Getting Fully Covered with Auto, Life, and other Types of Insurance
by Mackenzie Stewart
When we think of insurance, we probably think of health insurance first right? It is important. Like very important. However, there is a vast world of insurance offerings and some are just as necessary as medical coverage.
Sure, you may know about car insurance, but do you know about umbrella insurance? Are you unsure what renters insurance actually does? Maybe pet insurance doesn’t seem important because your puppy is young and healthy?
There are many events that can make or break your finances in an emergency. Luckily, these types of insurance are also extremely affordable and easy to acquire.
So let’s take a jaunt (I love that word) through Insuranceville to see what you need and what you can skip altogether.
We’ll start with auto insurance because, oh my gosh, you need that. According to the Association for Safe International Road Travel, about 4.4 million Americans are involved in a traffic accident that requires medical attention. That doesn’t include the $55 billion in “medical and work loss costs in addition to the immeasurable burden on the victims’ families and friends…”, documented in 2018 by the CDC.
The type of coverage you need to have, at minimum, is generally set by your state. That includes the amount of the policy as well as what specific coverage needs to be included. Some states don’t require you to have certain coverage or certain coverage might be optional. It might save you money now, but if you decline something like comprehensive insurance and find yourself in Colorado during a hail storm, guess who doesn’t have insurance to cover hail damage? Yup. You, my friend. Check your state’s DMV website for more information about the coverage you’re required to have.
You should also be aware that if your car is leased or you’re still making payments on it, the loan carrier may REQUIRE you to fix any damage on the car. Yea, that includes that random hail damage. If you decline something like comprehensive coverage, now you’re coming out of pocket for repairs because you contractually have to.
So like, what should your auto insurance actually have?
Collision – Covers the cost of damage to your car from an accident regardless of who’s at fault. Note, this is just for damage to your car.
Property damage – Cost of property damage if you were at fault. This is the part that will pay the other person for damage you caused.
Bodily Injury – Same as property damage but this specifically covers medical injuries caused by an accident that you caused.
Comprehensive – For damage that happens when you aren’t driving. Things like a neighbors’ tree falling on your car or damage from someone who stole a school bus and rammed through your car (and many others) trying to outrun the cops. Yes, it was a real event that happened a few months ago.
Personal injury – This covers you AND any passengers in the car at the time of the accident.
Uninsured motorist – If you get into an accident with someone who does not have insurance or who is underinsured.
If you stick with minimum coverage because of cost, here are some ways you can lower that monthly premium on your car insurance to be able to swing the extra coverage.
Most providers will have a student discount which gives you a percentage off for good grades. Especially helpful if you have teen drivers on your policy.
Not having previous accidents or issues can also net you a discount, usually called something like a Safe Driver discount.
A common option is paying your premium in full every six months. Providers will give a discount which equates to a lower price than what you would pay monthly over the same six months.
Veterans discounts. I mean, it’s the least they could do for y’all.
Look for local providers. Yes, Nationwide is well known, but your local insurance company can provide the same coverage and possibly for less.
Take defensive driving courses or install anti-theft devices. Obviously, the benefits of these options need to outweigh the cost of doing them.
If you’ve ever had your apartment broken into, you know it sucks. Not only has your space been invaded, but you might have had some things stolen. Renters insurance is how you remedy that situation.
Unlike renters insurance, homeowners insurance covers personal property AND structural property. Renters insurance only covers personal property. An example is if a pipe burst in your apartment complex, their insurance would cover the repairs of the building and your renters’ insurance would cover replacing anything of yours personally that was damaged.
It covers a multitude of things on top of your personal possessions, and can reimburse you for shelling out for a hotel or other accommodations if you can’t stay in your apartment for whatever reason. It can cover someone else’s medical bills if they get hurt in your place. You can even add on a flood or water damage rider since basic plans won’t cover things like that.
Renters insurance is extremely affordable. Like, on average about $168 per year. It’s also common for it to be a requirement from landlords and property managers you’re renting from. It’s even a smart idea to have it if you live in a dorm because replacing personal items while in school with limited income is tricky.
As mentioned before, homeowners insurance is there to protect personal possessions and the actual structure of the property.
The key difference between renters and homeowners insurance is that it’s not a renter’s responsibility to replace broken water heaters or replace the roof after being damaged by a windstorm. This is the homeowners’ responsibility and their insurance is equipped to cover that. It’s also why renters insurance is much cheaper. In fact, homeowners insurance averaged $1,249 per year according to MarketWatch compared to $168 per year for renters insurance.
Other than the structural part, both renters and homeowners insurance covers personal property from theft, will reimburse for having to stay elsewhere due to repairs or renovations, as well as personal liability if someone is hurt on your property. There are tons of other benefits as well that are worth talking with an insurance adjuster about.
It’s important to note that standard insurance, whether it be renters or homeowners, doesn’t do a great job of covering damage from natural disasters. Most policies will not cover things like floor damage, tornados, or wildfires, even if you live in areas prone to those events. Those require a separate rider, which means you have to spend more for coverage. However, considering last year alone, weather-related disasters cost the US $145 billion dollars, a few extra dollars a month is well worth it.
For both types of insurance, you need to have proper documentation of what you’re insuring should you have to file a claim. An easy way to do this is to take a video, or multiple videos throughout your house. Note appliances, furniture, clothes, jewelry, electronics, and anything else that would possibly need replacing if anything happened. It’s also helpful in these photos or videos, to capture serial numbers or make and model so it’s easier to find the value of anything that needs to be replaced. Your insurance provider will ask you for proof of these items, whether it be receipts or photos. InsuranceHotline.com has a wonderful breakdown of what to include and how best to go about documenting and categorizing your things.
Umbrella or Personal Liability Insurance
Home, renters, and auto insurance all have a similar specific type of coverage and that’s personal liability. This is a part of your policy that would cover damages or medical bills in the event that you either caused an accident or someone got hurt on your property/apartment.
Unfortunately, the default coverage of that specific component might not be enough. This is where umbrella or personal liability insurance would be handy.
Here’s a real-life example.
You get in a car accident and you are at fault. It happens. Maybe the person you hit has to go to the hospital for some broken bones and their car is totaled. Definitely sucks. Your car insurance has personal liability coverage of $25,000. Meaning that is the maximum they’ll pay to another person for an accident you caused. The car you hit is older and not worth as much and your insurer agrees to pay out the $6,000 we’ll imagine it’s worth. Your insurance will also cover the $16,000 in medical bills to treat the other drivers’ broken bones. This puts the total personal liability cost of the accident at $22,000, which is below your policy threshold and means it’s fully paid for by your insurance.
But what if their car was more expensive or they needed more intense medical care? Those numbers would look a little different *cough*scarier*cough*.
Another reason you may need umbrella insurance
Let’s say the person you hit was driving a brand new Chevy Colorado. Like all the bells and whistles. That puts the trucks’ value very close to $50,000. And let’s say the driver was severely injured, required life-saving surgery, and was in the hospital for a month. The damage to the truck alone just blew through your policies coverage like it was nothing. Now that your insurance is tapped out, there are two options. You pay the difference out of your own pocket or you get sued. Do either of those sound like good options? Hell no.
Umbrella/Personal Liability insurance is what would bridge the gap between what insurance will pay and the cost of whatever the incident is. It could be a car accident, your dog biting a cable service tech, or your trampoline crashing through your neighbors’ kitchen on a very windy day.
This insurance is the next step AFTER your primary insurance coverage maxes out. Remember that pretend car accident we talked about earlier? If the more severe accident costs $200,000 and your primary coverage only covers $25,000, but you have a separate personal liability policy worth $500,000, you don’t need to come out of pocket for the difference or worry about being sued for those damages.
It’s also really affordable. ValuePenguin notes, “You can expect to pay anywhere from $150 to $300 per year for $1 million of coverage from a personal umbrella liability policy.”
You’ve probably heard the terms short-term and long-term disability, but chances are you didn’t give them much thought. Especially if you’re young and able-bodied. Sorry to burst your bubble, but you should be thinking about them because anyone, regardless of age or current health status, can find themselves disabled after injury or illness.
Your likelihood of being injured on the job is exponentially higher if you work high-risk jobs like construction, linemen, roughnecks, and commercial fishing.
While some injuries are minor and illness can pass quickly, that’s not the case with everything. What’s your plan if you find yourself out of work for longer than a few weeks?
This is where short-term and long-term disability come into play. These are types of insurance that will replace a portion of your income while you’re handling your health. Short-term disability can last anywhere from 30 days to a year. Long-term can be two years all the way to the retirement age of 65. The benefits themselves depend on the type of policy you sign up for.
If you’re offered any kind of benefit plan through your employer, chances are that includes options for short-term and long-term disability coverage. If not, you can purchase them yourself. It’s advised to buy a policy that would cover at least 60% of your after-tax income. Check out Policy Genius for a more in-depth look at those two specific types of disability insurance.
There are federal programs, like Social Security Disability Insurance and Supplemental Security Insurance. These are funded by FICA taxes by way of the Federal Insurance Contribution Act enacted in 1935. So those deductions you see on your paychecks? Yea, those are FICA taxes. I’m going to be completely honest, I have never had to deal with either of those kinds of insurance. Because of that, I’m going to direct you to fellow personal finance blogger Tami Mitchell who runs Disabled Girl on Fire. Tami has a whole series about her process of applying, what to be aware of and how finances work while using those benefits. She is much better qualified to explain it all than I am.
Life insurance sounds daunting. First of all, no one likes talking about death. Second, there are so many kinds and what is laddering policies about or whole life? Halp! Keep reading…
What is life insurance?
It’s a policy that will pay your designated beneficiaries a certain amount of money (called Death Benefits) in the event of your death. Grim? Yes. Important? Also yes. That money can be used for funeral expenses, medical bills, paying off a mortgage, student loans or to simply let your loved ones process their grief without worrying about paying bills.
Who needs life insurance?
Those who have young kids or those that have people who depend on your income to survive.
What kind of life insurance should you get?
There are so many options and each has its pros and cons. To keep it simple, you want to look at term life insurance. This is a policy that has a term limit for which the policy is active. Usually 10, 20, or 30 years for example. Why go with term life insurance if it expires? Because it’s more affordable and much more straightforward than other kinds.
Do you need more than one policy?
It’s not a bad idea. If you do, you want to do something called Laddering. This is when you have more than one policy and each expires at a different time. Typically you’ll have higher payout policies that expire sooner, and lower payout policies that expire later. This is because when we’re younger, we tend to carry more expenses. Especially if you have kids. This ensures that your beneficiaries receive more money since there are more expenses to cover in your absence. As we age and pay off debt and kids start to make their own way, we carry fewer expenses and therefore don’t need as big of a payout.
How much life insurance to get
How much coverage you need will depend on how much debt you carry, if you have kids or plan to have kids, or if you have dependents that rely on you for their care. If that seems a little overwhelming, check out NerdWallets Life Insurance Calculator to help you hone in on your specific needs.
One thing you will see often in personal finance is people advising against Whole Life insurance. Whole life insurance differs from term life in that whole life literally covers your whole life. It doesn’t expire after 10, 20, or 30 years like term life does. Because of this, your premiums are noticeably higher than the premiums for term life insurance.
There’s also an investment/savings option with whole life insurance that isn’t offered with term life. Having another investment vehicle might sound great but when you look at the big picture, it’s really not that special. You have less control over what those investments actually are and you’re policy will still have about the same payout as a less expensive term life policy. You’re better off going with term life and investing the difference in premiums in your own investment account where you have more control and probably better returns.
Pet insurance is honestly great for every pet owner, but especially those with exotics like birds and reptiles as well as those with breeds prone to health issues. Think flat-faced dogs and their breathing issues of working dogs with a predisposition to hip dysplasia.
According to BetterPet, the average monthly cost was $18 for dogs with basic coverage and $11 for cats with basic coverage. Rates will depend on things like the animals’ age, breed or species, and previous health history. Typically, the older the pet, the higher the rate. Like with home, renters, and auto insurance, you can bundle pet insurance through those same companies, like Nationwide, State Farm, or Geico. Lemonade is a big favorite for affordable pet insurance as well.
It’s important to note that pet insurance is typically a reimbursement, meaning you pay for services upfront and then submit your claims to be paid back. This is why having a separate emergency fund for pets is helpful to bridge that financial gap.
How to make insurance not expensive.
Bundle as much as you can! Nearly all insurance providers offer discounts for having more than one type of insurance with them. You can bundle your auto, renters, personal liability, short term, long term, and pet insurance with literally one company. Much easier than trying to remember who insures what and getting a discount on top of it is smart shopping.
However, it’s smart to shop around and compare rates too. While Nationwide may give you the best deal for auto and renters insurance, maybe MetLife offers better rates on disability insurance or offers you more discounts you qualify for.
Speaking of discounts, ask for them. You can get discounts for,
Being a student with good grades
Being a veteran
Bundling more than one policy
Installing safety features in your home or car
Paying premiums in full rather than monthly
Insuring more than one car, pet, or person on the same policy.
Read the policy terms. Regardless of what the insurance is for, there will be wait periods for the policy to kick in or for certain benefits to become available. It’s an unwelcome surprise during a stressful time, trust me.
Just because you can get insurance coverage for just about everything, doesn’t mean you need to.
Here’s an example, paying for rental car insurance. It seems smart and what’s a few bucks to have insurance on a car you don’t own. Honestly, your car insurance probably already covers that. Some credit cards do too. Don’t waste your money on things you’ve already got covered.
The bottom line, have more insurance.
We can have all the savings in the world and still be blipetnd-sighted by accidents, illness, or natural disasters. When you’re dealing with a stressful and possibly expensive situation, the last thing you want to think about is how you’re going to pay for everything.
Protecting your money means being proactive with your money. Have some additional safety nets in place so you’re not having to dig into savings or other assets to get by.
Mackenzie Stewart launched her site Life at 23k to fill a void for the people who can’t afford to invest or start an emergency fund. She wants to find and give financial advice that the underemployed minimum wage worker can use – not just those making great salaries with marketable degrees already.