Editorial: Insurance Basics Everyone Should Know
By Arif M. Halaby, President & CEO of Total Financial Solutions, Inc.
Everyone needs some type of insurance some time. Whether you own a car, a home, or have loved ones you want to provide for after you’re gone, there are certain basics that you should know before you shop for insurance.
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When it comes to auto insurance, the law requires you to have a minimum of $15,000 in liability. Liability means the amount the insurance company will pay on your behalf if you are at fault in an accident. What happens if you are at fault and the damages exceed $15,000? Yes, you will still be responsible for the balance and can be sued. As a result, it could put your entire financial life at risk.
Most people increase their liability coverage for this very reason. The increased amounts offered by insurance companies vary. Your financial advisor can recommend minimum protection amounts based on your specific needs. Should you also buy “uninsured motorist” insurance? Absolutely! Uninsured motorist insurance not only covers you if the other party has NO insurance but if the amount they owe you is more than their coverage allows. This guarantees you coverage regardless of what insurance the other person may or may not have purchased.
Homeowner’s Insurance can protect your home, your personal property, and you from civil liability. Civil liability is when you are responsible for payment of damages or other court-enforcement in a lawsuit. For example, your dog bites the mail carrier and you are sued civilly for damages. When determining how much homeowner’s insurance you need keep in mind two things: the structure and your personal property. There is a set formula for estimating the cost to rebuild your home: currently it is approximately $200 per square foot. This formula will change due to inflation of materials and labor costs. You will want to review your policy annually to make sure your home is adequately insured.
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When insuring your personal property, understand there is a difference between replacement of an item and covering the value of the item. For example, you may have paid $2000 for your television, if you have replacement insurance you will be entitled to a similar make and model. If not, you may only be compensated for the value of that item at the time of loss, which might be considerably less. Most insurance companies will want proof of any high end personal property like jewelry and art. It is always a good idea keep receipts and photos of these items in a safe place.
Life Insurance is not about making your family rich upon your death, but protecting their standard of living while mourning your loss. Truthfully, we have no control over when or how we might die, but life insurance makes it possible to control what happens financially to your family afterwards. Providing your family with a home, living expenses, and medical insurance is the goal. The grieving process is difficult enough without having stress about paying the bills, too. A good starting point to determining how much insurance you need is being insured for 10 times your gross annual salary. Some employers offer a no cost or low cost life insurance policy. Read the fine print, what happens if your employment ends? What and how much coverage does it provide? There are many options when it comes to life insurance and there is a policy to meet almost every family’s needs.