Money and You: Course Notes

Most people who one a home have insurance on the house. In fact, if you have a mortgage out on your house, you will be required to have housing insurance. At its most basic, home insurance will pay to repair or replace your house if anything were to happen to it. There are other components to it. Many plans will pay your legal expenses if someone where to get hurt on your property. Some plans will pay for anything you may owe in property damage you cause in a car accident. Most plans cover the cost to replace stolen or damaged items in you house. Home insurance can have a number of little tweaks to it.

One issue with house insurance is the cost. Most insurers will only provide “full coverage,” meaning that you can only take out policies that will fully replace or repair your house in case of any issues. Many people would prefer to have only partial coverage, meaning that only amounts up to a certain set amount would be covered. The reason for this preference is that most damage to a house costs less than the house’s value to repair. For example, if you have a $300,000 house and you set your kitchen on fire, you won’t need $300,000 to replace the kitchen. However, most house insurance plans make you have one that will repair or replace the full amount if needed, which increases the monthly premiums. The reason why is complicated and multifaceted. It has to do with cost sharing and “anti-selection.”

Renters insurance is like a lighter form of house insurance. Since you don’t own the building you rent, you do not need coverage to repair or replace the building. However, renters insurance can protect the belongings in your rented space or can even help pay to get you into a new place if something happens to the one you’re renting.

Sometimes, people become injured and cannot work for a while. You can carry disability insurance that will help replace your income if you become unable to do your job. Often, you can get disability insurance at a subsidized rate through your employer.

Because of the temptation (and frequency) for people to go on disability insurance (due to people essentially wanting a break from work or early retirement), there are a number of caveats to disability insurance. First, most plans only cover up to 50-70%of your take-home pay. This reduced amount is to encourage people to start working again when they recover. Most plans have a “waiting period,” which means there is a time frame (usually two weeks to three months) in which the insurance company will not make you payments until you’re beyond the waiting period. Waiting periods are meant to deter people from going on disability unless necessary. Many plans will only make payments for a certain amount of time after your injury (often three months to two years). This is again meant to encourage people to return to work when able.

Long-Term Care Insurance is like a long-term disability insurance. It is insurance that will either replace some of your income or pay for expenses when you are unable to work for longer periods of time. Long-term care coverage usually requires you to have more serious issues that limit your ability to function day-to-day such as not being able dress yourself or feed yourself. Long-term care can also cover living expenses in assisted living housing or nursing homes.