Module 8: Risk & Insurance
Protect yourself from financial catastrophe
What am I really buying when I buy insurance?
It's not just paperwork and premiums. You're buying protection from catastrophic risk. Let's understand what that means.
Why Insurance Exists
The Purpose of Insurance
Insurance is for catastrophes, not convenience
Insurance protects you from financial ruin. It's NOT for small, predictable expenses.
Good use: Health insurance covering a $100,000 hospital bill
Bad use: Extended warranty on a $400 TV
How Insurance Works
You pay premiums (monthly/yearly) → Insurance company pools risk across thousands of people → If disaster strikes, they pay your claim
The insurance company always wins: They charge more in premiums than they pay out in claims. That's how they profit.
Your goal: Only buy insurance for risks that would financially destroy you
Essential Insurance: What You NEED
Health Insurance
Why: Medical bills are the #1 cause of bankruptcy in the US
Cost: $300-800/month individual, $1,200-2,000/month family
What to do: High-deductible plan + HSA if healthy. PPO if you have chronic conditions.
Auto Insurance
Why: Required by law. Liability protects you if you cause an accident
Cost: $100-200/month
What to do: Liability only if car is old (<$5K value). Full coverage if financing.
Term Life Insurance
Why: Replaces your income if you die. Kids need to eat.
Cost: $30-100/month for $500K-$1M coverage
What to do: Buy 10-20x your annual salary. Term only, never whole life.
Homeowners/Renters
Why: Fire, theft, liability. Mortgage requires it.
Cost: $100-200/month (homeowners), $15-30/month (renters)
What to do: Required if you have mortgage. Get renters insurance always (it's cheap).
Optional Insurance: Depends on Your Situation
Disability Insurance
Why: Replaces income if you can't work due to injury/illness
Who needs it: Primary earners, especially physical jobs
Cost: 1-3% of income
What to do: Check employer coverage first. Buy supplemental if risky job.
Umbrella Policy
Why: Extra liability coverage beyond auto/home (if you get sued)
Who needs it: High net worth ($500K+ assets)
Cost: $200-500/year for $1M coverage
What to do: Get if you have significant assets to protect.
🏥 How health insurance REALLY works: Deductible, Coinsurance, Out-of-Pocket Max
Enter your plan details and see exactly what you'd pay for different medical events
Insurance to AVOID: Waste of Money
Extended Warranties
Why it's bad: Products rarely break during warranty period. You're better off self-insuring.
Example: $200 warranty on $800 laptop. Just save the $200.
Credit Card Insurance
Why it's bad: Pays minimums if you lose job. Expensive and limited benefit.
Better option: Emergency fund covers this.
Whole Life Insurance
Why it's bad: 10x more expensive than term life. Investment returns suck (2-3%).
Better option: Buy term life, invest the difference in index funds.
Cancer/Disease-Specific Insurance
Why it's bad: Only pays if you get that specific disease. Health insurance already covers this.
Scam factor: High premiums, narrow coverage.
Life Insurance Calculator
How Much Life Insurance Do You Need?
Only applies if you have dependents (kids, spouse who relies on your income)
Scenario: Medical Emergency Without Insurance
You have a medical emergency requiring surgery
Total bill: $75,000. You're 28 and healthy, so you skipped health insurance to save money.
Check Your Understanding
Module 8 Complete! 🎉
You now understand how to protect yourself from financial catastrophe.