How Much Insurance Do You Need?
It’s mid-November, which thankfully means hurricane season is winding down here in South Florida.
From roughly late August to the end of October, we Floridians (as well as many others on the Atlantic and the Gulf coasts) keep a close eye not only on weather reports but also on what is brewing hundreds of miles away in the ocean.
We dodged a bullet this year when Hurricane Dorian, which ravaged the Bahamas, narrowly missed my area. Store shelves were empty, gas stations had no more fuel and houses were shuttered up.
Once you’ve been through a hurricane, you respect their power and don’t take chances.
In preparation for the storm, my family makes sure we have our homeowner’s insurance policy in a safe place. We take photos and videos of the contents of the house so we have proof in case we need to file a claim.
That’s the time we typically look at the policy to make sure we’re actually well-covered if disaster strikes – not the best timing.
There are a lot of scary things out there that people can use financial protection from – death, natural disasters, auto accidents, health issues, liabilities, etc. And there’s an insurance product (often an expensive one) for nearly every need.
I have all kinds of insurance. It’s necessary to protect my family. But look closely at your insurance needs to determine whether you’re paying for something that you really could live without.
Life insurance – I always assumed life insurance is something you need to have to be an adult. For most people, it makes sense.
But if your kids are grown and self-reliant, and if you have enough assets to keep you or your spouse in the lifestyle that you want, continuing to pay for life insurance is flushing money down the toilet.
Life insurance should protect your family against tragedy. That’s it. Life insurance is a terrible investment, so don’t treat it like one.
If the only reason you’re carrying life insurance is for the investment, get rid of it and instead simply invest the money. It will be cheaper, and your returns will be higher.
Health insurance – You should spend some time going over your medical expenses from the past few years. Based on how often you go to the doctor or how much you expect to, you may want to change your health coverage.
If you rarely see a doctor, a high-deductible plan will save you lots of money. On the other hand, if you’re a frequent user of health services, a lower deductible plan could be the way to go even if your premiums are higher.
Auto insurance – Is your car an old beater? If so, you may be over-insuring it. Reduce your collision coverage if your car is not worth 10 times the premium.
You can also get creative. When my teenage son was added to our policy, our rates tripled. Now that he’s in college without a car, we took him off our policy, saving thousands.
When he comes home for the holidays, we’ll gladly pay for Uber or Lyft. Even if we spend several hundred dollars on rides, it will be much cheaper than putting him on our policy.
Look at your policy closely. There may be certain coverages, such as paying for a rental car, that you do not need.
Umbrella insurance – If your net worth is more than $1 million, you should consider umbrella insurance.
If you get into a car accident, someone slips on your driveway or you incur any other kind of at-fault liability and the other side’s lawyers know you have money, they will come after it.
Umbrella insurance is relatively cheap – just a few hundred dollars per year for every $1 million in coverage.
God forbid someone gets hurt or worse and it’s your fault, umbrella insurance will protect your assets.
No matter which kind of policy you’re looking for, shop around. Insurance premiums vary widely.
When I looked for both auto and home insurance, the quotes were thousands of dollars apart for each. You may also get a discount if you keep several policies with the same company or broker.
To make sure you’re getting the best coverage for the lowest cost, you’ll have to fill out a lot of online forms or make many calls. But if you put in the time and do your research, you will save thousands of dollars a year.
In closing, there’s something that I wanted to mention: Today is Veterans Day in the United States. Thank you to everyone who has served and to those who continue to do so. Your courage and selflessness are inspiring and very much appreciated.
I hope it’s a meaningful Veterans Day for everyone.
About Marc Lichtenfeld
A master of the steady, reliable science of income investing, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report. He has also appeared on CNBC, Fox Business and Yahoo Finance. His book Get Rich With Dividends: A Proven System for Double-Digit Returns achieved best-seller status shortly after its release in 2012. He captures the hearts and minds of readers approaching their golden years in his daily e-letter, Wealthy Retirement.