Insurance

Perhaps not. Most people have far too little, as noted in Managing Your Money All-In-One For Dummies—a 2009 book written by 16 experts, including one who has EA after her name (it stands for Enrolled Agent, helpful for tax matters) and another whose last name, appropriately, is Economy.

According to the chapter on Auto Insurance Basics, “People who buy liability insurance that provides for their defense and pays legal judgments on their behalf frequently make two mistakes:

“1. They buy far too little coverage, not realizing the substantial amount of money involved in a death or an injury suit—in both the cost of a judgment and the costs to defend the case.

“2. They buy inconsistent limits ($100,000 on their car, $300,000 on their house, $50,000 on their boat, and so on), even though they are protecting the same income and monetary assets, not realizing the danger of inconsistent coverage.”

Increasing your liability coverage, the book says, costs relatively little. Depending on your insurance company, what’s covered, its location, your risk factor, etc., here’s the typical additional annual cost of raising liability limits from $100,000:

• To $300,000: $70.

• To $500,000: $120.

• To $1.5 million: $270

• To $2.5 million: $350.

• Each additional $1 million: $75.

Read the chapter (if not the entire book) for details on the danger of split liability limits, the high cost ($50,000 to $100,000 or more) for legal fees if you’re sued, and other scary stuff.

Andrew Tobias has been writing about personal finance for decades. In the 2005 edition of his classic, 30-year-old book, The Only Investment Guide You’ll Ever Need, he offers the following advice about insurance:

“Skip insurance you don’t need, including life insurance for children (a good buy only if your child is a movie star and you depend on his or her earning power); credit life insurance, offered as an option when you take out a loan (a good buy only for the elderly or terminally ill); flight insurance (a good buy never—only about a nickel of each dollar it costs goes to pay claims, the rest is marketing expense and profit); cancer insurance (it makes no sense to buy health insurance one disease at a time); car rental insurance (if your credit card or your own auto insurance policy covers you, as many do).

He’s not keen on appliance insurance, either—extended warranties on refrigerators, VCRs, TVs, washers, dryers, etc. “Even if you remember you have this insurance years from now,” he says, “when the appliance breaks, and even if the time you have to spend collecting on it is minimal—two big ifs—why pay someone to insure a risk you can afford yourself? Resist the salesman’s attempts to sign you up.”

Also keep in mind (though he doesn’t mention it) that an extended warranty usually duplicates the manufacturer’s warranty for the first six or 12 months. So if the TV maker gives you a one-year warranty, parts and labor, and you buy a three-year extended warranty, you’re really getting only a two-year extended warranty.