Protecting yourself with insurance

In looking after your personal finances, one of the smartest things you can do is protect yourself against massive financial loss.

Think about the largest purchases you will make in your life: your home and your car. If either suffered damage from an earthquake or a collision, you’d need to pay the repair or replacement costs, just to keep your life running. Those costs can stretch into thousands of dollars, emptying your bank accounts and sending you into debt.

Insurance policies can protect you against those high and unexpected costs, in exchange for premiums that you pay on a regular basis. In effect, you trade unpredictability — in the form of typhoons, earthquakes, fires, vandalism, theft, and collisions — for smaller, predictable payments. In some cases, the law mandates that you buy insurance. In other cases, the financial institution that lends you money for your home or car will require the purchase of insurance, before you sign the final papers.

We’ll talk more about home and car insurance in upcoming columns. But for now, here are a few tips to help save you money and stress, before an emergency occurs.

What’s needed

Insurance can pay for itself several times over after a disaster, but you also don’t want to buy more insurance than you need. What you decide to cover, beyond what is mandated by law or your financial institution, depends on your assets and your comfort zone.

There are two major components in home and car insurance:

  • Third-party liability: Your legal responsibility to pay for damages, if your actions or negligence cause injuries or property damage to a bystander; and
  • Replacement costs: The cost of replacing your belongings in the event of a collision, natural disaster, fire, or theft.

Beyond mandatory limits, you can decide how much coverage you need. You should think about for what risks you need to insure yourself, and what you can afford to pay out- of-pocket if disaster strikes. Start with the belongings that you would absolutely need to replace, and work from there.

Keep good records

You should keep copies of your insurance policies, receipts, photographs, and other necessary records somewhere safe and easily accessible.

Try to keep back-up copies with a trusted relative, in a safety deposit box, or on a secure online storage site with hefty security. If anything does happen to your home or car, you’ll save yourself stress by knowing exactly where to go next.

Save for deductibles

If you insured your own belongings, and you need to file a claim, chances are that you’ll need to pay a deductible before your policy pays out the remainder of its coverage. If you have a $300 deductible on your car’s collision insurance policy, and an accident on Marine Corps Drive leaves you with $1,000 worth of damage, you’ll need to pay $300 out of your pocket before your insurance covers the remaining $700.

Out-of-pocket expenses for replacing or repairing your most important belongings are just one reason for having an emergency fund. Double- check the deductibles on all of your insurance policies, and make sure you have enough to cover them, so that you’re totally prepared when life delivers the unexpected.

Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.

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