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This post is part of the TermLifeInsurance.com blog tour, which helps spread awareness of the importance of providing financial security for your family. September is Life Insurance Awareness month, so learn more with LifeHappens.org and how life insurance can protect your family and your finances.
I used to think insurance was b-o-r-i-n-g. Well, worse than boring, really. I used to think that insurance was a HUGE waste of money and on some level, a scam.
My thoughts came from the years of managing my Grandma and Step-Grandpa’s checkbook. They both owned businesses, several rental properties, and had a whole lot of bills. Neither of them wanted to be tied down with daily nuisances of checking their mail or paying their bills so, I did it – for five years!
They had every type of insurance you could imagine. It would kill me to write out tens of thousands of dollars’ worth of checks each year for something they’d seemingly never use.
They had:
- Homeowner’s Insurance
- 6 Rental Homes to Insure
- An Auto Policy
- 3 Personal Life Insurance Policies
- A Life Insurance Policy for Every One of Their Businesses
- AARP Health Insurance to Supplement Medicaid
- An Umbrella Policy
I would often say things like “Man, you’re getting ripped off on insurance.” Or, “This has got to be a scam – you are paying THIS much for something you never use?!”
These thoughts all came before I had the slightest clue what I was talking about.
Then, I became an insurance agent. I got to witness first-hand how extremely important insurance is. And not just any insurance, but the RIGHT type of insurance.
Even though I was only licensed in personal lines I was my bosses right hand (wo)man and so I was involved in nearly every aspect of his business. (Which was full-service financial planning.)
Then a little more than year ago my Grandma passed away. It was such a hard time. Luckily, since my Grandma had so much life insurance my Dad and Aunt didn’t have to worry about how they were going to keep the businesses afloat when they were mourning the loss of their mother.
My views on insurance have radically changed.
And since I’ve been in the insurance industry my understanding of how things work is now pretty spot-on. I think for a lot of people insurance is just too confusing. It seems worthless because nobody understands it – or at least, that’s how I felt.
This is my attempt at making insurance understandable and dare I say, interesting? Here goes…………
Auto Insurance
Auto insurance is the most widely used form of insurance so let’s start here. There are two main parts to auto insurance: liability and full coverage.
Liability covers you in the event that you cause an accident that results in injury or property damage to another person/vehicle. Your liability insurance will only pay up to the limits that you have.
As an insurance agent I saw first-hand how many people would opt for state minimum coverages, which in my state (Ohio), were so low that they’d rarely even cover the cost of an accident. Ouch.
Liability is meant to protect YOU. The more assets you have the more liability coverage you need. If you are in an at-fault accident and do not have enough liability insurance then you can be sued for the difference.
I personally have liability limits of $100,000 per person, $300,000 per accident, and $100,000 in property damage.
There are also other components of liability insurance such as medical payments, and uninsured and underinsured motorists coverage. Youshould talk to your insurance agent about these.
The next part of auto insurance is often referred to as full coverage. Full coverage is comprehensive and collision insurance.
Comprehensive insurance covers damages caused to your car by natural accidents. (Hitting a deer, having a rock fall on your car, have a tree fall on your car, etc.)
Collision insurance covers damages to your vehicle that are caused by you. (You hit someone else and tore the fender off of your car.)
Both comprehensive and collision insurance are subject to deductibles. A deductible is how much money you’re going to pay out of pocket. For instance if you have a $500 deductible and amassed $2,000 worth of damage to your car your insurance company will cut you a check for $1,500.
When You Need It
Let me state the obvious here: If you have a car you need at least state minimum liability insurance. If you have a loan on your car you’ll be required to carry full coverage.
What You Need
The amount of auto insurance you need highly depends upon the level of assets you have. I personally don’t feel comfortable with anything less than 100/300/100 in liability limits. I’ve seen too many people get into deep trouble for having low liability limits.
Don’t try to save a couple bucks by skimping on your auto insurance, it’s not worth it.
If you have a car loan you need full coverage. If you don’t have a loan the choice is yours.
Even though Jamie and I both drive paid-for cars we still carry full coverage in the event that one of us would total our vehicle. Since we both have good credit scores and good driving records we only pay $600 per year to carry decent liability limits and full coverage on both of our vehicles.
Homeowner’s/Renter’s Insurance
The second most popular insurance – homeowner’s insurance.
If you own a home you need homeowner’s insurance. Just like auto insurance homeowners insurance can be broken down into two parts. (Or more depending on where you live!)
There are so many different coverages from state to state so I’m going to keep this in its most simple form.
First there is liability insurance. Just like you have liability insurance on your car you should have liability insurance on your home. This coverage will protect you in the event that someone gets hurt on your property. (This coverage doesn’t cover YOU or the people living in your home, but guests.) This is meant to protect you financially.
When my brothers were around 9 and 10 they went four-wheeler riding at my aunt’s home. My youngest brother flipped the four wheeler, cracked his head open, and was on the verge of death. A helicopter came to care flight him to The Children’s Hospital. My aunt’s homeowner’s insurance paid. (He survived. He has a nasty scar on the side of his head but is now perfectly healthy.)
The second part of your home owner’s insurance is to cover the cost of your home and the contents if damage was to occur or you had stolen property. When I sold homeowners insurance I used a system that would determine the amount needed to rebuild the home – that’s how much coverage the customer would be required to carry. Based off that amount a set percentage was selected to cover the contents.
In addition to this contents coverage you generally need to schedule items that are worth more than $1,000. (To schedule just means to add these to your policy for a certain amount of money.)
Also, if you live in a flood zone you may be required to carry a separate flood insurance policy.
The portion of your homeowner’s insurance that covers damage will be subject a deductible.
And lastly, one thing that you want to pay close to attention to is whether you have replacement cost or actual cash value. While replacement cost will make your premium slightly higher it ensures that you receive enough money to replace the contents that were damaged/ruined. Actual cash value means you will receive a check for the cost of your item minus depreciation. (For instance if you bought a $1,000 TV 10 years ago it may only be worth $100 now. With actual cash value you’ll receive the $100 minus your deductible. In this case, it wouldn’t be worth it to even file a claim.
Renter’s insurance is very similar to homeowner’s insurance only you have more flexibility to choose your coverage. For example, with renters insurance you can choose to have $20,000 worth of contents coverage (or whatever your magic number is) plus you can choose whether or not to have liability insurance. (Some landlords will require that you do.)
Renter’s insurance is generally very inexpensive.
When You Need It
Captain obvious again here – you need homeowner’s insurance if you own a home. If you have a mortgage you’ll be required to carry it but even if you don’t have a mortgage you’d be crazy not to have homeowner’s insurance.
As far as renter’s insurance goes your landlord might require you to have it. In that case jut get it, it’s pretty cheap. If you aren’t required to get it then the choice is yours. How much do you value your belongings?
What You Need
Once again I like to err on the side of caution when it comes to liability limits. You need a minimum of $100,000 in liability coverage. I personally have $300,000. (There are also other things to discuss with your agent, like medical payments.)
As far as coverage on your house this should be calculated by your agent based on how much it would cost to re-build your home if burnt to the ground.
And don’t forget to schedule items worth more than $1,000 on your policy!
Health Insurance
I went without health insurance for a long time. I’ve never worked for an employer who offered health insurance! On top of that I just flat out couldn’t afford it when I was earning $20,000 per year.
I was one of the few people who was ecstatic when Obamacare rolled out.
Now that I’ve gotten remarried I’m lucky that the girls and I get to be on Jamie’s policy. Since Jamie works for the state of Ohio we’ve got a solid policy at a fantastic rate.
Having health insurance after being without it so long feels amazing.
When You Need It
Everyone needs health insurance. If you’re working on your financial plan then you can’t be without it. The good news is that if you’re low income and can’t secure health insurance through your employer you can go through Healthcare.gov to get free or cheap coverage.
Also, as reminder you’ll now get fined if you live in the U.S. and don’t have health insurance.
What You Need
The type of coverage you choose highly depends upon your personality.
The less expensive policies come with high deductibles. That means you could pay a lot out of pocket before your insurance kicks in. (Say, $10,000.)
I am just fine with one of these types of policies. To me health insurance is about preventing catastrophe and not paying for every minor sickness.
Again, the coverage you need depends on your personality. I’m pro high deductible health insurance.
Life Insurance
And last, but certainly not least, let’s talk about life insurance.
Life insurance was something I put off for a long time because it was confusing and it was an added expense. When I wasn’t making much money I just flat out didn’t care.
Unfortunately, I’ve got to witness first-hand how much of a help life insurance can be when my grandma passed away last year.
My grandma, aunt, and Dad were business partners on one business but my Grandma’s largest business was also left to them. It was a crazy time and honestly, it still is. Having life insurance on herself as an officer of the business greatly helped avoid what could’ve been a bankrupt business. Obviously, after just losing their Mother my Dad and Aunt didn’t want to also lose the business that Grandma had spent the last forty years of her life building from the ground up.
My grandma was always insurance heavy. Even though I couldn’t understand why she would seemingly “throw away” so much money, she’s always proved to be the smartest person I’ve ever known in almost every single way – including financially.
Aside from the business aspect I mentioned, there are all kinds of reasons to get life insurance.
When You Need It
There are so many reasons for life insurance. For me it’s family.
I often think that if I were to unexpectedly pass away the only person in this world I’d trust to distribute money to my girls, in the way I intend it to be done, is Jamie. Our values are so closely aligned when it comes to money and I want both, him and the girls, to be protected if something were to happen to me.
Likewise, he has a policy too so that I’m protected if something happens to him.
I sincerely hope that it’s many, many, many years before either of us would be in that position but you just never know.
Some instances when you would need life insurance:
- You’re married
- You have a lot of debt
- You have kids
- You’re the breadwinner of the house
What You Need
There’s no right or wrong amount when it comes to the level of life insurance that you need. We’re all walking down different paths and have different circ*mstances. Essentially, you just need enough to make you feel comfortable.
I would definitely recommend that you get term life insurance. Term life insurance is affordable and you can lock in your rate for several years. I would never buy anything but term life insurance policies.
If you’re new to life insurance you can check out TermLifeInsurane.com where you’ll be able to get quotes from several carriers by filling out a super basic application. From there you can find the best rate and then apply if interested.
Grandma Was Right…………..
My Grandma was right (she always is!) Insurance is a super important part of any financial plan.
Insurance is not a scam. It’s not a waste of money. Insurance is how you protect all the awesomeness you’re working so incredibly hard to build in your life!
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