How To Buy Insurance; Home, Car, Life...

Look, we all need insurance. None of us want to pay for the privilege, but we all want the benefits.

So how do you buy insurance? With homeowners insurance you buy enough insurance to fully rebuild your home if it was to burn down. You don't want to build 3/4th of your home. You want the whole thing back the way it was, before the fire wiped it out. You might even want to build a little nicer house, too bad the insurance company will not over-insure you. Now determining the value is a bit tricky, but your insurance company will not allow you to insure a $200,000 house for $1,000,000.

Seems simple.

How about your car insurance? If you drive a 2006 Ford F150 Supercab truck and you decide to insure it, you will want a 2006 Ford to replace the one that gets totalled in an accident. Now you may only NEED a Nissan Frontier, heck you may only need a Ford Escort, but you aren't insuring what you need but what is lost.

For the same reason an insurance company will not allow you to over-insure your house, they won't allow you to over-insure your car. If you drive a 2005 Dodge Intrepid, you can't buy insurance so if it gets wrecked you get a Porche.

So this brings us to life insurance. How much life insurance should you buy. I am here to tell you right now people a lot smarter than me (insurance actuaries) have determined how much you can buy. These really smart people won't let their insurance company sell you anymore than you are worth. For people under age 40, it is pretty common to be able to buy 20 times your annual income but no more.

Think about. If you earn $50,000 a year and you wish to replace the $50,000 with insurance proceeds, assuming you can earn 5% on your money you need a bucket with $1,000,000 in it. $1,000,000 kicking off 5% a year equals $50,000. $50,000 times 20 is $1,000,000.

Now if you search the internet you are going to find hundreds of different formulas, estimates, and equations on the 'right amount' of insurance. Forget it.

You will find two schools of thought generally. One says you need to buy 5 to 10 times your income in life insurance. Quite a spread don't you think? If you make $50,000 a year you they say should buy between $250,000 and $500,000 worth of insurance. What a joke? What amount should you buy? Neither is enough to keep your family living the same lifestyle they were before your death.

The other school of thought is called the needs analysis. Total up your family's needs and their is the amount of insurance. If you search ten needs analysis websites, you will probably find 10 different needs analysis formulas. Which one is right? The other problem is that your needs change constantly. Do you really want to recalculate your needs annually?

Life insurance isn't rocket science. You don't need scientific equations to calculate an amount of insurance. Buy as much as you can so you are sure your family will will be taken care of. So they will remember you with love for the foresight and for the protection you gave them rather than with contempt for putting them out on the street.

I recommend buying life insurance in the amount to fully replace your income in case you become another cardiac arrest statistic. You buy life insurance because you want a shed in the backyard that will be full of all the food clothing, and shelter your family will ever need. You can also see the registrar of the university showing you the tuition of his college.