Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
Every day, people are exposed to risks that can cause a financial loss. Accidents, property damage, illness, disability, and even death are risks they need to consider. Without a risk management plan, people often have to go into debt or use funds set aside for other financial goals in the event of a financial loss.
Good comprehensive insurance coverage against severe setbacks is essential. Types of coverage include life, health, homeowner's or renter's, auto, disability, and liability. Through the purchase of insurance, policyholders transfer the risk of financial losses to an insurance company in exchange for the payment of a premium.
Below are six recommendations to protect your assets with insurance:
- Insure Against Large Potential Losses - Purchase insurance for large financial risks that could deplete your savings or future earnings. This includes at least $300,000 ($500,000 is better) of liability coverage on property insurance policies to cover the risk of court judgments resulting from an accident at your home or with your car and disability insurance to protect against the loss of income due to illness or injury.
- Consider Life Insurance - Purchase life insurance if you have dependents who would suffer financially if you died. Another good candidate for life insurance is a young adult without dependents whose parents co-signed private student loans which are not forgiven in the event of death. An online life insurance calculator or worksheet can be used to determine the amount of life insurance coverage that is needed.
- Protect Real and Personal Property - Purchase property insurance with a replacement cost rider on personal property to replace items at their current cost up to the policy limit. Otherwise, only the actual cash value after depreciation will be reimbursed in the event of a loss. Also make sure that the dwelling coverage on your homeowner's insurance policy keeps up with local building costs to repair or replace your home.
- Build Relationships- Establish an ongoing relationship with one or more insurance professionals who can provide a periodic review of coverage and information about available cost-saving options such as discounts for military service and "bundling" auto and homeowners insurance.
- Avoid Coverage Gaps- Keep coverage in force in between jobs (e.g., after leaving active duty military service) to avoid the risk of incurring expenses out-of-pocket. If not immediately covered by a new employer's health care plan, consider purchasing COBRA benefits to extend group coverage from a previous employer or Affordable Care Act marketplace coverage through www.healthcare.gov.
- Reduce Insurance Expenses- Consider using one or more of the following strategies to decrease the cost of insurance premiums:
- Longer elimination periods (e.g., disability and long-term care insurance)
- Higher deductibles (e.g., auto and health insurance)
- Shopping around for insurance (compare at least 3 competing insurers)
- Inquiring about available policy discounts (e.g., good driver and non-smoker)
- Paying premiums annually, instead of monthly or quarterly, or automatically vs. by check
- Buying multiple policies from the same insurance company (i.e., "bundling")
Insurance is first and foremost risk protection. The University of Georgia Extension fact sheet, Insurance Matters, has additional information about the features of various types of insurance.