Insurance Basics

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Disability Insurance

Disability insurance kicks in if you're unable to work for an extended period of time due to illness or injury. This type of insurance is imperative if your family depends on your income to keep a house, maintain its current standard of living, and so forth.

Don't depend on health insurance in the event that you're out of work due to being disabled. Your health insurance will cover (hopefully) your medical bills, but it won't cover the loss of your salary.

Most disability insurance policies don't cover the full amount of a salary, but kick in about 60 percent. Hopefully, you'll have an emergency fund to supplement the gap between your income and the insurance. There are various types of disability insurance, and some factors you should be sure to consider when comparing them.

An own-occupation policy pays benefits if you're unable to perform your normal work. Other policies will only kick in if you're unable to do the job for which you're reasonably trained. Many infirmities permit you to work, but not at the type of job you held prior to your infirmity.

Own-occupation policies are the most expensive type of disability insurance, because it's more likely that the insurance company will have to pay you. It may not be worth the extra cost unless you're earning big bucks in a specialized job and would need to take a pay cut if you were forced to change jobs.

When looking at disability insurance plans, keep the following information in mind.

  • Guaranteed renewable. This means that your policy can't be cancelled if you get sick. If your policy requires you to have a physical every so often, you risk losing your coverage just when you need it.

  • Waiting period. This is the period of time between when you get disabled and when the plan starts paying. The longer the waiting period, the less the policy should cost. The minimum on most policies is thirty days, and the maximum can be up to two years. A good compromise would be 90 days to 6 months.

  • Cost-of-living adjustments. This feature automatically boosts your benefits, either by a specified amount or depending on the rate of inflation.

  • Future insurability. This feature allows you to buy additional coverage down the road. It's good if you have a job in which you expect to be earning much more in several years than you are presently.

There is a greater probability of being disabled than of dying by the time you're 65. Disability insurance is coverage that is often overlooked but very, very important.

Homeowner's Insurance

Adding It Up

Homeowner's insurance covers your home and its contents against perils, which are the insurance industry's term for anything bad that could happen to your house. Perils may include fire, damage caused by falling objects (think trees), an explosion in your heater, riots, vandalism, and hurricanes.

Your home probably is the biggest investment you'll ever make, and you need an adequate homeowner's insurance policy to protect it and what's in it.

You'll be required to have homeowner's insurance before you get a mortgage. The trick is to get a policy that offers the best protection for your home and its contents.

It's worth taking a look at your current policy to see exactly what it covers. Most homeowner's policies have personal property coverage, as well as liability coverage. Thus, if your house burns down, all your furniture will be replaced under the personal property coverage. Make certain you have enough to cover what you own.

It's important to realize that most standard insurance policies don't cover special property. To insure items such as sterling silver, jewelry, and artwork, you'll need to get an insurance rider at an additional cost.

In addition to protecting your house and property, homeowner's coverage also provides liability coverage in case somebody falls down your front steps and breaks an ankle.

Auto Insurance

If you own and drive a car, you need insurance to protect yourself from injury in the event of an accident. Auto insurance is expensive, and nearly every state requires drivers to have it. Even if it's not required, however, you can't afford to go without it.

Auto insurance includes different types of coverage, but the one that nearly all states require is liability. Liability covers bodily injury and property damage for you and others, if you're at fault in an accident. Most states require that you carry a minimum amount of bodily injury coverage—usually $25,000 per person, and $50,000 per accident.

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More on: Family Finances

Excerpted from The Complete Idiot's Guide to Personal Finance in Your 40s and 50s © 2002 by Sarah Young Fisher and Susan Shelly. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit the Idiot's Guide web site or call 1-800-253-6476.


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