Mike Wells: Know which types of insurance you need -- or not
May 31st, 2018 by admin
Two key questions to ask about most any insurance product are: 1) Are you insuring against a significant financial risk that would be hard for your assets to cover, or a financial discomfort? and 2) What would a thoughtful cost/benefit review tell you?
In the last column, we addressed the importance of long term care insurance and adequate underinsurance on your motor vehicle insurance policy. Here are some points to consider when deciding whether to buy other types of insurance coverages:
Replacement cost coverage on your homeowner’s policy. Most of us will have a claim of some kind on our homeowner’s policy. Fire, theft, severe storm, and significant electrical and plumbing accidents top the list.Example: Your aging roof is basically ruined in a severe hail storm. A new roof may cost $12,000, but the depreciated value of a roof (actual cash value-ACV) may be $6,000. Replacement cost coverage is likely worth the extra premium.
Valuable property rider. A claim for valuable stolen items, you may be surprised to find, is likely capped at a total of $500. If you have many home items of larger value — jewelry or antiques, for example — consider getting a rider to cover any claim. You generally will need a written appraisal by a qualified source, such as the organization that sold it to you or estate appraisers, but the extra coverage may well be worth it. Disability Income Insurance. If you are self-employed or you do not have adequate group coverage through your employer, you should consider a DII policy. A long-term illness is your most substantial risk. The longer the initial elimination period (first 60-90 days), the lower the premium will be. The target concern is an illness that lasts three to five years.GAP Insurance. You should likely purchase this coverage if you owe more on your now-driven-off-the lot vehicle than it is worth. GAP insurance will pay not only the value of your totaled vehicle but also any additional amount you owe on the vehicle loan. But, shop the insurance before you go vehicle shopping. Your automobile insurance carrier likely has a competitively priced GAP policy.Extended warranties. Most new major appliances and televisions come with a one-year manufacturer’s warranty, when most malfunctions will likely occur. This warranty/insurance may not be cost-efficient. But hold on to your purchase receipt and fill out the warranty information requested.If you are buying a higher mileage used vehicle from a dealer, a warranty that covers the engine and transmission problems for at least two years probably makes sense. The cost of a malfunction may edge you, cost-wise, towards that disaster level, and the coverage is probably worth it. Check the repair history of the vehicle type you are considering.
Rental car insurance. Most if not all loss exposures — bodily and property damage, including damage to the rental vehicle you caused or another party caused, or loss of use of the rental vehicle to the rental company during any repairs to it — may already be covered by your present motor vehicle policy. Run the numbers with your insurance agent if you know you are going to rent a vehicle on a business trip or vacation before you are at that rental vehicle counter. The charges for this coverage by rental car agencies are generally more expensive, and it may not even be necessary.Umbrella policy. This provides a second tier of coverage, and it is generally worth the extra premium.Discuss these and other kinds of insurance products with your home/auto agent to assist your analysis of the all-important disaster/discomfort and cost/benefit tests.
Remember: An informed choice is a smart choice.
Mike Wells is a partner with Wells Law, PLLC in Winston-Salem. His email address is mike@wellslaw.us and his telephone number is 336-283-8700.
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