I hope you never have to use what I’m about to discuss here: Insurance. Insurance is one of those financial products that you should have, but hope that you never actually use. Unfortunately, accidents do happen and those who have an insurance policy will be happy they planned ahead.
I never really enjoy listening to an insurance salesman at the employee benefits because they always seem to use fear to sell their product. But the fact is that insurance is all about the unknown and unimaginable happening, which is why you and your family should carefully consider these five insurance policies.
1. Umbrella Insurance
Simply put, an umbrella policy covers the remaining expenses left by your current insurance. For example, imagine that you were in an automobile accident and there was a judgment against you for $350,000, but your auto policy only covered up to $200,000. The remaining $150,000 balance would probably force you to sell all your assets and might mean that you need to declare bankruptcy. With an umbrella policy, the difference would be covered up to whatever amount your policy is declared for. Typically, 1-2 million dollar policies are standard, but higher umbrella policies are available if needed.
One of the most common misconceptions about umbrella insurance is that it’s too expensive to afford. When you start throwing words like 1 million dollar insurance policy, most people say that’s way out of their budget. But the fact is that many people can add an umbrella policy for $15 – $25 a month. The actual amount will depend on the insurance company you insure through as well as your credit score and other personal risk factors.
2. Term Life Insurance
If a tragic accident happened tomorrow to you, would your surviving family have the resources to cover the bills? Whenever the thought crosses my mind or when I hear of someone who dies unexpectedly, I’m always thankful that my wife and I have term life insurance policies. If you have a family and are the sole breadwinner, you definitely need to have a term life policy – no question in my opinion.
The factors determining the cost of your policy will depend on your age, health, and other medical conditions, so it’s better to start a policy now rather than waiting a year or two. Policies can vary greatly, but there’s no reason why you shouldn’t be able to find good quotes on term life insurance.
3. Renter’s Insurance
I can’t stress this enough, especially to the younger readers who might be fresh out of college. Get renter’s insurance – it’s just smart. If something happens to the apartment complex you’re living in and all your possessions are damaged, stolen, or completely destroyed, don’t go running to the landlord demanding full replacement. Your chances are slim to none. Most incidents are a matter of renter’s insurance, and if you don’t have coverage, you might be out thousands of dollars if an accident happens.
Most young renters don’t realize the importance of renter’s insurance and those who are told about it might feel too strapped for cash to start a policy. The truth is that a basic policy for an apartment or small rental can run as little as $100 to $200 on average for the year. It’s a small price to pay to insure against accidents caused by you or by your neighbors.
4. Disability Insurance
If you’re employed, there’s a good chance that you have a disability insurance plan already. There are a lot of options for disability insurance, including employer group plans, supplemental plans, and short and long-term disability plans.
If your employer does provide some short or long term disability benefits, it’s probably not going to cover 100% of your income. If you have a supplemental policy, you’ll be paid for any time that you need to take off because of an injury or other ailment. It’s worth considering as open enrollment season is happening at many employers this month.
5. Flood and Earthquake Insurance
Flooding is one of the most common causes of property loss in the United States. If you live in an area that is subject to floods, you should have a visit with a local insurance agent or call the National Flood Insurance Program for more information on flood insurance policies provided in your area.
Earthquake insurance isn’t something that I’m concerned with because I live in the Midwest where earthquakes rarely happen. But for those who live on the west coast, you might look into getting an earthquake policy. Unfortunately, these policies can get quite expensive if you live on the west coast, but earthquakes can be devastating. The 1994 Northridge earthquake near Los Angeles generated more than 195,000 claims averaging $35,000. If I lived on the coast, I would definitely shop around for earthquake insurance.
Do you have these insurance policies in place already? What other policies would you add to this list? Leave a comment below!
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Thanks Tim. I have never really considered an umbrella policy – but can see its benefits. Wonder if it’s possible to get even cheaper than 15-20/mo being the chances of using it are pretty slim?
Costs for umbrella insurance vary depending upon many factors: where you live, how much insurance you need, what you own. We rent in TX and paid less than $10/mo for our million dollar policy. You may need to increase coverage on your auto/home policies to qualify. Also seek quotes from several reputable companies. One nationally recognized company’s price was several hundreds more than the one we selected. They tried to justify their higher price by promising to be there when we needed them. We couldn’t agree–in 15 years we’ve filed 2 claims, and went with another reputable company.
Plus, most Insurance companies will give a multi-line discount if you have more than one line of insuance….auto & homeowners/renters Ins, auto & life Insurance, and a bigger savings if you have auto, home/renters AND Umbrella.
@Aaron…therefore, your monthly net amount might be cheaper than $15-20.
I have learned that you can never have too much insurance. Flood and earthquake insurance are things many people do not consider. Then, when it is too late, they wish they had acquired insurance beforehand.
Thanks Tim, I wrote them all down to think about. I’m also going to get fire insurance as I live in the mountains and there were two fires this last year that came pretty close.
I would like to add one more: Long -term care insurance can be a great investment for middle class investors. Long term care is very expensive if you need it for very long. It can wipe out hundreds of thousands of dollars in saving in a few years. Buying a long term care policy can be looked at as a wise retirement investment for some people.
Term insurance is only an option if it is guaranteed convertible. It will ALWAYS be more affordable to start a Whole Life policy now than wait to convert in the future.
Renter’s Insurance – I am 50 and have always rented. It has made the most sense for my lifestyle and income.
Tenants can be HELD LIABLE for damages to the APARTMENT BUILDING and to the possessions of OTHER TENANTS!
Say you are burning candles in your living room, get distracted elsewhere, and by the time you come back, fire has spread to the furniture, rugs and drapes. The fire loses control. It spreads from your living room into the upstairs unit. YOU are considered to be AT FAULT.
You not only lose your own possessions, you are legally responsible to pay for damage to the building, any property which your neighbor loses (don’t forget fire and smoke damages) and maybe any medical treatment which your neighbors require.
Some larger complexes are now requiring proof of renter’s insurance, but it is not worth the risk to go without it. Because my renter’s insurance and insurance are provided by the same company, I pay $142/year for insurance in a 2 bedroom apartment.