In Part 1, I discussed the importance of building a strong financial foundation by budgeting and starting an emergency fund. In this post, I’m going to talk about protecting that foundation against risks by using insurance.
You’re going to learn the basics of various types of insurance products on the market today, and why they might be right for you.
If you’re setting out on a journey to be location independent, it’s important you understand all the financial risks involved so you can decide whether or not you want to purchase an insurance policy that protects you against a big expense. An unexpected loss in income or medical bill could throw your adventures into a tailspin!
Our biggest financial risks boil down to 1. Loss of income and 2. A major expense. Both have the capacity to significantly impact your finances.
Although we can’t protect against every risk, we can use insurance to help. Insurance is one of those “double sided swords.” You pay for it hoping you’ll never need it, but if you do, you’re sure glad you have it!
Your emergency fund is actually one method of self-insurance. If you were to lose your job or had an unexpected expense, your emergency savings can bail you out for a short period of time.
Some things are too expensive to self-insure such as totaling your vehicle or RV or an emergency hospital visit. This is why auto and health insurance plans exist.
Let’s look at some popular insurance plans that you might want to consider before you hit the road, and what you should keep in mind if you are traveling full-time.
Most people are familiar with health insurance as this is a common benefit provided by employers. Your health insurance plan helps cover medical expenses you have throughout the year.
If you’re traveling full-time however, getting good health insurance coverage could be difficult.
The best scenario is if you work full-time for a company that allows you to work remotely and provides a health insurance benefit. This is called group insurance because your employer is providing it for the “group.”
Typically, it doesn’t matter where you live, you will still have coverage if you need it. It’s important you check to see if there are any doctors, urgent care centers, or hospitals in your insurance network in the area you plan to travel.
If you are self-employed, and you travel full-time, you might find it much more difficult (and expensive!) to find a decent health care plan.
One of the benefits of full-time travel is that you’re not tied down to any particular city or state. Most health insurance companies don’t like this; however, you still have options.
RVer Insurance is a popular resource for full-time RVers looking for help finding a health insurance plan right for them. You can also consider non-traditional insurance plans such as Liberty Health Share.
If you’re retired and eligible for coverage under Medicare, you don’t have much to worry about! Medicare is a nationwide plan and is accepted by a majority of providers in the country.
Regardless of your health insurance needs, a financial planner can help you decide what coverage is right for your situation, and can help point you in the right direction
If you are traveling out of the country, your US health insurance plan most likely will not cover any care you need while abroad. Some travel insurance companies do offer basic medical coverage.
I discuss travel insurance a bit later on.
Personal Liability (aka Umbrella) Insurance
I’m going to largely skip over Auto, Homeowners, and RV insurance because these are fairly basic policies that don’t change much for full-time travelers.
These policies cover damage to your vehicle, home, or RV in case of an accident. They also cover you for damage you might have caused to someone else’s property.
A policy you might want to consider is called an Umbrella Policy, or Personal Liability Insurance. Liability coverage protects you against damages you cause to someone else because of your mistakes.
Umbrella policies provide extra liability coverage above and beyond what your auto and homeowners policies cover.
For example, let’s say you have $50,000 of liability coverage on your auto policy, and an umbrella policy with $1 million worth of coverage. If you get into an accident with a family of 4, and you were at fault. The costs for this accident can quickly exceed $50,000 especially with the cost of today’s healthcare!
If you were liable for $250,000 worth of damages, your auto insurance would cover the first $50,000, then your umbrella policy would kick in to cover the remaining $200,000.
Umbrella policies typically start at $1,000,000 worth of coverage and can be relatively inexpensive. If you spend a lot of time on the road, you might give this type of policy some consideration.
The general idea of life insurance is to provide extra income when you die. It’s not a very thrilling topic for discussion, but it can be important, and inexpensive coverage to protect your family.
Life insurance is right for you if other people are dependent on your income. If you die unexpectedly, life insurance benefits can be used to replace the income you would have made until retirement. People use this money to fund retirement or education accounts, pay off debt, or to cover funeral expenses.
The most basic type of life insurance is called term insurance. You purchase this insurance for a specific “term” of years, most commonly 20 or 30 years. The younger you are, the more inexpensive these policies are. A healthy 25 year old might expect to pay $25-$40 per month for a 20 or 30-year term policy.
There are many other types of life insurance products on the market that some insurance agents might try to sell you, but beware…these products are typically expensive and don’t always make sense for everyone.
Some advisors are biased in these recommendations because they receive a commission on selling these products. The best advice I can give is to seek out a “fee-only” fiduciary financial planner who will keep your best interests in mind.
How much life insurance coverage do you need? It depends on multiple factors. A general rule of thumb is 10 times your salary, but your financial planner can help you calculate what is right for you.
According to the Social Security Administration, 1-in-4 20 year olds today will become disabled at some point before they reach retirement. That’s quite a high percentage if you ask me!
If you’re retired, you don’t have to worry about losing income if you become disabled. If you work for a living, becoming disabled for even 6-12 months has the potential to cause significant financial hardship.
Enter, disability insurance. Long-Term Disability insurance provides a percentage of your salary as income should you become disabled.
If you’re working and can’t afford to lose your job, then you need to consider a Long-Term Disability plan. Most employers will offer this type of plan as a benefit, but if not, you can still purchase coverage on your own.
Of course, the more likely you are to become disabled, or the higher your salary, the more expensive the policy will be for you.
Lastly, I want to touch on travel insurance. Travel insurance can come in handy if you are traveling out of the country.
Basic coverage includes protections if your trip were to be interrupted for some reason. Let’s say you had to come back home in the middle of your journey due to a family emergency. The cost of a last minute international flight is probably well into the thousands.
Travel insurance will cover the costs in these instances, although you should carefully read your policy to understand what specific situations are covered.
Some travel insurance companies will also offer medical coverage. This could be important for you, especially if you will be out of the country for any length of time. If you get so sick or injured that you need to return home, this coverage may also kick in. Again, read your policy carefully!
Even though this is a rare, and morbid, scenario, if you were to be killed while traveling, your travel insurance should cover the costs of returning your remains back home. When you consider the fact that returning your body back to the U.S. could cost your family members up to $10,000, then this coverage seems to make more sense.