How to budget for the many kinds of insurance in your life

Insurance of all kinds is a big part of our financial lives. We have premiums for health insurance, life insurance, car insurance, homeowners insurance, property insurance, renters insurance, and disability insurance competing for our hard-earned dollars. 

Given all of your other expenses, it’s enough to make your head spin. Creating a budget will help manage these expenses along with your other expenses to ensure you’re always covered. Some insurance is covered by your employer, but other insurance isn’t and you’ll have to budget for that.

Budgeting for health insurance

Health insurance is perhaps the most challenging because of the different elements to it. Your employer’s health plan may cover medical, dental and vision. Or, it covers just medical and dental and leaves you on your own for vision coverage. 

Some employers still cover the full premium amount. And that’s great. But many companies have shifted part of the financial burden onto the employees, often times paying half. 

The share of the premium you pay is pre-tax, meaning it lowers your taxable income. Your employer may also offer a Flexible Spending Account. This, too, is pre-tax money and covers such expenses as co-payments, deductibles and some drugs. From a budgeting perspective, it affects the amount of income you put into your budget and you simply work from there. 

You have tax advantages even when your employer offers only high-deductible health insurance plans. It just changes the equation some. You qualify for a Health Savings Account since you face the prospect of incurring higher out-of-pocket expenses. You fund these accounts with pre-tax dollars as well.

If you have to pay for dental and vision insurance on your own, then you absolutely will have to budget for those expenses. Health Savings Accounts or Flexible Spending Accounts may not cover the premiums. You have to check with a health benefits administrator to determine what works and what doesn’t. 

But the fact remains, you will need set aside money each month for premiums. Creating a separate bank account for the purpose is a good idea, according to budgeting gurus. And you can find ones that even earn you a little interest. This will work, too, if you buy your own health insurance through the Affordable Care Act exchanges. 

Budgeting for life insurance 

With this insurance, you need to decide on whole life or term life insurance. A big part of this is figuring out how much life insurance you need and work that into your budget. You should look at college expenses for your children, dependent care, debt, funeral expenses and providing a financial cushion. 

The older you are the more expensive it can be. But the average premium is about $300-$400 a year. It just depends on lifestyle, age and a variety of other factors. If your finances are tight, you need to look at where you can cut out some discretionary spending to give you the money each month to pay for life insurance. Creating a budget and tracking spending could be eye-opening. 

Budgeting for disability insurance

This is an important insurance because if you can’t work for a long period of time, you don’t want to be left without some level of income. Many employers offer disability insurance as an employee benefit. 

Short-term disability covers you for a few months to a year and gives you 60-70 percent of your base salary. Long-term disability covers you until the disability ends or you reach retirement again. You get 40-60 percent of your base pay. Even if you’re in your 20s, it’s still important. One in four 20 year-olds has needed short-term disability. 

You can take out a supplemental policy for long-term disability. This could cost you about 1-3 percent of your annual salary. So, if you’re making $50,000 a year, you need to budget for $500 to $1,500 a year to cover the premium. 

Budgeting for homeowners insurance

On average, Americans pay close to $1,100 per year on homeowners insurance. That works out to just under $92 a month. 

The state you live in defines what you will pay in premiums for homeowners insurance. Premiums skew higher in states such as Florida, Texas, Louisiana, Mississippi that deal with hurricanes each year. 

Mortgage lenders are keen on ensuring that the risk they’ve taken with loaning you money is secure and require you to have the insurance. Typically, they wrap that insurance payment into the mortgage as part of building an escrow account that also pays for your real estate taxes. 

So, budgeting for your mortgage payment, a necessity, will cover the homeowners insurance cost. 

Budgeting for renters insurance 

If rent instead of own, you still need insurance for your all of your worldly possessions inside your residence whether it’s an apartment, house or townhome. The landlord doesn’t pay for stuff if the place burns to the ground. 

The monthly cost for the premium is a fraction of the cost because renters insurance isn’t covering the replacement of the building as happens with homeowners insurance. Depending on the state you live in, the premium may be $15-$30 a month. 

A typical policy covers $25,000 in personal property and $100,000 in personal liability. Those numbers can be adjusted higher. But you’ll pay more in premium. 

Budgeting for car insurance

Only two states don’t require you to have car insurance – Virginia and New Hampshire. If you don’t have insurance, you’re still responsible for damages. So, even in those states, it’s a good idea to have insurance. 

You’ll need to budget accordingly. What it costs depends on what your drive, where you live, your age, your gender and driving record. New cars will cost more than used cars because the older car is less expensive to repair or replace. If you drive a beater car, then you can probably get away with the bare minimum insurance. 

The choice you need to make is whether you pay your premiums every six months or every month. The six-month schedule requires saving money each month in a separate account if possible. 

With paying every month, you may have to pay a little extra for that. But it may work better for your cash flow. That’s up to you. There are insurance companies that don’t charge that fee for paying monthly. So, do your research. You may find that the rates are lower and you can pay monthly without penalty.

That monthly payment, or saving to pay, ever six months should fit into your overall budget that accounts for other insurance premiums not covered by your employer. It’s important for not only protecting your health but also your assets and possessions.