Saturday, October 27, 2007

How much insurance do I need?

A post in the archives of The Simple Dollar got me thinking about insurance. When I rank my list of financial priorities, health insurance falls somewhere below food, but possibly at the same level as shelter. Fortunately, my father's group plan from work covers full-time students until age 23. Auto insurance is also paid for by my folks, so I don't have to pay for liability and uninsured motorist coverage. It's pretty clear that buying comprehensive and collision on a 1999 Taurus with over 100,000 miles doesn't make sense.

That much is simple; however, there are other decisions that take a little more thought. Do I need to get renter's insurance? If someone robbed my apartment, they'd get a computer, a microwave, possibly an iPod if it wasn't in my backpack with me, and a bunch of old jeans and free t-shirts. The computer was pricey when I bought it, since I wanted to buy the nicest system I could with the scholarship funds available for that purpose. That was over three years ago, and replacing it with an equivalent computer would cost a lot less today. I'd probably be satisfied with an even more basic computer if I had to replace it tomorrow; I'm typing this on my parents' computer, which is a low end emachines that they bought when I was in junior high. In other words, I can afford to self-insure against theft.

Still, there's this nagging thought that maybe getting renter's insurance would be the prudent thing to do. Do I need liability coverage? When I first started apartment hunting, I went by the insurance agency where my mom works to get a quote, but they couldn't give one until I had the address of the apartment. I fully intended to get the insurance, and inertia is my biggest reason for not doing so. USAA keeps advertising coverage for as little as $5 a month. (I spent that last night on pizza.) It wouldn't hurt anything to call around and get quotes.

Then there's the issue of life insurance. Conventional wisdom holds that a 21 year old with no spouse, dependents, or financial obligations doesn't need it. I'm inclined to agree, but my mother says I should look into what the premiums on whole life would be. (Just for the record, she's licensed as an insurance agent, but doesn't sell it. Her responsibilities at the agency she works at are solely administrative stuff.) She's suggested it as a way to lock in premiums for life, a way to ensure I'll have coverage regardless of my health in the future, and as an investment. It came up once in conversation, she hasn't mentioned it again, and I'll probably just blow it off.


plonkee said...

I think its extremely unlikely that it'll come off cost-effective to buy a whole life policy. You easily might not need life insurance until you have kids, which could be 10 years or more away. Calculate how much you'd be paying out in premiums over 10 years for insurance that you didn't need, just in case you couldn't get it later. You could invest that money and partially self-insure.

Lacey said...

Well said.