All About Insurance

      With so many types of insurance available, knowing what type and how much insurance to buy can be confusing. Rick Emerson, author of "Zombie Economics," stopped by to help sort it out for us.

      Q: There are so many types of insurance - it's easy to feel overwhelmed. What are the areas people really need to be concerned with?

      A: When it comes to insurance, people need to think about the big four: Medical, Renters, Auto, and Umbrella.

      Medical insurance is the most important, especially because the cost of major, "catastrophic" care is the single biggest reason for personal bankruptcies. If you can't afford anything else, get some kind of catastrophic coverage. One good way to keep your premiums down: get a higher deductible.

      Renters Insurance is the biggest bargain in the world: it runs about $20 a month, and covers your possessions from things like flood, or fire, or theft. It can also cover liability, in case someone is injured at your place.

      Auto Insurance is, of course, a legal requirement - liability insurance at a bare minimum. And don't forget, if you have safety devices like airbags or anti-lock brakes, that can sometimes get you a discount on your auto insurance.

      Umbrella Policies are like steroids for your other insurance. You pay about $25 a month, and it increases the existing liability coverage on your homeowner or auto insurance - often by a million dollars or more.

      Q: When it comes to life insurance, there's an endless list of options - phrases like "term life" or "variable life" or "whole life". What do people really need...and how much?

      A: Term Insurance is almost always the best choice...for everyone.

      There are two basic types of insurance: term insurance and cash-value insurance. Term insurance is simple: you agree to make your payments, and the insurance company agrees to cover you for a specific length of time. This can be 10 years, or 20, or some other term. It's a simple exchange: money for coverage.

      Cash-value insurance (such as "whole life") adds a type of investment plan, where some of the money you give to the insurance company is put into things like mutual funds. The problem? Many of these plans cost far more than they're worth, and don't offer anything you couldn't get from an IRA or 401k. It's almost always better to stick with a simple, term-insurance plan.

      As for how much: a standard rule of thumb is that your life insurance policy should equal about ten times your annual salary. But, as always, your mileage may vary. There are online calculators which will help you determine how much you might need in your life insurance policy: is a good place to start.

      Q: What's the biggest mistake people make when it comes to life insurance?

      A: Not telling their family about the policy.

      Believe it or not, life insurance doesn't automatically pay out if the policy holder passes away - the company has to be notified. If the family doesn't know about the policy, or doesn't know which company it's with (and there are thousands), it can take weeks or months to figure out. Even worse, once the policy holder dies, the insurance company will sometimes use the benefit money itself to keep making the payments. So, if you have life insurance, make absolutely sure that your family or attorney knows about it, and knows the details. It will save everyone time, stress, and money.

      Q: More and more often, we hear about insurance plans for pets. Is this something that pet owners should seriously consider?

      A: As with a lot of things, this is ultimately a case-by-case decision; often, though, it doesn't actually cover what's most needed.

      My wife and I spent approximately nine million dollars on our oldest dog Max's medical costs in the final years of his life, so I certainly understand the desire to keep your pet as healthy and well as possible. Pet insurance can be beneficial early on, especially when it comes to accidents or unexpected health problems. As time passes, though, a lot of pet insurance plans start to exclude the ailments most likely to affect your pet; many plans simply won't cover a dog or cat once it's past a certain age...nine or ten in most cases. All in all, pet insurance is something that has limited value at the beginning; as your pet ages, most of those costs are going to come out of your own pocket one way or another. As with their owners, the best thing pets can do to keep health costs down is stay healthy: eat well and exercise.

      Q: Most gadgets and electronics now come with an offer of insurance or some kind of extended warranty. Is this something buyers should consider?

      A: The answer is almost always "no".

      Gadget insurance and warranty extensions typically exist solely as profit centers for the company selling them. Most devices such as phones and laptops become outdated very quickly, at which point, replacing them is almost pointless: for the cost of the insurance, you can often get a newer, better iteration of the same product. Online sites such as Craigslist are also a great place to replace a damaged product - there are always people selling reputable, slightly-used gadgets for a fraction of their retail cost.

      Two exceptions:

      1) If you carry an expensive computer everywhere you go (such as a laptop for work or school), the odds of damage are higher, so insurance may be a smart move.

      2) Apple offers what many consider the gold standard of gadget insurance; if you are at all klutzy or unlucky with your iPad or MacBook, Apple's extended coverage is a no-brainer.