How much insurance do I need?

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When it comes to insurance, there’s always a temptation to say you can never have enough. But overspending is just as imprudent as going without, so it pays to determine the right amount.

What’s the value of the policy?

Whether you’re considering a homeowners, life or auto policy, the basic idea behind insurance is to buy enough coverage to restore order if a disaster strikes. To determine how much you need, start by examining your circumstances. If you’re buying a life policy, consider how much debt you’re likely to leave behind for your loved ones. Be sure to consider the balance of your mortgage and costs associated with raising your children. If you’re considering car insurance, start with the value of the vehicle. Likewise, the basis for a homeowners policy is the value of the home and what it would cost to replace your possessions.

What do you need?

Once you’ve put a monetary value on coverage, it’s a good idea to ask yourself what kind of coverage you require. With life insurance, for example, you’ll have to choose between term and whole policies. While the latter is more expensive, it does offer younger buyers the opportunity to build an asset at a relatively low cost; the former allows anyone to obtain coverage for the policy period (usually a year). When it comes to cars, one way to save money is to review the policy for unnecessary features. And in the case of homeowners, it pays to understand the basics of your insurance policy so you can ensure you don’t have any redundancies or gaps in coverage.


While estimating coverage needs can be difficult, there is some good news. For almost any kind of insurance, you can find insurance calculators to help you gauge how much coverage you need. And after you’ve done your own homework, it may pay to consult with an agent you trust before you buy.