The Basics: Insurance Coverages Everyone Needs
Insurance. One of the few things we spend our hard earned money on with hopes of never using. Unfortunately, the world is an unpredictable and unapologetic place.
What does this mean for us? It means living with a “that will never happen to me” attitude is naive and a recipe for disaster. Life is inherently risky. Insurance is here to transfer this risk from yourself to your insurance company.
That’s why we call it coverage. In the wake of an event that has the potential to be catastrophic to your financial being, insurance is there to cover the costs. And when it comes to properly covering yourself, some aspects of life are riskier and more costly than others.
Let’s explore the insurance coverages everyone needs. While some of these may seem obvious, you would be surprised by the number of people who fail to fully cover themselves.
Whether you found yourself in an accident or your car was subjected to a hail storm, one of the most common insurance claims is automobile related.
Not-so-fun Fact: In the U.S., a car accident takes place every 18 seconds.
While hail damage isn’t likely to put you in financial ruin, if someone is seriously injured in a car accident you are at fault for, you are writing yourself a completely different story. This reality makes it crucial to purchase the right coverage.
Liability. If you are at fault for an accident, liability coverage covers the other person’s expenses. Bodily injury coverage covers any cost related to a victim’s injuries. These include medical bills, lost wages, legal costs, etc. Property damage coverage covers any costs related to the damage of one’s vehicle and/or belongings.
In the case of an event, you should choose at least $500,000 worth of liability coverage for property damage and bodily injury to save yourself from bankruptcy.
For example, a “$250,000/$500,000/$250,000” or “250/500/250” plan means:
- $250,000 of coverage for bodily injury (per person)
- $500,000 of coverage for bodily injury (per accident)
- $250,000 of coverage for property damage (per accident)
Collision. Whether you are at fault or not, collision coverage provides compensation for damages to YOUR vehicle in the event of an accident with another vehicle or object. However, the insurance only pays the costs that exceed the deductible amount.
Comprehensive. This coverage kicks in to repair or replace your car if its stolen or is damaged by mother nature.
Our homes are everything. Beyond providing us, and our cherished belongings, protection from the outside world, a home gifts us the indescribable and intangible feeling of ‘home’.
If an unfortunate catastrophe hits your home, such as fire, hail, vandalism, theft, or lightning, you want to make certain you have the right coverage to rebuild and replace what you’ve lost. It also covers liability for any injuries that occur in your home or on your property. For example, if your neighbor slips and falls on your porch, your homeowner’s insurance should cover any expenses related to their injuries.
The coverages you want to ensure you are protected with include:
- Dwelling & Other Structures. For damage caused by a covered peril (i.e. hail), dwelling coverage provides compensation to rebuild or repair your home. Other Structures coverage simply covers structures that surround your house such as your garage or fence. When we speak of damage, we are speaking of damage to roofing, siding, plumbing, heating and cooling systems, and electrical, so it is essential to have the right level of coverage as compared against your current home value.
- Personal Property. Coverage that compensates you in the event that your personal items, such as your clothing, electronics, and furniture, are damaged or destroyed by a covered cause.
- Loss of Use. If you are forced to evacuate your home while it is being repaired, Loss of Use covers living expenses. The compensation amount is limited to the costs in excess of what you would typically spend to run your household.
- Liability. As state above, liability coverage covers all expenses related to injuries that occur on your property.
It’s important to keep in mind that flood insurance must be purchased separately.
Term Life Insurance
As we grow older, get married and build families, we come to realize how important having the means to support your family is. We also realize how unpredictable the world is.
In the event of your death, life insurance ensures your family is financially taken care of and can avoid financial chaos. Unfortunately, It is often overlooked because of the morbid nature surrounding it. However, it is one of the most important coverages to have.
When deciding on a life insurance policy, make sure to seek out a TERM policy. Term life insurance provides life insurance coverage for a specific amount of time. For example, a 20-30 year term ensures that your beneficiaries will receive a payout (typically 10-12 times your annual income) if you happen to pass within that 20-30 year period.
Why term over whole?
- If you were smart with your finances, by the time your 30 year term is up, you shouldn’t need to lean on a life insurance policy for support.
- More affordable. Term life insurance has no cash value UNTIL the holder passes away.
- It is common to pay 10x more/month for a whole life insurance policy and you still receive the same amount at the end of term.
- Life insurance should NEVER been approached as an investment. Whole life insurance views life insurance as an investment. There are far more effective ways to invest the monthly premium difference.
With the nature of mandatory health insurance, we won’t cover that in this blog. However, it is likely the most important insurance policy to have. You and your family’s health should be your primary concern.
Making sure you and your family are protected from the unpredictability of life is essential to ensuring financial security and avoiding ruin. Contact our team today to discuss your needs and options.