Having adequate insurance is a necessity for everyone. Whether it is for your auto, life, health, or home, all areas should be considered carefully. Determining the right amount and type, however, can sometimes be difficult.
Valerie RumboughA basic rule of thumb is to consider what would happen if the item (or life) that you are considering insuring were to be taken away, either through an accident, death, etc. Could you replace the item, pay the outstanding debt on the item, or, in the case of a life, replace the income that was lost? Although some insurance is legally required, such as basic auto and homeowner’s in some situations, other insurance may be needed regardless. For example, a young family with small children would need to consider life insurance on both parents to replace income, provide education, and take care of the children if one or both parents died. However, when a couple reaches retirement age, has adequate retirement savings for both to live on, and sufficient assets to cover burial expenses, life insurance may not be needed at all.
For items you own, having insurance that will sufficiently cover replacing the item, or at least cover the outstanding loan balance if any, may be necessary. Other policies may be needed to cover additional expenses, such as liability to another person, income replacement in the event of disability, temporary transportation or shelter, etc.
The bottom line: Consider whether you would be able to replace an item and cover related expenses due to the loss of that item, or if your family would be financially able to live as comfortably as they do now, should something happen to you and/or your spouse.
As you can see, insurance needs will change as time goes by. Make sure you are both adequately covered, and that you can afford it. Then, review your insurance needs from time to time and update if necessary.
If you have questions about your insurance needs, you may want to discuss them with a financial planner. God expects us to be good stewards, and insurance is one area that you can easily have too much or too little.
– Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.