Insurance is Worthless, Until You Need it

You can insure pretty much anything these days. Did you know people are now buying health insurance for their pets?

Just because it’s out there doesn’t mean you need it. The idea of insurance is to protect your wallet against things you can’t afford to lose.

Here are 5 types of insurance that make sense for most people:

1. Health insurance. There’s a lot of noise right now about the new healthcare law (a.k.a. Obamacare) and how it will affect everyday Americans. It seems like everyone has misconceptions about the law. If you already have health insurance through your employer that you like, you’ll be allowed to keep it. Without getting political here, I think it’s a good idea for everyone to have some level of health insurance. The government shouldn’t force people to do so. But the fact is, we all get sick. Those without insurance force society to pick up the tab. At the very minimum, get a high-deducible health savings account to protect yourself against catastrophic injuries and illnesses.

2. Disability insurance. Somewhat related to health insurance, disability insurance provides a percentage of your income if you’re unable to work because of sickness or injury. There are two types: short term and long term.

According to some estimates, 3 in 10 Americans will become disabled at some point during their careers. After sick leave has been exhausted, short term disability (STD) insurance kicks in and provides typically 60% of your salary for up to 6 months. Common causes of STD claims are heart attack, back pain and arthritis.

Long term disability (LTD) insurance picks up where STD insurance ends. You generally receive 50-60% of your salary for up to 10 years, but a policy that covers you until age 65 is best. LTD insurance covers you for things like connective tissue disorders, cancer, or catastrophic injuries that leave you permanently unable to work.

3. Life insurance. Your career is your greatest asset. What would your family do if you weren’t around anymore to provide an income? I’ve written about this before, but you want your family to be financially stable in the event of your death. If you have a spouse, kids under 18 or other dependents, you need life insurance. A simple level term policy is best. And please, do not buy life insurance on your kids.

4. Auto insurance. In almost every state, auto insurance is mandatory for drivers. Not only that, it’s the responsible thing to do. Driving without the means to make others whole in the event of an accident puts others at financial risk, and is just plain dumb. At minimum you need liability coverage, which includes coverage for bodily injury and property damage you cause to others. If your car has significant value, you also need collision and comprehensive coverage, which pays to repair your car after an accident or other event. Prices vary widely, so shop around to find the best deal.

5. Homeowners insurance (renters insurance). Most people who own a home have insurance, but those who rent rarely do. If your apartment burned down, how would you replace your stuff? Your landlord’s policy only protects the dwelling. You need your own policy to protect your things. Replacement value coverage is best because it covers the cost to replace an item, rather than the actual depreciated value. See my previous post about how to buy renters insurance. A typical policy runs $150-200 a year.

Next week we’ll talk about some insurance policies you can skip.

One thought on “Insurance is Worthless, Until You Need it

  1. Pingback: Friends of the Family: Windy Weekend Edition - The Family Finances

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