Insurance you might not know you need

The Savage Truth

What happens if the worst happens? That's how you have to think about insurance policies. We're all pretty aware of the need for life insurance -- especially if someone is depending on your future income. And you wouldn't sleep well without homeowners insurance or auto insurance.

But there are other risks that you might not have considered. As you review them, the appropriate question to ask is: Could this happen to me?

Disability insurance

What if you couldn't work because of an accident or an illness? Your savings should cover your expenses for a few months. But what if the disability drags on -- and even prevents you from returning to your job or from working at all? According to the Council for Disability Awareness, one in 4 of today's 20-year-olds will become disabled before they retire!

That's the attractiveness of disability insurance, which is purchased from major life insurance companies. Your policy should replace at least 80 percent of your current income. Check the definition of disability. Does the policy pay if you cannot return to your own occupation, or only if you cannot work at all? (Think of a surgeon who injures his hands and might not be able to do surgery any longer but could become a psychiatrist!) And ask how long you'll have to wait before the policy payments kick in.

Umbrella liability insurance

Your homeowners' policy also has liability coverage if someone is hurt on your property, and your auto insurance includes some liability coverage. But what if someone is hurt at your home and decides to sue you for more than the limits of your coverage? Or what if your teenage driver has a serious accident and you are sued? That's where an "umbrella liability" policy kicks in. Umbrella policies are sold in fairly inexpensive "chunks" of $1 million dollars or more, and it costs about $200 per million per year. You will also be required to have the maximum underlying coverage on your homeowners and auto policies.

Professional liability insurance

If you're a physician, you truly understand the need -- and huge costs -- of medical malpractice insurance. But other professions can be hit with huge awards in lawsuits. That's why you'll want to consider "errors and omissions" or professional liability insurance. Lawyers and accountants have it. So think about how vulnerable you would be if someone sued you -- whether you are a carpenter who is sued because a loose board causes a fall or a plumber who set the hot water temperature too high, causing a scalding.

Directors and officers liability insurance

You might not be a professional corporate director, but you could sit on an unpaid board of a community group or charity. And if you do, you're not immune to being sued! That's why you should ask about directors insurance before joining the board of a well-meaning organization, civic group or even a local government.

Long-term care insurance

I can't stress too frequently the costs of needing "custodial care" as you age. Consider long-term care insurance -- either minimal coverage of $200 per day for about three years, or a combination policy of life and long term care, which requires an upfront deposit of cash to be leveraged for custodial care -- or leveraged in a death benefit for your beneficiaries if you don't need care.

These types of insurance all cover ugly possibilities that are potentially catastrophic. That's why it's worth thinking about the cost of insuring vs. the exposure you have to these risks. And that's The Savage Truth.

Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.

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