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How Having Not Enough or Too Much Insurance Hurts You

There are many variables that determine how much insurance you need to have. Insurance is meant to help defray costs and avoid financial disasters. It is not meant to help you or your relatives get rich. However, there are some questions you can ask as you choose insurance that you need to protect yourself and your family. The questions are based on the type of insurance you’re looking into, the laws of your state, and the state of your financial affairs.

Life Insurance

As you choose how much and what type of life insurance to get, ask yourself what the point of the insurance is. Does your spouse need lifetime income if you should pass first? How much debt do you have that needs to be paid down? How much will your family spend on your final expenses? These questions can help you determine how much insurance you need.

* By law limits - In addition, life insurance companies generally limit the amount of insurance you can get based on your current income or your financial contributions to your household. You’ll need to take that into consideration as well when you’re determining how much to invest in insurance.

* How much savings you have – Some people don’t even need insurance because they have enough savings to cover bills, final expenses, as well as to cover future income for their beneficiaries. It could be a waste of money to invest in life insurance under these circumstances.

When you take into consideration these issues, you can see how you can buy too much life insurance if you don’t need income for your dependents. Generally as you age your insurance needs form a bell curve with the most insurance needed during the time you’re raising a family and the least amount needed when you’re a young college student and a retired individual.

Auto Insurance

Choosing how much insurance to get for your automobile is covered by the laws in each state. Each state has a minimum amount of insurance coverage required. But, the minimum in most states is far too low. It’s important that you assess the truth of the situation in a worst case scenario to ensure that you get enough insurance to cover your needs.

Homeowner’s Insurance

Choosing how much homeowner’s insurance you need depends on the same factors as other insurance in terms of laws regarding minimum coverage. Then, you will go through with your insurance agent the potential factors that can come up, such as whether or not your policy covers floods or water damage.

Rental Insurance

Your rental agreement usually covers how much insurance you need to buy, but so does the cost of your items. Do not assume that you’re covered in an apartment fire when you’re in a rental unless you are paying for rental insurance. The owner’s insurance likely only covers the building and not your personal belongings. Get enough to pay off what you owe and replace items at an increased cost.

Having too much insurance can hurt you by requiring you to spend too much of today’s money that could be used for savings and other purposes. Having too little insurance can cause problems by not protecting you and your family enough, contributing to potential financial disasters over situations such as a car accident, a busted pipe, or other issues that insurance is designed to help protect against.

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