’ve been with USAA for over 30 years.)

This turned out to be the only time in my life that I’ve bought a new car, and the last time in my life that I carried collision & comprehensive insurance.

That midshipmobile traveled around the world with me (until I was an O-4!) so at first, the insurance was worth the price. After five years, though, I canceled the comprehensive & collision parts of the policy and just carried the minimum state requirement plus liability. (Today we haven’t had comprehensive/collision insurance for over 25 years.) By then I’d learned that I’d rather own investments instead of shiny new cars, and I didn’t put any more money into the car than the minimum to keep it running. The uglier it looked, the less chance it had of being stolen. Other drivers stayed clear of my dinged-up fenders, too, so my collision risk probably dropped.

For the first two years after college, I still didn’t have much more than a TV, stereo speakers, and kitchen utensils. I didn’t even buy any furniture until I reported aboard my first submarine, but I insured my uniforms and other military gear with Armed Forces Insurance. Within a year after reporting for sea duty, though, insurance got more complicated. I’d furnished a two-bedroom condo that I’d bought on a VA loan. The VA loan meant that I didn’t have to buy mortgage insurance, but I carried homeowner’s insurance with a high deductible and a hurricane rider. My personal-property insurance premiums also rose considerably.

By the end of that sea duty, life got busy. Girlfriend v3.0 upgraded to Spouse v1.0, we combined our households & finances, and we moved across the country from my cheap East Coast condo to a horrifically expensive Monterey condo.

I don’t remember much of an insurance discussion after our marriage. (Hey, I was on shore duty, I hadn’t seen my spouse for most of the last three years, and Monterey is one of the world’s largest adult playgrounds!) My spouse was active-duty military, too, so neither one of us really needed to insure the other’s life. However, a couple of our shipmates had already been widowed, so we bought $100K policies on each other. The idea was that the survivor would be able to leave the service if they wanted to, or at least get a head start on their retirement savings.

We combined our personal-property insurance. (Spouse had been stationed overseas, and she’d accumulated furniture & tchotchkes.) The Navy was still carrying our medical & dental expenses. Our crappy compact cars only had the state minimum insurance plus liability.

We bought our Monterey condo without a VA loan, so we ended up paying mortgage insurance for a couple of years. We also elected not to carry earthquake or flood insurance– not because that was such a great idea, but because we couldn’t afford see a reason to spend so much money. Policy choices were limited and very expensive, so we went with the primary residence “Special Form HO-3” type of policy that’s typical for almost all homeowners. We felt that it would be better to keep saving and self-insure, especially because we expected to sell the place within a few years. The mortgage debt was insured by the PMI and the lender didn’t require earthquake insurance, so we didn’t. The worst case would be having our home (and equity) destroyed by a disaster, walking away from the rubble, and then moving into a rental for the rest of our tour. Eventually, we transferred, sold our condo by ourselves into the rising real estate bubble, and made a profit.

Today our youthful homeowner’s hubris & chutzpah leave me gasping for breath, but back then in our ignorance, we really didn’t expect to have to deal with a catastrophe. We’d gone through several earthquakes that had only rattled the pictures. If I was buying a California condo again then I’d look for the highest-deductible earthquake/flood policies I could find, or I’d rent instead of buying a home.

What insurance lessons had we learned?

1. When you’re just starting out, buy as little insurance as you can. Focus on the catastrophic risks that you can’t cover with your own assets, and keep your deductibles high.

2. Vehicle insurance is expensive. The fewer new autos you own during your life, the more you’ll save. Buy used cars (for the lower insurance rates as well as the lower purchase price) and keep them as long as you can. You’ll reduce your budget, and the savings over 10-15 years helps you buy a (used) replacement vehicle with a cash discount.

3. While you’re on active duty, owning a home is a huge financial risk. Most new homeowners add to that risk by being tempted to under-insure. Minimize your risks: only buy a home when you leave active duty. At the very least, be reasonably sure that you’ll be in the area for at least five years.

4. Newlyweds should insure each other. It’ll make you feel more secure. The survivor may not “need” the money, but it’s a tremendous financial help in recovering from the trauma and the inevitable expenses. The money can also provide a cushion to work through the grief and decide what life changes to make.

I’ll wrap this post up in one week with the insurance issues around starting a family, being a landlord, leaving active duty, and retiring.

Related articles:
Pricing insurance and investments
Real estate: rent or buy?
So you want to be a landlord.
Military insurance: SGLI, VGLI, SBP, and other benefits
Military veteran & CFP Jeff Rose on the life insurance movement
USAA:  Seven Life Insurance Myths That Can Cost You

WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

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