Insurance: Who Needs it? Part II

There are almost as many forms of insurance as there are brands of cereal. Health, auto, and homeowners insurance were discussed in AARP Segunda Juventud’s Winter 2008 issue. Here are others to consider:

Renters Insurance

Do you need it? If you rent and have household goods and furnishings of value, yes.

Renters often don’t think about insurance—until it’s too late. A survey by Allstate Insurance found that 60 percent of renters don’t have it, even though the U.S. Department of Justice reports that renters are statistically more likely to be robbed than homeowners. Should your rented home be burglarized or catch fire, your landlord’s insurance won’t do you a lick of good. Renters insurance will. It also can provide liability protection should someone be injured while visiting.

How much is enough? The home or apartment’s value isn’t important to the renter; its contents are. So you’ll need a good tally of your belongings’ value and of your financial exposure should you get sued.

Tips: Renters insurance generally covers each valuable up to a certain point. If you own items such as expensive jewelry, furs, or a rare coin collection, you may need to purchase a rider.

Life Insurance

Life insurance, which comes in many types and sizes, isn’t for everyone.

Do you need it? If you have dependents—such as young children or a non-working spouse who would not be able to support themselves if you died—life insurance can be crucial. Otherwise, probably not.

How much is enough? If we’re talking about term life insurance—the kind that remains in force for say, 10 years, or 20 years—you need enough so that if you die, your family could get by. “As a very rough rule, you should carry life insurance to the tune of eight to 10 times your annual income,” says Cathy Pareto, CFP, president of Cathy Pareto & Associates, a financial planning firm in Coral Gables, Florida.

The other kind of life insurance—permanent life insurance—is a more complicated product that combines a death benefit with money you can tap while still alive. “Permanent life insurance is sold heavily in Latino communities as a conservative investment, but it typically isn’t the best investment in town,” says Pareto. “Permanent life insurance [which includes whole life and universal life policies] tends to be an expensive way to invest. You might be better off with lower-cost term insurance and then investing your money elsewhere,” she says.

Tips: Whether you buy term or permanent, it pays to shop around. Premiums can vary substantially.

Use this helpful calculator to figure out how much life insurance you may need.

Long-Term Care Insurance

With the average cost for a single day in a nursing home now hovering at about $200—an expense usually not covered by health insurance or Medicaid—even a short-term stay could obliterate an average family’s finances. Long-term care (LTC) insurance is designed to pay for nursing-home care, or perhaps a home-health aide, should you find yourself in need. Government figures tell us that about 70 percent of people over age 65 will require some form of long-term care during their lifetime, and that the average need for services spans three years.

Do you need it? LTC insurance is a wonderful thing to have, but you must weigh the benefits against their high cost. The best candidates tend to be in their 50s and have enough money to pay the premiums. “Saving for retirement should come first, and LTC insurance after that,” says financial planner Pareto.