Insurance 101

What is one of the best ways to protect yourself financially? Have the right insurance to cover any disaster that could impact you financially. Here's some insurance coverages you should have:

• Health insurance. Yes it's hella expensive but so is cardiac surgery, neurosurgery, and treatment for chronic medical conditions. Depending on the extent to which you can self insure yourself (which means you have money in the bank to cover minor medical expenses), you may want to look at high deductible catastrophic coverage which only kicks in when a high deductible has been met. In addition to health insurance, practice some "do it yourself medical insurance" where you exercise daily, eat right, have annual physical exams, de-stress on a daily basis, and stay on top of chronic conditions such as diabetes and high blood pressure. An aversion to dangerous activities (bungee jumping, drunk driving, live fire situations, et al) will also help improve your insurability.
• Home insurance or renters insurance. You don't realize how much money it takes to replace a house and all of its contents until you lose everything and have no insurance. One simple window in your home can cost hundreds of dollars to replace--multiply that by all of the windows, sheet rock, joists, appliances, and even paint that it takes to make up your home and the costs add up quickly. If you don't have home owners/renters insurance, get it. If you already have this kind of insurance, pull out the policy and review it. Many people think they are covered for things such as floods or earthquakes but often that isn't the case. Also be sure that the amount of coverage is adequate--don't undervalue the cost to replace your home or its contents. To make sure you are totally prepared if the worst should happen, make sure you do an annual home inventory (written down with pictures) so you will quickly be able to ascertain what was lost.
• Auto insurance. Automobile insurance is required in most states, however many people drive without it. Big problem. Not only can you be fined for driving without car insurance but if you inadvertently kill someone with your car, you will be paying for it for the rest of your life. Everyone should have at least liability insurance on their cars. Whether or not you need comprehensive insurance depends on a number of things including the value of your car, whether or not you can afford to pay for your own repairs or replace the car in the event of an accident where you are at fault, and how likely it is your car will be damaged (if you live in a high risk neighborhood, drive thousands of miles a year, or live where a tree might fall down on it, this could impact whether or not you need collision insurance). Another must have is uninsured motorist insurance. Like I said, many people opt to drive without insurance and if they are destitute it is unlikely you will recover any damages from them; you could be left with a pile of metal where your car used to be or a pile of medical bills and you will be responsible for paying for it. Some tips to lower your insurance--drive less, don't get tickets for speeding, DUI, or reckless driving, and keep your car in good working order.
• Life insurance. We opted for 20 year term insurance a number of years ago as whole life is a poor way to invest your money. Our first round of insurance was at a significantly higher limit because if one of us were to die while the kids were young, the other would have a huge amount of expenses to cover (child care, children's expenses, funeral, replacement of the spouse's income so the bills could get paid, enough to pay off the house, etc). Now that we are heading into our second round of term insurance, we have chosen a lower amount because the kids have all moved out, our debts are much less, and there are very few bills to be paid so if one of us dies, the remaining person would not need as much money as previously. Some hints to make the most of your insurance: don't smoke, stay healthy, and look at the exclusions in your policy (sometimes adventure activities such as scuba diving or parachuting aren't covered...better to know this ahead of time).
• Disability and long term care insurance. What would happen if you were suddenly, through accident or illness, made bed ridden for the rest of your life? It would put quite a crimp in your income and lifestyle, no? This is what disability and long term care insurance is for. It will pay for your care so that you won't lose all of your assets in order to keep up with ongoing medical and care expenses. Now that we are getting older, we will be looking into this type of insurance.
• Other insurance policies. If you Google "insurance" you will get a list of 76 types of coverages on the Wikipedia "insurance" page. That's a whole lot of coverages you could get if you want to. Some are very important (professional liability insurance, flood insurance), some are ridiculous for the average person (terrorism insurance, child life insurance), and some may be useful in certain situations (marine insurance, crop insurance). Consider whether or not you would need these types of insurance.

The bottom line is that each person's situation is different. The assets they need to protect are different, their risks and liabilities are different, and their ability to pay for these insurances is different. While you can't insure for every little thing that could happen, being covered with a nice selection of the most important types of insurance will make a huge difference in your future should the worst happen.