How Much Auto and Home Insurance Do I Really Need?

How Much Auto and Home Insurance Do I Really Need?

The Right Amounts of Insurance How can we know how much is the right amount for auto and home insurance? The short answer is as much as the insurance company is willing to give us, for the lowest possible cost. I want full replacement value for all of my most valuable assets. If my home burns to the ground, I want the insurance company to pay to rebuild the whole house, not just the kitchen. If they would not rebuild my house the way it was before the fire, what is the point of even having insurance? I also want to retain as much of the risk as I can afford to retain through high deductibles so my premiums will be as low as possible without sacrificing high coverage limits. Although everyone’s insurance needs are unique and should be reviewed by a competent advisor, here are some general guidelines: Auto Insurance Liability limits are the biggest priority. I normally recommend the highest available liability limits, which are typically $250,000/500,000/100,000, and the highest available deductible, which is usually $1,000. If your coverage is currently significantly lower than this, you may be surprised to discover how inexpensive dramatically increasing your coverage will be, especially when you simultaneously raise your deductibles. Homeowners Insurance Be sure your home is insured for full replacement cost, but no more. You should periodically ask your agent to complete an updated replacement cost estimate to determine whether your coverage needs to be adjusted. Keep in mind that your home may need to be insured for more than it is currently worth because replacement cost is not directly related...
Are You Over-Insured?

Are You Over-Insured?

Have you ever felt like you were over-insured? No one wants to waste money on unnecessary insurance premiums because every dollar wasted is a dollar that could have been invested or spent on something a lot more exciting than insurance. On the other hand, not having the right types or amounts of insurance can be very detrimental to wealth building and enjoyment of life. How can we find the proper balance? The key is to cover only the potentially catastrophic risks we cannot completely avoid. The following types of insurance cover risks in that category: Auto Insurance Homeowners Insurance Umbrella Liability Insurance Medical Insurance Long Term Disability Insurance Long Term Care Insurance Life Insurance These types of insurance are critical because uninsured losses we may experience in these areas have the potential to financially devastate us. For example, if we carried only the minimum required auto insurance liability limits and seriously injured or killed someone in a car accident, how would we pay for the vehicle damage, medical expenses, and income loss of the other driver, which could add up to hundreds of thousands, even millions of dollars? How could we pay medical bills for unexpected cancer treatments, surgeries, and long-term hospital confinement if we had no medical insurance? Many years ago I met a man in his fifties who had incurred hundreds of thousands of dollars in medical bills twenty years earlier because his wife had developed a serious illness at a time when they had no medical insurance. She eventually recovered physically, but he told me he does not think they will ever fully recover financially from...
The History of Credit Cards and Consumer Debt

The History of Credit Cards and Consumer Debt

Where did this modern epidemic of what I call the “Plastic Plague” come from? Most of us have been taught that buying things on credit is not only normal, but also the smartest way to purchase. We think we have to pay for everything with a credit card so we can rack up as many rewards points as possible and improve our credit score. We have been taught to maintain a mortgage even if we have enough money to pay it off so we can deduct the interest off of our taxes. Lending institutions have done a great job convincing us that what is in their best interest is also in our best interest. What is the origin of our current society’s attitudes towards debt? What did we do before car loans existed? Did you know that Henry Ford believed as a matter of principle that no one should ever buy a car on credit? He invented major breakthroughs in production efficiency to drive costs down so his automobiles would be more affordable to the middle class, but he still expected everyone to pay cash. No other manufacturer could quite compete with the very inexpensive Model T Ford until 1919 when General Motors formed its own lending institution, General Motors Acceptance Corporation (GMAC). This innovation allowed average people to buy GM’s higher-priced, more luxurious automobiles with lower payments over time. By 1926 three-fourths of all car sales in America were financed.[i] Sticking to his principles, Henry Ford fought this movement as long as possible, and thus suffered a dramatic decline in sales. In 1927 Ford Motor Company was finally...