PROPERTY INSURANCE

Auto Insurance
State law requires that all motor vehicles have liability insurance to cover injury to other people or damage to their property. If you have a loan on your vehicle, your lender will also require physical damage coverage on it.

You may select a higher deductible (the amount you pay out of pocket before insurance kicks in) and receive a more affordable rate on the premium (the cost of the policy). If you have your emergency savings in place, you will feel more confident about taking out a higher-deductible policy, which will lower your premium costs.

Home Insurance
Homeowners insurance covers your home and possessions. The personal liability coverage in a homeowner’s policy protects you from loss resulting from any injuries that may occur on your property. Your mortgage lender will require you to carry a certain amount of insurance coverage as long as the mortgage is in place. You may also consider a higher-deductible insurance plan to save money on your homeowner’s coverage.

Standard homeowner’s coverage insures your home and its contents against loss from such risks as fire and theft. You may require special insurance for flood, earthquake or other risks specific to your area. Contact your state department of insurance for more information on insurance in high-risk areas.

Another type of household protection, a home warranty, is a service contract that protects the homeowner from unexpected costs for repair or replacement of major systems. These might include heating and air-conditioning, plumbing, electrical systems or a water heater. Sellers will sometimes provide a one-year home warranty to give potential buyers added confidence. The homebuyer then has the option of renewing the warranty at the end of the year. If you are renting your home or apartment, you should purchase renters or contents insurance to cover your possessions against loss from fire or theft. Your landlord’s insurance will only cover damage to the building, not its contents. Also, if someone is hurt in your rented home, that liability is yours, not the landlord’s.

Medical Insurance
Medical insurance pays for some, but not all, of your doctor, hospital and prescription drug costs. Many people have significant levels of debt because they didn’t have medical insurance or they didn’t have savings to pay the expenses that weren’t covered by their health plan. Late payments and defaults on medical debt may be reported on credit reports and affect a person’s credit score. Premiums are lower on employer-provided health insurance because risk is spread over a larger group of people. Take advantage of the lower costs that employer-sponsored health plans offer, but expect to pay part of the premium out of your paycheck. In addition to medical insurance, many employers offer dental and vision plans, often at low cost.

Flexible spending accounts
People who are insured through their employer should consider participating in a flexible spending account (FSA) if it is offered. An employer-sponsored FSA allows employees to save pretax dollars in an account to cover deductibles, co-pays, prescription and over-the-counter drugs, and other health expenses not covered by insurance. Employees need to plan their FSA spending so they have enough saved to cover their uninsured medical expenses but not more than they can use in one year plus two and a half months. On March 15 every year, money left in an FSA from the previous year is forfeited. If you have health insurance and your employer doesn’t offer a flexible spending account, you should make sure your emergency savings account is adequate to provide a safety net against unexpected medical costs.

HEALTH

Health savings accounts. If you do not have health insurance or you need more affordable insurance, a high-deductible health plan (HDHP), coupled with a health savings account (HSA), provides medical insurance coverage and a tax-free opportunity to save for future medical needs. The premium for an HDHP is generally lower than for traditional health insurance because the deductible (the amount you pay before the insurance kicks in) is higher. That’s where the health savings account comes in. HSAs are set up at banks or other financial institutions to pay for current and future health-related costs that occur before the deductible is met and insurance takes over. Contributions to an HSA are tax-deductible, up to certain limits, even if you do not itemize deductions on your income tax return. Interest earned on the HSA account is not taxable, and withdrawals are tax-free if used for qualified medical expenses. An HSA is portable, so it stays with you even if you change jobs or retire. Plus, unspent savings in an HSA can grow year-to-year. For more information about HSAs, go to http://www.treasury.gov/offices/+public-affairs/hsa.

Health insurance for children. Every state provides free or low-cost health insurance for children in low- to moderate-income households. For more information about state programs, contact the U.S. Department of Health and Human Services at 877-Kids Now (877- 543-7669) or go to www.insurekidsnow.gov.

Disability Insurance
Statistics show that you have a higher risk of becoming disabled than of dying before age 65. Disability insurance helps you pay living expenses if you are sick or injured and unable to work for a long time. Your employer may offer this insurance in its benefits plan. It is a good idea to buy this protection even if you have to pay for part of the premium.

LIFE INSURANCE

The need for life insurance depends on a person’s circumstances. In the event of your death, life insurance pays money to the person you choose (your beneficiary). Life insurance helps give financial protection to your children, spouse, parents or even your business. While some types of life insurance offer savings and investment components to keep the future cost of premiums lower or to increase the death benefit, they are not a substitute for a savings or investment plan. Low-cost term insurance, often available through your employer, can offer protection for young families. Personal accident insurance may also offer a cushion to families if a member dies or is seriously injured in an accident. This kind of insurance is often available through your employer or other provider at relatively low cost.

If you or a family member became very ill and needed a nursing home, who would pay for it? You would, until all your assets, and those of your spouse, are exhausted. Only then would government assistance help cover these needs. Long-term care insurance is not medical insurance, but it pays for such health-related items as nursing home, assisted living or in-home care.

Generally, the need for long-term care comes late in life, but insurance premiums are much less expensive when you are younger. Some employers offer access to long-term care insurance for employees to purchase, but most consumers have to find coverage themselves. Shopping for long-term care insurance takes research, common sense and attention to the policy’s details.

Tips for Protecting Your Wealth

There are many types of property, health and life insurance, so do your research and seek good advice.

• Take advantage of group insurance through your employer or other associations you may have.
• Study the needs of your family and decide how much you can afford to pay.
• Shop around and get at least two quotes.
• Consider a higher deductible to lower your premium.
• Ask about other discounts that may be available (for a good driving record, safety equipment, multiple policies with the same provider, etc.) to reduce your cost of coverage.
• Review your insurance coverage annually to make sure you have appropriate coverage as your situation changes.
• Like all investments, be sure to get all the facts before parting with your hard-earned money.

INSURANCE LONG-TERM CARE INSURANCE

Buy Insurance Wisely Insure U, a web site sponsored by the National Association of Insurance Commissioners representing insurance regulators from across the United States, has more information on buying all types of insurance at www.insureuonline.org.

SOURCE: U.S. Financial Literacy & Education Commission