Buying Insurance: What, When, and Why?

iStock_000002692383SmallToday I’m very happy to be writing about insurance…said almost no one ever.

Look, I get it: even for someone who works at a credit union and has an appreciation for some of the dullest personal financial topics you could imagine, insurance is just, well, really boring.

But it also just so happens to be absolutely essential.

Big-ticket purchases, like your home/apartment and car need to be protected.  (In fact, it can be illegal not to.)  And coverage for high-cost necessities like health care is too important to go without – no matter how well you may feel today.

But not all insurance is equally essential.  Especially for someone just starting out.  I mean, is life insurance really important if you’re a healthy, non-smoking twenty-something with a run-down ’09 Accura and a few thousand dollars in savings?

Fact is, you can insure almost anything.  But that doesn’t mean you should.  So let’s go ahead and break down some of the more common types of insurance you might want/need – and smart tips to save when you do decide to purchase a policy.

In part one of this blog, I’ll be diving into “necessary” coverage, like car, renter/homeowner’s, and health insurance.  While in part two, I’ll take a look at more “discretionary” plans like life insurance and warranties.

Car Insurance
If you own a car, you’ve got to have it.  But that doesn’t mean you can’t save money while you’re covered.  If you’re shopping around for a new auto policy, consider these tips:

• The more assets you have, the more liability coverage you need.  Since most of us in our early-to-mid twenties are bootstrapping our way along, it generally makes sense to blend a plan that meets state liability guidelines with a high accident deductible.  In some cases, like when your car is closer to “classic” than “show-room-fresh”, it may even make sense to forgo collision coverage altogether.

So do the math and figure out how much your car is worth and how much you can comfortably afford to spend-out-of-pocket in the event of a small repair or fender-bender.

• Shop around for discounts.  Many large providers – like Progressive and eSurance – offer online rate comparison tools that make the process really easy.

And most insurers offer a laundry list of coverage discounts that you can take advantage of if you’re willing to do a little digging.  That includes purchasing multiple polices from the same provider – say auto coverage for you and your spouse, or car plus homeowner’s insurance.  Plus stuff like a sterling driving record, passing a defensive driving course, or owning a car equipped with extra safety measures  –  like a collision detection system or passenger-side airbags.

• If you’re in the market for a new car, be sure to be proactive when pricing insurance.  Factoring insurance expense into the total vehicle cost provides a more accurate snapshot of what you’re actually paying month-to-month.

Renter/Homeowner Insurance
It’s not illegal to own a home or rent an apartment without insurance, but good luck getting a lease or mortgage without it.   Once again, just because it’s a given doesn’t mean you can’t shop for renter’s or homeowner’s insurance intelligently.

• Raise your deductible.  High-deductible plans act as a form of self-insurance in that you pay less for coverage but have to shoulder a larger load in the event anything does go wrong.  If you do go this route, just make sure you have an emergency fund that can bridge the gap until you get to your deductible.

• Know your space.  Many policies offer discounts for things like security systems, dead-bolt locks, or if you’re a non-smoking household.  So take an inventory before you go policy shopping.

• Take a realistic inventory.  A big portion of the cost of a renter’s or homeowner policy is the cost of replacing items that might be damaged or lost.  Coverage can be purchased for household items on a sliding scale – from a few thousand dollars to hundreds of thousands.

If you’re just starting out, you may think you don’t have a lot of valuables to cover.  After all, hand-me-down couches and Goodwill utensils are pretty cheap, right?  But it makes sense to take a semi-thorough inventory.

What would it cost to replace high-value items like your computer?  Or TV?  Or furniture?  Don’t get caught unaware in the case of an incident.  Do your homework up-front and buy the right amount of coverage for your needs.

Health Insurance
We’ve covered the consequences in depth on the blog before.  But the long-and-short of it is this: there are some pretty hefty penalties associated with non-coverage in the new Affordable Care Act.  So yes, you should be covered.

The best way to avoid paying for health insurance is a job with a generous benefits package.  But if you’re self-employed or have a job that doesn’t cover healthcare, you have options, too.

• Consider staying on your parent’s plan.  A provision of the ACA allows people under 26 to stay on their parent’s insurance plan.  That can be just the kind of health insurance bridge you need post-college.

• Check the insurance marketplace on Healthcare.gov.  It’s a quick-and-easy way to comparison shop for an insurance plan that meets your needs and budget – and it ensures you’re in an approved plan that keeps you from getting dinged with ACA penalties.

• See if you qualify for a tax credit.  If you’re making under $46,000 a year, you might be eligible for a tax credit when you purchase a plan through the healthcare.gov marketplace.

That’s it for part one.  Have any insurance buying tips or trick?  Be sure to share in the comments section below.

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