Insurance for People who are Pursuing Financial Independence or FIRE

FIRE - or financially independent retire early - is a goal of many. The best insurance for people pursuing financial independence is LTC insurance, or long-term care insurance. LTC insurance for the financially independent covers your personal and custodial care later on in life as you age. This guide will walk you through what other types of insurance are the best for those pursuing financial independence.

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Natasha McLachlan is a writer who currently lives in Southern California. She is an alumna of California College of the Arts, where she obtained her B.A. in Writing and Literature. Her current work revolves around insurance guides and informational articles. She truly enjoys helping others learn more about everyday, practical matters through her work.

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Laura Walker graduated college with a BS in Criminal Justice with a minor in Political Science. She married her husband and began working in the family insurance business in 2005. She became a licensed agent and wrote P&C business focusing on personal lines insurance for 10 years. Laura serviced existing business and wrote new business. She now uses her insurance background to help educate...

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Reviewed by Laura Walker
Former Licensed Agent

UPDATED: Nov 14, 2020

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For many people, being financially independent means being able to afford to live your lifestyle with assets aside from your monthly paycheck in the form of passive income. Many people set this goal for themselves to pursue and it’s not hard to see why. Achieving financial independence early on can boost your savings and get you closer to an early retirement.

Unfortunately, life is uncertain and there are a lot of things that can go wrong along the way preventing you from being financially independent. While you can easily manage some of them, there are things like accidents and disasters that are beyond your control. This is where insurance comes in.

Buying certain types of insurance plans will allow you to transfer some of the risk to the insurance company by paying them a nominal premium.

In this article, we will discuss many types of insurance and their importance in your pursuit of financial independence.

Health Insurance

It’s no secret how expensive medical bills in the United States can get these days. A study by the Physicians for a National Health Program have also shown a correlation between bankruptcy and unexpected medical bills.

With this grim reality, it is smart to protect yourself by getting a good health insurance plan that would cover the treatment of illnesses or accidents.

If you don’t have one yet, here are some things you need to consider before signing up for one.

  • Monthly premium and deductible. When you get a health insurance plan, it entails you paying a monthly premium whether or not you use your insurance that month. Meanwhile, the deductible is the amount you have to pay before your insurance kicks in.
  • Network type. Depending on which type you choose, you can be limited to getting medical care from a selected few hospitals and doctors.

With health insurance coverage, you can save thousands, if not hundreds of thousands of dollars, in the event of a major injury. This can help to ensure that your plans for financial independence are not derailed.

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LTC Insurance

LTC insurance, or long-term care insurance, is a type of insurance which covers your personal and custodial care in the long-term, as its name implies. It creates a stream of available money for some of your personal care over a length of time, thus helping to ensure that you will have funds in the long term to remain financially as well as physically independent, even if you end up requiring regular care.

This is a great one to have as it ensures that you would be able to get access to assistive care later on in life as you age. It reimburses you a daily amount to pay for special care services depending on a variety of things like how old you were when you got the LTC insurance and the number of days (and years) that your policy will cover.

While this insurance is great to have, it can get pretty expensive. For example, the U.S. Department of Health and Human Services estimates that premiums for LTC policies typically cost around $2,700 annually which maybe a big amount when added to the other insurance premiums you have to pay as well. However, people with spouses are entitled to a discount of up 30% off the regular premium price when they buy an LTC insurance.

It is also highly recommended that people with a family of history of dementia to consider insurance as they would benefit the most from it.

Life Insurance

This is probably the type of insurance you are most familiar with. Life insurance policies allow the policyholder to give their beneficiary a set amount of money taken from the monthly premiums paid when the policyholder dies. This provides for your family to make sure that they can remain financially independent if something were to happen to you. In addition, some policies can be borrowed against if you need emergency funds earlier on to avoid derailing your financial stability.

People with direct dependents like immediate family members can make use of this insurance. Having it can help a spouse or children left behind to be able to pay existing mortgages, bills, and even college tuition fees without putting financial restraints on the remaining family members.

There are a lot of life insurance providers and plans to choose from making it quite difficult to pick one that would benefit you the most. Since picking a life insurance plan is a serious decision, you may want to consult with a financial advisor first as they can give specific advice depending on your particular situation.

Auto Insurance

If you drive a car then it is a necessity to have auto insurance. Doing so would protect you from the high costs of car repairs or hospital bills (for the person you accidentally hit) in times of car accidents. With this, your nest egg will hopefully remain untouched even if you have been in a car accident.

There are many auto insurance providers who provide different insurance plans. For starters, here are some of the most common types of auto insurance:

  • Collision insurance. Also known as Blue Book Value, this type covers damages that amount to as much as the current value of your vehicle.
  • Liability insurance. Part of the insurance policy which details the payments for the damages caused to other parties in cases of accidents.
  • Uninsured/Underinsured insurance. When someone with no insurance or is underinsured hits you, this will cover the cost of damages

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Homeowners Insurance

Let’s begin by differentiating the two from each other.

Homeowners insurance is the insurance that homeowners buy to protect them from financial susceptibility in case their house is damaged by natural disasters such as tornadoes, fire, and the like. So, if you live an area that is prone to these kinds of disasters, it would be in your best interest to safeguard yourself with a good homeowner’s insurance as your home is one of your largest and most important assets.

Umbrella Insurance

If you are still concerned about unexpected expenses interfering with your plans for financial independence, an umbrella policy may help. An umbrella insurance is a type of insurance which is meant to add liability coverage on an existing insurance policy.

If you already have auto or homeowner’s insurance and want extra protection in case of accidents, you should look into buying a supplementary umbrella insurance.

Some of the things covered by umbrella insurance are:

  • Body injuries
  • Landlord liability
  • Damage to property
  • Personal injuries

However, it doesn’t cover the following:

  • Omissions
  • Intentional acts (criminal acts)
  • Oral contracts

Other Types of Insurance

Here are other important types of insurance aside from the above.

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Property Insurance

A wide variety of insurance, this type gives protection to properties such as houses.

This may be beneficial for people who own valuable property and are living in disaster-prone or accident-prone areas.

Casualty Insurance

This usually goes hand-in-hand with property insurance. This type will protect you from liabilities related to your insured property.

Annuities

This type of insurance is beneficial for one’s retirement as it provides ‘income’ for a person once they retire.

Getting certain types of insurance can help you protect yourself and make your path to financial independence easier and more assured. Of course, you probably won’t have to buy all of the insurance mentioned above just the ones that will protect you from what you think are the most pressing risks in your life.

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