Insurance isn’t a subject that’s high on anyone’s list of fun topics. But lack of adequate coverage — whether it’s a relatively small one like the loss of a job or burglary of your home, or a large one like the loss of a spouse (and his or her income) — can be devastating. “Today” financial editor and Money magazine editor-at-large Jean Sherman Chatzky runs through a list of all the policies you might think you need and tell you how to get them in the most cost effective way.
New research shows that people who have taken the necessary steps in order to get life insurance, disability insurance and other protections — like wills — are actually happier and sleep better at night.
Insurance you need
Life insurance: If you have dependents you probably need life insurance. Term insurance is usually a cheaper and often better choice than permanent insurance. There are a few ways to figure out what you need. You can use a web calculator like the one at life-line.org. Or you can buy enough to give your family, say, 70 percent of your income until your kids are grown or your spouse is eligible for retirement benefits. If it’s been a while since you’ve run these calculations and your income has grown substantially, it may be time to do it again. One caveat: Chances are your initial price quote will be for someone in perfect health. If you are ill, have a recent history of illness or are even slightly overweight, your premiums will be higher. For women, beginning the underwriting process before you start a family (rather than after, when you’re struggling to lose weight from a pregnancy) may get you a cheaper rate.
Homeowner’s coverage: The best policy is a Homeowner-3 or HO-3 policy with a guaranteed replacement clause (that will pay to replace the detailed moldings, for example, in your house no matter how much it costs.) Unfortunately, guaranteed replacement coverage is increasingly hard to find. The next best thing is extended replacement coverage. That’s replacement cost with a cushion in case rebuilding is more expensive than you originally thought. Get a policy that offers at least an additional 20 to 25% of the insured value of your house. Also bear in mind:
- Construction costs are on the rise, so make sure you’re covered for actual rebuilding expenses (insurers often underestimate these costs)
- Be sure your policy covers the cost of meeting new building requirements, especially if you have an old home.
- Update your policy every time you make significant home improvements (something a lot of people are doing these days).
- And get personal property coverage if your possessions are worth more than 50 percent — standard contents coverage — of the value of the house
This a must-have for workers. If you’re working you need as much coverage as you can afford (this is particularly true for singles who don’t have anyone’s income to fall back on but their own.) Most group policies top out at 60 percent of your salary; even with a supplemental policy you won’t get coverage for more than 70 to 80 percent. “Own occupation policies” will pay if you can’t work at your own job, but they are expensive and hard to get. Instead, look for a policy with residual benefits will make up the difference if you can work — but not at your original job.
Long-term care: If, like 57 percent of the respondents to a recent Money poll, you’re worried about rising healthcare costs, look into long-term care insurance. Among the factors to consider: Does your medical history or your family’s make you likely to need months or years of care? Do you have assets of at least $100,000, but not enough to self insure? Can you afford to keep up the payments if premiums increase as much as 10 percent every 10 years? If so, shop around for a policy from a financially strong company that offers care at home as well as nursing home, a big enough daily benefit for your area, inflation protection and the longest benefit period you can afford. To find out the cost in your area, check out long-term care quote at: www.ltcq.net.
Finally, while we’re on the subject of insurance, many people are wondering if they really need travel insurance these days. The answer is maybe. If you’ve spent a lot of money up front or you’ll be traveling to a remote area, it can be a smart move. The cost of insuring a $2,000 two-week vacation should be around $100; if you travel often, you may want to get insurance that’ll cover a year’s wanderings. But note: No travel insurance will help you in the event of war. But many now do include provisions for cancellation in the event of a terrorist attack or reimbursement should your airline, cruise line or tour operator go belly up. No matter what you buy, be sure to read the fine print.
If you’re going to a remote area, make sure you have medical-evacuation insurance. Being flown out of, say, a trek camp in Nepal can easily cost $10,000 or more. (Also, check to see what benefits are offered by your credit card company.)
Cancellation coverage for a trip may make sense if you’ve put out a lot of money up front or you’re worried that a health or family problem might call off your trip. Major trip insurers include AccessAmerica, CSA Travel Protection and Travel Guard International. But you can compare policies at travel insurance supermarket insuremytrip.com
Finally, before you buy any insurance, you want to do some serious shopping around. You should surf the web, as we’ve mentioned, but also make sure you get quotes from insurance agents and direct writers that sell coverage straight to you without the middleman. And, particularly in this economic day and age, you want to know that your carrier is top rated by the insurance rating services S&P, Moody’s, Weiss and AM Best. Look for an A or better.
Jean Chatzky is the financial editor for “Today,” editor-at-large at Money magazine and the author of “Talking Money: Everything You Need to Know About Your Finances and Your Future.” Information provided courtesy of Jean Chatzky and Money magazine. Copyright © 2003. All rights reserved. For more financial advice, visit the Money magazine Web site at: Money.com