We all need health insurance. And thankfully, much has been done in recent years to expand access (let's hope it survives the Republican challenges, but I digress).

Unfortunately, in the US, health insurance continues to be tied to employment, which I think is insane. But here we are. That makes it challenging for those of us who are self-employed or run our own small businesses.

Often, the easiest (if not the best or always cheapest) choice for health insurance is to purchase a policy on one of the Affordable Care Act exchanges. Which exchange you use depends on your state of residence.

If your practice employs someone other than you (and you're not related to that employee), you are then more easily able to purchase a group insurance policy on the private market. You may want to check out if any of the professional associations of which you're a member have pre-qualified any insurance brokers or insurance companies that would offer such a policy.

This area is too complex for me to dive deeply into at the moment (as I'm feverishly working away to finish the first version of this guide), but I plan to create some additional content in the near future. I'll email you when that content drops.

This one is pretty straight forward. If you own and drive a car, you're required to have liability insurance. So you should get that. But whether you choose to carry comprehensive coverage is a more nuanced decision.

Comprehensive coverage is the coverage that will repair your car if something happens to it. If you're leasing or still have a loan on the vehicle, you'll almost certainly be required to carry comprehensive coverage. But once the vehicle is paid off, it's entirely up to you. Eliminating comprehensive coverage would save you some money in premiums and might be something to consider. 

However, remember absent comprehensive coverage you would be on the financial hook to repair the vehicle if something were to happen (regardless of whether you were at fault or not). If you're not at fault, you can sue the responsible party (or their insurer) for damages, which is something your insurance company would typically take care of for you (if you had comprehensive coverage that is).

Carrying homeowners insurance is an important policy if you own your own home. These policies usually also cover some of your personal possessions, even if they aren't stored in your home. They also provide some liability protection if something were to happen in your home or on property you own. These are typically smart policies to have and don't typically cost all that much.

Renter's policies are also a good idea to purchase if you don't own your home. Of course those policies won't cover the physical structure itself (it doesn't belong to you, so it's not your risk to worry about), but it will cover some of your possessions and protect your from liability. Your lessor might also require you to carry renter's insurance (mine does).

Scheduled Property Riders

What the heck does that mean? A rider is simply an add-on insurance policy attached to the core, or standard, policy. Scheduled property simply means there are specific items (usually high value ones like jewelry) that you've listed on a schedule (with that schedule being incorporated into the core insurance policy). If you own certain high-value items like jewelry, you will likely want to add a scheduled property rider to your home owners or renter's policy. Standard policies typically have absurdly low reimbursement limits for high-value items.

Earthquake & Fire

In certain areas of the world (like Los Angeles where I live) there are additional risks to your home which might require specific additional insurance policies. Earthquake and wildfire coverage is almost always specifically excluded from typical home owner's and renter's policies. A lot of people skip these insurance policies, especially earthquake. And that's understandable because it's quite expensive. But just remember that means you're on the hook to repair your house if it's damaged in an earthquake. And that, too, can be expensive.

No easy answers here, but have a think about the different risks to which your property is exposed and what the financial implications would be to you if any of those events came to pass. And be sure and carefully review you existing insurance polices for those events which are excluded from coverage. That will enable you to consider what additional policies you might wish to purchase.

A personal umbrella liability insurance policy is a general liability policy that covers you (because it's an umbrella of course) once the liability protection provided by your auto and home owners insurance polices is exhausted.

And in general, most people need an umbrella. Because sometimes it rains. Do YOU need a personal umbrella liability policy? The answer is probably yes. And yet not everyone needs one. 

I will say that vastly more people truly need umbrella policies than hold them. I know some financial planning colleagues who advocate everyone carry an umbrella policy once they reach the age of majority (usually 18). Yes, that means they encourage clients to purchase their children an umbrella policy the moment they turn 18.

Is that overkill? I dunno, it's hard to say. You might think that if you own little in the way of assets (or even have negative net worth... thanks much, student loans) that an umbrella doesn't make much sense. And you may be right. BUT be aware that some courts may award damages out of your future earnings. That means even though you may just be swimming in a sea of student debt, you could still want to have an umbrella to protect your future wages from being garnished.

Are the nightmare scenarios an umbrella protects you against likely to happen? No, not particularly. But they DO happen. And umbrella insurance is reasonably inexpensive for the protection. 

I personally carry $2 million in coverage (policies are usually sold in one million dollar increments) which is decidedly more that my net worth. That $2 million in coverage costs around $700 per year. The cheapest thing ever? No, but it does help me feel more secure.

There is a pretty good chance you'll go through life never needing an umbrella.  But if you need one and don't have one, it's a real bummer.

Disability insurance provides you a certain percentage of your income if you become unable to work. It's a common insurance policy to receive as an employee benefit, but when you run your own practice, you get to decide whether you want it or not.

Do you need disability insurance? You don't always, no. You should think carefully about what type of disability would render you unable to work before deciding if purchasing a policy is right for you.

If you do decide a disability insurance policy is worth having, check out and see if any professional organizations of which you're a member offer discounts. CAMFT offers a policy for example.

You should also familiarize yourself with the different definitions of disability used in these insurance policies. If the definition is too narrowly constructed, you might consider yourself disabled when your insurance policy doesn't (and won't pay you as a result).

Also keep in mind that if you're self-employed or own your own practice, insurers typically look at your last year's tax return to determine the base earnings they will cover (and then would pay you a percentage of that base). So if you're about to start your own private practice and might have lower earnings for the next few years, you might want to get a policy in place sooner rather than later.

Here's a Nerd Wallet article providing a pretty decent overview of Disability insurance.

Prefer to listen to a thoughtful discussion around this? Listen to my friends Scott and James discuss on their Real Personal Finance Podcast episode: Do I Need Disability Insurance?

When do you need life insurance? Probably ONLY when someone you care about will suffer financially as a result of your untimely death. 

If that statement doesn't describe you, life insurance is likely not something you need. Read on for cautions about how life insurance is often (inappropriately) sold.

If you have dependent children, you almost certainly need (term) life insurance. (Unless they don't depend on your earnings for financial support.) This is one of the very few absolute must-dos in the world of financial planning. Get term life insurance to cover their needs if you can't provide for them. (There's potentially a need for disability insurance here as well.)

I'd also suggest you think through if a stay-at-home parent should carry life insurance. Sometimes this get overlooked, but if the stay-at-home parent were to pass, there would be greatly increased child care costs. Or, the surviving spouse may choose to take a few years away from work to be with their children. Life insurance can financial support for navigating such a situation.

You may need life insurance even if you don't have children.

Even if you don't have children or other dependents, life insurance may still make sense. If you were to die, would your spouse need to start (or keep) working to pay living expenses? Even a small life insurance payment can help ease the financial stress of your passing. Eric & Kali are a husband and wife team who run their own financial planning firm, Beyond Your Hammock. Eric wrote an interesting article about why they chose to purchase life insurance policies on one another even though they don't have children.

Eric also wrote this excellent article that aligns with the way I think about life insurance, and how to evaluate if you need it. He also covers how to navigate the conflicts that life insurance salespeople have.

If you'd like help thinking through Life Insurance a bit more, my friends Scott and James over at the Real Personal Finance Podcast have just the episode for you: Do I Need Life Insurance?

At some point, life insurance will likely no longer make sense.

If you're independently wealthy and don't need to work, you likely don't need life insurance. If you were to die, you'd sadly be gone, but your money will still be here. And of course, you have a solid estate plan in place to make sure that wealth is transferred effectively and efficiently to your dependents. You do, right? If you don't, please use the time you would have used to purchase life insurance and go find a qualified estate planning attorney. (And I will add that life insurance can be used  as part of a sophisticated estate plan for very high net worth families.)

How much life insurance do I need?

It's hard to know how much life insurance to purchase. This Nerd Wallet article provides a pretty good overview of how to think about this. The  article does mention that you want to include enough of a life insurance benefit to pay off your home mortgage. And maybe you do, but let's take a moment to talk about debt payoffs in a bit more detail.

First of all, if you have federal student loan debt, no one needs to pay that off if you die: that debt is discharged upon your death. However, there is a potential risk that that debt forgiveness creates an income tax liability - and that would be a good thing to have life insurance policy proceeds to pay for.

Second, think through what would really happen to your assets and debts if you died. If you're single and die with a bunch of debt, that's tough luck for your lenders (I mean, worse luck for you but I digress): no one else is on the hook for your debts. Your creditors could go after whatever assets are held by your estate, but no one in your extended family is on the hook for any of that. There is one big exception to this: anyone who has co-signed on any of your debts. Those folks are still on the hook and life insurance might be a good tool to protect them.

If you have a family, debt payoff requirements get more complicated. But again, you need to think through whether you need life insurance to fully pay off your debts. If you have a spouse, or children, they'll still need a house to live in and likely a vehicle for transportation. But do they need to pay off the mortgage and car loan entirely? Maybe, but maybe not. They really just need money to continue making the mortgage and loan payments. If you want to provide a huge lump sump life insurance benefit to pay off all debts, that's of course fine.  But you have to pay a higher insurance premium to get that benefit. Like in all areas of personal finance, it's all about balancing cost and benefits.

Term Life or Bust

Someone may have tried to sell you on the benefits of a whole life (or permanent life) insurance policy. They are almost certainly pulling one over on you. In all but a few cases, simply buying term life insurance for the amount of coverage you need is the right move.

UNLESS you're solving a thorny estate tax problem or business transfer situation. In those (fairly unusual) cases, whole life insurance might make good sense. In all other cases, just stick with term.

What's that? You've heard that whole life policies can be a great investment and you'd like to hear more about why I think term is better? Ok, fine. Please give me one moment, I just have to climb up on my soapbox. Ok, I'm all set. Let's do this.

Life Insurance Rant

When is the wrong time to buy life insurance? When you're buying it for any other reason than for its value as life insurance. With very few exceptions (that aren't even worth writing about), life insurance is not a good vehicle for savings nor is it a good store of value against which to borrow. If you've been told that, ignore that advice. It's nonsense. Whoever told you that is probably hoping to earn a big commission on selling you something you don't need.

One thing insurance agents seem to love to do is sell whole life insurance policies. This despite the fact that 99.999% of the time all you need is a simple term life insurance product. And term life insurance is cheap. Whole life policies are expensive - often unbelievably so. You can guess which type of policy will earn the selling agent the biggest commission.

Despite what many sales agents will tell you, insurance polices are rarely (if ever) good investments or appropriate ways to save for retirement. Unless you're solving a thorny business transfer or estate tax planning issue, you are almost always better off with term insurance. Sure, there could be that 0.001% of the time where whole life is better than term life. But I'll believe that when I see it. Rant over.

If you have business partners, life insurance can be an important tool.

And since you own your own private practice, think though what might happen if you (or one of your coworkers or co-owners) were to unexpectedly pass away. This is another reason to carry life insurance. But using insurance proceeds to fund post-death business buy-outs gets complicated very, very quickly. I highly recommend you consult a qualified financial planner and estate (and tax) attorney.