Do you really know what insurance you need to cover you? Do you know how much you need in order to properly protect you? What if you caused a car accident or other personal injury? Would the other person sue you personally? Could they take your life savings or your house? What would you do if your house burned down? What if you became disabled from a work related injury? Would your family survive on workers’ compensation alone?
While we are not insurance agents, we believe it is simply good legal advice to make sure our clients are insured properly. In particular, people do not worry enough about liability insurance – which protects you if you cause a personal injury to someone else. If you are not properly insured, you could lose your life savings. One focus of this article will be liability insurance you need.
Insurance companies are evil. They will take your money gladly and fight you tooth and nail if you want any of it back! But they are necessary evils. You simply cannot safely live in our society without being insured.
This post will break down the different types of insurance you need and the amount of coverage we believe you should get. If you think you need one of these and do not have it, you should talk to a reputable insurance agent immediately for details.
CAR INSURANCE: If you own a car, you must legally have it insured. Most people know that. But do you know what level of insurance you need? The state minimum is $30,000. You can legally drive on that level of insurance. That is NOT enough! Not even close.
You have to be clear about how insurance works. If you cause a car accident, the other side will sue you personally. You were at fault. Your insurance will cover you, but only up to the limits of your coverage. If you cause an accident worth $50,000, and you only have $30,000 coverage, who pays the additional? You do! Your insurance company will provide you with a lawyer, and they will pay $30,000 on your claim. Then they walk away and you are responsible for the rest.
It is not hard to rack up $30,000 in medical bills in our society today. If you are driving around with state minimum insurance, you are playing with fire. In fact, lots of people get $50,000 insurance. That isn’t close to the right amount either. The old rule of thumb was to get $100,000 of coverage. We recommend $250,000 minimum today. That will cover you from all but the most catastrophic accidents.
Don’t forget, your uninsured/underinsured motorist coverage is the same level as your liability insurance (usually). So if you get hit by someone else and they don’t have enough insurance, you can get a recovery from your own. You may need this additional coverage for yourself, not just to cover someone else’s lawsuit.
And, while we are at it, you should also get more personal injury protection (PIP) than the state minimum, which is $2500. PIP pays your medical bills if you get into an accident, even if it is your fault. Get $10,000 if it is offered to you.
HOMEOWNER’S INSURANCE: You have to get this when you buy a house, but most people do not get quite enough. They get a level that covers the cost of the house. But you should be sure you get enough that covers the actual rebuilding cost, and the cost for you to live somewhere else while the house is rebuilt. Also, get a policy that covers the replacement cost of the things in your house, not just the fair market value. The market value of your furniture is probably nowhere close to the cost of replacing it.
Most people do not think about the liability insurance aspect of homeowner’s insurance. What if someone gets injured in your house and sues you? Will you be covered? Make sure your policy covers you for liability, and again you should get at least $250,000 of coverage.
RENTER’S INSURANCE: This is similar to homeowners. Get enough to cover the replacement value of your stuff, and enough to protect you from a liabilty claim of $250,000. Do not make the mistake of thinking you don’t need insurance just because you rent! Your stuff can still burn up in a fire, and you can get sued for negligence.
UMBRELLA INSURANCE: This is insurance that covers you for any liability claim over and above the limits of other insurance. It is back up insurance in case the worst happens. It is usually tied to your homeowner’s insurance, and is very cheap to get. If you have assets to protect that are worth more than your car insurance or homeowner’s insurance limits, you should get umbrella insurance to cover you. We recommend a $1 million policy if you have any substantial assets to protect.
DISABILITY INSURANCE: Everyone gets life insurance, but nobody gets disability insurance. Did you know you are much more likely to end up disabled than dead? You will be fully alive, but unable to work and make an income. How will your family live then?
LIFE INSURANCE: You probably know why you need this. You better have it, especially if you have young children. Get term insurance instead of whole. Whole life is touted as an investment, but as an investment vehicle it stinks. You could do much better with that extra money investing in the average mutual fund. Use insurance for protection – not investing.
HEALTH INSURANCE: This is the most obvious. The reason you need it is obvious, and now you must have it whether you want it or not. We are not qualified to discuss the various plan options out there, so we will simply advise you to get it immediately if you don’t have it.
LONG TERM CARE INSURANCE: You should look into this one and give it some thought. You should probably price it out to see if it is even in your budget. Who is going to care for you when you get old? If it is Medicare, then they will likely make you use up all your assets and sell your house first before they cover you. Did you know that? In our ageing society, long term care insurance is almost a necessity.
BUSINESS INSURANCE: If you own a business you do need insurance, and several types. From workers’ comp to liability insurance to lost profits – if you have a business you should talk to a reputable insurance broker and make sure you are covered.
INSURANCE YOU DO NOT USUALLY NEED: These are types of insurance that you will not likely need, or may be duplicative if you have the policies mentioned above. They tend to do the insurance company more good than you.
- Disease Insurance
- Accidental Death Insurance
- Extended Warranties
- Private Mortgage Insurance
- Rental Car Insurance
- Travel Insurance
- Life Insurance for Children
- Credit Card Insurance
- Mortgage Life Insurance
- Unemployment Insurance