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Family Inc. by Douglas P. McCormick

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CHAPTER 6

Complement Your Career Decisions with Insurance

My father has been one of my primary teachers regarding financial decisions, and on most financial topics we agree. However, on purchasing insurance we could not be more different. Dad seems to want to insure everything while I want to insure as little as possible. In my view, Dad overinsures his risks by buying life insurance on every member of the family, buying long-term health-care insurance for himself and Mom, and having very comprehensive liability and auto insurance policies. I believe these choices are driven by a fundamental difference in approach. Dad is trying to buy peace of mind so that when something bad happens, he knows there will be no negative (and sometimes even positive) financial implications. I, on the other hand, view insurance as a necessary evil. To me, insurance is a loser’s game with the expected payout always less than the expected future value of the premiums paid had I invested the money until needed to fund the insurable event. So I attempt to self-insure as much as possible and buy insurance only to protect against catastrophic events that could impoverish the family. My approach might result in some unexpected costs, but I also expect it to result in a higher return on my investment.

Whatever your personal bias, in addition to making investments to maximize the value of your labor, you must make investments to protect your labor assets—your ability to work. These investments are primarily ...

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