An essential piece of every financial safety net is insurance. Yeah, I know. Could there be a less exciting topic?
Exciting or not, if you find yourself slipping off your financial tightrope, a well-planned insurance strategy can catch you before misfortune becomes catastrophe. Without insurance, a disastrous event could wipe out your savings, use up your net worth, keep you from your goals, and leave your family in a tenuous financial position.
I’ll be the first to admit I’m not an insurance expert. I can’t offer any earth-shattering secret on insurance products or companies. I do, however, know the coverage and limits of our own policies fairly well, the reasons we chose them, and why we don’t carry other types of insurance. In an extension of “personal finance made public,” today we’ll talk about insurance made public.
Insurance We Have, and What We Don’t
Our current insurance coverage includes:
- Health insurance
- Auto insurance
- Renter’s insurance
- Life insurance
- Errors & Omissions insurance (attorney malpractice insurance)
We don’t currently have:
- Disability insurance
- General liability (umbrella policy)
- Long-term care insurance
Health insurance will be handled in its own post. Even under the Affordable Care Act, the options are broad enough to merit treatment as a separate issue. As for the others:
1. Auto Insurance ($97/month)
We have two vehicles and an auto policy for each. Every one of the United States requires at least a minimum level of insurance coverage for any registered vehicle. Those minimums vary by state. California law requires that private vehicle owners carry liability insurance in the minimum amounts of:
- $15,000 for injury/death to one person,
- $30,000 for injury/death to more than one person, and
- $5,000 for damage to property of another person.
We carry substantially more than the minimums, at
- $50,000 for injury/death to one other person,
- $100,000 for injury/death to more than one other person,
- $50,000 for damage to property of another person,
- collision coverage (for an impact with something other than an animal) with a $250 deductible,
- comprehensive coverage (for damage caused by something other than another vehicle) with a $250 deductible,
- towing and labor, and
- a disabled wage earner stipend, a minimal disabled non-wage earner stipend, and an additional death benefit.
It’s hard, when looking through the coverage options, not to include a few items that aren’t bare essentials but do add a few cents or dollars to each premium payment. This is the mix we’ve come up with, and it’s served us well for now. Thankfully we’ve never had to make a claim for injury or death, but we have made claims against our comprehensive coverage several times, including several collisions with animals, one unfortunate meeting with a rock, and one break-in, where the damage to the car and the car-related items that were stolen were covered. We’ve also had to use the towing and labor benefit several times. Sometimes older cars just don’t start, or unexpectedly stop, and a tow is the only real option left.
Over our driving lives, we’ve paid more in premiums than we’ve pulled out in benefits, but I’m just fine with that. When something really bad happens, I expect we’ll even up. If nothing really bad ever does happen, that’s even better.
Our auto insurance is with USAA. Stephanie accuses me of being a USAA zealot, but I believe there is good reason for it. Not only have I never had a bad experience with USAA in my insurance or banking services, I consistently have better service than I expect, and they keep improving their online access to everything, which I love. If you meet the military service requirements, either through your own service or that of a family member, USAA is worth looking at.
2. Renter’s Insurance ($14/month)
That day a few years ago that we cancelled our homeowner’s insurance and replaced it with renter’s insurance was a sad day. We look forward to reversing that in a few years, but for now, we’re just happy that renter’s insurance provides great coverage at such a minimal cost.
Our renter’s policy, like most that I’ve seen covers damage or theft of property at our residence, or any other place, like from the car, or from a storage unit. Like a homeowner’s policy should be based on the replacement value of your home, a renter’s policy should cover the replacement cost of your personal belongings. Our coverage includes:
- personal property replacement up to $30,000,
- personal liability coverage (if someone else sustains personal injury or property damage while on our property) of $100,000 per occurrence, and
- medical payments to others (persons other than family injured on our property or as a result of our actions away from home) of $5000 per occurrence.
There is a $250 deductible for any claim, except for a 15% deductible for any earthquake damage.
We have never been without either renter’s or homeowner’s insurance since our marriage. During that time, we have made exactly one renter’s insurance claim, for the cost of replacing items stolen from my car. Even so, we’re happy to have the safety net there should something happen to our property or to someone else on our property.
Like our auto insurance, we also have our renter’s insurance through USAA.
3. Life Insurance ($56/month)
Shortly after we were married, Stephanie and I decided that it would be prudent to buy life insurance. As singles, it mattered less, but with a family, the death of one spouse would leave the survivor with the dual burdens of child-rearing and providing income for the family. Our life insurance amounts were estimated to take care of any outstanding debts and cover the costs of providing for the family for a few years until the survivor can make other arrangements. Our financial situation and family size has changed somewhat since then, but our initial chosen benefits still seem to work so we keep them. Coverage includes:
- a payout on my death of $935,000,
- a payout on Stephanie’s death of $250,000,
- a disability rider that keeps paying our premiums if either of us is unable to work because of disability, and
- the option to convert the term policy, in whole or in part, to permanent insurance if we ever want to.
We could have opted for a hybrid insurance/investment product, but as young, healthy people on a budget, concerned more with protection than growth, we couldn’t beat a 30-year term policy. When that expires, we’ll be in a different age and stage in life, and decide then what our best life insurance move will be.
Our life insurance is through Northwestern Mutual. It’s not the least expensive company as a rule, but at the time it was a good option. Because we purchased the policies when we were young and in good health, the premiums over thirty years remain quite reasonable.
4. Errors and Omissions Insurance ($0/month)
The firm carries errors and omissions insurance to cover any liability of an attorney that arises from that attorneys’s professional work. This is also often called malpractice insurance. I don’t pay anything out of pocket for it, but I wanted to include it in the line-up because professional liability could wipe out our family finances as easily as an auto or health disaster. If your employment or self-employment situation could create liability for you, it’s worth it to consider several kinds of business insurance. Depending on your business that might include:
- professional liability
- general liability
- premises liability
- “key man” insurance
- life insurance to facilitate a buy-sell agreement between partners
- crop insurance
- other insurance products specific to your industry.
5. Umbrella Policies, Disability, and Long-Term Care Insurance
We do not currently carry any insurance in these areas. For many people, especially people with substantial assets or substantial risk factors, an umbrella policy that covers those risks and protects those assets might be worth considering. For us, it’s just not the time.
Disability insurance is often offered by employers, at least to a minimal degree, and when it was, we enjoyed the security it provided, but my current employer does not, and while disability could strike at any time, for now, it’s a risk we’re willing to live with.
Many of my older clients could have benefited from long-term care insurance, but never purchased it. Some had purchased it, but had to abandon it when annual premiums skyrocketed. Others self-insure. Many just hope they won’t need it, and know that public benefits are available if it should become necessary. This is one type of insurance that’s worth a good look for folks who are getting a little older, but are still in reasonably good health.
And that’s our insurance picture. What kinds and levels of insurance you have should depend on your family, health, and financial situation, and on your risk tolerance. It would be nice to have every risk insured, but we’re comfortable with our coverage right now. Don’t forget that we’ll cover health insurance in the next Financial Safety Net post.
It’s your turn
- What insurance coverage do you carry? Why?
- Do you have an insurance story, good or bad, that might be educational for the rest of us?
Other posts in the Financial Safety Net Series
- Intro to Financial Safety Nets
- Why a Durable Power of Attorney is Part of Your Financial Safety Net
- Creating a Cash Buffer