Which insurance do you need?

By Robin Applegarth CRPC®

There’s an old proverb about closing the barn door after the horse has run away. It’s acknowledging there’s not much point in taking precautions after the danger has already passed. Recognizing a personal finance or money risk, and preventing it or preparing for it is always wiser. This is the role of insurance and planning.

To take an example, let’s explore what happens when a fire destroys a home. With insurance, a new house can be built in its place. If the homeowner broke a leg jumping out of the second story window, health insurance can pay for treatment. Disability insurance can replace lost income during recuperation and while the leg cast is getting covered with autographs.

Was the Honda in the garage when the house burned down? Automobile insurance can replace the vehicle. In short, life can be built back up again with the support of adequate insurance plans.

While this may seem like a bevy of catastrophes, having insurance just helped save the person from a major financial disaster. Insurance is like the umbrella that shelters from the downpour.

There is insurance for dozens of events and types of physical property. Let’s cover the ones that are the most crucial.

Health Insurance: A must in this high health-cost environment. Try to get on a plan partly paid for by an employer. Preferred Provider Organizations (PPOs) give you more choices than Health Maintenance Organizations (HMOs), although they cost more.

If you were laid off or left a job with health benefits, you can elect, through COBRA, to continue coverage for 18 months (and possibly longer) by paying for it yourself. If you’re shopping for an individual policy, check out sites like www.ehealthinsurance.com  Avoid coverage gaps, as it can jeopardize your health as well as the ability to get coverage later.

Vehicle Insurance: Most states require basic liability insurance. If your car is older or not worth more than a couple of thousand dollars, you can probably get away with just liability insurance. Any vehicle worth more than that should also be covered with comprehensive and collision insurance. You can save money on premiums by opting for a higher deductible, such as $500 or even $1000 that you pay before the insurance company has to start paying when there is a claim.

Home/ Property Insurance: If you own a home, you’ll need house insurance. Look for a major carrier with good customer service history and ratings.
http://www.jdpower.com/Homes/ratings/homeowners-insurance-company-ratings  Again, as with auto insurance, increasing the deductibles can lower the premium costs. Consider a policy that includes replacement value with building code upgrades. If you’re in earthquake or flood country, look into insurance for that, as a regular policy often excludes those items.

Renter’s policies cover your property in someone else’s building. This is necessary if you have sufficient furniture or assets that losing them would pose a financial hardship to replace.

Disability Insurance: Can you support yourself for years if an injury or illness makes it impossible to work? There is some help through State Disability Insurance (SDI) after a wait period of 6 months, but the amounts are limited. Some employers offer affordable group plans you can buy into, or contact an insurance provider for quotes. Increasing the wait period before benefits begin can lower the premium costs. This is an insurance that’s often overlooked, but the fact is, more people need disability insurance than life insurance.

Life insurance: This is necessary if you have dependents. It’s not usually needed if you’re single. Consider 10 times your annual spending needs, although that number is flexible based on your current savings and other sources of family income. You can usually buy more coverage with Term Insurance than with Universal or Whole Life Insurance. 10 year Level Term plans can be a good deal, as the premium remains the same for the time period. Look for life insurance companies with top ratings, as financial stability is crucial. Use a life insurance calculator to help determine your needs.

Long-term care insurance should be considered around age 60 or older. This covers the expense of nursing home or board and care facilities when people can no longer live at home.

Other insurance: hospital stay insurance, pet health insurance, travel insurance, cancer insurance, accident insurance, vacation insurance–the list goes on and on. Save your money for general health insurance and you won’t need any of the hospital/accident/illness related ones. Vacation insurance can cost 5-8% of the trip, but might be useful if you anticipate changes needing to be made.

In general, use your insurance dollars to cover the main risks where losses could be heavy without insurance, and ignore the smaller risks, which can be paid for out of savings or income.

Buying needed insurance allows people to shift some of the potential burden of loss onto the shoulders of others, and protects investments. That’s another important step towards financial security.

Summary
Insurance protects us from catastrophic losses. But what kinds do we need? Everyone needs health insurance. Also, disability insurance is an important, but often overlooked insurance to consider. Beyond that, the types of property insurance you need depend on what you own (house, car, and other valuable assets). Consider higher deductibles to
lower the premiums. Focus on buying insurance in areas where monetary losses could be the largest.

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