Ways You Should Not Save Money This Year
The popular media are chock full of ideas on how consumers can save money this year. The frugalists who write personal finance blogs are particularly good at identifying clever and unique ways of saving money on almost anything you can think of.
Unfortunately, I have been reading articles in my local paper and elsewhere that some people are saving money in ways that are shortsighted and financially risky. That got me thinking that maybe someone should point out those mistakes and perhaps prevent others from doing the same things. So I appointed myself – Mr. ToughMoneyLove – to do that job.
First, many states require that owners of vehicles registered in their state carry liability insurance. In fact, some states will not even register a vehicle without that proof. At the least, if you are pulled over for a traffic violation and are not insured, you will get an extra ticket and fine.
Second, most lenders and lessors require that you carry insurance covering any car that is financed or leased. If you breach the loan or lease agreement, an aggressive lender/lessor can call the loan or cancel the lease.
Third and foremost, you need at least liability insurance to protect your assets in case of an at-fault (or alleged at-fault) accident. Even if you are not at fault, just having to hire an attorney on your own to defend you can cost you thousands. You also need to keep your uninsured motorist coverage to protect yourself in case an uninsured driver hits you.
If you want to drop collision coverage (if your loan or lease agreement permits) and/or raise your deductibles, fine. But do not cancel your insurance altogether.
2. Don’t save money by cancelling your disability insurance. If you are employed, and particularly if you have dependents, long term disability insurance is critical. You are much more likely to experience a period of disability than you are to die. If you become disabled, who will pay the mortgage, pay the rent, or buy food for you and your family? If you have a substantial emergency fund, perhaps you can reduce the premiums on your disability policy by increasing the waiting period.
3. Don’t save money by cancelling your life insurance. This admonition applies only if you have dependents who will suffer financially if you die. Do not sacrifice their long term future to save a few bucks now. If you have whole life insurance, see if you can convert it to term. Alternatively, if you cannot qualify for a new term policy, see if you have enough cash value in your existing whole life policy so that your premiums can be paid from policy dividends. Sometimes your agent won’t let you know that this is an option. It is for many policies. If not, then perhaps you can borrow against the cash value to get the money you need. This keeps the protection for your dependents in place.
You can probably see a pattern here. Most insurance is intended to help you manage financial risk. In many cases, if you don’t have those financial risks under control, your Plan B is bankruptcy (for you and/or your dependents.) In this age of economic uncertainty, risk management should be right near the top of your routine planning agenda.
This week my writing appeared in the Carnival of Personal Finance. You should have a look at all of the excellent articles.