FPU Week 7: Clause and Effect

Halfway there! Probably my biggest fear about teaching FPU in this economy was the possibility of having families struggle to make measurable progress. Not because this stuff doesn't work - it absolutely does. More because of pay cuts and layoffs clobbering people's incomes. I'm please to say that without fail, every single week we have had multiple 'victory stories'. We don't ask for much, but tell us where you are winning. Boy have they produced:

  • We have families knocking out debts.
  • We have families that have paid off cars.
  • We have families that are out of debt and working on their emergency fund
  • And this week, we had 4 families sign and notarize their wills (including us!)
People are seeing and feeling the progress and that makes all the effort in coordinating this course absolutely worth it.

And then there's this week's lesson!

Clause and Effect is a snappy title on a snoozer of a subject - insurance. Yeah, you're super excited to read the rest of this post, BUT people were surprisingly engaged and interested in this lesson. The video is, of course, not a snoozer - Dave, as usual, takes a bland topic and teaches it with great enthusiasm. And once you realize how important this information is, you'll be awake and alert.

Insurance is like credit - in the sense that everyone will tell you that you need it, but almost none of them really knows anything about it. When we first bought life insurance (pre-FPU), we screwed it up. Well, half of it. We bought term-life for me, and for whatever reason, bought whole-life for the Mrs. After taking FPU, we found out what a terrible (and expensive) product we'd bought. It wasn't long before we bought new policies (that were MUCH less expensive) and the old ones were gone. That was a mistake we'd never make again.

The big thing you need to understand about insurance is that it is a 'transfer of risk'. The insurance company is taking on the risk of you getting injured in the form of paying your bills, or the risk of your home burning down in the form of guaranteeing it's replacement.

That said, there comes a time when you no longer need certain types or levels of coverage. Once you have a 3-6 month emergency fund, you can raise your car insurance deductible (and lower your premiums dramatically) and self-insure yourself through the smaller stuff. If you do this stuff now and are sitting pretty in 30 years when your term life insurance expires, then you don't have to renew. You can self-insure from then on - it will likely be a whole lot more expensive then anyways.

You can do those things because you have MONEY. When you have no debt, when you're saving for retirement, and the kids college funds are funded... when you pay off your house early, you don't need Visa or the insurance company to catch your slack.

What about insurance confuses you? Scares you? Do you have coverage that you don't need?

Need a will?


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