Must-have Insurance Plans

Many people adopt a "penny wise, pound foolish" mentality when it comes to buying insurance. When trying to lower expenses, some will drop or reduce needed coverage, gambling that they won't become seriously ill, suffer a car accident or fall victim to a fire or other catastrophe. But all it takes is one serious uncovered (or under-covered) incident to potentially wipe you out financially.

Here are insurance policies no household should be without:

Medical. This is the most critical – and unfortunately, the most expensive – coverage you need. When comparing plans, consider:

• Are your doctors in their provider networks? If not, can you afford out-of-network charges – or are you willing to find new doctors?
• Are your medications covered under the plan's drug formularies?
• Do they restrict specialized services you might need like maternity, mental health or weight reduction treatments?
• If you choose catastrophic coverage to lower premiums, can you afford the high deductible in case of an accident or major illness?

Homeowner/renter. Faulty plumbing, theft and home-accident lawsuits are only a few catastrophes that could leave you without possessions or homeless. A few tips:

• "Actual cash value" coverage repairs or replaces belongings, minus the deductible and depreciation, whereas "replacement cost" coverage replaces items in today's dollars. Depreciation can significantly lower values, so replacement coverage is probably worth the extra expense.
• Jewelry, art, computers and luxury items usually require additional coverage.
• Review coverage periodically to adjust for inflation, home improvements, new possessions, change in marital/family status, etc.
• The market is competitive, so compare your rate with other insurance carriers. Get "apples to apples" quotes since policies may have varying provisions.

Vehicle. You probably can't even get a driver's license without demonstrating proof of insurance. Consider these coverage options:

• "Liability" pays if you cause an accident that injures others or damages their car or property.
• "Uninsured motorist" pays for damage caused to you or your car by an uninsured motorist.
• "Collision" pays for damage to your car resulting from a collision and "comprehensive" pays for damage caused by things like theft, vandalism and fire. However, they only pay up to the actual cash value (ACV) minus deductibles. Because the ACV for older cars is low, repairs often cost more than the car is worth.
• Common ways to lower premiums include: Raising deductibles; discounts for good drivers, exceeding age 55 or installing security systems; comparison shopping; and buying homeowner and car insurance from the same carrier.

Life insurance. If you're single with no dependents, you may get by with minimal or no life insurance. But if your family depends on your income, experts recommend buying coverage worth at least five to 10 times annual pay. Other considerations:

• Many employers offer life insurance, but if you're young and healthy you may be able to get a better deal on your own.
• After your kids are grown you may be able to lower your coverage; although carefully consider your spouse's retirement needs.
• You probably don't need life insurance on your children, but you might want spousal coverage if you depend on each other's income.
• If your divorce settlement includes alimony and/or child support, buy life insurance on the person paying it, naming the receiving ex-spouse as beneficiary.

Don't gamble your future financial stability by passing on vital insurance coverage – the odds aren't in your favor.