Beating Broke

Personal Finance from the Broke Perspective

When Do You No Longer Need Life Insurance?

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No Longer Need Life Insurance?

Life insurance is the most affordable peace of mind that I can think of.  For usually less than $100 a month to cover both you and your spouse, you can rest easy knowing that if something happened to you or your significant other, your family would be taken care of.  When you’re deeply grieving, you won’t need to worry about making a house payment or taking care of your kids.  You and your family will be protected financially.  But when do you no longer need life insurance?

Life insurance is meant to be a temporary measure.  You shouldn’t need it forever, which is good because it gets significantly more expensive as you age.  What gets a bit tricky is predicting how much life insurance you need and when you will no longer need it.

My husband and I bought life insurance 15 years ago, when our oldest child was just four months old.  We got a 20 year policy, so our oldest will be nearly 20 when our policy expires.  Our youngest will be just 14 then, so we are planning to buy another policy that will overlap our current one.  We’re wrestling with the idea of just getting a 15 year policy or a 20 year policy.

If you’re like us, trying to decide how long you need life insurance coverage and how much you need, here are some variables you may want to consider:

How Long Do You Want to Cover Your Children?

You’ll definitely want to have insurance coverage until your youngest child turns 18.  Many people decide to carry coverage until their youngest child is 22 or 23 because college can be so expensive.  If you or your spouse dies, your child may need to rely on part of the life insurance money to help pay for the remainder of college.

When Do You No Longer Need Life Insurance?
Photo by John-Mark Smith on Unsplash

How Many Years Are Left on Your Mortgage?

While this variable may not affect how many years you want coverage, it may impact how much coverage you should have.  You want to make sure you have enough life insurance to pay off your mortgage, plus more to cover other expenses.

Does Your Spouse Have a Medical Issue?

If your spouse will have trouble working thanks to a medical issue, you’ll want to carefully consider both the length of time you’ll need insurance and the amount.  You’ll want to keep your coverage until you’re financially secure enough that your spouse will have enough money to survive even without life insurance.

Does Your Spouse Have a Career?

If your spouse has stayed home with the kids, how easily will he or she be able to re-enter the workforce if you die?  Don’t take this lightly.  Entering the workforce after a long break can be very difficult.

Mary is a family friend who is a stay-at-home mom.  Her husband was killed in a car accident when he was only 32.  Thanks to his life insurance policy, she was able to stay home with her children until they graduated high school.  Because she invested the policy wisely, she never did re-enter the workforce.  Instead, she volunteered in her free time.

How Much Debt Do You Have?

Again, this is a question of how much coverage you will have.  In addition to your mortgage, you want to make sure there is enough life insurance to cover your remaining debts such as car loans, student loans, and credit cards.  In many states, even if your spouse dies, you may still be held liable for these debts.

Choosing how much life insurance to get and for how long requires careful consideration.  These questions should help you make the right choice.

Are there any other variables you use to consider how much and how long you should have life insurance?

Why We Don’t Plan to Renew Our Homeowners Warranty

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Our house came with a homeowners’ warranty.  The realtor we worked with, noting that our air conditioning unit was 18 years old, told us to make sure to keep up with the warranty because that would cover the cost of replacement on our central air unit.

At $650 a year, keeping up with the homeowners’ warranty to replace a $4,000 to $6,000 central air unit that was on its last legs sounded like a good deal.

Homeowners’ Warranties—Buyers Beware

Last year, one week into home ownership, our hot water heater died, and we got a glimpse of how the homeowners’ warranty worked.

Homeowners WarrantyI was not impressed.

We had to work with a specific company, I’ll call Company A, designated by the homeowners’ warranty, to replace the hot water heater.  Company A asked me to call my home owner’s insurance to see if they would pay to have a different company, Company B, come clean up the water damage.  (We had very little water damage, but Company A’s repair man assured me we’d get mold, even though we’re in Arizona with very little humidity.)  Luckily, I didn’t do that because Company B wanted to charge us $1,000 to clean up the water.

Clearly, Companies A and B must have had kickbacks with one another for business referrals.

Also, I thought we’d only have to pay the $75 service fee to get our hot water heater replaced, and then the homeowners’ warranty would pay the rest.

Wrong.

We still had to pay $375 more for parts and repairs that weren’t covered under the homeowners’ warranty.

The homeowners’ warranty paid $650, so that year, despite the annoyance and out-of-pocket expenses for the hot water heater replacement, the policy paid for itself.

Homeowners’ Warranty Will Only Help If the Appliance Dies

This year, after much thought, especially considering the bad experience with the hot water heater, we decided to renew the policy.  We paid another $650.

And then, our air conditioner started the march to a slow death.

First, it worked over time, running all the time, but it couldn’t seem to cool the house.

When our next electric bill came, it was $120 higher than usual.

But, the homeowners’ warranty wouldn’t pay anything for the air conditioner unless it was not working at all.

We called our own repair person and paid $200 to have two pounds of Freon replaced.  Two months later, and the cycle is repeating itself.  The air conditioner is working constantly, but the house is not cooling.  I’m guessing we are already out of Freon.

Now, we’re faced with a choice.  Wait for the unit to die so the homeowners’ warranty will cover the cost of the replacement, or replace it ourselves.

If we wait for the unit to die, the homeowners’ warranty may cover the majority of the cost, but we would have no say in the company doing the work or the replacement unit.  Meanwhile, we will keep paying to replace Freon and having higher than usual electric bills until the unit dies.

Or, we could replace it ourselves and stop the flow of wasted cash and energy caused by the old air conditioner.  We could choose the company we want to work with and what model we’d like as a replacement, the more energy efficient, the better.

While a homeowners’ warranty can save people money, in the long run, for us, it seems to be too much of a hassle and too restrictive to keep up with.

Do you have a homeowners’ warranty?  If so, do you find it valuable?

Why Purchasing Rental Car Insurance Isn’t Necessarily a Waste of Money

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I recounted in my last post the many adventures we had driving 1,750 miles from Illinois to Arizona where we damaged not one, but two rental cars.  We saved $100 by not purchasing the rental car company’s auto insurance, but that decision cost us $500 in our deductible.  Not my brightest move ever.

If you think, like I did, that a rental car company’s insurance is a scam that should be avoided like the plague, here are some reasons why you might want to reconsider:

The Rental Car Company Has a Different Standard Than You

Rental Car InsuranceThe rental car company we used said any damage smaller than the size of a quarter, they would let slide.  Anything bigger than that, and it needed to be repaired.

Any time you drive a car, you risk bumps and scratches to the car’s exterior.  I have a large scratch on the back of my vehicle that I find annoying, but not worth the price of paying my $500 deductible.  I’m guessing your own vehicle has similar scratches and dents.  They’re minor, and you don’t want to spend the money to repair them.

The choice is yours because it’s your vehicle.  However, if it’s bigger than a quarter, the rental car company is going to make the repair, and you will pay if you don’t take out the rental car company’s insurance.

Your Insurance Premium May Go Up

Another reason people let minor dents and scratches on their own vehicles slide is because they don’t want to face a claim and risk having their insurance go up.

Some people even do this for more major repairs.  Several years ago, a man rear-ended me, and he chose to pay the $1,400 for the repair to me directly so he could avoid submitting the claim to his insurance and risk having his premium go up.

If you don’t purchase the rental car company’s auto insurance, you’ll have to choose to pay out of pocket or to risk having your premium go up.

How to Decide If You Should Purchase Insurance from the Rental Car Company

To decide whether or not purchasing insurance from the rental car company is worthwhile, ask yourself these questions:

1.  Have you made any claims on your insurance in the last three to five years?  If so, you will probably want to purchase the rental insurance; in the long run, that will be cheaper than facing a spike in your insurance.

2.  How far do you have to drive?  Of course, accidents can happen anywhere, but if you’re renting a car for the weekend and driving it around your hometown, you may be able to avoid rental insurance.  Our problem was that we were driving 3,500 miles round trip in an area we were unfamiliar with.  Things like dead deer and street sweepers on the highway pose risks that you can’t foresee before the trip

3.  How high is your deductible?  If your deductible is anywhere from $500 to $1,000, purchasing rental insurance may be smarter, especially if it is going to be less than $100.

What is your opinion?  Purchase car rental auto insurance or just rely on your own car insurance?

Original img credit: Insurance Disclaimer on Flickr