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Insurance overview

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Life Insurance
Term life insurance is one of the best ways to protect your family, but not everyone needs it. In fact, it might just make more sense to have a healthy savings account and skip life insurance. To figure out if you need life insurance, take a few minutes to think about what would happen to your loved ones in the event of your death.

If you have relatives that depend on you for money, you will want a policy that is large enough to cover their expenses until they can care for themselves. Take a few minutes to calculate these expenses, then look for a policy that provides enough money to pay for them.

Finally, when you’re looking for life insurance, you will come across a lot of offers for whole life or permanent life insurance. These are actually a life insurance policy combined with an annuity. While annuities can be a good deal in some situations, it’s important to really look at the terms and conditions of a whole life policy.

Vehicle Insurance

Car insurance rates have been steadily declining for the past several years, but many experts are now under the belief that they have bottomed out. While this means that there are still some good deals, it also means that you probably won’t save a lot of money by frequently shopping around for new insurance.

When you’re first starting out, it can be tempting to choose the cheapest auto insurance available. This is usually your state minimum coverage, which will only pay out to the victims if you are considered to be at fault in an accident. If you regularly find yourself choosing between food or your insurance bill, this might be a good policy to have, but most people should keep a little more coverage than the minimum.

Ideally, keep at least enough coverage to match your net worth and pay for an accident or other incident without exhausting your savings. Look past the agent’s portrait of a worst-case scenario and think realistically for a minute. In the event you are at-fault in an accident, the victim has the right to come after you for everything you have. If all you own is a (now totaled) car and a few dishes, they’re not going to get much. Even if they win a higher judgment, you could declare bankruptcy. No, it’s not ideal, but your odds of being at fault in a serious accident are also very small. Your auto insurance policy will pay for any judgment against you up to your coverage limits. If you don’t have a lot of assets, it makes more financial sense to put your money into building your wealth than protecting it. If you have a lot of assets and/or people dependent on you, it makes more sense to pay for more coverage.

Also consider how much of an emergency fund you have and set your deductible to half this amount. For example, someone with $2000 in savings should have a deductible of no more than $1000. In the case of an accident, this person will have to drain half of their emergency fund to pay for their share of costs, leaving them with enough left over to pay for any other small emergency that comes up until they can pay back their emergency account. Setting a deductible to more than this could leave you without funds to pay for the accident.

Finally, think about collision and comprehensive coverage. If you are at fault in an accident, do you have the funds to replace your car? If your vehicle is stolen and never recovered, could you replace it while still making your car payments? Because so many people’s answer to this is no, many auto lenders require their drivers to carry collision and comprehensive. If you could replace your car on your own, or if the premium charge for the coverage for one year is worth more than half the value of the car, skip these coverages.

Home Insurance

Homeowner’s insurance is practically required of anyone who holds a mortgage, but there are ways to save on this coverage. Every few years, shop a few insurance companies to find out if rates have changed. Unlike auto insurance, most home insurance companies do not automatically lower their premiums if you qualify.

If you have significant assets outside of your home value, you might want to consider self-insuring. This can be a good idea for people who on their home free and clear of any mortgage and live in areas that are constantly over-rated for risk by insurance companies. In general, if an insurance company wants you to pay more than three percent of your home’s value for insurance, you’re probably better off self-insuring. For example, many people who live along the water in Florida find themselves paying over three percent of their home’s value for insurance because of the supposed risk of hurricanes. Many of these homes, however, have never been in the path of a storm. Instead of paying money to a homeowner’s insurance company, keep a large emergency fund that you can collect interest from. In the event of a disaster, you will have to pay all of the costs yourself, but you also won’t have to worry about getting your insurance company to pay.

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