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Insurance: Who Needs it?

What type of insurance makes sense for you?

Evalue sus seguros

— Jacques Laurent/Wave/Corbis

Homeowners Insurance

Do you need it? If you own a home, yes. A home—even after the recent market woes—makes up such a large percentage of most families' net worth that not insuring it and its contents is a big mistake.

How much is enough? You probably already have homeowners insurance—getting a mortgage without it is generally impossible—but you may be underinsured. "Many homeowners buy a policy and then let it renew year after year. Meanwhile, their home value may have appreciated greatly," says agent Andre Urena.

"Your home should be insured for an amount somewhere between what it would cost to build a new, similar home—its 'replacement cost'—and the current market value of your property," Urena says.

You also need to assess your valuables. They might not be covered unless your insurance company knows about them, says Cathy Pareto, CFP, president of Cathy Pareto & Associates, a financial planning firm in Coral Gables, Florida.

Tips: Photograph or videotape the inside of your home, cataloging possessions. Keep documentation in a safe place. If a fire destroys your home or you are robbed, you'll need that proof to collect on insurance. Receipts also help. When shopping for policies, get several quotes. And be aware that a typical homeowners policy does not cover damage caused by floods, earthquakes, water-line breaks, termites, or mold, which require additional insurance.

Auto Insurance

Do you need it? You bet. Turn your steering wheel the wrong way and you may be liable for all sorts of damages.

How much is enough? Each state sets a minimum, but that typically isn't enough. In California, for example, the minimum is 15/30/5, meaning that your carrier would pay $15,000 for bodily injury to a single person, $30,000 for injury to all people involved, and $5,000 for property damage.

Tips: Consider exceeding the minimum—by how much will depend on your state's minimums, your personal assets, and how much you have to protect. Auto insurance companies reward older people with clean driving records. These drivers can get the best rates because they're experienced, often own safer cars, and—if retired—tend to drive less, says Urena.

If you've had the same auto insurance for a number of years, it may be time for a cost comparison to see if you're getting the best deal. If you take AARP's Driver Safety Program, you may receive an additional discount. Go to www.aarp.org/families/driver_safety or call 800-227-7669.

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.

Next: Life and long-term care insurance.>>

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