Insurance is not only a fundamental part of most consumers' financial lives, it's also among the most confusing.
Here are answers to basic questions frequently asked by consumers.
Q How much life insurance do I need?
A At its simplest, life insurance is a paycheck replacement if you die. In determining how much coverage you need, you're trying to answer two questions: "Who relies on my paycheck and would suffer financial hardship if I died?" and "How much money would they be missing because I'm not working?"
Single, childless people who have nobody relying on their income might decide they need no life insurance.
A single breadwinner in a young family of five might need a policy worth hundreds of thousands of dollars, even millions.
Q While traveling, should I buy rental-car insurance?
A Probably not, if you already have auto insurance with collision and comprehensive coverage, which refers to noncollision events, such as theft, fire or vandalism. The rental-car insurance could be a waste of money.
To best answer this question, make two phone calls -- to your auto agent and to the issuer of the credit card you will use to pay for the rental. Both are likely to include some coverage for use of a rental car.
Q How do I choose the right deductibles?
A The simple answer is to choose auto and home insurance deductibles as high as you can stand. A deductible is the amount of money you have to pay before your insurance kicks in. If you opt for a higher deductible, your premiums will be lower, but you'll have bigger out-of-pocket expenses if you have a claim.
Q Should I buy term life insurance or permanent insurance?
A In short, buy term life insurance and only buy pricey permanent insurance -- whole life, universal life and variable life -- if you fully understand the policy, its costs, its rate of return and exactly why you need it instead of term life insurance. That alone will dissuade most people because permanent policies are so complicated.
By contrast, term life insurance is relatively easy to understand. It pays your beneficiaries a lump sum if you die during the term, typically 10, 20 or 30 years. There's no investment component.
Q Who needs renters insurance?
A Renters insurance typically covers your personal belongings against damage and theft and provides some liability coverage if someone is injured in your apartment.
Fortunately, renters insurance is fairly cheap, often in the ballpark of $16 per month. Yet only 31 percent of renters buy it, according to the Insurance Information Institute.
Q Should I buy life insurance for a child?
A The typical answer is no. Not only is the probability of a child dying remote, but your household doesn't rely on a child's income and would not suffer financially because a child died -- outside funeral and burial expenses.
You could consider a small policy to reimburse yourself for funeral expenses, but get the proper amount of life insurance on the family's breadwinners as a higher priority
Source: http://www.goerie.com/article/20130120/BUSINESS05/301209983/Cost-need-play-into-insurance-decisions
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