Friday, 7 July 2017

Unfortunately, things don't always go as planned. Accidents happen. Storms happen. Things break.

But part of being a financially responsible adult is being prepared for the unexpected. And that means insurance. But what kinds of insurance are must-haves, and what kinds are optional? 

There are many kinds of insurance policies out there, and insurance in and of itself can often be difficult to understand. Here's some information about the basic types of home and auto insurance and warranty plans you will probably purchase at some point in your life. 

Homeowners insurance 

If you have a mortgage on your home — and most people do — your lender will require you to have homeowners insurance. This essential coverage is designed to replace or repair your home if it is damaged or destroyed. Typically, the premium for this insurance will be included in your monthly mortgage payment. You can compare prices and coverage prior to closing on your home, as a policy will need to be in place before most loans can be closed. 

Even if you do not have a mortgage and own your home outright, it still makes good financial sense to purchase homeowners insurance to protect what is probably one of your most valuable assets.

The homeowners insurance coverage your lender requires will be enough to replace the cost of your house in the event of damage or destruction. However, if you have expensive items such as jewelry, art, and antiques, you might want to purchase additional coverage for these valuable belongings.

In addition, some homeowners policies do not cover damage caused by certain events, such as flooding. If you live in a flood-prone area, you might want to consider purchasing additional flood insurance. This coverage is available from regular insurance companies, but it can be expensive. The government has a flood insurance program you might want to investigate before you purchase flood insurance. 

As your life and circumstances change, it's important your homeowners policy provides the coverage you need. You can also shop around and try to save money on your homeowners insurance as well. Essentially, it never hurts to take a look at your policy to make sure you are getting the right coverage at the best possible price.

Home warranty

When you buy a home, you might be given the option to purchase a home warranty to cover home systems such as appliances, water heaters, and HVAC systems. United Policyholders, a nonprofit group for insurance consumers, recommends reviewing this coverage carefully before you purchase. 

For example, if your home's HVAC system is relatively new and still covered by a manufacturer's warranty, you might not need the additional protection. As with any insurance policy, it's extremely important to understand exactly what coverage is included, and what the total cost will be, including deductibles and other expenses.

United Policyholders also recommends reviewing consumer comments and/or complaints about the company offering the warranty package. 

Auto insurance 

When you hear the dreaded crunch of metal meeting metal, you first hope everyone is okay, and then you wonder, “how much will this cost?" Most states require drivers to purchase auto insurance. There are several different options of auto insurance described below. First, it's important to determine what coverage is required by your specific state. Then, you can add coverage based on your personal situation or needs. 

According to the Insurance Information Institute, types of auto insurance coverage generally include: 

  • Body injury liability: provides coverage for any bodily injury to the other person or persons involved in an accident with your vehicle. Can also cover legal defense fees. 
  • Property damage liability: coverage if another vehicle or property is damaged by your vehicle. 
  • Personal injury protection or medical payments: coverage to pay your medical bills, lost wages, and other expenses related to an accident. 
  • Uninsured motorist coverage: covers costs if you're the victim of a hit-and-run, or suffer damages from a driver without insurance or with insufficient coverage.
  • Optional coverage: most policies provide some coverage of damages caused by acts of nature or road hazards. However, you might want to talk to your insurance agent about any specific coverage — or additional riders — you might want in your policy

The cost of auto insurance is based on many factors including your age, driving record, and what type of car you are insuring. Again, there are a number of insurance companies who can provide coverage. It makes sense to compare prices and coverage before you purchase a policy. If you are a homeowner, you might want to check with the company providing your homeowners insurance, as many companies are now offering discounts when you get both auto and home insurance. 

Extended warranty 

You'll often get asked if you want to purchase an optional or extended warranty on an high-dollar amount purchase, such as a TV, car, or computer. Such a warranty would cover repairs or replacement after the original warranty expires, or if the problem isn't covered in the original warranty.

“Warranty plans are not really regulated like insurance products and are generally very restricted in terms of when and how much they'll cover," says Amy Bach, executive director of United Policyholders. 

When it comes to cars, a report by Consumer Reports found owners of less-reliable brands tend to use extended warranties more and were satisfied with them. But in most cases, the consumer publication asserts, extended coverage isn't necessary or worth the additional cost.

According to the report, “among survey participants who used their policy, the median out-of-pocket savings on repairs covered by extended warranties for all brands was $837. Based on a $1,214 average initial cost, that works out to a net loss of more than $375. Factoring those who didn't use their policy, the median savings was zero." 

Edmunds.com, a well-known auto buying and review site, says “new cars are more reliable than ever, and the data seems to indicate that most people might not need an extended warranty." 

For electronics, salespeople and checkout clerks often try hard to sell consumers extended warranty policies. But Consumer Reports, which has dedicated an entire buying guide for extended warranties, again advises consumers to skip the extended warranty for the following reasons: 

  • The manufacturer's warranty may be sufficient to cover all repairs and replacements
  • If an item breaks, it's generally outside the plan window 
  • Repairs may cost less than the extended warranty
  • Credit cards may also provide coverage for repairs or replacement

As with any purchase, it pays to do your homework, know what you're signing, and what you're getting for your money. 

 

The content provided is for educational and informational purposes only. Neither Compass Bank, nor any of its affiliates, is providing legal, tax or investment advice. You should consult your legal, tax or financial advisor regarding your personal circumstances. Opinions expressed herein are those of the author(s) and do not necessarily represent the opinions of Compass Bank or any of its affiliates. Insurance Products: ARE NOT DEPOSITS, HAVE NO BANK GUARNATEE, ARE NOT FDIC INSURED, ARE NOT INSURED BY ANY OTHER GOVERNMENT AGENCY, MAY LOSE VALUE.