In this blog post, we're going to talk about everybody's favorite topic: insurance! Yay! As you know, you can insure just about anything, but should you? That is the #1 question for everyone. You can be over-insured, but most people are under-insured. By not having adequate insurance coverage, you can face sudden, and essentially permanent, financial setbacks. If your $400,000 home burns to the ground and you have no insurance, it's almost certainly not going to be an asset that you can replace without wiping out retirement savings, college savings, and everything else or without agreeing to a new 30-year mortgage. Car insurance, homeowner's insurance (or renter's insurance), health insurance, and life insurance are all very important to consider. Vehicle insurance is typically required by law (for your liability in accidents) and until recently, health insurance was required, too.
When determining what insurance coverage you need, it’s crucial to think about what risks need to be covered and whether or not to self-insure. Self-insurance simply means that you’re using your own resources to mitigate a risk. For example, if you set aside $5,000 to potentially replace home appliances that aren’t covered with extended warranties, you’re self-insuring the appliances. Typically, any self-insurance should be used to mitigate very unlikely and small losses. Critical assets, such as your home, should not be self-insured. Insurance policies are essential to protect what you truly cannot afford to lose and what would be impossible to replace on your own.
Just remember: Your insurance needs will change throughout your life, too. Each year you should review your current policies and ask yourself, "Do I have critical coverage gaps?" and, "Are there policies here with unnecessary coverage/costs?" Make changes as soon as you realize that your insurance needs have shifted. (It's important to monitor and update all aspects of your financial plan, as well.) Insurance isn’t the most enjoyable financial topic, but addressing your insurance coverage will give you peace of mind. Peace of mind, we believe, is priceless.