Financial Wisdom Podcast - Fundamentals of Insurance
Welcome to the Financial Wisdom podcast series − Take Control of your Financial
In this session, we are going to review the fundamentals of insurance.
Insurance provides protection. As simple as that sounds, many individuals spend little
time considering all of their insurance options and making sure they have the insurance they
need, at the most reasonable price. To protect yourself and your belongings, consider these
three types of policies.
Let's start with homeowners or renters insurance.
Insuring your home and its contents is very important. If disaster strikes, you want to be
protected. Choose a policy that will pay for the cost of rebuilding your home if it is
totally destroyed, and make sure the "contents" part of your policy is adequate. A policy
that covers the cost of replacing items is better than one the just covers the "cash value"
of an item. For example, a six year old dishwasher may only have a $200 cash value, but will
cost $800 to replace. You should have an-up-to-date inventory of your belongings and you
should keep the inventory somewhere away from your home, like your safe deposit box.
Renters insurance works in a similar fashion. It covers your belongings and provides some
level of liability coverage if someone is injured in your apartment.
Auto insurance is also critical.
Auto policies are usually comprised of three parts:
- Collision coverage insures against the cost of repairs to your car after an
accident. Choose an amount of collision coverage that reflects the value of your car.
If your car is old or has little value, you may want to drop the collision part of your
- Comprehensive coverage insures against damage to your car from random acts
like fire, theft, hail, and vandalism. This part of the policy is usually the least
expensive and should be based on the value of the car.
- Auto liability coverage is absolutely essential. This covers damages caused
by your car. If you cause an accident with your car, and injure someone or damage their
property, this part of your policy will pay the injured person's medical and repair
expenses. This is usually the most expensive part of the policy and most states require
When evaluating these types of insurance, consider the deductible limits of
The deductible is what you pay before the insurance company starts paying. The higher the
deductible, the lower the premium. Before buying a policy, ask what the premium levels would
be at different levels of deductibles. Then evaluate the level of "risk" you are willing to
assume. You may find that your premium can be up to 25% less by choosing a policy with a
Health insurance is also a necessity.
Most large employers provide medical insurance as part of their employee benefits program.
While you may be required to share in the cost, a company provided plan is usually less
expensive and has fewer restrictions than a policy bought individually. Choose the level
coverage you need, but make sure you are covered for major medical expenses.
Now let's discuss some other types of insurance that may not be essential, but should be
To get extra liability coverage, you may want to consider an umbrella liability
Most homeowners, renters, and auto policies provide some level of coverage for damages
caused to others and their property. In this time of large jury awards and rising medical
costs, you may want to consider an umbrella policy for additional protection. These policies
are usually not expensive. Often a premium of a few hundred dollars will buy over a million
dollars coverage. Umbrella liability policies are available from most insurance
Disability insurance is often included in an employee benefit program.
If you employer provides this insurance, check your program to make sure the amount is
adequate for your needs. Also, look at the details, including the definition of disability,
waiting period and any total limits, to make sure that your policy will provide all that you
need. If you need more coverage, talk to an insurance professional or consider policies
offered by any professional organization you may belong to.
Long-term care insurance is usually considered by people over the age of 50.
Some estimate that over one half of all individuals will spend some time in a nursing home
or other care facility before they die. The costs of this type of care can be very high and
the federal Medicaid program will not cover all the expenses you may incur. Premiums will be
higher for older buyers. Examine any policy before purchasing it to fully understand what
will be covered, what will not be covered, and for how long.
Finally, let's talk about life insurance.
There are three questions to ask:
How much do you need, what type of policy makes the most sense, and where should you buy
For most people, life insurance is simply a way to make sure that a surviving spouse and
children can continue to have a decent lifestyle. If you have no dependents, you may not
need life insurance at all. If you want or need coverage, many experts suggest that a
primary breadwinner should have insurance equal to 6 to 10 times their annual income. In
most cases, this will provide enough money for the survivors to at least be comfortable. If
you have young children or other special needs, additional amounts should be considered.
Deciding whether to buy a term policy or a cash value whole life policy should be
carefully considered. Term policies are usually much cheaper, but whole life policies
provide for a "cash build up" for the duration of the policy. Reviewing the options with a
qualified advisor is essential.
Luckily, life insurance is available from many sources. Start with your employer. Many
employee benefit programs provide inexpensive coverage. Term and whole life policies are
available from hundreds of companies.
With all types of insurance, look at the insurance company offering the
Quality customer service and financial stability are essential. When you end up needing the
insurance, the last thing you want to discover is that the company is hard to deal with, or
that their financial condition prevents them from providing the benefits you paid for. Check
with the Better Business Bureau and examine the insurance rating reports found in many
libraries and on the Internet.
In summary, get the insurance you need, and pay attention to the details of the policies
you are considering.
Join us again for another Financial Wisdom podcast. And as always, thanks for