Insurance You Should Have

INSURANCE

Frances Donovan

Decision Center

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Understanding Your Overall Insurance Needs

Coverage for your car, your home, your life. Here are 10 forms of insurance you should think about buying.

1. Increased limits for auto liability

Required auto liability limits vary from state to state, but they usually have something in common: they're not high enough. With the rising costs of medical care and car repairs, you might find the state-mandated auto liability limits a bit skimpy.

When it comes to auto insurance, there is a shorthand used that baffles many buyers. It goes something like this: 25/50/10. The first number is the maximum bodily injury coverage for one person in an accident; the second number is the maximum coverage for all people injured in the accident and the third is the maximum property damage coverage related to that accident. So, when your agent rattles off 50/100/25 or 100/300/50, you'll know what he's talking about.

The cost of increasing your liability coverage is usually pretty minimal: a 29-year-old man in Colorado would pay $1,042 annually for the minimum liability limits of 25/50/15, and $1,232 for increased limits of 100/300/50.

2. Roadside assistance

The American Automobile Association (AAA) isn't the only roadside assistance program out there. Insurance companies, especially the bigger ones, will often offer roadside assistance, usually starting at about $12 a year. A good plan will include a toll-free number for you to call and free emergency services (jump starts, lockouts, tire changes, gas, and towing).

Be wary of plans that offer to reimburse you after the fact; when the emergency happens, you may not have the money handy. Also pay attention to the amount an insurance company will pay per incident. A five-mile tow alone can cost about $100.

A membership with a motor club like AAA costs more than a roadside assistance endorsement on your auto policy because there are additional benefits with the membership, such as travel services, travel insurance and discounts at hotels, restaurants, and other businesses. If you don't plan on doing any traveling, these services might be more than you need.

3. Guaranteed replacement cost on your home insurance policy

Dwelling coverage, as the name suggests, covers losses to your dwelling. If your house burns down you can have it repaired or replaced, up to the limits of your policy. If the cost of rebuilding exceeds your policy limit, tough luck, unless you purchase guaranteed replacement coverage For a charge of about $5 to $15 more a year, the insurance company will promise to pay the full amount of rebuilding your home. But to get the guaranteed replacement cost coverage, you usually need to insure your home for the full amount of what it would cost to rebuild, an amount that changes each year. It's easier to get the endorsement if your house is new, but an older home that's in good repair still might qualify.

4. Replacement coverage on contents

Some homeowners policies will pay you the current cash value of your personal possessions. You want replacement cost coverage on your personal property.

Depending on the company you're buying from, you may pay a dollar or two more a year for replacement coverage, or you may pay 30 percent more. It can pay to shop around.

5. Coverage against natural disasters

It's pretty impressive when you read the list of perils that your home insurance policy will cover. But did you notice that flooding isn't on it? Private insurers will not underwrite flood coverage; only the National Flood Insurance Program will touch it. Outside of fire, flooding is the most common and widespread natural disaster. It's worth finding out whether you're in a flood plain. On average, flood insurance runs about $350 a year, not a bad price for such a common peril. People who live in certain areas should also buy earthquake and (Usually, you can tell you need the coverage because companies aren't crazy about selling it to you outside of a special program.)

6. Renters, condo owners and co-op owners

Often, tenants and co-op owners are under the impression that their landlord's or co-op association's insurance policies are sufficient. This is not so. Those policies will cover damage to the building, but not the personal property of the building's residents. In addition to compensating you for any personal possessions that you might lose due to theft or fire (and a host of other perils), liability coverage will protect you and your assets from a lawsuit if someone gets hurt while at your place.

7. Private disability insurance

Private disability insurance is probably one of the least understood forms of coverage. Most Americans are covered for disability under Social Security, which pays peanuts, and most people who apply for it get turned down. Your employer may offer you disability insurance as part of your benefits package, but those are paid for with pre-tax dollars; if you ever had to collect, you would have to pay taxes on the benefits. Private disability insurance, which you pay for yourself, will pay you a percentage of your income, and may pay even if you do not become totally disabled.

If you can get this coverage, it's worth it. The problem is, it's a lot harder to get than it used to be. In recent years, the companies that issue the insurance have been losing a lot of money. However, if you're a young professional and in good health, you should be able to get a policy that would pay $1,000 a month for as little as $300 a year. You might never need to use it, but if you do, you'll be awfully glad you have it.

8. Medicare supplement or Medigap

Medicare, that much-discussed health plan for Americans over 65, does not cover all health care costs. For instance, patients must pay $760 for any hospitalization before Medicare kicks in. Outpatient prescription drugs aren't covered at all. Deductibles and co-pays are often steep. Medicare supplemental coverage (or Medigap) will pay for the gaps in Medicare. It's only available to people who are already enrolled in Medicare. Ten standardized benefit plans (Plans A through J) range from covering the Medicare deductible to more sweeping coverage. The most costly of them even cover prescription drugs. Because federal law dictates the coverage plans, companies compete on the basis of service, availability and pricing. Medigap policyholders nationwide pay an average of $1,100. However, it is possible to get the coverage for as little as $500. Many state insurance departments publish shopping guides and premium comparisons for Medigap (they may refer to it as Medicare Supplemental).

9. Life insurance

Anyone who has merged his or her finances with another, or who has a lot of debt, needs to think seriously about additional life insurance. You want to have enough coverage to pay off whatever debt you're carrying, and to fill the gap in income caused by your death.

10. Wedding insurance

Wedding insurance is actually a prudent idea for anyone who plans something more ornate than a trip down to the local justice of the peace. Deposits for churches, synagogues and reception halls run into the thousands of dollars. Add to that the cost of tux rentals, photographers, catering and other incidentals, and you're spending some major bucks.

Coverage usually includes reimbursement of nonrefundable deposits, liability coverage and replacement of lost or stolen wedding gifts. The liability portion of a homeowner's insurance policy usually excludes events like weddings.

One peril that wedding insurance definitely does not cover is "change of heart," so don't buy it unless you know both parties really want to tie the knot. The average policy costs about $100, a drop in the bucket compared to the cost of an average wedding.

What types of insurance do I need?

Articles

Twenty-five Secrets to Buying Insurance
The Raging Debate Over Term vs. Whole Life
How to Find Affordable Health Insurance
Auto Insurance: Buy More Than the Minimum
Homeowner's Insurance Protects More Than Your Home
Umbrella Policies Plug Holes in Your Coverage
Finding the Right Individual Health Plan

Next Steps

Go to Money's Lifetime Planner

			INSURANCE

			Insurance You Should Have Frances Donovan Decision Center

	.......................................... BACK TO MAIN Understanding Your Overall Insurance Needs		Coverage for your car, your home, your life. Here are 10 forms of insurance you should think about buying. 1. Increased limits for auto liability Required auto liability limits vary from state to state, but they usually have something in common: they're not high enough. With the rising costs of medical care and car repairs, you might find the state-mandated auto liability limits a bit skimpy. When it comes to auto insurance, there is a shorthand used that baffles many buyers. It goes something like this: 25/50/10. The first number is the maximum bodily injury coverage for one person in an accident; the second number is the maximum coverage for all people injured in the accident and the third is the maximum property damage coverage related to that accident. So, when your agent rattles off 50/100/25 or 100/300/50, you'll know what he's talking about. The cost of increasing your liability coverage is usually pretty minimal: a 29-year-old man in Colorado would pay $1,042 annually for the minimum liability limits of 25/50/15, and $1,232 for increased limits of 100/300/50. 2. Roadside assistance The American Automobile Association (AAA) isn't the only roadside assistance program out there. Insurance companies, especially the bigger ones, will often offer roadside assistance, usually starting at about $12 a year. A good plan will include a toll-free number for you to call and free emergency services (jump starts, lockouts, tire changes, gas, and towing). Be wary of plans that offer to reimburse you after the fact; when the emergency happens, you may not have the money handy. Also pay attention to the amount an insurance company will pay per incident. A five-mile tow alone can cost about $100. A membership with a motor club like AAA costs more than a roadside assistance endorsement on your auto policy because there are additional benefits with the membership, such as travel services, travel insurance and discounts at hotels, restaurants, and other businesses. If you don't plan on doing any traveling, these services might be more than you need. 3. Guaranteed replacement cost on your home insurance policy Dwelling coverage, as the name suggests, covers losses to your dwelling. If your house burns down you can have it repaired or replaced, up to the limits of your policy. If the cost of rebuilding exceeds your policy limit, tough luck, unless you purchase guaranteed replacement coverage For a charge of about $5 to $15 more a year, the insurance company will promise to pay the full amount of rebuilding your home. But to get the guaranteed replacement cost coverage, you usually need to insure your home for the full amount of what it would cost to rebuild, an amount that changes each year. It's easier to get the endorsement if your house is new, but an older home that's in good repair still might qualify. 4. Replacement coverage on contents Some homeowners policies will pay you the current cash value of your personal possessions. You want replacement cost coverage on your personal property. Depending on the company you're buying from, you may pay a dollar or two more a year for replacement coverage, or you may pay 30 percent more. It can pay to shop around. 5. Coverage against natural disasters It's pretty impressive when you read the list of perils that your home insurance policy will cover. But did you notice that flooding isn't on it? Private insurers will not underwrite flood coverage; only the National Flood Insurance Program will touch it. Outside of fire, flooding is the most common and widespread natural disaster. It's worth finding out whether you're in a flood plain. On average, flood insurance runs about $350 a year, not a bad price for such a common peril. People who live in certain areas should also buy earthquake and (Usually, you can tell you need the coverage because companies aren't crazy about selling it to you outside of a special program.) 6. Renters, condo owners and co-op owners Often, tenants and co-op owners are under the impression that their landlord's or co-op association's insurance policies are sufficient. This is not so. Those policies will cover damage to the building, but not the personal property of the building's residents. In addition to compensating you for any personal possessions that you might lose due to theft or fire (and a host of other perils), liability coverage will protect you and your assets from a lawsuit if someone gets hurt while at your place. 7. Private disability insurance Private disability insurance is probably one of the least understood forms of coverage. Most Americans are covered for disability under Social Security, which pays peanuts, and most people who apply for it get turned down. Your employer may offer you disability insurance as part of your benefits package, but those are paid for with pre-tax dollars; if you ever had to collect, you would have to pay taxes on the benefits. Private disability insurance, which you pay for yourself, will pay you a percentage of your income, and may pay even if you do not become totally disabled. If you can get this coverage, it's worth it. The problem is, it's a lot harder to get than it used to be. In recent years, the companies that issue the insurance have been losing a lot of money. However, if you're a young professional and in good health, you should be able to get a policy that would pay $1,000 a month for as little as $300 a year. You might never need to use it, but if you do, you'll be awfully glad you have it. 8. Medicare supplement or Medigap Medicare, that much-discussed health plan for Americans over 65, does not cover all health care costs. For instance, patients must pay $760 for any hospitalization before Medicare kicks in. Outpatient prescription drugs aren't covered at all. Deductibles and co-pays are often steep. Medicare supplemental coverage (or Medigap) will pay for the gaps in Medicare. It's only available to people who are already enrolled in Medicare. Ten standardized benefit plans (Plans A through J) range from covering the Medicare deductible to more sweeping coverage. The most costly of them even cover prescription drugs. Because federal law dictates the coverage plans, companies compete on the basis of service, availability and pricing. Medigap policyholders nationwide pay an average of $1,100. However, it is possible to get the coverage for as little as $500. Many state insurance departments publish shopping guides and premium comparisons for Medigap (they may refer to it as Medicare Supplemental). 9. Life insurance Anyone who has merged his or her finances with another, or who has a lot of debt, needs to think seriously about additional life insurance. You want to have enough coverage to pay off whatever debt you're carrying, and to fill the gap in income caused by your death. 10. Wedding insurance Wedding insurance is actually a prudent idea for anyone who plans something more ornate than a trip down to the local justice of the peace. Deposits for churches, synagogues and reception halls run into the thousands of dollars. Add to that the cost of tux rentals, photographers, catering and other incidentals, and you're spending some major bucks. Coverage usually includes reimbursement of nonrefundable deposits, liability coverage and replacement of lost or stolen wedding gifts. The liability portion of a homeowner's insurance policy usually excludes events like weddings. One peril that wedding insurance definitely does not cover is "change of heart," so don't buy it unless you know both parties really want to tie the knot. The average policy costs about $100, a drop in the bucket compared to the cost of an average wedding.
			What types of insurance do I need?
			Articles \|

			Twenty-five Secrets to Buying Insurance The Raging Debate Over Term vs. Whole Life How to Find Affordable Health Insurance Auto Insurance: Buy More Than the Minimum Homeowner's Insurance Protects More Than Your Home Umbrella Policies Plug Holes in Your Coverage Finding the Right Individual Health Plan

			Next Steps \|

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