What insurance should I really have?
Tuesday, August 15th, 2006
There are as many articles on what kind of insurance you should have as there are opinions.
Let’s simplify this by categorizing what the issues of concern should be. There are a minimum of four areas to cover:
- Your ability to earn income in case of disability
- Your life, if you have loved ones who depend on you financially
- Your property including your home and cars
- The liability you could have if you or your family does something for which you could be sued or if something happens on or with your property.
Disability Insurance
Unless you’ve already attained financial independence, your income and ability to earn income drives the rest of your financial life. It’s the single biggest asset most people have. Thus, disability insurance is vital. You sometimes can get or automatically receive disability insurance through work as part of an employee benefit program. This is better than none but is less advantageous since it’s not portable if you leave employment and may not be as liberal in its provisions as an individual disability insurance policy.
If you don’t have disability insurance policy through your work, look for an individual disability insurance policy. There are now websites where you can learn about disability insurance online and also obtain quotes from various companies.
Life Insurance
If you have people who depend on you financially. You should have life insurance. Life insurance should be looked at unemotionally as income replacement – money to replace the income that would no longer be produced if you die.
There is a maze of choices of types but the first thing to consider is not which type but how much. The easy answer is to get all you can within the limits that an insurance company will give you which is usually in the range of 15 times your annual income. Why 15 times? Well if you make $100,000 and that stopped because of your death, the question is how much principal (lump sum) would your survivors need to invest conservatively to have $100,000 per year? At a 5% return they’d need $2,000,000 ($2 million X 5% = $100,000). 15 times would give $1,500,000, so you can see why I said, “Get as much as you can.”
Starting with that, you move to what kind should you have, remembering that it’s most important to have as much as possible.
Term life insurance covers you for a period of time such as 5 years up to 30 years and since that time period is limited the price is less than what’s generally called “permanent life insurance” such as universal life and whole life. These are more expensive because in the case of whole life insurance if you keep the policy, no matter how long, the company will pay the insurance amount. Also premiums remain the same for life. Because of the early higher price or “overpayment,” a portion of what you pay is held in reserve as cash value that you can borrow against.
Property and Auto Insurance
Try to get replacement coverage for your home and the contents and if possible for your auto. Instead of taking a low deductible, take a higher one but take the maximum amount of liability coverage that is offered for both home and auto. It is very important that you get an experienced and knowledgeable insurance agent that specializes in home and auto insurance to advise you.
Liability Insurance
This is the kind of insurance that covers you in case you do or are alleged to have hurt someone via your car or property. There is liability insurance attached to your homeowner and auto insurance. As stated earlier, take the maximum. Additionally, you should ask your agent for an umbrella liability policy. This increases your coverage.
Author Bio: Author, Neil Willner, on behalf of Life Insure.co, provider of life insurance quotes and information, writes articles on life insurance, whole life insurance, and term life insurance for LifeInsure.com. For more information, visit www.LifeInsure.com and www.Protectyourincome.com
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