On our Insurance discussion board, 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, and 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?
NoIDAtAll is in insurance sales, and he went on to note: "With agency agreements with about a dozen insurers (including Progressive
Another Fool, rog56, offered a different perspective. 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 overinsure themselves, buying coverage for much more than they're likely to have at risk. They may also duplicate existing coverage -- paying for insurance when they rent a car, even though their existing auto insurance policy already protects them, for example. Likewise, buying life insurance is entirely unnecessary for some people. If you're single and childless, and no one will miss your income when you're gone, you may not need such insurance. Other people underinsure, failing to protect themselves from unfortunately likely 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. Should disaster strike, you may be happy you did.
Here are some additional articles on this important and not-even-so-boring topic:
This article was originally published on June 28, 2005.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article.