Protect Yourself

Money: How to choose the right kinds of insurance

by Mark Helm
Published on January 15, 2004, 12:00am | Comments

Today, I'd like to spend a little time talking about insurance. What's that you say? Not interested. Talking about insurance is boring, dull, borderline painful.

All right. Let me put it this way.

Today, I'm going to show you how to avoid being ripped off by unscrupulous salesman, save a bunch of money and protect yourself and loved ones from the kind of financial devastation that will haunt you until the day you die.

Now, if that's not enough to grab your attention, I say, "Good luck, pal," because you're going to need it.

For the rest of you, let's get started.

Before looking at what kinds of insurance people need and don't need, we should keep these four rules in mind when deciding whether to buy coverage:

  1. Buy insurance only to protect you and your dependents against risks that would be financially devastating.
  2. Buy the right type and right amount of coverage -- don't overdose.

  3. Buy insurance when you need it -- and cancel it when you no longer need it.

  4. Never buy insurance for emotional reasons.

So let's start with the types of insurance that most people agree fits into these criteria: Health, auto, homeowners and life insurance.

Now, not everyone always needs these types of policies. If you're a single person with no one depending on you, life insurance may not be necessary. But for most us, these types of insurance -- when appropriate -- are a must.

But what about the myriad of other types of insurance out there. Which policies do we need and which simply line the pockets of insurance salespeople?

With respects to Ebert & Roeper's At the Movies, here's my thumbs up and thumbs down to some commonly offered insurance policies.

Renter's Insurance: Thumbs Up!

A landlord's policy only covers damage to the physical structure, not your possessions inside the apartment.

Renters insurance typically covers fire, theft, vandalism, damage from electrical surges and faulty utilities and water/weather damage, as well as liability coverage and medical payments coverage. A good policy is fairly cheap -- about $150 a year for $30,000 worth of coverage.

Shockingly, only a quarter of all renters have this protection.

Take a minute and think about how much it would cost you to replace everything in your apartment. Scared? You should be.

Mortgage life insurance: Thumbs Down!

As more and more people buy new homes or refinance existing mortgages, offers for mortgage life insurance are becoming more widespread.

Basically, the coverage you buy will pay off your mortgage in case of your death. If this sounds a little like life insurance, that's because it's exactly like life insurance only more expensive. You're better off buying enough term life insurance in one policy, at the lowest cost possible, than policies such as this.

Disability insurance: Thumbs Way Up!

While disturbing, death is an issue most people are willing to discuss and plan for. But nobody wants to talk about becoming disabled. That's too bad because the risk of an unexpected disability is five times greater than an unexpected death and is more costly than death due to the ongoing expenses related to a  condition of disability.

Travel insurance: Thumbs Down!

The number of people buying travel insurance has jumped in the past two years following the Sept. 11 attacks, providing another example of the insurance industry using people's fears to sell overpriced, often unnecessary products.

The most common travel insurance is a travel-cancellation policy, which typically costs about 4 to 7 percent of the trip's price.

Two other policies are flight insurance, which starts at about $8 per flight and covers you if you're killed on the plane, and medical insurance, which covers doctor bills overseas or a medical evacuation and range from $25 for a few days of coverage to annual policies for over $2,000.

www.NAIC.org

Web site of the National Association of Insurance Commissions, which provides consumer education and lists complaints against insurance companies

www.InsWeb.com

An online insurance marketplace where you can compare rates

www.Trustedchoice.com

A Web site where you can find an independent insurance agent in your area

Travel coverage is unnecessary. Losing money is never fun, but the chances of suffering a devastating financial loss in these situations are slim. Flight insurance in particular should be unnecessary if you have the right amount of life insurance to begin with.

Additional medical insurance to cover medical mishaps abroad is a good idea in certain situations. First, check with your existing health insurance plan and ask what is covered. You should do this before any trip abroad. If your plan does not cover certain items, then this coverage may be a good idea, particularly if you intend to engage in high-risk activities like scuba diving or eating English food.

Remember, the right kinds -- and amounts -- of insurance can provide you with a needed financial safety net. Just don't let your fears or lack of knowledge about certain risks lead you into an expensive and unnecessary insurance policy.


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