On our Insurance discussion board the other day, ChuckReese asked the following question:
"As I speak with [my insurance] agent, I grow increasingly overwhelmed. Do I want 50/100 bodily injury? How about 250/500? Do I want uninsured motorist? No fault medical? What about comprehensive or collision? Rental car? Towing? I can lower my costs by lowering my coverage, but how low should I go? How much insurance is enough?"
That's an excellent question to ponder. Several Fools offered advice.
NoIDAtAll, for example, said: "There is no cut and dried answer to what limit of liability insurance you should carry, as there is no limit to the amount for which you can be sued. However, you might consider your net worth and income and give that some weight. Are they sufficient that an attorney might see [them as] worth going for?"
He's in insurance sales and went on to note that, "With agency agreements with about a dozen insurers (including Progressive (NYSE:PGR), AIG (NYSE:AIG), Safeco, a division of St. Paul Travelers (NYSE:STA), a division of Liberty Mutual, and some smaller carriers) and comparative rating software at our disposal, I can run through what-ifs with potential customers to their (reasonable) satisfaction in less than a half-hour, often way less, though sometimes longer." This is a great reminder of how agents can sometimes help us comparison-shop for the best policy.
Another Fool, rog56, offered a different perspective, saying that in his opinion, "insurance should be avoided as much as possible except to cover catastrophes. The people who gain from insurance are (1) insurance companies, brokers etc, and (2) the victims of serious insured losses. Consider how much, in the long run, you can self-insure for smaller losses. This should be backed up by keeping an emergency fund, to pay for unexpected non-catastrophic losses. While the money is sitting there waiting for you to slip on a banana skin, earn interest on it. (After all, that's what the insurance companies do with your premiums while they wait for any claims -- they invest them for profit!) Just as insurance companies find it profitable to insure individuals against minor losses, it will generally be profitable in the long-run to self-insure, and keep that profit for yourself instead. Insure for the big risks that can ruin us."
This is a great point. Sometimes people over-insure themselves, buying coverage for much more than they're likely to have at risk, or perhaps duplicating coverage they already have (such as when they pay for insurance when renting a car when their existing auto insurance policy protects them). Likewise, buying life insurance is, for some people, entirely unnecessary. If no one will miss your income when you're gone (if you're single and childless, for example), you may not need such insurance. Other people under-insure, not protecting themselves from not-so-unlikely catastrophes.
Learn more about insurance, including long-term care insurance, in our Insurance Center. You may not have thought about some kinds of insurance, such as disability or long-term care insurance, but they're vital for many people. Take a little time to learn more and you may be very happy you did should some calamity occurs in the future.
Here are some additional articles on this important and not-even-so-boring topic:
- 60-Second Guide to Insurance
- Avoid Insurance Sticker Shock
- Stop Overpaying Your Doctor
- Health Insurance for Your Pet
- How to Insure a Bundle
- Prepare to Be Disabled
- Credit Dings = Insurance Woes
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.
