What Kind of Insurance Should I Buy?

by Dual Income No Kids on July 5, 2009 · 0 comments

Generally speaking, I’m skeptical about the need for insurance. I think a lot of personal finance gurus – and lots of bloggers – tend to buy into the notion that you’ve got to have insurance. Also, I tend to have a low opinion of many insurance companies – they tend to have incentives to deny even legitimate claims or to hold up payment to maximize their own profits.

That said, here are some types of policies you might want to consider.

1) Health Insurance. If you don’t have it through your employer it’s possible to buy insurance through a high deductible insurance that also allows you to open a Health Savings Account (HAS) to be prepared for health expenses. This will protect you against catastrophic risk.

2) Auto Insurance. A lot of state laws require this. Plus accidents can totally ruin your car. When I was younger and more reckless I ended up getting in a couple of fender benders. One time I got hit (I wasn’t at fault), and the insurance covered the payment. One time my wife Miel got blindsided by an uninsured and unlicensed driver, the damage left her car much less valuable.

3) Life Insurance. Get term insurance. Whole life insurance has a savings portion, but it’s often not worth it – usually you only get 2 or 3% on that portion of the policy.

4) Disability Insurance. Guru’s like Dave Ramsay argue that you should have disability insurance – but I’m less optimistic about this. Probably this is the lowest priority of all the types of insurance and is especially low priority if you have a desk job and don’t really engage in risky sports.

5) Homeowners or renters Insurance. The rationale behind getting homeowners or rental insurance is that you’ll want to cover your place in case of a catastrophe. For example if your apartment gets burned out you’ll want to at least get some money to fix the place or get some of your stuff back. Due to the housing bubble and subsequent bust a lot of insurance companies are changing their reimbursement schemes. Be sure your information is up to date when you’re researching these options.

6) Long Term Care Insurance. If you are over 60, this might make sense to look at. Many elderly people lose their ability to perform regular activities of daily living – like going shopping or cleaning the house, etc. A long term care insurance policy covers some of the expenses of having to hire help.

Also keep in mind that one of the first steps before adding additional insurance is to look carefully at what you have through your employer. Chances are, unless you are paying very close attention, you likely don’t know exactly what you already have. Check it out and see where your gaps are. If you are trying to build wealth, it is usually a good idea to know what insurance you have and how exactly it will lower your risk in the time of tragedy.

Happy Insurance Shopping!

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