Thank goodness for insurance. A few weeks back, Mr. Bean’s rather expensive bike was stolen from our condo’s locked and secured parking structure.
His lock was cut. The robber was caught on camera and a police report was filed. A family friend actually saw the bike downtown later that night, but the bike was never recovered.
This is a bike that Mr. Bean often rides to work.
Luckily, he has a second bike as well as his car. But if this was his only means of transportation, he would have been royally screwed.
Doubly luckily, we have renter’s insurance.
After a quick call to our agent, they took the value of the bike, less depreciation, minus our deductible (which we keep in our Expected Expenses Account) and we had a direct deposit in our bank account within a few hours!
Other than our many medical bills (check out my article on hacks to save on medical bills), I’ve never had to file an insurance claim before. But boy was I glad we had it when we needed it.
Insurance often seems like such a hassle to get and an unnecessary bill you have to pay but having that extra coverage can help you sleep so much better at night knowing that if something goes wrong, you will be able to handle it financially.
Here are some of the top types of insurance to always make sure to have:
Homeowner’s Insurance
If you are a homeowner, more likely than not, you have homeowners insurance. Mortgage companies require it.
Homeowners Insurance makes sure that if something like a kitchen fire or tree falling destroys your home, you will be able to pay for repairing the damages.
Much of your personal property is also covered by Homeowners Insurance.
Say your couch is burned in a fire or some punk breaks your back window and steals your laptop off the kitchen table. Insurance will make sure you’re able to get a new couch, fix your window, and/or get a new laptop.
BUT Homeowner’s Insurance Doesn’t Cover Everything!
Natural disasters that are geographically specific are often Not covered by normal Homeowner’s Insurance.
- Hurricanes
- Earthquakes
- Wildfires
- Floods
These types of events require separate insurance policies to be added to your Homeowner’s Insurance.
So if you’re looking to purchase a home in an area known for natural disasters, make sure to include these extra policies when covering your home.
Especially as Climate Change is beginning to become more apparent. Forrest fires and floods are popping up in places they haven’t in recent history, so make sure you have the coverage you need.
Renter’s Insurance
A lot of people who rent think that Renter’s Insurance is an unnecessary cost. But in reality, not having renter’s insurance can be way more expensive!
Renters insurance usually only costs a few dollars a month. According to Policy Genius, the average cost for renter’s insurance is about $15 a month, and that offers tens of thousands of dollars worth of coverage.
While renting, you may not be responsible if a tree falls down outside and crashes through the roof, but you are responsible if you leave the stove on and a fire causes damage to the kitchen.
Maybe your kid leaves the bath on and water splashes down to the unit below.
Or, like we just experienced, someone breaks into your secured parking garage, cuts the lock to your bike, and rides off with it.
Renters insurance is meant to protect your personal belongings, and bank account, when living in a home that you don’t own.
If you rent, get renter’s insurance.
Car Insurance
In most states, car insurance is required for driving on the roads, but how much you need is totally unique to each person and their car.
If you’ve got a newer car with a loan, you will for sure need to have enough coverage to replace the car. This is usually required by the lender anyways.
- Do you own your car outright?
- Is your car older and not worth much?
- Do you have enough cash saved up that you could easily replace your car if you needed to?
If you answered yes to all 3 of those questions, you may be able to get by with liability insurance only. It can be a great way to save money on monthly insurance payments.
But this is a form of self-insurance.
Liability only is saying that if anything were to happen to your car: crash, stolen, vandalized, you are ok taking that cash out of your account and paying for it yourself.
Anything that may have happened to the other driver in a crash would be covered by your liability insurance but anything that happens to you is on you.
Make sure you are comfortable with that decision before deciding to do so. It can be a great way to save money but make sure you are financially stable before making this decision.
Life Insurance
Life Insurance is a sticky topic that many people try to avoid but it is definitely something you should have for What If preparations.
Reasons you might need life insurance:
- You have anyone who relies on your income
- Spouse
- Children
- Family Members
- Even stay-at-home parents should have life insurance if their death would impact the family’s ability to continue earning money
- Childcare/Homeschooling
- Homecare/Household management
- Meal Preparation
- Etc
- You have debt that would burden your family, even after your death
- You do not have enough money in savings to cover the cost of a funeral or last expenses
Unless you are a single person with no immediate family, or possibly a dual-income childless couple with no debt, most likely, you should have life insurance.
Term Life Insurance
For most people, a simple Term Life insurance policy should be sufficient. Term life policies are held for a specific amount of time.
If you “kick the bucket” during that term, the policy pays out. If you don’t, it just goes away.
Term Life is usually the most cost-effective option for life insurance because it gives the insurance company a way out of having to pay. (You live beyond the term)
Because of this, the payments are usually set to the same amount throughout the entire term. This allows you to know how to budget and become an Expected Expense.
Term Policies are usually set for 10, 20, or 30 years. This gives you enough time to raise kids, pay off a mortgage loan, and/or build up enough of a net worth to ensure your family is taken care of if you were to be gone.
Whole or Universal Life Insurance
Whole and Universal Life Policies tend to be more geared to wealthy individuals who need a way to “hide” their money in tax-sheltered vehicles. They’re often sold as “investment vehicles” but usually cost more and provide less return than you’d earn investing in the stock market on your own.
Because you are guaranteed to die at some point, non-term policies are going to have to pay out at some point, that’s why they’re so much more expensive.
So if you’re just looking to take care of your family in case the worst happens, term-life insurance is usually the best bet for most people.
How Much Life Insurance Do I Need?
What I’ve heard most often from financial professionals is to have enough life insurance to provide around 10 years of your income.
But this can vary greatly depending on your personal situation.
If you have a mortgage on your home and want to make sure your spouse and/or kids can live in the home payment-free, make sure your policy covers enough to pay off the mortgage too.
If you have kids and want to pay for their college, include that amount in your insurance.
Many different aspects of your life can affect how much life insurance you need. You don’t want to get too much and be paying more than necessary but you also don’t want to have too little and leave your family in debt.
Don’t Forget Stay-At Home Parents
Also, make sure that a stay-at-home parent has coverage too if their death would greatly impact the financial situation of the family.
Suddenly needing to pay for childcare so that the living spouse can continue to work could become a huge financial burden. Make sure that you don’t write off the financial contribution a stay-at-home parent provides.
Make the Decision as a Team
So the quick rule of thumb is 10x your annual salary. But also make sure to account for any debt, future plans, or other necessities that your death would leave your family with.
Discuss how that lump sum should be used and invested to ensure that it will last the family for the necessary amount of time after your passing.
Too many couples rely solely on one spouse to handle the money. Then one is left completely lost and financially unaware when that spouse is no longer around. Have these hard discussions with each other now to make sure you’re both taken care of if the worst should happen.
Umbrella Insurance
Many specific types of insurance can be gotten based on the specific things you have in your life:
- Boat Insurance
- Business Insurance
- Insuring a body part if your a famous model or athlete
- Etc.
But if you are someone with a higher net worth, which we all want to achieve at some point I’m sure, you may be interested in Umbrella Insurance.
For low monthly costs (often around $15 for $1 million of coverage) you can add on an umbrella policy that will protect you from personal liabilities.
Some Examples:
- Your teen driver hits a bike rider
- A house guest misjudges a dive in your swimming pool and gets hurt
- A tenant in one of your rental properties slips on ice
- You leave a negative comment on your viral social media page and the company sues you for Slander
All sorts of crazy things can happen and if you have a high net worth, people can be lawsuit-happy.
Umbrella insurance is added liability insurance on top of your normal insurance policies to help keep your personal assets safe from lawsuits.
Wrap-Up
There are a ton of different forms of Insurance. It is up to you to take the time to look at your lifestyle and figure out what is really important to you and needs to be protected.
Research and get price comparisons. Bid companies against each other to get the best price for the most coverage and shop smart.
From your stuff to your net worth, and more importantly, your immediate family. Make sure you have the correct forms of insurance to protect them.
If you haven’t already, do it now before something worse than your bike getting stolen happens.
(I am not a life insurance professional, financial planner, or lawyer. Please don’t take my words as professional advice, seek professional guidance if needed)