Own Proper Insurance
When you own proper insurance your financial risk is transferred to the insurance company . It can be easy to think that insurance is unnecessary especially if you’ve never had to use it, but what about when you do need it? What would you do if something happened and you were not properly covered? Have you saved enough for that big car accident or for your house burning down? How will you pay medical costs, repair bills, rebuilding costs? Don’t forget homeowner’s/renters, auto, health, life, long-term disability, identity theft, and umbrella policies. Insurance is a protection plan for your assets.
Owning proper insurance will depend largely upon what you own, your level of risk, how much you owe, and how much you have? Take renting your home for instance. You will not need homeowner’s insurance because you do not own your home, but you do need renter’s insurance. Did you know that your stuff is not covered if you are renting and the dwelling burns down? Renter’s insurance is fairly inexpensive because it only covers personal items and not the dwelling. Renter’s insurance can usually be obtained for about $15 a month.
Homeowner’s insurance is for people who own a home. Homeowner’s insurance is not technically needed when you own your house outright (depending on your state), but what would you do if something major happend? Do you really want to pay to replace your house out of your own pocket? If so you better make sure that you have that money set aside before you decide to drop the insurance.
Automotive insurance comes in various forms and different costs. If you are financing your vehicle then you are typically required by the financing organization to have full coverage. You will also need GAP (Guaranteed Auto Protection) insurance if you owe more than the vehicle is worth. GAP covers the gap between the value of the vehicle and the amount of the loan and protects the financing company. When shopping for auto insurance you will hear about liability coverage, which typically covers both property and bodily injury when an accident is your fault. This covers you and all other parties involved. You will also hear about comprehensive coverage which covers against theft, damage from fires, storms, natural disasters, etc. Collision coverage, unlike liability insurance, ensures that you are covered if you are at fault in an accident. These are the basic coverages that you should consider.
Add-ons and Deductibles
There are many add on coverages to policies that you should seek to understand to determine whether the added expense is worth paying. These add-ons are rarely used, which is partly why they are fairly inexpensive, but if you add a bunch of unneeded coverages to a policy it starts to add up. You should have an emergency fund to cover many of these things so consider it’s value vs. the risk of not having it.
Deductible levels will greatly influence how much your policy will cost you. When shopping around make sure you are comparing like policies with the same amount of coverages and deductibles. As the deductible rises the cost of the insurance will go down. Remember that you have an emergency fund to help pay the deductible. So try to figure out how high you can reasonably go. You probably don’t want a $10,000 deductible, but you probably don’t need a $250 deductible either. Insurance takes on a part of our risk so we want to transfer as much risk as we can for as little as we can. The key is to be smart and to understand what you are shopping for.
Health insurance helps to cover your medical expenses. “Medical debt contributes to nearly half of all bankruptcies in America” (Dave Ramsey.com). One way to help make medical insurance more affordable is to shop around. Also, consider a high-deductible plan that has a Health Savings Account (HSA).. These plans will be much more affordable and your employer may even contribute to your HSA. Another great part about having an HSA is that it is a tax-advantaged savings account for medical expenses. The funds are tax deductible, they grow tax-free, and you can withdraw them free of taxes so it’s like saving $25 on every $100 that you spend, depending on your tax rate.
Life insurance covers you upon your death. There are two main types of life insurance; term life and whole life. Term life is much more affordable because it covers you for a term such as: 10, 20, 30 years, etc. Buying whole life insurance is more expensive but it does have some features you may be interested in. The purpose of life insurance is to help provide for your family upon your death, it is NOT an inheritance (though many people treat it as one). If you don’t have a spouse or kids you don’t really need life insurance unless you want it for some reason. If you are supporting others then you want them to be taken care of financially in your absence.
Long-term disability insurance will cover you if you are unable to work for a long period of time. It will provide you with a portion of your income if you are unable to work. Check with your employer about long-term disability insurance because it will be cheaper if they offer it. When looking at long-term disability insurance try to cover about 65% of your income and pay attention to the elimination period. The elimination period will determine how long you must wait to get paid after it has been determined that you are unable to work, disabled. Your emergency fund will help cover the gap until the elimination period has been reached.
Identity theft insurance won’t help you figure out who you are, but it will protect you if your identity is stolen. Look for identity theft insurance that will completely restore your identity and the adverse effects that the theft had on your identity. You want a policy that will proactively monitor your accounts to reduce your risk of becoming a victim and that will cover all of the costs associated with the fraud and with taking care of the issue.
An umbrella policy will add extra protection for you and your assets. An extra layer of protection will be provided for bodily injury, property damage and liability claims, and it will even help protect you if you are sued. For the low cost of an umbrella policy it is a must as you increase your net worth.
There are many different insurance policies available on the market today, these are some you should consider. Remember that you should shop around to ensure you are getting the best rate and the best deal, but make sure you compare like policies. Also remember to consider a higher deductible to reduce expense. Have them run some comparisons with different deductibles to help determine how much more risk you are willing to take on. Lastly, stick to the basics. There are tons of add-on insurance items that you will likely never need so consider them wisely. If you stick with the basics outlined here you will be covered in most situations.
When you are shopping for insurance the purpose is to transfer the amount of risk that you are willing to take on. If you know that you have a substantial amount of risk in an area and coverage is reasonably inexpensive then you may decide to transfer that risk onto the insurance company instead.
Note: This is by no means an exhaustive explanation about insurance. Always make sure that you understand what it is that you are purchasing and why you need it. If you do not understand something then ask more questions of your insurance agent. You can always get insurance somewhere else if you are not satisfied with the answer .