candystripper
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Clearly, no one should spend their last dime buyng any form of insurance. Food, clothing, shelter, etc. are necessities of life...insurance is not.
However, if you’re still hanging by a thread, don’t just assume you should stop buying insurance altogether. Sometimes it really is a case of a ‘penny saved is a penny earned’…or perhaps a great deal more than a penny.
1st, auto insurance. This is liability, comprehensive, collision, uninsured motorist, towing, and medical.
First, ask yourself some hard questions about whether you really must own a vehicle at all. Can you get around with public transportation? Is your use occassional and the cost of rental vehicles or cab fare reasonable where you live? Think outside the box...a vehicle can be a tremendouse drain on income for a financially distressed person or family. Yes, we all want to drive our own vehicles....but how much of that is merely emotional? And in this vein, it's time to park, if not sell, all the second vehicles, RVs, boats, 4-wheelers, etc. that you've acquired for fun. You need to rethink spending pattterns you may have had all your life and question everything.
However, we'll assume you do have to own a vehicle, otherwise we'd never get to discuss auto insurance.
Let's begin with liability. This coverages pays claims made against you for damage you do while driving. Assuming you don't have a terrible driving record, aren't a male under 25, etc., this will run you in most areas somewhere in the neighborhood of say $600 to $1,200 a year. Most insurance companies will allow you to pay monthly, but a few require a large lump sum annually.
Should you buy it?
Well, maybe not. Liability doesn't do you any good...it's only purpose is to pay someone else in the event you cause some sort of harm with a vehicle. Call your DMV, and ask..can I post a bond? Pledge my home or other property? Is there any alternative to carrying liability available to vehicle owners in your state? Price the alternatives (if any) and choose accordingly.
But maybe. If you choose not to buy liability insurance, no alernative is available where you live, then generally you will not be able to renew your vehicle's registration when it comes due. You might, in some areas, face difficulty renewing your driver's license when it comes due.
However, the best reason to carry liability is that if you are in an accident or stopped by the cops for a moving violation or whatnot, and cannot produce proof of insurance, you may be in a world of hurt. You may be arrested. Your vehicle may be towed and impounded, at a price that you cannot pay, and your vehicle sold off. If you do cause an accident, you will probably have your driver's license revoked or suspended if uninsured, unless and until you go through a lengthy and expensive process. As a rule, thereafter, you will faced with liability insurance costs that might be 10xs higher than before, sometimes for many years.
In short, 'the candle isn't worth the game'. Buy the coverage, arrange a legal alternative, or give up the vehicle. Do not drive uninsured...it can quickly take you from marginal to homeless and beyond.
So, liability should be given priority in most people's budgets. Shop around and buy the absolute cheapest policy you can find...and remember to repeat the shopping around thing anytime you move, turn 25 or 30, get a rate increase from your present insurance company...and maybe every other year. You'll keep cost down as low as humanly possible.
All the other types of auto insurance are intended for your benefit. If you want one of these types of coverages, remember -- you want an insurance company that will pay your claim. So, now cost is not your only consideration -- an insurance company's 'reputation' for 'fairness' matters too. Ask around and find someone who has had a claim and been reasonably pleased with the payment. Or ask your state's consumer assistance division of the dept. of insurance which companies have the best..and the worst...number or type of consumer complaints.
Naturally, it will almost never make sense to buy liability from one insurance company and other coverage from a second...I doubt it's even possible. So plan for a (modest) rate increase in liability as you move from the el-cheapo insurance company to one a bit more reputable.
What to buy? Well, towing/roadside assistance, medical and uninsured motorist are all usually pretty cheap and in the event of a claim are extremely nice to have. Plan on spending, say, $200/yr for all of it. In many areas, a single tow/roadside assistance alone runs about $150. Most/many insurance companies will sell you these coverages, together with liability, and not force you to go on to buy 'full coverage'.
What about collision and comprehensive? These coverages pay off if your car is stolen, damaged by someone else, lost in a flood and so forth. If you owe on the vehicle you usually have no choice in the matter. Ditto if your car is leased. Carrying 'full coverage' on the vehicle is usually a loan or lease provision which, if unmet, pretty quickly results in repossession of the vehicle....something you do not want to happened for a variety of reasons. If you really cannot afford 'full coverage' on a vehicle subject to reposesson, turn the vehicle in, sell it, do whatever you can...but do not stick your head in the sand.
But say you do own a vehicle outright. Does the coverage make sense?
Most times, no. Look at the blue book value for your vehicle; assume a private sale/fair condition. Now look at what the coverage is going to cost you annually. Let's say your vehicle is worth $7,500, and your coverage will run you $1,000/yr, with a $1,000 deductible. If you have the stamina to save $1,000 a year and are fortunate, in 7 years or so, you'll have enough to replace the vehicle. And this is may not happen if you use the money you would have saved to buy insurance. You don't know whether your car will be stolen...you do know that 7 more years' use is about all you can reasonably expect to get.
On the other hand, if you lack the will power to save money, the vehicle is an essential, you drive badly, or live in a high-crime neighborhood, maybe you should buy the coverage. Ditto if for some freakish reason you've sunk assets into the vehicle to customize it, like expensive stereo equipment, and just could not face life without it. (Hey, some people are weird about their vehicles.)
It's tough to give worthwhile estimates on the costs of comprehensive and collision. You can't control much of the factors affecting cost either, but there are a few things you can do. Drive as well as possible. Park as safely as possible. Lock the doors of your vehicle always. Find out what your credit score is and keep it as high as you can. Ask you agent about the cost of coverage in an area before you move. Make rational choices between paying higher housing costs and paying higher insurance costs. Do not lend your vehicle to anyone else, period. Do not allow your teenager to drive it, ever, and do not add him to your policy. It is not an necessity of life for a 16 year old to drive, so make it their problem to obtain a vehicle and insurance.
Okay, enough about auto.
Next up, life insurance.
Do you need it? Well, who do you support, apart from yourself? If the answer is 'no one', the no, you don't. Don't fall for bullsh*t about how your underage kid may someday be uninsurable if you don't buy now, or that you owe anyone anywhere an asset to use to 'pay your burial and last expenses'. If you are not supporting anyone, the fact is, you don't need life insurance and should not spend limited resources on it.
Suppose, though, that you are the sole support of 15 people. Well, now you need to consider it. First, take a look at what each one would receive from social security if you died. If this is pretty close to what you spend now on their support, you still don't need life insurance. But say it's not enough, or they won't get a dime. What should you buy?
It's known as 'term life'. It does one thing and one thing only -- it pays a certain amount to someone when you die. You will hear all sorts of names for life insurance: whole life, universal life, and so on ad naeseum. You don't want any of it...you only want term.
There are virtually no bells and whistles worth considering on term life insurance. Maybe, if you're middle aged or older and are offered a guaranteed-not-to-change rate for 10 years it might pay off for you, but that's about it. Buy the cheapest policy you can from any licensed insurance company. It's not likely there's going to be any big debate about whether or not you've died...they are going to pay. Yes, I could say more, but that's it in a nutshell. Just don't forget to drop life insurance if/when your circumstances change and you no longer support anyone else, or are furnished term life as a benefit at work.
How much life insurance you should buy is a harder question to answer. There's a strong desire to buy enough to pay off the mortgage on the family home, but that's really got nothing to do with it. Your target is the amount of money it'll take to support your dependents until you reasonably believe they'll be able to support themselves or die. So, for example, add up all the child support you'll pay between now and when the last payment is due..usually when the youngest kid reaches his 18th birthday. This is pretty close to what your target amount is...buy more if you can afford to, and less if you must. With adult dependents, think first, what employability could they have that they don't have now? Could they spend a couple of years in a community college and come away with enough earning power to support themselves? In that case, your target amount is what it would cost to support them decently for two years. It sounds harsh, but remember, I am assuming you are low-income and every penny counts.
Next, health insurance.
Should you buy it? Well, if it's possible to get it through an employer, school or similar source, usually the answer is yes. The better the coverage is the more true this becomes.
Let's say though that none of those things is possible. Should you buy individual coverage? Well, that's a tougher question. If you can't spare a good $150/mo or so, you have no access to it, so forget it. Concentrate instead on getting enrolled in state or local programs like Medicaid, locating any free clinics in your area, and thus...and accept that if you fall ill with something chronic, like diabetes, you might not get care....so adopt as many healthy-living behaviors as you can.
The answer doesn't really change a lot if you are seriously ill or have dependents. If you can't find a good, say, $250/mo to spend on this coverage you simply can't afford it and are better off spending your time and effort locating resources for the poor. If you can afford it, be sure to read the policy. Ignore correspondence, advertisements, anything the agent says about the coverage, etc. READ THE POLICY.
Look to see what's covered. Does this match your needs? Then look at all the limits. Do you need pre-approval for anything? Is there a lifetime limit on coverage? What is it? It's slow going, but there's no other way. Don't throw away a precious $250/mo and still end up uninsured. And for anyone who doesn't live in a large metro setting -- make certain before you buy that someone will accept the insurance. Check, at a minimum, for a family MD and a hospital which accepts it. Don't buy insurance that is worthless...and if you do...remmeber you usually have a right to cancel it and in any event, it will be cancelled if you quit paying for it.
Last but not least, homeowners and renters insurance.
Well, if you own a home and have a mortgage on it, you have virtually no choice. You'll usually face losing your home if you don't buy enough insurance to satisfy the lender. In fact it's most often built into your mortgage payment and failing to pay that in full will quickly lead to foreclosure. So pay it if you can.
But let's say you own your home outright or have rented. Now should you buy?
Well, for renters, the answer is usually 'yes'. Only consider 'replacement cost coverage' and plan on spending about $15/mo. Get it from the same company that sold you auto insurance, and keep it up-to-date as you move. Borrow a video camera and slowly video all the rooms of your apartment, including all the closets, cupboards, unpacked boxes, etc.
For homeowners the answer is still yes. Let's say your mailman trips and falls one day delivering your mail. Or you have kitchen fire that does in all your applicances. Or you live in a high crime neighborhood. Or you simply really, really do not ever want to move. The point is, for most people, homeowners insurance is a good buy. If cost is an issue, look at any options for high deductibles before ever considering dropping replacement cost coverage, and like certain kinds of auto insurance, buy from a reputable insurance company.
Well, that's about it. If anyone has read this whole thing, let me just say to everyone feeling financially distressed...
Peace out.
candystripper 
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