What Insurance Should You Buy? Part 2

Last week, we began to outline the sorts of insurance policies you need in order to complete Step 4 of our 8 steps towards financial health. Everyone needs four basic insurance policies: Home, Auto, Health, and Life. Last week, we discussed Homeowners Insurance and today we are going to complete this step by discussing the final three types of policies: Auto, Health and Life. 

Auto Insurance

Just like the homeowner’s policy, there is property and casualty insurance on the auto policy. Unlike homeowners insurance, there doesn’t have to be property coverage. If you have an older car that has a dent here or there and have the money saved to be able to replace it with another vehicle, you may opt to not purchase property coverage. Again, that is where you use the principle I taught earlier. Can you afford to not have insurance because you have the cash saved if something bad happened? Then, if you want, you can take the risk and not transfer the loss of your property to an insurance company. However, we all must carry liability insurance on our auto insurance. This is mandated across the country and it’s a good idea that it is. When auto accidents happen, losses can be severe. Not just to the property, but to life and the ongoing quality of life. Just like on the homeowners policy, if you are going to be sued, you’re not going to be sued for $40,000 or $50,000 which is the minimum in many states. You’re most likely going to be sued for $1,000,000 or more. So I always recommend considering $1,000,000 of liability insurance on your auto policy. 

Health Insurance

I had shoulder surgery a couple years back and the bill I got from the facility, not from the doctor or the anesthesiologist, but the facility to be in there for my one hour procedure, was $16,000. Now, I’m not going to get started on how crazy medical expenses in this country have become, but the crazy expenses certainly create the need for good health insurance. Your deductible and plan type are the most important things to FULLY understand when choosing the right health insurance. If you don’t fully understand your plan type, your deductible and your max out of pocket, you need to prioritize speaking with your HR department of your health insurance agent.

Life Insurance

Right now, you are probably working on saving for retirement. If I had to guess, if you or your spouse were to tragically pass away, there would be financial implications of your passing to your family. Life insurance can’t replace you if something were to happen, but it can replace the financial you. I recommend purchasing between 10-20 times your annual income on a term life insurance policy. I am the biggest fan of a 20 year term for most people at 20 times their annual income. If you were to pass away and not be able to provide for your family any longer, your family would receive a check for 20 times your annual income. They would be able to take this money and put it into a conservative investment account and receive a 5% return. At that 5% return, your family would be able to live off of the interest, which at 5% of 20 times your income happens to be equal to your current annual income. Because they would only live off of the interest, they would never have to dip into the principle, and therefore, there wouldn’t be a timer placed on the investment on how long they have left before they are out of money. 

Again, I am REALLY simplifying these insurance coverages. As you work on this step that will put your tank at half full, again, please feel free to contact any of my agents at Trumble Agency. They have the heart of a teacher and are happy to help you understand what you are purchasing and recommend policies and coverages that help you lay a solid financial foundation for you and your family. 

Subscribe for more Financial Health tips!

Zach Santmier is the owner of Trumble Agency, Inc. and the author of the personal financial course, Increase. He focuses on helping families escape paycheck to paycheck living so they can freely pursue their ideal future.