Money Basics Series: Insurance

Insurance is like having a lifevest and oxygen mask on an airplane— you hope you won’t ever need them but you’ll be SO glad you have them should a need arise. The basic principal is one of risk management, or transferring your personal risk onto the insurance company. In exchange for your premium(monthly or annual payment amount), you can sleep better at night knowing you and your family are covered!

There are a few different types of insurance I recommend people get:

1. Life Insurance- This is insurance on your life. It is a MUST HAVE if you have a spouse, children, parent, or anyone who financially depends upon you for support. The insurance company will pay out the death benefit money if you pass away while the policy is in force(active).

   Try to aim for somewhere between 8-10x your annual income in death benefit, or what your budget allows. Expenses you may want to cover include- mortgage balance, living expenses for surviving loved ones, education expenses for kids, burial costs.

2. Disability Insurance- This is insuring your ability to work and earn an income. Basically, if you were to get sick or injured at some point, the insurance policy would kick in and pay you a portion of your income every week. This is usually 40-60% of your weekly income but will depend on the type of policy you purchase. Some jobs offer disability insurance as a benefit, but many don’t. Please check with HR if they offer any coverage.

3. Auto Insurance- This insures your vehicle, but also provides important protection should you cause damage to someone else’s property with your vehicle. Most states require you have some sort of coverage in order to register your vehicle. Since car accidents are a huge likelihood, please be sure you’re adequately covered!

4. Homeowner’s Insurance is mostly required for anyone who owns a property and has a mortgage. This insures your home against a lot of things such as trees falling, fire, etc. It does not cover floods though, so please be sure to purchase flood insurance should you live in a flood zone!

5. Renter’s Insurance is for those of you who are renters. If you are renting, your landlord’s homeowner’s insurance DOES NOT cover your possessions in the case of fire, burglary or another catastrophe. Your personal renter’s insurance policy will allow you to process a claim should something happen to your possessions that were in your home.

   Pro tip: keep an inventory of your valuable possessions and estimated value. This will be super helpful in case you ever need to make a claim. Can you imagine trying to remember every item you own should your home burn down or burgled?

This is a very important end-note, but please be careful who you trust to sell you insurance! There are a lot of insurance agents out there who will try to convince you to buy insurance policies for several hundred dollars per month. Most people can obtain enough coverage with just basic term, auto, home, disability insurance and do not need a more expensive insurance policy(such as whole life insurance). I firmly believe insurance is not a savings vehicle, and you’d oftentimes be better off getting a term life insurance policy and saving the difference between the monthly premiums.

If you’d like a second opinion on an insurance quote, I’m here to help!