Dave Says Insurance, Insurance

Townhall.com ^ | February 1, 2012 | Dave Ramsey

[Altariel]

Dear Dave,

I’ve got auto insurance, but can you tell me what other kinds of insurance are good to have?

Chris

Dear Chris,

The purpose of insurance is to transfer risk that you can’t afford to take. Most people can’t afford to have a heart attack and triple bypass surgery. Having to pay for something like that completely out of pocket would bankrupt just about anyone. That’s why health insurance is a vital part of any good financial plan.

It’s also important to have auto, which you do, and homeowner’s insurance, too. If you don’t own a home, make sure you have renter’s insurance instead. Don’t forget about life insurance, either. If you’re married or have kids, you should carry eight to 10 times your yearly income in a good, 15- or 20-year level term life insurance policy. This means if you make $40,000, you should have about $400,000 wrapped up in life insurance.

Long-term disability insurance is vital. The cheapest way to get this is in a group. If you buy it yourself, out on the open market, you’ll find that the rates are based more on your occupation than your age or health. So, if you fly a desk, it’ll be a lot cheaper than if you work with your hands.

And don’t forget long-term care insurance. You need “nursing home insurance” the moment you turn 60. It will also take care of you in your own home. The statistical probability of needing it before age 60 is about one percent, so I’d wait until then to buy long-term care insurance.

This kind of insurance can make sure you get the kind of care you want in your declining years. Plus, it can keep your nest egg with you and your family and out of the hands of the nursing home!

—Dave

Dear Dave,

My wife and I make about $85,000 a year. We’re debt-free, and we have no kids. We’d like to start saving money to buy some land in the near future. What percentage of our savings should we put toward this?

Dennis

Dear Dennis,

I don’t know if there’s necessarily a specific percentage for this kind of thing. Since you guys are already debt-free you need to make sure that you’ve got a fully-loaded emergency fund of three to six months of expenses in place, along with retirement funding. In your case, anything else you have sitting around is simply wealth.

If you’ve got $50,000 sitting in a savings account in addition to these things, and you’d rather have $50,000 worth of dirt instead of a bank account, I’m cool with that. It’s really more a matter of ratios than percentages.

—Dave

* For more financial help please visit daveramsey.com.

[freedumb2003]

I have kept 6 months’ gross income in cash handy (for years), just in case. It really helped when I bought my new place and it always is a great leverage point (Other drivers’ Insurance company: “we can’t pay for your repairs immediately — you will have to front them.” Me: Done.)

Now I am stuck with a few hundred K (from selling the old place) and have no idea what to do with it.

But I am old school: zero unsecured debt, let the bank carry the new debt (3.5% interest). Pay cash for everything or DO WITHOUT — a concept unknown to many of today’s young adults.

[TheWriterTX]

Whole life policies for your children as soon as they are born and home from the hospital.

The policies appreciate over time and they can either borrow against the interest, cash it out tax free for school, or convert it to a larger policy to cover them as adults.

Have $50K on each of my children.

My cousin died in Jr. High. My nephew died at 6 months old. And while I pray that my children will live to ripe old ages and put my sorry hide into the ground, experience has taught me that things do not always work out as planned.

[psjones]

Just make sure that the adults have life insurance before you go spending on life insurance for the kids.

[TheWriterTX]

Half a million on each of us.

[CharlesWayneCT]

I put a small policy on my wife, which has increased as I get older. I told her it was my fund to buy a new wife if she died, and I figure as I get older it will cost me more to get a replacement.

[dawn53]

Another good policy to have is an umbrella policy for liability...picks up at 300,000 and covers you to 2 million. Relatively inexpensive.

But I have this to say about the Long Tern Nursing Care coverage. He says buy it by the time you’re 60. Well in our immediate family, that idea hasn’t worked out. We’re in our 50’s and between my sis and BIL and hubby and myself, 4 out of 4 would’nt qualify.

They are very strict about pre-existing conditions and between us we have MS, protate cancer, breast cancer, and hip replacement/arthritis (before the age of 60)...so we all fall outside those insurable. It’s not that we’d need it by 60, it’s just that we wouldn’t have qualified unless we picked it up in or mid 40’s.