Monday, February 3, 2014

Family Finance and The General Insurance Check Up

(Photo:  )

            In one of the last posts, I gave a primer overview to essential elements of family finance.  In this post I would like to examine one of the things I touched upon in the last post.  Many people don't know of the concept of an annual insurance assessment.    As we move through our lives, many things change year to year.  The insurance we had a year ago might not be enough for the life we are living today.  Sometimes, things change sufficiently that we need to have less insurance than we had a year, or two, or five years ago.

              If you are a tenant,  although you don't need homeowner's insurance, you should at least evaluate the cost of "Renter's Insurance".   This is usually a cost effective insurance.  If a pipe bursts or your rented home burns down, your landlord's insurance covers only the rented premises, and nothing of yours.  It's up to you to have some type of insurance so you aren't wiped out.

              If you own your home, you may have realized that Homeowner's Insurance in the US, and worldwide has risen substantially in the last few years.  My own is up forty percent in the last couple of years, and in thirty years, my family and I have never claimed on homeowner's at any of the homes we owned in all those years. I read recently that insurance premiums for homeowners insurance is up in Florida more than anywhere else.   Between rising taxes in some places and rising homeowner's insurance a lot of people are finding that they pay almost as much as their mortgage used to be before they paid it off !
 There is also a trend in that many people as they edge into partial or complete retirement, and they pay off their mortgages, can no longer afford to continue paying their homeowner's insurance.  Of course, this leaves them extremely vulnerable in the event of fire or other covered calamity.   If you are in this quandary, before dropping your insurance, see if you can save substantially by raising your deductible on this type of insurance.  I have raised my deductible on homeowners in the last couple of years.  Several of our friends nationwide lost homes to fire this year and did not have homeowner's insurance any longer.  These are very trying times for many people.

             Car insurance can be a great expense for many people.   One less expensive way to carry coverage but to be able to save money also, is to carry simply liability insurance.  This means that you are covered under the law for the damage you do to the vehicles of others, but that you, in essence, are self insuring for any damage to your own vehicle.  This can be smart if you drive a Ford Escort, and not so smart if you drive a Rolls Royce Silver Shadow.   Of course, I am closer in my thinking,  to the Ford end of the spectrum.   You can save substantial amounts of money by taking this approach however there are some negative aspects to minimal car insurance also.   Should someone total your car, and be liable for it, your insurance company may not intercede on your behalf and get the ball rolling with the other persons insurance company if all you have is liability insurance.  My son has still not been paid by the insurance company who represents a woman who was convicted in the totalling of his car.  The best we have been able to do is ensure that the woman's cut rate insurance company can no longer do business in Virginia.  Of course, this hasn't bought our son another used car, and the accident was three years ago. We could have sued her, but it is unlikely that she would ever have the money to replace such a thing.  Additional,  Collision insurance can be valuable if it is affordable for your particular car and your own state.
             Explore car insurance discounts for organizations for whom you are a member.  Many times, they have special plans which will result in up to a twenty percent savings on an annual premium basis.
             One of our agent claims that substantial discounts can be had if you place all of your insurance needs with one company.  I do not do this, choosing instead to buy the best and most reasonable insurance for the farm at one place,  car insurance at another, and life insurance somewhere else. This has worked for me, but since people's circumstances are different, it does pay to evaluate different companies.

              Life insurance is a very important insurance to have, but is frequently misunderstood.   Life insurance which develops a cash value can be great to have, but it is the most expensive life insurance to buy.
Term life insurance, is not only the least expensive to have, but it is often much less money than most people realize.   Life insurance is very important to have, because when it passes to your wife, children or whomever you deem your beneficiary, it does so tax free.

             When selecting life insurance, you need to consider where you are in your lifespan and what your obligations are.   If you are a forty year old man with 100K left on the mortgage and twins, then you need a fair chunk of change for life insurance.   In the event of your passing, you need 100K for that mortgage, 100K for the raising and college educations for each of the twins, and a cushion for your wife. 500K would therefore be a reasonable amount of life insurance.  If you are a non-smoker of 40, then the premium need only be about $22, a month.    Women should have life insurance also.

            As you age, you need less term life insurance, as children are raised, college is paid, homes are paid off, etc.   This is a good thing, as it does become more expensive if you need to acquire a new policy as an older person.  This is also a time when you will be relieved to be a non-smoker as insurance rates for non-smokers are much cheaper.
             You should have some money put away for funeral expenses.  (Cremation is $1200. in most places)   Life insurance is wonderful, but may not be paid within the 30 days in which the funeral home needs to be paid.

              If you are past needing 500K or 100K, it still may make sense to find a 10K or 20K policy for an older person, making the path of a spouse a bit easier.  Remember that the proceeds are tax free.

             In short, you and your family should look at all your insurances each year.   Trim the fat, and consider how your needs may have changed.    This is an important aspect of making your money do the most good for you, and for your family.


BBC said...

I don't have home owners insurance because my cave is a piece of shit built during the great depression and an insurance company would have to be insane to insure it. Besides, if it burned down or something like that it won't cost me that much to build another cave.

I do have auto insurance but I have been with State Farm for many years and it is under 500 bucks a year. I also get a discount cuz I drive less than 7500 miles a year, usually about 4000 miles a year. I haven't had a ticket for over 20 years and haven't had an insurance claim since the 60's.

JaneofVirginia said...

Good job, BBC. I wonder if another company, Geico or someone else, could provide less expensive car insurance. In many places (and of course, not all) Low mileage drivers with no claims are paying $169. twice yearly for liability insurance with strong levels of coverage including medical. Best wishes.

BBC said...

I was in two minor accidents when long haul trucking but never got tickets for them, and the claims was through the trucking company's insurance.