Looking for resources on insurance options.

April 16, 2012 12:55 PM

I'm looking for resources to help me decide what types and amounts of insurance to buy.

My family is in the midst of a bunch of changes (expecting a first child, employment/income changes, significant home renovations, getting an additional car) that make me think it's time to re-evaluate our insurance purchases. I'd like to find good information written for non-experts that explains what types and amounts of insurance are good to buy, and why.

The advice I can find online tends to be pretty generic, and also recommends talking about your specific situation with an insurance agent. But the idea of getting all my advice from someone who has a financial incentive to sell me as much insurance as possible makes me uncomfortable. Are there independent sources of information I can turn to?

Examples of the types of questions I have:
o I've read that once you have a child it's good to have more life insurance. Why? How much? Is there a rule of thumb that it's good to have X times your salary in life insurance? If so, why?
o There are a ton of different options we can get on our car insurance that I don't understand that well. How do we decide on deductibles and amounts of coverage in all the different categories (like uninsured motorist coverage)?
o How do we decide how much it will cost to replace our home if it's completely destroyed, so we can decide how much coverage to get?
o I get disability insurance through my employer. How do I decide if this is adequate, or if I need more?

posted by medusa to Work & Money (4 answers total)

All advice is going to be generic because we don't know your situation. What's more, all insurace is governed state by state (which the exception of the Federal Health Care Act/ObamaCare stuff, I suppose.). Here are some generic answers, bearing in mind that I'm not an insurance agent or any sort of insurance expert. I'm sure (I hope) people will correct me where I've gotten it wrong.

LIFE INSURANCE:
People tend to get insurance when they have a kid because if they die, their kid is likely to have a harder life. The theory is that if they have money, it makes it slightly less hard.

I don't know about the X times your salary. There are a couple of ways I've heard of calculating it. One is to add up what your spouse would need to take some time off for a while, since they'll be grieving and not up for taking on two jobs asap, enough to pay for your kid's college, and enough to pay off the mortgage or whatever other debt will make life easier for the survivors.

Another one is to buy so much life insurance that just the INTEREST from that chunk of money is enough to support your SO & kid and once your kid's an adult, the'll still be a big chunk of principal sitting around to be used for whatever makes sense.

The reason people even consider the second one is that life insurance is often super cheap, and making something, say, $3 million instead of $1 million isn't always that big of a difference.

CAR INSURANCE:
Are you going to want your car replaced if it gets smashed? That's comprehensive and obviously is a judgement call. If the replacement value of your car is $600, it's likely not worth paying for comprehensive. If it's worth $50,000, it probably is. Figuring out where you're comfortable in the middle is between you and your wallet.

Liability usually has a minimum in your state, so that's your starting point. As I understand it, you can only get uninsured motorist insurance up to your liability, so it might be worth upping your liability to get covered. Also, liability covers someone you hit- their medical bills and car repair/replacement. Around my neck of the woods, a $50,000 car isn't unusual, let alone any medical bills, so only getting $25,000 worth of insurance could leave you pretty scarily uncovered. Also, check to see what's covered in the medical section. Is it a total? Or per incident? There are lots of weaselly ways around liability auto insurance, but all insurance varies state by state.

HOME INSURANCE:
I would call up a couple of contractors and find out how much they estimate it would cost per square foot to replace your house these days. They usually know the answer to this, if you give them enough details. (A local insurance agent SHOULD know this, too.) Often, homes are insured based on 80% of their market value, (the only 20% theoretically being the land value), but in my opinion, market value and construction costs are only vaguely correllated.

DISABILITY INSURACE:
This one's tricky because it's much more likely to be used than life insurance and is therefore very expensive. Your workplace insurance is probably not even close to enough, and it isn't usually portable, meaning if you quit or get fired you won't be able to keep the policy. You'll have to get a new policy, probably for a lot of money. Getting a supplemental policy is a great idea if you can pull it off financially.
posted by small_ruminant at 2:45 PM on April 16, 2012

Wow. Typo city! I hope you can make out my comment despite the typos. That's what I get for responding at work.
posted by small_ruminant at 2:48 PM on April 16, 2012

Response by poster: Thanks for the advice, small_ruminant, it's helpful. I guess I was also hoping for more resources I could use to educate myself about these types of questions, and be in a better position to make similar decisions in the future. I'm going to mark this question as unresolved in the hope that maybe someone else will have suggestions at some point.
posted by medusa at 9:55 AM on April 24, 2012

Yes, I don't know any non-industry insurance resources. For a lot of financial things. you can use bankrate.com's articles, but I don't know what, if anything, they have on insurance. Because it's a state-by-state thing (with RADICALLY different rules because of it), websites are hesitant to put forth too much. At least, I assume that's why there are so few websites about it.
posted by small_ruminant at 10:23 AM on April 24, 2012