Insurance Planning

Core Concepts

Risk Transfer vs Retention Framework

Insurance is a risk-financing decision, not an investment. Classify each exposure by frequency and severity:

• High frequency / low severity (minor repairs, small medical bills): retain. Self-fund through the emergency fund and cash flow; insuring these trades dollars with an insurer plus overhead. Raise deductibles to avoid paying for this layer.
• Low frequency / high severity (premature death, permanent disability, liability judgment, long-term care): transfer. These losses are rare but financially catastrophic, and the premium is small relative to the exposure.
• High frequency / high severity: avoid or mitigate the activity itself — insurance is expensive or unavailable.
• Low frequency / low severity: retain; do not bother insuring.
• Retention capacity grows with wealth: a household with large liquid assets can raise deductibles, extend elimination periods, and eventually self-insure entire categories (e.g., life insurance after financial independence, LTC above a threshold).

Life Insurance Needs Analysis

Two standard approaches; use needs-based as primary and the others as cross-checks: