I have always carried insurance because of my answer to the question in this title: in general, I am not willing to take a lot of financial risk. I began to save for retirement almost as soon as I started my first full-time job in the fall of 2005. I rarely buy individual stocks and instead tend to stick to a diversified portfolio of investments through mutual funds. And besides that crazy time where we used up most of our emergency fund to pay off the last of our non-mortgage debt, there is always an emergency fund waiting in our savings account in case of an emergency.

Even though our vehicles are insured through car insurance and we both carry some life insurance from work, I have begun to wonder if the choices that we made with these types of insurance means we are a bit riskier than we thought after all. Let’s take a look at what I mean.

Car Insurance

Both of our vehicles have car insurance (we have purchased a new used vehicle since our other one broke down this past summer). In fact, a minimum amount of car insurance is required by Texas state law. It is mandatory that we carry liability insurance to be able to pay for damage done to other vehicles, and the minimum all drivers must carry is $30,000 for each injured person, up to a total of $60,000 per accident, and $25,000 for property damage.

Aside from maintaining the minimum amount of insurance to be law-abiding citizens, the next thing we had to ask ourselves was how willing we were to replace our vehicles or pay for damage to them in the event of an accident, a tree limb, or the like. While our car insurance policies certainly cover more than the minimum, the policy on our new used vehicle only covers a bit more. We decided to not put collision or comprehensive insurance on the new used car. While the 2007 Mustang is worth it to have collision and comprehensive insurance because it is not something we would want to replace if we ever had to (and the replacement of it would possibly even force us to take out a car loan to do so, something we vowed never to do again), we paid under $3000 for our new used vehicle and could much more easily replace it if need be.

This extra “risk” we have put on ourselves—having to pay for any damage done to our vehicle and/or for its replacement in case of accident, tree limb, etc.—is saving us $60 per month at the moment.

Life Insurance

My husband and I both carry life insurance through our work. This means for me, I only have $5,000 of coverage. Paul carries more than me, but only $25,000.

We have no children, and have paid off all of our non-mortgage debt. Since we live in Texas, our mortgage is very affordable. However, we are still taking a risk with not having a full life insurance policy. The risk is that the surviving spouse will not be able to go on living our current lifestyle because they will be down to one income. Of course this is inevitable when you lose your spouse for so many reasons other than financial.

The other risk we carry by not purchasing a policy at a young age is that the cost of doing so will increase with time. Right now at 28 and 31 a policy would be relatively cheap and we could lock in a rate for as long as we needed. As we get older, the policy lock-in rate will rise.

Even though there are risks to our insurance policies, the main reason why it is not actually as risky as it seems is because we have an emergency fund, investments, and have paid off our non-mortgage debt. In other words, we have created our own back up policy (albeit, a small one compared with actual insurance). Still, disaster can always strike, and while I am comfortable with our coverage amounts, I do have a healthy respect for the unknown.

How much car and life insurance do you carry? Do you feel this is sufficient? 

14 replies
  1. Paul @ The Frugal Toad
    Paul @ The Frugal Toad says:

    I have carried 100k 300k 100k for as long as I can remember. All it takes is one accident with a Mercedes and you would be wiped out Amanda. As far as insurance, we have group coverage an have 125k on me and 600k on my wife. I am a Teacher and she works for a fortune 100 company. Insurance is for income replacement since we have two children.

    Reply
    • FruGal
      FruGal says:

      That is much more than we carry–thank you for your input!

      My auto insurance would cover the repairs on a Mercedes if the accident is my fault (my car repairs would not be covered). Is that what you mean by being wiped out by an accident with a Mercedes?

      Reply
      • Paul @ The Frugal Toad
        Paul @ The Frugal Toad says:

        Looks like I might have misread your post, sorry about that. 🙂 There are many vehicles in the road nowadays in the 100k-150k range so just make sure you are covered in the unlikely event you are at fault. I think your medical coverage is low $30k does not cover your risk. Another option Amanda is to look at an personal liability umbrella policy for you and your husband to protect your assets.

        Reply
  2. Evan
    Evan says:

    5k?! I know you said the mortgage is affordable but would it be ideal! Plus time you take off to grieve. Step it up go get some more life insurance…you are responsible in every other aspect lol.

    Reply
    • FruGal
      FruGal says:

      When they told me at work how much our life insurance was for, I remember laughing–it’s amazing they value my life so little:).

      If we took time off to grieve, we have savings and investments beyond an emergency fund.

      Will look into it…how much do you and your spouse carry?

      Reply
  3. Christa
    Christa says:

    I carry $50K and my husband $100K in life insurance. With that, we could each get by should the other pass, but when we have kids, we may look into purchasing more.

    Reply
  4. novel investor
    novel investor says:

    I have no car, so no car insurance but there is about $15k in whole life coverage that I got years ago. It’ll put me in ground and pay what needs to be paid off.

    With insurance you either accept it or hate it. Get the extra coverage now while you’re healthy and it’s cheap. Lose your job and the insurance is gone too.

    Reply
  5. David
    David says:

    My wife and I have three little ones and had never considered extra life insurance before the first one was born. Initially we had $1mil policy on me and $750k on her. I work and she is a stay-at-home right now. This seemed to go along with most advisers’ recommendations but as our brood has grown so has our monthly financial output. We had to drop back a little bit on each of the policies (-$250k each) but we feel that if one of us (or both) were to die the money would be sufficient to maintain current lifestyles.

    Reply
  6. My University Money
    My University Money says:

    I’ve been lucky as far as insurance goes to work in Manitoba, Canada as a teacher. We automatically grab some hardcore insurance thanks to your union.

    As far as investments go, why the mutual funds? My parents went this route as well, and index funds just make so much more sense if you’re not into picking individual stocks.

    Reply
    • Amanda L Grossman
      Amanda L Grossman says:

      Hello!

      Okay… am not investment savvy, but you made me look to see what I have (so thanks for asking!). Here is the fund: Vanguard Target Retirement 2045 Fund

      It is outside of a retirement account, but uses the same buying procedure (90% stocks, etc.). Is this a mutual fund, or something else?

      Thanks for the help?

      Reply

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