Dear Rick:
I am recently divorced and I have a couple questions about insurance. My situation is I’m in my mid-40s, divorced with no children. In the divorce, my ex-husband got the house and I got about $150,000 in cash. As opposed to buying a house I am renting. My salary more than covers all my expenses. Other than about $25,000 in cash, the rest of my money has been invested in a long-term growth portfolio geared for my retirement. I am also saving in my company’s 401(k) Plan. My first question deals with life insurance. I was approached by a friend of a friend who is a life insurance agent, and he told me that I should buy life insurance and he recommended eight times my yearly salary. My initial reaction was I don’t need life insurance, but I wanted to get your opinion. My next question is dealing with renter’s insurance. Someone at my credit union recommended that I buy a renter’s insurance policy. Is this something that you would recommend to me? You should know that since my husband got the house in the divorce, I had to buy all new furniture.

Thank you.
Paula

Dear Paula:
I for one don’t believe that everyone needs life insurance. To me, life insurance is no different than any other type of insurance in the fact that it is need based. For example, if I didn’t own a boat, there would be no reason to have boat insurance. Similarly, if I didn’t have a car, I wouldn’t need auto insurance. Insurance is need based and is meant to cover a risk. With life insurance, the risk is not that you are going to die. We all know that eventually we all will pass on. The risk that life insurance covers is if you pass away and don’t have the financial resources to support those who are financially dependent upon you. For example, life insurance would be needed for someone who is the sole bread winner of the family and who does not have the financial resources upon death to support the family. Life insurance would be a very good way of providing the resources to protect the family. That being said, in your particular situation where no one is financially dependent upon you, there is no reason whatsoever why you would need life insurance. As far as I’m concerned, the agent is solely looking at what’s good for their bottom line, not yours. I believe that you do not need life insurance and it would be a waste of money to buy it.

As I said earlier, you wouldn’t consider buying boat insurance unless you own a boat. You shouldn’t consider buying life insurance unless you have someone who is financially dependent upon you and therefore, would need the additional resources to protect them after your death.

Renter’s insurance is generally something I would recommend in the situation at hand. Renter’s insurance provides you protection if for some reason your personal property is destroyed. A typical renter’s insurance policy would cover such things as your furniture, computers, clothing and other personal possessions. The question you should ask yourself is, if for example there was a fire at your home and it completely destroyed it, would replacing your furniture, computers and other personal items cause you financial distress? If the answer is yes, then renter’s insurance is something you definitely should consider.

Like all types of insurance you should shop renter’s insurance around. You would be surprised how much rates differ within companies. Therefore, in addition to your credit union, which generally has very good rates, it does pay for you to receive a competitive bid from another company. After all, if you can save money, why not. The money you save looks better in your pocket than it does anywhere else.

Good luck!

 

If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.