The Dave Ramsey Financial Peace University multi-week class has an entire lesson on insurance, or risk management. Wisdom with insurance is key to financial planning to protect the things we own or our family from risk, using as few dollars as possible. To underline a few items from this lesson, and a few things I have a little different opinion…
- Evaluate your life insurance and type: if you have minor children and a mortgage a good rule of thumb is 10 times income (an insurance expert or financial planner can help you calculate your amount). You can subtract from that number your group life amount and other insurance, savings and investments. If your spouse doesn’t work outside of the home, she probably needs it too. Consider term insurance since it is pretty inexpensive, and buy as long a term as you can afford usually, such as 10 – 25 year level term
- If you haven’t shopped your auto and homeowners insurance in a while, call some independent and captive agents for quotes for various deductibles, you may be able to save a goodly amount. Be sure to have your policy’s declaration page or description of coverage handy to refer to.
- Talk to your agent about ‘personal catastrophe’ or ‘umbrella’ insurance to protect you from excess liability. A few million dollars of coverage costs less than $200 usually.
- Ask your agent about your homeowner’s ‘replacement cost’ coverage for dwelling and contents.
- For long-term-care insurance, if you are in your 50’s it is not better to wait until 60 as Dave says, since the rates go up with age, and sometimes our health changes more as we age.
- Review your short-term and long-term disability coverage at work, even if you have it, it may be a good idea to consider supplemental since group DI is taxable.
- Dave recommends dropping all permanent life insurance (whole life, universal, variable), but if you’ve owned a policy for a long time or your health has changed you probably should consider keeping it. It is always good to get an enforce computer ledger to evaluate and compare before making this drastic change, and don’t ever drop coverage until the new policy is in force. Also, some people have some permanent needs, so again it is wise to consult a financial advisor first.
- Lastly, Dave recommends good estate planning. Be sure to contact an attorney about having a will, power of attorney written for you. If you believe in end-of-life planning, ask about living wills and health care power of attorney. Trust planning makes good sense for asset protection, and to take care of minor children, not including privacy and tax and probate cost minimization.