How Much Insurance Should You Have.
for Home, Auto, Health and More
Insurance is a necessary gamble, one that you hope you never have to really cash in on. Yet, if an accident occurs or medical bills start pouring in, you need to be sure that you're not going to suffer financially because of it.
If you've planned your insurance needs accordingly, you won't have to worry about your finances in the event of a medical problem, accident or natural disaster.
At the same time, you don't want to pour extra money into insurance premiums for more insurance than you need. How much insurance is, as Goldilocks said, just right? Here's what the experts say.
A 2007 study by Consumer Reports found that a full 24 percent of the U.S. population is underinsured when it comes to health insurance (and this does not include the approximately 16 percent of the population that's uninsured).
The amount of coverage that you need depends on you. If you rarely go to the doctor and are generally healthy, a high-deductible plan with mostly emergency coverage may suffice as a "safety net."
If you get sick often, and are in and out of doctors' offices, you'll want a plan that covers office visits, medications and the like. If you have children, you'll also want to decide whether you want their office visits to be covered.
You also need to think about whether you want coverage for things like elective surgeries or pregnancy, as you may need special additions for these.
Life insurance is around to pay your debts and support your family when you die. Though it's not something that most people want to think about, it is an important aspect of insurance, particularly if you have children.
The general rule of thumb for life insurance is to get enough coverage to cover five to 10 years of your annual gross salary (just take your annual salary and multiply it by five to 10).
Who doesn't need life insurance? If you're single, have no dependents and don't have a lot of debt, you can probably skip life insurance for now.
If you want to drive, it's a legal requirement that you get auto insurance, but the restrictions end there. You should choose the policy that has the liability coverage to meet your needs, and not necessarily automatically choose the policy with the lowest premium.
That said, auto insurance rates vary dramatically -- by up to $515 for six months of the same coverage, according to study by Progressive Auto Insurance -- so it pays to shop around.
Many people don't think about insurance until it's too late. Now's the time to make sure you and your family are protected.
You should also consider the condition of your
vehicle. If you car is a jalopy, do you need to add comprehensive and collision coverage? Probably not.
Homeowner's Insurance and Renter's Insurance
Generally speaking, you should insure your home for 100 percent of its value, according to MetLife. Make sure your policy is for replacement value (you may have to ask for this specifically), which means that the company will reimburse you for the cost of a new replacement for your possessions (not just reimburse you for what the item was worth, used, which is known as actual cash value).
Be aware that certain disasters such as floods and earthquakes may not be covered unless you add them on. Likewise, personal items like jewelry and art may have a cap on it, so if you have high-value items you may need to take out an additional rider to make sure they're adequately covered.
If it comes time for you to make a claim against your homeowner's insurance, you'll have to give the insurance company a list of what was lost. You should prepare for this ahead of time by walking around your home with a video camera (or by taking photos) and documenting exactly what's there.
Renter's insurance should also cover you for 100 percent of your belongings (and policies are typically fairly inexpensive).
Homeowner's and renter's insurance are also beneficial in that they usually give you liability protection as well, so you're protected if someone falls and gets hurt on your stairway, for example.
Though some employers offer disability insurance in the event you become injured and are unable to work, it's often not enough to live on, at least for long.
On top of that, most people do not have adequate savings to support themselves in the event they can no longer work.
While disability may seem like more of a long shot, it's actually a necessity. Consider these statistics from the National Association of Insurance Commissioners (NAIC):
12 percent of U.S. adults suffer a long-term disability
One out of every seven workers will suffer a five-year or longer period of disability before age 65
Workers who are 35 have a 50 percent chance of experiencing a three-month or longer disability before they reach age 65. Those who are 45 have a 44 percent chance.
When deciding on how much disability insurance you need, first assess how much you may already have from your employer, Social Security or Worker's Compensation. You should take out enough of your own coverage so that you'll receive at least 60 percent of your monthly income, until you reach age 65, in the event you can no longer work.
Be aware that disability policies usually have waiting periods before the benefits kick in. You need to make sure that your waiting period is not longer than the time your savings will last.