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Today we are going to be wrapping up the Major Components of a Healthy Financial Plan series by discussing both Auto and Homeowner’s Insurance. Hopefully you have found the series to be useful and have used it as a checklist to see where you are currently.
Automobile insurance is currently a requirement in almost every state. There are different types of auto insurance with the main two being liability and comprehensive coverage. As the name suggests, liability covers claims where it is “your fault” including getting the car fixed and someone’s medical costs. We recommended getting lots of liability coverage, around $500,000 or so. If you do not have high liability insurance and get into a serious accident it could cripple your finances as you would be responsible for injuries and damages over your coverage. Comprehensive insurance pays for damages to your car other then a collision including such incidents as theft, weather damage, or fire. For cars that still have value this is an obvious need, but for older, less expensive cars you need to do a cost-benefit analysis to see if it is worth it. If you have a fully funded emergency fund and drive a $2,500 car you can probably afford not to have comprehensive coverage. If however you drive a $4,000 car and have no emergency fund then comprehensive coverage might be a wise thing to have.
Home Insurance is a MUST for any homeowner. You simply can not afford to go without coverage. The thing to remember with home owners insurance is to avoid policies that do not have guaranteed replacement costs. Guaranteed replacement costs covers the difference in price that your home appreciates when you make a claim compared to when you take out a policy. Without guaranteed replacement costs you could be stuck with not enough money to rebuild your house if you have a fire, flood, etc. and your house has appreciated significantly. You will pay more for it, but it is definitely worth it. If you do not own a home and you have significant assets please get renters insurance that will pay for your stuff if it is stolen or damaged in a fire.
Auto and Homeowners Insurance are usually overlooked in the overall scheme of things, but checking your policy every year or so to make sure you have adequate coverage is necessary.
Overall I hope you have enjoyed the Major Components of a Healthy Financial Plan Series. Remember, if you need help developing a plan or need more information on any of the components, please contact us today to set up your free 30 minute consultation!