When money is tight and you need to slash your monthly expenditure, canceling your insurance policies is one way to save money. Of all the bills you pay, your insurance is probably the least important – or so many people think. After all, you can’t cancel your utility payments, or the payment you make to your mortgage lender each month. If you did, you would be cold and homeless pretty quickly. But is canceling an insurance policy really such a good idea?
Insurance gives us peace of mind. If you never have to claim, it is easy to view insurance as money down the drain, but if your house burns down or a drunk driver rear ends your car, the insurance company is there to pick up the pieces. We pray that we will never need our insurance policy, but in an uncertain world, there is a very real chance that an unexpected problem will knock us for six.
There are many different types of insurance. Some are compulsory and others are optional. Let’s take a look at the many insurance policies on offer and discuss whether there they are essential or not.
Car insurance is mandatory in nearly every US state. Liability insurance protects you and other road users in the event of an accident. If you are involved in an ‘at-fault’ accident, your insurance company will pay out for losses incurred by the other parties.
Collision insurance is not mandatory once you own a car outright, but it is advisable if you want to protect your vehicle from theft, damage, and fire.
Since 2014, health insurance has been mandatory in the US, but in January 2017, President Trump signed an executive order that gave permission for US agencies to “waive, defer, grant exemptions from, or delay the implementation” of healthcare for individuals, which should help those who can’t afford to pay for cover.
However, if you can afford to buy health insurance, but you choose not to, you will have to pay an ‘individual mandate’ or penalty. This is either 2.5% of your annual household income or a fixed fee per person, whichever is higher.
Life insurance covers a life, yours or someone you love. Clearly, it’s not going to benefit you, but if you have dependents, life insurance is essential.
There are two types of life insurance: term assurance and permanent insurance. Term assurance is a fixed term policy. This is typically used to cover a mortgage, so if you die before the mortgage is repaid, your dependents won’t end up homeless. Permanent insurance lasts for as long as you live. There is a savings component to this type of insurance, as it has a cash value.
Home insurance covers your property from damage caused by any number of things, including adverse weather, accidental damage, and fire. If your home is razed to the ground, the insurance company will pay for it to be rebuilt. Mortgage lenders usually insist on buildings insurance, but even if you own your home outright, it is sensible to take out a home insurance policy.
Long Term Disability Insurance
Nearly 500 Americans are disabled every 10 minutes. Because we are living longer than ever before, some form of disability is a very real prospect. If you were unable to work following life-changing injuries, long term disability insurance would cover all of your costs.
Insurance is expensive, but it might just save your bacon if life throws you a curve ball. Even if money is tight, always budget for the most important insurance policies; you never know when you might need to make a claim.