Insurance is an important element of any sound financial plan. Different kinds of insurance help protect you and your loved ones in different ways against the cost of accidents, illness, and death.
The insurance decisions you make should be based on your family, age, and economic situation. There are many forms of insurance and, unfortunately, no one-size-fits-all policy. Life insurance, for example, can be a virtual necessity, especially if you have a spouse and children.
Auto Insurance
Auto insurance helps protect you from damage to the often-considerable investment in a car and/or from liability for damage or injury caused by you or someone driving your vehicle. It can also help cover expenses you or anyone in your car may incur as a result of an accident with an uninsured motorist.
Auto liability coverage is necessary for anyone who owns a car. Many states require you to have liability insurance before you can register a vehicle. State-required minimum coverage, however, is often too skimpy to provide adequate protection. Collision, fire, and theft coverage is also advisable for a vehicle having more than minimal value.
The cost of auto insurance varies greatly, depending on the company and agent offering it, your choice of coverage and deductible, where you live, the kind of vehicle, and the ages of drivers in the family. Substantial discounts are often available to safe drivers, nonsmokers, and those who commute to work via public transportation.
Homeowners insurance should allow you to rebuild and refurnish your home after a catastrophe and help cover to costs of lawsuits if someone is injured on your property. Coverage of at least 80% of your home's replacement value, minus the value of land and foundation, is necessary for you to be covered for the cost of repairs.
There are several grades of policies, ranging from HO-1 to HO-8, with increasingly comprehensive coverage and cost. Unless you increase coverage, most homeowners policies cover the contents of the house for 50% to 75% of the amount for which the house is insured. The liability coverage in many homeowners policies is $300,000.
Umbrella liability coverage takes effect when the personal liability and lawsuit coverage in other policies is exhausted. The cost for $1 million worth of protection - especially necessary for high-income individuals and those with considerable assets - may be only a few hundred dollars a year.
Life insurance, payable when you die, can provide a surviving spouse, children, and other dependents the funds necessary to help maintain their standards of living, can help repay debt, and can help fund education tuition costs. The amount you need depends on your situation. If you make $100,000 a year, have a sizable mortgage, and two kids headed to a good college, you could need as much as $1 million in coverage.
Value-accumulating whole life or universal insurance is often offered as death benefit protection with a cash value component that you can borrow against or eventually cash in by surrendering the policy. Term insurance costs less, but may remain in effect only for a specified term of years. For many families, a combination of whole life and term insurance may provide for current and future needs.
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