Via LearnVest By Aaron Crowe for InvestingAnswers ~
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While there’s obvious value in having insurance to pay the mortgage and cover your family if you die, some of life’s smaller problems can be worth insuring–though there’s no need to go overboard.
“There are so many insurances that a person can buy, it seems you could spend your entire income protecting yourself in case ‘something’ happens,” said Alan Moore, afinancial planner in Milwaukee.
When it comes to additional insurance policies, it’s important to consider the practicality of such expenses.
“People can find themselves ‘insurance poor’ where they may be covered for any little cost that comes up, but they end up paying much more in premiums than they will ever get back,” said Eric Stauffer, who runs an insurance review website.
Alternate insurance policies worth buying include major life events that could affect your income, such as long-term disability insurance, and less important events that last from a day to a few years and are worth the risk of buying and not needing, such as wedding and pet insurance. In those instances, having the peace of mind that your wedding day is covered if an accident happens, for example, may be worth paying the premium.
With those events in mind–life-changing events that could hurt for a long time without insurance, and events that pop up from time to time–here are some alternate insurance policies to consider that go beyond the basics of life, home and auto coverage:
Most working adults need disability insurance, Moore said, especially for a long-term disability. It can pay for medical and daily living expenses you couldn’t pay if you weren’t working because of a temporary or permanent disability. Short-term disability insurance, however, should be avoided by having an emergency fund, he said.
The Council for Disability Awareness reports that adults in their 20s today have a 25% chance of becoming disabled before retiring. That should be convincing enough for most people, Stauffer said.
“Most single people with no dependents rightfully forgo life insurance, since if they were to pass no one really needs their income,” Stauffer wrote in an email. “But these same individuals should be the first lined up for disability insurance because they have no one to cover the slack if they cannot work.”
Personal Liability Insurance
Also known as “umbrella” insurance, personal liability insurance protects you from a lawsuit for more than your home or auto insurance covers. It’s especially important for high net worth individuals because they have more assets to lose and the insurance is relatively cheap for the benefits it provides, said Shane Fischer, an attorney in Winter Park, Fla.
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A $1 million umbrella policy can cost about $200 or so a year, which is well worth the cost if you had the misfortune of hitting someone while drinking and driving, Fischer said. The payment can be used to negotiate with the deceased’s attorney and the district attorney for a lesser charge of probation instead of going to prison, for example, he said.
Long-term Care Insurance
This coverage pays for in-home care and other age-related expenses in old age. In general, this type of insurance is recommended as a good purchase, though it gets more expensive as people get older and is much cheaper for the young.
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This isn’t for lost luggage or having to cancel a trip — though those are good types of insurance to have — but for covering you if you happen to get sick overseas and have medical bills that normal health insurance won’t cover.
Corey Burke, a Seattle lawyer who helps clients in health insurance lawsuits, said strange diseases around the world can lead to the need to be flown to a hospital for extensive tests and care and that travel insurance can cover such costs.
The U.S. Department of State recommends checking your health insurance policy before leaving the country because in many places, doctors and hospitals “still expect payment in cash at the time of service. You can’t simply give them your insurance card and expect it will go through. If your policy doesn’t go with you when you travel, it’s a very good idea to purchase a separate policy for your trip.”
It also reminds senior travelers that Medicare doesn’t provide coverage for hospital or medical costs outside the United States.
Travel medical insurance can be inexpensive, said Marc Lewandowski, who sells such insurance. For example, for a couple age 32 each with a 6-year-old child traveling outside of the U.S., $200,000 in medical benefits and zero deductible would amount to a one-time cost of $73.22, Lewandowski said.
This is hopefully a one-time event for most people, and one they don’t want to go wrong. Anyone who has been married knows that something can go wrong at a wedding.
Travel agent Lisa Niver Rajna bought $75,000 worth of wedding insurance for $450 throughWedSafe and found it worthwhile. Her rented wedding dress was damaged during her beach wedding and she made a successful claim for $1,000 to pay for it.
Travelers Insurance recently analyzed its wedding insurance claims from its Wedding Protector Planand found that vendor and venue problems are the most frequent causes of wedding day mishaps for its customers, according to a Travelers spokeswoman. For example, a venue could go out of business before a couple’s wedding day.
With the average wedding in 2011 costing $25,631, according to Travelers’ survey of customers, it’s a big enough expense that it’s worth covering. Travelers sells wedding insurance for as little as $160 that covers such things as rehearsal events within 48 hours of the wedding, lost deposits, perishable materials, cancellation because of weather or military leave and damaged photos and gifts.
For a few hundred dollars a year, pet insurance can be worthwhile if your pet ever needs an operation or other expensive medical care. Without that use, it may not be worth it for everyday vet bills. Just as it is with humans, this type of insurance is cheaper for the young and healthy.
Apartment renters don’t have to worry about paying for repairs if their unit burns down, but their valuables can be insured for about $200 per year if they’re damaged by fire or water. That’s a small price to pay for any electronics you have at home.
If you own antiques and they get damaged in a flood or fire, homeowner’s or renter’s insurance may not fully cover them or the cost of restoration. Extra insurance for antiques can be bought, but make sure it doesn’t cost more than the value of the items.
The Investing Answer: As a few financial experts told us, insuring for every possible ill turn in life can leave you paying premiums that you’ll never see again if you don’t make a claim. Be careful what you buy and only buy it for the specific time you need it — such as a wedding or a pet’s expected lifetime.
Other alternative insurance types are worth considering, such as long-term disability, if you don’t have a big enough emergency fund to pay your family’s expenses if you’re out of work for awhile.
And as is the case with all insurance, shop around with different companies for the best policies and prices. This is one area of your finances that you can control with comparison shopping.
LearnVest is the leading lifestyle and personal finance website for women.