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Money Crasher’s Quick Guide to Insurance

By Erik Folgate

This blog is geared primarily toward twentysomethings, so my insurance recommendations will be answered based on the assumption that you are a college student, recent graduate, or similar young adult.

Car Insurance

The law makes you carry some kind of auto insurance, but the minimum requirements are NOT enough.  PIP (Personal Injury Protection) is bodily injury coverage for up to $10,000 of medical expenses regardless of who is at fault for the accident.  After that, your personal health insurance kicks in.  In Florida, you must have PIP and minimum liability coverage.  Liability is by far one of the most important coverages for auto insurance.  You need at least 50/100/50 limits.  If you are at fault in an accident, then most likely the injured party is going to come after you with a lawyer.  This coverage protects you and your assets from being taken in a civil suit.  However, if you cause an accident that makes someone paralyzed for life, and all you have is $10,000 in liability coverage, things will get ugly.  Even if you have limited assets, attorneys will try to garnish your wages.  It’s not a pretty subject, so just pay the extra 100 – 150 bucks and get more liability coverage.

If you’re driving a car thats more than 8 or 9 years of age, don’t bother buying comprehensive and collision coverage.  If you have a car loan (i hope you don’t) then the lender will force you to have this coverage. 

Renter’s Insurance

Some people may disagree with me about buying this insurance because most young people do not own much stuff, but I think you should buy it.  For an extra $10 – 18 dollars a month, you can buy about $25,000 worth of coverage for personal contents, and you get some personal liability coverage as well.  My generation is a tech savvy group, and we love our iPods, digital cameras, laptops, plasma screens, and many other high profile electronics that burglars love to swipe.  Plus, most of you know that college towns are a haven for burglaries. 

Life Insurance

This is an easy one, don’t bother with buying life insurance if you do not have any kids and your spouse is capable of working.  If you are starting your first career, your employer will probably offer you some kind of life insurance product to buy, and it looks appealing because it’s so cheap at a young age.  Do not buy it, and save that premium for something else.  If you do have kids, then you NEED to get level term life insurance.  The rule of thumb is to buy 8 to 10 times your annual income.  If you make 50,000 a year, then buy $500,000 worth of coverage.  That way, if the worst happens then your kids can live off of a 500,000 nest egg that will most likely make 50,000 a year invested in mutual funds. 

Homeowner’s Insurance

This product is my specialty, and I will dedicate an entire post to buying homeowner’s insurance at a later date.  Homeowner’s insurance is one of the most important insurances you will buy, and it is also one of the least understood insurance products.  People simply do not read their policy, because it’s usually about 15 pages long, and I do not blame them.  You must protect the biggest purchase/investment that you will make in your lifetime!  Here are some key things to remember when buying homeowner’s insurance for the first time. 

  • Schedule your Jewelry and Watches.  If you do not specifically include your expensive jewelry with an appraisal, then your jewelry is at high risk.  Almost all HI policies limit coverage for stolen jewelry to $1,000 - $2,000 and most engagement rings are worth more than that alone!
  • Buy a separate flood insurance policy.  There is not a single private insurance company in America that covers floods.  The government picks up this bill, because private insurers are too scared to cover it.  A great example of why you should buy this even if you do not live in a flood zone is Hurricane Katrina.  Need I say more?
  • If you run a business out of your house, get a separate business policy.  Homeowner’s will cover a very limited amount for business personal property/liability. 
  • Security alarms, hurricane shutters, masonry construction, hip roofs, and indoor sprinkler systems all warrant credits that lower your premium. 
  • Take pride in your house!  Insurance companies will not cover damage caused by normal wear/tear and neglect of your home.

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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